He believes India is lucky and has weathered the storm mostly because not many such companies are listed, and many private ones raised a lot of money last year. But now the situation may get difficult for everyone.
Technology stocks are down significantly in most countries. Some names in the US have dropped as much as 90 per cent. Many of the recently listed companies in India are also trading below their issue prices. They include names like AGS Transact,
, PolicyBazaar, Fino Payments, CarTrade, , among others.
“It is ridiculous how quickly the expectations changed from growth at all costs to generating free cash flows to survive the next 2 to 3 years since raising funds might be tougher. It is almost impossible for businesses to quickly adapt, especially the larger ones,” Kamath said in a series of tweets on Tuesday.
Another issue that these startups will be facing is that due to reduction in share prices, the value of the employee stock options (ESOPs) that they give to employees (which is usually a large part of the salaries of executives) will be down drastically.
“This could affect the morale of many, which will make it even harder for those running the business,” said Kamath.
His stance differs from that of Ashneer Grover, who was founder of BharatPe. He said it is all about perspective. “If you were a Zomato employee and exercised your ESOP at Rs 140 or higher price post IPO, you probably paid more cost per share as income tax, than what you can buy it today from market freely. At Rs 56, markets are giving everyone ESOPs,” he said, referring to the share price of the company.
Kamath, however, underlined that thanks to money moving out of China and given the demographics, population on mobile and internet, and expected GDP growth of India, money will still flow to the country.
Kamath, who has started his business by bootstrapping and have not raised money from any private equity firms, wondered why startups have to raise millions of dollars to cover employee costs just to be able to launch a minimum viable product. “It is ridiculous,” he said.
“To raise that much, founders need to oversell the growth prospects and target market size to investors. This leads to setting goals which aren’t achievable and the business not being resilient or sustainable or profitable to weather storms like what we are seeing now globally,” said Kamath.