Zerodha's Nithin Kamath Explains The 'Perennial Structure' Of Additional Rs 1,000 Crore Infusion In Rainmatter

India's biggest stockbroker, Zerodha has been an advocate of patience and long-term opportunities when it comes to capital markets. A few years back, the broker realised the key problem that needed to be resolved was "to help expand capital markets at the same time as increasing access". Hence, the broker has been steadily allocating funds in Rainmatter Fintech for supporting startups helping people do better when investing and trading the markets. This time, Zerodha plans to increase its funding to startups to Rs 1,000 crore via Rainmatter. Co-founder Nithin Kamath says this investment will be done "in a perennial structure or with the ability to stay invested forever."

Kamath on Thursday tweeted saying, "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."

In a post, Kamath explained about the birth of Rainmatter Fintech. He said, "Around 2016 when Zerodha was slowly growing, we realised that a key problem to solve in the industry, which in turn had a much wider impact, was to help expand capital markets at the same time as increasing access. We knew that this couldn't be done by us alone and that it was necessary to collaborate with many, that an entire ecosystem with similar goals had to exist."

Hence, Rainmatter Fintech was born to support startups helping people do better when investing and trading the markets.

With Zerodha growing profitable, they have also upped their investment in Rainmatter from it. As per Kamath, Zerodha has partnered with over 80 startups currently and has invested up to Rs 400 crore over the last 7 years.

He added, "While we started by backing tech entrepreneurs who were helping people do better with their money, it has now extended to those helping people make healthier choices, getting educated, and those who are working on the much harder problems of climate change and creating livelihoods."

Going further, Kamath said, "We are now increasing our commitment by increasing the allocation by an additional Rs 1000 crores in a perennial structure or with the ability to stay invested forever."

Kamath further goes on to explain the perennial structure of the allocation. As per him, 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.

Explaining perennial structure, Kamath said that he believes the most successful businesses were those lucky enough to be in the right place at the right time, with products and initiatives suited to the market demands of that era.

He gave an example of Zerodha itself which had a long run to achieve its success. Kamath highlighted that for instance, while we as Zerodha get a lot of credit for having helped expand the markets in India, we were also very lucky to be in the right place at the right time, just as the underlying markets were expanding to maybe the greatest bull market of India of all times. From 2010, it took us almost 7 years to catch our first big break.

"17 years if I were to count my 10 years of market experience before Zerodha, which was an essential precursor to the Zerodha journey. So, we believe that the longer a business can survive and grow slowly and steadily, the higher its chances of getting lucky. Of course, there are numerous other variables and this may not work in all contexts, especially in highly mature industries," Kamath added.

However, fundamentally, Kamath believes that Zerodha succeeded because it had the freedom to build what it thought was right, without pressure to grow quickly, especially at a time when the markets were growing slowly. He added, "This freedom also meant that we could constantly do what is right for the customer and what is right for the business in the long term. When the markets unexpectedly boomed, we were there, ready to get lucky."

Accordingly, Kamath believes that founders can similarly benefit from investors who bring in long-term patient capital-investors who are willing to stick around and help in any way possible, where the goal is to build a good, sustainable, long-term business, and not just to generate rapid returns.

"We can remain invested forever, as the investments we make are from our own capital," he said.

Most importantly, Zerodha sees Rainmatter as its giving forward the initiative.

"The goal of our investments is not just to generate financial returns for us, the profits from the investments go back to supporting more entrepreneurs and the Rainmatter foundation. The odds of a good enterprise succeeding go up significantly when sensible founders who are passionate about it hold the reins," Kamath added.