The art of a good unicorn | How good corporate governance keeps the ship afloat
The Zilingo imbroglio serves as a stark reminder of the need good corporate governance in startups, for it can make or mar its journey. As more companies try to go public, the importance of corporate governance cannot be undermined.
As someone who has tracked the private markets for more than a decade, the chatter around corporate governance allegations around Venture Capital (VC)-funded tech startups is not something new. About once a year, the spotlight comes on the increasing role of governance in these ventures. I recall my conversation with a veteran private equity investor in which she once remarked about having corporate governance standards in the companies they invest in, “If someone is intending on cheating you, they’re going to do so, no matter what”. That really stuck with me.
Zilingo CEO, Ankiti Bose (who was all set to be one of India’s first female unicorn founders), was fired over complaints about alleged financial irregularities and opaque accounting practices.
Cut now to B2B (business to business) fashion tech platform Zilingo which is reportedly imploding. Its CEO, Ankiti Bose (who was all set to be one of India’s first female unicorn founders), was fired over complaints about alleged financial irregularities and opaque accounting practices. This led to employees leaving, creditors recalling loans, and more.
Reports also say that Bose had a mercurial style of leadership, with a fixation on “crazy growth” and a hellbent obsession to get the attention of large fund backers like Masayoshi Son, of Softbank. The core of the controversy is the friction between Shailendra Singh of Sequoia India and her. Then you had the reports of BharatPe founder Ashneer Grover allegedly misappropriating funds or Rahul Yadav of Housing.com who couldn’t get along with the board of directors.
The Zilingo imbroglio speaks to a more pressing issue: Corporate governance in startups and unicorns, or a lack thereof. These incidents serve as a stark reminder of the contempt some founders may have for the institutions necessary to keep founders grounded and of the potential fetishisation of the image of the perfect entrepreneur demigod who is self-sufficient and infallible.
Some key patterns keep surfacing as to why tech-led startups that are VC funded are being infected by corporate governance issues:
One: There’s an obsession for entrepreneurs to make enough waves to come on the radar of groups like Softbank and Tiger Global. According to a Bloomberg report, one of the primary reasons that led to the Ankiti Bose controversy was her obsession to get the attention of a big fund like Softbank. The size of a funding deal brings better deal flow, the ability to quickly ramp up and a better ability to wipe out the competition with better hires, smarter marketing and more channel partners.
Further, being backed by an investor like Softbank means that other funds may not outspend you and competing funds may think twice before backing your rivals. This is the “Softbank advantage”. Being in the spotlight seems to be an issue that plagues founders. Being meretricious sets oneself up for failure. There may be some deep-seated indifference to governance and a lack of oversight with startup founders racing to get their ventures to get as big as possible in lieu of profits. “Growth at all costs” is a notion that seems to be adopted by founders embedded in the hustle culture. It may be the startup version of “I asked God for a bike, but I know God doesn't work that way. So I stole a bike and asked for forgiveness” to gain market share.
The first time one does something like that, they try to rationalise it as a one-time deal. That never seems to be the case. Soon, it becomes so routine, that one may not even realise the collateral damage it leaves behind. This snowballs into an issue so large, that it cries out for the need for corporate governance. Moving all the other issues and metrics to the backburner tends to make the pot on the stove overflow. The impending fear that such a large investor doesn’t back the competition.
Two: Each one of us wants to be respected. In fact, we go a long way to get that respect. Founders are no different. As they yearn for respect and realise no one’s handing it out on a platter, they resort to the easiest trick in the book. The paradigm of “hero-preneur” is where you rise by belittling others. Vulnerability seems like a curse that sets such a high standard for themselves where they should have all the answers and be like that God-like figure, the chosen one who’ll guide their people to paradise. The sad part is that this paradigm is just multiplying as more individuals are adopting this ideology.
Three: The culture of a startup cannot be thought of that as a by-product anymore. As startups mature and pursue global ambitions, there ought to be introspection, when it comes to what kind of success they seek: Being a one-trick pony remembered for their big valuation or becoming an institution embracing sustainability and diversity. It’s high time the evaluation parameters included aspects like inclusivity, women in leadership positions, a “no-bro" culture, facilitating respect and professionalism.
In 2017, Netflix updated its manifesto on its organisational culture with a focus on inclusion and respect. The document has been hailed as “the most important document to come out of the Valley", some even calling it “a manifesto for the Internet’s economic epicentre". At a time when sexism and other ruthless behaviour in the tech industry are playing out, Netflix’s commitment to not hire jerks can be rewarding: “On a dream team, there are no ‘brilliant jerks’. The cost to teamwork is just too high," it said. Having said that, Netflix seems to be having some cultural problems of its own. Could Indian startups set an example by having a world-class culture document of their own?
The success of a venture hinges on the founder’s mastery of psychology. To be a founder of anything demands a certain set of qualities. Only a brave and confident person can take such a bold step as building something on their own in the face of adversity and obstacles. Being laser-focused, having the ability to think critically, developing a capitalist mindset and being antifragile: These qualities are often seen in founders but more often than not, founders are also associated with being arrogant. A specific set of traits are necessary to be a pioneer of something.
Initially, each founder succumbs to the culture of “fake it until you make it” as we’ve come across many stories of revered entrepreneurs who are regarded as very difficult to work with. The Theranos controversy with Elizabeth Holmes speaks to this very idea. She claimed to have a device that would upend the blood testing industry, raising hundreds of millions of dollars. However, it all came crashing down when it was reported that the device didn’t work and a culture of fear was revealed to be embedded in Theranos’ DNA. There seems to be conditioning of young founders to behave similarly to give the same impression. Steve Jobs had a reputation for being curt and brusque with his fellow workers and yet, he's a role model for thinking differently, being the CEO of Apple. The people who take after him will not necessarily have his brilliant mindset or innovation, but they may still emulate him. They may not even realise that their behaviour might be toxic.
As more and more companies try to go public, the importance of corporate governance cannot be undermined. A lack of the framework in your venture’s DNA means that you may be more likely to falter when you go public and you would never be truly prepared, in the face of scrutiny. Being a listed company would mean that there would be an analyst in a brokerage firm out there combing through your quarterly results and that’s something you have to be ready for.
Founders of today need to have a strong understanding of technology, need to know how to raise capital and how to manage stakeholders. So, being a founder in the present may have an even tougher role than your average CEO. And that's the foundation of the founder that must be set in stone to furnish organic results and create beautiful relationships with stakeholders.
So, if you’re ambitious of being a major company that’s listed on the Nasdaq and you want to stay that way, it’s would matter how great your product is, it wouldn’t matter how great your marketing is, it wouldn’t matter how great your fundraising is; if the ethics of the founder and the startup don’t reflect robust corporate governance standards, the wax of your wings are going to melt as you get closer to the sun. As more and more ventures are going public, the standards for corporate governance have never been higher. Stay hungry, stay foolish, stay cultured.
Shrija Agrawal is a business journalist who has covered startups and private capital markets before it was considered cool in India
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