“Cinderella Times Won’t Last Forever”, Uday Kotak Warns Startup Ecosystem Of Rising Interest Rates

Kotak Mahindra Bank Executive Vice-Chairman and Managing Director, Uday Kotak, had plenty to share with entrepreneurs in his keynote speech on ‘Governance Matters’ at a virtual event hosted by Institutional Investor Advisory Services. 

The most important highlight of the speech was Kotak advising startups to get a “thorough health check-up done” before going public. This he said could prevent IPOs from running into the reality of rising rates. 

He cautioned startups against premature launches saying that, “It should be the responsibility of startups to make sure investors have the opportunity for sustained growth, instead of only listing day gains.” 

Uday Kotak also added that, “The last two years have seen investors assume that near zero interest rates will remain forever. The cost of money has begun to go up now, and we should see risk pricing and present value pricing come into valuations of startups.The Cinderella times won’t last forever, and we’re not far away from the clock striking midnight.”

While the IPO boom is expected to continue well this year as bullish equity markets continue to be flush with easy money available at record-low borrowing rates. But a string of weak listings like Paytm, CarTrade and RateGain has put the spotlight back on the markets and how they will fare once interest rates rise.

The veteran businessman urged the entrepreneurs to be aggressive and consistent with the law of land. Sharing an anecdote, Kotak said that during the early days of his venture, he began the concept of discounting of bills, which at that point was only done by the banks and no private player had experimented with it. 

He added that he had the entire idea examined under the law and, then, they began the process of buying and selling of bills of exchange. However, he specifically advised the budding entrepreneurs that everything had to be done with the four corners of the law.

Kotak also said that entrepreneurs should build businesses within the confines of law and should avoid being perceived as involved in illegal practice of any nature, adding that they should also work towards benefiting all stakeholders involved.

He also called on the startup founders in the country to be both entrepreneurial and professional, saying that there has to be a fine balance between the two for the startup to flourish. 

Kotak also asked the startups to be consistent with regards to systems and processes as they rise up the ladder. He also called for giving voice to control functions in the day to day operations of the country. Driving home the point, Kotak pointed out the necessity of maintaining a balance between driving business and control functions.

One of the finer points that Kotak deliberated on at the event was the importance of change. He called for adapting to newer business models as a means to grow with the times. This he said helped startups withstand undue ‘shocks’ in a global paradigm where situations quickly change.

On corporate governance, Kotak stressed on the importance of substance and spirit in following regulations rather than form. He said that some companies had misused certain rules which led to excess regulations in the system. 

He added that, “We need to find a proper balance between ticking the box of regulations versus the substance of the regulation. As enterprises grow, regulation should have the flexibility of adjusting itself to the realities and facts of the case rather than a rule-based regulation which has the risk of stifling entrepreneurship.”

On a positive note, Kotak lauded the venture capitalists and private equity firms, calling them one of the biggest “boons” for startups. He said that, “They have supported dreams and brought about major changes in the startup ecosystem. This form of capital has saved the day for Indian startups.” He also called on the entrepreneurs to build sustainable business models saying that, “If what you create doesn’t outlive you, then you have failed.”

His statements come at a time when Indian startups raised over $42 Bn in funding in 2021 with an average ticket size of $32 Mn. The year 2021 also saw  42 startups entering the Unicorn club and 11 startups got listed.