The founder, the spouse, and their start-up

Investors in start-ups are waking up to the risk posed by marital discord

There is a somewhat known start-up founder. Let’s call him Mr Founder. Mr Founder quit a job in the United States more than a decade ago and moved to India to set up a start-up. One of his co-founders was his wife.

Mr Founder got entangled in legal hassles and quit his operational role. Ms Co-founder took on more responsibilities. The start-up saw some glory days, but later found the going tough.  

In the meantime, Mr Founder and Ms Co-founder’s marriage collapsed, leading to much ill-will that occasionally spilled over into the public domain. The start-up was sold to a rival at a fraction of its peak valuation and vanished as a brand. Mr Founder now runs another start-up, which, depending on whom you ask, could be doing well.

Scene Unseen found itself thinking about Mr Founder and Ms Co-founder’s story while reading about Sridhar Vembu’s marriage.

Mr Vembu, in a world where the word icon is loosely used — where successful, well-known, or admirable will do, people say icon or iconic — can have credible claims to being a sort of icon in India’s start-up universe. Mr Vembu and his co-founder, Shailesh Kumar Davey, have built Zoho into a technology company acknowledged for its world-class product. And they did it the bootstrap way, that is, without raising money from investors. Zoho today is said to be worth $5 billion and its R&D budget is reported to be three times its expenditure on marketing.

What completes the picture of Mr Vembu as the iconic package is the way he carries himself. As a living embodiment of his commitment to providing rural employment, Mr Vembu left California and came to live in Mathalamparai, a village in Tamil Nadu.

But now the threat of a blemish looms. According to a Forbes magazine report, Mr Vembu’s wife of 30 years, Pramila Srinivasan, has alleged — Mr Vembu vehemently disputes the allegations — that her husband abandoned her and their son with special needs. She goes on to question his handling of his stake in Zoho and alleges this was meant to avoid sharing assets with her.

Granted, stories of marriages between wealthy people and their unseemly and expensive fallouts are not rare. These are common in India’s business families as well. Nor are they new. There is the story of R K Dalmia, his six wives, and their 18 children documented in a book by Dalmia’s daughter, Neelima. But in a start-up, marital discord between founders can have a deeper impact because most start-ups, not only in India but the world over, come to be identified with their founders and share the ups and downs of not only their professional lives but also their private affairs.

Mu Sigma, a data analytics start-up that was one of the earliest unicorns in India, went through a period of uncertainty after its founder couple — Dhiraj Rajaram and Ambiga Subramanian — ended their marriage in 2016. Rajaram was chairman, Subramanian the CEO. Each held a 24 per cent stake.

Things settled down when Mr Rajaram bought out Ms Subramanian’s holding in 2017. According to reports, the deal was financed by a $400 million loan from a consortium of four global banks against Mr Rajaram’s shares and the company’s cash. One can argue it was not a purely personal affair.

Investors in start-ups are waking up to this. Earlier, while putting their money in a start-up, they tried to glean the intricacies of the equation between the founders: Are they friends, have they known each other for long, have they come together purely for convenience, can they have a good professional relationship, and so on. They felt reassured if two of the founders happened to be a couple, either by marriage or romance. This told them that the founders were all in, fully committed to the start-up. But now second thoughts are creeping in.

“Earlier, investors would say, ‘Wow, they are aligned.’ Now, they say, ‘Oh no, this is a risk,” says Rishi Sahai, who runs a boutique investment bank and, among other things, helps start-ups raise funds. However, he concedes that in spite of the “wows” and “oh, nos”, investors are not sure how to deal with the situation. As of now, they file it under “key person risk”, which applies to all personality-driven start-ups, which means pretty much every start-up. They deal with the potential risk of founder couples falling out in the same manner as any set of co-founders falling out.

The early-stage investors take heart in the fact that marital discord between founders becomes an issue only when a start-up scales up and gets into serious money, when the founders have not only become rich, but also have a lot of other people’s money riding on them. By that time, the big venture capital and private equity firms are in the scene with their structured processes of dealing with discord. Still, angels, the early-stage investors, are awake to the risks.

“If a founder is going through a marital issue, I will find ways to support them, because everything is so intertwined in a founder’s life,” says Harpreet Singh Grover, an angel investor in more than two dozen start-ups.

Some angels make it a point to know if the founders are in a relationship. At times, they can use one of the juniors to find out if romance is brewing. It is always good to know, they believe, because if you are co-founders and also romantically involved, it takes a certain set of skills to make things work.

To be fair, it takes a certain set of skills to make any marriage work.