A ‘bad precedent’: BharatPe episode surprises startup capital Bengaluru

Bengaluru : The BharatPe episode, which shocked the startup industry, has startled Bengaluru, known as the startup capital of India.The incident has also rang alarm bells among many startups, which are going easy on financial discipline. Industry insiders feel that while the investors want to double their money, founders of startups want to settle down as soon as they get investments, without even bothering to think about the future of the workforce.”It is all about moral responsibility and individual perspective. Most of the startups are likely to get a valuation, get an investor and settle down. They can’t obviously sustain,” a senior tech-entrepreneur said.”It is said that startup is a short-term game. It works when it gets funding. The valuation is based on excel sheets, and things could be wonderful on excel sheets. People investing in startups want to double their money, and most of them go for equity funding. Once the funding comes, the salaries take a jump from lakhs to crores in one go. Plans are made in a way that all their expenses are taken care of,” he added.

Talking about how startups could be run without any hassle, Salil Ravindran, advisor, mentor and independent board member in many startups in India and abroad, told IANS that startups need strong corporate governance to stay clear of moral hazard, which can be achieved by having strong and independent compliance norms, independent board members, whistleblower policy, CFO reporting to board, etc.”While we don’t have exact details of what happened behind the closed doors in the BharatPe episode, there seems to be non-delineation of official and personal matters. Founders should stay away from using the company’s relationship with banks and other vendors for personal purposes. Also in my opinion, a company of family and friends is always prone to malpractices,” he said.A palatial house with a fleet of luxury cars, never-ending trips to exotic locations, expensive beauty treatments abroad and more — Shark Tank India’s judge Ashneer Grover and his wife Madhuri Jain Grover lead a life that millions of Indians can only dream of.

Ashneer has now quit BharatPe he co-founded in 2018, as the company accused him, his wife and their relatives of massive financial irregularities to fund their lifestyles.The 39-year-old’s net worth is estimated to be more than Rs 21,300 crore, according to reports.Though letting go of a founder is one of the hardest decisions for any board, it is not the first time it has happened.However, the BharatPe incident is definitely a bad precedent given the scenario that led to it. It will make investors more circumspect of company matters and founders more concerned of being eased out. This is an unwanted friction as the true battle is out there in the marketplace. and not among the founders and the board, Ravindran said.Startups become successful when the founders bring a team together that works towards a common vision. While the bonding in such scenarios can be very strong, it can also lead to some unprofessional, or worse, illegal actions. So it is worthwhile for all founders to ensure independence of compliance and audit functions, Ravindran said.Rohith Bhat, MD and CEO at Robosoft Technologies, said that keeping personal agendas out of all the dealings is very important, and needless influence of the management will not help.

Most companies will have external investors. Most of them will have strong leaders who can point out where the founder is going wrong at the regular board meetings, while operational managers will also give their opinions, and there is a position of CFO below CEO, who gives an unbiased report on the company, he said.”Every company should be dealt like that as we have the responsibility of the workforce,” Bhat said.When asked about the BharatPe controversy affecting the startup ecosystem, he said, “I don’t think it will have any effect on the startup ecosystem. There will be trade-offs between the founder and the investor, but the problem arises when they lose trust in each other. I can’t really comment on the BharatPe incident,” he said.Discipline has to be ensured at every level otherwise people will make decisions on their own and set bad examples for others, Bhat said.”There should be no special treatment for the CEO or anyone from the management side. The principle is leaders have to work the hardest,” he said.