Misjudging the market size and opportunity, then setting wrong expectations and chasing valuations are probably the biggest reason why startups fail, believes Zerodha’s founder and chief executive Nithin Kamath. Sustainability is more important than valuation and not every business is VC’able or can be valued at $10 million, $100 million, or $1 billion, he said in a series of tweets.
There have been concerns that valuations in India are already too high, even when startups’ business models are being led by discounts and there is a bleak outlook for revenue.
The startup sector has been facing pressure from investors to improve bottom lines and focus on the core business, being asked to lay off employees over the next few quarters.
“The focus should be to do whatever it takes to enable entrepreneurs to build resilient businesses at home. So that they create wealth, share it with employees, shareholders, & invest it back in the economy. From Infy (Infosys) to Tatas to tech startups to lakhs of MSMEs,” Zerodha’s Kamath tweeted.
“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 added.
With more than 60,000 startups in India, Prime Minister Narendra Modi has labelled the current decade a “techade”, in which he added, “New unicorns are coming up every few weeks.” However, April was the first month in more than a year that India had no new ‘unicorns’, a term for startups with valuations above $1 billion.
Indian startups raised $5.8 billion in March and April, down about 15% from the corresponding period last year, data from Venture Intelligence shows.
In the series of tweets, Kamath said, “The other question for fintechs focusing on investments is 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?”
