Startup Governance in the US

The global expansion of startup ecosystems has made governance a central concern in corporate law and practice.Footnote ⁸ As startups scale rapidly and attract diverse funding sources, their capital structures and decision-making processes become increasingly complex. In the US, the origin of modern startups and their governance dynamics have been the subject of sustained academic attention.Footnote ⁹ A key insight from this literature is that startup governance does not fit neatly within traditional corporate law frameworks designed for public companies or private firms. Startups give rise to distinctive governance tensions, both vertically and horizontally, driven by shifting relationships among founders, investors, executives, and employees.

Elizabeth Pollman, a leading scholar in startup governance, highlights how governance complexity emerges as soon as startups raise venture capital, typically through the issuance of convertible preferred shares.Footnote ¹⁰ These instruments create horizontal tensions between preferred and common shareholders and mark the beginning of formalised board governance. Moreover, startups undergoing additional financing rounds often face increasing horizontal conflict among investors with different rights, priorities, and timelines.Footnote ¹¹ Simultaneously, vertical tensions intensify between investors and founders or executives, particularly when value creation strategies or liquidity events are in dispute. Pollman emphasises that governance complexity in startups is cumulative.Footnote ¹² Each round of financing brings new participants, venture capitalists, corporate investors, strategic partners, and lenders, with potentially divergent goals and governance expectations.Footnote ¹³ Layered atop this are internal governance tensions among founders, key employees, and early investors, particularly as stock options vest and control dynamics shift.Footnote ¹⁴ These overlapping tensions make startup governance especially dynamic, contingent, and fragile.

Other scholars have also extended this analysis. Jennifer Fan, for instance, identifies the central role that startup boards play in shaping firm trajectory.Footnote ¹⁵ Boards in startup companies typically consist of a combination of founder-directors, investor-directors, and, increasingly, independent directors.Footnote ¹⁶ While founder-dominated boards are common in early-stage startups, successive financing rounds often result in the gradual erosion of founder control. Lead investors frequently negotiate board representation and veto rights over major corporate decisions, fundamentally reshaping internal power dynamics. Depending on the composition of the board and the contractual arrangements among shareholders, control may shift towards investors, become shared between founders and investors, or remain concentrated in the founding team.

Pollman also describes three common board structures: founder-controlled, investor-controlled, and shared control boards.Footnote ¹⁷ Founder-controlled boards prevail in early stages but tend to give way over time. Shared control arrangements can take various forms, including evenly split boards, independent directors serving as swing votes, or voting agreements that allocate power among preferred and common shareholders.Footnote ¹⁸ These governance structures are typically formalised in shareholder agreements and investor rights agreements negotiated as part of financing rounds.

Legal incorporation also plays a key role in startup governance. The majority of US startups incorporate in Delaware, which offers a flexible corporate statute, a well-developed body of case law, and a specialised judiciary.Footnote ¹⁹ Although other states, such as Texas, have made strides in attracting incorporations,Footnote ²⁰ Delaware remains the jurisdiction of choice for startups seeking capital.Footnote ²¹ Empirical studies suggest that Delaware-incorporated startups tend to receive higher valuations, reinforcing its centrality in the startup legal landscape.Footnote ²²

The lifecycle of a startup typically begins with founders issuing common stock to themselves in exchange for sweat equity and seed capital.Footnote ²³ Venture capital enters at the early stage to provide funding, mentorship, and governance discipline. As companies mature, they often receive late-stage funding from private equity firms, which may bring additional demands for operational efficiency and exit planning. The board composition evolves accordingly, with outside investors gaining increased influence through contractual rights, voting thresholds, and participation in key decision-making processes.

While venture capital brings strategic insight and professionalisation, it also introduces constraints.Footnote ²⁴ Investors often negotiate for supermajority voting rights or vetoes over key decisions, such as major acquisitions, changes to the capital structure, or sale of the company. These rights can override founder preferences and limit managerial discretion. During economic downturns or internal crises, investors may push for aggressive risk-taking or conservative retrenchment, depending on their own investment strategies, sometimes clashing with founders’ visions.

In recent years, a countertrend has emerged: the increasing ability of founder-CEOs to retain control in high-valuation startups. This is often achieved through dual class share structures granting multiple voting rights to founders, as well as contractual arrangements that secure board seats and control rights even after IPO. Shareholder agreements, voting arrangements, and control-enhancing mechanisms have allowed founder-CEOs in some tech startups to wield influence comparable to that of private company principals, even in public firms.Footnote ²⁵ This founder empowerment has been both lauded for preserving long-term vision and criticised for weakening investor oversight. In cases of sustained underperformance, founder control can become a liability, especially when investor exit options are constrained. Founders may also be removed by boards if personal, legal, or reputational risks arise, regardless of ownership or prior performance. The founder-investor relationship thus remains a site of ongoing tension, shaped by market cycles, governance architecture, and interpersonal dynamics.Footnote ²⁶

Ultimately, startup governance in the US reflects a flexible and evolving set of institutional arrangements that respond to the high-risk, high-reward nature of innovation-driven enterprises. The US model relies heavily on private ordering, tailored contracts, negotiated rights, and informal norms, operating within a legal environment that enables and enforces these arrangements. While this model has been emulated in many jurisdictions, it is embedded in a broader ecosystem that includes deep capital markets, relatively stable regulatory expectations, and a dense network of professional service providers.Footnote ²⁷

As the next sections of this article show, the Indonesian experience departs in meaningful ways from this model. The formal adoption of US-style governance documents, such as Singapore’s VIMA contracts, is only one dimension of a much more complex institutional landscape. Indonesia’s hybrid governance model reflects not just the challenges of transplanting formal legal structures, but also the adaptive strategies of entrepreneurs, investors, and regulators operating in a distinct local context.

The Rise of the Indonesian Startup Ecosystem

Over the past decade, Indonesia has emerged as one of the most dynamic startup ecosystems in the Global South, driven by a powerful convergence of demographic, economic, and technological forces. With a population exceeding 270 million and a rapidly expanding middle class, Indonesia offers an enormous domestic market for digital services. In 2022 alone, the country added forty-five million internet users, bringing the national total to over 220 millionFootnote ²⁸ and creating fertile ground for the development of a tech-driven entrepreneurial sector.

Macroeconomic resilience has reinforced these structural advantages. Despite global volatility, Indonesia’s GDP grew by 5.03% in the first quarter of 2023, attracting both domestic and international investors.Footnote ²⁹ The state has actively supported this growth through a range of initiatives, including regulatory sandboxes, digital innovation hubs, and incentives overseen by agencies such as KOMINFO and BEKRAF. The creation of state-linked venture funds and public-private partnerships has also enabled startups to access capital under more favourable terms. As capital has poured into the digital economy, questions of legal structuring, investor control, and regulatory engagement have gained urgency. Governance − both formal and informal − has quickly become a defining feature of Indonesia’s startup landscape. This expansion is particularly visible in the rise of Indonesia’s ‘unicorn’ startups. Firms such as Gojek, Tokopedia (which later merged to form GoTo), Bukalapak, and Traveloka have achieved billion-dollar valuations while redefining entire sectors, from ride-hailing and logistics to e-commerce and travel.Footnote ³⁰ These companies have positioned Indonesia as a regional innovation hub. As of 2024, the total valuation of Southeast Asia’s tech ecosystem had reached USD 108 billion, with Indonesia and Singapore standing out as the dominant markets.Footnote ³¹

Yet Indonesia’s success has not been without challenges. The global tech downturn of 2022-2023 resulted in valuation corrections, funding shortfalls, and widespread layoffs, including at high-profile firms.Footnote ³² Crucially, the downturn served as a stress test for governance structures, exposing fault lines in investor-founder relations, decision-making authority, and regulatory alignment. These factors underscored the fragility of growth-stage governance and the limitations of importing foreign legal templates without adaptation.Footnote ³³

Understanding how Indonesian startups govern themselves, contractually, organisationally, and regulatorily, requires attention not only to transplanted legal models, but also to the local institutions, stakeholder configurations, and political arrangements that shape the country’s digital economy. The next section turns to the internal governance architecture of Indonesian startups, examining how legal frameworks and contractual arrangements are negotiated and applied.

Governance Framework in Indonesian Startup Companies

Under Indonesian company law,Footnote ³⁴ a company’s governance structure comprises three organs: the general meeting of shareholders, the board of directors, and the board of commissioners. The board of directors bears the authority and accountability for company management, ensuring that the company acts in its best interest while adhering to its established objectives.Footnote ³⁵ The board of commissioners, on the other hand, is responsible for oversight, ensuring alignment with the company’s bylaws. It also holds the authority to approve specific actions carried out by the board of directors, as outlined in the company’s articles of association.Footnote ³⁶ For early-stage startups, further governance structures are typically established through a combination of legal requirements and contractual agreements.Footnote ³⁷ The initial terms of governance are often set out in a shareholders’ agreement between founders and significant investors.Footnote ³⁸ This agreement outlines key aspects such as voting rights, board composition, and decision-making processes. Subsequently, these terms are incorporated into the articles of association (anggaran dasar) of the limited liability company (perseroan terbatas or PT). Within this framework, founders often retain significant control, even as their ownership is diluted through successive funding rounds. They typically possess the right to nominate and appoint members of the board of directors, which may include nominating themselves, with the investors sitting as members of the board of commissioners.Footnote ³⁹

Governance arrangements in startups are further shaped by private contracting in the form of shareholders’ agreements concluded between founders and major investors. These agreements govern critical issues such as board composition, voting thresholds, decision-making procedures, and reserved matters requiring investor approval. Many of these terms are subsequently embedded in the company’s articles of association, making them enforceable under Indonesian company law.

As startups mature and attract larger institutional investors, governance structures tend to evolve. Venture capital firms and other professional investors may negotiate for more extensive rights, including board seats, information rights, and vetoes over strategic decisions such as capital expenditures, acquisitions, and budget approvals. These matters are often subject to dual approval by the board of commissioners and the general meeting of shareholders. In practice, this gives investors an indirect but powerful influence over strategic direction.

These hybrid arrangements strive to balance the founder-driven nature of startups with the oversight expectations of investors operating in a civil law jurisdiction. Simultaneously, they introduce potential tensions in the interpretation of contractual rights under Indonesian law, which lacks the common law system’s depth of jurisprudence on venture financing and shareholder remedies. This legal uncertainty has led many investors to structure their investments through Singapore-based holding companies, a topic addressed in the next section.

The Influence of Singapore-Based Holding Structures

A defining feature of Indonesia’s startup ecosystem is the widespread use of Singapore-incorporated holding companies as the legal and financial anchor for investment, which has become common practice since at least 2017. This structural choice has become the norm for startups seeking venture capital, particularly from regional or global funds, and reflects a broader pattern of legal transplants and institutional arbitrage in Southeast Asia’s entrepreneurial landscape. While there is no precise data on the prevalence of this structure, investor interviews and regional reports confirm that it is widely encouraged by early-stage investors, including through term sheets that condition funding on Singapore incorporation. A 2023 report by the Asian Development Bank corroborates that founders are frequently advised to incorporate in Singapore to attract cross-border capital and mitigate legal risk.

Several factors drive this preference. First, many investors express discomfort with signing agreements governed by Indonesian law, citing challenges associated with enforcement in local courts.Footnote ⁴⁰ Singapore’s robust legal system, by contrast, provides greater certainty and clarity.Footnote ⁴¹ Second, access to capital becomes significantly easier when utilising a Singapore holding company, a crucial factor for companies as they grow and require additional funding, especially in preparation for public offerings or IPOs.Footnote ⁴² Singapore’s status as a regional financial hub attracts global investors, and having a Singapore entity often streamlines the fundraising process.Footnote ⁴³ It is a preferred destination for holding companies and a base for startups from Indonesia, Malaysia, and the Philippines.Footnote ⁴⁴ Singapore’s strong VC industry has reinforced its appeal as an investment hub, with deal values reaching USD 4.2 billion in 2018Footnote ⁴⁵ and USD 4.05 billion by September 2024, despite the ongoing startup funding winter.Footnote ⁴⁶ Third, administrative efficiency and ease of doing business in Singapore (from setting up companies to processing exits) are generally seen as superior to its neighbouring countries. In effect, founders and investors are often opting into Singapore’s legal ecosystem to sidestep certain hurdles in Indonesian law, a trend that reflects a tension between local regulatory constraints and the demands of rapid startup growth.

Moreover, Singapore’s VC ecosystem far outpaces Indonesia’s in scale and funding capacity. Indonesian VC funding remains insufficient for startups aiming to grow into billion-dollar companies, totalling only IDR17.39 trillion (slightly over USD 1 billion) as of November 2023, with a preference for small and medium enterprises (SMEs) rather than high-growth startups.Footnote ⁴⁷

The typical structure when Indonesian startups set up Singapore-based holding companies involves the Indonesian company becoming a subsidiary of the Singaporean entity. The founders and other shareholders of the Indonesian company transform into shareholders of the Singaporean holding company, along with the new VC investors.Footnote ⁴⁸

Unlike Indonesian companies, which have a two-tier board structure with a board of directors and a board of commissioners, Singapore-based holding companies operate with a single board of directors, where both investors and founders hold seats.Footnote ⁴⁹ The board ensures the company acts in its best interest while adhering to its objectives.Footnote ⁵⁰ Additionally, Singapore requires at least one-third of the board to comprise independent directors, following an American-style governance model.Footnote ⁵¹ In contrast, Indonesian companies have no such legal requirement, and the role of independent directors has declined significantly since 2018.Footnote ⁵²

The use of Singaporean holding companies enables founders and investors to benefit from standardised legal instruments such as the Venture Capital Investment Model Agreements (VIMA) introduced by the Singapore Venture Capital and Private Equity Association (SVCA) in collaboration with the Singapore Academy of Law. VIMA provides a suite of model documents, including term sheets, shareholders’ agreements, and subscription agreements, designed to streamline early-stage financing and reduce transaction costs. These documents are now widely used in transactions involving Indonesian startups with Singapore-based holdings.

VIMA’s extensive influence has made it the primary contractual guidance for startup governance in both Singapore and Indonesia, with key provisions pertaining to governance matters such as reserved decisions requiring investor approval, including investor directors sitting on the board of directors,Footnote ⁵³ voting thresholds in both board and shareholders’ meetings,Footnote ⁵⁴ distinct series voting,Footnote ⁵⁵ pre-emption rights for new issuances and redemption, lock-up provisions for founders, and liquidation preference clauses.

This cross-jurisdictional approach creates a complex governance environment. Indonesian startups with Singapore holding companies must comply with two legal regimes: the parent entity is subject to Singaporean corporate law (and often uses Singapore’s standard contracts like the VIMA), while the operating subsidiary remains under Indonesian law.Footnote ⁵⁶ Key decisions, including investment terms, board appointments, and exit rights, are typically governed by Singapore law at the holding company level, even as day-to-day business occurs in Indonesia. This hybrid legal structure epitomises Indonesia’s de facto transnational startup governance model. It provides access to international capital and legal norms, but can also lead to governance complexity, higher legal costs, and potential misalignment between what the Singaporean holding companies’ documents prescribe and what Indonesian law would ordinarily require.Footnote ⁵⁷ This creates a unique case of hybrid governance in an emerging market. By integrating multi-jurisdictional corporate laws with innovative venture capital contracts, this model demonstrates how legal and governance structures adapt to support a growing startup ecosystem in a globalised landscape.Footnote ⁵⁸

Nonetheless, Indonesia has recognised this reality and begun adjusting its policies. The government’s creation of the ‘Merah Putih Fund’, a late-stage fund backed by SOEs, explicitly aims to invest in Indonesian startups on the condition that they re-domicile to Indonesia (ie swapping their Singapore holding companies back to Indonesia). This reflects a policy desire to keep successful startups rooted in the country, even as practical needs still drive many to incorporate abroad. The interplay between Indonesian and Singaporean jurisdictions in startup governance remains a defining characteristic of Indonesia’s tech ecosystem, one that any governance analysis must account for as both a challenge and an innovation.

The hybrid governance model, shaped by Indonesian law, Singapore-based holding structures, and venture capital contracts, offers startups access to global capital but also creates overlapping layers of control. This complexity becomes more pronounced as startups grow, raising new tensions between founders, investors, and regulators. The next part examines how these dynamics unfold in practice, drawing on original interviews to show how hybrid governance is negotiated, adapted, and challenged across different stages of startup development.

Evolving Dynamics of Founders and Control Across Growth Stages

As Indonesian startups grow and secure funding, control dynamics shift. In the early stages, founders hold significant control, formalised through shareholders’ agreements and articles of association, enabling them to appoint board members.Footnote ⁵⁹ While later funding rounds lead to ownership dilution, founders often retain influence over key board and shareholder decisions.Footnote ⁶⁰

While US literature tends to classify governance structures as founder-controlled, investor-controlled, or shared control, our research suggests a typology more reflective of the Indonesian context. We identify three recurring models of founder control: (i) founders or adopted founders maintain operational control; (ii) founders remain involved post-acquisition by conglomerate groups but cede control; and (iii) founders exit entirely following acquisition by conglomerates, which fully absorb the startup.

As startups progress through funding rounds and attract larger investments, particularly from venture capital firms, the control dynamics begin to shift in intriguing ways. Investors often negotiate for board representation and veto rights over certain key decisions.Footnote ⁶¹ These ‘reserved matters’ typically require approval through a vote of the board of commissioners (which includes the investors’ representative) and the general meeting of shareholders, covering aspects such as budgeting, business planning, and potential mergers and acquisitions.Footnote ⁶² This shift in control represents a delicate balancing act between the entrepreneurial vision of founders and the financial interests and expertise of investors.

The three founder-control scenarios noted above can intersect with these funding-related shifts. For instance, even if founders retain formal control (model 1), as the company raises significant capital, the investors’ protective provisions can constrain founder autonomy. In the conglomerate acquisition scenarios (models 2 and 3), traditional venture capital governance may give way to more centralised control under the acquiring firm’s governance structure (often with its own board and oversight practices). In all cases, maintaining clarity in roles and decision rights is critical to avoid paralysis or conflict as power is reallocated.

Elements of Investor Influence: Balancing Power and Collaboration

Interviews with Indonesian founders and investors show that investor involvement and influence can vary greatly depending on startup performance, founder experience, and broader economic conditions. Experienced founders who consistently meet targets tend to face minimal interference; investors are content to be hands-off so long as the company is thriving.Footnote ⁶³ In contrast, first-time founders or startups struggling during economic downturns encounter much more intensive investor oversight, including, in some cases, near-daily check-ins or interventions.Footnote ⁶⁴ This variability underscores that startup governance in Indonesia is dynamic: it requires flexible structures that can adapt as circumstances evolve.

A significant concern in the Indonesian startup ecosystem is the potential for founders to lose control prior to going public due to the dilution of their shareholdings. For instance, during GoTo’s IPO, GoTo’s founders collectively held only 6.29% of shares, significantly below the approximately 20% average founder stake observed in US tech IPOs.Footnote ⁶⁵ To address this issue and encourage Indonesian startups to list domestically, the OJK in 2021 introduced a regulation permitting these companies to list shares with multiple voting rights (Multiple Voting Shares or MVS),Footnote ⁶⁶ which allows founders to maintain control even with a smaller equity stake. GoTo itself took advantage of the new rule: at IPO, founders and management together held only 5.46% of shares but controlled 57.08% of voting rights as of April 2024.Footnote ⁶⁷ The introduction of MVS is a game-changer for Indonesian startup governance, altering late-stage dynamics by formally tilting the balance back towards founder control during and after the IPO process. It illustrates how regulators can innovatively adapt rules to local needs, whereby, in effect Indonesia imported an idea common in US and Asian tech IPOs (dual-class shares) to prevent an exodus of listings to more permissive markets.

Board Dynamics: From Early-Stage to IPO

In Indonesian startups, the board of directors (together with the board of commissioners) is the main arena for founder-investor interactions, with dynamics evolving through each funding stage.Footnote ⁶⁸ Early on, VC partners managing multiple board seats often delegate roles to junior colleagues. As startups grow and early investors exit, the board composition shifts: some investors lose voting rights or become observers, while others adopt a more deferential stance towards founders,Footnote ⁶⁹ which mirrors patterns observed in US startups.

The arrival of later-stage investors, often from private equity or VC growth funds, introduces new dynamics to the board. These investors typically hold greater rights, including veto powers, and scrutinise investments more meticulously.Footnote ⁷⁰ This evolution in board composition can lead to challenges in governance, as founders must navigate multiple board members with potentially conflicting interests.Footnote ⁷¹ Achieving consensus within the board can become more complex and time-consuming under such circumstances, necessitating sophisticated governance mechanisms to manage these diverse interests effectively.Footnote ⁷²

Beyond formal board meetings, some investors engage in informal oversight, holding discussions to address specific concerns, assigning personnel to help founders analyse performance metrics, and taking a more active role when needed. These informal interactions often influence founders’ decisions, with investors strongly encouraging certain actions behind the scenes without formal board votes.Footnote ⁷³ While such involvement can add value, it also blurs lines of accountability and can create tension if founders feel micromanaged.

In summary, board dynamics in Indonesian startups evolve throughout a company’s life cycle. They start founder-heavy, shift to investor-dominated as VCs secure seats and rights, and sometimes swing back towards founders as success and MVS structures empower insiders at later stages. Indonesian law adds an additional complexity via the two-tier board system, where formal oversight lies with the commissioners. This often means that investor representatives sit as commissioners (supervisors) rather than directors (executives), which can reduce direct day-to-day interference but gives investors a decisive say on reserved matters and overall strategic approval. Thus, Indonesia’s board governance model, influenced by Dutch styles and civil law, reflects a distinct twist on the typical Anglo-American startup board saga.

The Role of State-Owned Enterprises (SOEs) and Family Conglomerates in Shaping Indonesian Startup Ecosystem

A distinctive feature of Indonesia’s startup ecosystem is the significant involvement of state-owned enterprises (SOEs) and family conglomerates as both investors and board members in Indonesian startups. This influence shapes governance practices in ways that differ markedly from more established ecosystems like Silicon Valley.

SOEs (often through their corporate venture capital arms, such as Telkom’s MDI Ventures, BRI Ventures, Mandiri Capital, and BNI Ventures) conduct comprehensive pre-investment due diligence, focusing on strategic alignment with their core businesses.Footnote ⁷⁴ Their governance style tends to encourage integrated approaches: they aim to incorporate a startup’s products or services into the SOE’s broader corporate framework.Footnote ⁷⁵ For example, an SOE-owned venture fund investing in a fintech startup may facilitate pilot projects within the parent bank, effectively giving the startup a sandbox and a guaranteed enterprise client. This can accelerate the startup’s growth and validation, but it also binds the startup’s success to the SOE’s strategic objectives and timelines.

Family conglomerates (which dominate sectors from real estate to retail in Indonesia) often approach startup investments with a hands-on, mentorship-oriented style.Footnote ⁷⁶ They can be deeply involved in operational aspects, providing detailed directives and closely supervising the implementation of strategies, sometimes informally outside the regular board meeting process.Footnote ⁷⁷ This close supervision can bring valuable operational expertise and networks to the startup, but it may also constrain the startup’s agility if every significant decision requires consensus with the conglomerate’s representatives.Footnote ⁷⁸

These dynamics introduce unique governance considerations. With SOEs and conglomerates at the table, startups might find that political and strategic concerns take on greater weight alongside pure financial metrics. Board discussions might include how a decision affects national interests or a family’s reputation. Moreover, having such investors can provide a layer of protection and credibility – regulators might be more lenient or supportive knowing an SOE is backing the venture (illustrated by instances where government agencies partner with startups friendly to state investors). On the other hand, conflicts of interest can arise, for example, if an SOE invests in multiple competing startups to hedge bets, or if a conglomerate’s internal politics spill into the startup’s boardroom.

Ultimately, the participation of SOEs and conglomerates is a double-edged sword for startup governance: it blends entrepreneurial governance with the practices of traditional Indonesian corporate culture. This hybridisation can yield powerful synergies (access to capital, markets, and influence) but also requires careful governance design to ensure that minority investors and independent voices are not drowned out by these heavyweight players. Indonesia’s ecosystem, more than most, demands governance frameworks that accommodate not only founder-VC dynamics but also the imprint of government-linked and family business interests.

Emerging Demand for Transparency, Accountability, and Collaborative Approach in Startups

The startup ecosystem in Indonesia, like many others globally, has undergone a shift in focus from a ‘growth at all costs’ mentality to an emphasis on profitability, particularly considering recent economic challenges. This shift has profound implications for startup governance, as boards must now balance the pursuit of rapid growth with the need for financial sustainability.

By 2023, there was mounting public and investor scrutiny of how startups manage funds, treat stakeholders, and comply with regulations. For instance, GoTo’s post-IPO performance and governance practices became a subject of national conversation, especially as its stock price fluctuated and it undertook layoffs. Regulators and industry leaders began calling for startups, even those still privately held, to ‘think like public companies’ in terms of governance discipline.Footnote ⁷⁹ This entails timely financial reporting, independent board oversight, and robust risk management far earlier in a company’s life cycle than had been the norm.

The delicate equilibrium between founder-investor relationships and potential conflicts of interest presents another significant governance challenge. Establishing checks and balances within the organisation is crucial to keep founders in check and to balance the interests of co-founders. At times, introducing experienced professionals to the management team or reassigning certain founders to new roles may be necessary. Ensuring transparency regarding potential personal conflicts of interest among company stakeholders is also vital to ensure decisions are made in the company’s best interest.

Our interviews with founders and investors explore the dynamics of the startup ecosystem through two central themes: how founders view the need for control despite significant investor stakes and how investors allow such control, provided that founders exercise it responsibly by adhering to sound corporate governance practices.

Founders often emphasise the importance of retaining control to ensure the success of their business models, highlighting the need for flexibility while acknowledging that as the company grows, more robust checks and balances through governance become essential. Investors, meanwhile, stress that granting founders control depends on cultivating a relationship of trust. This includes ensuring transparency, providing accurate reports, and offering guidance when necessary.

Our research also uncovers key governance challenges in Indonesian startups, with the main issue being the maintenance of transparency and financial control. Investors are particularly concerned about inaccurate financial reporting, inflated performance metrics, and delayed disclosures, all of which hinder timely decision-making. As Founder 4 stated: ‘The point is check and balance. The point of governance is to have someone always double-check your thinking and make sure that it’s true. Unless you genuinely decided that way. By using SAP systems, it’s easier to do finance audits.’Footnote ⁸⁰ Founder 2 added: ‘The way I implement financial governance is through external audit reports that must be done at least by a Big Four firm (to ensure credibility) and to obtain the status of WTP (Fair Without Exception), to provide sign of a healthy company financially.’Footnote ⁸¹ Investor perspectives echoed this. As Investor 2 emphasised:

Investors also encourage startups to establish internal audit teams to provide regular reports to management and the board. Ensuring process efficiency and aligning targets are essential for young startups, with a strong focus on core priorities for profitability and sustainability. Objectives and key results (OKRs) are widely used to support these goals.

Founders also recognise the importance of governance layers. Founder 7 reflected: ‘As an early-stage founder, I depend more on the vertical governance (with my investor) … I’m okay with that arrangement, as long as I’m also in control of the arrangement as well.’Footnote ⁸³ This underscores the balancing act between maintaining founder authority and satisfying investor expectations.

These views on checks and balances for transparency and accountability align with investor concerns, especially amid the current tech downturn.

Further, Investor 3 similarly emphasised financial transparency and accountable management:

As companies mature and prepare for IPOs, establishing board committees like audit and compensation becomes essential. There is also a rising demand for independent board members, experienced entrepreneurs or former founders who are neither investors nor relatives. These members help mediate between founders and investors while mentoring younger founders, ensuring balanced governance.

Founder 9, reflecting on the role of independent directors in public companies, noted:

This shift in governance practices highlights the maturation of Indonesia’s startup ecosystem and its increasingly sophisticated governance mechanisms. This development has been accompanied by continuing improvements in the business regulatory framework.

Indonesian startups must navigate a rapidly evolving regulatory landscape, requiring a governance approach that balances compliance with innovation.Footnote ⁸⁶ Regulatory entrepreneurship in Indonesia differs from the US, where companies often challenge regulations.Footnote ⁸⁷ Instead, Indonesian startups take a more collaborative approach, leveraging close ties between venture capitalists and government institutions, including state-owned enterprises.Footnote ⁸⁸ These dynamics influence board operations, with boards adopting strategies for navigating grey areas and engaging in government and stakeholder lobbying to secure acceptance and subsequent legalisation for their operations.

This approach is strategic since there have been instances where the blanket adoption of a US-style regulatory framework has been detrimental to the industry. One of the cautionary lessons emerges from Korea’s experience. When Korean investors tried to import US-style VC protections, they ran headlong into their own mandatory, law-driven corporate code, where contractual freedom is sharply limited by the principle of equal treatment among shareholders.Footnote ⁸⁹ This mismatch between a freewheeling US regulatory framework and a statute-heavy regime has sparked heated disputes in Korea and Indonesia should have drawn lessons from this controversy.

Overall, the governance discourse in Indonesia is evolving. Investors and founders increasingly converge on the principle that strong governance is not a constraint but a prerequisite for long-term viability. In the next part, we examine how these evolving practices intersect with the broader regulatory environment where Indonesian startups, rather than resisting the state, often engage it as a partner in shaping pathways for innovation and compliance.

Key Elements of Regulatory Entrepreneurship in Indonesia

Three features distinguish Indonesia’s regulatory entrepreneurship model:Footnote ⁹⁶

First, unlike in the US, where regulatory entrepreneurship is primarily driven by private entities, Indonesia’s startup ecosystem features significant involvement from state-owned enterprises (SOEs) and government-affiliated funds in driving innovations.Footnote ⁹⁷ Major SOEs have established venture arms (e.g. Telkom’s MDI Ventures, Mandiri Capital, BRI Ventures) that not only invest in startups but also act as liaison points with regulators. As Widjaja notes, these corporate venture capital arms create substantial synergy between young startup founders and the established operations of SOEs.Footnote ⁹⁸ The result is a direct channel of communication: when a startup in, say, fintech encounters a regulatory hurdle, its SOE investors can bring the issue directly to policymakers’ attention, often framing it as a national development opportunity rather than a compliance problem. This dynamic blurs the lines between public and private interests, embedding startups within the state’s developmental agenda. On top of that, the involvement of SOEs in the startup ecosystem has profound implications for regulatory entrepreneurship. It creates a direct channel of communication between startups and government institutions, allowing for a more nuanced and collaborative approach to regulatory challenges. This stands in stark contrast to the adversarial relationship often observed between startups and regulators in the US.

Second, the Indonesian government itself has taken a proactive stake in startups through vehicles like the Merah Putih Fund.Footnote ⁹⁹ Launched in late 2021, this fund pools capital from several state-owned companies to invest in later-stage Indonesian startups, particularly those deemed strategic or those willing to redomicile in Indonesia. The existence of Merah Putih Fund illustrates the government’s dual role as regulator and investor. It seeks to promote increased local ownership and ensure Indonesian startups remain rooted domestically.Footnote ¹⁰⁰ This approach mirrors developments in Singapore, where sovereign wealth entities like Temasek and GIC heavily invest in tech across Southeast Asia, effectively shaping the industry’s trajectory. For Indonesian startup governance, such government-aligned investment means regulatory innovation can happen from within – policy changes might be piloted through fund portfolio companies with a tacit blessing from authorities.Footnote ¹⁰¹ Beyond Indonesia, similar state-led public investment initiatives have emerged globally and appear to act as a government’s extension. For example, India’s Venture Capital Fund for Energy Efficiency (VCFEE), Thailand’s ESCO Revolving Fund, and China–US Green Low Carbon Fund all are examples of government-backed funds, serving not only as capital providers but also as governance actors in shaping firm behaviour, defining market standards, and incentivising compliance with environmental and policy goals.Footnote ¹⁰² All of these are similar to the Merah Putih Fund, emphasising how the state can act as both regulator and investor to guide innovation in strategic sectors.

Third, there are unusually strong personal and institutional networks connecting VC firms and government officials in Indonesia. As observed by Widjaja, many limited partners (LPs) of local VC funds are seasoned corporate executives, family offices, or politically connected individuals,Footnote ¹⁰³ rather than the university endowments or pension funds common in the US.Footnote ¹⁰⁴ These LPs often have stakes in both traditional industries and the emerging tech sector, and they maintain close relationships with government stakeholders. Consequently, when regulatory issues arise, whether about ride-hailing laws, data privacy, or e-commerce licensing, Indonesian startups and their investors often leverage informal networks to negotiate solutions behind closed doors. This insider access contrasts with the more arm's-length, often adversarial interactions seen elsewhere.Footnote ¹⁰⁵ It allows Indonesian startups to adapt more fluidly: instead of enduring protracted legal battles or lobbying campaigns, they might secure a tailored exemption or pilot licence through quiet negotiations.Footnote ¹⁰⁶

The Implications of Regulatory Entrepreneurship in Startup Governance

The collaborative model of regulatory entrepreneurship in Indonesia has profound implications for startup governance. Several key aspects of this impact merit further examination:

First, the unique regulatory landscape in Indonesia influences board operations in startups. Instead of endorsing outright legal transgressions, as might be the case in more confrontational models of regulatory entrepreneurship, boards in Indonesian startups adopt strategies for navigating regulatory grey areas. They engage in government and stakeholder lobbying to secure acceptance and subsequent legalisation, often through licences or regulatory sandboxes, for their operations.Footnote ¹⁰⁷ We find that many Indonesian startup boards actively discuss regulatory strategy as a core part of business strategy – something less prevalent in US startups, where legal matters might be left to legal counsel. Indonesian boards frequently plan for obtaining licences, meeting unofficial guidelines, and timing product launches to coincide with expected regulatory shifts. In essence, effective governance in these startups requires an expanded skill set beyond business acumen; boards need political and regulatory savvy.Footnote ¹⁰⁸

Second, VCs in Indonesia play a crucial role in ensuring regulatory compliance and shaping regulatory strategy. Many venture investors now stipulate that startups obtain necessary licences or at least official endorsements as a condition of investment.Footnote ¹⁰⁹ They do not treat regulatory compliance as the startup’s responsibility; instead, they actively assist founders in navigating agencies, often leveraging their relationships to expedite processes. This stands in contrast to the ‘ask forgiveness, not permission’ ethos in some Western startups.Footnote ¹¹⁰ It represents a calculated trade-off, by prioritising compliance, Indonesian startups might slow down initial growth, but they also mitigate the risk of being shut down or penalised, thereby protecting long-term value.

Third, the need to respond quickly to regulatory changes has led Indonesian startups to adopt highly flexible governance mechanisms. Shareholder agreements commonly contain reserved matters related not just to standard financial decisions but specifically to regulatory events, for example, an investor veto right over entering a new regulated business line or over public communications on regulatory issues.Footnote ¹¹¹ Startups also create internal task forces or committees dedicated to government relations, sometimes reporting directly to the board. This fluid approach means governance documents are often revisited and revised whenever the regulatory landscape shifts (eg new fintech regulations, data laws), which is more frequently than a typical startup might amend its charter or shareholder agreement.

Recent Examples of Regulatory Entrepreneurship in Indonesia’s Startup Governance

Several high-profile cases illustrate Indonesia’s unique brand of regulatory entrepreneurship and its impact on governance:

One compelling example is the evolution of the ride-hailing industry (Gojek, Grab) in Indonesia. Initially, ride-hailing services for both two-wheelers and four-wheelers operated in a legally ambiguous or even prohibited manner. However, rather than directly challenging these regulations, as might have been the case in the US, the industry engaged in a collaborative process with regulators.

A pivotal moment came following the then-Transport Minister’s (Ignatius Jonan) attempt to ban app-based motorcycle taxis, where public outcry (amplified by social media campaigns that these startups helped fuel) prompted President Joko Widodo to overturn the ban within days. Subsequently, Minister Ignatius Jonan was replaced, and the new transport minister (Budi Karya Sumadi) pursued an alternative strategy, ultimately legalising both two-wheel and four-wheel ride-hailing through a ministerial decree.Footnote ¹¹² This case demonstrates the power of collaborative regulatory entrepreneurship in Indonesia. By engaging constructively with regulators and leveraging political support, the ride-hailing industry was able to achieve a favourable regulatory outcome. The governance implications for startups in this sector were significant, requiring boards to develop sophisticated strategies for regulatory engagement and to maintain flexibility in their business models.

Another example is the recent TikTok Shop controversy. In September 2023, Indonesia’s Trade Ministry banned social media platforms from facilitating direct e-commerce transactions, targeting TikTok’s burgeoning in-app shopping feature. The ban was justified as protecting small merchants from being undercut, but it also conveniently shielded local e-commerce players.Footnote ¹¹³

Rather than fight the ban outright, TikTok (ByteDance) strategised a workaround that adhered to the letter of the law: by December 2023, TikTok Shop resumed operations after ByteDance acquired a substantial stake in a local e-commerce platform (Tokopedia) and routed transactions through that platform.Footnote ¹¹⁴ TikTok Shop was relaunched after ByteDance, TikTok’s parent company, acquired a 75.01% stake in Tokopedia from the GoTo Group.Footnote ¹¹⁵ This alternative, effectively using M&A to comply with regulations, exemplifies regulatory entrepreneurship. It required creative governance thinking: TikTok’s local entity had to partner with competitors and restructure operations quickly. It underscores that in Indonesia’s environment, governance includes preparing contingency plans for drastic regulatory shifts and possibly engaging in strategic alliances to navigate new rules.Footnote ¹¹⁶

The cryptocurrency sector provides another window into collaborative regulatory innovation. Initially, Bank Indonesia imposed a blanket ban on crypto as a payment instrument.Footnote ¹¹⁷ But crypto entrepreneurs and associations identified a different path: they worked with the Commodity Futures Trading Regulatory Agency (Bappebti) under the Trade Ministry to classify crypto as a commodity, not a currency.Footnote ¹¹⁸ By 2019, crypto trading was legalised as part of commodity futures, with the Finance Ministry agreeing to tax crypto trades and eventually folding crypto oversight into the Financial Sector Omnibus Law of 2023.Footnote ¹¹⁹ Subsequently, this classification was incorporated into the Omnibus Law of the Financial Sector, subjecting it to regulation by the OJK.Footnote ¹²⁰ This success came from cross-agency collaboration; essentially, regulatory entrepreneurs found a more sympathetic ear in a different part of government and built a legal framework there. For startups, it meant that their boards needed to decide which regulators to engage and how to adapt business models to fit preferred regulatory narratives (commodity trading platforms instead of crypto exchanges).

Lessons Learned from Indonesia’s Regulatory Entrepreneurship

These cases demonstrate a pattern: constructive engagement and adaptability are at the heart of Indonesia’s regulatory entrepreneurship. The governance implications are significant:

First, boards must develop capabilities for regulatory engagement and be ready to pivot business strategy in response to legal developments. This challenges traditional notions of board responsibilities, expanding them beyond oversight and strategy to include real-time navigation of legal landscapes.

Second, the unique characteristics of regulatory entrepreneurship in Indonesia contribute to the ongoing debate about the convergence or divergence of corporate governance systems globally. While some aspects of startup governance in Indonesia show convergence with global norms (such as the adoption of VIMA-based shareholder agreements), the collaborative approach to regulatory entrepreneurship represents a significant point of divergence. This suggests that while certain aspects of corporate governance may be converging globally, local legal, political, and cultural factors continue to shape governance practices in important ways. The Indonesian model of regulatory entrepreneurship provides a compelling example of how emerging markets may develop distinctive governance practices that deviate from those observed in more mature markets.

Third, the collaborative nature of regulatory entrepreneurship in Indonesia highlights the importance of soft law mechanisms in shaping startup governance. Much of Indonesia’s regulatory entrepreneurship relies on unwritten understandings, personal trust, and flexibility outside formal statutes. This raises questions for corporate law: should frameworks evolve to recognise and facilitate such soft mechanisms? For instance, should there be legal safe harbours for sandbox experiments, or recognised roles for government observers on startup boards? Indonesia’s experience hints at benefits to agility but also flags transparency concerns when deals are made informally.

As such, case studies of firm-government collaboration highlight the importance of a dedicated government relations unit.Footnote ¹²¹ Startups, unlike traditional firms, often operate in emerging fields like fintech or agri-tech, which may not fit existing regulations. Engaging with policymakers helps create a more supportive regulatory environment. By understanding key issues, building strong narratives, and executing effective engagement strategies, startups can influence policy and drive regulatory change.Footnote ¹²²

In contrast, examining non-collaborative dynamics between firms and the Indonesian government provides a valuable perspective. A notable example is Apple’s 2024 conflict with regulators when Indonesia banned iPhone 16 sales due to unmet domestic requirements and investment commitments.Footnote ¹²³ The situation escalated when Indonesia rejected Apple’s proposed $100 million investment plan.Footnote ¹²⁴ This case illustrates how tensions can arise when companies and regulators clash over compliance and business expectations, often leading to unfavourable outcomes for both parties.

In conclusion, Indonesia’s collaborative model of regulatory entrepreneurship represents a distinctive approach to the interplay between innovation and regulation in an emerging market. It challenges the notion that startups must either comply or rebel, offering a third way where negotiation and partnership lead the journey. For startup governance, this means boards and management teams need sophisticated skills in stakeholder management and a proactive stance on regulation. It also contributes to comparative corporate governance theory by highlighting how local context can yield unique governance practices, deviating from the patterns observed in mature markets.

Potential Challenges and Risks

While the collaborative model of regulatory entrepreneurship in Indonesia has facilitated rapid growth in the startup ecosystem, it also presents several challenges and potential pitfalls. The close relationships between startups, VCs, and government institutions raise some concerns.

First, there is a risk that regulatory decisions may be unduly influenced by the interests of well-connected startups or investors, potentially at the expense of broader public interests or less-connected competitors.

Second, the reliance on informal relationships and soft law mechanisms in regulatory entrepreneurship may lead to a lack of transparency in decision-making processes. This could potentially undermine public trust in both the startup ecosystem and regulatory institutions.

Third, the collaborative model of regulatory entrepreneurship that has been successful in Indonesia may face challenges as startups seek to expand internationally. Startups that are accustomed to working closely with regulators in Indonesia may struggle to adapt to more adversarial regulatory environments in other jurisdictions. Taking everything into consideration, there are also questions about the long-term sustainability of the collaborative model of regulatory entrepreneurship. As the startup ecosystem matures and public scrutiny increases, there may be pressure for more formal and transparent processes of regulatory engagement.

Another relevant dimension concerns the relationship between governments and businesses. For instance, China has made strides in fostering a favourable environment for VC-backed IPOs, but significant institutional barriers remain.Footnote ¹²⁵ Uncertainty persists over how and when the reform of IPO-related regulation will be implemented, causing regulatory ambiguities and weakening VC incentives.Footnote ¹²⁶ These insights highlight that even with strong state support, venture capital markets require institutional coherence and credible exit mechanisms. Hence, in adopting the hybrid governance model, Indonesia must also ensure similar long-term institutional development.

Opportunities

As Indonesia’s ecosystem continues to evolve, observers will be keen to see if this model adapts to new challenges and whether it can be exported or emulated in other jurisdictions. The ability of Indonesia’s startups, investors, and regulators to maintain their collaborative ethos while addressing concerns about transparency, accountability, and conflict of interest will be key to the model’s durability. Moreover, as Indonesian startups increasingly venture onto the global stage, the transferability of this approach will be tested, potentially offering lessons for how emerging market innovations in governance might influence other regulatory environments.

Ultimately, the Indonesian experience with regulatory entrepreneurship offers valuable insights for policymakers, entrepreneurs, and scholars seeking to understand the unique challenges and opportunities of fostering innovation in emerging markets. It underscores the importance of considering local legal, political, and cultural factors in developing effective governance frameworks for startups and suggests that emerging markets may offer novel solutions to the perennial challenge of balancing innovation and regulation. This analysis sets the stage for the next part, which examines concrete case studies of startup governance in Indonesia. Specifically, it dissects notable governance failures to illustrate where the hybrid model has both succeeded and fallen short.

The Case of eFishery: Misreporting and the Illusion of Oversight

eFishery, once a model for Indonesia’s agritech aspirations, raised over USD 200 million from leading international investors and was heralded as a unicorn.Footnote ¹²⁷ In May 2024, it raised USD 200 million in Series D funding from G42 and others before the fraud was uncovered.Footnote ¹²⁸

Beyond its notable funding record, eFishery’s close ties with government entities are worth analysing, in line with Indonesian startup governance’s tendency to collaborate closely with government institutions. At the central level, it collaborated with the Directorate of Digital Economy under the Ministry of Communication and Information, leading to the procurement of eFeeder technology for its partners.Footnote ¹²⁹ In early 2024, it engaged with the West Sulawesi Maritime and Fisheries Service to discuss seed and feed supply cooperation.Footnote ¹³⁰ In March 2024, it partnered with the North Sumatra Provincial Government to explore fisheries development in Lake Toba.Footnote ¹³¹ By June 2024, eFishery had established partnerships with thirty regional government institutions and ten central government agencies.Footnote ¹³²

However, in 2024, the company was revealed to have engaged in systemic financial misreporting, including inflating user metrics and manipulating financial statements to meet investor expectations.Footnote ¹³³ The audit uncovered financial misrepresentations, inflated revenue figures, understated losses, and operational discrepancies between reported and actual performance. In essence, eFishery had been engineering a rosy financial picture for investors and creditors, concealing significant shortfalls.

eFishery’s board of directors formally reported two executives to the Indonesian police for alleged financial fraud.Footnote ¹³⁴ When interviewed about the audit’s uncovering of two sets of books, Gibran Huzaifah declined to discuss the details, citing the ongoing investigation, while admitting only that discrepancies existed.Footnote ¹³⁵ He insisted there was no personal enrichment. However, this does not negate the fact that internal misconduct within eFishery has resulted in significant losses for several prominent venture capital firms, such as SoftBank, Temasek Holdings, Sequoia, Peak XV, and 42XFund, amounting to an estimated USD 300 million in investor funds.Footnote ¹³⁶

The core governance failure lay in the inadequate implementation of internal control mechanisms and ineffective board oversight. Despite the presence of professional investors and institutional capital, the board failed to detect or address misleading financial disclosures, indicating a breakdown in fiduciary monitoring and accountability. This pattern mirrors the governance lapses observed in FTX, where investors rushed to participate without meaningful due diligence, driven by fear of missing out.Footnote ¹³⁷ The FTX case, as observed by Aran and Packin, suggests that even seasoned venture capitalists are not immune from neglecting standard governance protections in their pursuit of promising startups, because they tend to emphasise speed and flexibility at the expense of governance and oversight.Footnote ¹³⁸

The eFishery case demonstrates the mechanism of oversight fragmentation within a dual-entity hybrid structure, as identified in Part IV. While financial misreporting can occur in any high-growth startup, the hybrid configuration amplified this vulnerability. As highlighted in Part IV, Indonesia has a unique mechanism of regulatory entrepreneurship, wherein hybrid governance risks weakening accountability when reporting expectations established by Singapore-based holding structures are starkly mismatched by Indonesian operational controls.

Operating under a Singapore-governed structure while based in Indonesia, eFishery’s board faced misaligned enforcement capacity. Governance terms like VIMA may not fully work in Indonesia’s legal context if domestic stakeholders prioritised growth over accountability. This case reflects a breakdown in vertical oversight, as the board of commissioners and investor representatives failed to detect the discrepancies in financials. Ultimately, governance failed when misaligned reporting expectations collided with weak internal verification systems, allowing discrepancies to persist despite participation from sophisticated investors.

The Case of TaniFund: Credit Risk and Strategic DriftFootnote ¹³⁹

TaniFund began as a promising peer-to-peer agrifinance platform, backed by government accolades and aligned with national food security goals. Its downfall in 2023, following a wave of defaulted loans and unpaid lenders, revealed deep cracks in its governance architecture.

Historically, TaniFund’s rise as a leading Indonesian startup was strongly supported by strategic government institutions, once again highlighting a pattern of government collaborations in Indonesian startups. Its popularity surged when President Joko Widodo mentioned its parent company, TaniHub Group, during the 2019 presidential debate.Footnote ¹⁴⁰ TaniFund later signed an MoU with Perum Bulog, Indonesia’s state-owned food enterprise, to support national food security.Footnote ¹⁴¹ It also partnered with PT BRI Agroniaga Tbk, a subsidiary of state-owned Bank Rakyat Indonesia, to provide microbusiness funding and strengthen the agricultural supply chain.Footnote ¹⁴²

Despite these strengths, by 2022-2023 TaniFund was in serious financial distress. Reports indicated that at least 128 lenders using the platform suffered losses totalling approximately IDR 14 billion (nearly USD 1 million) due to TaniFund’s inability to meet its obligations.Footnote ¹⁴³ Essentially, a significant number of loans facilitated through TaniFund had gone bad or been mismanaged, leaving lenders (who provided the capital through the platform) unreimbursed. The situation prompted direct intervention from OJK.Footnote ¹⁴⁴ TaniHub was allegedly involved in the misappropriation of investment funds, leading to investigations of its key figures.Footnote ¹⁴⁵

TaniFund exemplifies the risks of Indonesia’s collaborative model of regulatory entrepreneurship, particularly its close relationship with regulators and SOEs as emphasised above. TaniFund illustrates the mechanism of operational drift driven by overlapping commercial, developmental, and state-linked mandates, a risk specific to Indonesia’s hybrid model rather than a generic fintech failure. Lending expanded without proper vetting, while its parent, TaniHub, diverted focus to unrelated ventures. Although credit risk mismanagement is common in peer-to-peer lending platforms globally, the presence of government-aligned partners blurred the boundary between strategic expansion and prudent lending, accelerating portfolio growth beyond the company’s capacity to monitor repayment. The case reflects the critique of hybrid governance and magnifies the double-edged sword of government participation in startup governance as elaborated in this article: blurred mandates and regulatory ambiguity enabled growth ambitions to override financial prudence. Without clear institutional separation between expansion and oversight, governance unravelled. As noted, hybrid models risk mission drift when startups pursue such growth strategies without adequate regulatory guardrails.

Structured Recommendations for Regulatory, Governance, and Institutional Reform

The recommendations in this section are designed to address the core governance vulnerabilities identified in this article, namely, blurred authority, limited oversight, and conflicting mandates. As the case studies demonstrate, these structural weaknesses repeatedly contribute to governance failures within Indonesia’s hybrid startup ecosystem. Accordingly, the proposed reforms target both formal institutional arrangements and market-driven practices, with the aim of enhancing clarity of governance authority, strengthening independent oversight mechanisms, and aligning the mandates of key actors across public and private domains. By explicitly mapping each recommendation to these theoretical vulnerabilities, the analysis seeks to provide a coherent and practically grounded framework for improving hybrid governance outcomes in Indonesia’s emerging technology sectors.

Foundational Governance for Founders

First, founders should embed strong governance early and scale it deliberately. As the eFishery case revealed, transparency and internal controls are essential from the outset, as weak early-stage controls can persist undetected within hybrid structures where formal oversight resides offshore but operational accountability remains domestic. Strengthening foundational governance is therefore essential to prevent the type of internal opacity observed above. Founders should implement standardised financial reporting and establish internal audit mechanisms, either in-house or via shared services. Engagement in governance training through incubators and mentorship from experienced entrepreneurs can also help bridge early-stage gaps. To help founders know exactly which governance tools belong at each stage of growth, Southeast Asia's leading industry associations have recently published a ‘governance maturity map’ playbook. It divides the startup cycle into five tiers and matches each to a clear set of controls, committees, and reporting obligations that can be adopted by Indonesian founders.Footnote ¹⁴⁶ Founder control should also be balanced with accountability through legal and contractual safeguards. While founder vision is key to innovation, unchecked control increases governance risk, particularly when dual-class shares (MVS) are involved in later-stage public startup companies. These recommendations help address the conflicting mandates often faced by founders operating in a hybrid governance environment, as seen in the TaniFund case.

Investor Stewardship and Oversight

Second, investors, including venture capital firms and corporate venture arms, must strengthen board oversight and enforce financial discipline. Beyond due diligence at the point of investment, investors should monitor governance continuously, insisting on safeguards like audit rights, board seats, and term-sheet-based veto rights.

The TaniFund collapse demonstrates that passive investor oversight and unchecked founder autonomy are particularly risky when state-linked strategic mandates drive rapid expansion. This reinforces the need for investors to adopt active, continuous governance stewardship, as the hybrid model diffuses responsibility across multiple stakeholders. As shown in TaniFund’s collapse, passive investors risk enabling mismanagement. This approach is reflected in South Korea, where the KOSDAQ expects VC-backed companies nearing IPO to adopt audit committees with active board participation, emphasising the shift from capital provision to long-term stewardship.Footnote ¹⁴⁷ On top of that, investor and LP accountability should also be institutionalised. VCs and limited partners must take active roles in building governance capacity, especially at early stages. Indonesian VCs should similarly engage in governance mentorship, supporting portfolio companies in adopting policies on audit, compliance, and board structure, and not merely monitoring financial metrics. By strengthening investor oversight and clarifying reporting obligations, these measures directly mitigate the limited oversight and blurred authority vulnerabilities identified in eFishery and TaniFund.

Regulatory Reforms and Enforcement

Third, for regulators and policymakers, Indonesian regulators should continue their collaborative approach to innovation while bolstering formal governance requirements. Indonesia’s flexible, engagement-driven regulatory stance has fostered innovation, but clearer guidance is needed to transition startups from experimental to compliant models. This would enhance predictability while avoiding overreliance on informal discretion. Similarly, Cambodia has taken a highly structured approach by proposing a three-stage regulatory code for its nascent VC industry covering fundraising, investment, and exit.Footnote ¹⁴⁸ During the fundraising phase, the framework recommends tax breaks for local corporations and high-net-worth individuals.Footnote ¹⁴⁹ In the investment phase, it urges policymakers to standardise seed-stage instruments. Finally, it calls for targeted M&A regulations that balance competition concerns with an M&A-friendly environment as a mechanism of exit.Footnote ¹⁵⁰ Regulators must act decisively when misconduct occurs. Frauds like that at eFishery and TaniFund demonstrate that collaboration cannot replace civil, contractual, and, where necessary, corporate criminal enforcement. Coordination with foreign regulators, particularly between Indonesia and Singapore, is also essential given the widespread use of cross-border holding structures. Board governance reforms target limited oversight, which contributed to the board’s failure to detect and address internal control breakdowns in eFishery. Both case studies reveal that collaborative regulatory practices break down without robust enforcement backstops. The hybrid model thrives only when regulators provide predictable transitions from informal accommodation to formal compliance.

Board Governance and Accountability Mechanisms

Fourth, boards of directors and boards of commissioners in startup companies should actively evolve to meet governance needs. As companies grow, boards must move from informal oversight to instituting formal processes (eg forming audit committees, adopting risk management policies). Ensuring board diversity, in terms of expertise, gender, and stakeholder representation, can improve oversight and reduce groupthink. Importantly, appointing truly independent directors or commissioners will provide unbiased perspectives and hold management accountable. Given Indonesia’s two-tier board system, investors often sit on the board of commissioners, and they should use this supervisory role to rigorously monitor management performance and insist on accurate disclosures. Boards should also consider recruiting members with regulatory or public-sector experience to help navigate the complex legal landscape. This aligns with the Indonesian trend of involving ex-regulators or government-linked individuals on boards to facilitate compliance.Footnote ¹⁵¹ In summary, board members must be prepared to challenge founders when necessary, insist on proper financial reporting (as the whistleblower did in eFishery’s case), and guide startups towards sustainable growth strategies that balance innovation with sound governance. Clarifying regulatory mandates and enhancing inter-agency coordination aim to reduce blurred authority and mitigate the risks of overlapping or conflicting oversight.

Cross-Jurisdictional Institutional Coordination

Lastly, Indonesia must protect its strategic position as a regional startup hub by aligning governance reform with best practices within the region. Regulatory rigidity could discourage redomiciliation or push startups abroad, while excessive laxity invites misconduct. Countries like Malaysia, through the MyDIGITAL blueprint and corporate governance codes, have actively pursued a balance and improved governance while maintaining openness to stakeholders’ interests.Footnote ¹⁵² Indonesia should streamline corporate processes, reduce legal uncertainty, and incentivise good governance without sacrificing innovation. Harmonising governance across public and private actors is essential to resolving the conflicting mandates and blurred authority that undermined governance effectiveness in the case studies. In particular, given the increasing integration of Singapore-held companies operating in Indonesia and the fact that both case studies involved misalignment between Singapore-governed shareholder agreements and Indonesian operational realities, improved interjurisdictional coordination is essential to prevent governance gaps of the type highlighted in this article. Together, these recommendations offer a roadmap to reinforce Indonesia’s hybrid governance model, one that reflects the country’s unique entrepreneurial landscape while drawing from tested regional practices. They aim to ensure that startups not only grow but do so with integrity, resilience, and accountability.