Nithin and Nikhil Kamath’s Zerodha success due to self-funding
Nithin and Nikhil Kamath, brothers based in Bangalore, are methodically building upon their business success in India, first achieved through Zerodha, an online stock brokerage.
Each trading day, Zerodha’s online platforms handle over three million trades with a total value of over $10 billion. They account for over 15% of retail trades, making the company the biggest retail stock broker in India.
The brothers’ success with Zerodha was due to early entry into a business with little competition, especially from long-established Indian business groups. Also, using first-hand knowledge of the problems faced by retail customers, they were able to offer attractive prices and other solutions to clients, through easy to use platforms which were developed in-house.
Most important, they funded the start-up with their savings and its expansion with internal funds, thereby avoiding dependance and pressure from outside investors. “We’ve been different…we’ve never taken on investors or debt or never really raised any capital. Our ethos from the very beginning was build a better product and word of mouth will bring the clientele to you,” Nikhil told CNBC in an interview today.
The brothers use of their own funds means that they likely face fewer obstacles to growth from bankers, bureaucrats, politicians and rivals who are known to protect the interests of long-established business groups, especially in a market like India, by crippling emerging competitors.
Nithin, 41, and Nikhil, 34, are using similar strategies to pursue other businesses. They have expanded into related businesses, including incubating and investing in mostly financial technology startups and managing investments in India for wealthy individuals and families.
Before co-founding Zerodha, Nithin was a stock trader, investment advisor and a sub-broker. Nikhil dropped out of school at 14 to pursue a career as a chess professional. Realizing he could not become a chess master, he started equity trading at 17 and taught himself. “No one was going to hire me without a college degree, which meant I had to do something which didn’t require one,” Nikhil told CNBC.
The brothers were soon managing investment portfolios for family and friends. As a result, they knew first-hand the pricing, registration, technical and other problems faced by retail brokerage customers in India.
In 2010, they started Zerodha with “the goal of breaking all barriers that traders and investors face in India in terms of cost, support, and technology.” The name is a combination of Zero and Rodha, the Sanskrit word for barrier.
In 2020, following the COVID-19 lockdown, Zerodha saw its clients double to over four million. Some clients, whose average age is 30, view trading as an additional source of income.
“Is trading the (stock) markets gambling? I get asked often,” Nithin tweeted in December. “My answer is that yes, you can gamble when trading, just like you can gamble with everything else in life.”
In August 2019, Nikhil, Nithin and Richard Pattle co-founded True Beacon “to create wealth and value” for those who believe in India’s future economic growth. Investors, who put up $1 million or more, pay only a 10% performance fee, and that too only if the returns exceed that of the stock market index over five years, Nikhil told CNBC.
From 2014 to 2019, Pattle was Vice Chairman of Standard Chartered Private Bank, focusing on investment opportunities for wealthy families in Asia, Africa, Middle East and Europe. Earlier, Pattle spent 18 years as a combat helicopter pilot in the British Army, serving one year alongside the Indian Armed Forces in Tamil Nadu.
In 2015, the Kamath brothers co-founded Rainmatter, an incubator and venture fund, focused on Indian financial technology start-ups. The incubator provides office space, $100,000 to $1 million in funding and mentorship, in exchange for a partial equity ownership.
Start-ups focus on building their products while Rainmatter handles compliance, sales and all other issues. Also, the founders use Zerodha’s customers to test, modify and validate their products.
Companies incubated include Smallcase, which enables investors to build a low-cost, diversified stock portfolio; GoldenPi, an online marketplace for bonds and other fixed income securities; Quicko to help prepare and file personal income as well as business taxes; and Digio, a digital, paperless documentation system for businesses and consumers;
In addition, Rainmatter has also invested in Jupiter, an online bank; The Whole Truth, a vendor of protein bars and other health food products; QShala, an online platform to foster life-skills and curiosity in children, which are typically not taught at school; and Imstrong, which offers live online fitness and yoga classes.
Nithin and Nikhil Kamath have a net-worth of $1.6 billion, according to Forbes. After Forbes India put the brothers on its cover in October last year, Nikhil posted on Instagram: “Vanity alert. Dreamt of being on the cover of Forbes Magazine as a young boy going to school in JP Nagar, Bangalore. Here is a shout out to all the people who played a more significant part of this journey..”.
Zerodha and the other businesses run by the Kamath brothers, which made them billionaires, indeed depend on engineers and other highly skilled staff to create customer-friendly digital platforms to power their growth. So, besides a shout out, hope Nikhil and his brother are paving a new, trailblazing path by rewarding their significant employees with equity stakes and profit sharing - since fair compensation to their key employees, offered by start-ups in the U.S. and Western Europe, is rare even among highly successful start-ups in India.
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Photo of Nithin and Nikhil Kamat courtesy of Nadar Foundation
