June 2020, when we raised a new set of funds for India & SEA region, we wrote a blog titled “Fork in the road”. We spoke about how we were at a juncture and encouraged founders to take the path toward building sustainable businesses designed to endure. In the two years since, a number of startups have gone on to become highly successful public companies, including TrueCaller, Nykaa, Zomato, GoTo and Freshworks, embracing the discipline and predictability expected by the public markets. We think this is a big win for the ecosystem and has really put India and Southeast Asia on the map as an attractive destination for venture investing.
At Sequoia India & SEA, we had our fair contribution last year with eight companies from our portfolio going public across our India and SEA portfolio. We feel privileged to play the role we play – partnering with great founders and helping them in their mission to build world class businesses. We believe such founders are not just building value but changing the world, creating millions of jobs and making a meaningful impact on the markets they serve in the process. We have immense gratitude for the sacrifices founders and management teams make to dedicate themselves to their mission. We truly cherish playing a small role in being a part of the “team” and this is what keeps us coming back to work each morning.
Business challenges are a part of startup life, and every startup goes through good and bad times. We usually stand shoulder to shoulder with our founders during hard times. But on some rare occasions, we wake up feeling disappointed. Our worst days are when we hear about breaches of integrity or ethics in the portfolio. This is the stuff that pains us deeply. And it’s time we speak about this.
Recently some portfolio founders have been under investigation for potential fraudulent practices or poor governance. These allegations are deeply disturbing. We have always strongly encouraged founders to play the long game. We focus on the enduring, and discourage focussing on vanity metrics. Despite that we find some counter-examples of what we espouse. It makes us reflect on what we could have done, along with other investors who have partnered in these companies, to prevent such situations.
We have, as an ecosystem, delivered some big outcomes through the IPOs and exits and through the several unicorns and decacorns created over the last few years. We want great companies to be built that are not just valuable but also enduring – and that can only happen if the values are right and the governance is strong. We think it’s time for us, as an ecosystem, to sign up for better governance. “What” has been achieved is now clear – we think it’s time to improve on the “how”.
We still want founders and the entrepreneurial energy to drive companies because founders provide the vision, mission and drive the culture and values. But we need some guardrails that we, as an ecosystem, sign up to, so that a few errant founders don’t create big setbacks for the wider ecosystem at large. As a startup ecosystem, we are still a “work-in-progress” and we collectively have to drive better accountability, along with improving performance, for us to unlock the full potential this region has to offer.
It is easy to think of this issue as ascribed to poor due diligence. But let’s remember that when investments are made at seed or 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.
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. We believe India and SEA markets are well poised to be amongst the most attractive tech and venture markets globally. At Sequoia India and SEA, we aspire to be long term participants in this ecosystem and are willing to do whatever it takes to encourage good behavior and continue to move towards making this a world class ecosystem!