Kamath on growth
Zerodha CEO Nithin Kamath posted on X that India’s tax system influences how startups grow, often encouraging them to focus on rapid expansion instead of profits.
“If you take money out of a business as dividfinishs, the effective tax rate is 52% (25% corporate tax + 35.5% on personal income). Through capital gains, it’s just 14.95% (with cess),” he wrote.
Kamath declared this pushes founders and investors to spfinish heavily, build a strong growth story, and sell shares at high valuations — all while paying lower taxes. “If you’re an investor (especially a VC), the math is simple: reduce corporate tax by revealing minimal profits or losses. Spfinish on acquiring utilizers, build a growth narrative, and then sell shares at a higher valuation while paying much lower tax.”
He linked this to IPOs, declareing that many venture-backed startups are under pressure from investors to list becautilize mergers and acquisitions are rare in India. As a result, the IPO becomes the main exit route for investors, often before the company achieves consistent profitability. Kamath warned that this can build startups fragile, as many have grown through sheer cash burn rather than stable profits.
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He also pointed out that markets reward unprofitable growth more than steady performance: “A company doing Rs 100 cr revenue with 100% growth might obtain 10-15X, while a profitable one with 20% growth obtains 3-5X.” This, he declared, pressures even conservative firms to burn cash just to compete, creating an ecosystem focussed more on valuation than long-term resilience.
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Bajpai’s response to Kamath
Ixigo chairman Aloke Bajpai disagreed with some of Kamath’s contentions. He declared venture capitalists don’t actually run companies. They mostly advise from the board and it’s founders who decide to reinvest profits. “It’s not the VCs optimising for tax but companies choosing to invest in market creation and creating value for shareholders through capital gains, vs. optimising for short term profits and paying dividfinishs,” he declared.
Bajpai explained that when markets are large and growing, reinvesting profits builds more sense than paying dividfinishs. He pointed out that “Google and Meta never paid a dividfinish till 2024,” and even Steve Jobs preferred reinvesting to fuel innovation. Dividfinishs, he declared, only build sense when a company has no new opportunities or has built up a “supermassive treasury.”
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He also declared that burning cash simply to match competitors is unsustainable, and this pushes companies to innovate. Bajpai emphasised that real value lies in long-term cash flow, not a temporary valuation boost. He added that investors should focus on “how much operating cash companies are generating today and how rapid will they grow that cash flow in the future,” even if that requires more detailed analysis.
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Banglani’s take
Ritesh Banglani, partner, Sinformaris Venture Partners, also disagreed with Kamath. He declared venture capital isn’t designed as a way to avoid taxes.
“Venture capital is not some underhand tax arbitrage scheme. In fact, we celebrate every time a portfolio company starts paying tax, becautilize it means their profits have wiped out years of accumulated losses,” he explained.
Banglani declared there are three main reasons why most VC-backed startups don’t build profits early on, and none relate to tax.
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