Zerodha and PhonePe Suggest Overestimation of India’s Startup Market Size by Investors and Founders

Zerodha and PhonePe Suggest Overestimation of India’s Startup Market Size by Investors and Founders

During a panel discussion at the Moneycontrol Startup Conclave in Bengaluru, Nithin Kamath, the co-founder and CEO of Zerodha, and Sameer Nigam, the co-founder, and CEO of PhonePe, shared their perspectives on the total addressable market (TAM) size for startups. They expressed the belief that the TAM for startups could be limited to around 100 million and that investors and founders may have overestimated the potential size of the market.

The discussion shed light on the importance of realistic market assessments and aligning expectations with the actual market size. Kamath and Nigam emphasized the need for startups to focus on building sustainable businesses within the confines of the market they serve. By understanding the true TAM and tailoring their strategies accordingly, startups can better navigate the challenges and capitalize on the opportunities within their specific market segments.

The insights shared by Kamath and Nigam serve as a reminder for entrepreneurs and investors to adopt a balanced and pragmatic approach when evaluating market potential. While ambition and growth aspirations are important, a grounded understanding of the TAM can help startups make informed decisions and set realistic goals for sustainable success.

During the panel discussion at the Moneycontrol Startup Conclave, Nithin Kamath highlighted that some governance issues in startups stem from overestimating the potential market size. He emphasized that when startups raise funds by overselling their market potential, founders are then under pressure to meet those exaggerated targets. Kamath suggested that the actual monetizable market size in India is currently a subset of around 100 million.

Kamath’s comments shed light on the importance of maintaining realistic expectations and aligning fundraising efforts with the actual market landscape. By acknowledging the true market size and focusing on sustainable growth within that subset, startups can avoid undue pressure and better manage their resources and strategies. This approach allows founders to build stronger businesses that are rooted in a genuine understanding of their target market and its potential.

The insights shared by Kamath emphasize the need for startups to prioritize sound business practices and avoid succumbing to the temptation of overestimating market potential solely for fundraising. By adopting a more measured approach, startups can focus on creating value for their customers and building sustainable businesses in the evolving Indian market.

During the panel discussion, Sameer Nigam shared his perspective on market size and growth projections for PhonePe. He expressed optimism that PhonePe could reach 500 million users by Diwali this year. However, Nigam pointed out that even with an annual active user base of 300 million, only around 100 million users would likely engage with the company’s various financial services products. He emphasized that market size should be viewed from a long-term perspective, spanning over 10 years.

Nigam also highlighted concern regarding revenue projections and margins in the startup ecosystem. He pointed out that many projections focus solely on revenue generation without considering the profitability margins. He cautioned against the fear of missing out (FOMO) model, where excessive competition and market saturation can erode profit margins. Nigam stressed the importance of considering sustainable profitability and cautioned against the erosion of margins due to the presence of too many players in the market.

Nigam’s remarks draw attention to the need for startups to have a balanced approach when estimating market size and projecting growth. While aiming for a larger user base is desirable, it is essential to consider the segment of users that actively engage with the company’s products or services. Additionally, startups should focus on building sustainable revenue streams and maintaining healthy profit margins to ensure long-term viability in a competitive market environment.

Nithin Kamath highlighted the unique positioning of PhonePe in the financial services industry, particularly in terms of enhancing accessibility to public market investments. With its expansion into stock broking, lending, and other financial products, PhonePe aims to cater to a broad user base and provide them with diverse financial services.

In contrast, Zerodha, as a profitable company, has a specific focus on serving the top layer of the market. Kamath mentioned that Zerodha prefers to collaborate with other startups when it comes to offering a wider range of financial products and services. This collaborative approach allows Zerodha to leverage the expertise and capabilities of other startups in the ecosystem while maintaining its specialization and strong presence in the market.

The statements from Kamath and Nigam reflect the strategies and priorities of their respective companies. PhonePe’s diversification into various financial services showcases its ambition to serve a larger customer base and offer a comprehensive suite of solutions. In contrast, Zerodha’s focus on collaboration and serving a specific segment of the market highlights its commitment to providing specialized and efficient services in its core areas of expertise.

Paytm, one of PhonePe’s key rivals, has been sending out more than Rs 5,000 crore each month. When Nigam was questioned about if PhonePe was eyeing a comparable aim, he responded, “We are getting really strong returns early on in the loan market. We are currently benefiting from a healthy and strong economy. He continued by saying that because lending operates in cycles, targets should be carefully chosen. If the business does not develop a solid and lucrative lending model, a downturn could be detrimental.