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Too little governance leads to founder overreach, decision-making blind spots, and toxic cultures
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India’s start-up ecosystem is growing rapidly and is the third-largest globally, with over 115 unicorns as of this month. It seems most start-ups overlook the important aspect of governance in their quest for growth and perpetual funding. And by the time they think of good governance, it will be too late. From most-recent saga of BluSmart to the many before that including BharatPe and Byju’s, there is a glaring need: start-ups must invest early in robust, balanced, and thoughtful boards.
Start-ups face a laundry list of urgent challenges: funding, talent acquisition, legal compliance, and product-market fit, among others. In that storm, governance seems like a bureaucratic luxury. But, this neglect can be costly.
Too little governance leads to founder overreach, decision-making blind spots, and toxic cultures. On the other end, overly formal boards in early stages become clunky and misaligned with agile execution needs. The sweet spot? A lean but strategically constructed board that evolves alongside the company.
Many experts highlight a recurring challenge: misalignment between founders and investors on long-term vision and exit strategy. Without open, early conversations, boards become battlegrounds for competing agendas.
The BharatPe and BluSmart sagas are two cases in point. Both shone a spotlight on founder behaviour and board inaction. Despite warning signs, neither investors nor independent directors stepped up forcefully. This silence, driven by fear of delayed exits or uncomfortable confrontations, signals a failure of governance.
The start-up ecosystem is no longer nascent. As of January 15, 2025, India has nearly 1.6 lakhs start-ups formally registered under the Start-up India scheme, and a cumulative IPO raise of over ₹45,000 crore in 2021 alone. Start-ups today are not just cool ventures but are stock market contenders. Yet, governance norms haven’t scaled at the same pace. Cultural factors also play a role. The founder-hero narrative shields leaders from accountability.
Effective start-up board
So what does an effective board look like in the start-up context? The answer lies in balance and evolution:
Start small, but smart: Early boards should be compact with three to five members and with complementary skill sets. Avoid overloading with big names or investor appeasement picks. Remember: Substance over symbolism.
Independent voices matter: True independence is rare and valuable. Independents must be legally detached but intellectually and emotionally invested in the company’s mission. They bring perspective and bridge founder-investor divides.
Dynamic membership: As start-ups grow, so should their boards. A Series-B board will look different from a Series-C one. Plan for evolution. Bring in new talent. Let go of legacy directors who no longer add value.
Avoid governance theatre: Board observers with shadow power, chairpersons selected for loyalty rather than leadership, and power plays disguised as governance are dangerous distractions. The board must be a performance enabler, not a political arena.
Define success collectively: Set clear expectations around goals, KPIs and exit strategies. Talk about what success looks like at year 3, year 5, and beyond. Document these key aspects.
Choose the right chair: The chair is not a ceremonial role. They orchestrate discussions, manage conflict, and support the CEO. Each founder must ask: “Am I the best person for this job, or do I need someone else to lead this room?”
Governance from day zero: Start building a culture of transparency and accountability early. Train your team. Align your values. Create feedback mechanism. Governance isn’t just policy; it’s behaviour in action.
Good governance pays off in valuation, stability, and stakeholder trust. According to a Harvard Business Review study, companies with strong governance frameworks outperform others by 15 per cent on average in long-term value creation. In India, where regulatory frameworks mandate mechanisms like independent directors, whistle-blower policies, and audit committees, start-ups have the blueprint. They just need the will to implement it.
Muneer is a Fortune-500 advisor, start-up investor and co-founder of the non-profit Medici Institute for Innovation
Published on April 29, 2025
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