Sequoia Capital India, one of the most prolific and successful investors in India and Southeast Asia, addressed the fraudulent practices allegations levelled against some of its portfolio startups and pledged to take proactive steps to do more to drive increased compliance.
In a blog post published Sunday afternoon, the storied venture fund said it's still a “work-in-progress” and that all players collectively have to "drive better accountability, along with improving performance, for us to unlock the full potential this region has to offer."
The post -- serving as Sequoia's first official word on the matter -- comes at a time when at least three of its portfolio startups have undertaken investigations:
Fashion marketplace Zilingo has suspended Ankiti Bose, its founder and chief executive, this month following investigation over accounting. Sequoia Capital India's head, Shailendra Singh, has left the board. (Both the developments were first reported by Bloomberg News.)
BharatPe co-founder and former chief executive Ashneer Grover resigned from the startup, valued at $2.8 billion, earlier this year after an investigation found that he and his wife had siphoned off money. (Grover has refuted the findings.)
Live commerce startup Trell recently investigated claims that its founders siphoned off money and lied about its usage and growth metrics.
Sequoia Capital India, which didn't identify any startup by name, said it will work on a wide range of things, including:
Governance trainings 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
The post, written by the Sequoia team, said that it may often appear that investors don't do enough due diligence, but reminded that when investments are made at seed or during a later time within the 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."
The post adds:
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.
At Sequoia India & SEA, we always have held ourselves 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 trainings 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 willful misconduct or fraud. When whistleblowers call us to report on issues, we always take them seriously. We know in some cases they may turn out to be baseless – but we still have to look into them 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.
We hope more people in the ecosystem join us on this pledge to greater governance. [...]