📉 How Fusionex went from $106M to $0

Hey Founders,

Welcome to The Runway Ventures, a weekly newsletter where I deep dive into startup mistakes and lessons learned to help you become a better founder.

Anyway, you might have heard of the failed startup in today’s issue. Let’s get to it! 🚀

☠️ 1 Failed Startup: Fusionex

🚀 The Rise of Fusionex

Fusionex, founded by Malaysian entrepreneur Ivan Teh in 2005, provided innovative data analytics solutions for global clients, including Micron, Ford, Aviva, HP, and AirAsia.

Back then, data infrastructure, AI, and big data were still very new to many enterprises, hence Fusionex’s solutions were high in market demand.

• The Problem — Enterprises struggled to make sense of their vast amounts of data to make data-driven decisions.

• The Solution — Fusionex bridged the gap between business and technology by helping clients manage, make sense of and derive useful insights from both structured and unstructured data.

🏆 Fusionex became a Malaysian overnight success story when it listed on the London Stock Exchange (LSE) in December 2012 and raised RM500 million in 2013 when its IPO was oversubscribed by more than 3 times. Because of its clientele, global recognition and achievement, Ivan was named EY Technology Entrepreneur of the Year Malaysia in 2014.

📉 However, in 2017, Fusionex dropped a huge announcement that shocked investors. Ivan, together with major shareholders, decided to delist from LSE and take it private because they felt undervalued by the market and the costs of listing on LSE could be better spent on the business.

Despite delisting in 2017, Fusionex’s growing fame and positive press attracted Hitachi’s attention as the Japanese conglomerate wanted to venture into AI and big data. Well… guess what?

📉 The Fall of Fusionex

While it might seem that Hitachi’s acquisition was a happy ending for Fusionex and Ivan, the marriage didn’t last long due to a lack of transparency and mismanagement. Things began to fall apart. ⚠️

As reported by Tech in Asia:

• March 2023 — Hitachi began to see problems when they wanted to conduct internal audits (normal exercise on its subsidiaries every 3 years) on Fusionex.

  • However, Ivan and his team didn’t comply with the request as they said they were not allowed to share data with foreign parties due to “government directive”.

• October 2023 — Fusionex said they would need to retrench staff as part of its cost-cutting measures.

• November 2023 — Ivan proposed an immediate capital injection (up to USD150 million) from Hitachi.

• December 2023 — Fusionex told its staff (over 500 employees) they’ll be retrenched and the company will be liquidated.

  • Ivan resigned from his post as Fusionex’s CEO.

  • Fusionex’s C-suite resigned.

  • Hiroyuki Kumazak took over as the new CEO.

Besides, Hitachi also found a number of suspicious transactions (huge volume) that were used to pay as “software development costs“ and “technology fees” provided by V-Circle and Convedge.

So what will happen to Ivan and his senior leadership team? We’re not sure yet as Fusionex’s liquidators will determine if Hitachi should pursue legal action against them.

But one thing is for sure → Fusionex is closing down soon 🙏🏻

Want to learn more about Fusionex’s downfall?

• Once a Malaysian success story, Hitachi’s Fusionex comes crashing down

• Inside the rise and fall of Malaysia’s Fusionex

• Fusionex to shutter following court order

⚠️ 2 Mistakes

Mistake 1: Lack of due diligence done by Hitachi before acquiring Fusionex

At the time of acquisition, Hitachi had “complete confidence” in Ivan and his team.

However, Hitachi only uncovered Fusionex’s financial situation in November 2023 when Ivan asked for an immediate capital injection (up to USD150 million) by mid-November. On top of that, Hitachi wasn’t aware of suspicious transactions only until 2023.

This shows the lack of due diligence done by Hitachi before acquiring Fusionex.

Mistake 2: Financial mismanagement & lack of transparency

When Ivan asked for an immediate capital injection from Hitachi, it was clear that Fusionex was running out of cash soon. This could be attributed to overspending on different areas, including paying huge “technology fees” to 2 big vendors (V-Circle and Convedge).

Fusionex also failed to adhere to corporate governance and financial management requested by Hitachi.

To make things worse, the sudden resignation from Ivan and the senior leadership team effectively left the company’s operations in a state of confusion.

🧠 3 Lessons Learned

Lesson 1: Perform thorough due diligence before acquisition

An acquisition of a company is not the same as buying software, as it involves financial management, corporate governance, tech, operations, sales, Human Resources and many more.

While trusting a company’s founder is important in an acquisition deal, it’s even more crucial to back this trust with data by performing thorough due diligence, especially on financial records, to avoid potential surprises like what Hitachi encountered.

Lesson 2: Practise financial prudence

Ivan and his team spent a lot of money on outsourcing software/technology development to 3rd-party vendors. Eventually, the company couldn’t survive through the high burn rate and Ivan asked for an immediate capital injection from Hitachi.

Therefore, regardless of a company’s size, it’s important to practise financial prudence to only spend money on necessary areas and invest money on areas that could generate better ROI for the company.

Lesson 3: Over-communicate with each other

While the lack of transparency from Ivan and his team indirectly caused the downfall of Fusionex, the root cause almost always boils down to the lack of communication between each other.

It seems that Hitachi only found out the problems when they wanted to conduct an internal audit on Fusionex in 2023 (3 years after the acquisition). If both parties over-communicated with each other after the acquisition in 2020, these conflicts or problems could have been avoided.

That's all for today

Thanks for reading. I hope you enjoyed today's issue. More than that, I hope it has helped you in some ways and brought you some peace of mind.

You can always write to me by simply replying to this newsletter and we can chat.

See you again next week.

- Admond

Disclaimer: The Runway Ventures content is for informational purposes only. Unless otherwise stated, any opinions expressed above belong solely to the author.