Corporate Governance in Indian Startups: What Needs to Change Now

Indian startups face growing scrutiny over corporate governance. Learn what causes governance issues, their impact, and how startups can build better practices.

BluSmart, VerSe Innovation, Builder.AI. These three companies have been at the forefront of headlines across Indian media of late for one primary issue, corporate governance. Startups are having a reckoning moment with issues surrounding how their companies are run and the entire ecosystem is now paying very close attention to what is happening currently.

News about funding is often considered the most glamorous and spoken about, while corporate governance—an element that is so crucial to how startups function is often overlooked or even neglected. While not spoken about as frequently as the others, it is essential to understanding how a company functions and also governs how companies interact with its stakeholders including investors, employees, customers, and the public.

When things go south in a company, the first instance is to look into corporate governance issues that happen within that company.

The lack of foresight into understanding scale

The last year in the Indian ecosystem was signalled by a great amount of traction in the late stage. Over 110 companies came to the public markets, a culmination of companies entering the late stage at a rapid pace. A crucial part of entering the late stage also includes making sure that your governance models are in place.

Except, corporate governance can be a complicated problem to solve. This is because it often includes multiple stakeholders ranging from the founder, to the investor, and the board of directors and it isn’t always easy to identify what truly is the root cause of the problem. For instance, some late stage startups have a multi-structure shareholding which can often put the power dynamic within a company’s decision making process in jeopardy giving disproportionate power to the founder to unanimously make decisions.

In some cases, venture capital (VC) board members face conflicts between maximizing returns for their funds and acting in the startup’s long-term interest. Early stage investors can often even adopt a more managerial approach to their portfolio companies, limiting their involvement with a startup purely from the standpoint of growth and metrics, ignoring fundamental issues with the company. Founders like Nikhil Kamath have also openly shed light on the “growth at all costs” phenomenon which has led to a lapse of governance at the startup level.

Also Read: corporate and startup collaboration

Interventions can help — to an extent

Some interventions can definitely help identify and eliminate the possibility of arriving at bias. Like for instance when the Indian government made it mandatory in 2013 for companies to have an independent director on their board to avoid any situations of conflict of interest. Nonetheless, when governance models fail at the startup level, this can erode investor confidence.

We are already seeing the impact of this now. Investors are now extending their due diligence cycles. According to recent reports, due diligence cycles can now last up to 8 months from 8 weeks with everything from family to recent finances now up for greater scrutiny.

Trends also include venture capitalists now including various clauses related to corporate governance being completed at the term stage, which is usually not the case.

Also Read: Government policies for startup

Limited Partners increase their intervention in startups

Limited Partners (LPs) are now becoming increasingly concerned about corporate governance issues at startups. During audit seasons, VCs are actively sharing information about independent auditors and revisiting shareholder agreements to enhance inspection rights, driven by LP demands for greater transparency. For founders, governance lapses make fundraising exponentially harder:

• Investors now ask tougher questions—about board composition, financial controls, and founder accountability.

• Down rounds and tighter term sheets—weak governance can lead to punitive funding terms, including liquidation preferences and forced exits.

• Reputation damage—once a founder is associated with governance failures, rebuilding trust with investors becomes an uphill battle.

The WeWork Labs Take

In today’s startup landscape, governance is emerging as a key differentiator between companies that scale sustainably and those that stumble. As investor scrutiny deepens and founders face tougher questions, it’s clear that building strong governance structures early is no longer optional—it’s essential. For Indian startups eyeing long-term growth, credibility, and resilience, now is the time to lay the groundwork for transparent, accountable leadership.