Founders are the pillars for any startup, no matter how many investors join the company later, it is the founders who know what it takes to build something meaningful and profitable at the same time. Most of the successful startups that we see today are on the top because of the vision of founders. Mark Zuckerburg, Jeff Bezos and Sachin Bansal are some best examples of this.
After exiting from Flipkart, Sachin has some suggestions for other Indian entrepreneurs and he wants them to be very careful while picking investors. In a recent interview given to Economic Times, he told that differential voting rights will be helpful for the Indian startup ecosystem, especially for entrepreneurs.
“Below 25% stake, entrepreneurs usually do not have much control on the main decisions, including mergers, unless separately agreed upon. Below 10%, which is a reality in many startups at late stage, founders can also be booted out,” he said.
He praised companies like Tata Group and said: “If you look at the great companies in India—whether it is Tata or Birla (groups) —they are highly empowered families and entrepreneurs who had control,” Bansal said. “Today, we need more capital than before and dilution happens. How to create a Tata or Ambani situation while being able to take a lot of capital? Dual-class shares should be good. I am in support.” he added.
If we believe reports, his exit from Flipkart was the result of differences with the investors. He demanded stronger rights and a better role which was opposed by Tiger Global Management. Disappointed by the number of changes happening in the company, he decided to take some rest and will continue his journey with some new project.
“Building a company is like a very long train journey. The entrepreneur is the driver, investors and employees are passengers. They get on and get off. If you take a 20-30-year view, no investor or employee will stay. Empowering the driver is good,” he said about leaving Flipkart.
He wants Indian startups to follow Dual-class shares mechanism. Google, for example, issues 2 kinds of shares, this allows greater control for the founders. Facebook, has dual-class voting shares, with Mark Zuckerberg controlling 60% of the voting rights but owns only 1% of Facebook shares. Snapchat retail investors were allotted shares with no voting rights at all recently.
Companies in India are not following such policies. Securities and Exchange Board of India (SEBI) is looking to allow something like the ‘Snapchat’ model for listing startups. This will enable companies to sell shares with differential voting rights. Bansal believes that it will be for the best. “If you look at China and the US, dual-class voting structure has helped create better companies,” he said.
What are your thoughts on Sachin’s suggestions? Do let us know in the comments section.