Startups, BharatPe attention to control measures

A civil suit filed by fintech unicorn BharatPe in the Delhi High Court and criminal complaint with the economic offences wing of the police against its co-founder Ashneer Grover signal a lower tolerance for abuse in India‘s startup ecosystem. Grover quit BharatPe after being investigated for misconduct and over accusations of misappropriation of funds levelled against members of his family. Investors and promoters of companies usually part on far less acrimonious terms so long as no gross wrongdoing is involved. Differences over how a business ought to run are settled with one or the other party walking away with his or her money. Venture capital investors also have a feel about gold-plating of expenses as a startup’s valuation begins to climb. Some of the accusations made by BharatPe can, however, only be handled through legal recourse.

This course of action can be particularly arduous for a company in the process of building a reputation. Startups operate in disruptive business environments that can change very fast. The effort to bring a new product or service to the market can consume an enormous amount of managerial energy. Young companies are naturally more sensitive to high-decibel spats between founders and investors. When one does erupt, it tends to travel further than the boardroom struggles of mature businesses. A startup ecosystem grows by internalising the successes and failures of its cohort group, hence unprecedented legal action leaves lasting impressions.

BharatPe’s suit against Grover and his family will serve to reinforce the need for corporate controls among new entrepreneurs. Startups are equally likely to trip over well-established business practices as they are to chase poorly conceived or executed business opportunities. There may not be adequate guard rails for new ideas, but new entrepreneurs can tap into a rich corporate history. As a startup acquires scale, it needs to provide greater protection to investors by segregating business risk from corporate risk. Institutional investor safeguards during a startup’s journey to public shareholding are evolving. Founders that set the bar higher at the outset have a clear edge.

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