Sustainability should be a more important goal for businesses than valuations, according to Nithin Kamath, Founder and CEO of Zerodha.
Kamath, in a Twitter thread on Thursday shared his views on the Indian market for startups, stating that one of the biggest reasons why startups fail is because of misjudging market and opportunity and chasing valuations.
According to Kamath, from Infosys to Tatas to tech startups to lakhs of MSMEs, not every business is “VC’able” or can be valued at $10 million, $100 million or $1 billion
“Sustainability is more important than valuation. Misjudging the market size and opportunity, then setting wrong expectations and chasing valuations are probably the biggest reason why startups fail,” Kamath wrote.
“It is crazy how everyone starting a business today wants to be called a startup, and talk is mostly about overselling market size & valuations, but not about sustainability. I hope this gets corrected in this global reset. We need resilient businesses for India to do well,” he further added.
Kamath shared his thoughts on the Indian market for B2C tech businesses in terms of users who can generate revenue, taking fintech as a reference. According to the Zerodha founder, the real Fintech user base is around 15 crore at the highest.
Kamath further added, at even if there were five crore more people who earn over ₹2.5 lakh but don’t file ITR, the maximum number of Indians who make over ₹2.5 lakh would be around ten crore. As per the Zerodha founder, beyond ten crore, income starts dropping below ₹ 1 lakh.
“They can’t really invest or have discretionary spending,” he opined.
As per these calculations, three crore out of 10 crore would be 30 per cent.
Another major question for fintechs focusing on investments would be how large can the audience that hasn’t already invested be?
“Remember, we’ve had a bull market, mega ads, freebies, WFH, IPOs, low interest rates, & social media frenzy? If this hasn’t got people in, what else can?” he wrote.
According to Kamath, to solve this, the focus should be “to do whatever it takes to enable entrepreneurs to build resilient businesses at home.”
“This is so that they create wealth, share it with employees, shareholders, & invest it back in the economy,” he added.
Cred founder Kunal Shah, in a reply to Kamath’s thread shared his views, highlighting the misconceptions on wealth in the country.