Unicorn. Normally, as we hear this word, our minds conjure up an image of a mythical creature with a horn flying away in a mystical land of rainbows. The business world also uses this term for privately owned startup companies that seem to be ‘flying’. What it simply means is a startup company with a value of over $1 billion.
Many startups have entered this elite club even during the pandemic. One such startup is the bootstrapped fintech Zerodha. After a decade since its inception, in the year 2020, based on self-assessed valuation, this fintech formally claimed its entry to the Unicorn club. Let’s have a look at this “Bootstrap to Billion” journey of the pioneer of discount broking startup.
The Birth of Zerodha
Headquartered in Bengaluru, Zerodha was founded by 2 brothers, Nithin Kamath (CEO, Zerodha) and Nikhil Kamath (CFO, Zerodha) on 15th of August, 2010. It is the first-ever discount brokerage firm in India. Discount broker, as opposed to a full-service broker, does not offer research services to its clients. And hence, charges a low brokerage. Established to provide barrier-free trading to traders and investors, its name says it all, ‘Zero’ and ‘Rodha’ which is Sanskrit for barriers. Initially, starting with a team of 5, today Zerodha employs over 1300 people.
Rise of Zerodha
Since its inception, the founding brother duo has never entertained the ‘growth-at-any-rate’ approach. They focused instead on developing a sustainable business plan backed by a solid tech product. This strategy seemed to have worked out pretty well for them. With a client base of only 3000 in its first year, it has over 3 million clients today placing millions of orders everyday on its investment platforms accounting for 15% of all Indian retail trading volume. According to the National Stock Exchange of India, Zerodha is among the nation’s 10 largest brokers.
“The biggest tipping point in this whole journey was back in December 2015 when we went zero brokerage for equity investing. We were charging ₹20 flat-fee-per trade. We had opened 70,000 accounts till December 2015. The next year we had 700,000 accounts” says Nithin Kamath in an interview.
Financial Statistics of Zerodha
The wealth management platforms have seen a spike in numbers in the post-covid period in the equity markets. Led by Zerodha, Indian stock market investing is being popularized among millennials.
This Bengaluru-based fintech booked Rs. 442.4 Crore as standalone profit in the FY ended on 31st March 2020. It has managed to grow its earnings to RS. 1034.8 Cr in revenue from operations in the same year, it said in filings with the Ministry of Corporate Affairs. The expenses amount to Rs. 500.7 Crore, out of which Rs. 154.3 Crore was spent towards employee benefits.
Zerodha had constituted a stock option pool worth Rs 200 Crore for its 800+ employees in 2019. And later, it announced Rs 65 Crore Employee Stock Option (ESOP) buyback plan from around 700 employees during the peak of pandemic lockdown in June 2020. The buyback was valued at Rs 700 per share and the company valued at around Rs 7000 Crore or $1 billion, thus being eligible for the Unicorn Club.
What can we learn from Zerodha?
1. Zero Advertising Approach
Zerodha’s goal has always been to have a barrier-free, user-friendly trading platform. Having a seamless experience and democratizing participation is what they strive for. For this, they are developing and evolving their product continually. They are also raising awareness and educating the investors who are new to the stock market through their education ecosystem, Varsity.
2. Channeling Local Money into the Economy
According to Nithin Kamath, India is very dependent on foreign capital to drive the country. The local residents’ money is whiling away in fixed deposits or real estate. Through Zerodha, he aims to encourage and educate people to invest in the ecosystem to drive growth.
3. Building a Business through Bootstrapping
Unlike other startups, Zerodha didn’t have any external funding and it wasn’t because of lack of trying. Despite having no venture capital money to grow, Kamath brothers have shown the way to build and scale the business. The duo and their company are poster boys for the bootstrapping world. Their exemplary work is evidence for those wishing to build a long-term, sustainable and thriving venture.
Here’s our take on the bootstrapped unicorn that is set to achieve so much more at the rate it is progressing. We wish them all the best in their future endeavors!