Startups that seek valuations without becoming cash flow positive, or at least having it in their sights, are bound to hurt themselves, the president of the National Bank for Development said on Saturday. infrastructure, KV Kamath, at an event in Mumbai.
On the dichotomy of value and valuation, the veteran banker said: “Startups should be focused on either becoming cash flow positive or having it in their sights and then you head to the public market.” Otherwise, it’s a risk not only for the startup, but it could also create an environment of distrust, he added at IvyCap Ventures’ IvyCap Day 2022.
Saying that the fintech space will see the most disruption, the veteran banker advised founders to be patient in chasing valuations. “The creation of value in your platform, you have done it. If you are eager to create value, you will hurt yourself.
There are many opportunities for fintech players as incumbent banks still lack modern technology, he said. “But if a startup tries to jump into the valuation game, they will be crushed because the market will see that you are still not in a positive state. Now you need the money, you will not get not that money, whatever opportunities you have to grow will be crushed. The idea that you have and that you are a disruptor is a given. Have a little patience.
The former BRICS Bank chief also suggested proactively seeking partnerships with incumbents, instead of waiting for them to approach first. “Both sides need each other. Incumbents, especially in financial services, have huge regulatory shelters. If you say I’m going to steamroll the big banks in place, that may or may not happen. The regulator will say that you follow the discipline of the banking or insurance sector which can be tough for a startup because you are used to doing things in an agile and nimble way.
“The value, you certainly created it, you have to monetize that value in the valuation and get a positive cash flow first,” he said. The other party must also seek partnerships. There is no other choice, he added.
He also suggested entering the sector from currently weak areas where barriers to entry are low, giving the example of online brokerage platform Zerodha. Calling the platform disruptive and an example of a good business model, he said similar disruptions will also occur in the asset management industry. “There are opportunities everywhere. They are whole businesses, but part of the business is where there is additional opportunity and great added value.
Kamath was quick to add that his words not only apply to financial services, but can apply to other areas as well. “Where you have a much easier time is in areas where you have no regulatory oversight. In these areas you are the competitor and on the frontier you can do what you want to do what the incumbent can’t and can proceed at high speed.