Exclusive: Startup slowdown was imminent, but disciplined startups won't feel the pressure, says PhonePe's Sameer Nigam

PhonePe founder and CEO Sameer Nigam

The slowdown that we are seeing in the startup world was imminent after large-scale investments chased budding but yet to mature startups, according to Sameer Nigam, founder and CEO of payments and financial services platform PhonePe.

However, startups that were disciplined during the good cycles and did not chase high valuations will not feel the pressure now, he added.

Speaking for an episode of CNN News18’s Bits to Billions, Nigam said, “We do believe a recession has to come. So much money was chasing only a finite number of startups, we saw a unicorn almost every week last year. When you have that much capital chasing businesses that are not fully matured yet, but they have hired aggressively, there will be attrition when a correction happens.”

Missed Bits to Billions? Watch it here: PhonePe Is Made In India, Will List In India: How Sameer Nigam & Rahul Chari Built A Unique Unicorn

However, PhonePe is not affected by the current slowdown. The company is well-capitalised and will continue to work on its plans for hiring and diversifying the business through acquisitions and licenses for more financial services offerings, said Nigam.

“If you are disciplined when the cycles are good and you don't raise money at frothy valuations then you don't feel the pressure,” Nigam said.

PhonePe had last raised $700 million in 2020 led by its promoters Flipkart and Walmart at a valuation of $5.5 billion, before the funding frenzy began.

According to him, the current scenario will reflect in how capital is deployed and impact the valuations of startups, a trend that is unfolding already.

Startups that were hoping to raise funds riding on the momentum of 2021 are now finding it difficult to bag high valuations with the growing focus on unit economics and VCs becoming conservative on their investments.

In the past two months, over 5,000 employees have been laid off by startups including Unacademy, Vedantu, Cars24, MFine, Lido, among others.

“It (downturn) will hurt valuations, and where capital deployment happens. The first thing that starts coming down is going to be advertising. People clamp down on hiring first, and then trim the fat,” Nigam said.

“When any industry is growing at breakneck speed for a period of almost 2-2.5 years, you will have some fat, and I think that will get trimmed.”

PhonePe to cross hiring target

The company had announced in April 2022 that it plans to double its headcount by December this year. During the announcement PhonePe had said that it had 2,600 employees and 2,800 open job positions across key cities, taking the overall planned headcount to 5,400 by December.

However, Nigam says that the company is likely to cross that target as well. He added that the company has never laid off employees and has no plans to freeze hiring regardless of a slowdown.

“We might go beyond doubling the headcount. We may add 1,000 Business Development Associates. 400-500 more employees may come in through acquisitions. So we may end up at around 6,000 to 6,500 employees by December,” he said.

The company has applied for a mutual fund license and a non-banking financial company (NBFC) license and acquired three companies in 2021 – WealthDesk, OpenQ and GigIndia. The leader in Unified Payments Interface (UPI), PhonePe enjoys a 47 percent market share in monthly transactions.

“We will have to reorganise structurally. Financial services is starting to split around insurance, wealth, lending and merchant solutions,” Nigam said.

However, the company has no plans to jump into banking. “The walk before you run principle applies. Even if I had the option, I would never apply for a banking license, because we have to build lending first which will take 4-5 years.”

‘Agree with Nithin Kamath on wealth tech’

In a recent interview with Moneycontrol, Zerodha founder and CEO Nithin Kamath had said in his estimate, the actual fintech user base of India is just 10-15 crore, while funds have been raised over the past year betting on a market size of 40-50 crore.

Nigam agrees with his views, “Nithin is too sharp a man to bet against. I think he has got it spot-on as far as the wealth sector goes. I do think the number is restricted to 15 crore, max 18 crore.”

However, the story is not the same for insurance according to Nigam, considering that India’s insurance penetration is abysmally low. Additionally, Covid-19 has pushed more Indians to look at insurance as a necessity.

On lending he added, “About 25-30 crore people are lending worthy based on the data today. This is where payments will shape the market, it will help you do flow-based lending.”

Watch the whole episode of 'Bits to Billions The Unicorn Story' on CNN News18 at 9.30 pm on Saturday, June 4.