The story of startups and fundraising is mainstream in India today and this spotlight has also given new wings to dubious platforms and commission-based matchmaking models in the ecosystem
One example is this week’s World Startup Convention which has made hyperbolic claims about being the ‘world’s largest funding festival’ since last year, but does not pass muster on closer examination
The return of matchmaking and crowdfunding platforms that prey on unsuspecting founders and investors has brought fresh reputational damage to the startup ecosystem after a year that was tainted by controversies
It’s no wonder that Rounak Adhikary wanted to know more about the World Startup Convention after he saw its ads on LinkedIn — a campaign that featured Elon Musk, Sundar Pichai, Satya Nadella, India Prime Minister Narendra Modi and the biggest VCs in the startup world.
The 20-year-old caught the entrepreneurial bug in college and like most other student-founders, he did not have anyone to guide him in his startup journey. So, the opportunity to even be in the same pincode as the likes of Musk, Pichai, Nadella — not to mention VCs such as Sequoia, Tiger Global and others — was too good to pass.
But as it turned out, it was actually too good to be true.
“They even called themselves the world’s biggest funding festival. They said the PM and others have been invited, and even used the photos of Musk. They also said big investors would be there to back startups,” Adhikary told Inc42, recalling how he came across the World Startup Convention.
Among other claims, the World Startup Convention promises startups an introduction to investors and pitching opportunities. In a nutshell, funding in three days.
Adhikary, the founder and CEO of West Bengal-based ProjectX.Cloud, a software development firm incorporated in August 2022, bought two passes for the World Startup Convention at INR 8,000 each in December last year. But soon he realised that not everything is what it seems when it comes to the World Startup Convention.
The event also roped in influencers with millions of followers such as Ankur Warikoo, Raj Shamani, Chetan Bhagat and others for promos full of high praise.
But soon several other founders started tweeting and posting about the dubious nature of the World Startup Convention. And with many of its tall claims being doubted, those like Adhikary who bought into the promise feel cheated.
Currently scheduled for this week, March 24-26, 2023, the World Startup Convention bills itself as the world’s biggest funding festival.
But it’s looking more and more like the Fyre Festival.
Preying On Funding Desperation?
Before venturing deeper into that event and its dubious claims, it’s important to understand the context of suspect investment matchmaking platforms and commission-based models.
Such models have been around for many years now, but given the unprecedented funding slowdown since last year, there’s a lot more activity in this space these days. There is also a measure of desperation among young entrepreneurs and first-time founders.
In private circles and on Twitter, there are discussions about fee-based or commission-based models where funds are charging startups to connect them to investors — often with no guarantees of funding and zero refunds.
And then there are larger scale events such as WSC that purport to connect founders to prospective investors in exchange for the cost of the entry passes.
While there’s nothing illegal about these platforms or forums, their proliferation poses a reputational threat to the startup ecosystem. And as investors themselves struggle with write-offs and dud bets in the past year, many of the smaller investors have had to resort to some creative models to stay active and that means commission or fee revenue.
The story of startups and fundraising is well and truly part of the mainstream in India today, with no little help from Shark Tank India which entered the scene in late 2021. While Shark Tank India has certainly turned the spotlight on what it takes to build a startup, the general feeling among investors we spoke to is that the show trivialises some of the aspects related to fundraising.
“A great pitch does not necessarily bring in investors, but Shark Tank India’s packaging makes it seem like it’s only the matter of how you present your business and not the fundamentals,” according to the managing partner of a Bengaluru-based early-stage fund.
Shark Tank depicts a simplistic version of the fundraising process, which makes many inexperienced founders believe all they need is some time in front of an investor. Plus with a new breed of founders (and investors) coming into the ecosystem, such matchmaking platforms are able to target more people now than before.
This is especially critical given that the funding in the first two months of the year has just touched $1.7 Bn, with just $693 Mn raised in February, the lowest monthly tally since August 2019.
The return of dubious matchmaking and crowdfunding platforms that prey on unsuspecting founders and investors has brought fresh reputational damage to the startup ecosystem after the past year which was tainted by controversies. There’s a lot more debate these days about founder-unfriendly practices.
The ‘dumbing down’ of startup funding has triggered consternation in the ecosystem, perhaps best epitomised by the World Startup Convention.
Meet The ‘World’s Biggest Funding Festival’
We first came across the World Startup Convention in late December, right when the event first started promoting itself. And its tall claims immediately piqued our intrigue and also raised some concerns from investors in the ecosystem.
In a branded content article on Hindustan Times in December 2022, founders Luke Talwar and Arjun Chaudhary boasted having received over 100K applications for funding at the World Startup Convention. Given that India has over 90K startups according to Startup India, this claim is incredible, unless one accounts for millions of MSMEs.
Since last year, influencers such as Ankur Warikoo, Raj Shamani and others have talked about the World Startup Convention and what it offers to startup founders. These influencers also claimed that startups could raise Series B and later rounds at the event, deals that typically take months of due diligence work.
But the bigger problem is there was very little about WSC online, including its official website.
For one, the website was down for more than a week between March 12 and March 20, 2023, days before the event.
And even though it’s back up again now, this time around things have changed more. Earlier versions of the website listed several generically titled sessions without any confirmed speakers, but now the agenda is much more sparse with just four panels across the three days besides startup pitches.
Despite not much clarity on what startups or investors can expect, WSC is running its digital marketing ads on Instagram and other social media. However, it has disabled comments on all its Instagram posts in recent days.
What we do know is that WSC had various tiers of passes for startups (INR 7,000), investors (INR 25,000), award nominees (INR 2,000 per category) and exhibitors.
Despite the lack of clarity and its website’s state, Adhikary said that WSC continues to upsell to existing pass holders. The organisers contacted him in early March requesting him to set up an exhibitor stall for a cost of INR 25K.
Inc42 submitted a form on the website to be an exhibitor at the event but we were never contacted by the organisers for further details.
Adhikary further alleged that even though WSC was heavily promoting the event, the organisers never sent any communication regarding the agenda or the names of the speakers. The event was originally scheduled for January 14-16 at the Unitech Golf Course, but it is now set to be held at the India Expo Centre & Mart in Noida this week.
Inc42 spoke to the India Expo Centre & Mart which confirmed that the event will indeed be held at the venue, but we did not get any details about the commercial terms between the WSC and the venue.
The current version of the agenda has speakers such as the founders of Bambrew, Skippy, Coffemug.ai, Reshamandi, Organic Smokes as well as executives from other companies such as Builder.ai, among others.
In contrast, WSC had boldly hinted at the participation of global tech personalities such as SoftBank’s Masayoshi Son, Tesla’s Musk and Alphabet’s Pichai. In recent weeks, some of their images have been used to sell passes as well.
And then we dug deeper to learn about the people behind the World Startup Convention, and the legitimacy of some of its claims.
Who’s Behind The World Startup Convention?
Who are Luke Talwar and Arjun Chaudhary? There’s very little information about the duo that could be independently verified and whatever we found lends little credibility to the World Startup Convention.
Besides dozens of paid or branded content articles on various portals, we could find reports about the founders meeting Union Minister For Road Transport & Highways Nitin Gadkari. And there’s nothing else about their past experience to
Inc42 did not receive responses from Talwar or Chaudhary, but the World Startup Convention is not their first stint in startup-investor matchmaking.
Talwar’s LinkedIn profile shows that he was associated with Turiya Investments in the past, while Chaudhary claims to be a regular on the fundraising circuit having operated such matchmaking initiatives in the past.
Incidentally, Turiya Investments also claims to be a matchmaking platform, charging startups a fee for enabling conversations with investors. Startups are charged a fee of INR 6,000 for meetings with investors, which will not be refunded in case the investor declines to invest.
On LinkedIn, the event’s page shows it has 69 employees, but besides Talwar and Chaudhary, most of these are interns or college students from the Delhi-NCR region.
Recent media reports about the duo pertain to the launch of the WSC and there’s little information about the deals Talwar or Chaudhary have helped orchestrate in the past. The duo are directors of Qofunder Private Limited, a Gurugram-registered company. This is the only company where Talwar and Chaudhary are directors.
Qofunder is the company behind the World Startup Convention, but was only registered in June of last year and its paid up capital is INR 1 Lakh. It’s not clear what capability it has to pull off the ‘World’s Largest Funding Festival’. It only has two employees if the LinkedIn profile is to be believed, and one of them is Chaudhary.
Coming to some of the tall claims by the event. It boasts that investors with $600 Bn (or INR 49.6 Lakh Crore) in assets under management have already confirmed their presence at the event.
A look at the investor-partners for WSC revealed investors such as Ah! Ventures, FAAD Network, Fluid Ventures, Unicorn India Ventures, Riverwalk Holdings among others. The event also claims that Bajaj Finserv, Bank Of Baroda, ICICI Bank and Kotak Securities are partners on the investor side.
We cannot know for sure which of these entities continue to be associated with the event, since its website has been down for nearly a week.
In February, FAAD Network’s Aditya Arora told Inc42 that his fund is backing out of the event given the lack of clarity and several allegations about its exaggerated claims. Besides this Arora was also sceptical about the several changes on WSC’s website since its launch in September 2022.
His name and image and that of FAAD Network continue to be used in promos by the World Startup Convention on ticketing platform Paytm Insider, but Arora told us he’s no longer associated with the event.
Unicorn India Ventures also told Inc42 that it is not associated with the World Startup Convention. The fund said it only received an inquiry asking it to join the event, but never confirmed its participation.
On the startup side, WSC claims associations with RazorPay, Paytm, OYO and others as seen below. When asked about the World Startup Convention, OYO denied being associated with the event.
Similarly, some of the funds named by WSC on its website told Inc42 that the event does not pass the smell test because of these red flags.
It’s early-stage and first-time founders that are the primary targets for events such as the WSC, which make tall claims and then retract them. It’s classic bait and switch, something Saison Capital’s Avik Ashar pointed out on LinkedIn. “This is very obviously a cash grab which several people will fall for in the hopes of fundraising,” Ashar posted.
And finally, there’s the matter of using images of union ministers, state chief ministers and others in the promos for the event.
WSC claims that Nitin Gadkari, the Union Minister for Road Transport & Highways, will inaugurate the event. Inc42 did not receive a response to emails sent to the ministry about Gadkari’s presence at the World Startup Convention.
The event also names Uttarakhand CM Pushkar Dhami as one of the attendees. But his presence could not be independently verified either, despite multiple attempts to reach the CM’s office.
A day before the World Startup Convention, there’s little doubt that the event is real. But what’s problematic is how the event used hyperbole and misleading claims to promote itself in the build up. The actual line-up for the event is a far cry from some of the names that had been originally mentioned, and it remains to be seen what the experience will be like for those startups that do join in.
Inc42 will be at the scene to find out exactly how the event plays out. Watch out for an updated version of this story sometime next week.
The Grey Areas In Investment Platforms
Founders have always needed a helping hand when it comes to fundraising. But it’s this very need that gives wings to suspect or dubious platforms. In recent weeks, reports have cropped up about crowdfunding platforms that claim to allow ordinary individuals to collectively invest in startups.
Platforms such as Tyke Invest and Infubiz offer opportunities to investors to back startups starting at just INR 5,000 to INR 10,000, through what they call a Community Subscription Offer Plans or CSOPs. However, this does not mean that investors become shareholders in the startup, but instead they get stock appreciation rights, which do not come with a buyback obligation for the startup.
And since the startup is not selling equity, this is not capital for the company, but can be treated directly as income. Essentially, platforms such as Tyke and others are using individual unregistered investors to pad up startup revenue figures.
Individuals with stock appreciation rights can liquidate them if and when the startup decides on a fair market value and pays for the existing rights at the time of raising fresh funds. In other cases, exits such as M&As or IPOs result in an automatic liquidation of the rights. Regardless of the outcome, the buyback rights remain entirely with the company and the SAR subscriber has no leverage in redeeming the rights.
But SARs are a speculative investment and not covered under the Indian Securities Contract Regulation Act 1956 (SCRA). Investors risk not having any legal protection in case the startups decide to close shop and write down all rights to zero.
Beyond such newfangled crowdfunding platforms, there is a layer of investors and angel networks that also charge startups a commission for investor connections and even a fee on potential fundraising or backing off from a potential investor.
For instance, Inflection Point Ventures (IPV) came under some criticism on Twitter from Saka Ventures’ Pankaj Jain for charging startups a “due-diligence fee”, “backout fee” as well as large percentage of equity for helping them raise funds. However, Inc42 could not independently verify whether these fees are indeed charged.
IPV’s helpline told Inc42 there is no fee for startups to pitch to the fund’s network of angel investors. Instead, angel investors are charged a flat annual fee for participation in the deals.
IPV-operated MainBhiAngel platform offers investment opportunities starting at INR 49,000 through an angel AIF or direct equity in the startups.
With glitzy marketing and lowered investment thresholds comes the risk of attracting inexperienced investors who may not fully understand the risks involved. And of course, it also means that founders are less likely to get investors that add value beyond the capital.
Speaking to Inc42, serial angel investor Rajesh Sawhney said, “Many first-time angels believe that angel investment is easy and a get-rich-quick scheme. Their approach is: ‘Just look at the idea and the sector trends and invest.’ But it’s actually a long-term vision play. You need to be able to think deep into your horizons and put an effort to learn.”
This is something IPV is addressing with courses and networking opportunities for the investors that subscribe to its annual plan.
But for inexperienced founders who are desperate for funds to build their startups, the situation is more murky. A cursory search on Telegram revealed at least half-a-dozen investor networks that help startups for a fee, and similar groups are also seen on Facebook.
There’s hardly any protection for founders and there is no dearth of stories of founders diluting too much equity for funding or becoming victims to investment frauds. It’s in fact one of the oldest cons in the startup ecosystem. Unfortunately, the limelight for startups and the funding crunch has revived this ugly side of the startup ecosystem.
It is not easy for regulators to crack down on fly-by ‘funding festivals’ such as the World Startup Convention which can pop up at any time. Instead, SEBI and others are keeping a close eye on some of these matchmaking platforms that claim to facilitate startup investments for individuals.
Stay tuned for our upcoming stories, where we will delve into such platforms and why they have fallen on the regulatory radar.