Jan 12, 2017 08:24 AM IST | Source:

COMMENT: How VCs are killing India‘s startup dreams by ousting founders

Housing‘s merger with PropTiger and Flipkart board‘s replacement of its cofounder CEO have a common thread - investor play.

It was a sad week for the fledgling Indian startup ecosystem. A day after Flipkart’s Co-Founder and CEO was replaced by an investor nominee, (a startup founded by 12 IIT-Bombay batchmates in 2012) was merged with PropTiger.

Both announcements have a common thread. Foreign investors which hold majority stakes in both companies have exercised control and replaced the founders from the helm, hiring instead their own nominees.

However, what happened with post the ouster of its Co-Founders could very well happen with the poster boy of Indian startups – Flipkart.

It’s no surprise that nothing in the world can replace founder’s passion of building a dream. Money, processes, profits and revenues are by-products.

Often Co-Founders bleed their own money for years and years to build a product they are passionate about. Building a company from scratch also needs sacrifices. This may mean no holidays for years, no weekends, and lessened family time.

Entrepreneurs get joy from building a product and a great customer experience is their reward. Often founders also take zero salaries for years even before profits start trickling in the company. They survive on their own savings.

This would mean downgrading their lifestyle and discretionary household budgets. I’ve come across co-founders who had to provide their family with healthcare in government hospitals (which is not so good in India), shift to cramped apartments and even forego holidays, even as their peers enjoyed comfortable lifestyles.

For some, the risk gives way to big monetary rewards after years. For several, it does not. Expecting the same level of commitment and passion from non-founders (employees) in a startup cannot be guaranteed or even should be expected.

Early employees, however, are attuned to the sacrifices made by founders in building a dream. They may think differently. And a CEO chosen from that lot may thing differently.

As the organisation becomes bigger, employees hired later even on top positions get attuned to delivering a task than building a dream. Their roles get limited and voices often don’t reach the top.

Hiring a professional CEO by a company’s board can be attuned to delivering such a task as a turnaround, stabilising operations, getting an exit for an investor, an IPO, et al.

Such CEOs do have the capability to take hard decisions and turnaround or often make the company’s financials look better on paper.

They often limit themselves to the task entailed by the board rather than build something entirely new. They get paid handsome packages (often better than what founder CEOs took home).

However, building a world class product and a dream requires another level of passion which sadly only founders can infuse.

Rocket Internet is an apt example of what happens to startups when CEOs are treated as employees than founders who have complete control over teams and decision making in their company.

Investor founded companies often have a goal of an exit within 7-10 years and the whole business often aligns to that target.

Forced mergers by global investors in India in the areas of taxi aggregation, online classifieds, and e-commerce are a big example. One set of founders leave the team in such mergers and the dream collapses entirely.

Why Flipkart and Housing have come full circle

I was at a packed hall at IIT-Bombay in February, last year. On the dais were Sachin Bansal (Flipkart’s Co-Founder and Chairman) and Rahul Yadav, the ousted co-founder of Housing. Both talked about the role of investors and how to succeed in building a startup.

“An investor should make sure to give absolute voting rights on the board to founders. They need to be in charge whether they are making mistakes or not,” said Sachin Bansal.

Rahul Yadav retorted.  “Maybe I talked to all the wrong investors. A lot of investors say that this is my playbook – if you like it so be it – else I can find someone else. However, if you get the bad guys in, they can shut your venture,” he told the audience. He was ousted by the company board in 2015.

Post Yadav’s ouster, other co-founders also left subsequently and became ‘just another company’ rather than a passionate startup where the company buzzword was ‘Macha Denge’ - ‘we will create disruption in India’.

Perhaps, both Flipkart and Housing have come full circle in their journeys when investors start to take the lead decisions than founders.

Of course, when founders willingly take a back seat to take a bigger view on company and market strategy is a different case. Bill Gates, Larry Page, Reid Hoffman all appointed CEOs when founders had already spent a considerable time building the companies at the helm.

A forced replacement or ouster of founders from executive operations in the heydays of a startup may not do any good. It’s a plea to the investors not to kill the passion of founders in the early years of their startup.

(This is an opinion piece)

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