Startups

What We MUST learn from the #Stayzilla Incident. But are we?

Source | LinkedIn : By Vijay Anand

What we should be learning from the #Stayzilla issue, but we are missing it.

ONLY ANNOUNCE (BETTER YET STOP ANNOUNCING) WHAT YOU RAISE.

Time and time again, VC funds when they commit capital, have this habit of committing a larger amount, and then put conditions of release (what is called tranche). If the funding that is coming in, is tranched, and if you and the VC fund decide to make an announcement, only announce the amount that is being released, not the ceiling amount. Better yet, stop making announcements about funding.

The fact that companies use fundraising announcements to build confidence with vendors and employees, and then say that the amount never reached the account is paramount to fraud. VC funds have a responsibility towards this as well.

In May 2016, Stayzilla announced that they had raised $13.5mn from their investors. Insiders say, the money that actually hit the bank was a much smaller fraction of it. Either that or between May 2016 and Dec 2016 they managed to burn through 13.5mn USD, which doesn’t add up either.

Update: Venture Intelligence has gotten from the Registrar of Companies a copy of the filings and it suggests that 87.7Crores (13.5mn) had reached the bank account of the company in three tranches.

FOLLOW A PROPER PROCESS. BE FAIR.

India is not new to shutting down of firms. But at some point you decide that things are not going your way and you have little money in the bank. You have a responsibility to make a list of liabilities and call all the vendors and employees and make an offer with whatever money is left, proportionately. If 60% of your liabilities are salaries and 40% are vendors, then you split it accordingly and make an settlement offer. You tell them, this is an amount you can make right away, or if they want to negotiate, they can come to the table once everyone is settled. 98% of the time, the vendor or employee will take the settlement. Something is better than nothing. Service providers would have paid a min 15% service tax when they raised the invoice to the govt, so even if the amount covers just that, they’d feel happy about it. Saying nothing, just aggrevates the situation. Time and time again, be it stayzilla, or TinyOwl or IndiaMart seems to be making this same mistake. Learn from how manufacturing companies do this – the rules are not any different.

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