Uday Kotak to startups: Stop feeling like Cinderella and brace up for a harsher interest-rate world

Business magnate Uday Kotak has urged startups to brace for increased interest rates and changing returns expectations as the world of easy money comes to an end with central banks gearing up to tighten policies, YourStory reported.

Interest rates being "close to zero" over the past couple of years around the world, investors turned to equity for better returns resulting in a Cinderella moment for startups, the executive chairman and managing director of Kotak Mahindra Bank explained.

He further noted: "Cinderella times will not last forever. We are not very far away from the clock striking midnight. At some point, if rates really rise significantly, then debt becomes a more serious option for institutional investors as well."

Kotak also said he was "exhilarated by the startup world's growth and opportunity in transforming India and the world", advising the young companies to "be aggressive and experimental" but in a sustainable way and within the confines of law.

He also strongly recommended that startups conduct "thorough health check-up" of their firms before "coming to the markets and raising capital".

Underscoring the need for a "top to bottom check of how ready startups are for public markets" by an independent governance expert, an investment banker or a lawyer, Kotak said that "immature launches and risk of accidents" need to be mitigated.

Moreover, he stressed the need to follow regulations, adding that many companies "have not adhered to the substance of governance", which has caused an "excess of rules and regulations" such that publicly listed companies face a "huge overbearing load of compliance" which leads to the risk of losing marketplace opportunity.

"We need to find a proper balance between ticking the boxes of regulations versus the substance of the regulation. We have to be clear that the approach should not be robotic, one size fits all. Especially as an enterprise grows, regulations should have the flexibility of adjusting to the realities of the case rather than stick to rules," he noted.

Kotak also advised fintech startups to be cautious about "being fast and loose with regulations compared to traditional players".

Citing his own Kotak Mahindra Bank, he said the lender needs to have many startups cropping up within itself. "We cannot hide ourselves under the cover of being a large firm. The firm has to transform by creating many internal startup firms within the firm, to be able to reach out to customers, and therefore being competitive. Enterprises should not sit under the cover of being a regulated entity and, therefore, not being responsive to customers and the marketplace," Kotak added.

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