he ongoing crisis at Gensol Engineering (GEL) and BluSmart could temporarily hurt India’s appeal among investors. However, venture capitalists (VCs) and industry insiders TNIE spoke to said the episode serves as a lesson for start-ups to strengthen corporate governance and audit mechanisms.
“Gensol is a listed company, governed by a board and comes under listing guidelines. However, there has been a miss on early signals which the board or the CFO should have highlighted,” said Anil Joshi, managing partner, Unicorn India Ventures. He said there is a need for strong internal audit mechanisms and an overlooking panel which can question such transactions. “From Blusmart’s perspective, dependence on a single vendor and a related party was a big issue and perhaps VC/investor missed correcting it due to growth perspective,” he added.
BluSmart has raised about $182.05 million across 11 funding rounds from investors including BP Ventures, Stride Ventures and Panthera Capital. Gensol had also availed loans from state-run institutions like PFC and IREDAI, which as per Sebi’s finding has been diverted by promoters for personal expenses. Milan Sharma, founder and MD of 35North Ventures, said when a crisis of this nature arises, VCs must act swiftly.
Sharma added in the short-term this might affect start-up funding as such incidents shake investor confidence, mainly among global LPs and institutional players who are already cautious due to macroeconomic volatility.
Nikhil Anand Khurana, MD and CEO of Folks Motor, said BluSmart revelation is disheartening and will impact credibility of new-age start-ups. “This incident may momentarily shake investor resolve, but they also serve as lessons that can strengthen ecosystem,” added Khurana. Akshay Shekhar, CEO & co-founder of Kazam, said robust corporate governance and financial transparency are going to become priority for many investors and start-ups. Shekhar stated the path forward will involve due diligence.
Launching a crackdown on Gensol, Sebi barred the renewable energy firm and two of its promoters - Anmol Singh Jaggi and Puneet Singh Jaggi - from the markets till further orders in a fund diversion and governance lapses case. Amitabh Kant, former CEO of NITI Aayog, on Sunday, appealed to VCs and investors to stay alert to early red flags and said it is a collective responsibility to ensure that instances like the BluSmart episode remain isolated exceptions.