Zerodha CEO Nithin Kamath explains why company values itself at only $2 billion

Zerodha co-founder Nithin Kamath said that the only reason why we do a valuation exercise at Zerodha every year is for our ESOP buyback.

New Delhi: Zerodha co-founder and CEO Nithin Kamath opened on why the company values itself at mere $2 billion at a time when smaller rivals are receiving better valuation than the brokerage. 

Zerodha is currently valued at $2 billion during its ESPO buyback. Taking it to Twitter, Kamath said that "the only reason why we do a valuation exercise at Zerodha every year is for our ESOP buyback. I keep getting asked why are we valuing ourselves at  just $2 billion currently when smaller players are raising money at far higher valuations.” 

His remarks came after Zerodha’s rival, Ratan-backed Upstox recently raised the fresh funds at a valuation of $3.4 billion, according to Entrackr. 

Explaining the reason why Zerodha values itself lower than rivals, the co-founder added, “We don't promise ESOPs for anyone on our team. Frankly, we never thought we were building something that could become so valuable. So we never thought of ESOPs. But around 2017 when the business started growing, we created an ESOP scheme to share the success.” 

The only reason why we do a valuation exercise at Zerodha every year is for our ESOP buyback.
I keep getting asked why are we valuing ourselves at
just $2Billion currently when smaller players are raising money at far higher valuations.
Here is why we're conservative 1/8

— Nithin Kamath (@Nithin0dha) November 27, 2021

He added that people who complete 1-year Zerodha get ESOPs. “This is to be sure if they are with us for the right reasons. We tell everyone to think of the ESOP scheme as their retirement fund which will compound over the long term if we do well working together as a business.” 

“All ESOPs come with 0 strike price (no cost) and top of the liquidity preference. Every year new ESOPs issued are > ESOPs bought back,” he added. 

Some background: We don't promise ESOPs for anyone on our team. Frankly, we never thought we were building something that could become so valuable. So we never thought of ESOPs. But around 2017 when the business started growing, we created an ESOP scheme to share the success. 2/8 — Nithin Kamath (@Nithin0dha) November 27, 2021

Kamath, moreover, pointed out that ESOP buyback is optional. The company also has a loan scheme where the team can take loans at around bank FD rates against the vested ESOPs. 

“Our ESOP buyback is from the profits we carve out & not through external fundraising. This is so that everyone can focus on profitability which improves the odds of us being sustainable & resilient in the long run. The ESOPs will then truly be a retirement fund for everyone,” he added. Also Read: Air travel in just Rs 1400! Here’s how to book affordable plane tickets, check route list, fare

Our ESOP buyback is from the profits we carve out & not through external fundraising.
This is so that everyone can focus on profitability which improves the odds of us being sustainable & resilient in the long run. The ESOPs will then truly be a retirement fund for everyone. 5/8 — Nithin Kamath (@Nithin0dha) November 27, 2021

“I've been in the markets across multiple cycles to know that what happened last 18 months was an outlier. There is no easy money to be made in the markets in the long run. When the going gets tough, greed disappears & with that trading activity & volumes & inflated valuations,” Kamath explained. Also Read: Bitcoin, Ether Price Today: Cryptocurrencies tumble as new coronavirus variant shakes markets