As startups flounder, investors take over control from founders
India’s most valuable startup, Flipkart, has changed its CEO not once but twice. Flipkart’s rival Snapdeal is up for sale, against the wishes of its founders, after rejecting at least two funding offers. Cab-hailing service Ola shut some of its ancillary businesses that its CEO fancied. Another unicorn, Paytm, cut spending on its e-commerce operations after lower-than-expected growth despite spending hundreds of crores of rupees in advertising and cashbacks.
There are similar instances of retrenchment at most of India’s other large startups since the start of 2016.
Who is driving these changes? It’s the boards of directors, mostly investors, who are increasingly asserting themselves at India’s largest startups.
Many entrepreneurs had lost their way in the funding boom of 2015, heads turned by the billions of dollars their companies received from all-too-eager investors who pushed them to deliver flying sales growth at any cost. After it became clear that investors and entrepreneurs had overestimated the size of India’s Internet market, the same investors shut the funding tap.
It’s no coincidence that the two investors driving changes at large Indian startups are the ones who have most at stake: Tiger Global Management and SoftBank Group Corp.
Lee Fixel, Tiger Global’s MD and the funder-in-chief of Indian Internet startups, first brought back Tiger employee Kalyan Krishnamurthy to Flipkart last June to run the company’s sales operations and then installed Krishnamurthy as CEO in place of Flipkart co-founder Binny Bansal in January. SoftBank is playing a leading role in arranging the sale of Snapdeal to Flipkart, Mint reported on May 2. Last month, Snapdeal co-founders Kunal Bahl and Rohit Bansal had admitted in an email to employees that the fate of the company is out of their hands.
Tiger and SoftBank, which have together invested more than $4 billion in Indian startups, have seen their bets falter to varying degrees (SoftBank’s a lot more than Tiger’s) and are scrambling to make the most from a market.
“If you look at the Flipkart situation, this was not a contentious decision. Binny did not come out against Tiger. In the Valley, you see CEOs and founders getting replaced by companies very often. What you’re seeing is the maturing of the Indian startup ecosystem,” said Sandeep Murthy, partner at Lightbox Ventures, and board member, InMobi, India’s largest advertising technology startup.
Flipkart and Snapdeal represent extreme cases of investor board members taking control of their portfolio companies. At most large startups such as Ola and Paytm, while the founders no longer enjoy a no-questionsasked status from investors, they still run the companies.
Some investors said VCs should entirely avoid running their portfolio companies—if they do, it indicates they have made the wrong bet.
“If I go into a company thinking that I have to run it someday then I’m not investing in the right entrepreneur,” said said Ash Lilani, managing partner and co-founder at Saama Capital, a venture capital (VC) firm, and a Paytm board member.