Ashneer Grover: Bitter BharatPe feud worries India's booming start-ups

Ashneer Grover wrote a scathing resignation letter

The resignation of a high-profile Indian entrepreneur from the company he co-founded has led to worry in the country's booming start-up sector.

Ashneer Grover, founder of at least two unicorns - tech start-ups valued at over $1bn - resigned last week as managing director of BharatPe, one of India's most prominent fintech companies, after a public fallout with the board of the company he founded.

Mr Grover's abrasive behaviour as a judge on Shark Tank India - the Indian version of the reality show where aspiring entrepreneurs pitch their ideas to a panel of investors - had made him a talking point since December.

But in January, he came under intense media scrutiny after a leaked phone conversation led to allegations that he had abused a bank employee for failing to secure funds so he could invest in the public share sale of beauty start-up Nykaa.

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Since then, BharatPe's board has accused him of misappropriating funds and siphoning off company money to pay for a "lavish lifestyle" - charges Mr Grover has denied.

In his scathing resignation letter, he accused the company's investors of making him the "villain of the piece".

"You treat us founders as slaves - pushing us to build multi-billion-dollar businesses and cutting us down at will," Mr Grover said in his letter.

The BBC spoke to corporate experts, who said Mr Grover's case - where there are allegations of fraud - is an aberration in India's start-up ecosystem. But it's only the latest in a series of ugly public spats involving the country's start-up entrepreneurs and investors.

A few years ago, realty search portal Housing.com's Rahul Yadav famously told his board that they weren't "intellectually capable" of sensible discussion. Since then, big start-ups such as Ola and Flipkart have seen founders battle investors for control.

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India's start-up ecosystem has become a high-stakes game - thanks to a gush of liquidity around the globe, start-ups in India raised a record $28bn last year, birthing 43 new unicorns and making overnight millionaires of several internet entrepreneurs.

But the dizzying valuations and furious deal-making are causing tensions between founder-entrepreneurs, investors and boards.

"There will be friction, as more and more money is raised and the founders' stake goes down," says TV Mohandas Pai, chairman of venture fund Aarin Capital.

But in most cases, he insists, founders and investors have their interests aligned.

"Sometimes they [founders] think that they can do what they want, despite retaining only a minority stake. That's all right when you are alone. But you need to change your practices when the roles reverse, as they increasingly are," says Mr Pai, whose fund is an early investor in ed-tech giant Byju's, India's most valuable start-up.

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Nithin Kamath, founder and CEO of Zerodha, a brokerage firm that has not raised private equity yet, says it's natural for founders to start feeling "short-changed" when their stakes get too diluted - which he cautions against.

"They need to have more skin in the game. Single-digit shareholding, where most start-up founders eventually end up at, is like being an employee, in terms of being able to run the business," Mr Kamath says.

This may not always be possible - investors, chasing handsome returns, also often replace founders when companies reach a certain scale, to "get people of their choice on board", says Mitu Samar Jha, a reputation consultant who advises a number of entrepreneurs.

The controversy surrounding Mr Grover has also put the spotlight on the broader issues with India's "start-up culture" - critics say this includes compromised governance standards, a toxic work environment and the phenomenon of founder-entrepreneurs assuming an increasingly boisterous public persona.

"This brashness, especially among entrepreneurs who've successfully raised money, comes from a belief that they have 'arrived'," says Ms Jha. "But little do they realise that they are growing on someone else's money, and that someone will question them."

Housing.com co-founder Rahul Yadav battled his board in 2015

At least three top PR consultants told the BBC on condition of anonymity that they have had to terminate client relationships with major unicorns recently because of behavioural problems.

"Their demands are often unreasonable, and they don't value our advice," said one executive.

Another complained of abusive behaviour and an inability to take "no" for an answer.

"A company's culture filters down to people at all levels. People down the ladder start exhibiting the same aggressive personality of the leader at the helm," he added.

Experts say many aspects of business culture have been compromised because of the availability of an abundance of capital, and a push to grow at any cost.

"Valuations have taken precedence over values," says Shriram Subramanian, who heads an independent corporate governance research and advisory firm. He believes ethics, business processes and culture are all deemed secondary to hyper-growth, and this attitude is often encouraged by private equity players. "Even if they don't actively encourage it, they don't condemn such behaviour."

Over time, as capital dries out and the frenzy is tempered, attitudes will change, believes Mr Subramanian.

Other experts also point to the fact that start-up culture everywhere around the globe is inherently driven by young people who have to adjust to shorter grooming times and quicker learning curves than traditional corporations. They also bypass governance rules applicable to listed companies, such as the need to have independent directors.

"These mechanisms must be brought in after the companies have found their product market fit," says K Ganesh, a serial entrepreneur and angel investor who founded one of India's largest online grocers, Bigbasket.

Some believe accountability will improve as more start-ups raise public funds through the stock markets - though the process may be painful.

"You can't change gears suddenly," says Mr Kamath. "The skill sets required to run a privately held company are different from those required to run a large public company. It is like playing Twenty20 vs a Test cricket match."

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