After Gensol, Medikabazaar, Forget Startup Innovation, Focus On Governance

The more pressing issue for discussion is how startups are being governed, in the light of recent developments at Gensol Engineering and Medikabazaar.

The developments have revived concerns about the robustness of the internal control mechanisms in place in the new-age business arena, which is being seen as likely playing a key role in the Indian government's Viksit Bharat (Developed India) agenda. The promoters of Gensol are co-founders of the startup BluSmart Mobility.

The important point for deliberation in this context is whether no lessons were learned on the governance issue after seeing what happened at Byju’s. And, related to this, whether things have seemingly gone back to the old ways in the startup space regarding oversight, with even investors seemingly waking up to their responsibility in this connection only when problems at the companies they have invested, have become too difficult to handle. 

The only Indian company to sponsor the FIFA World Cup 2022, Byju’s was once India’s most vaunted startup, whose valuation at one point touched US$ 22 billion. It continues to remain a standout example of how things can go downhill in a spectacular way when corporate governance goes for a toss.

In an interim order on April 15, capital markets regulator SEBI, while highlighting the governance failures at Gensol, pointed out that the company’s promoters were running a listed public company as if it were a proprietary firm.

Meanwhile, as per multiple media reports, there are allegations of Medikabazaar making financial misstatements, in response to which, the company's co-founder and CEO Vivek Tiwari, in a media statement, has denied "all allegations of fraudulent conduct or intentional misrepresentation during my tenure as CEO".

As of writing this report, there have been no comments made on the Gensol and Medikabazaar episodes by the leading lights of India’s startup arena, who had seemingly not taken too kindly to Union Commerce Minister Piyush Goyal urging startups to raise their innovation quotient.

Neither has anything been said on the issue by key industry bodies, including those that had organised the Startup Mahakumbh in Delhi earlier this month, to celebrate the prowess of India's startups.

The reticence of the titans of India’s startup arena to speak on anything that reveals the soft underbelly of the ecosystem — one of the biggest in the world in terms of startup numbers — is nothing new, however. It is rare in India to see VC funds, angel investors, etc. publicly advocating the need for improved governance standards at startups.

But irrespective of the radio silence of the top guns of the startup fraternity on the happenings at Gensol and Medikabazaar, there is no getting away from the unfortunate reality that India’s startup arena has a long way to go before it can replicate its success in producing unicorns, on the governance front.

The troubles at Gensol and Medikabazaar are simply symptoms of the malady that continues to afflict India’s startup domain that is obsessed with valuations — with governance getting the short shrift in the process.

While it may be convenient to pin the blame for the troubles at Gensol and Medikabazaar on certain individuals, it must be recognised that many of the problems faced by these companies could have been averted or minimised if the gatekeepers of good corporate governance (such as independent directors, investor community, etc.) had only been more vigilant.

The Way Forward

So, what can be the way forward to improve governance in India’s promising startup arena, given that “corporate governance is an evolving journey” as 100X.VC founder and partner Ninad Karpe told The Secretariat?

A couple of measures.

First, and foremost, the acceptance by key stakeholders in the startup ecosystem, especially founders and investors, that the new-age business arena must get its act right on the governance front. Neither adequately acknowledging the problem viz governance, nor taking the subsequent hard measures that are called for, may be too big a risk to take.

Startups refusing to see things for how they are, and not doing whatever is necessary to fix the weakness in governance, could also lead to calls for greater regulatory oversight of the arena, which may not exactly be to the liking of many new-age businesses.

The other step that could prove handy, is key industry bodies like CII, FICCI, and Assocham, collaborating with associations that represent the interests of startups and key investors in the domain, to evolve a “code of best practices” on how the investor fraternity can proactively contribute to improving governance at every step of a startup’s journey.

Since it had come up with a corporate governance charter for startups in April 2024, nothing could be nicer than CII taking the lead in this proposed initiative. The CII corporate governance charter contained a self-assessment tool, through which startups, irrespective of the stage of the life cycle they are in, can gauge for themselves where they stand on the governance front.  

The most important takeaway from the CII charter, though, was the clear message that “misgovernance” can threaten the survival of startups. “The perception that good corporate governance involves excessive cost and makes startups less agile, may be misplaced. It is important that corporate governance measures are not viewed as a cost-centre for business, since cost of non-compliance and misgovernance can be fatal to the business,” the charter said.

Conclusion

In the final analysis, nobody gains if governance issues lead to some startups either failing to achieve their potential, or, in the worst case, shutting down. Still early into a new financial year, the wish would, thus, be that governance would get its proper due in India’s startup space, since having robust governance structures is good for business.

For, as SEBI chairman Tuhin Kanta Pandey said at a CII conference recently, “Governance is no longer just a best practice, it is a necessity that acts as a bridge between performance and trust.”

(The writer is a current affairs commentator. Views are personal)