Thursday, Jul 07, 2022

Ashneer Grover Vs Investors: Who Is The Real Owner Of Startups In India?

Ashneer Grover’s resignation has brought the focus back on the arm-twisting that founders often are subjected to

Ashneer Grover’s resignation comes days after Singapore International Arbitration Centre (SIAC) rejected his emergency plea

“You treat us founders as slaves," BharatPe co-founder and managing director Ashneer Grover said in his resignation letter.

Grover’s resignation comes days after Singapore International Arbitration Centre (SIAC) rejected his emergency plea, against the ongoing ‘governance review’ within the company. 

While it may look like the two-month-long ugly corporate battle between the startup's co-founder and its investors has come to an end, his resignation alleging a well-planned conspiracy by investors brings to the fore a pressing question: who owns a startup?

Is it the founder(s) who build the company giving their sweat, tears, and blood, or the investors who pour in billions of dollars in the company until an idea clicks?

The boardroom battles between the founders and investors are as old as the startup ecosystem in India, but the battle between the Bharatpe Co-founder Grover and the company’s investors has entered the drawing-room discussions, urging people to ask, is being a startup founder really worth it?

“You treat us Founders as slaves – pushing us to build multi-billion-dollar businesses and cutting us down at will. Investor-Founder relation in India is one of Master-Slave. I am the rebel slave who must be hung by the tree so none of the other slaves can dare to be like me ever again,” said Grover in his resignation letter.

According to research by the Harvard Business Review, four out of five entrepreneurs are forced to step down from the CEO’s post. 
Most are shocked when investors insist that they relinquish control, and they’re pushed out of office in ways they don’t like and well before they want to abdicate. 

Grover’s unceremonious exit from BharatPe’s board seems to align with this. 

Prior to BharatPe, such boardroom battles between founders and investors have led to exits of the former in many other marquee startups in the country. 

The most prominent being the exit of Binny and Sachin Bansal from Flipkart after the company was taken over by US retail giant Walmart. 

While Walmart was initially keen on retaining Sachin, it reversed its stand after the Flipkart board, led by Tiger Global Management's Lee Fixel decided to cut him out. 

Binny had to leave the company for failing to disclose ‘personal misconduct’.

A similar story is of Rahul Yadav, Co-founder and former CEO of From being mooted as one of the most promising startup founders of his time, things for Yadav changed within months when in 2015 an email that he had sent to investor Shailendra Singh of Sequoia Capital — in which he threatened Singh to “vacate the firm” if they didn’t stop “messing around” with him — went public. “This marks the beginning of the end of Sequoia Cap in India,” Yadav had written, triggering his own downfall. He had first resigned calling his board members and investors “intellectually incapable” of having a discussion, then withdrew it before eventually being booted out. 

Since then, founders have understood the need to protect their turf from investors who may go on to control the company. 

In fact, founders of successful startups have often lobbied for shares with differential voting rights, while smaller entrepreneurs have been trying to educate themselves about how to protect them. 

But the trend, as is evident from the BharatPe controversy, is very much prevalent even now where investors often arm-twist founders to rule the company. 

Some, like Ola’s Bhavish Aggarwal, learnt the lesson early on and were able to protect their stature in the company they founded. 

He had sensed that such a situation could arise, and in 2017, when it seemed like SoftBank was flexing muscles on strategy, he got certain clauses in Ola’s articles of association altered to give him tighter control. 

The Japanese conglomerate, led by Masayoshi Son, was an early backer of Ola, but Aggarwal had grown concerned about its influence as SoftBank took a stake in his archrival, Uber, and then encouraged the rivals to merge.

Aggarwal, reportedly, had also gone to Kunal Bahl and Rohit Bansal -- the founders of Snapdeal -- for advice on managing SoftBank. 
SoftBank had invested in the e-commerce startup and then tried to push the founders to sell out to a larger rival, Flipkart. 

When Snapdeal refused the deal, Son switched allegiances by stopping further investment in the company and put $2.5 billion into Flipkart.

The BharatPe controversy began with an audio clip emerging of Grover allegedly using profanities against a Kotak Mahindra Bank employee. 

While Grover dubbed the clip as fake, the bank has said they will press charges. 

Grover went on a voluntary leave of absence on January 19 and soon after his wife Madhuri was sacked alleging misappropriation of funds. 

Realising that his grip was losing on the company, Grover had demanded a payout of Rs 4,000 crore from investors. 

But as things stand today, it’s unlikely that he will get anything.

With so many instances of investor-founder feuds leading to founders’ exits, is it going to harm the startup ecosystem in India?

Kunal Chowdhry, Global investor and CEO, Apollo Singapore Investments said that at best such situations must be avoided.

“This is one of those he said-she said type of situations. There is no doubt that in the past, VCs have exerted pressure on what they deem as ‘uncooperative’ founders who don’t often agree with their short-termism or their strategy in order to force said founders out. Yet, at the same time, the allegations of fraud, in this case, are very serious. I would personally like to see how this would have played out had he not resigned,” he said.

Ankita Vashistha, Founder and CEO of Saha Fund and StrongHer Ventures, believes trust and open communication between investors and entrepreneurs is a must. 

“It’s very important for founders and VCs to be aligned. Let’s not forget venture investments are a long-term investment and engagement and involve a lot of money which requires transparency, responsibility, and monitoring," she said. 

"The lack of the same leads to fall out at the leadership level and governance structure, which exposes the cracks in the relationships and structure,” she added. 

Vashistha added that bigger VCs and investors have a bigger responsibility to govern and maintain the same.

The BharatPe controversy has once again opened the pressure tactics by investors’ debate open. Can we get the answers this time around?