How to torch your unicorn

Zilingo Pte was until recently a rising star in the world of fashion e-commerce, and its glamorous leader Ankiti Bose was a model young achiever. But in less than three months, the Singapore-based company has become a dumpster fire threatening to consume its sacked chief executive. The Indian-born co-founder says she's still trying to figure out why she was removed from the Singapore-based startup by shareholders, including Sequoia Capital India, the largest. "I just turned 30," she told the Straits Times in a video interview. "This is my life, this is my reputation."

Bose is right to fear for her reputation. The confident, charismatic businesswoman ran a burgeoning empire that spanned from Indonesia and Bangladesh to Sri Lanka and India, connecting Asian factories with global brands. Bose was so successful in cultivating a high public image that seasoned financiers — including Sequoia — let the CEO have her way until whistleblowers accused her of padding Zilingo's revenue.

That isn't all. As reported first by Bloomberg News, an investigation led by Kroll Inc. has unearthed mysterious payments running into millions of dollars signed off by Bose. These include close to $7 million paid to a controversial law firm. Other employees and investors say they have no idea what these sums — unusually large for a startup — were for.

"There is not a single payment made by Zilingo that did not have proper documents or either the finance, tech or operations teams were not aware of," the former CEO told Bloomberg News in an interview after her dismissal. Bose also told Bloomberg News that the company fired her for a lack of cooperation in the probe rather than for actual financial improprieties. However, according to a source close to the investigation, she spent hours with Kroll and the board and gave investigators access to her laptop. There's a blame game going around amid the ashes.

Bose said she would share her version of Zilingo's fate with me, but then put off the interview.

Early-stage investors cut entrepreneurs a lot of slack in the hope that they will mature over time, using the breathing space not available to more closely scrutinized public firms. Some founders, such as Uber Technologies Inc.'s Travis Kalanick or WeWork Cos.' Adam Neumann, lose the plot and become dangerous to their own startups. What kind of founder was Bose?

Zilingo started out seven years ago as a web portal for consumers in Southeast Asia to buy street fashion — though the real star of its catwalk was always Bose. Profitability, however, was elusive and Zilingo morphed into a company focused on serving firms in the fashion supply chain. Not counting the employees that have already jumped ship, it still has more than 350 people across three main lines of businesses: one produces and licenses factory management software to help apparel-manufacturers improve quality and cut waste; another oversees a platform that allows brands to source garments from trusted suppliers; a third manages an online marketplace for Southeast Asia where intermediaries buy and sell clothing and accessories, though Zilingo itself doesn't carry inventory.  

Bose, a co-founder, lived the high life at company expense: When she wasn't showing up at Paris fashion week, she was shuttling off to New York for a meet-and-greet with a prospective client. Investors gave her a lot of latitude, believing that Bose's image was helping the firm pull in business worth $100 million.

That was until a couple of whistleblowers came forward in March and told directors that sales were being padded. As has become clear to more than one investor since then, Zilingo's revenue from handling more than $1 billion of merchandise is nowhere near $100 million. In fact, after netting out the cost of goods sold, discounts and logistics and other variable operational expenses, its take isn't even in double digit millions, according to two investors. So, is it $1 million or $9 million? One shareholder I spoke to answered it with another question: "Does it even matter?"

E-commerce startups don't usually generate a profit to boast of, so they brag about revenue, inflating the fraction of the sellers' gross merchandise value that accrues to them. Bose says Zilingo did it for legal reasons. "About 12% or 13% of our GMV historically has had to be recorded as revenue due to various regulatory requirements when goods are exported from several Asian countries," she told Bloomberg News before she was fired, citing India, Indonesia and Bangladesh as examples. "We have tried to work around this to reduce the impact of this between fiscal '21 and '22."

Others in the industry paint a different picture. According to Karan Bose (no relation to Zilingo's CEO), managing director of Hula Global, a New Delhi-based apparel sourcing firm and a potential customer, "It was an open secret among suppliers that working with Zilingo was akin to 'Buy Now, Pay Never.'" The platform provided credit for inflated purchase orders placed by apparel-sourcing firms. "I'm not sure what percentage of your credit was ever recovered," he wrote in a LinkedIn comment addressed to the dismissed CEO.

Soon after the allegations of financial impropriety led to her suspension on March 31, Bose decided to go to war. Under investigation, she accused senior team members at the company of suppressing a harassment incident at Zilingo in which she was the alleged target. After Deloitte had concluded an inquiry into her claim, Zilingo said in an email that it had acted appropriately.

Around the same time, Naushaba Salahuddin, then head of Zilingo public relations, called up a member of the founding team to persuade him to work with Bose — and against the board, according to a person familiar with the discussion who asked not to be identified speaking about the matter. After Bose was fired, Salahuddin — who did not speak to Bloomberg for this story — resigned and wrote on LinkedIn: "There may have been several breaches of due process in the current goings-on in this matter which I cannot support or stand by."

The scandal now threatens to singe the reputation of big personalities beyond Bose herself. A 23-second-long audio clip of the March 31 meeting in which the CEO was suspended was leaked online. In it, a man believed to be Shailendra Singh, Sequoia Capital's senior-most partner for India and Southeast Asia, is heard telling a woman — presumably Bose — that "the single best thing you can do is to take a cooperative approach…" and "step away."

A small social-media army made the clip go viral. BOOM, an Indian fact-checking website, says it studied more than 1,000 tweets with the hashtag #SequoiaLeakedTapes and found "evidence to suggest it is a paid trend against Sequoia Capital India." That and a few related hashtags such as #SexistSequoia have already racked up 2,000-plus posts. One of the tweets, in Hindi, translates to: "For Sequoia, business is all about cunningly capturing Indian firms and taking their money to America." Who's paying the trolls? Bose has not commented on the Twitter war on her behalf. Nor has Sequoia. But the Zilingo board said in a June 3 statement that it was "pained and disappointed" by "what unfortunately appears to be paid and defamatory social media campaigns throughout the investigation period."

Zilingo wasn't just backed by Sequoia; it was practically incubated by it. The Menlo Park, California-based VC firm was among the first outsiders to cut a check to Bose in 2015. At that time, she was a 23-year-old analyst at Sequoia's India office. She'd come from McKinsey & Co. where she'd been hired straight out of her economics undergraduate program at St. Xavier's College in Mumbai in 2012.

Bose's stint at Sequoia lasted less than a year. A visit to Bangkok's popular Chatuchak market inspired her to create an online bazaar of cut-price dresses, bags, sunglasses and assorted bric-a-brac. The timing was right: The use of mobile phones for e-commerce was starting to go mainstream in Asia. She teamed up with Dhruv Kapoor, a 24-year-old software engineer she had met at a party, and incorporated Zilingo in Singapore to help small merchants of street fashion in Southeast Asia build scale. Kapoor handled technology, while Bose brought in her college schoolmate Aadi Vaidya, now the chief operating officer, to storm Indonesia, Southeast Asia's largest economy. Sequoia didn't dictate to Bose who she should hire.

As the startup's public face, Bose was a sensation. When she wasn't signing up as a guest judge on "The Apprentice: One Championship Edition," her PR folks were putting her up for lifestyle-magazine interviews in which she vowed to "level the playing field for women." Getting accepted as a youth icon in Singapore, a rich but talent-hungry Asian city-state, could open doors. And Bose fit the part of a hyper-achieving woman entrepreneur.

Bose's Sequoia pedigree and the VC's imprimatur gave Zilingo the appearance of solidity. Even with Amazon.com Inc. expanding in the region and Alibaba Group Holding Ltd. pumping billions of dollars into Lazada, a Southeast Asian shopping website, Bose began to hint at turning profitable by June 2019. Unlike the big players, she was focusing on growing margins alongside revenues, she said. "We don't lose any money at the operational level," she told Bloomberg News in April 2018, after a $54 million fundraising round led by Sofina, Burda Principal Investments and Sequoia. Temasek Holdings, Singapore's state investment firm, came in as an investor in early 2019. Zilingo got very close to becoming a unicorn with $1 billion in valuation.

However, behind the media appearances and photo ops, pressure was building. Zilingo was too small to make it in consumer e-commerce. Even the B2B business — matching up wholesale buyers and sellers — was mostly about luring firms by offering credit. There wasn't a path to profit. The pandemic hit in March 2020, just as the startup was pivoting to two more solid businesses: building upon a late-2019, $15.5 million acquisition of a Sri Lankan software maker to offer a cloud-based system for boosting efficiency on the apparel manufacturing shop-floor; and helping global brands source more directly from Asian suppliers. According to people familiar with Sequoia's dealings with Bose, the VC suggested to her in 2021 that she should consider bringing in an outsider as CEO. She refused.

Kroll was called in March 31 and completed its inquiry a few days before May 20 when Bose was fired.

If this all seemed sudden, it was. Was Sequoia caught by surprise? If it was so close to Zilingo, why didn't it catch the alleged bookkeeping problems earlier? The VC firm hinted at an answer in an April 17 blog post without naming the startup. The India and Southeast Asia team — which Singh leads from Singapore — wrote:

"As an investor representative, one serves on the board, and boards can only work with the information shared with them – the less transparency there is to the board the lesser their ability to truly unearth errant behaviors."

But Sequoia can't extract itself from responsibility so easily. Zilingo's mystery payments are linked to Algo Legal, a law firm run by Sequoia's former general counsel in India, Sandeep Kapoor, a nine-year veteran of investments in hundreds of companies. (No relation to Zilingo co-founder Dhruv Kapoor.) The VC firm, which had no qualms when Algo Legal did business with its startups, has been telling founders not to use it because of some "concerning incidents."

For a fledgling firm like Zilingo, legal fees of $7 million are exorbitant. They're $9 million if you include other payments to entities connected to Algo. One of them is Onedelta Synergies Pvt., which is based in Bengaluru. According to an Indian company directory, Onedelta is into software publishing and consulting, and its contact person, Mahesh Kumar, has an Algo Legal email. No one yet knows what services Bose was paying for.

A June 6 story by the website Bar and Bench says that Kapoor had allegedly threatened another Sequoia portfolio company that it could be in violation of India's foreign exchange control laws. The publication carried Kapoor's denial as well: Algo Legal has "never conducted itself in contravention of any laws."

My queries to Kapoor and Algo Legal have so far gone unanswered.

The Indian website Morning Context had hinted at dealings between Bose and Algo Legal in an April 18 article. It said that Sequoia's Singh had, in late 2021, told her to stop using an unnamed law firm, and that she had refused. A June 6 story in Mint made the connection clearer: It said Algo Legal, and entities linked to it, are "a clutch of firms at the heart of trouble at Zilingo." The Mint newspaper reported June 7 about an exodus of lawyers from the firm because of the spat with Sequoia. 

Algo Legal and Kapoor have slapped a defamation suit against some Indian media outlets, including the publisher of Mint, in a Bengaluru court for reporting Sequoia's decision to terminate dealings with the law firm. The suit also names Sequoia as a party.

Zilingo last raised equity in early 2019. Young, unlisted firms need the financial discipline that comes from having to win capital infusion on a regular basis. That's because new investors conduct fresh due diligence; old investors have a tendency to believe the CEO's reports. Before the scandal, Bose was preparing for a $150 million to $200 million fundraising round — at unicorn valuations — led by Goldman Sachs Group Inc. It never materialized.

Cautionary signs were there, if you were looking. Even before the whistleblowers came forward, there was the curious case of James Perry, a former Citigroup Inc. head of technology investment banking for Asia-Pacific. Perry, who had spent two decades in corporate finance, joined Zilingo as its first chief financial officer only to return to Citi about a year later, in September 2020. The Morning Context speculated that he may have left without signing off on final accounts. (Zilingo hasn't filed annual financial statements since 2019.) Perry couldn't be reached for comment. 

Before Perry, the person who handled finances was a cousin of Bose, a fact that wasn't hidden within the firm, though some investors on the board were supposedly unaware of the relationship. (The cousin, who left after she fell out with Bose, isn't suspected of any wrongdoing.)

As CEO, Bose retained the US-based Creative Artists Agency for branding herself and Zilingo. The startup had to beg to be released from the two-year, $2.4 million contract citing the pandemic, according to an employee directly familiar with the agreement and its end.

What sank Zilingo ultimately? Like so many startups that haven't gone anywhere, it was a mix of the pandemic, lax financial controls, unbridled expansion running into an altered financing landscape, and an imperfect business plan presided over by a dynamic but flawed founder. 

Is there a future for Zilingo? Its factory management software has 65 clients. There's a garment-sourcing unit with real customers. But the salvageable parts are trapped in a bloated firm in which Bose is still a shareholder-director, running a campaign against investors.

Customers aren't exactly lining up to place orders. The board has decided to repay the nervous creditors behind its $40 million debt facility. On the slim chance Zilingo gets an infusion of cash, it might be able to grow again. More realistically, the company can be dismembered to recoup some value from its assets.

"I feel like my baby has been taken away from me without giving me a proper explanation or a chance to fight for her back," Bose told Bloomberg News. "I'm grieving and fighting for myself simultaneously."

Meantime, the flames of liquidation threaten Zilingo, which is perhaps not a surprise. Long before any of the allegations against her were made, Bose had told a former colleague — as he recalled the conversation to me — that if he didn't stick with her, she'd destroy Zilingo. In this respect, she just might succeed.

Sketch: TBS

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.