The world of Indian startups

India has over 99,000 start-ups. India became the third-largest start-up ecosystem in the world after the US and China last year. However, start-ups have been reported to have flouted norms around corporate governance, putting at risk the entire start-up ecosystem, making foreign investors sceptical. Start-ups, on the other hand, are blaming investors for pushing ‘growth at all costs’, forcing them to junk processes they once had in place.

Certain issues in the internal processes, accounting, and governance practices have been raised in some of the startup companies, leading to the need for corporate governance becoming a focal point.

The funding winter has continued beyond 2022 and is fast approaching to extend beyond 2023 as well. It is becoming clearer that selectivity in deal-making will increase, with a focus on path-to-profitability, especially in growth- to late-stage companies.

From unicorns and decacorns, the word cloud for Indian startups is now dominated by words such as fiduciary irresponsibility, poor governance, lack of financial control systems, revenue recognition metrics, money swindling, and human resources bungling.

So, What about the role of VCs? In a rush to drive up valuations, shouldn’t they also apportion part of the blame, given that they too have a responsibility towards proper running of their investee companies? Given the recent turn of events that has brought down many unicorns with multiple down rounds, is corporate governance, besides the business model and the idea, going to be a defining pillar to draw top dollars from investors.

Going forward, the startup ecosystem needs to develop its own set of norms and standards for good corporate governance. This can be done through the formation of self-regulatory organizations for startups. These organizations can develop codes of conduct for startups and provide guidance on how to comply with these codes.