Patient capital with no exit mandates can benefit founders in India, where it can take much longer to become sustainable, said Nikhil Kamath
Kamath also said that entrepreneurs can benefit from investors ‘willing to stick around’ rather than those looking to generate ‘rapid returns’
Rainmatter has so far invested nearly INR 400 Cr in 80 startups across sectors such as fintech, health and wellness, edtech and climate tech
Zerodha’s investment arm Rainmatter has earmarked an additional INR 1,000 Cr capital to invest in sectors such as health, education, and climate change.
In a tweet on Thursday (August 10), Zerodha cofounder and chief executive officer (CEO) Nithin Kamath said that the fresh capital would be invested in a unique ‘perennial structure’ that will have no exit mandates for the investor.
“We are now increasing our commitment by increasing the allocation by an additional INR 1,000 Cr in a perennial structure or with the ability to stay invested forever. Patient capital with no exit mandates that founders can benefit from when building an enterprise, in India specifically, where unlike in developed countries, it can take much longer to become resilient and sustainable,” said Kamath in a blogpost.
He further said that the investment arm can ‘remain invested forever’ as the fund is backed by the firm’s own capital.
Elaborating on the rationale for ‘patient capital’ for Indian founders, Kamath said that entrepreneurs can benefit from investors ‘willing to stick around’ rather than those looking to generate ‘rapid returns’. He also said that investors that bring in long-term patient capital to build ‘good, sustainable, long-term businesses’ would bode well for the local startup ecosystem.
“Good businesses cannot be built overnight, something we learned in our journey. So we are perennial investors and stick with the founders for as long as it takes the founders to build a sustainable business,” added Kamath.
Recounting his own journey, Kamath said that Zerodha succeeded because the investment tech startup had the freedom to do what it ‘thought was right’ without worrying, at the outset, about growing quickly in a slow-growing market. He added that when the markets boomed, Zerodha was there ‘ready to get lucky’.
He also noted that a startup’s chances of getting ‘lucky’ grow higher as it survives longer while opting to grow slowly and steadily.
In a tweet, Kamath said that Rainmatter has already invested nearly INR 400 Cr in 80 startups. Growing from a fintech fund and incubator at the beginning of 2016, Rainmatter has lately expanded its focus to sectors such as healthtech, edtech and climate tech.
Its fintech portfolio includes startups such as smallcase, Ditto and Digio, while its health and wellness portfolio counts names such as The Whole Truth, Peesafe, among others. In addition, it has also invested in climate tech startups such as Akshayakalpa, Solarsquare, Zerocircle, Ossus, among others.
Curiously, the announcement comes barely weeks after investment veteran and InfoEdge founder Sanjeev Bikhchandani, speaking at Inc42’s MoneyX, said that longer holding periods and the absence of pressure to provide exits could help corporate venture funds (CVFs) generate higher returns than their VC peers.
A typical venture capital fund generally expects exit within a seven-year timeframe. However, major names in the Indian startup ecosystem such as Zomato (founded in 2008) took more than a decade to turn profitable. Meanwhile, companies such as Paytm (founded in 2009) and PB Fintech (2008) which were founded in the late 2000s could not have offered major investment returns (barring IPO) for years as they have just begun to chart a path towards profitability.
With the announcement, Rainmatter has joined a growing list of investment firms that have accumulated dry powder to tap into the Indian startup ecosystem amid adverse market conditions. As per Inc42, more than 40 funds worth more than $3.6 Bn have been announced this year so far to be deployed in startups across various stages and sectors.