Business risk versus criminal conduct: Indonesia court case linked to\nfailed start-up stirs debate<\/p>\n
Experts and industry insiders say Indonesia\u2019s venture capital firms\nwill be more risk-averse after former executives of two\ngovernment-backed investment firms were sentenced to jail for their\ndecision to invest in a now-defunct agritech pioneer.<\/p>\n
JAKARTA: Indonesia\u2019s tech industry has watched some of its brightest\nstars come crashing back to earth in recent years, as start-ups that\nwere once hailed as revolutionaries in their fields become embroiled in\nallegations of financial misconduct, shaking confidence in what was once\nSoutheast Asia\u2019s most promising digital economies.<\/p>\n
Now, a court ruling linked to the collapse of a once high-flying\nagritech start-up has opened a new front in the debate.<\/p>\n
On Jun 18, the Jakarta Corruption Court sentenced Ivan Arie\nSustiawan, the former chief executive officer (CEO) of TaniHub, and\nEdison Tobing, its former finance director, to nine and seven years in\nprison respectively for causing state losses amounting to US$25\nmillion.<\/p>\n
The same court also sentenced Donald Wihardja, former CEO of\ninvestment firm MDI Ventures, and Aldi Adrian Hartanto, MDI\u2019s former\nvice-president of investments, to five and two years in prison\nrespectively. Nicko Widjaja, former CEO of BRI Ventures, and the firm\u2019s\nformer chief investment officer William Gozali were sentenced to three\nand two years respectively.<\/p>\n
MDI Ventures is a subsidiary of state-owned telecom giant Telkom that\ninvested US$20 million in TaniHub. BRI Ventures is a subsidiary of Bank\nRakyat Indonesia, another state-owned enterprise, that invested US$5\nmillion in TaniHub.<\/p>\n
The court found that their failed investments in the now-defunct\nstart-up constituted state losses.<\/p>\n
\u201cThe defendants agreed to invest (in TaniHub) without an independent\naudit, without being cautious in agreeing to (TaniHub\u2019s) investment\n(proposal),\u201d Teddy Windiartono, the presiding judge in the case, said as\nhe handed down the guilty verdicts.<\/p>\n
William immediately lodged an appeal while the other five defendants\nare contemplating a similar move. Prosecutors, who originally demanded\nnine to 12 years in prison for the six defendants, have yet to decide\nwhether they will appeal or not.<\/p>\n
The court case hasprompted debate within Indonesia\u2019s technology and\ninvestment communities, with some questioning if the losses stemmed from\nbusiness decisions in a high-risk industry rather than criminal\nconduct.<\/p>\n
\u201cForeign (venture capitalists) were already skittish about Indonesia\nsince these cases blew up in December 2024,\u201d Rama Mamuaya, a digital\necosystem consultant and managing partner at private investment firm DSX\nVentures, told CNA.<\/p>\n
\u201cThe TaniHub case adds another layer: It confirms that\ngovernment-linked capital can get you into legal trouble if the start-up\nfails.\u201d<\/p>\n
Industry insiders and experts warned that the implications could be\nfar reaching. They predict fund managers will become more conservative\nin their investment decisions, prioritising safer, later-stage companies\nover riskier start-ups with the potential to drive innovation and create\njobs.<\/p>\n
The government must formulate clear governance standards for venture\ncapital investments and draw the line between business decisions and\nacts of crime to restore investor confidence, they urged.<\/p>\n
POTENTIAL RIPPLES FROM TANIHUB CASE<\/p>\n
Before its collapse, TaniHub was hailed as a pioneer in Indonesia\u2019s\nagritech sector, promising to connect farmers directly with consumers\nwhile eliminating middlemen who traditionally dictated how agricultural\nproduce was priced and distributed.<\/p>\n
At its peak in May 2021, the company was valued at US$218 million,\naccording to start-up data platform Dealroom.<\/p>\n
But behind its rapid growth, financial problems were mounting.<\/p>\n
Its peer-to-peer lending arm, TaniFund, recorded a non-performing\nloan (NPL) ratio of 63.9 per cent in 2023, prompting Indonesia\u2019s\nFinancial Services Authority (OJK) to restrict its lending activities in\nApril that year before revoking its licence altogether in May 2024.<\/p>\n
Court proceedings later revealed the extent of TaniHub\u2019s financial\ntroubles.<\/p>\n
Prosecutors said the company had accumulated 693 billion rupiah\n(US$38.5 million) in bad loans, suffered operating losses of more than\n437 billion rupiah, and overstated its earnings to investors by at least\n359 billion rupiah.<\/p>\n
The revelations wiped out virtually all of the start-up\u2019s value.<\/p>\n
Prosecutors in the case argued that MDI and BRI Ventures\u2019 executives\nshould have seen it coming when they injected money into the start-up,\nhad they done their due diligence.<\/p>\n
Lawyers for the venture capital executives, however, maintained that\ntheir clients had followed established investment procedures and could\nnot reasonably have uncovered the problems that were concealed within\nthe company\u2019s finances.<\/p>\n
BRI Ventures was among TaniHub\u2019s early investors in a 2020 round of\nfinancing while MDI came in later at the next series in 2021.<\/p>\n
Nailul Huda, director of digital economy at the think-tank Center of\nEconomic and Law Studies (CELIOS), argued that no amount of due\ndiligence could completely eliminate the risk of founders\nmisrepresenting a company\u2019s finances or a business ultimately\nfailing.<\/p>\n
\u201cInformation about a start-up is usually very minimal, especially in\nits early stage. The company\u2019s survival is still highly uncertain and\nprospectuses are typically prepared based on ideal conditions,\u201d he told\nCNA.<\/p>\n
\u201cVenture capital is a faith-based industry. You\u2019re betting that a\ngroup of people you barely know can build something that doesn\u2019t exist\nyet.\u201d<\/p>\n
Former anti-corruption judge and ex-Corruption Eradication Commission\n(KPK) commissioner Alexander Marwata said this uncertainty is inherent\nin venture capitalism.<\/p>\n
\u201cIn venture capital, most investments do not generate significant\nreturns. The failure of some portfolio companies is not an anomaly but a\nstructural characteristic of the industry,\u201d he said in a legal insight,\nor amicus curiae, submitted to judges for<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/business-risk-versus-criminal-conduct-indonesia-court-case-linked-to-failed-start-up-stirs-debate-1782391809", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }