Start-up smoke & mirrors: Gensol-BluSmart saga exposes India’s entrepreneurial elite

Union Minister of Commerce and Industry Piyush Goyal laid out some harsh truths about India’s start-up ecosystem just about a week ago. Within that week, one of the most-celebrated and feted start-up founders, Anmol and Puneet Jaggi — made famous by EV cab service BluSmart — were in serious regulatory trouble. In the same week, another fabled unicorn founder, Byju Raveendran, was accused of funnelling out company funds.

This one week is the most telling story of deception, personal corruption and regulatory infractions in the start-up ecosystem.

Forensic trail of funds and favours

In the case of the Jaggi brothers, they used some creative accounting and loopholes in corporate and company law to use money raised from the market and the government to put the fun into funds. SEBI, which is now going to have a forensic audit of the company’s accounts book, has barred the brothers and others from trading in the stock markets. But before that, they were freely distributing money as favours to themselves and their family.

SEBI’s own 20-page order that was made public on April 15 now exposes how deep the fraud was.

How Gensol moved public money into private luxury

First up, a loan from IREDA. What is IREDA, you may ask? It is the Indian Renewable Energy Development Agency, a public limited government-owned non-banking finance company, which gives loans for energy projects. The Jaggis were the face of clean energy and mobility in India and were probably a shoo-in for a loan from this agency.

IREDA gave a loan to Gensol of Rs 71.39 crore to buy electric vehicles (Gensol was the company meant to buy EVs for BluSmart, the app-based electric cab company). The day this loan hit Gensol’s bank account, it transferred Rs 93.88 crore to Go-Auto, its vehicle-supplying company. Before end-of-day, Go-Auto moved Rs 50 crore to another company where the brothers were partners. Within a week, that company then moved almost Rs 43 crore to DLF Limited. That money bought an apartment in the super-luxe Camellias – home to several other start-up founders as well as legacy firm owners.

Expenses that speak volumes

The SEBI document lists a whole set of payments under a sub-head "Utilisation of funds by Anmol Singh Jaggi". These are some of the interesting expenditures:

• Rs 6.2 crore to Jaggi’s mother
• Rs 2.98 crore to Jaggi’s wife
• Rs 1.86 crore to buy Dirhams in forex
• Rs 26 lakh to buy a set of golf clubs
• Rs 17 lakh in Titan (which makes jewellery and watches)
• Rs 9 lakh for a credit card payment

By the way, IREDA gave Rs 977 crore to Gensol from 2021 up to 2024. Of that, Rs 664 crore was for buying 6,400 EVs. IREDA was told that the vehicles were bought and leased to BluSmart, which is a related company. But SEBI documents now reveal that only 4,704 EVs were bought. This situation with Gensol now means that IREDA will likely have to write off an estimated Rs 550 crore in bad loans.

Deception in the public eye

SEBI also now says Gensol misled the stock market in its regulatory disclosures. As late as January 28 of this year, the company declared at the Bharat Mobility Expo that it had received orders for 30,000 of its newly launched EVs. But further investigations revealed that the orders were just an interest shown without any commitment to numbers or money. So much so that when NSE officials visited the company’s manufacturing unit in Pune, they found no activity and just a couple of workers lounging around.

The list of misdemeanours, financial diversions, and funding of personal lifestyles is long—and that is just the case of Gensol. These violations will also impact BluSmart, which was seen as a cleaner alternative to Uber. Now, BluSmart is in talks to be subsumed by its own competitor.

Culture of complicity and media-made myths

But this story is not just about a Gensol or a Byju’s.

The story is as much about the business news media and ‘finfluencers’ who give all kinds of advice on social media. Legacy media has been a key player in hyping up start-ups and their stock prices, breathlessly boosting ‘success’ stories, creating unicorns out of thin air, and fabling founders as the discoverers of new and unexplored worlds. They are feted and felicitated at public functions and television studios where anchors smile benignly at their words of wisdom.

Some media create lists of 30-under-30 and 40-under-40 to establish founders in the public eye as aspirational figures that even small-time market investors look up to before throwing their hard-earned money behind them. The business media is either ignorant or pretends to look away till the damage is done.

Final reckoning

“The Company’s funds were routed to related parties and used for unconnected expenses, as if the Company’s funds were promoters’ piggy bank.” This is what the SEBI order barring the Jaggis from the market says. It is a damning statement that tells you the level of corruption in new-age businesses is at par with legacy ones.

As for the investors who have lost large parts of their money in Gensol shares, the SEBI note’s only consolation: “… investors have been cautioned, and exchanges instructed to halt corporate actions.”