Last week Ashneer Grover, co-founder & MD of BharatPe, the fintech unicorn, made a bold move by setting up his terms straight. With ‘my way or the highway‘ attitude, he asked the board of BharatPe to buy out his stake at nearly double the valuation or step aside for him to run the show. Many believed that Ashneer was quite confident about having an edge despite being accused of conducting financial frauds in the company.
Looks like, Ashneer is quite aware that he is, apparently, fighting a lost battle! His latest move explains a lot about his awakening to his weak position in the fight with his own co-founders and the board.
Ashneer Grover, co-founder of BharatPe, has been in talks with investors to sell 9.5% of the startup’s fintech startup. According to a media report, he is looking to exit the company completely and avoid any financial loss that may occur once the final report on financial irregularities would be tabled.
Two people who were familiar with the developments claimed that Grover is making every possible move in a bid to close the stake sale before final probe findings are tabled before the company’s board. Suspecting the unfavorable situation post his exit from the company, Grover wants to dilute his complete stake in BharatPe as early as possible.
Citing people familiar with the matter, the media report claims that Grover is now ready to sell his stake at current valuation – less than half of what he estimated last week. However, in absence of any offer, he may sell his stake in BharatPe at a $1 billion valuation, which will also not be an easy task considering the events of last month.
Finding an investor alongside the continuing financial probe on his watch will be an uphill task even if he agrees to sell at a steep discount.
People in the know believe Grover might sell his shares at a discount price to try to make it more profitable, but that it is difficult to do so.
Grover initiated the sale negotiations following an ongoing investigation by BharatPe. This audit has revealed many financial irregularities at the startup on his watch.
The founder and the company have been involved in a corporate scandal for a month now. This was triggered by a leaked audio clip in which Grover was accused of hurling abuses at a Kotak Mahindra Bank employee.
Grover’s push for a secondary sale of his stake in BharatPe signals that he may be forced out of the company after final findings from ongoing probes will be out.
Earlier it was reported that Grover hired lawyers to prepare for such a situation. This was despite the growing rift between Grover, the BharatPe board, and company shareholders.
Bharatpe, a Delhi-based fintech unicorn, provides financial services for small businesses as well as offline merchants. It is currently valued at $2.8 billion.
Despite having the willingness to sell his stocks at a heavily discounted price, Ashneer can’t make a move without having consent from existing investors. Just like other startups, key investors enjoy the first-right-to-refusal in BharatPe as well. Ashneer will either need to sell his stake to existing investors or require clearance to sell his stake to secondary investors.
Given the current scandal, BharatPe is stuck with, it’s quite unlikely that existing investors will pour in more money to buy a stake in the controversial fintech company.
Sequoia Capital India, Coatue Management, and Ribbit Capital are the largest shareholders in the company, together holding 43% in BharatPe.
Sources to ET have claimed that Grover wanted to negotiate with the board as he was ready to exit the company but wanted to keep his stake. Sensing that odds are against him, the board turned down his offer.
The whole controversy has affected the growth plans of BharatPe which was in talks with investors to raise funding for a new round late last year. However, those talks collapsed after the audio clip controversy.
The company’s valuation skyrocketed in August 2021 when it raised $370 million in a round of funding led by Tiger Global. Within six months, between February 2021 and August 2021, BharatPe valuation tripled from $900 million to $2.8 billion.
Alvarez & Marsal, the consulting firm which is currently conducting a probe, found various financial irregularities within the company during their preliminary investigation. The preliminary report found Grover and Madhuri Jain (head of controls), responsible for various frauds. However, the final report will be tabled by February end. PwC will also be auditing the company’s operation. The company board stated that it would decide its next course of action based on the outcome of the final report.
So, why Grover, who was trying to dictate his own terms to the board until a few days ago, is ready for distress sales of his stake now? Experts believe that Grover will definitely find it difficult to sell his shares to secondary investors in the event of the ongoing fiasco. He may have to sell his stake with an 80% – 90% discount if the company decides to take legal action against him and his wife.
Grover must first offer his shares to existing investors who are entitled to them according to the BharatPe Articles of Association. This document contains rules for the company’s internal management.
These shares can be sold to outside investors only if the founders or investors do not wish to purchase them.
For Grover, things will start coming crashing down if the board decides to slap a legal notice. Considering the pieces of evidence against him for misconducting and irregularities are too strong, he will face a tough time dealing with the board in the days to come. It would be interesting to see the next move by Grover who is known for his ‘never back down‘ and ‘aggressive nature‘.
If he manages to sell his stake for approx Rs 1,500 crore – much below than Rs 4,000 crore he demanded from the board – it would be a big again for him given the odds appear to be against him.