The arrest of Stayzilla founder for non-payment of dues to a vendor has shaken up the entire start-up ecosystem, with slew of allegations by both the parties. In an Interview, Gopal Srinivasan Chairman, Indian Private Equity and Venture Capital Association, says the issue is a commercial dispute. Hence, he feels the judiciary is the best judge in the case. Mr. Srinivasan, who also heads TVS Capital Funds, says that wherever risk capital is involved everyone needs to be careful. Excerpts:
What are your views on the Stayzilla dispute?
Stayzilla is a commercial dispute. The best person to decide what is right or wrong is the arbitrator. The issue has been blown out of proportion. Group identities (start-up) have been chosen instead of the individual facts of the case between a vendor and the company. It does not matter whether it is a Chennai-based company or a Bengaluru-based company, a start-up or a non start-up. We should look at the individual facts of the case rationally. There have been lot of allegations and counter-allegations in this instance. How do we know if it is true? Even if it is true, it is for the courts to decide.
What are the lessons to be learned?
There are no lessons to be learned in my view. Only aspect which needs to be looked at is whether the institutional investors (there are two in this case) played their role well. Did they keep a check on whether the company is living beyond their means? Did they apply the brakes on them by asking them to pay the dues and set things right? Did the vendor do his due diligence before getting into the non-cash transaction like any venture capital would do?
Did the institutional investors play their role well?
We are not sure. From what has come out in the media, the case has been messed up. There were lot of options available which could have been used in landing the dispute in the right direction. The provisions of Bankruptcy Code could have been taken advantage off. The institutional investors should have warned the company of stretching beyond its means and asked them to settle the pending dues to all stakeholders.
What has been the impact of this episode on the start-up ecosystem?
Start-ups are afraid that tomorrow they could be a target. Unfortunately, the episode has been branded with group identities (start-ups). This kind of dispute can happen across industries — be it a start-up or a non start-up. One needs to understand that most start-ups are funded by venture capital, which is a risk capital. By risk capital, I mean out of the 10 bets I take 8 are bound to fail. Risk capital should not be mistaken for safety capital. Venture capital is the form of working capital, which funded start-up use for burning their P&L expense. In such an ecosystem, these kinds of disputes are bound to happen. Everyone should understand that they are dealing with risk capital, and be careful about what they are getting into. These are the kind of aspects we would cover in our guidelines which our Association would be issuing shortly.
What is your view on the capital dumping charge made by Indian firms such as Flipkart, Ola and others against foreign firms?
India has allowed capital to enter by regulation through routes like Mauritius. If some foreign player has a low cost of capital advantage when compared to an Indian player, then that is an internal problem. Also, on predatory pricing, there is a Competition Commission to look into it. Most private equity and venture capital funds still source most of the capital from foreign investors.
