Why corporate governance is the new buzzword in India's start-up ecosystem

The recent spate of layoffs at well-funded start-ups, such as Swiggy and ShareChat, coupled with the revelation of alleged financial improprieties at GoMechanic has prompted investors across the ecosystem to re-examine their stance on governance and operational ethics in their portfolio.

Sequoia, which had to do reactive damage control at three of its portfolio firms—BharatPe, Zilingo and GoMechanic—was reportedly mulling special audits on its investments in South-East Asia, but the VC firm has denied it. Aggressive investors, wary of potential oversights during the frenzy of 2021, are now making governance a top priority along with the renewed focus on profits over growth.

Talking to BT, multiple fund managers say they are setting up stringent governance frameworks—similar to those in listed entities—beyond just legal, financial and technology due diligences. Investors are establishing strict oversight mechanisms including mandatory quarterly reporting of financial disclosures, periodic internal control and audit testing to avoid unwarranted situations.

As investors move to make internal controls and processes stronger, they plan to implement maker-checker processes and segregation of duties, besides establishing mandatory policies on conflict of interest, whistle-blowing and harassment. The atmosphere is such that one investor said he wouldn’t be surprised if forensic audits become a norm in the coming days to establish the credibility of financial data in start-ups.

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