INVESTOR BOARD RIGHTS AND FOUNDER CONTROL IN VENTURE CAPITAL-FUNDED INDIAN START-UPS

In June 2023, three board members of BYJU'S quit within a few days of each other. These weren't minor appointees they represented Peak XV Partners (formerly Sequoia India), Prosus, and the Chan Zuckerberg Initiative. Just before that, Deloitte walked away as an auditor, saying it hadn't gotten the financial records it needed. After all this, BYJU'S board had only three people left: founder Byju Raveendran, his wife Divya Gokulnath, and his brother Riju. Now think about that for a second. A company backed by some of the most experienced VC funds in the world ended up with a board made entirely of one family. These investors had board seats. They almost certainly had the usual protections too veto rights, approval rights, and all the standard stuff. But when the company actually got into trouble, the only real move available to them was to walk out. That's not much of a "control right" when you actually need it. Most paper on this topic explains what these rights are and confirms courts will enforce them. What's missing is how these rights actually behave as a company grows, and what happens when they're tested for real. That's what I want to dig into here. Two tools show up again and again in how VCs and PEs control the companies they invest in. First, board seats investors get to place their own directors (called nominee directors) on the board, sometimes with a rule that a meeting isn't valid unless their nominee shows up. Second, veto rights the shareholders' agreement lists "reserved matters," big decisions like selling the company or taking on major debt, that need investor sign-off no matter what everyone else wants. Indian courts have generally upheld both, as long as they're written into the company's Articles of Association and not just sitting in a side agreement. Cases like IL&FS Trust Co. v. Birla Perucchini and the TCS v. Cyrus Investments dispute get cited a lot for this. That part is settled law. What's not talked about enough is what happens after the ink dries.