Dear 1st Gen Founders, Don’t Wait to be SACK-ed by Digital DACOITs

“First generation investors should refuse to become their buyer’s CEO,” argues Raghav Bahl.

Updated06 Dec 2018, 07:27 AM IST
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Video Producer: Anubhav Mishra
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Cameraperson: Abhishek Ranjan

It was inevitable. Binny Bansal had to be sacked from Flipkart, the company he co-founded but sold to Walmart. In this instance, he made it easier for them by committing “lapses in judgement”. But even if he hadn’t, he wouldn’t have survived for too long. Because India’s first-generation founders are the most endangered species in the global entrepreneurial ecosystem.

A few months back, I had tried to bring this crisis to Prime Minister Narendra Modi’s attention. Since he has a thing for acronyms, I had coined one just for him: DACOIT, ie Digital America/China (are) Colonising & Obliterating Indian Tech!

Just look at how America and China enable their talented founders to raise astronomical amounts of capital, while allowing them to retain control via specially designed financial instruments, structures, incentives, and rights.

Jack Ma owns economic benefits of 8 percent, but controls Alibaba almost 100 percent via an innovative structure called Variable Interest Entities (VIEs), which are trusts/contracts listed on foreign bourses. Mark Zuckerberg does the same via differential voting rights vested in his Class A shares, which allow him to unambiguously control Facebook.

As opposed to such aggressive institutional backing, Indian entrepreneurs are trussed up in archaic laws. We are not allowed to issue differential voting shares. Not allowed to issue non-voting stock. Severely constrained, even banned, from issuing and pricing cross border equity/debt structures, perpetual bonds, warrants, convertibles, puts, calls, tracking stocks or options.

There’s also the monstrously inequitable “angel tax” which forces companies to pay cash taxes on unrealised capital gains.

It’s therefore no surprise that we have become digital vassals. Google and Facebook dominate our search and social media. Walmart and Amazon have invested a piffling $25 billion to buy nearly 100 percent of our e-commerce market.

Tencent, with a market cap which flirts around half a trillion dollars, is training its sights on Ola, Hike, Practo, Byju’s and MakeMyTrip; while Alibaba, with a similar market cap, has got Zomato and TicketNew (plus PayTm) in its line of fire.

This tragedy is unfolding in broad daylight because the Modi regime refuses to understand an axiom, viz that ownership and control should be legally separated. And now, as the Binny Bansal saga shows, DACOIT-y has been compounded by SACK, ie Strategically Acquiring Control by Knocking-out the founders.

To begin with, here are a few stark facts, as available in the public domain. A young lady works for a few months in Flipkart’s call centre in 2012; she then moves on. There is no record of whether she knew or had any engagement with Binny Bansal before she leaves Flipkart.

Four years later, they meet again and get attracted to each other. As consenting adults who are not in the same workplace, they have every right to fall in love. Unfortunately, the affair ends badly. While there is no confirmation, rumour has it that Bansal tries to “pay her off.”

Now we get to May 2018. Flipkart has been sold to Walmart. Due diligence is on. Regulatory filings are awaiting approval. The lady writes a confidential complaint to Walmart in the US, alleging harassment by Bansal.

Walmart faces a dilemma. Pristine ethics demand that it should make a public disclosure. But that could jeopardise its Flipkart deal. So, Walmart chooses to stay silent. But it appoints a leading US law firm to carry out a discreet investigation. It’s also miffed that Bansal did not reveal this affair during the fact-finding phase.

But Can You Really Blame Bansal?

It was a personal affair, conducted outside Flipkart. Are founders supposed to bare their personal lives during a corporate take-over? Since we don’t have granular details here, it’s best to give the benefit of the doubt to Binny Bansal.

Now we are in August 2018. All approvals are through, shares are transferred, and Walmart owns/controls Flipkart. Meanwhile, the US lawyers conclude their investigation. There is no evidence of any wrong action by Bansal, except for a lapse of judgement. But in an entirely disproportionate reaction, he is asked to quit. Why? Because Walmart had just executed the classical SACK: Strategically Acquiring Control by Knocking-out the founders.

Walmart Did What Was Best For Walmart

But you know what, I have no quarrel at all with this operation. Walmart did what was best for it. And frankly, that’s the only way it could have been. But I do have a quarrel with any first-gen founder who chooses to stay on as the CEO of his company’s new owners.

How can a lion, the fierce King of his turf, suddenly become a tame circus animal, dancing and swirling at the whims of a new conductor? If ever any first-gen founder is tempted to emulate Binny Bansal’s folly, he should read what two iconic entrepreneurs, Ted Turner and Steve Jobs, had to say about their ouster:

I had no idea I would lose control of CNN when I merged with Time Warner... It was a big mistake to lose control of CNN. I had a sacred trust there, and I let it get away. I was over-confident. I thought I had done such a good job there was no way they could phase me out.
Ted Turner, Founder, CNN
Getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again. It freed me to enter one of the most creative periods of my life.
Steve Jobs, Founder, Apple

In the end, my dear fellow first-generation Indian founders, we can do little about the DACOIT-y on our life’s work, except to hope that the Modi regime will wake up and give us a fair deal. But when it comes to getting SACK-ed, it’s entirely in our hands:


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Published: 21 Nov 2018, 03:34 PM IST

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