Nikhil Kamath on being a born bear, stumbling startups, VC money & more

“It is impossible for someone to gauge which way the market will go but specifically talking about startups which are listed recently, those are not bad companies. They all have a use case, they are all real businesses. At some point they will become valuable, says Nikhil Kamath, Co-Founder, Zerodha & True Beacon.

Knowing your commentary for the last two years, can I call you a startup bear?
I am “everything” bear. I think it is a factor of upbringing more than anything. I always look at the glass as half empty. So I am bearish when I should be bullish as well. So yes, sure.

Humpty Dumpty still did not have a great fall. If it is stumbling, that means there is a lot more pain that is there for us. Vedantu laid off hundreds, as did Cars24. All these unicorns with huge money, are looking to clearly conserve cash.
Yes. It is sad to see anybody having to fire people and it is a hard time for everybody on the ground, especially more so in Bangalore because we all live in the same ecosystem and have a lot of interaction with each other.

For a long time, the huge amount of money which was being printed in the west percolated down into India, into emerging markets. A lot of money where the cost of capital was negligible came into the market and that appears to be changing now. I wonder what cycle will come next, but in the foreseeable future, I do not think the level of excessive liquidity that we witnessed in the last one or two years will come into the markets.

For all the founders and startup employees who are watching this, it is scary times. It is tough to get a check. FOMO or fear of missing out, has clearly turned into JOMO or joy of missing out. It is very easy to say stay bootstrapped, reduce your burn, focus on unit economics. This is going to be a big change that will have to take place?
Yes I think there will be a transition. I do not even blame startup founders as much as I blame the VCs and the PEs who pumped money into these companies and expected these startup founders to grow at no cost. Once anybody has too many investors on their board or on their cap table, it becomes less about what the startup founder wants but more about what the plethora of investors are asking or expecting of him.


So there has been some kind of an arbitrage between public markets and private markets, public has been cheaper, private has been significantly more expensive. At some level we see that arbitrage playing out. Indian markets today have probably corrected 13-14%, you add currency depreciation to that, maybe it goes up to 16-17%, still holding a significant premium over western markets and other emerging economies which have corrected a lot more. So there is room for us to correct.

It is impossible for someone to gauge which way the market will go but specifically talking about startups which listed recently, they are not bad companies. They all have a use case, they are all real businesses. At some point they will become valuable. But investors will have to wait and watch whether valuation numbers will correct today or at some point down the line.

Can you recall your initial journey? How did it happen? Were you tempted by VC money?
We started at a time when the concept of VC did not really exist. We started after the 2008 financial crisis and everything in the stock market was very uncool. So even if we were to go out and look for VC money, nobody would have given us money, nobody was really innovating around financial markets and we have grown in a very organic manner and never really focussed on revenues in terms of how many clients we have and stuff like that. It has always been about service and after the point where we were profitable, I do not think we had this urgent need to exponentially grow because we were not really competing with anyone.

When one starts to think on the lines that the market size is X and I need to be the leading player and I need to control Y percentage of the market and I need to do it in so much time when you set plans like this for yourself, things become a lot more chaotic. Since we took the organic path, we never really had many of the difficulties that many startups which are forced to grow very quickly might have had. We have also been very lucky, we have had a 11-12-13 year bull market.

The other thing is in case of layoffs, these employees have also been promised the start-ups currency which is Esops. The value of these esops is going to see a visible mark down. Is the net worth of employees also going to come down?
Yes, probably. But I think we are overstating the chaos in the ecosystem in a way, it is honestly not that bad.

Wow I made Nikhil Kamath not sound cynical!
Yes, now there are many things which are going for and internationally the perception in India is really good. If you ask any global investor even today, they might be doing badly relatively, but they are on top of their interest pie. They are very keen to enter India and participate in any way whatsoever.

I think a bunch of things are going in a way. The stability and the consistency that the Modi government provided has been around for the last almost a decade now. That is really encouraging foreign investors to come into India. Having a stable policy makes a huge difference.

From the public markets ecosystem, the RBI and SEBI have done an incredible job in reducing leverage, allowing people not to borrow and trade. They have been pre-empting the future in a way and it is incredible that they have been able to curtail the amount of risk taking ability in the market. I am sure that has saved a lot of investors. Even if one were to look at the stuff that came around crypto just before the crash showed incredible timing.

Two weeks before crypto crashed, these guys started not allowing people to transfer money into crypto exchanges and mine Bitcoins etc. A lot is going well for us, especially on the governance and regulation side and also from opportunity angle. Demographics of India are good and we often tend to overstate the problem.

Things are bad here but I do not think they are as bad as the rest of the world. Look at every company in the NASDAQ or tech companies in the US, a few of these companies have corrected 70-80%. In India, we have had a 14% correction from the top of a 100% rally.