What we should be learning from the Stayzilla brouhaha

Only announce what you raise. Better yet, stop announcing.

When VC funds commit capital, they have this habit of committing a larger amount, and then putting conditions of release (what’s called a tranche). If the funding is tranched, and if you and the VC fund decide to make an announcement, only announce the amount that is being released. 

The fact that companies use fundraising announcements to build vendor and employee confidence, and then say that the amount never reached the account, is paramount to fraud. 

In May 2016, Stayzilla announced that they had raised $13.5 million 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 $13.5m, which doesn’t add up either.

Follow a proper process. Be fair.

India is not new to the shutting down of firms. At some point, you have to decide.

We need a CIBIL-like system for companies

There are companies like Reliance that never pay on time or never pay at all. And there are cases when a company is doing well, but it goes broke because of unavoidable circumstances. As a vendor, you should be able to look up the company’s rating and do business. 

Be accountable – till the end.

All VC funds have a tendency to resign from their board seats so as to not attract liabilities even before the decision to shut down the company arrives. As a VC fund and director, you should stay on the board till all the liabilities have been addressed and there is a sign off on all the vendors and employees. It is not fair to jump ship and leave the founders to fend off by themselves.

This is an excerpt from Tech in Asia. You can read the full article here