Experts suggest that establishing clear exit strategies, dispute resolution clauses, and transparency protocols can mitigate tensions early on
Fintech platform BharatPe has finally reached a settlement with its former co-founder, Ashneer Grover. The settlement indicates that Grover would not be associated with BharatPe in any capacity. Further, he will also not be a part of the shareholding of the company.
Grover, who was removed by the company’s board as the managing director in 2022, was engaged in a long rift with BharatPe from 2022.
Since then, the long-stretched legal battle between Grover and BharatPe has seen accusations and counter-accusations ranging from financial frauds to criminal complaints and more. Following the settlement, Grover said in a post on X, “I will no longer be associated with BharatPe in any capacity, nor be part of the capital table. My remaining shares will be managed by my family trust. Both parties have decided not to pursue cases filed. I hope BharatPe continues to grow and succeed for the benefit of all its stakeholders.”
What becomes important to note is that this isn’t the first time there was a rift in a company. We often hear about rifts between start-up founders, between start-up founders and investors. Harvard Business School professor Noam Wasserman mentioned in his book ‘The Founder's Dilemma' that 65 per cent of start-ups fail due to conflict between founders.
“Consistent conflict between investors and founders can harm the reputation of a company, impacting all aspects of the business—operations, employee morale, and customer confidence,” says Mitu Samarnath Jha, CEO, Eminence, a strategy consulting firm focused on reputation.
As mentioned before, the rift between start-up founders or founders and investors is not new. If we go a little back in time, real estate search portal Housing.com was sold in 2017 to its rival PropTiger. The once successful start-up was engaged in a war of words between its CEO, Rahul Yadav, and the board.
Yadav was eventually fired by the board for his objectionable behavior in 2015. Following this, the board reportedly said, “The board believed that his behavior is not befitting of a CEO and is detrimental to the company, known for its innovative approach to product development, market expansion, and brand building.”
The conflict between Flipkart CEO Kalyan Krishnamurthy and co-founder Sachin Bansal is no secret. The tension intensified due to the difference in management style between the two. The relationship became more bitter after one of the earliest backers of Flipkart, Lee Fixel of Tiger Global Management, had a disintegrated bond with Bansal, as per the book ‘Big Billion Startup: The Untold Flipkart Story' by Mihir Dalal. Eventually, Sachin left the company board in 2018.
Another example is that of social commerce platform Trell, where the company’s co-founder, Pulkit Agarwal, sent a notice to its investors. The co-founder questioned the purpose and scope of a forensic examination of the start-up's finances in the note. The audit that was called by investors of the start-up was being conducted by EY India.
Some of the top investors of Trell include Mirae Asset, KTB Network, Beenext, Fosun, Samsung Venture Investment, H&M Group, and Sequoia Capital India. Eventually, in 2022, as per media reports, Sequoia Capital India exited the company with a 78 percent loss. As per Entrackr, the company’s revenue from operations fell from Rs 80.6 crore in FY22 to Rs 4.77 crore in FY23.
The most recent one and also the most talked about is that of ed-tech start-up Byjus. Once the most favorite for investors, the valuation of Byju’s has reduced by more than 99 per cent to $120 million. The valuation of the company at one point in time was $22 billion. The ed-tech start-up grappling with financial irregularities is also engaged in a bitter fight with its investors.
So much so that the issue has been dragged to multiple courts. Investors of the company made several allegations against the company, including the fact that Byju’s has used funds from a rights issue and kept them in an escrow account. Investors have also called for the removal of Byju’s CEO, Byju Raveendran. Meanwhile, Raveendran called the allegations by the investors baseless and blamed them for the delay of salaries to the employees. The future is hanging for the ed-tech start-up now. Recently, the Supreme Court raised questions about the National Company Law Appellate Tribunal's decision to approve the settlement of BCCI's Rs 158.9 crore claim by Byju's.
Chief Justice of India DY Chandrachud said in a statement, “Why did you pick only BCCI to settle its dues? What about others? When the quantum of the debt is so large, can one creditor walk away saying one promoter is ready to pay me? Out of your personal assets? You have today a debt of Rs 15,000 crore.”
While conflicts are tough, resolutions are tougher. “To prevent conflicts like the one we just witnessed, clear agreements between founders and investors are crucial. These should include detailed shareholder agreements that clearly outline governance mechanisms, rights, and responsibilities. Establishing clear exit strategies, dispute resolution clauses, and transparency protocols can mitigate tensions early on,” says Somdutta Singh, founder and CEO, Assiduus.
Jha further adds that at the time of starting off or in times of need, one often gets driven by emotions. “Eventually, emotions overpower logic in the absence of clear paperwork,” she adds.
However, the situation isn’t gloomy for the Indian start-up system. ”In the last 10 years, we have seen so many entrepreneurs building large-scale organizations and transforming them into unicorns and soonicorns as an outcome of partnering with the right investors,” adds Jha. As per data platform Tracxn, there are a total of 356,000 start-ups and 117 unicorns in India. Additionally, the funding received so far by the companies is $12.6 billion until October. While the country promises a bright future for the start-up ecosystem, conflict resolution becomes a pertinent solution for the space to thrive better.