“There are the standard procedures that should be evaluated such as how the financial accounts have been stated, are there any leakages, are there cash transactions, what kind of auditors does the firm have and what kind of people are in the finance department? All this is done thoroughly but the real action takes place when we have invested, and that's why I say that the definition of governance by the promoter and the investor needs to be aligned,” Meenakshisundaram said.

It is often easier if the venture entity is a tech firm where the founder is young. They usually look at the big picture to scale the company, sell it in five years and then move on. Conversely, when founders and their promoters who run a company as a family business are involved, it is more complicated. It can result in arguments at every board meeting and harm the relationship. The other alternative is to go through the issues, be patient and implement whatever incremental change you can to achieve your objective in a year and a half.

“While a VC firm may have a 100-day programme in mind post investment, in reality it is about changing mindsets and that can take longer, even if promoters see the benefits. It is also important that independent directors play their roles effectively. Founders do appreciate the governance aspect and this is vital, especially if you are looking to an IPO and you have to present your story to an incoming investor. Investors will judge you based on how clean your reputation is in the market. And this is reflected in the value of your company, so it is very important, but it is easier said than done,” Chiratae's managing director added.

Singapore-based variable capital company structures
There is certainly appetite for structures with different compartments and ring-fenced liabilities. Singapore is likely to see the first batch of variable capital companies coming in the first or second quarter of 2020. Hong Kong has already come out with an open-ended company regime, which is similar to Singapore’s VCC. Mauritius brought in protected cell company structures some time ago.

“There are already structures out there that investors could have used in Cayman. The industry will have to see how much new demand there will be for VCCs in Singapore. Nonetheless, the Singapore VCC allows one to distribute profits and dividends from the capital of the company. This is something that was always seen as a challenge given the solvency test requirements, which otherwise applies to funds and holding companies. So this definitely caters to a different class of investors and funds,” Meenakshisundaram said.