Sequoia Capital, the venture capital investor that has backed BharatPe, Zilingo and Trell—startups that have faced charges of fraud—has said it has “zero tolerance for proven wrongdoing”, amid governance scandals at some of its portfolio companies.
“Recently, some portfolio founders have been under investigation for potential fraudulent practices or poor governance. These allegations are deeply disturbing. We have always strongly encouraged founders to play the long game. We focus on the enduring, and discourage focusing on vanity metrics. Despite that, we find some counter-examples of what we espouse,” the venture capital firm said in a blog post.
“It makes us reflect on what we could have done, along with other investors who have partnered in these companies, to prevent such situations,” the post added.
Last week, Sequoia Capital managing director Shailendra Singh resigned from the board of Zilingo, a Singapore-based B2B marketplace for fashion businesses, after its co-founder Ankiti Bose was suspended amid an investigation into the company’s financial accounts.
Earlier this year, fintech unicorn BharatPe’s cofounder Ashneer Grover and his wife Madhuri Jain were ousted in a public spat, for alleged misappropriation of funds. Sequoia portfolio firm Trell is also conducting an internal investigation against its co-founders for alleged misappropriation of funds.
In the blog post on Sunday, the VC firm said that there was little a board member could do if information was not shared with them or if there is “wilful fraud and intent”.
“It is easy to think of this issue as ascribed to poor due diligence. But let’s remember that when investments are made at seed or early stage, there is hardly a business to [conduct due] diligence. Even later stage investors can face negative surprises, post investment, if there is wilful fraud and intent.” the post said.
“As an investor representative, one serves on the board, and boards can only work with the information shared with them–the less transparency there is to the board, the lesser their ability to truly unearth errant behaviour. The board is there to govern and help make decisions in the best interests of shareholders. The board is not responsible to investigate on an ongoing basis unless something is brought up formally with them, which is often through a whistle-blower. Better corporate governance is a shared responsibility between founders, management and the board,” the post said.