Building trust through strong governance for sustainable startup growth

In the context of the startup ecosystem, when growth is the only metric that matters, good governance may fall by the wayside.

By Sandeep Murthy and Rashmi Guptey 

The undeniable potential of India’s startup ecosystem has for the past couple of years been somewhat muddied by good ideas turning into bets gone terribly wrong. More often than not, these ‘failures’ can be traced back to one factor – poor governance.

The long game

Whenever money is involved, there’s potential for bad behaviour. That’s not a cynical view. It’s a practical one. Across developed and developing markets, we’ve seen misconduct take many shapes: outright fraud, creative accounting or simply turning a blind eye in the hope of “fixing it later”.  Sometimes it’s deliberate. Other times, it’s born from optimism: “If we just hit this next milestone, it’ll all make sense.” Think Theranos. The road to wrongdoing is often paved with good intentions and justified with future success.

So, how do we guard against such outcomes?

The default answer is strengthening the culture of integrity, honesty and trust. Governance is about “doing right, when no one is watching”, building robust governance mechanisms, operationalised through audits, compliance, employee capacity building and board oversight.

But even the most rigorous systems can fail when the intent to deceive is strong enough – or when incentives are misaligned. In the context of the startup ecosystem, when growth is the only metric that matters, good governance may fall by the wayside. Well-meaning founders, with limited time and multiple priorities to juggle, often tend to de-prioritise governance because it doesn’t yield immediate returns.

It’s important to remember that good governance does one thing incredibly well – it protects your right to play the long game. As Info Edge’s Sanjeev Bikhchandani often says, good governance adds to your valuation. It builds a moat that growth alone can’t guarantee. This isn't new learning. In its 2002 Investor Opinion Survey, McKinsey & Co found that investors were willing to pay a premium – 12-14% in the US and Western Europe, 20-25% in Asia and Latin America, and 30% in Eastern Europe and Africa – for companies with high governance standards. The survey covered over 200 institutional investors across 31 countries.

A dynamic, responsive approach to governance

At Lightbox, we’ve seen firsthand how a commitment to governance creates long-term value. It’s why we push our companies to close audits on time, appoint experienced CFOs, and empower and honour internal compliance. These aren’t box-ticking exercises — they’re safeguards for sustainable growth.

We also recognise that governance frameworks only work when people respect them. Which is why we’ve evolved a dynamic and responsive approach to corporate governance, designed to meet the unique demands of startup journeys. Our experience over the past decade has shown us that a one-size-fits-all approach to corporate governance is ineffective for startups. Early stage companies, focused on innovation and rapid development, require flexible governance frameworks that support agility and creativity.

We believe that in the early stages, governance should emphasize establishing clear roles, transparent communication, and basic compliance. As the company matures, the focus should shift to comprehensive risk management, robust decision-making processes, and advanced compliance mechanisms.

Catering to this curated need, Lightbox’s governance framework assesses governing practices on the basis of the growth stage of a company. We call these Level 1, 2 and 3 stages; each stage representative of the company’s stage of evolution. We believe that stage-based governance maturity achieved through tangible milestones built on the back of collective responsibility will go a long way in maintaining a sustainable governance culture and push companies to evolve their governance journey.

By aligning governance practices with the startup’s varying stages of evolution, companies can ensure that governance supports their strategic goals and operational needs, fostering sustainable growth and long term success. Each level or stage is built on the foundational five pillars of our corporate governance framework – board governance, risk management, financial and business integrity, stakeholder management and organisation structure.

Trust is everything

As investors, the onus is on us to reframe governance as a value driver and as a strategic tool. Further, to mature as an industry, it’s also critical for us to stop making governance optional. We must empower our portfolio compliance leaders to hold the line. We must be willing to lose short-term value to preserve long-term integrity. We must be the investor who says, “No CFO, no cheque.” Even if that means slowing a deal or missing a quarter.

In the venture capital business, trust is everything. Investors allocate capital based on the assumption that there are rules, that those rules are followed, and that there is recourse if they are not. In a market like India – where legal enforcement is often delayed or uncertain — this trust becomes even more crucial.

Companies like Goldman Sachs, legacy Indian corporate houses like the Tatas and internet conglomerates like Info Edge have built lasting brands that investors return to again and again. Not because they always deliver the best returns, but because people trust that they’ll do what’s right, even when it’s hard.

Those are the kind of businesses we want to build.

(Sandeep Murthy- Managing Director, Lightbox India Advisors & Rashmi Guptey- Head of Legal & Compliance.)

Views are personal, and do not represent the stance of this publication.