Why KV Kamath thinks ‘disruptor’ Zerodha is a good business model

National Bank for Infrastructure Development Chairman and veteran banker KV Kamath on Saturday commended online stock trading platform Zerodha, founded by Nithin Kamath and Nikhil Kamath, for being a bootstrapped and cash-flow positive venture, calling it a good model for a business.  

Giving his words of advice for startups eyeing the financial sector, Kamath suggested looking at weak points and entering through them. “For instance, online broking was probably the easiest way to enter where barriers to entry were very low. You had somebody like Zerodha come in and within the first year of lockdown become the market leader,” he said at an event organised by VC firm IvyCap Ventures’ IvyCap Day 2022 in Mumbai.  

“It's a low-cost platform, he has boot-strapped himself and runs the company. Good for him. (They) run a cash-flow-positive company. This is a good model to understand how the business is run. He is a disruptor because Zerodha has disrupted all incumbents who were there for the last 20-25 years.” 

Also read: Zerodha goes down yet again, users take to Twitter to vent frustration, share hilarious memes

On the dichotomy of value and valuation, Kamath said, “Startups should focus on becoming either cash-flow positive, or have it in their line of sight, then you take to the public market.” Otherwise, it’s a risk not just for the startup, but it could also create an environment of distrust, he added. 

Saying that the fintech space will see the most disruption happen, the veteran banker advised founders to exercise patience in chasing valuations. “Value creation in your platform you have done. If you are impatient to create valuation, you will hurt yourself.” 

There are plenty of opportunities for fintech players as the incumbent banks still do not have modern technologies, he said.  “But if a startup tries to leapfrog into the valuation game, it will get crushed because the market will see that you’re still not in a positive state. Now you need money, but you will not get that money, whatever shoots of opportunities you have to grow, gets crushed. The idea you have and that you are a disruptor is a given. Have a little bit of patience.”

Also read: Why you should NOT always buy the dip? Zerodha's Nithin Kamath explains 

The former BRICS Bank chief also suggested proactively looking for partnerships with the incumbents, instead of waiting for them to approach first.  “Both parties need each other. Incumbents, particularly in financial services have huge regulatory shelters. If you say I’m going to steam roll large incumbent banks, it may or may not happen. The regulator will say you abide by the discipline of the banking or insurance sector which can be harsh for a startup because you are used to doing things in a nimble and agile way.” 

 “Value, you have certainly created, you have to monetise that value into valuation and first get to be cash-flow positive,” he said. The other side also has to look for partnerships. There is no other choice, he added.