VCs get more involved in CXO search at early-stage startups

An growing variety of compliance- and governance-related points at Indian startups is main enterprise capital traders in early-stage corporations to push for larger involvement within the recruitment course of for essential governance roles and appointment of key administration personnel, no less than half a dozen fund managers instructed ET.

This comes at a time when the Indian startup ecosystem has been mired in a spate of monetary mismanagement, flurry of layoffs and reviews of non-compliance with rules.

“Investors are increasingly prioritising their involvement in the recruitment process for governance roles and CXO positions,” stated Ankur Pahwa, managing companion of enterprise capital fund PeerCapital. “They are underscoring the need for a search approach that is more structured, institutionalised and professionally executed.”

“Some fund managers, who have never been involved so deeply with the companies, are being found to get more involved now – where they can review candidates and even be a part of the interview,” stated the top of an early-stage fund. “Earlier, investors would give a lot more leeway to the founders for the first one year (in the seed and early stage); that’s not the case any longer.”

Pranav Pai, managing companion at 3one4 Capital, stated: “From the early stage of the company, we are involved on their boards and board committees.”

“In our shareholder agreements, we have defined board involvement for the institutional investors. Recruitment of key management personnel is usually a board-involved matter,” Pai stated. “In case of senior hires, we make sure we are available for a conversation if the founders need our involvement. We have done hundreds of interviews for positions from finance and tech to independent board members.”

Anshuman Das, CEO of Longhouse Consulting, stated: “Earlier what would typically be a private equity playbook for larger startups is now being seen among the early investors – VCs investing $10-20 million and in companies where founders could earlier bring in their own network of people, investors are now scrutinising the merit of such hires and insisting on a seasoned team.”

Alleged misselling of merchandise and lack of monetary scrutiny at edtech agency Byju’s was a giant lesson for a lot of.

“The edtech decacorn did not have a CFO for a long time (after the exit of its former chief financial officer in December 2021) till it appointed Vedanta Group’s Ajay Goel as CFO in April … all these things coming up in the public domain are making investors more sceptical and cautious,” stated an investor, who didn’t wish to be named.

The startup ecosystem has been caught up in a sequence of alleged fraud and gaping holes in company governance practices, at a time when funding has gone downhill.

Companies like Mojocare, GoMechanic, Trell, BharatPe and Zilingo have been within the news for alleged monetary irregularities or governance lapses.

Amit Nawka, companion, offers and startups at PwC, stated: “There is an increased scrutiny about involvement of family members at the CXO level. Investors are investigating their worthiness for the positions. Especially in key roles like CFO, a seasoned professional is being preferred.”

“There is a greater investor involvement in setting up the right HR culture and processes that enable a more open environment and a robust governance mechanism around whistle blowing,” stated a fund supervisor, who didn’t want to be named.

Most founders need to align upon a transparent path as to which stage of funding they are going to herald particular administration executives – CFO, CHRO, authorized head, and many others.

For occasion, sometimes the CFO search begins across the Series B stage adopted by a head HR or CHRO, and head of authorized.

“There were a lot of start-ups founded in 2021, and some of them raised three rounds of funding within a year. Though these are not yet typically old enough to have a CFO, many investors are now insisting on appointing a seasoned CFO,” stated the top of a VC fund.