Navigating Growth and Governance - The Great Indian Startup Challenge

India’s startup ecosystem has become a global force, achieving remarkable growth over the past decade. With over $144 billion in venture funding pouring into the country, more than 100 unicorns have emerged, reshaping everyday life for millions. From revolutionising the way people shop, pay bills, and travel, to enabling online education and telemedicine, startups have driven transformative change across industries. As India stands on the cusp of creating up to 250 unicorns in the near future, its vast talent pool, burgeoning consumer market, and rapid digital adoption continue to fuel its ascent.

Yet, as the ecosystem matures, a critical question looms: how can India balance the drive for hypergrowth with the need for strong governance? Recent economic shifts and more cautious investor sentiment are steering the conversation from rapid scaling to sustainable practices. This is the Great Indian Startup Challenge - finding harmony between breakthrough innovation and responsible leadership.

Mathew John, Chief Program Executive at the Centre for Board Excellence & Leadership, Indian Institute of Corporate Affairs (IICA), Ministry of Corporate Affairs, Government of India, explains how shifting market perceptions have put corporate governance in the spotlight, why it often gets sidelined during early-stage hypergrowth, and highlights what founders, investors, and regulators can do to build a stronger, more transparent ecosystem. As Indian ventures attract global capital and scale across borders, executive search leaders and board advisors face growing opportunities to shape leadership teams that strike the right balance between breakthrough innovation and sound oversight.

The Rise of India’s Startup Juggernaut

India has emerged as the world’s third-largest startup ecosystem, hosting at least 115 unicorns and attracting global attention as a hub for technology-driven disruption. Innovations like the Unified Payments Interface (UPI) and widespread smartphone adoption have positioned India as a test bed for scaling innovation.  From household names in ride-hailing to fintech platforms offering convenient payment solutions, the momentum has been remarkable - and the world has noticed.

While India’s growth story sometimes feels like it emerged overnight, the groundwork was laid by the earlier success of the IT outsourcing sector in the 1990s and early 2000s. Startups have since carried that momentum forward, demonstrating that technology can do more than cut costs for Western corporations; it can leapfrog entire industries in domestic and global markets. Unsurprisingly, investors have poured billions into promising young ventures, each chasing the next unicorn.

Governance Challenges in Hypergrowth

As the ecosystem races ahead, governance often takes a back seat in the early stages of growth. The pressure to scale quickly, attract funding, and capture market share can lead startups to prioritise speed over sustainability. However, recent headlines of financial mismanagement and operational inefficiencies have served as stark reminders of the risks of neglecting governance.

Good governance is more than a compliance requirement; it is a cornerstone of long-term success. It ensures transparency, builds investor confidence, and protects organisations from avoidable pitfalls. With global investors increasingly scrutinising governance practices, Indian startups have an opportunity to redefine their approach by embedding governance frameworks from the outset.

“When the market’s going up, mistakes get papered over; when it stops, they cause real pain.”

Amid abundant funding and soaring valuations, many startups treated governance as an afterthought. But a “rocket ship” to a billion-dollar valuation can just as quickly crash without the right guardrails in place.

Today, speed alone isn’t enough. Founders and boards are being asked tough, practical questions:

• How sustainable is your revenue model?

• Are your projections realistic or just a ‘spreadsheet fantasy’?

• Who is watching the business when it pivots at breakneck speed?

These questions put governance at the forefront, highlighting the difference between companies designed to “flip” in five years and those aiming to become enduring, trusted institutions. If you’ve built your culture around cutting corners, it becomes exponentially harder to retrofit accountability later on.

India’s startup juggernaut remains a formidable force, yet there’s an emerging consensus that stronger governance practices are key to withstanding future headwinds. The conversation has begun shifting from “grow at any cost” to “grow with resilience,” suggesting that the ecosystem’s next chapter will be defined by both ambition and accountability.

Balancing Innovation and Oversight: Governance Gaps in Startups

In India, corporate governance has traditionally focused on listed companies. The Securities and Exchange Board of India (SEBI) enforces strict rules, such as mandatory independent directors and regular financial disclosures, to protect investors and ensure transparency.

Unlisted startups, however, operate with far less oversight. The Companies Act provides general governance principles, but enforcement is inconsistent. Without public shareholders to demand accountability, much depends on founders and investors to take the lead in establishing governance practices.

This lack of oversight allows for what some call “regulatory arbitrage,” where startups leverage their flexibility to grow faster by avoiding the requirements that listed companies must follow. While this environment supports innovation, it also increases risks. Compliance gaps often remain hidden until external pressures - such as funding slowdowns or high-profile scandals - bring them into the open.

Looking ahead, there are signs of increasing attention to governance among investors and some startups. While voluntary adoption of best practices is not yet widespread, the importance of governance is becoming a more regular part of discussions between stakeholders. This suggests a growing awareness of the need to balance growth with accountability, though whether this shift will gain momentum remains to be seen.

The Role of Investors: GP-LP Dynamics

A crucial player in the governance equation is the investor community—particularly venture capitalists (VCs) and private equity (PE) funds. Venture capital and private equity funds typically operate on a two-tier model: General Partners (GPs) manage the fund’s investments, while Limited Partners (LPs) - often large institutions or high-net-worth individuals - provide the lion’s share of capital. At face value, both groups share a common goal: to grow the portfolio’s value. In practice, however, the nature of fund structures and return expectations can create a paradox for startups seeking to balance rapid growth with strong governance.

Many LPs are institutional players with mandates or timelines that require liquidity events- IPOs, mergers, acquisitions, or secondary market sales - within a set horizon. Typically LPs demand returns within a specific period (often 5–7 years), which can accelerate the growth treadmill. Under pressure to demonstrate returns, GPs may push founders to scale quickly, chase ever-higher valuations, and cut corners. When the next funding round or exit defines success, it can corrode the discipline needed to build a genuinely sustainable enterprise - one that invests in compliance, ethics, and stakeholder well-being for the long haul.

In reality, only by aligning interests more thoughtfully can we prevent instances of failures. Some forward-thinking funds now tie governance milestones to follow-on investments, mandating stronger internal controls and transparent reporting. LPs, too, are asking more pointed questions about risk management and ethical practices, recognizing that public blowouts hurt everyone - not just the portfolio company. The interplay between GPs and LPs, then, is shifting toward a model that values resilience and accountability as much as raw growth.

This evolution matters deeply for India’s startup ecosystem, where capital flows are both global and intensely competitive. If GPs and LPs can align around moderate fund lifecycles, secondary market mechanisms, and responsible oversight, they may pave the way for longer-term success. For founders, that means more runway to build sustainable ventures - ventures that endure long after the fund’s exit window has closed. By recognising that “growth at all costs” is outdated, investors can help shape an environment where good governance is as much a prerequisite for funding as product viability or market traction.

The Founders’ Dilemma? Balancing Risk and Reward

Anyone who’s raised money knows the allure of the Excel spreadsheet that projects exponential revenue growth. Founders sometimes offer overly optimistic scenarios, “We’ll get 30 million active users in three years!”, and find that most spreadsheets never “refuse” a number. In bullish markets, investors often gloss over these assumptions, leading to inflated valuations that become a crushing burden when reality sets in.

Overly ambitious valuations create a self-fulfilling prophecy: (a) The moment a startup pegs its valuation at, say, $1 billion, investors expect it to behave like a unicorn. (b) Founders now scramble to deliver quarter-on-quarter growth, leading to hurried decisions around product launches, customer acquisition, or cost cutting. (c) Neglecting governance becomes too tempting to resist - introducing risks that compromise long-term stability and investor confidence.

In essence, it’s “stay on the treadmill or fall off.” This dynamic doesn’t automatically doom a startup to poor governance - but it increases the likelihood that founders will cut corners to keep pace.

Building a company can be like trying to grow a forest – not a tree. You can grow a tree fairly quickly with outside help, but a forest is an interconnected ecosystem of flora and fauna that takes years if not decades to mature. If a startup’s goal is quick flips, steroid-like capital injections can deliver astronomical growth. But the moment external conditions change, that artificial growth topples like a shallow-rooted tree in a storm.

Instead, some founders are choosing a more patient path - sometimes bootstrapping or partnering with “patient capital” investors who understand that it can take 10, 15, or even 20 years to build enduring value.

When (and How) to Institute Governance

One of the enduring debates in the startup world: At what point do you formalise corporate governance structures? There’s a school of thought that governance is a “day one” activity - if you build good habits, processes, and cultures of transparency early on, it’s far simpler to maintain them as you scale.

The counterargument is that heavy governance early could hinder innovation - slowing decision-making, overloading staff, and drowning the company in paperwork. In truth, governance need not be a rigid set of checkboxes; it can be a set of guiding principles:

• Serve your customers with integrity

• Make long-term decisions, even when short-term gains look appealing

• Preserve transparent communication—internally and externally

Practical Steps

• Board Composition - Even for early-stage startups, consider bringing on independent advisors or directors who can offer outside perspective without demanding bureaucratic overhead.

• Basic Controls - Tracking funds, establishing clear sign-off processes for major deals, and ensuring all stakeholders (including employees) have visibility into how decisions are made.

• Conflict of Interest Protocols - Startups with founder-family deals or multi-faceted investor relationships often create unintentional conflicts of interest. Simple guidelines on related-party transactions go a long way in preventing murky business.

• Culture of Accountability - As the company grows, accountability shouldn’t just rest with the CEO. Everyone in the organisation should “own” governance, from finance leads to product managers.

Balancing Speed and Prudence

The tension between speed and prudence is real. No founder wants to become so bogged down in procedures that they lose their competitive edge. But “governance” isn’t a synonym for “red tape.” Good governance is more about discipline and decision-making frameworks than about exhaustive policy manuals.

You need to weigh every decision as both a risk and an opportunity. Focusing solely on opportunity can lead to reckless decisions. Focusing solely on risk can throttle innovation. Striking that balance is where effective leadership emerges and that requires a culture where open dialogue and challenge are encouraged at every level.

Regulation: Carrot, Stick, or Sandboxes?

In India’s startup scene, the conversation around regulation is nuanced. On one side, regulators like SEBI and the RBI are keen to protect investors and consumers. On the other, the ecosystem needs freedom to innovate - especially in areas like fintech, deep tech, and climate tech, where cutting-edge solutions can position India as a global leader.

Overregulation could stifle startups, pushing them to other markets or forcing them to remain small and unlisted. Under-regulation invites mismanagement, ethically questionable business models, and occasionally, outright fraud.

Self-regulation is a popular refrain as of late. If startups and investors set their own operating norms - on valuations, disclosures and conflict of interest rules - the ecosystem could demonstrate maturity without the heavy hand of external enforcement. Personally, I believe self-regulation only works if violators face real consequences - whether expulsion from industry associations or blacklisting by major investors. Without serious enforcement, self-regulation is no more than mere lip service.

In sectors like FinTech, regulators have also experimented with sandbox frameworks, allowing startups to test innovations within controlled environments. This helps them refine business models and address compliance gaps early, without endangering broad market stability.

The Convergence of Stakeholder Interests

One of the more significant realisations in modern business is that “corporate governance” can’t just be about shareholders. It’s stakeholder governance - serving customers, employees, and even broader society. For a startup, a massive collapse hurts more than the cap table; it can disrupt jobs, essential services, and community trust.

Investors themselves face scrutiny. In some jurisdictions, being on a startup’s board can expose investors to legal liability, particularly when serious wrongdoing surfaces. This makes some investors gun-shy about taking proactive governance steps for fear of inheriting blame. Yet, as the ecosystem matures, board roles must shift from “protecting investor rights” to “building a sustainable enterprise.” That a more holistic approach will likely necessitate deeper engagement and responsibility, benefiting not just investors but also employees and customers in the long term.