Apart from imperatives of justice, there’s need for investors to know about corporate controls and hygiene, apart from business prospects of both parties to the legal dispute. The settlement should not serve to put a lid on the governance structure of BharatPe that allowed for alleged fraud by the management. India’s startup ecosystem should benefit from the BharatPe episode – more light needs to be shed on it. Ongoing investigations will do their bit. But internal corporate processes should be robust enough to detect and deter unethical behaviour at all levels. Lower cost of capital makes transparency pay for itself.
Startup founders are facing heightened scrutiny from investors after a series of spectacular blowouts across jurisdictions. Startups typically enjoy some leeway on disclosure over mature companies. The pathway to scale, however, involves stricter corporate controls and greater accountability to investors. The regulatory arbitrage between PE and public float will diminish as the startup population grows. Indian startups would do well to draw lessons from the BharatPe revelations. They would do even better to see that the revelations of this nature are not prematurely terminated. With a little help from regulators, of course.
