SUMMARY
The year 2023 unfolded with boardroom battles at BharatPe, founders deceived at a startup event, financial mismanagement, and accusations of unfulfilled promises by Shark Tank judges, casting shadows on the Indian startup landscape
Notable figures such as BYJU’S, Ashneer Grover, Rahul Yadav, GoMechanic, and Mojocare played pivotal roles in tarnishing the image of Indian founders during the year
Now that we stand on the edge of 2023 to welcome 2024, let’s take you through this year’s top controversies and disputes that we wished had never happened to start with.
Just when the Indian startup ecosystem was poised to reach new heights, the year 2022 unfolded like a nightmare and with it unravelled a flurry of distasteful events.
While the likes of Trell, Zilingo and BharatPe made headlines in 2022 for all the wrong reasons, 2023 became the extension of what could not be accomplished a year ago in terms of setting wrong precedents.
From the boardroom brawls of BharatPe, founders falling victim to deception at a startup forum, financial mismanagement and syphoning of funds to accusations that Shark Tank judges failed to uphold their promises, the year thus far has been rife with controversies, painting a less-than-ideal picture of the Indian startup landscape.
Now that we stand on the edge of 2023 to welcome 2024, let’s take you through this year’s top controversies and disputes that we wished had never happened to start with.
With that said, let’s get the ball rolling.
Revisiting Major Startup Controversies That Stirred Up A Storm In 2023
BYJU’S 2023: A Year Of Turmoils
In 2023, the edtech juggernaut, BYJU’S, found itself ensnared in a series of controversies. The year commenced with a saga of delayed financial reporting, prompting the departure of auditor Deloitte Haskins & Sells and the exit of three influential board members — MD of Peak XV Partners V Ravishankar, Russell Dreisenstock of Prosus and Chan Zuckerberg’s Vivian Wu.
As the year unfolded, BYJU’S encountered an inquiry by the Enforcement Directorate (ED), alleging a staggering INR 9,000 Cr violation of FEMA rules, resulting in a show cause notice.
The challenges intensified when the Board of Control for Cricket in India (BCCI) took BYJU’S to the National Company Law Tribunal (NCLT) over a dispute concerning sponsorship dues amounting to INR 158 Cr for the Indian cricket team’s jerseys.
In the midst of a difficult year, BYJU’S named Arjun Mohan as its India CEO. Close on the heels of him taking over the reins of the company, the edtech announced that it will have to let go of 4,000 employees. Not to mention, the edtech decacorn had already been laying off employees in small groups.
On December 6, it came to the fore that the startup had not submitted the PF of its staffers since August, even after deducting the same from their paycheques. BYJU’S made a similar folly last year too.
Now, BYJU’S has scheduled an Annual General Meeting (AGM) on December 20, which is aimed at resolving a list of issues, including its much-awaited financial results for FY22. Although it has already posted an EBITDA loss of INR 2,253 Cr for FY22, much is still to be reported.
Under the pile of aforementioned troubles also lay the edtech’s legal tussle with its TLB investors, back-to-back valuation markdowns, several instances of misselling, and a likely sale of its subsidiary companies Great Learning and Epic by Byju Raveendran.
As of now, the entire startup ecosystem seems to be closely keeping its eye on how the BYJU’S chapter will unfold in the upcoming year.
Financial Deception At GoMechanic & Mojocare
In the early months of 2023, automobile after-sales startup GoMechanic, too, faced corporate governance crisis. Cofounder Amit Bhasin publicly admitted to committing “errors in judgement” regarding financial reporting while trying to pursue growth.
The startup allegedly misled investors for years by showing fake numbers. GoMechanic was acquired by a consortium led by Lifelong Group, a majority shareholder in GoMechanic rival Servizzy for about INR 220 Cr. But major investors of GoMechanic, including Orios Venture Partners and Peak XV Partners, filed a joint complaint against the startup’s founders, leading to an FIR by the Delhi Police’s Economic Offences Wing.
In a similar story, healthtech startup Mojocare’sfounders, Ashwin Swaminathan and Rajat Gupta, too, confessed to cooking the books.
This confession led to a change in leadership and eventual plans to shutter operations, returning capital to investors.
India’s Very Own Fyre Festival For Startups
Just three months into 2023, the patience of Indian founders was put to the test by the organisers of The World Startup Convention (WSC).
Promoted as India’s biggest funding festival by influencers such as Ankur Warikoo, Prafull Billore, Chetan Bhagat and Raj Shamani, the three-day event was supposed to host minister Nitin Gadkari, Tesla’s Elon Musk, Google’s Sundar Pichai, and the Crown Prince of Dubai as speakers from March 24 to March 26 in Greater Noida.
Much to everyone’s annoyance, the event proved to be a sham, triggering a clash as some attendees spent over INR 50 Lakh to become a sponsor of the event for the World Startup Convention.
While the organisers of the event, Luke Talwar and Arjun Chaudhary, denied any charges of cheating and duping the participants anywhere between INR 6,000 to INR 8,000 for a three-day pass, clashes between organisers and attendees led to police intervention at the venue.
Along with organisers Luke Talwar and Arjun Chaudhary, influencers like Ankur Warikoo and Chetan Bhagat were blamed for endorsing the event.
At the time we had questioned — “Where is India’s influencer economy headed?”
The Broker Network Implosion
In the middle of the year, 4B Networks, the third entrepreneurial stint of Housing.com founder Rahul Yadav, came into the headlines. The controversy started when its investor Info Edge initiated a forensic audit into the affairs of the proptech startup.
As the investigation unfolded, from unsettled debts to multiple entities to an alleged illicit transfer of funds from Broker Network to two other companies associated with Rahul Yadav and his wife, Karishma Singh, several issues were revealed.
It turned out that the money from 4B Networks took a detour to Yadav’s holding company and then found its way to a company called Kult App, where Yadav’s wife played a big role.
In November, Rahul Yadav was quite close to being put behind bars but had a close shave in an INR 50 Lakh cheque bounce case filed in May by an erstwhile Broker Network employee, Arun Singh Shekhawat.
It must be noted that the Economic Offences Wing is also investigating two separate cases against Yadav, one of which is filed by Broker Network’s lead investor Info Edge, alleging an INR 288 Cr graft. In addition, employees of the company have also not been paid since September 2022.
Embroiled in multiple allegations of fraud, Yadav’s story once again shows how important it is for founders to have strong ethics in place.
The BharatPe-Ashneer Grover Brawl Intensified In 2023
The BharatPe-Ashneer Grover brawl continued to make headlines into 2023 as well. Topping the list of headlines was a criminal complaint against Grover, his wife Madhuri Jain Grover, and her family members, which turned into a full-blown FIR by Delhi Police’s Economic Offences Wing (EOW).
Despite Grover’s consistent denial of allegations, a lookout circular led to the couple being stopped at the Delhi Airport. Alongside, the EOW’s probe allegedly uncovered payments to sham HR consultancies run by Madhuri Jain and her kin.
Already in the face of EOW questioning for allegedly syphoning funds from BharatPe, beleaguered former managing director Ashneer Grover landed himself in yet another legal soup just last month (November).
The fintech juggernaut filed a fresh case against its outspoken ex-MD in the Delhi High Court for publicly sharing the company’s confidential information on a social networking platform. The ex-MD had to apologise for the posts and was slapped with an INR 2 Lakh fine.
Mounting a multi-pronged legal offensive against the Grovers, BharatPe has initiated as many as 15 proceedings against the couple and their kin, including a civil suit for alleged embezzlement that seeks INR 88.67 Cr in damages from the duo.
The INR 200 Cr Wedding Aisle That Led To Mahadev Betting App Scam
In February 2023, the opulent INR 200 Cr wedding of Indian native Sourabh Chandrakar in Ras Al-Khaimah, the UAE, drew the attention of enforcement agencies. Hailing from his humble origins as a juice vendor in Chhattisgarh’s Bhilai, Chandrakar’s meteoric rise raised the eyebrows of many in the government as they began a full-scale investigation into his finances.
Seven months later, the Enforcement Directorate unearthed the Mahadev app online betting scam, exposing Chandrakar and Ravi Uppal as its masterminds.
In October, the ED filed a chargesheet, naming 14 persons, including Chandrakar and Uppal, before a PMLA court in Raipur, Chhattisgarh. The Mumbai Police later joined the probe, too, and booked 32 individuals during its investigation.
Caught in between seem to be a clutch of prominent figures and Bollywood celebrities who have been interrogated and named in various chargesheets and complaints filed by both the police and the ED.
Meanwhile, on December 23, it was reported that Uppal was detained in Dubai by the local police on the basis of a red notice issued by the Interpol at the behest of the enforcement directorate.
ZestMoney’s Saga Of Failed Acquisitions, Founder Troubles & Shut Down
The journey of ZestMoney, once the BNPL poster child of India, came to an end after the management shocked its employees by asking them to stay at home from December 7.
The management had to pull the plug on the company after an internal funding round failed to materialise, as per sources.
For the uninitiated, the cash-starved startup was fighting many battles — founders calling it quits, failed acquisition bids, regulatory hurdles and a severe slowdown in the core BNPL business.
It is imperative to mention that ZestMoney once held its head high with a peak valuation of $455 Mn. However, soon the company fell into a debt trap due to growing NPAs, sub-par collections and a faulty business model. This was despite the company’s claim of catering to 17 Mn registered users. In FY22, ZestMoney’s losses bloated 3X YoY at INR 398.8 Cr due to a steep rise in expenses.
Operating within a business model similar to BNPL players like LazyPay and Simpl, ZestMoney was sitting on an NPA rate exceeding 13%, way above the healthy BNPL loan default rate of 2-3%.
Earlier in the year, ZestMoney’s cofounders Lizzie Chapman, Priya Sharma, and Ashish Anantharaman stepped down. Following their exits, the new management took over and was in talks to raise funds but to no avail.
Did Sharks Ghost Founders?
The popular TV show Shark Tank India has undeniably left a lasting impact on citizens, so much so that the show is one of the topics of discussion at the Indian dinner table.
However, the euphoria surrounding the show has been marred by allegations from young founders who have voiced concerns about the conduct of investors, aka ‘Sharks’.
Many participants of Shark Tank India told Inc42 that the Sharks have deliberately delayed investments under various pretexts. The participants have also alleged that the Sharks are impolite in person and deride their business models even after promising investments.
Complicating matters further, as per the participants, is the absence of proper documentation of the funding commitments they get on-air, which makes it tough for them to seek legal recourse. Notably, verbal promises lack the legal weightage necessary for pursuing legal recourse.
In June, we were also told that Sony TV only assures of providing a platform, and there are no terms and conditions to protect our interest if judges renege on their pledge.
At the time, it also came to the fore that Sharks got defensive and reneged from their commitments after engaging in the due diligence processes of some of the show’s participants.
[Edited by Shishir Parasher & Vinaykumar Rai]
