Choosing an investor is akin to a marriage. It’s a half-jest implication around longevity with the unspoken threat that while you can get out of a bad marriage, it is far tougher to dump a bad investor. However, while marriages are ostensibly fixed until “death do you part”, venture capital (VC) investments come with an expiry date. Founders are not just expected but obligated to deliver an exit to these investors within a set period of time.

Against this backdrop, exits through acquisitions are easier and quicker to achieve than through initial public offerings (IPOs). On paper, at least. Reality is quite different. Pulling off an acquisition requires many pieces to fall in place beyond the obvious one around valuation multiples. Just ask PhonePe and Indus OS.

Last month, it was reported reported Entrackr Exclusive: PhonePe set to acquire Indus OS for $60 Mn Read more that Walmart-owned payments startup PhonePe was acquiring Indus OS, a regional language startup, for US$60 million. But even before the dust could settle around the announcement, news emerged of an ugly legal battle between PhonePe and Affle Global, a minority investor in Indus OS.

The acquisition was supposed to see Indus OS’ existing investors exit, with the founders joining the PhonePe team. Affle, however, claimed that it was not party to this deal. It also allegedly went ahead and bought out the shares of some of the other investors. This took its holding in Indus OS from 8% to 23%.

For its part, PhonePe acquired the shares of Omidyar Network*, JSW Ventures, and other investors. This gave it a 32% stake in the company. It was scheduled to purchase the shares of the founders as well.

Affle is reported to have claimed, in a Singapore court, the right of first refusal (ROFR) against the Indus OS founders’ stake sale. While PhonePe termed the development an “unfortunate bad faith stalling tactic”, Affle has claimed that the company has not signed any binding term sheet with PhonePe. Suits and counter-suits followed. And the deal is now mired in murkiness, with a long legal battle seemingly in the offing.

The roots of this conflict lie in the motivations and ambitions of three parties—the founders of Indus OS, the purported acquirer PhonePe, and Indus OS’ existing investors.

The Founders

Founded in 2013 by IIT alumni Rakesh Deshmukh, Akash Dongre, and Sudhir B, Indus OS cycled through multiple pivots before finding its raison d’etre. It finally found its purpose as a local language app marketplace, primarily targeting Indians beyond India’s large cities.

The company claims claims CNBC TV18 PhonePe set to acquire Indus OS for $60 million Read more a reach of 100 million users and 400,000 India-centric developers.


Sumanth Raghavendra

Sumanth is a serial entrepreneur with more than eighteen years experience in running startups. He is currently the founder of Deck App Technologies, a Bangalore-based startup attempting to re-imagine productivity software for the Post-PC era. Sumanth’s columns appear regularly in leading publications. He holds MBA degrees from the Indian Institute of Management, Bangalore and Thunderbird, The American Graduate School of International Management, USA.

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