Fall of 'poster boys' adds to startup woes, good governance need of the hour: Industry

New Delhi: Recent governance issues with well-funded and "poster boys" of startups have added to the ongoing bearish trend for the ecosystem amid the funding winter, industry leaders and experts said on Wednesday.

As startup majors Paytm and Byju’s make the headlines for several issues amid the regulatory heat, investors have turned cautious about conducting a thorough due diligence process.

Veteran investor and Info Edge Founder Sanjeev Bikhchandani told IANS that he believes that good governance is important as companies grow.

"You cannot build a sustainable large valuable enterprise if you are not governed well. Therefore, I would urge startup founders to put more emphasis on good governance," he added.

According to Shrijay Sheth, Founder, Legalwiz.in, financial mismanagement and compliance-related issues are surfacing often these days.

"While the startup founders will assume a role of a custodian of investor's money, it is also important for the investors to take an active role in flagging such issues in time, especially, when they hold a board or an observer seat.

"Most of these issues surface while raising funds or when the business lacks financial performance," he noted.

Incubators, accelerators and other government funded programmes need to educate nascent stage founders, according to experts.

First-time entrepreneurs stay non-compliant largely because of lack of knowledge, than any other reason.

"Many requirements like labour-related compliance, POSH policy implementation, or maintaining basic accounting hygiene remain unaddressed due to lack of awareness. This needs to be addressed," said Sheth.

Due diligence and corporate governance are crucial factors at every stage of a startup's journey.

"At DevX Venture Fund, we have always emphasised strong corporate governance and ethos. We invest at an early stage and hence it is crucial to set the right expectations of how an organisation should run," Umesh Uttamchandani, CoFounder, DevX Venture Fund, told IANS.

Conducting regular monthly calls with the portfolio startups and providing clarity to "our investors happens to be of utmost importance as the founders ought to be accountable after raising funds and enable potential investors to engage with the founders who have clean books".