Will respond strongly to frauds: Sequoia Capital on controversy-hit BharatPe

PTI, Apr 17, 2022, 6:08 PM IST

Breaking its silence over the controversy at fintech firm BharatPe, Sequoia Capital India on Sunday said it has zero-tolerance toward proven wrongdoing and will continue to respond strongly to wilful misconduct or fraud so that a few errant founders do not create big setbacks for the startup ecosystem.

Sequoia, which is the largest shareholder in BharatPe where co-founder Ashneer Grover was virtually sacked from his role, in a blog on its website said it won’t hesitate to act to protect the interest of shareholders and employees even if it costs it financially.

”We will take tough calls where needed in the interest of doing what is right,” it said without directly mentioning BharatPe.

Sequoia, which holds 19.6 percent of BharatPe, did not say if it had insisted on the removal of Grover after a third-party audit alleged grave governance lapses under him.

BharatPe, which allows shop owners to make digital payments through QR codes, first sacked Madhuri Jain, wife of Grover, for alleged misappropriation of company funds. This was followed by Grover resigning and the company stripping him of the co-founder and other titles over alleged ”extensive misappropriation of company funds” by ”creating fake vendors” to siphon money and using ”company expense accounts” to ”enrich themselves and fund their lavish lifestyles.” Grover has denied any wrongdoing.

The India unit of the American venture capital firm said it wants companies that are not just valuable but also enduring.

”Recently some portfolio founders have been under investigation for potential fraudulent practices or poor governance. These allegations are deeply disturbing,” it said. ”We have always strongly encouraged founders to play the long game. We focus on the enduring, and discourage focussing on vanity metrics.” A startup ecosystem needs guardrails so that a few errant founders don’t create big setbacks, it added. Sequoia, which has invested in companies ranging from 1mg to Byju’s to Cafe Coffee Day and Grofers, said eight companies from its portfolio went public last year. ”We usually stand shoulder to shoulder with our founders during hard times. But on some rare occasions, we wake up feeling disappointed. Our worst days are when we hear about breaches of integrity or ethics in the portfolio. This is the stuff that pains us deeply. And it’s time we speak about this,” it said. ”We want great companies to be built that are not just valuable but also enduring – and that can only happen if the values are right and the government is strong. We think it’s time for us, as an ecosystem, to sign up for better governance.” It’s time to improve on the ‘how’ to deliver on better governance, it said.

”We still want founders and the entrepreneurial energy to drive companies because founders provide the vision, and mission and drive the culture and values. But we need some guardrails that we, as an ecosystem, sign up to so that a few errant founders don’t create big setbacks for the wider ecosystem at large,” it said. Stating that it is easy to think of this issue as ascribed to poor due diligence, it said when investments are made at the seed or early-stage there is hardly a business to diligence. ”Even later stage investors can face negative surprises, post-investment if there is willful fraud and intent.” ”As an investor representative, one serves on the board, and boards can only work with the information shared with them – the less transparency there is to the board the lesser their ability to truly unearth errant behaviors. The board is there to govern and help make decisions in the best interest of the shareholders. ”The board is not responsible to investigate on an ongoing basis unless something formally is brought up with them, which is often through a whistleblower. Better corporate governance is a shared responsibility between founders, management, and the board. And to get there the ecosystem needs to come together and commit to some changes,” it said.

Sequoia India said it has held itself to a high bar on integrity because we are in this for the long term. ”We will take a set of proactive steps as a responsible participant of this ecosystem and do more than our fair share to drive increased compliance across our portfolio companies including, but not limited to, governance training for founders and senior management, implementation of whistleblower policies, more independent board representation, asking for more disclosures and more rigorous adoption of internal audits and controls.” ”We will continue to respond strongly when we encounter wilful misconduct or fraud,” it said.

Whistleblowers are always taken seriously, it said, adding while in some cases they may turn out to be baseless, all issues rained by them still have to be looked into as it is a board member’s fiduciary duty.

”We will continue to have zero tolerance towards proven wrongdoing. We won’t hesitate to act to protect the interest of the company and employees, even if it costs us financially. We will take tough calls where needed in the interest of doing what is right,” it added.