The Challenge of Dual Bank Account Systems for Startups

India's Startup Ecosystem Faces a Structural Problem

India's startup story is one of genuine ambition, with over 1.8 lakh DPIIT-recognised startups and a generation of founders building real products for real markets. However, beneath this narrative lies a structural problem that few name plainly: the valuation and the value in the business have stopped talking to each other.

The concept of a khata, or ledger, is as old as Indian commerce itself. When the Finance Minister walks into Parliament on Budget Day carrying that iconic "bahi khata", she is presenting the nation's account of reality. India's startups today maintain two khatas, and the two accounts tell very different stories. Until this gap is honestly confronted, Startup India is held back from realising the dreams of Young India.

A Similar Problem Was Solved in the Past

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India once had a structurally similar problem, which it solved with the Insolvency and Bankruptcy Code. The banking system's twin balance sheet crisis – stressed corporate books on one side, NPA-laden bank books on the other – seemed intractable until the IBC forced all stakeholders to sit at the same table. Lenders took haircuts, and committees of creditors made unsentimental decisions. The IBC enabled ₹4 lakh crore in realisations through resolution plans, and gross NPAs of scheduled commercial banks fell from 11.2% in 2018 to 2.58% by March 2025.

The Problem in the Startup Ecosystem

Every Indian startup running on venture capital effectively maintains two khatas. The first is the equity ownership khata, which is the valuation agreed upon in the last funding round, entered into term sheets, carried on investor books, and defended by all parties regardless of what has happened since. The second is the market khata, which is what a strategic acquirer, a secondary buyer, or the broader market would actually pay for the business today, based on revenue, growth, competitive position, and comparable benchmarks.

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In a healthy ecosystem, these two khatas converge over time. In India's startup ecosystem today, they have moved in opposite directions, and the gap between them has become the single biggest reason exits are not happening.

Case Studies

Urban Ladder raised ₹770 crore from investors, peaking at a valuation of ₹1,200 crore in 2018. Yet talks with multiple potential acquirers came to nothing for years until it was finally sold for Rs 80 crore. Dunzo's story is starker. It raised over ₹3,900 crore in total funding and was valued at over ₹6,000 crores as recently as 2022. Strategic sale talks with Swiggy, BigBasket, and others failed one after another. It was eventually admitted into insolvency by the NCLT in September 2024, with Reliance writing off its entire ₹1,645 crore investment.

The Consequences

This is not a one-off. It is the defining condition of a significant portion of India's mid-stage startup universe: companies with two khatas so far apart that no transaction can bridge them. The founder cannot move on, the investor cannot exit, the capital cannot recycle, and the startup, whatever its underlying merits, is frozen. The incentive to maintain the fiction is structural and shared. Investors who marked up aggressively in 2021 now face a choice: acknowledge the write-down, triggering Limited Partner reporting stress and reputational cost, or carry the position at an inflated number and wait. Most choose to wait.

Solutions

The solution is structural, and every stakeholder must act. Venture capital funds must institutionalise write-down discipline as standard portfolio practice, not last resort. Many investors have been slow to take money off the table, delaying capital recycling within the ecosystem. Funds that mark to reality regularly create healthier portfolios, force honest founder conversations earlier, and generate better exits than those who let the gap compound into a fire sale.

Fund structures themselves need to change. Today's VC agreements reward the mark-up and penalise the mark-down, creating incentives that work against honest reckoning. LP agreements should be renegotiated to evaluate General Partners on realised returns and Distributions to Paid-In capital, not paper marks.

Government can help by removing disincentives to honest acknowledgment. Tax treatment of write-downs, ESOP resets after down rounds, and founder liability in restructuring all currently make denial cheaper than honesty. Targeted amendments to existing frameworks would shift this calculus without requiring a new bureaucracy.

Finally, India needs a genuine second-chance culture for founders. The twin khata problem will not be solved if the cost of acknowledging it falls entirely on the founder. Those who accept write-downs, restructure cap tables honestly, and move on must be welcomed back, not written off. Only then will the ecosystem find the courage to close the gap.

Conclusion

Startup India is an entrepreneurial revolution in the country. Closing the twin khata problem will be a decisive step towards making India's startup ecosystem the best in the world.