Stop overselling to investors, it’s a treadmill, Nithin Kamath tells founders

Nithin Kamath It almost sounds wise to talk about valuations in a slowing funding environment, explaining why it is counterproductive not to oversell either clients or investors.

The founder and CEO of bootstrapped online discount brokerage firm Zerodha has always spoken out about hypervaluations, and that came to light at the opening session of the 13th edition of technological sparks, Your historyIndia’s flagship event and most influential emerging technology conference.

A cycle of hyper-financing and hyper-valuation puts additional pressure on entrepreneurs to keep justifying themselves, Nithin said in a conversation with Shradha Sharma, founder and CEO of Your history.

“Now that you’ve taken money from someone who says you’re worth a billion dollars, how do you continue to justify it? It’s like a treadmill. Once you oversell, you have to keep investing a new story to justify the old one,” she said.

“In the financial services business, how do I justify it to the investor without compromising my client’s interest? What is right for the investor may not be right for the client.

In recent years, India’s burgeoning start-up industry has faced a reckoning as some popular tech companies, including Paytm, Zomato and Nykaa, which hit the public markets last year, saw their revenues fall. shares below the IPO price.

Nithin cautioned against equating net worth with valuation, saying, “Taking money from someone to build a business is an obligation, not the money you earned. For us, valuation is just money in the bank.”

Zerodha valued itself at $1 billion during an ESOP buyback program of Rs 60-65 crore in 2020. The company was later valued at $3 billion by the Hurun Startup Valuation listing.

Nithin gave the example of US-based stock trading and investment app Robinhood, which has seen its valuation drop to $8.5 billion from around $35 billion last year. “The way the founders were talking (at Robinhood) made it sound like the valuation was going to hit $200 billion.”

He added: “With 1 million customers, we had 1,100 people at Zerodha. Today we have a customer base of 11 million and it is still 1,100 people”.

‘Winter is here to stay’

Last year’s boom in startup funding has had a downside, Nithin said, adding that it had created a barrier to entry for would-be entrepreneurs to try new things.

“It has become increasingly difficult to build a minimum viable product (MVP) in a few million dollars,” Nithin said, adding that “the funding winter doesn’t seem to be going anywhere as of now.”

“There has been a correction in the private market. The public market has not seen any correction because India as a country has done well,” Nithin said.

“It’s gotten a lot harder to raise money. Winter is here. The money that went into VCs and PEs was really excess US capital. So now they’re wondering if they should bother investing or taking a chance on the currency.” …many of them have lost money due to currency depreciation.”

However, the ongoing funding winter has settled into a market correction phase as founders begin to focus more and more on consumption rates and unit economics, which Nitin says is a “good development and provides resilience”.

Techsparks 2022 GIF