Now Zilingo fraud saga threatens India's great startup run

Industry leaders and experts on Friday raised alarm over the failing corporate governance in the Indian startup ecosystem, after another startup Zilingo suspended its CEO and co-founder, Ankiti Bose, over alleged financial irregularities, and she is now gearing up to fight back.

After the long-drawn Ashneer Grover-BharatPe saga that put corporate governance on top of the stakeholders' minds, Singapore-based fashion-tech startup Zilingo asked Bose - who co-founded Sequoia Capital-backed Zilingo as a 23-year-old in 2015 -- to stay out of office till May 5, accusing her of inflating revenues.

She fought back, calling the board's action a "witch hunt" and has now reportedly started exploratory talks with new investors to buy out a majority stake in the startup she co-founded.

According to Shrijay Sheth, Founder of Legalwiz.in, after the recent incidents with BharatPe and Trell, Zilingo is on the radar for discrepancies in books of accounts.

"An alarming situation, just when the startup ecosystem has seen a good run last year with funding rounds and many quickly claiming Unicorn status. The valuation being justified by a very aggressive growth projection put the founders in a stressed position to perform," Sheth told IANS.

"While the investors look for exits at greater valuations, it seems like the loss of confidence in the management is kicking in faster than usual. This episode is an eye-opener for the whole ecosystem at large," he noted.

Ironically, other platforms that faced financial irregularities at the top -- BharatPe and Trell -- are also backed by Sequoia Capital.

Alarmed at the recent fraud allegations at some of its portfolio startups, Sequoia Capital India has said it will continue to respond strongly when it encounters "willful misconduct or fraud", and take tough action wherever needed.

"These allegations are deeply disturbing. We have always strongly encouraged founders to play the long game. We focus on the enduring, and discourage focussing on vanity metrics. Despite that we find some counter-examples of what we espouse," the VC said in a blog post earlier this month.

BharatPe co-founder and Managing Director Ashneer Grover, along with his wife Madhuri Jain Grover, were charged by the fintech platform of "extensive misappropriation of company funds" and using "company expense accounts" to "enrich themselves and fund their lavish lifestyles".

Live commerce startup Trell also probed claims that its founders siphoned off money.

According to Umesh Uttamchandani, COO, DevX Coworking and Accelerator, after the Zilingo saga, the startup ecosystem has become focused on corporate governance.

"Amid the controversy at Zilingo, the ecosystem as a whole is facing a tough time as the mismanagement has come into the picture on various levels and the trust of investors has been shaken," Uttamchandani told IANS.

The breach of integrity and ethics always has had a powerful impact on the ecosystem and "due diligence is getting carried out in a more prudent manner to avoid mishaps and the investor confidence stays intact," he added.

Shailendra Singh, Sequoia Capital India's head, has left the board of Zilingo.

Sequoia Capital India has said it 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," the leading investor has stressed.