Located on a quiet residential lane in the heart of south Bengaluru, Zerodha is one of India’s most valuable and unusual startups. Unusual because it hasn’t raised a single penny in external funding, it is profitable, and the founders – billionaire brothers Nithin Kamath and Nikhil Kamath – still own a significant percentage in the company.
Zerodha, a combination of Zero and Rodha, the Sanskrit word for barrier, was founded in August 2010 and is today India’s largest stock broker, with over 9 million clients accounting for over 15 percent of the country’s retail trading volumes. It also runs Rainmatter, a fintech fund and incubator that has invested in startups.
In this interview to Moneycontrol for the show Bits to Billions, CEO Nithin Kamath spoke about why he chose to build his startup differently, what wealth means to him, and what he tells his six-year-old son about money.
Apart from Nithin Kamath and Nikhil Kamath, who is its chief investment officer, the person who is core to Zerodha is Kailash Nadh, its chief technology officer. Nadh told us about Zerodha’s lean tech team, which has seen only two exits in the past decade. Edited excerpts:
What struck me about your office is that it is not in Koramangala or HSR or Bellandur, areas that have many unicorns, but bang in the middle of JP Nagar in a quiet residential area. Was that a conscious decision? Does it keep you away from the startup bubble and the FOMO?
Nithin Kamath: We didn’t really think through so much. I was born, brought up, and most of my time was spent in south Bangalore - Jayanagar, JP Nagar. So for me, anything north of south Bangalore doesn’t seem like Bangalore. So the first office was on Bannerghatta Road, which is just like 100 meters from here. And so as we grew, we found places around and we’ve been generally very frugal about running our business. So, wherever we could find the lowest cost real estate, we set up.
Is it hard making people come to JP Nagar?
Kamath: We don’t want people to come to JP Nagar. When they think about coming to our office, like, you know, like the bankers and all of them, they think twice because we are probably the farthest away from the airport.
And now we’re actually doing permanent work from home as a company. Of the team of around 1,100 people, almost 900-950 will remain working from home permanently.
Zerodha is an unusual company startup in many ways. You’re completely bootstrapped, profitable. What influenced you to build differently?
Kamath: When we started, business funding wasn’t very easily available because this was back in the day when the VC business wasn’t hot and broking especially wasn’t hot at all. And we didn’t really have any pedigree background or a really great business plan – we were really thinking of building for a very niche, very active trading community. So, we couldn’t really go out and raise money when it started. But then by the time we had started doing okay, we realised that the way we are thinking of growing this business, we don’t really need capital. I really hated the obligation that money brought to the table and that’s why the company has been zero-debt, no external funding.
You should raise money if it helps you grow faster, in some way, it helps you do something better. But raising money just because someone’s giving it is just an obligation that you’re taking on, which can affect the way you want to run the business as well.
How did the entrepreneurship bug bite you?
Kamath: It was accidental. I was working in a call centre. I met this guy in the gym who said, ‘Will you manage my money?’ I quit and I started portfolio management. When the customers grew, then I realised that in order to manage these customers, if I became a sub-broker, it’d be easy. So I went and became a sub-broker of a brokerage firm. Then NSE launched this free trading platform. It’s called NSE Now. And that is when I thought there is an opportunity to probably become a broker. But until Kailash (CTO Kailash Nadh) joined, there was no tech.
What were you like as a student? Were you academically inclined?
Kamath: Not at all. I think from my third standard, I think my school teachers called my parents after every exam and said there’s something wrong with your son.
In the past 10 years, you’ve built up Zerodha as India’s largest brokerage firm, you’ve entered mutual funds, equity investing, you also have Rainmatter Foundation, through which you invest in fintechs. What’s the next big bet for you?
Kamath: So there isn’t one large bet as of now. We can still solve the problem that we were trying to solve when we started, which is to help people do better with their money, right? So customers still come and make a lot of mistakes, lose money to the markets, etc. So then we need to figure out ways to help them do better, right? That is really on top of our list of things to do right now, which is how do you help people make better decisions with money.
Kailash, one thing that people keep talking about is Zerodha’s tech stack. So tell me what did you do differently and how has that helped Zerodha hold an edge over rivals?
Kailash Nadh: We ditched the status quo completely. And we started from scratch to build technology, the way it’s supposed to be built, not bound by arbitrary business pressures or sales pressures. So we built technology slowly, carefully, over a long period of time. And there’s this whole fail-fast thing – build fast, fail fast. That’s not our philosophy. We build slowly and carefully, extremely overly cautiously. And that’s how we built all these pieces together.
And the way we’ve ended up building them over almost a decade is that entire tech stack infrastructure, it’s really lean as a percentage of the expenses. The tech expenses are really, really abysmally low. Now, that’s not an indicator of quality. More expenses doesn’t mean you know, better quality software. So it’s been the opposite for us. And we manage all of this with a really small tech team.
How many people are in your tech team?
Nadh: Just the 33 of us over nine-plus years. And it’s very unconventional how we ended up like this, but that’s the way we built tech.
I read that only two people have quit your tech team in 10 years?
Nadh: There is no formula or framework. We’ve kept it really simple and grounded and realistic. So, one of the things about hiring is that people are sold a vision, saying we’re going to change the lives of billions of people, we’re going to be a multi-billion-dollar company. We’ve never done that. So, only two people have left and that, too, for personal reasons.
Kamath: In the office, in my personal life, we have a K filter before a decision is made. It’s like: What would Kailash think about it? I think he’s like my life guru.
Just in terms of outlook towards money and outlook towards success or even building, I mean, at one point of time before Kailash, I also thought that if you throw people at problems, people can solve them. But it doesn’t work like that.
You’re also always tempering expectations that we will not always do well?
Kamath: If some investor was forcing us to continue growing at the same pace at which we were growing last year, we would have to do something stupid to do it, right? Because it’s impossible, you know, when the markets are flat and going down. Why will new users come to the markets? You can’t really throw money at a problem… You’ll have to miss-sell somewhere to somehow grow at the pace at which we were growing last year… I’m always constantly tempering down expectations within the company.
Will Zerodha ever do an IPO?
Kamath: Tomorrow morning, there could be one circular that could bring my revenue down by 42 percent. We are so dependent on the stock market that we don’t know how much we will grow this year. To be able to raise someone else’s money, take on that obligation, you need to be able to predict something for the future, right? And if you have zero sense of it, why even take the obligation? Because then we are introducing risk to people who shouldn’t be taking risks.
And which is something which I keep telling some of the startup founders because a lot of these guys look at the stock markets as their endgame. It really isn’t. Because when you get a retail investor who can’t take risk on a cap table is when you should make sure you don’t lose money for that person. Because it’s bad karma, it’s going to come back in some form. Because every VC in PE is always wiring the founder to say IPO is an endgame but an IPO is really the beginning of the business. Because now on your cap table are millions of people who can’t afford to take risks. So your job is to take care of those guys.
What does money mean to you? What does wealth mean to you? What goes through your mind when you see yourself on rich lists?
Kamath: It is really uncomfortable because the way they ascribe your wealth is based on a certain notional valuation of the business. But valuation is really the money you have in the bank. So being on rich lists is of no use.
Yet you are also among the highest-paid founders in India?
Kamath: Yeah, that’s because you either sell your stock or you take out a salary and because we’re not selling stock and if we had to take some money out, we have to take out our salaries.
The whole journey of being a trader, I had a certain rupee goal and a certain bunch of cars and watches. But I think over the last three, four years I have reached a point where I know that incrementally buying something with money is not going to really excite me.
We’ve set up the foundation to invest in fintech, climate causes and most of our wealth will go towards that. Whatever wealth gets created from the business, we’re going to give back to society.
What do you tell your son about money?
Kamath: One of the topmost priorities on my list of things to do is to make sure he doesn’t take stuff for granted. Because people around him treat him a certain way. And I know that it’s because of me.
The biggest task for me is to help him discover something that he likes and loves to do, because when you find something that you like, love to do, you know, you will be more occupied with that versus trying to find that love, happiness by spending money. And the second is to find a way to have him be content.
Watch the full interview here: