BluSmart Crisis Sparks Investor Caution

Financial and corporate governance lapses at Gensol Engineering and its affiliate BluSmart have led investors to tighten the terms of investment contracts. This move includes incorporating additional clauses to safeguard their investments, as revealed by legal experts.

Enhanced Due Diligence and Founder Accountability

Investors are now demanding more transparency from founders, including disclosures of their income sources. The definition of bad leaver events is being expanded to cover breaches of non-compete clauses and investment terms, beyond just criminal complaints.

Shift Towards Tighter Controls

Following a series of governance mishaps, there's a clear shift towards stricter investment protections. Mechanisms like liquidation preference stacking, veto rights on risky expenditures, and enhanced monitoring covenants are becoming commonplace.

The Fallout from BluSmart's Operations Suspension

BluSmart, once a potential rival to Ola and Uber, has halted operations after a regulatory probe uncovered fund diversion by its promoters for personal expenses. Lenders are exploring all legal avenues to recover their investments.

Broader Implications for the Startup Ecosystem

Recent incidents, including the removal of Medikabazaar's founder over fraud allegations, underscore the growing emphasis on accountability and governance in the startup world.