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Are India's Startups At Risk Of Meddling From Their VC Investors? 

 
 

Suparna Goswami, Forbes  

Bengaluru, 17 January 2017

The past week saw India’s Flipkart appointing a non-founder CEO who is also part of Tiger Global Management, the online marketplace’s largest investor firm.

A few days later, Snapdeal, another large Indian online marketplace, brought in real estate firm Housing.com’s CEO Jason Kothari as its chief strategy and investment officer. This news comes on the heels of a recent merger between Housing.com and real estate brokerage firm Prop Tiger, which has raised funds from SoftBank – a major investor in Snapdeal.

Are we seeing a pattern of investor overreach into startups in India?

With this latest SoftBank connection, many are starting to lament how young businesses in India are facing excessive interference from venture capitalists. Some experts tracking the ecosystem have written about the number of years left before “impatient investors take control of the startups” – but how well founded are these suspicions? I spoke with a few local venture capitalists for their side of the story, and perhaps unsurprisingly, many were upset with the media for “sensationalizing” a trend that’s not quite the harbinger it appears to be.

Dev Khare from Lightspeed India Partners Advisors, a VC firm, says things shouldn’t be viewed as black and white. “Just because Flipkart announced a professional CEO who happens to have an association with its investor firm Tiger Global Management doesn’t mean [its] founders no longer will have a say in the company,” says Khare.

“In the end it all boils down to making money. If a company isn’t doing well, the equity that VCs and founders jointly hold will have no value. I don’t see this as a battle between VCs and founders,” he says.

For other VCs, it’s all about the individual needs of a company, and labelling the investor’s role as “interference” is the wrong way to approach the issue.

Tarun Davda, managing partner with VC firm Matrix Partners believes that all investors look out for the wellbeing of their investment, no matter how that presents itself.

“We’re helpful when asked for advice but never fool ourselves into believing that we know more about the business than the founders,” says Davda.

He believes there are often cases where founders feel they can better serve their company by bringing on a more experienced CEO, particularly where founders may lack the experience or skills to take a company ahead through all stages of evolution. Davda provides the example of Google, probably the biggest startup success story of our generation, which had to bring in Eric Schmidt as its CEO early in their journey.

Devangshu Dutta, managing partner of venture accelerator PVC Partners, chalks up the media reaction to local culture. Dutta says Indians have a habit of looking down on founders for handing control over to an outsider.

“There is no harm in accepting that sometimes a company needs a new person at the helm to turn around things,” says Dutta. “In India, we tend to take these things as failures; but [they] could be the outcome of well thought out strategic decisions.”

And in reality, for many startups the Flipkart and Snapdeal episodes are a non-issue; founders are aware of their capabilities and strengths, and their limitations.

Ganesh Shankar, founder of FluxGen Technologies, an IoT startup, is fine to pass on the reins of the company to a person who doesn’t alter the company culture too much. “I guess I [would] be glad if I can find a person willing to take on the top leadership role provided he or she has the experience to scale the business,” he says.

Others view it as a matter of practicality, that these seemingly hard decisions are part of the fiduciary responsibility of the VCs towards their LPs.

Pallav Pandey, CEO of startup BroEx, doesn’t believe that VCs interfere in a company’s affairs unless they’re forced to. “Both founders and investors are stakeholders and after having given enough time to founders [to succeed], if it is inevitable that a new CEO needs to be brought in to steer the company forward, then it should be done,” he says.

However, not all agree with this view. One startup founder I spoke with, who asked not to be named because of the potential harm to his business’ relationships, says the reality of a boardroom meeting is darker than what’s usually projected.

“Founders and VCs are fair-weather friends. One can’t expect things to be always amicable. The main flip side of raising huge funds is that somewhere down the line a founder’s opinion gets diluted. That’s a hard reality,” the founder says.  

(Published in Forbes)

 
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