SUMMARY
Ankur Capital’s Shiv Shanker said that early-stage founders have to ensure that “critical issues” are disclosed and discussed with investors
He also called on the investors to be rational and responsive, while steering clear of “heavy-handed” measures for early-stage startups
Issues related to lax governance guardrails at startups have dented the trust of investors, leading to backers tightening their purse strings and ramping up scrutiny
As corporate governance issues at Indian startups continue to make headlines, Ankur Capital’s investment director Shiva Shanker believes that there needs to be an open and honest conversation between founders and investors to tide over such issues.
Speaking to Inc42 at the sidelines of the Startup Mahakumbh event, Shanker said that early-stage founders have to ensure that “critical issues” (governance-related) are disclosed and discussed with backers.
On the other hand, he added that investors have to be rational and responsive, and have to steer clear of “heavy-handed” measures to ensure early-stage startups find their footing and the “right type of independence”.
“I think it is impractical for investors to go heavy handed on startups from day one. Instead if investors communicate to their portfolio founders that these are the critical items that have to be disclosed and be discussed, then I think we (backers) make sure that things are falling into the right buckets,” said Shanker.
The investment partner at Ankur Capital added that as the number of investors on board increases, investors need to be more critical, and everything has to get approved in the forum.
He said that it is not practical for investors to have longer turnaround times for reviews at early-stage startups, which have to continuously iterate to churn out products. As such, he suggested a more structured approach for investors which include dynamic strategy meetings (with a week’s notice) and prompt communication with founders.
“From Day 1, there needs to be an honest conversation about the trajectory that the startup will go down and to define KPIs that a portfolio startup needs to adhere to. Being in regular touch with portfolio startups helps investors devise alternative strategies. This is better than coming in nine months later and having arbitrary conversations while the startup has missed the goal by 60-70%,” added Shanker.
He also exclaimed that it is mainly the founder’s job to make people believe in the company as well as the team and investors.
Shanker’s comments come at a time when even founders believe that corporate governance measures instituted by investors were not entirely effective. A survey by Inc42 revealed that 54% of Indian founders believe that the wary stance adopted by investors to counter flawed corporate governance practices among Indian startups was moderately or barely effective.
Lately, issues related to lax governance guardrails at startups have dented the trust of investors, leading to investors tightening their purse strings and ramping up scrutiny of portfolio companies.
The year of 2022 and 2023 witnessed major headlines around corporate governance issues at Indian startups. While the likes of BharatPe’s ex-MD Ashneer Grover and Broker Network’s Rahul Yadav faced court cases, edtech juggernaut BYJU’S witnessed raids by the law enforcement authorities.
GoMechanic’s four cofounders faced allegations of financial mismanagement, forging documents, cheating, and falsification of accounts. On the same lines, Trell faced the ire of investors and critics alike for alleged irregularities while edtech Skill-Lync found itself on the wrong end of the stick for allegedly pushing students into a debt trap.
