Public markets should not be seen as an exit option for startups: Zerodha’s Nithin Kamath

Speaking at The Economic Times Startup Awards in Bengaluru over the weekend, Kamath said, “The problem with the startup ecosystem is that everyone is looking at the public market as an exit but really it is an entry as in you are getting retail investors who can take the least risk [of any investor] on your cap table. So you should leave some value on the table for that, right?”

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Assessing the overall market sentiment and increasing volatility, Kamath said there was a sense of bearishness in the stock markets in March and April because the first set of Indian startups to go public in 2021 – such as Zomato, Paytm, Nykaa and Delhivery – have performed poorly on the bourses.

“Memories in public markets last much longer than in the private markets and unless a few companies cannot make money, it is hard to see how a lot of new startups could come and raise money from the public market,” Kamath said.

He also said he would be willing to do “anything it takes”, including raising money at a lower valuation, if his company was left with only 12-18 months of cash runway.

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Future IPOs will be tougher


Kamath said startups looking to go public from here on won’t have an easy time of it, in part due to the poor performance of their predecessors.

“The thing about retail investors is all those IPOs, the tech ones, did not have too much retail subscription. It was just 15-20% at max, so most of them were institutional investors,” Kamath said.

He also described the psychology of most retail investors when it comes to IPOs. “If a company lists at say Rs 100 and it comes down to Rs 70, that is when retail investors get sucked in because they are kind of benchmarking [Rs 100] as the right price for this thing, and as soon it becomes cheap, they buy it. So, I think retail investors lose more money when a company lists at a specific high price and then starts its downward journey,” he said.

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He gave the example of Yes Bank, where the stock nosedived from Rs 400 to Rs 10. Retail investors lost a lot of wealth, he said, because every time it came down by Rs 100 or 20-30%, a new bunch of investors sold their shares and others bought more of it.

Kamath also said he was aware of the heightened scrutiny on startups from various regulators, including the Reserve Bank of India and the Securities and Exchange Board of India. “Being a regulated business, I think both RBI and SEBI are kind of looking at anything that seems tech, startup through a lens. So, the pressure has increased, but I think retail investors are also quite mature,” he added.