It was inevitable. Binny Bansal had to be sacked from Flipkart, the company he co-founded but sold to Walmart, the American retail behemoth. 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 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!
Today, I will try to reach out to the Prime Minister of Digital & Start-up India with a second acronym: SACK, ie, Strategically Acquiring Control by Knocking-out the founders.
Unfortunately, unless Modi’s regime wakes up and smells the coffee, India’s first-gen founders are condemned to flame out between these two tragic acronyms: in their start-up phase, they battle a hostile state until DACOIT-y, ie until they are digitally colonised by America or China; and ultimately, their journey ends when they are SACK-ed, ie when they are knocked out by newly inducted majority investors.
A DACOIT-ised Digital Ecosystem
The stark truth is that India’s digital economy has been DACOIT-ised completely; to quote my friend Mohandas Pai, “of the eight ‘Indian’ unicorns (start-ups valued at over $1 bn), seven are domiciled overseas, largely owned by foreign capital with most founders reduced to being ‘managers’ dictated to by overseas investors and overseas capital”.
Irony begins here. America and China enable their iconic founders to raise astronomical amounts of capital – in fact, most Chinese companies pick up billions of dollars on American stock exchanges to build Chinese assets – even as they are assured of retaining control via specially designed financial instruments, structures, incentives, and rights. Jack Ma owns economic benefits of 8%, but controls Alibaba almost 100% 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. We cannot list on overseas exchanges unless the entity is listed in India (there has lately been a marginal, grudging relaxation of this).
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 bn to buy nearly 100 percent of our e-commerce market. China’s giants are preying on other ‘Indian’ companies that are puny and incredibly vulnerable: 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 that should be obvious to Economics 101 under-grads, viz that ownership and control should be legally separated. Once that happens, our fledgling founders will be able to maintain control even as they dilute economic capital. We have not taken this one simple step; instead, we have chosen to take a giant leap backward for India’s digital economy. Sad.
Binny Bansal Gets SACK-ed
Now I will segue into the Binny Bansal saga, which typifies the cruel end of a first-gen Indian founder’s maiden venture. 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 center 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, but 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 makes a public disclosure of this missive. 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 detail 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. It throws up no evidence of any wrong action by Bansal.
But now Walmart’s pristine ethics suddenly get activated. When Bansal was a suspect, Walmart had glossed over the disclosure. Now that he had been exonerated, the world was told about his “misdemeanour”!
Simultaneously, within a few hours, he is “persuaded” to quit. He sends an emotional internal mail to his team: “My plan was to continue in my role for a few more quarters; the allegations (have) left me stunned and I strongly deny them”. But he owns up to his error of judgement and lack of transparency. He does not apologise in this mail. Yet, in a later version sent out to the media, “I deeply apologise” is inserted into the communication. Nobody clarifies how these crucial words popped into the script.
On another track, swift structural changes are being made in Flipkart’s operations. The fashion verticals are merged, new appointments are made, erstwhile leaders are planning to bid goodbye.
All of it has the air of an efficiently planned, meticulously thought through, and clinically executed transition, from a founder-driven, entrepreneurial outfit to a templated, process-driven division of a global giant.
Walmart Executes the Classical SACK: Strategically Acquiring Control by Knocking-Out the Founders
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. From being the supreme commander, how can you even think of scraping before new masters?
As an entrepreneur, you live and die by your own successes and failures. You take the calls; you bask in the glory or suffer the ignominy. Whatever you do, you are the captain who either rules the ship or goes down with it.
In the final analogy, 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?
It’s Impossible; It’s Against The Law of Nature
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.
In a speech at the University of Georgia, CNN founder Ted Turner said that losing control of CNN during the merger between AOL and Time Warner was a "huge mistake”.
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:
Just.Refuse.To.Become.Your.Buyer’s.CEO.
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