While Sandeep Aggarwal, one of the cofounders of ShopClues, cries foul over his lost voting rights, his estranged partners swear by fair play
S itting in his five-storey office in Gurgaon, Sanjay Sethi is
seemingly calm. It has been a blustery week at online marketplace
ShopClues after Sethi's one-time friend and cofounder Sandeep Aggarwal
unleashed a Facebook storm last Sunday by alleging that his wife Radhika
and Sethi took away his voting rights by "fraud".
Five days after the Facebook post by Aggarwal, which hurled a volley
of personal and professional allegations against his estranged partners,
Sethi seems to have weathered the storm."I don't want to add fuel to
the fire," says the ShopClues CEO, as he gets ready to meet investors.
"We are not looking at a trial by media," he quips, when asked to
respond to the allegations levelled by Aggarwal.
"What more do you want to know?" Sethi asks. Will the allegations of fraud and misgovernance hit fundraising prospects?
Sethi takes a deep breath, pauses for a few moments, and exhales. "All
of us are deeply hurt. We didn't fudge any document. We didn't cheat
anybody," he declares, adding that the company has always been fair to
Sandeep.
Meanwhile, in Hong Kong, a "wronged" Aggarwal, is hoping to get
justice. On an official trip to Hong Kong as the founder of Droom, an
online automobile mar ketplace, Aggarwal is sticking to his guns.
"ShopClues was a single-founder company," he asserts, adding that he
started working on the startup in October 2010, incorporated it as a
single officer company in Delaware in the US in June 2011, and hired
Radhika and Sethi as employees in August 2011. "I decided their title,
salary and stocks," he says, rubbishing the claims made by ShopClues
that the company had four cofounders: Sandeep Aggarwal, Sanjay Sethi,
Radhika Ghai and Sudhir Ghai.
"I founded the company with my heart, blood and sweat," wrote Aggarwal
in an email addressed to all board members of ShopClues seeking
immediate removal of Radhika from his "board seat nomination". The
company's conversion (of visits to paying customers), he claimed in the
email sent on October 6 last year, had come down 50-80 basis points,
which means prod uct, placement, pricing and promotions have not been
handled properly."I feel half of the GMV at ShopClues is very low
quality and full of fake products," he alleged. In an earlier email in
September, Aggarwal informed the board of his decision to nominate a new
board member in place of Radhika.
Sethi, for his part, refused to get dragged into this part of the
controversy. "I don't comment on what somebody feels, not when it is far
removed from the facts," he said, brandishing a copy of a board of
directors' letter of reaffirmation of confidence in the present team.
"We are proud of fantastic progress made by the ShopClues team under
Radhika and Sanjay's leadership," the board said in an official press
release early this week. The company has grown 30 times under this
management, the release added.
Notwithstanding Aggarwal's impulsive outburst on Facebook, the
disagreement between him and ShopClues board started simmering in July
2015 when in an email written to all board members, including Radhika
and Sethi, Aggarwal made a request to restore his legal rights. "I do
not want to h ave c o m p ro mised voting rights that I signed under
stress and trauma and did not quite understand their repercussions," he
wrote.
At Loggerheads
Almost two years later, Aggarwal is singing the same tune. "My voting
rights were removed by fraud and forgery," he told ET Magazine, adding
that he holds 12.5% stake in the company, making him the single largest
individual holder. The voting rights, he lets on, were removed not after
pleading guilty to an insider trading charge in the US in 2013. They
added a line in the voting rights -currently working in the company
-without my knowledge, and took away my rights, he asserts. "The amended
voting rights document turned my majority share to zero," he says,
adding that he didn't come to know about his changed voting rights for
over two and a half years, and the company neither responded to his
series of emails nor clarified that he had lost voting rights.
Sethi, in his defence, maintains that Aggarwal lost all rights once he
was con victed of insider trading charges. "He doesn't have any voting
rights. Neither did we coverup any document," he says, adding that
Aggarwal signed the consultancy agreement with the company in October
2013 and was well aware of its provisions. In fact, the company has been
more than generous by allowing him to retain his financial interests,
he adds, hinting that in spite of lawyers advising the company to
explore legal options against Aggarwal, the investors decided to focus
on securing the company.
When Aggarwal resigned from ShopClues in October 2013, recalls Sethi,
it became increasingly difficult for the company to get new investors on
board. "The company needed to ring-fence itself as nobody was willing
to put in money," he says, adding that it took 15 months to convince
Singapore sovereign wealth fund GIC, which finally in vested in January
last year. Tiger Global too invested after Aggarwal's exit, in January
2015. "We have absolute backing of our investors," he asserts, adding
that a complaint filed by Aggarwal at the Economic Offence Wing has been
dismissed. "ShopClues was never a one-man show," he says.
Even as Aggarwal-ShopClues saga continues to unfold, investors contend
that the tussle exposes the fault lines in the fledgling startup
ecosystem in India.
Shubhankar Bhattacharya, venture partner at Kae Capital, maintains that
during the early stages of a firm's journey, the founders need to
firmly be in control through their equity holding as it is the most
direct means to align incentives for everyone. "While we can understand
an entrepreneur's inclination to achieve some liquidity through a
partial secondary sale of stake, both entrepreneurs and investors are to
be blamed for not maintaining the equilibrium in terms of the startup's
identity as a founder-led organisation," he adds.
Another investor, requesting anonymity, points out a different aspect
of the tussle: original founders versus investors. With most of the
founders diluting their stake to single digits or low double digits, the
show is being run by investors. "The power equation has changed, and
founders have to live with this reality," he says, adding that investors
in both ShopClues and Droom would be edgy with whatever has been go ing
on over the last week. "They must be keeping their fingers crossed," he
says. The ShopClues drama also highlights the absence of transparent
governance among startups. "Nobody wants to open a Pandora's box," said
the investor.
ET Magazine tried contacting Nexus Venture Partners, Helion and Ronnie
Screwvala -all investors in ShopClues -but none responded. Sid Talwar,
one of the investors in the Aggarwal-founded Droom, declined to comment.
Even as Aggarwal cries foul over his robbed voting rights, and
ShopClues board swear by fair play, Radhika maintains her studied
silence. Late Friday afternoon, she comes out of an investor meet,
refusing to take any questions. "It has been a hectic week, very
hectic," she smiles, letting her CEO cofounder do all the talking.
