Flipkart effect: More start-ups to see churn at the top

The change of guard at Flipkart, forced by its primary investor, could trigger similar action by private equity firms and venture capital funds in other struggling e-commerce companies.

BusinessLine spoke to several investors who said 7-8 start-ups would soon see a major reshuffle in their top management with PE firms taking control of the companies.

Vikram Gupta, founder of VC firm IvyCap, said, “While the founders are always passionate about their ventures and treat them like their baby, the problem arises when the baby grows into a bigger animal. They have no clue how to handle it.

“That is when we need professionals. The investors have a different agenda. They want to keep the risk at the lowest and ensure that they get a successful exit someday.”

Start-ups which may see a change of management include online lingerie firm Zivame, cab-hailing service Ola and on-demand services firm Housejoy. Though BusinessLine could not independently verify the possibility of a change in these companies, some of their investors said on condition of anonymity that they were getting edgy.

In the past also, the segment has seen similar restructuring. For example, SoftBank-backed online real-estate player Housing.com faced a similar issue, when its founder Rahul Yadav took on the investors publicly following differences on how to run the company.

According to industry experts and investors, a PE or VC firm taking control of a company should not be seen in a bad light, but as a way to run the businesses more efficiently and profitably.

Sanjay Mehta, a serial entrepreneur and a leading investor in companies such as Box8 and Mech Mocha, is of the view that most of the PE/VC firms have been successful working with professional management.

“It’s an opportunity to bring in efficiencies over euphoria. In the West, this is seen as a normal transition. Even mavericks like Steve Jobs had to go through this cycle,” he said.

But not all online companies will see a change in management. Harish HV, a partner at Grant Thornton, said Flipkart is an unique example where both the founders have a combined single-digit stake, and Tiger Global taking control was inevitable.

He also said there are some PEs like Tiger Global and Actis who believe in the philosophy of taking control but this will not necessarily create a trend.