Unicorns #4: Zerodha

I was surprised to learn that India’s largest brokerage firm is not ICICI Direct, but a startup named Zerodha. It’s the largest in number of clients and trading turnover on the stock exchanges. Its founder, Nithin Kamath, started trading in the stock markets in the late 90’s, a time when everything was still offline, writes Ashish B in his book on the company.

 

Despite the inconvenience of the offline world, Kamath was hooked. He worked at a call center in the night; and traded during the day. One time, he bumped into a US returned guy at the gym, who asked Kamath to invest ₹25 lakhs on his behalf! Kamath quit the call center and started Kamath Associates. Soon, he had more clients, and found “logging into ten different accounts was difficult” and painful. His solution? Become a sub-broker of an existing broker (Reliance Money) of the stock exchange – it would allow him to handle multiple accounts simultaneously. He did just that in 2006.

 

The brokerage fees soon began to bite. Kamath yearned for a different system, one with lower costs. His chance came in 2010:

“NSE - National Stock Exchange – was giving free technology to brokers for creating their online platform.”

Kamath jumped at the opportunity. The NSE was keen to draw more people into the stock market, and agreed to waive off the membership fees. But he still had to make a ₹1.5 crore refundable deposit. From all his years of trading, Kamath had the money. And thus Zerodha was launched in 2010. If you’re wondering what the weird name of the company means, it’s a combo of Zero + rodha (Sanskrit) - zero obstacles (rodhas) to trading.

 

How was a new brokerage to attract more customers? Zerodha did what many new players do – make the service cheaper than competitors. They offered a flat fees of ₹20 per trade. Then he added greater transparency – the transaction fees would be made visible before the trade was executed, unlike others who didn’t show that upfront. A year later, Economic Times talked about the rise of “discount broking” in India, and named Zerodha as the first of that kind. This was excellent publicity; and account openings began to shoot up.

 

The focus on being different led to preferential hiring of those who had not worked for other brokers before:

“This ensures that the business is not run like a traditional brokerage firm.”

But low-cost and transparent fees are easy features to copy. So Kamath decided to build better technological capabilities – he sought that from Wall Street firms. But they didn’t want to share their tech, though they did want to invest in Zerodha. Kamath declined and decided to build the tech in-house.

 

As Indians grew richer, Kamath realized there’d be more and more people who’d want to try their luck and/or invest their surplus in the share market. But most of them would be new, and unfamiliar with markets. Hence, Zerodha launched its educational site for newbies named Varsity. They also launched their mobile app with a minimalist GUI to make it intuitive for new folks to use. Here’s how Kamath describes that GUI called Kite:

“We wanted to be more Google-like than Yahoo-like.”

In 2017, Zerodha launched a direct mutual funds platform named Coin. To make it popular, Coin was made free. The number of users went through the roof.

 

And then Zerodha formed its incubator (for other startups!) named Rainmatter – it would guide, invest and tie up with startups that sought to lead more people into the stock market.

 

Today, Zerodha is valued at over $2 billion – it’s a unicorn:

“All this without ever spending a single rupee on advertising or having a marketing team, with zero debt and zero external investors.”