Sequoia Capital's India partners, caught out early this year by governance scandals at startup companies in its portfolio, assured investors at an April meeting in London that these "lowlights" were mostly behind it, according to three people familiar with the discussions.

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But two months later, Sequoia, a major venture capital player in India, is still grappling with complaints from startups about damaged trust and a defamation lawsuit by a former general counsel, while the closing of a $2.8 billion fund was delayed due to a governance issue.

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Sequoia has acknowledged it faces governance-related challenges in India. Two sources familiar with the company's thinking said it had already made specific changes in governance practices, after an unusually frank blog post on April 17 by Sequoia that said it was reflecting on recent incidents and would impose stricter checks and requirements on the startups it funds.

Grumbling nevertheless persists, including among many Indian startups not ensnared by scandals but concerned by them, highlighting the public relations headache for the company as it shores up its position in the country.

The Silicon Valley firm has invested $5.5 billion in India and, since 2017, has struck more than 400 deals, far surpassing US-based rivals like Accel and Lightspeed, data from Venture Intelligence shows.

"As an entrepreneur you raise money from Sequoia because of their reputation to work with founders closely," said one CEO of a Sequoia-funded startup, who declined to be named to avoid damaging relationships.

He was among a dozen startups with funding and board representation from Sequoia who said the company had not kept them in the loop about governance-related issues that made headlines in India — and who worried that the incidents could reflect upon them as well. They declined to be identified.

Sequoia did not respond to Reuters queries for this article.

The first major sign of governance problems this year at Sequoia-funded startups emerged in January when digital payments provider BharatPe launched a probe that eventually led to the sacking of several employees and findings of vendor malpractice.

Three months later, Singapore-based fashion startup Zilingo said it had suspended its 30-year-old CEO and cofounder Ankiti Bose, a former Sequoia analyst, over suspected financial irregularities. She was later dismissed in what Bose has said was a wrongful termination.

Also Read: Sequoia Capital India's Shailendra Singh steps down from Zilingo board

The people familiar with the April London meeting said Sequoia's investors did not indicate particular concern or waning support for its work in India due to the incidents, but it still faced further fallout later.

In May, Sequoia wrote to some of its investors that it was delaying $2.8 billion in new India and Southeast Asia funds over ongoing governance concerns at an Indian portfolio company, according to two sources and an email seen by Reuters.

The company did not comment at that time, although it announced this week that the fund had successfully closed.

And this month, Sandeep Kapoor, Sequoia's in-house general counsel in India for nearly nine years until 2019, included the company in a defamation lawsuit against media companies that reported on a leaked Sequoia email of June 2.

Kapoor's firm, Algo Legal, said in a press statement that the email, sent to Sequoia's portfolio companies, had made baseless references to "concerning details" about the firm and was harming its interests.

The law firm said in its court filing that Sequoia was its top client in billings, but the US venture capital firm had terminated its engagement with it in January.

Kapoor declined to comment while the matter was before a judge. Sequoia in the first court hearing of the case last week sought time to respond to the allegations. The case is next set to be heard on June 18.

India's startup sector had a blockbuster year in 2021 with $35 billion in fundraising, according to Venture Intelligence, but the boom has since subsided and governance problems are now cropping up at a number of startups.

"It is unfortunate for Sequoia … but the problem was systemic," said Anirudh Damani, managing partner at India's Artha Venture Fund.

According to the sources familiar with Sequoia's thinking, the company believes it was careful with due diligence during the startup boom but it is now further bolstering its efforts on startups' governance training, whistleblower policies, audits and controls, as well as communications with portfolio companies.

As part of stricter checks, Sequoia wants to ensure that its well-funded investee firms have a "very strong CFO" and that startups complete financial audits in time, said one of the sources.

Another source familiar with the matter said Sequoia representatives had affirmed its commitment to investing in India and to corporate governance in a meeting earlier this month with India's Finance Minister Nirmala Sitharaman.

The minister's office tweeted a photograph of the meeting's participants at the time but did not respond to a request for comment.