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I had limited experience with BluSmart, but was genuinely impressed during my ride. That’s why the recent SEBI report left me both disappointed and curious. What really drives founders to make such choices?
The fundamental principle of any venture is the balance between risk and reward. In case of startups, ideally founders take the highest risk - quitting secure jobs, building from scratch, living with uncertainty. Hence, they are compensated with upside potential through equity. In contrast, employees are brought in with lower risk exposure: a fixed salary and limited ESOPs, ensuring stability but allowing them a small share in the upside if things go well.
Effectively, founders should face a wide spectrum of outcomes, from failure to massive success, while employees should be insulated from downside risks, with their salaries safeguarded as a priority.
But the problem starts when this logic is often inverted as it has been recently seen in a few Indian startups.
Founders, instead of embracing risk, begin by securing themselves. Secondary sales even in series A/B, having friends and family as KMPs, RPTs without complete disclosure and of course, diverting funds and misallocating investor money.
No doubt, this changes the founders' profile from "Low risk, high reward" but it pushes employees and other stakeholders to "high risk, low reward" zone. Problem is risk is not getting managed but transferred. And the most vulnerable is exposed to the highest risk without them even having a hint about it. [See image]
What should have been a model of skin in the game becomes insurance against their own failure, while employees continue bearing the brunt of layoffs, unpaid dues, or broken ESOP promises.
Leadership is not a position, it’s a process. And "With great power comes great responsibility" is not a feelgood guideline. It’s a principle. More than that, it’s a warning.
Power without responsibility isn’t just unethical, it’s unsustainable! You might get away with it for a while.
But eventually, it catches up, and when it does, it rarely knocks!
Pic: Risk inversion
Co-author: Gourav Sharma
