The Lesson behind Stayzilla

Stayzilla, a private limited company for verified homestays and alternate stays has recently been in news on an accusation of fraud. The founder and CEO of Stayzilla was arrested after a case was filed against him by Jigsaw Advertising accusing him of fraud. He has has been locked up and no bail has been granted until now. This event comes as an eye opener for the various startups and the startup ecosystem on how to ensure that the founders do not become easy targets. 

Vasupal has been in custody for the past 12 days and the sole reason behind this is said to be a spat between him and the vendor of the Advertising company, Aditya C.S. The company filed a criminal case instead of a civil case and accused Vasupal of cheating and intimidation among others. It should be noted that Stayzilla, the private limited company owes money to the vendor company, and not in his personal capacity. A civil case should have been filed here and not a criminal one. While we wait for the Court to do their work, there are many lessons to be learnt from this incident.

The big question here is how do startups manage the payments while they are on the verge of shutting down? Also, how much support does the State Government provide them? And what protection do they have in such instances? This case has been murky since day 1, it has issues related to payments which could take the shape of a civil case instead of being a criminal one. Although the founder has not confessed anything yet, there were reports stating that the company will soon be discontinuing their operations. This came as a shock since the company was doing fairly well. Stayzilla claims to have paid the entire amount to the Advertising company while the latter declines. Stayzilla owes Jigsaw Advertising Rs 1.56 crore.

This instance, shows how vulnerable the founder of a startup is, he can become an easy target when the company is not performing well and this could lead to many drastic steps like a criminal case. It is important to note that vendors need to be paid on time, but there is a limit to which the vendor can go to. If a founder is winding down, he will easily become a target for the vendors and will make him more susceptible for various political games out there.

With the increasing number of startups and the increasing number of companies winding down, this could happen to anybody out there. It is important that entrepreneurs stand by each other and understand the complications of discontinuing the operations. Tech startups are more than coding and designing a product, the entrepreneur should be aware of his responsibilities and compliance. There needs to be a system which will support the founders and back their actions. The entire process of winding down should be distinct and properly laid out which will help avoid such instances from occurring with other founders in the future.