Researched by: Sara Varghese & Prafula Grace Busi

The story of BharatPe

The biz: The company helps small offline merchants accept digital payments. The system: A single QR code that can be used with any payments app—and they don’t have to pay any transaction fees (as with Paytm etc). They also use this QR code to offer low interest loans to these shopkeepers. As of last year, it served more than seven million merchants in over 130 Indian cities—and had distributed close to $300 million to merchant partners. 

The funding: The company raised $370 million in its latest round in August, 2021—which bumped its valuation to a staggering $2.85 billion. This was a huge jump from a $900 million valuation in February—and $425 million the year before. BharatPe has attracted the interest of all the marquee global investors—from Sequoia Capital to Tiger Global. All this in just three years. In other words, it represents exactly the kind of startup fairytale that the media loves.

The founders: 

• The company was originally founded in 2018 by Bhavik Koladiya and Shashvat Nakrani—each of whom held a 50% stake—though almost no media story mentions Koladiya anymore as part of the origin story . 
• Nakrani had dropped out of IIT-Delhi, while The Morning Context describes Koladiya as “a self-taught engineer and businessman with an unclear past who had never been to college.” 
• Within months, they hooked up with Ashneer Grover—an IIT/IIM grad who had spent years as an investment banker at Kotak and later did a stint as CFO of the delivery service Grofers. 
• Grover soon became ‘the founder’—who commanded all the publicity and power within the company. He has also been in the limelight as an investor in more than 55 startups—with a net worth of $2.8 billion. All of which landed him a gig as a judge on Shark Tank India.
• Until last year, Grover was both founder and CEO, while Nakrani was listed as co-founder. Koladiya was relegated to head of product and technology.

The shareholding: Sequoia is the largest shareholder with 19.6%—followed by Coatue Management (12.4%) and Ribbit Capital (11%). Grover holds only 9.5% compared to Nakrani’s 7.8%. 

First came the ‘Bhavik Koladiya problem’

In 2015—nearly three years before BharatPe was founded—Koladiya, aka “Bob Patel” was convicted in the US in a stolen identity case. He then moved back to Gujarat and started pursuing new opportunities—which in turn led to the partnership with Nakrani to set up BharatPe. 

In November 2018—when BharatPe raised $991,082 round—Koladiya transferred his shares to Nakrani, Nakrani’s father, Grover and a clutch of angel investors. At the time, he was the largest shareholder with a 42.5% stake. According to one former BharatPe employee:

“Once again, Ashneer was able to flex his muscle. He persuaded Bhavik to exit the cap table for the larger good of the company. Bhavik was handling the entire tech stack, so he was confident that Ashneer wouldn’t be able to run the company without him.”

Why this matters: Once Koladiya was eased out of his shares, the company whizzed ahead to raise huge sums of money from Sequoia—which led to a $9.5 million round within four months. It isn’t clear if any of them knew of his past conviction—or cared. While Koladiya does not have any shares in his name, sources told Inc42 that Grover and Nakrani are holding his equity for him—and that Sequoia Capital is supposedly aware of this. All of which indicates a serious lack of due diligence—which has become a pattern with big-name investors in red-hot startups.

Next: the ‘Ashneer Grover problem’

The Kotak meltdown: Grover’s personality problems were an open secret within the company—until they burst into public view thanks to an audio clip leaked on Twitter. He was heard using severely abusive language (think maa-behn gaalis) and even issuing bizarre death threats against a Kotak banker. 

The reason for this ugly tantrum: Grover and his wife were assured funding of Rs 2.5 billion (250 crore) each to allow them to buy Nykaa’s shares. This money never came through. Grover has since sent a legal notice to Kotak seeking damages of Rs 5 billion (500 crore)—and Kotak has, in turn, promised to take legal action against Grover for his abusive behaviour.

A pattern of bullying: It soon emerged that this wasn’t Grover’s first such meltdown in recent months. In August 2020, he used similar language in a nasty argument with a Sequoia India executive—and yet the fund continued to invest in multiple rounds since then. And Grover’s temper has only grown worse with BharatPe’s dazzling fundraising success. According to another prominent startup founder:

"I have seen this problem in some of the prominent founders in India. It’s called the God Syndrome. What happens is that whatever they (founders) want should happen—and it does many times. But when it doesn’t, it comes out as extreme anger and frustration.”

One problem is that BharatPe is run as a one-man show. It has resulted in an exodus of top-level talent—fleeing a “dog-eat-dog” culture where “aggression and foul language [are] more norm than exception.” 

Why this matters: No one was either willing or able to rein Grover in. As one VC makes clear, much of the blame lies with the board—which has been rewarding bad behaviour: “Grover has been allowed to get away with this so far. As long as he was getting new investors at a higher valuation, the board ignored everything else. It all boils down to money.” None of them wanted to run the risk of losing Grover—who is seen as single-handedly driving BharatPe’s growth. And the investors have been the same—“either blissfully unaware or, worse, content to stand idly by as long as the value of their investments grew.”

Now: the ‘Madhuri Grover problem’

Soon after the audio clip leaked, both Grover and his wife Madhuri were sent on “voluntary leave.” The board then brought in an external specialist to do an internal audit. On February 4, parts of the preliminary report were leaked—revealing the worst kind of family-dhanda type of fraud.

A family business: The company was essentially run by Grover as CEO—along with his wife Madhuri—a former fashion designer who controlled all the company accounts and expenses. Playing wingman: Madhuri’s brother-in-law Deepak Gupta who took care of administrative duties. According to one ex-employee: “Between the three of them, there was no visibility on how the company conducted business.”

Much of what went on has now become more visible—and it tells a tale of petty greed. 

Fake headhunters: Many companies pay recruitment fees to staffing agencies. Records show that many such fees were paid by BharatPe to a network of companies that were linked to one another—and had nothing to do with the actual company hires. In at least three instances. Madhuri received and forwarded these invoices—which were created by her brother Shwetank Jain. An initial examination of two such vendors revealed a fraud close to Rs 40 million (4 crore). This was also confirmed by four former executives to The Ken. One of whom says the company stopped using staffing consultants in 2020 and “most of the hires were made from the company’s network.”

Fake vendors: Payment of Rs 532.5 million (53.25 crore) made to at least 30 vendors appear to be dodgy—triggering an investigation by the leading GST authority back in October. When called out on these payments, BharatPe simply paid up—an amount close to Rs 110 million (11 crore). The letter to GST officials was signed by Deepak Gupta—Madhuri’s brother-in-law who was responsible for procurements.

A pattern of pilfering: According to The Ken, this kind of family-engineered fraud was chronic at the company:

“Their transgressions, alleged employees, ranged from using Jain’s father’s business to procure Diwali gifts, to his brother-in-law Gupta—who was in charge of procuring merchandise, booking travel tickets, and printing QR codes—short-changing the company. For example, a former executive told The Ken that merchants were given BharatPe-branded cricket bats and balls in September 2020. ‘This was procured at Rs 300 ($4) but it was billed at Rs 900 ($12),’ alleges this former executive.”

Added point to note: Beyond the everyday thievery, an analysis by The Ken suggests that BharatPe’s entire business model may be a bit dodgy:

“In his quest for growth, Grover seems to have blurred both ethical and legal lines. Company executives allege that BharatPe is knee-deep in risky business practices, with the majority of its Rs [30 billion] 3,000 crore loan book allegedly built on peer-to-peer (P2P) loans. The company’s lending gunpowder, they say, has come from merchants, many of whom have little to no idea how their money is being used. On the face of it, this approach also appears to fall foul of various laws that govern P2P lending in India. Some former executives say the company even inflates its transaction metrics.”

The fallout so far: The BharatPe board chairman insists he will wait until the final report is filed before taking any action against Grover—who, btw, has already set Rs 40 billion (4,000 crore) as the price of his exit. For all that big talk, he is already in talks to sell his 9.5% stake—and rushing to do so before the audit is completed. Also: he’s surprisingly flexible about the price.

The bottomline: Inc42 predicts “there could very well be a brand new BharatPe on the horizon. BharatPe’s restructured leadership—whatever shape it takes—will want to distance itself from its past as soon as possible.” Our more cynical take: Grover will eventually be compensated and swiftly dispatched—so BharatPe can go back to raising its next big round, and its valuation, with or without a new name.

Reading list

The best reporting on BharatPe—The Morning Context, The Ken and Economic Times—is behind a paywall. For a free read, check out Inc42 that offers a good overview of the issues involved. Forbes and Fortune did fawning profiles of the company and Grover last year—while CapTable has the most on Koladiya’s legal issues. And you can read the latest interview with a cocky Grover over at MoneyControl.