Boardrooms & Startup Success

As the initial euphoria and buzz associated with startups gradually settle down in the country, the need of hour for India is to build a robust and sustainable global ecosystem for startups. Last year witnessed a flurry of big-ticket funding rounds for biggies like Flipkart, Paytm and Ola. This is quite encouraging as these unicorns manage to continue to attract investors attention. Investors have conviction that these companies will provide the platforms and products of the future, as they place big bets on them.

For any startup, reaching the coveted $1 billion unicorn valuation is considered an important milestone. In the tech bonanza of today, fast-growing startups have hit multi billion dollar valuations in just a few years to become unicorns. Tech startups are growing at a fast pace, thanks to the gobs of money pumping in. 

In the global scene, 57 startups crossed the unicorn threshold in 2017, including well-known companies, such as Reddit, Quora, to rapid-risers like China’s Toutiao (now valued at $20 billion). So far, India has ten unicorns namely Flipkart, Paytm, Ola, InMobi, Zomato, MuSigma, Quikr, Shopclues, Hike and Snapdeal. The latest being messaging app Hike valued around $1.4 billion when it raised $175 million funding from Foxconn and Tencent. This was way back in Aug 2016! As a matter of fact, there has been no birth of unicorns in 2017 in India. 

Can Boards boost Startup Success ? 

With startup ecosystem maturing in the country, role of startup boards takes immense prominence. Every company has a board of directors. Can boards influence creation and growth of successful startups and unicorns? 

Needless to say, boards are mandatory to handle corporate matters like issue of stock, set up of stock option plan, salary approvals of key hires, CEO etc.

The role of startup board becomes even more relevant as it assumes responsibilities for overall direction of company, and hence takes critical decisions for the company. 

A few examples of critical decisions are whether it should adopt equity or debt route to raise finance, whether it should be willing to be acquired, whether it should enter into important strategic transactions or whether it should hire/fire senior management. Furthermore, they can provide connections/networks with useful pointers to companies, individuals and resources, as well as offer overall advice and guidance.Board members act as “fiduciaries” because they are entrusted with managing business owned by different people.

The composition of board varies across companies depending on the stage of the company, and can evolve over time for a company. As the company matures, board composition becomes even more vital. Major decisions made by smart people who are knowledgeable about the company and the industry space in which it operates can result in success and possible rise of an unicorn.

Successful Boardrooms

Backed by series of funding by Accel Partners, IDG Ventures, Tiger Global, and others, Indian fashion e-commerce company Myntra has come a long way. Myntra also made a string of acquisitions including Bengaluru-based mobile app development platform company Native5, mobile-based content aggregation platform Cubeit, rival Jabong.com to become India’s largest fashion platform. In October 2017, Myntra partnered with Ministry of Textiles to promote handloom industry.

The famous merger of Myntra with Flipkart in 2014 is one of the most successful strategic acquisitions or exits in the history of Indian startup eco system.

What makes it remarkable is that it proved to be a win-win for both players.While the merger helped in business expansion and market consolidation, including acquisition of customer base and loyalty, it also reduced loss by consolidating various services like technology, customers and logistics. Furthermore, the merger resulted in thwarting market competition from biggies, FDI and future players as well. It also paved the way for the emergence and rise of private label players with high profit margins. A perfect ploy for investors to achieve their long term vision of IPO. A great story of a successful board in action.

There are visible signs of a successful board when detailed discussions harmoniously lead to consensus before any vote. While investors and founders are de facto members of the board, many other strategies are adopted by companies. These include having odd number of directors to reduce risk of tie vote, introduction of an independent who has industry knowledge and valuable contacts, allocation of a board seat for lead investor for each new round of investment, creation of a permanent role for the founder separate from CEO etc . There are also investors who act as “observers” with no formal vote. 

The Indian startup ecosystem can really develop and mature as startup boards get equipped with data and relevant facts to be able to act in the best interests of the company and stockholders.

The onus lies on startups to provide the board with a comprehensive status review of last quarter, concerns of today and goals for future.

Of course, the real challenge for any startup lies in keeping the board interested and actively engaged.

Food search engine Zomato is yet another success story. Founded in 2008, the restaurant search and discovery service company operates in 24 countries today. Enabled by series of funding led by Info Edge, Sequoia India, Vy Capital, and Temasek Holdings. the company has a strong board to rely on. Furthermore, aftermath of multiple acquisitions, the company has a very large global presence today. Rise of another Indian unicorn! 

Launched in 2007, India's largest online entertainment ticketing platform BookMyShow is a profit making company, a rarity in Indian eCommerce sector.

Backed by series of funding by global players like Network18, Accel Partners, SAIF Partners and Stripes Group, the company has undoubtedly achieved this unique milestone. 

Numerous acquisitions of companies including Chennai-based online ticketing company TicketGreen, a majority stake in Eventifier and Fantain Sports, a Chennai-based fan management and analytics startup are all part of this extraordinary story. Again, right decisions made by startup board at the right time. Timing matters!

Productive board meetings are a precious platform to do great things together well beyond judgement.

 A positive atmosphere where people in the room bring forth ideas to the table resulting in concrete action items. For instance, discussions may be about about decision on introducing a feature for revenue generation or increased engagement or growth promotion. Deep dives present great opportunities for getting the board to action. Board meetings are useful if they move things forward. Interesting board rooms can prove to be effective forcing function.

Boards can be extremely resourceful in business development, recruitment and introductions. A lot of prospective hires are very influenced by having a renowned VC approach them. Members can also be incredible assets in one-off situations. 

Do Startups have right people on board ? 

A small group with smart people who work together towards the company’s vision to get the ball across the line beyond just expenditure and accounting form a great board. Successful boards are more focussed on market changes, delivery, impact of market, team performance, without getting lost in the weeds. Undoubtedly, they handle the macroeconomics and team development better. The tactic of splitting a larger board into smaller committees to narrow down number of voices in the room could be effective in decision making. 

Can weak boards hurt startups if focus is primarily on growth without good corporate governance? 

Startups need to have a board composition that can relate the current state of the company to their vision. Weak boards hamper startups if regulatory matters and other barriers are not accounted for. Any startup working on financial services market with new payment technologies like bitcoin has many regulatory issues to look into. The challenge for these companies operating in highly regulated industries like FinTech and health care, need boards who ensure strict focus on process and rules, notwithstanding the fact that profits and initial public offerings appear lucrative. 

The unicorn club in the country could well see fresh additions in 2018 as there are promising tech startups in logistics, hospitality, education, healthcare, grocery and food ordering. As venture capitalists focus on quality of investments rather than overall quantity of big bets, the role of startup board gains even greater importance. 

Can Boardrooms script startup success in India?