Co-founders exiting their firms is alarming only at an early stage, not when it has matured, say investors
Co-founders leave for reasons such as personal ambition or interest in another business opportunity
Last week, Urban Ladder co-founder Rajiv Srivatsa tweeted that he was stepping down from an “active leadership" role at the online furniture retailer this month. A day later, Smruti Parida, co-founder and chief technology officer of NestAway, said in a LinkedIn post that his journey at the company has come to an end. A few months ago, another NestAway co-founder, Deepak Dhar, decided to leave the company to set up a fintech startup.
While startups in India have witnessed a slew of exits by co-founders in the last few months, at a pace not witnessed before, investors are not too perturbed. According to at least three of them, co-founder exits are alarming only at an early stage, not when a company has matured.
“At the early stage, investors back founding teams. Hence, when one of the founders leaves, it can hamper a company’s prospects," said Anil Joshi, managing partner at Unicorn India Ventures. “That’s one of the reasons why we prefer backing firms with 2-3 founders so that even if one leaves the other co-founders can manage the show."
“If it happens too early, then it means that the team was never meant to be together and they’re having such strong disagreements that cannot be resolved. If that’s the case, it shakes the investors’ confidence," said Anup Jain, managing partner at Orios Venture Partners, a Mumbai-based early-stage investment firm with a portfolio of more than 35 startups. “Also, if an exit happens at a very critical stage—when the next fundraise process is on, or the company is pivoting or turning around—then it’s a cause for concern."
This is probably why Srivatsa’s decision to step down is important. Vani Kola, managing director of early-stage venture capital firm Kalaari Capital, has also resigned from the board of Urban Ladder. According to her resignation letter, accessed through data intelligence platform Paper.vc, Kola attributed her decision to other commitments. This comes against the backdrop of Urban Ladder’s funding crunch, following which the firm had laid off nearly 12% of its workforce earlier this year, according to media reports.
“Rajiv’s transition from active leadership role has fairly limited impact on what we're doing as anorganization. Rajiv and I had planned this well in advance. This is not a sudden or even a last six months development. The key role that Rajiv has been playing is on the technology and product side. We have had a fairly strong leader in place for the last 1-1.5 years," said Ashish Goel, co-founder and CEO, Urban Ladder.
In the meantime, investors said there could be various factors for such exits, such as personal ambition or interest in another high-scale business opportunity.
To be sure, a few months ago, Mukul Sachan, co-founder and chief operating officer of Lendingkart, an Ahmedabad-based fintech startup, stepped down to explore an interest in investment management. Zomato co-founder Pankaj Chaddah, who left the Gurugram-based firm last year, is now taking the entrepreneurial plunge one more time with a mental health venture.
“Initially when a company starts, the first and foremost motive is to grow it into something bigger, sustainable and stable. Now, once the company is mature, there comes a time when a few people can start asking what is the return for them? It’s not about money, it’s about fulfilment," said Jain of Orios Venture Partners.
“Most co-founders have risk-taking abilities and that’s why they reached where they reached in the first place. So the ability to take a risk again is not a problem."
Another investor said a co-founder leaving a firm doesn’t impact it much in the long run. “One needs to understand the role of the co-founder and its importance," the investor said, requesting anonymity. “Sometimes, all this is necessary to clean up the house. And it needs to be viewed that way. What we have observed is that over time, it does not impact the company much. If a co-founder’s vision does not align with the other co-founder, then one of them has to step down. It doesn’t mean that the company is going to crash. It means it needs somebody who aligns with the plans."