VC fund General Catalyst stresses on governance in Indian startups

US-based venture capital fund General Catalyst, which has backed the likes of tech firms such as Stripe, Snap and Airbnb, has stepped up its focus on governance in Indian startups amid rising cases of financial irregularities in recent months.

“One of the things we have been focusing a lot on, especially here in India, is emphasising the role for great CFO and making sure these companies are working with the right audit firms, and that there's transparency in what's being reported,” said Hemant Taneja, MD and CEO, General Catalyst.

“Part of what we are trying to do is engage with these companies at multiple levels and not just work with the founder or the CEO, but it's also really going into reason and understanding what is a financial view of business,” he added.

Instances of financial misappropriation in the last 12-18 months including at startups such as BharatPe, Zilingo and GoMechanic have prompted the venture fund to “deepen its capabilities" and collaborate more with the financial department at startups.

The VC, which began investing in India in 2019, has infused about $250 million from their $4.6 billion fund across early to late stages. The fund plans to pump about 10%-20% into Indian startups. Its investments spanned early to late stages in Cred, Cashflo, CityMall, Eeki Foods, FarMart, FitMint, GetSupp, LoopHealth, Magma, OneCode and Orange Health, among others.

Funding in Indian startups, which are primarily dependent on foreign capital, has dropped about 70% year-on-year in the first quarter of 2023, due to the continued impact of US Fed hiking interest rates.

“If you think about the last 15-20 years where money has essentially been free, software companies have been able to build frankly without little regard for profitability,” Taneja said.

He added that while some founders were quick to accept the structural shift from the high interest rate era, “some founders are still in denial” because they were over capitalised.

“There are a lot of companies that have bloated valuations all over the world, not just here. The reality is that many of them are gonna need to have a down round. Everybody needs to understand a lot of what happened in the last couple of years was irrational, and we have to be pragmatic in how we move past it so that everybody understands that all stakeholders need to be taken care of in coming up with those kinds of scenarios.”

During his current visit to India, Taneja said he was surprised by the absence of startups in the field of artificial intelligence.

“If India's gonna be globally competitive in this next software cycle, then you definitely wanna see the AI ecosystem developing here in a more robust way than what seems to be apparent to me,” he added.