Business risk versus criminal conduct: Indonesia court case linked to failed start-up stirs debate

Business risk versus criminal conduct: Indonesia court case linked to failed start-up stirs debate Experts and industry insiders say Indonesia’s venture capital firms will be more risk-averse after former executives of two government-backed investment firms were sentenced to jail for their decision to invest in a now-defunct agritech pioneer. JAKARTA: Indonesia's tech industry has watched some of its brightest stars come crashing back to earth in recent years, as start-ups that were once hailed as revolutionaries in their fields become embroiled in allegations of financial misconduct, shaking confidence in what was once Southeast Asia's most promising digital economies. Now, a court ruling linked to the collapse of a once high-flying agritech start-up has opened a new front in the debate. On Jun 18, the Jakarta Corruption Court sentenced Ivan Arie Sustiawan, the former chief executive officer (CEO) of TaniHub, and Edison Tobing, its former finance director, to nine and seven years in prison respectively for causing state losses amounting to US$25 million. The same court also sentenced Donald Wihardja, former CEO of investment firm MDI Ventures, and Aldi Adrian Hartanto, MDI's former vice-president of investments, to five and two years in prison respectively. Nicko Widjaja, former CEO of BRI Ventures, and the firm's former chief investment officer William Gozali were sentenced to three and two years respectively. MDI Ventures is a subsidiary of state-owned telecom giant Telkom that invested US$20 million in TaniHub. BRI Ventures is a subsidiary of Bank Rakyat Indonesia, another state-owned enterprise, that invested US$5 million in TaniHub. The court found that their failed investments in the now-defunct start-up constituted state losses. “The defendants agreed to invest (in TaniHub) without an independent audit, without being cautious in agreeing to (TaniHub’s) investment (proposal),” Teddy Windiartono, the presiding judge in the case, said as he handed down the guilty verdicts. William immediately lodged an appeal while the other five defendants are contemplating a similar move. Prosecutors, who originally demanded nine to 12 years in prison for the six defendants, have yet to decide whether they will appeal or not. The court case hasprompted debate within Indonesia's technology and investment communities, with some questioning if the losses stemmed from business decisions in a high-risk industry rather than criminal conduct. "Foreign (venture capitalists) were already skittish about Indonesia since these cases blew up in December 2024," Rama Mamuaya, a digital ecosystem consultant and managing partner at private investment firm DSX Ventures, told CNA. "The TaniHub case adds another layer: It confirms that government-linked capital can get you into legal trouble if the start-up fails." Industry insiders and experts warned that the implications could be far reaching. They predict fund managers will become more conservative in their investment decisions, prioritising safer, later-stage companies over riskier start-ups with the potential to drive innovation and create jobs. The government must formulate clear governance standards for venture capital investments and draw the line between business decisions and acts of crime to restore investor confidence, they urged. POTENTIAL RIPPLES FROM TANIHUB CASE Before its collapse, TaniHub was hailed as a pioneer in Indonesia's agritech sector, promising to connect farmers directly with consumers while eliminating middlemen who traditionally dictated how agricultural produce was priced and distributed. At its peak in May 2021, the company was valued at US$218 million, according to start-up data platform Dealroom. But behind its rapid growth, financial problems were mounting. Its peer-to-peer lending arm, TaniFund, recorded a non-performing loan (NPL) ratio of 63.9 per cent in 2023, prompting Indonesia's Financial Services Authority (OJK) to restrict its lending activities in April that year before revoking its licence altogether in May 2024. Court proceedings later revealed the extent of TaniHub's financial troubles. Prosecutors said the company had accumulated 693 billion rupiah (US$38.5 million) in bad loans, suffered operating losses of more than 437 billion rupiah, and overstated its earnings to investors by at least 359 billion rupiah. The revelations wiped out virtually all of the start-up's value. Prosecutors in the case argued that MDI and BRI Ventures’ executives should have seen it coming when they injected money into the start-up, had they done their due diligence. Lawyers for the venture capital executives, however, maintained that their clients had followed established investment procedures and could not reasonably have uncovered the problems that were concealed within the company's finances. BRI Ventures was among TaniHub’s early investors in a 2020 round of financing while MDI came in later at the next series in 2021. Nailul Huda, director of digital economy at the think-tank Center of Economic and Law Studies (CELIOS), argued that no amount of due diligence could completely eliminate the risk of founders misrepresenting a company's finances or a business ultimately failing. “Information about a start-up is usually very minimal, especially in its early stage. The company's survival is still highly uncertain and prospectuses are typically prepared based on ideal conditions," he told CNA. “Venture capital is a faith-based industry. You're betting that a group of people you barely know can build something that doesn't exist yet.” Former anti-corruption judge and ex-Corruption Eradication Commission (KPK) commissioner Alexander Marwata said this uncertainty is inherent in venture capitalism. "In venture capital, most investments do not generate significant returns. The failure of some portfolio companies is not an anomaly but a structural characteristic of the industry," he said in a legal insight, or amicus curiae, submitted to judges for the TaniHub case on Jun 10. In Indonesia, an amicus curiae (Latin for "friend of the court") is usually submitted by academics with no connection to the case to provide their legal opinions or relevant expertise. Unlike in some countries, these expert opinions may be unsolicited and can be written by anyone. Judges, however, do not have any obligation to take these opinions into consideration. The ruling has raised questions about the future of state-backed venture capital, which has been a major source of funding for Indonesia's start-up ecosystem. “Failed investments and business decisions should not be criminalised unless there are indications of kickbacks, conflicts of interests or other ill intent,” Huda of CELIOS said. “Unless there is a clear distinction between business risk and criminal conduct, investors will inevitably think twice before committing capital, particularly to high-risk sectors like technology start-ups.” Experts said the conviction of Donald and Nicko have spooked many in the venture capital (VC) world while prompting others to rethink investing in Indonesia. “Several family offices and regional VCs have quietly deprioritised Indonesia for 2025-2026 allocations,” Rama of DSX said. Family offices are private firms that manage the wealth of single or multiple families. The ruling will also impact how government-backed venture capital firms attract new talent, Rama said. “The best VC operators in Indonesia will think twice about joining state-owned VCs where the political and legal risk profile just got worse.” Indonesia has at least five venture capital firms backed by state-owned enterprises, including Mandiri Capital Indonesia (backed by Bank Mandiri), BNI Ventures (an arm of Bank Negara Indonesia) and Telkomsel Mitra Inovasi (backed by state telecommunication company Telkomsel). Collectively, they have invested in hundreds of start-ups over the past decade. While some of the start-ups are profitable and stable, others including the now-defunct fintech giant Investree encountered financial trouble. Adrian Gunadi, the founder and former CEO of the peer-to-peer platform, is now under investigation for alleged fraud and embezzlement. Founded in 2015, Investree received almost US$280 million in capital from international and local investors, including state-backed Mandiri Capital and BRI Ventures. MDI and Mandiri Capital have also put money into KoinWorks, a fintech company now embroiled in a scandal involving a 600 billion rupiah loan from state-owned lender Bank Rakyat Indonesia. The Jakarta Prosecutors’ Office accused three KoinWorks executives and a borrower of creating fake documents that served as collateral for the BRI loan. The four suspects were charged with illegal enrichment that created state losses under Indonesia’s Criminal Code, the same charges used in the TaniHub case. The Venture Capital Association for Indonesian Startups (Amvesindo), of which BRI and MDI are members, is calling for a dialogue with the Attorney General’s Office, the Financial Services Authority (OJK) and relevant ministries to formulate clearer guidelines on governance standards for Corporate Venture Capital (CVC) investments, particularly those involving state assets. “Regulatory clarity is a prerequisite for the confidence to take responsible risks. Without adequate legal certainty, we risk losing the best talent from the management of the nation’s venture capital funds, and that would be a far greater loss to the ecosystem than even a single failed investment,” Amvesindo said, as quoted by news platform Katadata on May 29. MORE LEGAL CERTAINTY NEEDED, SAY OBSERVERS Even before the scandals surrounding TaniHub, Investree and Koinworks, Indonesia's technology sector was already grappling with a prolonged "tech winter" characterised by slowing business activity, dwindling venture capital funding and widespread layoffs. According to start-up data platform Tracxn, Indonesian technology companies raised just US$213 million in 2025, an 85 per cent drop from the US$1.4 billion raised at the market's peak in 2023. The fraud scandals and subsequent prosecution of venture capital executives risk deepening that downturn, experts said, as investors become even more selective. "Investors will continue to seek deals in Indonesia, but they're less likely to be active, with these cases adding further gloom to an already challenging period," Jon Russell, a start-up consultant and editor of the Asia Tech Review newsletter, told CNA. The effect could be even more pronounced for government-linked venture capital firms. “Their entire investment process and governance will be under a microscope. They will be more cautious, but not in a way that necessarily helps,” said Rama of DSX Ventures. “The risk is they become over-lawyered, slow and risk-averse, which means they'll miss deals and won't back early-stage founders the way a (venture capital firm) should.” But observers also argue the industry's recent challenges offer an opportunity to reset. The collapse of several high-profile start-ups has exposed weaknesses in governance, financial oversight and due diligence, they said. Investors are likely to scrutinise companies more closely, while founders may have to shift their focus from chasing ever-higher valuations to building sustainable businesses. "Funds, founders and other stakeholders have now become aware of the need for checks and balances, including deeper due diligence, stronger board oversight, independent audits and robust corporate governance," said Huda of CELIOS. Still, experts caution that stronger governance alone will not restore confidence, and that Indonesia needs to make a clearer distinction between legitimate business risk and criminal conduct. “Indonesia still needs start-ups. There are major gaps in financial services, healthcare, education, logistics and productivity that start-ups can help fill,” Russell of Asia Tech Review said. But stakeholders need more legal certainty, said Rama of DSX Ventures. "When the people managing state capital start calculating their personal legal risk before every investment decision, they stop making the decisions that matter. You can't fix that with better due diligence checklists," he said. "Until the system draws that line with clarity, the smartest capital in Indonesia will sit on the sidelines."