CAs too want a piece of the pie! Know why they are interested in mentoring startups

The boom of the startup ecosystem in India has caught everyone’s attention, including chartered accountants (CAs), some of whom are seeking an equity stake for the non-audit services they offer.

Most of such investments are done via family offices of the CAs and tax advisors.

Auditors are not allowed to pick up stakes in the company they audit due to certain regulations. "Our family office works independently and has invested in around six startups till date," Jeenendra Bhandari, partner at tax firm MGB and Co LLP told the Economic Times.

These advisors provide a complete non-business support to a startup from structure, business plan, corporate law, ESOPs documentation, agreements, fund raising to angel round.

Therefore, this proves to be a win-win situation for both the startup and the investor. While the startup gets all the services, including ideation on technical grounds, incubation and mentoring, the investing CA can see the upside of an investment if the startup makes it big.

Bhandari said: "It's an independent group that evaluates to take equity in startups that are referred or where we advise."

According to industry executives, most of the time techies who are starting their own venture are not comfortable around taxation and legal issues. This is where the CAs and tax experts step in.

Zophop founder Vinayak Bhavnani said: "It also helps that there is also a relationship that we enjoy with our advisors."

Most of the CAs, who take stake in startups, also pump in funds. However, it helps during valuation negotiations that the advisors have a relationship with the founder.

Like Bhandari, Chennai-based CA Manish Mardia has mentored several startups, such as myPenworld.com, Coveritup.in, Tooney.in and Easybikes.co.in, and picked up small stakes in some of them.

"With a CA, a startup gets holistic advice on all corporate law, accounting, tax and legal matters. A CA is a generalist and can manage all non-business services for a startup, which can then focus on the business and operations," he said.

In certain cases, the investing opportunity comes in different forms for the advisors. For example, there was a dispute between two promoters in a Bengaluru-based medical software company. The promoters approached their tax advisor for resolution and amicably parted ways.

One of the partners who inherited the company and bought out the other for cash needed some funds to take the business to the next level. "Having spent much time with the promoters, our family office decided to invest in this company and recently exited part of the investments at 3X," said a Mumbai-based owner of a CA firm.

(Image: Indiatimes)