By Mohammed Shafeeq

Hyderabad, Mar 6 (IANS): The controversy surrounding BharatPe has brought into focus the need for strong financial discipline and good corporate governance and compliance in startups.

Stakeholders in the startup ecosystem have cautioned against family involvement unless they bring value to the business. They believe this will help the startups avoid controversies and reduce the challenges in the business.

"Try to avoid family involvement as much as possible unless that is bringing value to the business. For the sake of certain benefits, one should not involve family, especially when you are growing business to the next level," Naidu Darapaneni, founder, MeraEvents, told IANS.

Sanjay Enisetty, founder, 50K Ventures, an early-stage venture fund firm, also suggested that family members should not be given key roles in the organisation and in case this becomes inevitable, their roles should be clearly defined.

"Involving family members in business initially may sound good, but once they come into business, a lot of informality happens in the organisation. One needs to set clear rules and draw the lines. If a spouse, brother or any other family member is co-founder or head HR or has any other key role, and if ignorantly something happens, some kind nexus will be assumed," he said.

Direct involvement of the promoter family without any oversight is always risky, feels Vandana Maheshwari, national president, Confederation of Women Entrepreneurs (COWE).

Enisetty believes that whatever happened in BharatPe is not a good sign for a lot of other entrepreneurs. Early stage startups don't pay much attention to financial discipline but having governance and compliance from day one will help them avoid long-term challenges.

"Most of the companies have these challenges but many do unknowingly. The consequences of what the founder, family and board are facing are not easy. It's very stressful. It's not only a question of integrity, but the company's reputation is at stake. It will be extremely difficult to attract any new talent going forward," he said.

One person's integrity will cause a huge damage to the entire organisation, its board and even for the investors.

"Investors like us will be extremely cautious and do some level of micro-management in finances. This will be a learning experience for them. If they have given free hand and not monitored governance issues with the organisation, the investors will be at huge risk," he said.

Companies, whether small or mid-level, should have financial advisors and strong audit firms to guide them. They need to have a formal board and bring advisors on board to guide in ethical practices.

"Some decisions and circumstances may not sound unethical, but if you go into the depth, you will find it was not the right call to be taken. This could have been solved by having strong governance and a board which can guide," said Enisetty.

He is also of the view that startups maintain good relations with the investors and update them on the decisions taken. They should not shy away from talking openly even if wrong decisions are made. A lot of people spend money unknowingly in certain wrong ways, but if they confront investors, they may suggest not to do this in future.

Enisetty also feels that respecting colleagues is very important, and ego and arrogance should not be part of an organisation. Building a healthy culture in the organisation with transparency in major financial decisions and changes are also very important, he said.

Darapaneni observed that the founders of startups have a lot to learn.

"When a founder starts raising funds and the company starts growing, the way he needs to look at the company has to be completely different. The moment investors are in place, it is no more your company as such. You are the founder of the company, but you are also one of the stakeholders. It is your responsibility to create wealth for all the stakeholders, including you. That's how the founder has to transform himself," Darapaneni said.

He pointed out that when people run family businesses or certain other businesses, they do certain activities to save some costs or avoid taxes.

"The moment you have a proper organisation and you start taking investors' money, you need to look at it in a completely different way. This is where there is a challenge for some of the founders," he added.

Darapaneni does not agree that BharatPe is a wake-up call as this has been happening for quite some time. Some may come into limelight, some may not, he said.

Darapaneni also feels that there is no need for regulations.

"It is not controlled by a regulatory approach. It is about self-discipline, corporate governance and value systems of the person. When you have taken somebody's money, you have taken the responsibility for creating wealth for shareholders. Your entire motive should be in that direction and not for your personal benefit," he said.

"Corporate governance and compliance has to be the fundamental pillar for any startup even if they don't aspire to be a unicorn. Founders have a responsibility to establish a code of conduct in every aspect of their business. For a long time, a startup will be what the founders preach and practice," said Maheshwari.

"Businesses, irrespective of their size and P&L, need to have checks and balances in place from the very first money that has been put to begin it all. Whether one makes profit or loss is secondary, but to understand and document how that profit or loss is made is very important," she added.

According to her, the primary lesson to be learnt from the unfortunate series of events at BharatPe is the basis on which all startups should be based.

"It's about your passion, and not the money. Keep doing what you love and money will follow. The moment one starts to follow money, it can go south for anyone. The brand and company always comes first," she said.

"Second lesson, and a big one, is ensuring the right compliances. In a small firm, one has to take assistance from family members to manage everything from finances to operations, but as a startup becomes bigger, especially to the size of BharatPe, independent team members must look after financial transactions with an overview from the promoters, if required. Direct involvement of the promoter family without any oversight is always risky," she added.

Karun Tadepalli, Founder and CEO of byteXL, an edtech startup, believes that as new-age businesses start growing from startups to real corporate business, it is very important to transform the culture from on-the-fly strategies to more process-oriented strategies.

"It is also the need of the hour to have good governance at the early stage of the startups to have checks and balances to keep corporate spending, vacation, business travel policies etc. streamlined. It is also imperative that the key executives of the companies should not have any conflict of interest," he said.

"There must be concrete regulatory mechanisms in place that not only act promptly, but also ensure that such unethical practices do not occur in the first place. It's always wiser to step in time before things can go overboard. Third-party audits can also assist in close watch on unethical financial practices," he added.

Viiveck Verma, Chief Impact Officer, Recykal Foundation, is of the view that startups should learn from BharatPe to build systems around governance and value systems.

"The best way to do this is to have a good set of advisors and mentors who can be the sounding board. The checks and balances that can be put in place is to have the founders and leadership team build a culture of transparency and accountability. This can be further strengthened using technology which makes the process transparent and improves visibility," Verma said.