Entrepreneurs around the world pay a price when their ventures fail, from lost fortunes to tarnished reputations. But in India, one startup founder has been hit with a particularly harsh penalty after his company’s demise: He’s in jail for not paying money to one of his suppliers.

Yogendra Vasupal, or Yogi as he is known in startup circles, had founded Stayzilla, a marketplace that lets homeowners and renters find each other online. The startup struggled against tough local competition and Airbnb Inc., closing its doors in February. Yogi was arrested by police last week for allegedly owing an advertising firm 17.2 million rupees (about $260,000).

The episode is sparking a forceful backlash in India’s technology community. More than 175 founders from the country’s startups have signed an open letter to top ministers and bureaucrats calling for Vasupal’s release and a fair trial. The letter, endorsed by Vijay Shekhar Sharma of digital-payments provider Paytm and Bhavish Aggarwal of ride-hailing service Ola, argues the future of entrepreneurship is at risk.

“If ever there’s a right to be an entrepreneur, that’s clearly been violated. Period,” reads the letter, which is addressed to India’s home and commerce ministers among others. “The question is not how this will affect entrepreneurship today, but how young Indians looking to become entrepreneurs in the future will give up even before starting up.”

The episode is unifying India’s young startup community like never before. They see common cause with Stayzilla’s founder in a way they resisted even when facing predatory pricing from global giants or new taxes from the government. The effort has spawned a website, help-yogi.com, and #helpyogi on Twitter.

The advertising firm, Jigsaw Solutions, is standing by its complaint. Aditya C.S., Jigsaw’s founder, said his is also a small business and Stayzilla needs to pay its bills. “I am a 27-year-old, self-made entrepreneur,” he said by telephone. “If hundreds of startup entrepreneurs are saying ‘Free Yogi,’ it’s because many of them are in a similar situation. They cannot get investors to put in more money and are defaulting on payments.”

Vasupal was picked up on March 14 when walking on a Chennai street by two policemen in plain clothes who snatched his mobile phone. The vendor had filed a police complaint accusing the founders of defrauding his company of more than 17 million rupees.

The letter alleges the advertising company is far from innocent in the conflict. It charges the vendor threatened Stayzilla and sent voodoo dolls to Vasupal’s parents and to his co-founder. The letter also contends the company owed money is “well-connected” and benefits from influential politicians and officials.

Jigsaw’s Aditya denied using any political connections to prompt the arrest or sending voodoo dolls. He said that entrepreneurs may be signing the letter so that they don’t have to face future legal action. “There is a larger problem with these startups: They run unsustainable businesses,” he said.

Vasupal has not been able to get a bail hearing a week after his arrest despite attempts made by the community and legal experts. A fresh attempt to secure bail is planned for Wednesday.

Indian startups are already struggling with a downturn in venture investing and a rise in competition that has led to layoffs, shutdowns and impending closures. Kunal Bahl, co-founder of e-commerce provider Snapdeal, said on Twitter that there is a growing trend of entrepreneurs coming under attack.

“Many startup founders, including myself, have seen the ugliness of getting on the wrong side of people with bad intentions,” he wrote.

Vasupal and his co-founder had said in February they were shutting Stayzilla because the business model wasn’t viable. They had raised millions of dollars from investors including Matrix Partners and Nexus Venture Partners.

Shashank N.D., founder and chief executive of healthcare startup Practo Technologies, said the episode may well set a precedent for how startup founders fare when they deal with unpaid suppliers. “If this can happen to a well-known, well-backed startup, what can happen to smaller ones?,” said Shashank, who also signed the letter. “Startups need the safety net of basic law and order. We are not asking for anything special.”

The signatories to the letter say they want more than freedom for Yogi. They called for an independent investigation into the arrest and whether local authorities abused their power. 

“What Yogi and his family are going through now make India look like the worst place, a nightmarish choice to become an entrepreneur,” the letter says. “This has had global repercussions and besmirched India’s reputation in Silicon Valley and elsewhere.”

(Updates with response from ad firm from sixth paragraph.)

An update on this story from the perspective of the family are here.

To contact the reporter on this story: Saritha Rai in Bangalore at srai33@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Peter Elstrom

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Photo Credit: The detention of Stayzilla chief executive Yogendra Vasupal comes as startups face tougher funding conditions. Stayzilla