Asia’s startup ecosystem is a land of giants. From Vietnam to Indonesia and India, “to-be unicorns” are attracting record capital. However, as 2025’s high-profile scandals have proven, rapid scaling can be a perfect veil for systemic fraud.
For Venture Capital (VC) firms, the mandate has shifted: Growth is no longer a proxy for health. To protect their investment return and reputation, investors must look beyond app downloads and social media hype to spot the structural rot that seasoned founders often conceal.
The “Anatomy of Fraud” in High-Growth Markets
According to data from the Association of Certified Fraud Examiners (ACFE), nearly 84% of fraud cases exhibit clear early-warning signs. In the context of Asian startups, these manifest as five specific red flags:
- KPI Inflation: Performance metrics (GMV, MAU) that are decoupled from actual cash flow or operational capacity.
- Reporting Friction: Delayed, inconsistent, or “restated” financial reports that mask liquidity gaps.
- Governance Voids: A board of directors composed entirely of “friends and family” with no independent oversight.
- Opaque “Related Party” Transactions: Undisclosed transfers to entities owned by founders or their inner circle.
- Pedigree Padding: Misrepresented academic or professional credentials of the founding team.
Lessons from the Fall: Why Red Flags Get Missed
Standard due diligence often fails because it focuses on what is there (the data room) rather than what is missing.
Case Study 1: eFishery (Indonesia) – The Growth Trap
Indonesia’s once-popular startup is a cautionary example. In 2025, it was revealed that management had manipulated financial statements to attract investors—a fact later egregiously confirmed by former CEO Gibran Huzaifah in an interview with Bloomberg. Early warning signs that were overlooked include unusually high growth metrics compared to industry norms and weak governance structures.
For investors, this highlights the importance of combining quantitative analysis with qualitative diligence, such as independent verification of reported metrics and scrutiny of governance and management practices to detect misaligned incentives.
Like many venture-backed startups, eFishery prioritized quick expansion and soaring valuations over regulatory compliance and financial controls. This rush to scale, driven by intense competition and investor expectations, widens vulnerabilities. Investors can only spot these vulnerabilities through detailed forensic reviews, cross-verification of third-party data and evaluation of structural weaknesses in decision-making and reporting systems.
Investor takeaway: Don’t rely solely on top-line growth. Scrutinize:
- Growth metrics vs. industry benchmarks
- Composition and independence of the board
- Frequency and transparency of investor reporting
Case Study 2: Zilingo (Singapore) – The Vanity Metric Pitfall
Similarly, Zilingo, the Singapore-based e-commerce fashion startup, ended up liquidating its assets after investigations revealed a significant gap between reported and actual revenues, along with certain suspicious payments. Hiding true financial health is a common practice that only specialized due diligence can help investors confirm.
Zilingo’s collapse demonstrates that superficial metrics like revenue growth or media visibility can hide deeper financial instability. Investigating anomalies in transaction timing or structure can uncover deliberate misreporting or operational shortcuts that are otherwise invisible in standard financial statements.
The case also shows that ethical and governance risks usually lie in organizational structure and incentives. Investors can dig beneath the surface by mapping the relationships between founders, executives, and key stakeholders. The aim is to examine decision-making authority and assess whether incentives encourage short-term valuation gains over sustainable operations. Understanding who benefits from certain transactions or strategic choices—and how accountability is enforced—can reveal misaligned priorities that, if ignored, may escalate into major operational or reputational failures.
Cross-verifying revenue flows with vendors, customers, and financial processors can expose misreporting. This level of analysis is essential in markets where audit standards vary and founder-led reporting lacks transparency.
Investor takeaway: Red flags often lie in the details—like:
- Unusual transaction timing or payment structures
- Discrepancies between financials and third-party confirmations
- Overreliance on media visibility or vanity metrics
How to Conduct “Investigative” Due Diligence
In fast-moving markets like the Philippines, Vietnam, and Indonesia, a term sheet review is insufficient. To truly de-risk, investors should adopt a three-pronged investigative approach:
|
Verification Layer |
Focus Area |
Recommended Action |
|
Financial Forensic |
Revenue Integrity |
Cross-verify revenue flows with third-party vendors and payment processors. |
|
Relational Mapping |
Conflicts of Interest |
Use OSINT to map founder connections to unlisted offshore entities or shell companies. |
|
Governance Audit |
Decision Rights |
Assess if the board has the actual authority to veto founder decisions. |
References
CNA Explains: The rise and fall of Temasek-backed fashion start-up Zilingo
Financial Ratio Analysis: Definition, Types, Examples, and How to Use
