Every other entrepreneur in the world usually run after investors to raise money. And it’s justified to some extent. Startups need money. And people need money. Who doesn’t like getting a million dollar to pursue their dreams?
But Bhavish Aggarwal, the founder and CEO of Ola Cabs is reportedly refusing a whopping $1 billion dollar fund from Softbank. Yes $1 billion. It’s around INR 7,000 crores.
According to an Economic Times report, Softbank is willing to invest in Ola. Softbank’s CEO Masayoshi Son and Bhavish have met several times but Bhavish is worried to accept such a huge pool of money.
Softbank has earlier invested in the firm and owns around 26 per cent stake in the cab aggregator. After investing $1 billion more, Softbank may end up acquiring more stake in the company which may lead to Softbank dictating the direction in which the firm will run.
Bhavish and Ankit Bhati together owns 20 per cent stake in the firm, and selling more stake to Softbank is sensed as a control issue by both the founders. They are sceptical that they could be soon forced to cede control of Ola to Softbank.
And, if we look into Softbank’s history, it is seen to be an investor not averse to throwing its weight around when it calls the shots. Around three years back in 2015, Softbank took over Housing.com and dismissed Rahul Yadav from the company he founded. Also in 2017, Softbank has tried hard to merger Snapdeal and Flipkart against the will of Snapdeal’s founders but failed.
In 2017, Bhavish and Ankit had framed a complete new Articles of Association agreement to avoid a takeover from Softbank. The agreement said that Softbank, in particular, could not buy more equity in Ola without the approval of the board and the founders. After the new document was framed and applied, Aggarwal and Bhati need to approve any transfer of equity shares by Ola investors which is more than 10 per cent of the company’s capital.
Flipkart founders Binny Bansal and Sachin Bansal have also been forced to quit their companies by their largest investors. After the incident, Sachin commented that Indian founders should start using dual-class voting shares to gain more control over their companies after leaving Flipkart.
Any stake below 25 per cent significantly reduces the control of founders in their startups. Most of the founders have less than 10 per cent stake in their late stage startups. And this can lead to a situation similar to Housing.com’s when its founder Rahul Yadav was kicked out of the firm.