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Remembering Rakesh Jhunjhunwala: Why the Big Bull was a bear when it came to startups, cryptocurrencies

"I wish startups focus more on a business model that produces cash rather than taking money at $2 billion, $3 billion in valuation. That is not the capital that will build great companies in the world. So capital is not very important, it’s your business model," Jhunjhunwala said

August 14, 2022 / 01:13 PM IST

Ace investor Rakesh Jhunjhunwala, who died aged 62 in Mumbai on August 14, was often called India’s Warren Buffet for the similarities in investing patterns he shared with the veteran American investor. And the similarities, or rather caution, extended to cryptocurrencies as well as cash-guzzling new-age startups.

Jhunjhunwala had a net worth of over $5.5 billion. As India mourns the passing of the legend of Dalal Street who had immense faith in India’s growth story, here’s a look at why the Big Bull stayed away from cryptocurrencies and new-age startups:

Importance of positive cash flow

Jhunjhunwala echoed Buffet’s comments on the importance of positive cash flows for companies in many media interactions. In an interview to CNBC-TV18 earlier this year, Jhunjhunwala said that prices across the globe were a “slave of cash flow and earnings”.

“Without so much focus on valuations, a company needs opportunity, frugality, corporate governance, technology, the ability to change and if the race is on, it is the tortoise that wins, not the hare,” Jhunjhunwala said in another media interaction.

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Also read: Rakesh Jhunjhunwala's greatest investment hits, and odd misses

“I wish startups focus more on a business model that produces cash rather than taking money at $2 billion, $3 billion in valuation. That is not the capital that will build great companies in the world. So capital is not very important, it’s your business model,” he added.

His pessimism about startups and new-age cash-burning companies isn’t new. Jhunjhunwala, whose portfolio is worth nearly Rs 32,000 crore, barely invested in new-age startups.

He stayed away from all the multi-million dollar initial public offerings (IPOs) of unicorns such as Zomato, Policybazaar, Paytm and Nykaa despite being bullish on the digitisation drive in India.

“I don’t want to go to the startup party as the hangover is only for two days,” Jhunjhunwala had said.

Also read: Which is the one formula the Big Bull held sacred?

In an interview to CNBC-TV18 last week, Jhunjhunwala had said that he expects further downside in shares of new-age startups, which are already trading at multi-month lows.

In another media interaction earlier this year, he had said, “I tell all my investee companies that I am not interested in valuations. I am interested in businesses that will scale. I am making a business model and a cash flow model and businesses have to follow. Valuations cannot be more important than my business model and sustainability.”

On cryptocurrencies

Just as he had reservations about high cash-burning business models, Jhunjhunwala had misgivings about cryptocurrencies as well.

Jhunjhunwala said the daily volatility in cryptocurrencies is something that kept him away and he won’t buy bitcoin for even $5 dollars.

“In the world, it is only the sovereign that has the right to print currency. Tomorrow people will produce five lakh bitcoins. And which currency fluctuates 5 percent in a day? A currency fluctuating 10 percent a day, can it be a currency?” Jhunjhunwala told CNBC-TV18.

Also read: 'Akasa Air is frugal, will be very competitive'

“If dollar goes up by 1 percent, it becomes news and here you have a currency that fluctuates 10-15 percent every day. I think it is just speculation of the highest round and I am not going to buy it, even if it goes up, I don’t want to join the party in town, I think the hangover will be even worse,” Jhunjhunwala added.

The investor class of equities and cryptocurrencies is completely different from each other and cryptos will collapse one day, he said in another interview.

As there’s no control on the supply of cryptocurrencies, there’s no control on the value of any cryptocurrency, he said.
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