Zilingo-Backer Sequoia Says Fraud Allegations ‘Deeply Disturbing’

  • VC agency Sequoia Capital India has spoken out about fraud allegations at a number of startups it is backed.
  • The agency mentioned it was troublesome to conduct due diligence on early-stage companies.
  • On April 14, Sequoia-backed e-commerce startup Zilingo suspended its CEO amid a monetary probe.

Sequoia Capital India, a serious investor in Southeast Asian startups, has mentioned due diligence on early-stage startups is hard as 4 of its portfolio corporations face fraud or misconduct allegations.

In a blogpost not attributed to a specific writer, the agency mentioned: “Lately some portfolio founders have been beneath investigation for potential fraudulent practices or poor governance. These allegations are deeply disturbing.”

The put up added: “It’s straightforward to think about this subject as ascribed to poor due diligence. However let’s keep in mind that when investments are made at seed or early stage there may be hardly a enterprise to diligence. Even later stage traders can face destructive surprises, put up funding, if there may be willful fraud and intent.”

Sequoia did not title examine any corporations, however one among these destructive surprises has been Zilingo, a Singapore-based trend e-commerce startup first backed by Sequoia in 2015 and estimated to be price $970 million. Zilingo earlier this month suspended its cofounder and CEO Ankiti Bose amid a monetary probe into its accounting practices. A lawyer appearing for Bose referred to as her suspension “unfair” in a press release to Bloomberg.

Sequoia and one other backer, Temasek, raised their considerations with Zilingo’s board. Sequoia’s Shailendra Singh subsequently resigned as director of Zilingo’s board, Bloomberg reported.

Three different Sequoia-backed startups are additionally beneath scrutiny.

In mid-March, Indian information media reported that EY India was investigating social e-commerce platform Trell for alleged monetary irregularities. The identical month, Zetwerk Manufacturing was reportedly raided by Indian tax officers over alleged tax evasion considerations. Additionally in March, monetary platform BharatPe’s cofounder Ashneer Grover was accused of misappropriating funds by the agency and give up as CEO. 

Sequoia in its put up referred to as for higher “guardrails” for the startup ecosystem, resembling agreeing new guidelines round company governance, and mentioned startup “boards can solely work with the data shared with them” to uncover wrongdoing.

Sequoia’s put up highlights the dangers of investing in early-stage startups, the place enterprise capital corporations plow money into unproven corporations, typically trusting in a founder’s imaginative and prescient greater than the solidity of their enterprise mannequin.  The agency wrote {that a} startup’s board “isn’t accountable to analyze on an ongoing foundation” for potential dangerous habits until it is explicitly flagged up.

However some regional traders shot again at strategies that the broader ecosystem was at fault.

“Sequoia India, caught with their pants down with 4 portfolio corporations. Decides to blames the ‘eco-system,'” wrote Sam Gibb, managing associate of Singapore-based fintech investor Decision Ventures, on Twitter. He mentioned that greater traders encourage a “growth-at-all-costs” mentality at startups, main founders to step “over grey strains” to hit metrics.

“The pursuits of profession VCs (the place a bulk of remuneration is mounted) diverge from founders as standing is extra vital to them than constructing lasting financial worth,” he wrote.

Sequoia couldn’t be reached over the telephone for additional remark.

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