India’s Unicorn Startups Need to Focus on Reputation & Avoid ‘Imposter Boys’

Sequoia Capital's public outcry is a wake-up call for everybody from founders to regulators.

Photo for representation. 

(Photo: Erum Gour/The Quint)

When Infosys became a world-class exporter of software services from India, the country had barely heard of the term called 'venture capital', and the word ‘Unicorn’ belonged not in a business lexicon but in the world of fantasy stories and TinTin comic books. Even the word 'startup' was just about beginning to make sense.

Yet, the Bangalore company founded in the early 1980s went on to join the ranks of billion-dollar valuation companies now called unicorns. Decades later, it remains a strong company today in spite of several setbacks. Or, you could say that it is the way that a company deals with setbacks and opportunities that makes it a unicorn in the truest sense of the term.

These thoughts come to me as the hard reality hits home for India's billion-dollar valuation startups, many of whom are given the unicorn tag with futuristic valuations in mind to motivate young employees and give luscious exit values for venture capitalists, who are, in a Shakespearean sense, modern-day Shylocks: they don't give that kind of money and build that kind of hype for cheap.

Their own strategy often involves a hype that prepares the startups for future acquisition or IPO listing when the VCs and founders of a startup both hopefully get rich.

The Sequoia Imbroglio Has Lessons

This month, venture capital fund Sequoia Capital (which once funded Google) triggered a new storm in India's unicorn ecosystem when it raised doubts regarding corporate governance issues in homegrown startups. Four of its investee companies are in the dock over what in plain English could be called ‘honesty issues’. Sequoia spoke of “wilful fraud and intent” in a rare public statement. Chief among the infamous four startups is BharatPe, whose co-founder Ashneer Grover may now be called an “imposter boy” (a term I just coined) in a world known for poster boys.

The unicorn honeymoon is over, and it is time to ask what makes a lasting, successful marriage when Silicon Valley practices are migrated to India.

Before Ashneer Grover, whose shenanigans are best learned by simply googling his name, there was Rahul Yadav, who was pushed out by VCs from Housing.com after the aggressive IITian promised to overhaul India’s broken home-hunting culture.

In a private conversation I had with a leading angel investor, I learned that Yadav had actually told him that he had kind of hoped that his startup would be "too big to fail". He was proved wrong. In other words, he had hoped that getting a load of investor money would make it difficult for them to let go of the money, the company, and, by extension, him.

Remember the old saying? “If you borrow a million dollars it is your problem. If you borrow a billion dollars, it is the bank's problem.”

Grover and Yadav are here to show that corporate irregularities and adventures come in various shapes and sizes. Just as public sector banks are paying the price for lending money to a Nirav Modi or Vijay Mallya, who are cooling their heels in Britain's hospitable legal system, VCs like Sequoia are realising the “people risk” factor in a business where founders and employees are the core drivers of values through commitment, energy and character.

VCs are Being Gamed by 'Hustlers' and Fraudsters

The problem with India is that thanks to a huge demographic transition, many startups that are doing little more than adopting new technologies to serve the populous local market are being tagged as unicorns. Few have the innovation, culture or ambition to be truly global. Unicorns have thus become a bandwagon, and clueless global VCs are being gamed by wannabes, ‘hustlers’ and fraudsters. India now has close to 100 startup unicorns with a combined valuation estimated at around $320 billion as per government data. Phew!

Sequoia's public outcry is a wake-up call for everybody from founders to regulators to understand the importance of honesty and transparency in a new world that promises much but faces a threat to its reputation.

That brings us back to Infosys, whose slogan was “Powered by Imagination. Driven by Values”. Infosys co-founder NR Narayana Murthy may be a ‘Big Bore Uncle’ for many of today's flashy, narcissistic unicorn-ers brought up on a diet of Instagram Reels. But he has a lesson to offer, just like Info Edge co-founder Sanjeev Bikchandani, who said after Sequoia's lament that “good governance starts in the founder's head”. Touche!

The Three Big Os

However, character and governance are not everything. They are the basic pizza base ingredients on which you build your unicorn toppings. If you want me to look beyond fancy unicorn-ese catch-phrases like ‘pivot’ (which I would call strategy jugaad), what makes a successful unicorn are the following three Os.

Orientation: You can bring a successful global product into the Indian market (think Paytm and mobile wallets), or you can take a successful local product global (think Ola). You need to know both your potential and limits so that you don’t bite off more than you can chew, but digest well what you chew.

Opportunity: Know why customers, investors, partners, and employees should care about you to see an opportunity for themselves where you see an opportunity for yourself – and know that threats will happen from any quarter.

Organisation: Be it structure, philosophy, goals, values, or strategy, know why you are doing something and what you won’t do and why.

One can write a book on the three Os and elaborate more on other things like innovation and scaling that are part of even tier-three MBA textbooks, but these three things matter a lot. Textbooks are not playbooks, and every aspiring unicorn must write its own playbook.

The three big Os can potentially convert a short-term company (startup) into a long-term company (institution).

Why Honesty is Key

Case studies abound on successes and failures because neither opportunities nor threats cease. As of this month, Facebook has still to climb a new mountain called the Metaverse, and Netflix has to worry about life after scaling as subscriber growth falls.

What really makes a successful unicorn is the ability to navigate change in a way where character reflects governance, while the three Os are like a compass that helps change pace, style or direction, or even stay put.

Reputation, which is what brands are really all about, is something that comes over a period of time with these things. VCs are kind to founders and startups that know how to hang on and when to surge, and, above all, why honesty is important at various levels at all times.

I know moral science is not half as exciting as a Red Ferrari, but entrepreneurship is a world in which the guys who end up at the top are those who can afford Ferraris but live like monks – maybe not in their lifestyles but certainly in their minds. Think Infosys, think Bill Gates, think Warren Buffett. Boring can be exciting if you know how to play it right.

(The writer is a senior journalist and commentator who has worked for Reuters, Economic Times, Business Standard and Hindustan Times. He tweets @madversity. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)