‘Startups globally have ignored this asset…’ says Zerodha founder, Nithin Kamath
2 min read . Updated: 05 Jan 2023, 01:59 PM IST
PremiumZerodha founder Nithin Kamath's suggestion to startups that plan to go the IPO-route: Setting the right expectations, being transparent, & not overselling are great ways to reduce the volatility of the stock price pre & post-IPO
Amid the buzz surrounding the IPO market, startups are focusing on maximising their valuations. However, they should focus on slow compounding for the long term, not max valuation in the short term, said Zerodha CEO and founder, Nithin Kamath. He added that consumer-facing startups around the world that have launched a public issue have failed to turn their shareholders.
“Startups spend a lot of effort & money on marketing. But I think B2C startups globally that have IPO'd in the last few years have ignored one of their biggest assets—an opportunity to turn millions of retail shareholders with influence on social media into brand ambassadors," said the stock market firm CEO on his Linkedin post.
Recently, there has been a lot of discussion about new-age tech companies looking at high valuations while launching their initial public offerings (IPOs) and then later the stock does not perform very well. The latest one to go the IPO route is Mamaearth, and it has faced backlash on Twitter about the high valuations. Likes of Nykaa and Paytm, where stocks have faced a lot of volatility drive away long-term investors, especially retail investors.
Also read: Mamaearth's Ghazal Alagh clears air on IPO valuation concerns
To utilise the opportunity of turning shareholders into ambassadors, companies must create wealth with the least volatility by maintaining the right expectations, being transparent, and not overselling their company shares, suggests Nithin Kamath.
He also mentioned how raising money from venture capitalists and private equities, pushes start-up companies under pressure to “ think about maximising valuations".
“This means building a narrative that can price in the best-case outcome for the business. But what's needed to do well as a listed business is different. To do well is to create wealth with the least volatility. Sharp falls tend to spook retail investors; they panic and exit at lowes." said Nithin Kamath
Nithin Kamath on reducing stock's price volatility
“Setting the right expectations, being transparent, & not overselling are great ways to reduce the volatility of the stock price pre & post-IPO," suggests Nithin Kamath.
He believes that merely following these steps can “make shareholders feel like owners and help reduce customer acquisition costs, the biggest cost for B2C businesses." Nithin Kamath also advised start-up owners to slow compounding in the long term and avoid maximising valuation in the short term for underselling and overdelivering.
As an engineering graduate and a young trader, Nithin Kamath, along with his brother Nikhil Kamath, founded Zerodha stock brokerage firm in 2010. He began investing in stock markets at the age of 17. From starting his journey as a penny stock investor during graduation to loosing all his savings in the market crash between 2001 and 2002, Nithin Kamath faced several challenges before starting Zerodha.
As of now, his company serves as the biggest stock broker in India in terms of active retail clients. The company handles more than one crore of clients in the retail trading market, claims its official website. Zerodha also runs several popular online education and community initiatives in retail trading and investment. Zerodha's Rainmatter has invested in a range of fintech startups for capital market growth in India.
