Investors, founders may have overestimated potential size of India's startup market: Zerodha, PhonePe

PhonePe co-founder and CEO Sameer Nigam (left) and Zerodha co-founder and CEO Nithin Kamath.

Zerodha co-founder and CEO Nithin Kamath and PhonePe co-founder and CEO Sameer Nigam agreed that the total addressable market size for startups could be only around 100 million. They also believe that investors and founders may have overestimated the potential size of the market.

Both founders were engaged in a panel discussion at the Moneycontrol Startup Conclave in Bengaluru on July 7.

Kamath said that some of the governance issues arose because startups and venture capital investors overestimated the potential market size. "If you oversell while raising funds then founders have to maintain that for a long time. Founders will be pressured to chase that target. The actual monetisable market size is a subset of 100 million. India is a developing country and evolving very fast, but as of now it is a subset of 100 million," he said.

Meanwhile, Nigam said that PhonePe could reach 500 million users by Diwali this year, and even with an annual active user base of 300 million, only 100 million would likely be buying the company's various financial services products. However, Nigam added that the market size should be considered from a 10-year perspective.

"People are projecting revenues and not margins and that is the fundamental problem. The fear of missing out or FOMO model is playing out. Margins are getting eroded because of too many players," Nigam said.

PhonePe has been diversifying its range of financial services and is now expanding into stock broking, lending, and other products.

Kamath believes that PhonePe is uniquely positioned to enhance the accessibility of public market investment, making it a vital player in the industry. On the other hand, Zerodha, a profitable company, intends to concentrate on serving the top layer of the market. Kamath stated that when it comes to other financial products and services, Zerodha prefers to collaborate with other startups.

One of PhonePe's main competitors, Paytm, has been disbursing more than Rs 5,000 crore every month. When asked if PhonePe is looking at a similar target, Nigam said, "We are seeing very strong results early on in the lending space. We are riding the wave of a robust and strong economy." He added that one needs to be careful when setting targets, as lending works in cycles. Unless the company builds a good and profitable lending model, it could hurt the company in a down cycle.