Zerodha Co-founder Nithin Kamath Highlights Corporate Governance Issues in Indian Startup Ecosystem
- ByStartupStory | July 1, 2023
Nithin Kamath, CEO of Zerodha, has shed light on the root cause of corporate governance issues within Indian startups. Kamath placed blame not only on the founders but also on the venture capital (VC) ecosystem, highlighting the overestimation of the size of the Indian markets by both parties.
Expressing his concerns on Twitter, Kamath stated, “Corporate governance issues coming to light in Indian startups will only increase with time. While founders will be blamed, the venture capital (VC) ecosystem is equally to blame. The root cause of this is the overestimation of the size of Indian markets by founders and VCs.”
Kamath further emphasized that many VCs have miscalculated the Indian opportunity and potentially oversold it to their investors (LPs). He pointed out the challenges of achieving large exits within the typical fund lifecycle of seven years, considering the limited M&A opportunities in a relatively small market like India.
Providing an example, Kamath mentioned startups claiming that 300-500 million Indians would be investing by 2027, with expectations of capturing over 10% of that market. However, he questioned such projections when the number of Indians filing income tax returns was only around 60 million.
“If I could use one line to explain what I think is the root cause of the problem: Believing in a TAM that isn’t there yet and then burning out by chasing it,” Kamath remarked.
Kamath also cautioned that governance issues would likely involve misreporting rather than traditional fraud, as founders feel compelled to justify the stories they have oversold to attract capital.
He reiterated that the blame should not solely rest on the founders but also on the VC ecosystem that fueled these practices. Kamath stressed the importance of this discussion, as India requires continuous capital, not sporadic influxes, to become an economic superpower. Unrealistic expectations in investment and business-building can hinder capital flow and create false narratives.
The insights shared by Nithin Kamath highlight the need for a more cautious approach to corporate governance and realistic assessments of market potential in the Indian startup ecosystem. Addressing these issues will contribute to the long-term sustainability and growth of the entrepreneurial landscape in India.
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