nithin kamath: What should Indian startups be worried about? Zerodha founder Nithin Kamath explains

Zerodha founder Nithin Kamath is someone who doesn’t mince his words. He has been vocal about issues facing the startup ecosystem. Kamath took to Twitter to talk about the sustainability of the Indian startup ecosystem in the face of the current market conditions.

He said that the focus has always been more on valuations rather than sustainability and expected things to get better in the global reset right now.

“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,” Kamath tweeted.

Kamath listed out the reasons why startups fail among which misjudging the market size and then setting unrealistic expectations and chasing valuations are the prime reasons.

“Not every business is VC’able or can be valued at $10mil, $100mil, or $1bil. 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 illustrated his point by relying on the expectations among some fintech startups who think the market opportunity for demats is 40 crore (25% as in developed countries) vis-à-vis 9 crore actual demats. Kamath said that the unique demat accounts are only 6 crore but those holding over Rs 10,000 are less than 3 crore.

Kamath relies on ITR data to make a point that only around 10 crore Indians make more than Rs 2.5 lakh a year below which it is not possible to invest and mainatin discretionary spending.

So, 3 crore out of 10 crore is 30% which he says isn’t bad. One of the questions is how large can the pool of those who can start investing be and what will draw them in despite having a bull market, mega ads, freebies, WFH, IPOs, low interest rates, & social media frenzy recently.

He also uses the UPI data to arrive at a figure of 15 crore as the market for B2C. The real challenge, he says, is to expand that.

Kunal Shah of Cred responded by saying that India is the cheapest farm for daily active users for global firms. He said that it’s hard to sell things to people when they have barely enough to survive.