Increased caution among investors may turn out to be bad news for founders who are already facing the wrath of a worsening funding winter. (Representative image)
Industry insiders believe many investors signed reckless deals overlooking certain due diligence checks during 2021 boom and fear many more cases will come out.
Broker Network founder Rahul Yadav tried to deplete Info Edge’s shareholding in the company by offering to bring in Rs 50 crore of fresh funds from a Dubai-based property dealer in March-April at a valuation that was 99% lower than its last funding round, Moneycontrol reported citing sources close to the company and its top-level employees.
This was after the Mumbai-based company had exhausted Rs 192 crore of investor money in the past 14 months, and majority shareholder Info Edge had asked for granular financial details of the company.
Broker Network last raised Rs 90 crore from Info Edge in September 2022, at a post-money valuation of approximately Rs 1,500 crore ($185 million).
Yadav is said to have made multiple offers to Info Edge via email in the past few months on behalf of a Dubai-based property dealer. However, these offers never reached the stage of a legal agreement, according to sources close to Broker Network, the report added.
Concerns from industry insiders
Investors, including general partners, have voiced caution on frequent instances of governance lapses at Indian startups and called for stronger due diligence practices and post-investment monitoring of funds deployed to ensure the growth of portfolio companies with better controls, Moneycontrol report said.
Now industry insiders believe many investors signed reckless deals overlooking certain due diligence checks during the 2021 boom and fear many more cases will come out.
This comes after Info Edge initiated a forensic audit into Rahul Yadav-backed proptech startup 4B Networks following at least four major instances of corporate governance lapses at Indian startups, including BharatPe, Zilingo, Trell and GoMechanic, since the beginning of 2022.
The alleged governance lapses dominated conversations at the 16th edition of TiEcon Mumbai 2023, an entrepreneurial conference which took place on June 2.
Like last year, founders discussed value creation over sky-high valuations and generating cash rather than chasing growth as the exuberance of 2021’s funding boom died down, but there was also a hint of caution towards ineffective due diligence practices.
Yadav, infamous for being the founder of Housing.com and then was fired from the company following several public spats with investors, had done a stint with Anarock before starting 4B Networks.
Industry insiders believe with private equity and venture capital funding pouring in, many investors signed reckless deals overlooking certain due diligence checks.
Insiders highlighted that the Indian ecosystem is not alone in creating such bad actors. Bankrupt crypto exchange FTX, failed blood-testing startup Theranos and near-collapsed flexible-working startup WeWork are among major instances of governance fallouts in companies abroad.
Meanwhile, increased caution among investors may turn out to be bad news for founders who are already facing the wrath of a worsening funding winter.
Broker Network (4B Networks Private Limited), started in November 2020 by Housing.com founder Yadav, was created to enable real estate developers and brokers to communicate with each other and conduct their business through its platform. It also helped in loan origination for end consumers.
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