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Entrepreneur-Venture Capitalist's Equation @ Housing.com*

CASE STUDY, ENTREPRENEURSHIP & STARTUPS
ET Cases - GSMC, 10 Pages
AUTHOR(S) : Musarrat Shaheen Doctoral Scholar, IBS Hyderabad, Farrah Zeba Doctoral Scholar, IBS Hyderabad

Case Preview

Entrepreneur-Venture Capitalist's Equation @ Housing.com

 

“Investors put their hard-earned money into a business. But, entrepreneurs put their money, time, and health into their business.”

In July 2015, Housing.com’s board decided to terminate the tenure of its CEO, Rahul Yadav citing his behavior towards investors, media, and partners as undesirable and not fitting the ecosystem. Investors and board members of Housing.com were suffering from his arrogant attitude and egoist behavior for quite a long period of time. Rahul was always in the limelight for his hasty decisions and provocative language to the rivals and the investors. The relationship between Rahul and the investors of Housing.com was not congenial, which led to this decision of his removal from the company. The board members of Housing.com believed that Rahul’s behavior “is not befitting of a CEO and is detrimental to the company”. This was one of the classic incidents in India where an entrepreneur was alleged and thrown out of the company for his arrogant and bossy attitude toward the investors. Immediately after a board meeting, in which Rahul reverted aggressively to the investors, he was asked to leave the premises of the company. Anticipating violence and resistance from Rahul the lawyers of the main investor of Housing.com— Softbank, had called in the local police for help, as reported by an internal person of the company.

Housing.com: A Brief about the Company

Housing.com is a map-based real estate online search portal. It is based in Mumbai and allows the customers to search for their housing needs on the basis of geographical locations, number of rooms required and proximity to various utilities such as hospitals, schools, etc. The company has an approximate 6,000 real estate brokers from across India and serves around 40 cities in India including metros such as Mumbai, Bangalore, Chennai, Kolkata, and Delhi...............

Venture Capitalists and the Start-ups

To scale up and go up the ladder in every stage of growth cycle, start-ups need capital. This capital is infused by angel investors and venture capitalist. Investors play a major role of financing in start-up firms. They simply do not fund the entrepreneurs; rather they fund the ideas and remain involved in every decision and ventures of the firm. They had their own stake, interest, and share in the company...........

Rahul Yadav: An Active Entrepreneur

Starting up a new firm and convincing investors or gaining their faith in the idea behind the firm is a challenging job for all the entrepreneurs. From pitching the investors to strategic planning of the firm, entrepreneur plays a major role. But, once the investors are on board, retaining their interest in the firm and maintaining a congenial relationship with them is as crucial as convincing them for funding...............

Initiatives of Rahul Yadav to Scale up Housing.com

To insure a large pool of fund, Rahul Yadav allowed the investors to secure maximum percentage share in the company. He was a visionary leader and was interested in expanding his company, thus he opted for maximum pool of fund for the company. He was not only interested in scaling up the company but was also a philanthropic leader for his fellow employees............

The Rift between Rahul Yadav and Venture Capitalists

He was no doubt a transformational leader for the company and a people person for his employees. But, his passion and aggression did not match with the investors. When investors were not in agreement with his ideas, he resigned and sent a letter stating “I don’t think you guys are intellectually capable enough to have any sensible discussion anymore.............

Housing.com after the Departure of Rahul Yadav

What happened to Housing.com after the departure of Rahul Yadav? It was reported that board members of Housing were hunting for a potential successor. They approached a recruitment agency Spencer and Stuart to look for a new CEO of Housing.com. SoftBank, one of the major investor and stakeholder of Housing.com appointed Rishab Gupta as an interim CEO of Housing.com..............

Assignment Questions
I. Critically analyze the different stages of the evolution of a start-up firm?
II. Discuss some of the impediments to the maturity of an entrepreneur.
III. ..............

Exhibits

Exhibit I: Letters Exchanged Between Rahul Yadav and the Investors

Exhibit II: Quikr’s Purchase Offer to Housing.com

Teaching Note Preview

Entrepreneur-Venture Capitalist's Equation @ Housing.com

 

Synopsis

Housing.com is a real estate online search portal. Its growth potential had attracted investors who eventually became the major stakeholders in the company. Rahul Yadav, the brain child behind Housing.com, was an aggressive entrepreneur who used to push his opinions on the investors and even sometimes publicly criticize them. This created a rift between him and the investors. Investors tried to pacify the situation, but he was not ready to accommodate. On account of majority stake in the company, the investors had more veto power, as such, they asked him to leave the company that he had created. The case captures the pattern of evolution of a successful start-up – Housing.com, though a series of events and incidents highlighting the role of relationship with the investors. The case concludes by describing the inertia and the threat, the two components of the immaturity of an entrepreneur, as an impediment to the successful transition of a start-up firm.

This case can be used to illustrate the challenges and impediments of a start-up firm. These challenges will help an entrepreneur decide what the strategies to scale up his firm are. The instructor should ensure healthy participation by the students and interact with them to keep the discussion going on. In addition to this, the case study provides ample scope to the students to discuss the different stages of evolution of a start-up firm. They should be able to understand the role of investors in a start-up firm and what should be the best behaviors and characteristics of an entrepreneur in a start-ups firm.

Prerequisite Conceptual Understanding before the Classroom Discussion

Students can be advised to read the basic concepts related to meaning of start-up firms, the role of entrepreneurs in a start-up firm, and the need of investments in start-ups. They can also be asked to understand the conceptual definition of conflict and negotiation in a business setting. Following references can be used to understand these concepts:

  • • Appelhoff, Daniel, René Mauer, Veroniek Collewaert, and Malte Brettel. “The conflict potential of the entrepreneur’s decision-making style in the entrepreneur-investor relationship.” International Entrepreneurship and Management Journal 12, no. 2 (2016): 601-623.
  • • Leibenstein, Harvey. “Entrepreneurship and development.” The American Economic Review 58, no. 2 (1968): 72-83.
  • • Feinleib, David. Why Start-ups Fail: And How Yours Can Succeed. Apress, 2011.

 

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Product code: ENTP-1-0022, ENTP-1-0022A

Abstract

Housing.com is a real estate online search portal. Its growth potential had attracted investors who eventually became the major stakeholders in the company. Rahul Yadav, the brain child behind Housing.com, was an aggressive entrepreneur who used to push his opinions on the investors and even sometimes publicly criticized them. This created a rift between him and the investors. Investors tried to pacify the situation, but he was not ready to accommodate. On account of majority stake in the company, the investors had more veto power, as such, they asked him to leave the company that he had created. The case captures the pattern of evolution of a successful start-up—Housing.com, though a series of events and incidents highlighting the role of relationship with the investors. The case concludes by describing the inertia and the threat, the two components of the immaturity of an entrepreneur, as an impediment to the successful transition of a start-up firm.



Pedagogical Objectives

This case is designed to enable students to:

  • Evaluate the critical relationship between the investors and the founders of a start-up
  • Analyze the challenges associated at the various stages of evolution of a start-up firm
  • Understand the required personality traits of an entrepreneur
  • Apprehend the conflict resolution and negotiation styles operative in a start-up firm

Case Positioning and Setting

This case is meant for MBA students as a part of their Entrepreneur, and Organizational Behavior course curriculum. The case will discuss following issues and concepts under these courses:

Immediate Issues:

  • What happens when an entrepreneur owns only a small portion of the equity of an enterprise he created? Does he get thrown out of the company?
  • How immaturity of an entrepreneur acts as an impediment to the successful transition of a start-up firm from sustenance-stage to scale-stage?
  • What happens when an entrepreneur doesn’t resort to a win-win situation for both the firm and investors?
Basic Concepts:
  • Risk of dilution of ownership
  • Impediments to the maturity of entrepreneur
  • Evolution of a Start-up firm: start-stage, sustenance-stage, and scale-stage, balancing and sustenance stage, and stalling and stagnation stage
  • Accommodating and collaborating negotiation/conflict resolution style


* GSMC 2017, IIM Raipur

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- Case Study
- Teaching Note (**ONLY for Academicians)
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