Last 2 years have been spectacular for Zerodha . Lucky to be at right place right time, ready with products & initiatives when there was a surge in retail participation. With success, what I say gets valued more Grimacing faceHere are a few questions that we get asked frequently.

Why haven’t we raised any external capital, especially at times like these when we could get some crazy valuation? I had talked about it earlier

Why do very few startups bootstrap (not raise funding)?

While the obvious answer might be the easy availability of risk capital today that can help a business grow fast. But there is another reason why startups focus on growth & valuation rather than profits - Taxation.

As a promoter/founder you pay almost 250% more as taxes if you were taking out money from the business as salary/dividends compared to say paying capital gains when selling your stake to an investor(fundraising route). I had written a post about this.

While there is nothing wrong with chasing valuations, but without being profitable, it’s tough to ride out the downturns in the economy. So this tax arbitrage potentially could be potentially creating not so resilient businesses which isn’t good for our economy in long run.

While our growth is exciting, we know that this isn’t sustainable. A broking business is an extremely high beta - highly correlated with the market conditions. Even if there was a mini bear market, our business could drop by 40% in a heartbeat.

What does success mean? Everyone holds ESOPs & continuously get new options too. We ran a buyback last year at $1bil valuation & we will this year at $2bil. Maybe conservative valuations, but our business risks are high. Personally, the proudest moment in this journey.

We on our own can only do so much to help expand the markets. With Rainmatterin we’ve seeded over 20 startups that are attempting to solve various problems of the capital markets. Some of the best fintech startups focusing on savings & investing in India today.

We’re also giving back through Rainmatter Foundation We’ve committed $100 mil to grass-root organizations & startups working on climate change & creating green jobs. Climate change is an existential threat to our planet & our future generations.

What next for us? The one thing that keeps us up at night is how to help our customers make & keep their money. Low costs, superior products & financial education are important but not enough. Nudge is the first step in this direction.

To help customers do better we have to do things that may not be good for business in the short run & we may lose revenues. We are probably in the best position to attempt solving this problem given that we have no investor obligations to chase revenues.

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