Amidst growing governance concerns plaguing the start-up landscape, the Indian Venture and Alternate Capital Association (IVCA), in collaboration with professional services firm Deloitte, has unveiled a framework for corporate governance practices in start-ups.
The ‘Start-Up Governance Playbook’ offers a framework of different corporate governance recommendations for new-age companies. The playbook consists of a broad guidance on the governance journey for start-ups from early stage to pre-IPO, a reference guide to help start-ups gauge where they stand on governance, a starter kit with an elementary introduction of governance building blocks, and inputs from those who have already taken their companies to IPO.
“To have world-class companies, the Indian ecosystem needs to have world-class governance. This playbook provides necessary guardrails for start-ups and founders to refer to at every stage of their company-building journey and we’re thrilled to see this comprehensive guide come to life,” said Rajan Anandan, Managing Director, Peak XV Partners and Surge and Chair of the VC Council at IVCA.
The funding slowdown has led investors to scrutinize governance practices and operational ethics within their portfolio companies. The Start-Up Governance Playbook aims to mitigate risks, promote accountability, and improve financial performance, IVCA said in a statement.
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In the past year, a wave of financial scandals has cast a spotlight on well-funded start-ups such as BharatPe, Zilingo, Trell, and GoMechanic. Last week, digital wellness platform Mojocare became the latest start-up in the country to suffer setbacks as governance lapses force the company to trim workforce and scaling down operations. Edtech major BYJU’S has been battling several governance-related issues of late. Three board members of BYJU’s — Peak XV Partners, earlier known as Sequoia Capital India; Prosus and Chan Zuckerberg Initiative – resigned from the company’s board amid differences with founder Byju Raveendran on key operational issues. The company’s auditor Deloitte Haskins & Sells too ended the relationship with the company due to “long delayed” financial statements.
“The speed at which start ups tend to grow, can at times lead to a gap between the stakeholder expectations on Governance and management capabilities to meet those. This ‘What to do- how to do- when to do’ playbook attempts to map Governance building blocks throughout the journey of startups to help them get better prepared. We hope the Founders, Investors, and the Boards utilise this resource guide to strengthen the foundation of the ecosystem as the Indian economy produces many more unicorns for the world,” Sachin Paranjape, Partner, Risk Advisory, Deloitte India said.
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The formation of a well-constituted board that adheres to applicable laws has been emphasized as a crucial step in the playbook. The board should conduct periodical meetings with adequate quorum, proper notice and agenda in compliance with applicable law. The board’s responsibility lies in overseeing adherence to prevailing regulations, it says.
“A well-defined governance framework ensures that start-ups have a clear decision-making process based on ethical and legal considerations. Strong corporate governance promotes transparency, reduces conflicts of interest, and improves the quality of decision making. To ensure long-term success and stability of start-up businesses, it is essential for start-up founders, VCs and the management to create, implement and monitor clear governance practices at every stage of the start-up journey,” Nikhil Bedi, Partner and Leader-Forensic, Financial Advisory, Deloitte India said.
