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Few tech companies across the world have been spared in this year’s selloff in equity markets. Nithin Kamath, the founder and CEO of Zerodha, said the current selloff in stock prices of high growth tech companies could make fund-raising tougher for startups. And founders, including employees of startups, may have to realign their expectations. The Nasdaq 100 is down 25% this year amid mounting concerns that higher interest rates and soaring inflation could tip the US economy into recession.

“The sharp fall in the stock prices of high growth tech companies across the globe is getting crazy, feels like the dot-com boom. India has weathered the storm mostly because not many such companies are listed and many private ones raised a lot of money last year. Indian private markets got lucky with all the money that got diverted from China to India last year," he tweeted.

In a series of tweets, Mr Kamath said: “It is ridiculous how quickly the expectations changed from growth at all costs to generating free cash flows to survive the next 2 to 3 years since raising funds might be tougher. It is almost impossible for businesses to quickly adapt, especially the larger ones."

But, globally, he said, India still has a lot of interest given our demographics, population on mobile+internet and expected GDP growth. 

"There is a lot of money waiting to enter Indian private markets, $25 billion is what I am told. But FIIs pulling out money from public markets doesn't add up. But one hope I definitely have is that there is some correction in employee expectations in India, especially tech, product management, etc. It is ridiculous that startups have to raise millions of dollars to cover employee costs just to be able to launch a minimum viable product," he added. 

“To raise that much, founders need to oversell the growth prospects and target market size to investors. This leads to setting goals which aren't achievable and the business not being resilient or sustainable or profitable to weather storms like what we are seeing now globally. "

He also highlighted that “ESOPs given over the last 3 years will mostly be out of money and employee networth would have taken large haircuts. This could affect the morale of many, which will make it even harder for those running the business."

 

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