The sale discussions initiated by Grover come on the back of an ongoing investigation and an independent audit of BharatPe, which has
indicated financial irregularities at the startup.
The company and its founder have been embroiled in a month-long corporate saga triggered by a
leaked audio clip, in which Grover is allegedly hurling abuses at an employee of Kotak Mahindra Bank.
The secondary sale, which Grover is pushing for, signals that he could be eventually ousted from the company once final findings of the ongoing probes are submitted.
ET reported on January 31 that Grover
had hired lawyers in anticipation of such a situation, even as the chasm between the founder, the BharatPe board and company shareholders widened. Two people familiar with developments said Grover is rushing to close the stake sale before the final probe findings are tabled before the company’s board.
The Delhi-based firm, which helps small businesses and primarily offline merchants with a suite of financial services, is currently valued at $2.8 billion.
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“While Grover is offering his stake at full price (current valuation), he would settle for anywhere around $1 billion valuation… But finding a buyer won’t be easy considering
the events of the past month,” said another person aware of developments, adding that with an ongoing financial probe mustering an investor will be tricky even at a steep discount.
People in the know are of the view that Grover may sell his shares at a discounted price in an effort to monetise his stake, but a deal is tough to pull off, they said.
“He (Ashneer) has begun talks with a whole host of investors for divesting his stake but the key investors hold right of first refusal (rofr) on founder’s shares and tag along rights. These would need clearances which will be critical to this proposition,” said one of the persons cited above, adding that it is unlikely that any of the existing shareholders will buy more stake in the fintech firm.
When contacted by ET, Grover did not respond to a query. Sequoia Capital India, Coatue Management and Ribbit Capital are the three largest shareholders in BharatPe. Sequoia Capital India declined to comment.
Grover’s move to monetise his ownership follows his demand for a Rs 4,000 crore settlement, which was
rebuffed by the BharatPe board, as ET reported on February 4. “He (Grover) wanted to leave but hold onto his shares…but the board is trying to get him out without a payday,” said another person quoted above.
Late last year, BharatPe was in discussions to raise a new funding round but those talks fell through due to the audio clip controversy, sources aware of the talks told ET.
Its major valuation bump came in August 2021 when it
raised $370 million in a funding round led by New York-based Tiger Global. In six months, the company’s valuation had trebled from the $900 million ascribed to it in February 2021.
Consulting firm Alvarez & Marsal is presently conducting a probe and had said in a preliminary note that it found financial irregularities at the company, putting Grover and his wife Madhuri Jain, head of controls, under the scanner. A&M is expected to submit a final report by the end of February. PwC is also auditing the company’s functioning. The company board said it will take action once the final reports are in.
Hurdles For Grover’s Plan
For Grover, selling his shares will be tough keeping in mind the terms governing an event like this.
According to the BharatPe’s Articles of Association—a legal document containing rules for the internal management of a company—filed by its parent Resilient Innovations with the Registrar of Companies (RoC) in September last year, Grover needs to offer his shares to existing investors who have the first right to it.
If the investors or the other founder do not want to buy these shares, they can be sold to externals. Shashvat Nakrani is the other cofounder with less than 8% stake in the company.
ET reported on February 4 that Grover
shot off a letter to the company board seeking the removal of BharatPe CEO Suhail Sameer as a director on the board. Nakrani said in a separate statement that he was firmly behind Sameer.
Interestingly, the filing, sourced through business intelligence platform Tofler, showed that certain restricted shares of founders can be bought back by the firm at a lower fair market value or the price paid by the relevant founder at the time of acquisition of those shares, provided the company or the founder has terminated the employment showing cause.
As per the terms, restricted shares are defined as 75% of founder shares after BharatPe’s Series C funding in 2019 and follow-on shares issued at the closing of Series E funding. This can be transferred to an employee welfare trust or be acquired from the relevant founder with approval from board and consent of the majority (51% or more) of investors.
For the ‘cause’ to be established for termination, the founder has to be charge-sheeted for an offence involving ‘moral turpitude’ or fraud in relation to the company affairs, resulting in material adverse effect on the company’s business. Wilful misconduct or gross negligence are also described as causes for such termination in BharatPe’s AoA. All of this needs to be certified by one of the Big Four audit firms which currently doesn’t have any relation with BharatPe.