B2B E-COMMERCE START-UP Zilingo’s co-founder and CEO Ankiti Bose, who is embroiled in a legal tussle with the board, has begun exploratory talks with new investors to buy out a majority stake, including the 25% equity owned by Sequoia Capital, sources close the development told FE.
The talks come at a time when the board of Zilingo is expected to meet in the coming weeks to decide the fate of the company’s leadership changes.
Zilingo is one of Sequoia Capital India’s key investments in the South East Asia region, and the start-up entered the unicorn club when it raised a $226 million Series D round in April 2019. Thirty-year-old Bose who has been at the helm of the company since its inception in 2015 is facing allegations of financial irregularities, with the board accusing her of inflating revenues.
The B2B start-up, which offers a tech platform for fashion retailers to source wholesale supplies, has been one of the most celebrated start-ups to emerge from SEA geography. However, the start-up’s CEO has been kept under suspension till May 5, with the board launching a full-fledged audit into the accounting books, according to earlier reports. In a statement in early April, Bose termed the board’s suspension and allegations against her as a “witch hunt” and refuted all the claims made by the board. A Bloomberg report also mentioned that Bose hired Abraham Vergis of Providence Law Asia as her official attorney to represent her.
“Zilingo CEO has been exploring multiple options to gain back control over the company, including a prospect of raising fresh funding from new investors for a leveraged buyout of the majority stakeholders. However, this can be executed only if the CEO can convince the board to side with her which is difficult at the moment,” says a board observer close to the
matter. Sequoia first invested in Zilingo in its $1.9 million seed funding round back in 2015, and later infused more cash
across multiple rounds.
However, Sequoia had put forth multiple extraordinary clauses including control over C-level and leadership appointments in the shareholder’s agreement, sources told FE. The current CFO Ramesh Bafna was one of the potential CFO candidates referred to Zilingo by Sequoia Capital India. Bafna was appointed after several rounds of interviews including with the CEO of Zilingo and the top management. Sequoia Capital India’s human capital team refers hundreds of candidates every year to portfolio companies.
Sequoia led the seed round in 2015 in exchange for a 20% equity and later acquired another 5% through multiple primary rounds. They are the largest shareholder by far, and at the time of the first fundraise, Sequoia demanded that they take over control of key hires and other major corporate development processes during the signing of the shareholder’s agreement,” the sources said.
Sequoia Capital had also appointed its managing director Shailendra Singh to the Zilingo board after the seed round in 2015, and he has overseen all the key leadership hires, especially across financial operations, sources said.
The Bloomberg report said that Bose is facing allegations of inflating revenues booked from retailers by technically changing how discounts are recorded in the accounting books. However, two sources told FE that the technical judgment of how discounts are classified in the books has been authorised by the CFO and the accounting team even when Singh was on the board. After these allegations were made public, Singh quit the Zilingo board immediately along with other members including Temasek Holdings’Xu Wei Yang and Burda’s Albert Shyy.
As is known,the allegations against Bose emerged after the start-up began the internal process to raise $200 million in funding led by Goldman Sachs Group which has now been discontinued. A source aware of these funding talks told FE that the start-up sub-mitted all key financial statements for a due diligence process for the $200 million funding.The company currently has enough cash in the bank for the next 15-18 months, the person added.
Sources mentioned that the $200 million talks for funding were paused without her consent, an accounting practice investigation was launched on March 31 and she was immediately suspended from her role as CEO.
“The due diligence process for the $200 million funding took eight weeks that ended in December 2021. The process included an audit from an external consultancy firm. However, by March 31, 2022, Bose was called into a board meeting and was asked to refrain from leading the funding process or discharge her duties as CEO since there were a few complaints against her from unknown persons,” said sources. In a response to a questionnaire sent by FE, a spokesperson from the Zilingo board said that several days after her suspension on March 31, Bose brought to the board’s attention, for the first time, certain harassment-related issues pertaining to past time periods.
“For the sake of clarity, no harassment complaints are made against investors or their nominees. The Board is committed to following due process to look into all related events from the past which have now been brought to their attention.” The Zilingo spokesperson further added that the major investors of the company authorized the board to put Bose on suspension pending an investigation of the matters raised.
“…the major investors have hired an independent firm to investigate the matter, and the company is working closely with the major investors and the independent firm for the investigation. Proper due process has been and will be followed. Any question of a change in management is speculative and premature at this stage,” the statement added.
Sequoia India has a specialised team that routinely helps many portfolio companies with fundraising and making investor connects. The team has been part of fundraising discussions together with financial advisors, for Zilingo, just like it is with other companies. The team operates on information shared by the companies. Major investors, including Sequoia India, were shocked and disappointed by the allegations that sur- faced in March 2022, the statement added.
Incidentally, three other unicorns under the Sequoia portfolio — BharatPe, Trell, and Network — have also recently made the news for allegations of financial irregularities and mismanagement. While some of these CEOs have not been asked to step down, in BharatPe’s case, the start-up’s co-founder Ashneer Grover has been stripped off all his positions for his alleged “ misdeeds ”, including some of his shareholdings.