No pressure on founders, no hurry to exit: Zerodha's Rainmatter chief Dinesh Pai on new fund corpus, focus areas

What was the spark behind Rainmatter?

Zerodha's aim is to expand retail participation in capital markets. This philosophy led to the creation of Rainmatter in 2016, not as a typical fund, but as a platform to back startups with capital, distribution, and trust, without demanding exits.

Over time, investments came from various entities, including Nithin, but the core idea remained: support founders to grow the ecosystem. Initially fintech-focussed, Rainmatter later expanded to climate, launching the Rainmatter Foundation in 2020 to offer climate grants.

While the foundation handles grants, equity investments in climate startups are done separately to encourage entrepreneurial solutions to climate challenges. Today, Rainmatter remains a long-term, flexible backer.

There's this confusion as to which investments come from Rainmatter Capital, what comes from the foundation, and what investments are personal cheques?

Investments come from multiple entities. We set up Rainmatter Capital with no exit mandates — it was never meant to be a traditional fund. Between 2016 and 2020, the philosophy remained consistent: support fintechs and understand the evolving market.

Whether it was Rainmatter's funds, or Nithin’s personal cheques, the focus was on quickly backing founders who needed support. In the early days, there was no formal team or structure around Rainmatter — we were simply meeting founders, exploring ideas, and staying open to opportunities.

Is there an investment philosophy now? From fintech and investment related startups, you have expanded to climate…

The goal was always to build relationships and support people, not with an angel investor or portfolio-building mindset, but to genuinely help grow the ecosystem. Looking back, some early fintech investments wouldn’t align with our portfolio today, as our approach has evolved. We like to keep things simple.

In 2020, we launched the Rainmatter Foundation to offer climate grants. Through our grantees, we’ve gained valuable insights into areas like carbon emissions, waste management, and energy, which led us to start investing in climate startups as well.

While the foundation focuses solely on grants — since section 8 entities (charitable organisations) can't take equity — our climate investments happen separately to back entrepreneurs solving these critical problems. What began with fintech has now expanded meaningfully into climate.

You have a lot of health-tech investments too…

Nithin is obviously very passionate about health, being fit and into sports. Our fitness portfolio – Game Theory, etc – is in sync with our efforts to ensure that more people take care of their health.

What are the major sectors that Rainmatter invests in?

Fintech, health, and climate – these are the three sectors that we have predominantly invested in. Fintech is core to the business. So, we understand a lot of what is happening and it is easier for us to evaluate and say these are the fintech solutions that we really want to support. Nitin has a keen eye for this.  But climate is a complex problem. We try to learn as much as possible.

You are known to work closely with startups…

If we don’t understand a business, we simply don’t invest — we want to add value beyond just capital. It’s not about giving money and waiting five-six years; we aim for deep, ongoing engagement. We’ve closely integrated Zerodha with companies like Tjori, Smallcase, Sensibull, Quicko, and Digio. I constantly talk about these companies, hoping to drive more interest and customers. Many are now mainstream, but we still actively promote them as our core philosophy isn't about running a fund or chasing exits — it’s about supporting these businesses long-term.

You recently added Rs 1,000 crore to the corpus. Is that meant for more follow-on investments?

We’ve deployed Rs 950 crore and recently added Rs 1,000 crore under an AIF, with Zerodha as the sole partner. We started deploying from the AIF around November-December, just six months ago. Our approach is simple, if a company is doing well and needs support, we back them without pressurising founders on targets like profit margins. We believe founders naturally aim for growth and profitability.

Our follow-on investments are straightforward; we continue supporting companies we believe in, even during tough times. Capital is just one part of our support; relationships matter more. Besides, there’s no shortage of capital today, VCs raised $20 billion last year.

Have you exited any investments?

We haven’t actively exited any of our portfolio companies. Most are still young, with no IPOs yet. There have been a few secondary exits, like in CRED, but only when approached — we didn’t actively seek them.

From 2016 to 2021, we deployed about Rs 200 crore; in the last two-three years, we’ve invested around Rs 500 crore, mostly in early-stage companies like Akshayakalpa, where we invested Rs 80 crore in 2021 and followed up with another investment in 2023.

These businesses are still growing, and we believe in staying invested for at least 10 years. Even when secondaries come up, we usually prefer to continue with the founders unless they specifically ask us to exit.

Do you function like a VC fund in terms of returns and fees?

We have no carry, no fee, nothing. The idea is not to look at it from a returns perspective. The idea is to find good founders and support them. Now, the moment somebody has carry in the team, there is a reason to push the company to do well, push them to raise a round, push them to do it at a higher valuation. Is that all right for a company? We don't know.

We don't work like a VC fund. I think that makes things easier.

How do you identify the founders?

We value passion projects, they signal genuine commitment beyond pitch decks. Unlike some VCs who are big on founder profiles, we believe there’s no one-size-fits-all. Every founder, business, and context is different. While VCs with structured models have done well, patient domestic capital also has a crucial role. India needs more long-term backers for local entrepreneurs, especially during downturns like in 2022-2023. Even VC firms are now moving towards longer fund cycles — most AIFs today are 10 (+2 years for extension); ours is 15+2 years.

Big competitors can outfund our portfolio companies, but that’s part of the game. Early on, we invest anywhere from Rs 50 lakh to Rs 20 crore, and sometimes up to Rs 80-100 crore at series B or C. For later stages, they’ll naturally need larger investors. We don’t worry about competition, our focus is on helping founders build strong, defensible businesses. Success is about consistently moving ahead, not quick wins.

Why are you restricting yourself to early stage companies? Is it because the fund is still restricted to Rs 1,000 crore?

Not really. The idea is to engage with founders earlier. Because when the company is still forming in the early stages, there are areas where we can help. Once it's past the stage where it needs growth capital, I think it's a different skill altogether.

How did you meet the Kamath brothers?

I first met Nithin through a scholarship programme in Mangaluru, where I invited him in 2015 to speak at a talk show for scholars, called Prerna.

After I did my engineering in 2014, I joined a hedge fund in Hyderabad, where I first got curious about markets and learned about derivatives and high-frequency trading. I later worked at EY in Bengaluru, then pursued an MBA in Canada in 2017 to strengthen my financial credentials.

During Covid in 2020, while working from home, I used my free time to explore new opportunities and cold-mailed Nithin, offering to help with the Rainmatter portfolio.

Looking back, it feels like pure luck. I often tell my wife I wouldn’t have landed this role on skills alone. Though I had some experience with incubators and accelerators, I didn’t have direct investment experience when I joined. The hiring process was long, but it worked out in the end.

Do you meet your founders often?

Yeah, very often. There's a lot of knowledge there. Once every quarter, once every couple of months. People come by anytime.

Do you take a board seat?

We don’t take board seats or seek formal control. The team prefers focussing on new opportunities. Being an effective board member requires deep business knowledge, like understanding dairy operations in Akshayakalpa’s case, which we may not always have.

Founders keep us regularly updated, and we trust them. Ultimately, these are bets, and things can go wrong. We’ve always seen our founders proactively share updates, and that’s what matters to us.

Is it because of the personal approach rather than the business approach?

We prefer hearing bad news first. I always tell founders, growth is great, but problems matter more to us. We’re more interested in helping solve issues than just tracking success.