Zerodha CEO and co-founder Nithin Kamath has urged Indian retail investors to move some of their assets to back Indian entrepreneurs. He said the move will aid in inclusive distribution of wealth in the country, as most wealth gets captured outside India, today.
"UK offers 50% tax relief & capital gains exemption for startup investments. This seems a great way to incentivize the wealthy to invest in startups. We maybe need similar schemes to reduce our dependency on foreign VCs & better use our local wealth stuck in Gold, Real estate & FDs," Kamath said.
"The biggest problem to solve in India is to spread wealth inclusively & not just in the top 1%. This is possible only when wealth creation can be captured by a large subset of Indians when Indian businesses do well. Today, most wealth gets captured outside India. We have to nudge Indian retail investors to move some of their assets from FDs, gold, and real estate to back Indian entrepreneurs and maybe help the country grow inclusively," he added.
His statement comes at a time when the Indian startup community is facing the double-whammy of dwindling macroeconomic uncertainties as well as a funding crunch from foreign venture capital firms, which is likely to last for the next several months.
As per Traxcn, Indian startups raised $2.8 billion in 301 rounds in the January to March period in 2023. This is a decline of 75% year-on-year compared with $11.98 billion raised by domestic startups in 816 rounds in the same period last year. The report attributes soaring inflation and interest rate hikes by central banks globally as the major reasons for the decline in startup funding.
Kamath, who is known for providing guidance to domestic startup founders in his posts and tweets, had earlier said he expects the number of founders and leaders, especially at late-stage start-ups, quitting to only increase, making it harder for businesses to survive this funding winter.
This, according to the Zerodha CEO, is because of liquidation preferences and the disconnect between valuations and business fundamentals.
"A liquidation preference allows investors to recover their investment before anyone else. This is how all startups raise money. Nobody thinks of it as a loan, but it is similar. The more money founders raise, the harder it is for them and their teams to see equity upside," Kamath said in April.
Liquidation preferences are fine as long as valuations are growing and every new round the investments get marked up, and all investors see notional gains, the Zerodha founder said. However, when growth plateaus or new fundraising at a higher valuation becomes tough, the investment becomes like a loan, said Kamath.