CRACKS IN THE SPEEDWAY

THE RACE FOR GROWTH AND VALUATIONS IN YOUNG, HEADY START-UPS HAS PLACED MANY ON A COLLISION COURSE WITH GOOD BUSINESS PRACTICES, RESULTING IN SEVERAL CASES OF CORPORATE GOVERNANCE MISHAPS

- KRISHNA GOPALAN

IN LATE FEBRUARY this year, Anirudh Damani, Managing Partner at Artha Venture Fund, sent out a message on the WhatsApp group he shares with the founders of his investee companies, predicting “a tough winter lasting for two to three quarters”. The advice was sound and it spoke of conserving cash, and if a company was close to raising funds, “the deal had to finish quickly”. For at least eight years, the flow of money into India’s start-ups saw no abatement, leading to astronomical valuations, often without a robust business model. Damani, who runs an early-stage thematic micro-venture capital (VC) fund, says the indicators were clear much before he sent the missive. “There has to be a collaborative relationship between the investors and the founders with high levels of transparency,” he says.

While all this would sound obvious, the real challenge in several start-ups has been the inability to sustain the frenetic pace of growth. Pressure from investors, coupled with promoters’ unbridled ambition to hit unicorn status at any cost, has led to poor decision-making. This is the point where anything goes, which lays the ground for corporate governance coming apart. In short, it comes down to business practices being compromised. In the recent past, one has seen a serious eruption of this in various forms at BharatPe, Trell and Zilingo, with an apprehension that many more will follow. It is a tough situation to be in and a few (but large) rotten apples can quite effortlessly play havoc with an industry that, in many ways, is an indication of India’s vast talent pool.

GROW, GROW, GROW