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Razorpay founders to get 2 votes for each board seat

The founders of payments startup Razorpay have amended their board rights in a way that each of them will now hold two votes for each of their board seats, while the investors hold one vote per board seat, people briefed on the matter said.
This is a significant move by the Tiger Global- and Sequoia Capital-backed company, which will give its founders Harshil Mathur and Shashank Kumar majority control of their board for every resolution, including removal of or appointing a CEO.
Last week, the company had raised $75 million (Rs 520 crore) at a post-money valuation of around $450 million and the changes were made as part of the new round.
The five-year-old Razorpay, which is also an alumnus of Silicon Valley’s Y Combinator, has five board seats where Tiger Global, Sequoia Capital and US-based Ribbit Capital hold one seat each.
With the new changes, both Mathur and Kumar will have four votes together while the rest of the investors together will have three votes. Ribbit Capital — a financial technology-focused investor — led the latest financing round for the Bengaluru-based startup.
The changes at Razorpay have been done at a time when the two founders together hold over 40% in the firm. This move comes against the backdrop of a major startup like cab-hailing firm Ola’s founders making changes to its company clause two years ago to protect itself from the growing influence of SoftBank, which had also shown interest in merging it with Uber’s India operations.
Flipkart co-founder Sachin Bansal had to leave the firm after the acquisition by Walmart after selling his entire stake of 5% to the retailer. It was seen as a forced exit.
“This gives them clear majority control of the board. For every major decision such as fund-raise, secondary sale of share by existing investors, acquisitions and removing or appointing key management executives among other, Mathur and Kumar’s nod will be needed,” a person aware of the changes said. These changes, according to this person, would only be used in extreme situations if there is a serious level of disagreement among board members. To compare, among other changes, Ola investors need the approval of company founders — Bhavish Aggarwal and Ankit Bhati — to buy shares from other existing investors.
“They (founders of Razorpay) are the largest shareholders in the company now. Before further dilution in future fund-raises, the duo wanted to protect their rights,” the person mentioned earlier added. When contacted, Razorpay CEO Mathur, declined to comment on the matter.
“If one were to consider the challenges faced by founders or key promoters of startups when it comes to strategic decisions such as trade sale exits or key hires, the investors have often had an upper hand. So, there is definitely far more sensitivity on such issues and there are more concerned founders or promoters who want to retain or consolidate decision making especially on key strategic items with themselves,” said Khaitan & Co partner Ashish Razdan. He added that not every entrepreneur can bargain for such rights and much depends on the founders, their influence and the current state of the startup.
The changes in Razorpay’s board signal towards increasing maturity from entrepreneurs unwilling to cede control of their ventures. Major Valley-based startups are also seen as an inspiration for the founders here.
Major US-startups like cab-hailing platform Lyft, digital pin-board company Pinterest, Facebook, Alphabet and Snap among others, have two or three different class of shares, which have different voting rights. Most of the founders in these companies hold a majority of voting rights including Snap where the founders hold 97% of voting rights. In India, differential voting rights or DVR, are not common yet, which is why Razorpay has made changes at a board level.
Online food-delivery platform Swiggy too recently made changes in its company clause where its investors cannot hold more than 5% of shares in Uber or have a board seat in the company. This came in the light of Uber looking to sell its food-delivery business — Uber Eats in India.
Markets regulator Sebi has also started a discussion on enabling DVR shares in India to give more control to entrepreneurs as they dilute their holding while raising fund from investors.

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