Will plan IPO only after new business units return more profits: Razorpay’s Shashank Kumar

Razorpay, the fintech major valued at $7.5 billion, completes 10 years of its startup journey this month. In an exclusive interview, co-founder and managing director Shashank Kumar talks about the company’s reverse flip plans, IPO and the way forward, while reminiscing the early days. Excerpts:

Q1. Razorpay completes 10 years of its successful journey in December. Quite a trip, wasn’t it?

Feeling grateful. Obviously, there has been a lot of hard work and good decision making. There’s been a huge portion of luck playing its role as well. Entrepreneurship is about risk taking, conviction and courage and Harshil Mathur (co-founder) and I have relied a lot on our gut instincts. Both of us had left well-paying jobs and risked everything while starting up.

Also Read: Razorpay’s payment gateway business clocks ₹2,068 crore in revenue for FY24

We have seen that when people become wealthy, they tend to turn conservative. I’ve seen that with a lot of the successful executives including some of our own people. We have to realise that past success doesn’t guarantee a successful future, especially in an industry like fintech which is super dynamic in nature.

Q2. That’s true, especially considering the regulatory landscape in the fintech sector. Have you added more layers in the system to make sure the guidelines are strictly followed?

Regulations and compliance are a core part of the fintech sector and that’s not going anywhere. We have inculcated that as a cultural pillar of the company whether it’s from a governance perspective, risk management lens or while managing cyber security. We have looked at each of those pillars to see how we can strengthen that. We have instituted an advisory board constituting retired RBI persons, former bureaucrats etc. This has created a lot more internal accountability and keeps the company guided in the right direction.

Compliance and regulations don’t mean you slow down; it just means that you have to ensure that your philosophy is aligned with the philosophy of the regulator and associated machinery. Up until the pandemic, the major understanding was that we were largely building on top of the banks. It was like we had to focus on the last mile delivery creating good customer experiences, and banks would take care of the compliances and regulations. All that has changed with the scale that we have achieved. We have to ensure now that compliance and risks are well managed, but our work doesn’t stop there as we continue to build products and innovate.

Q3. Let’s talk about the reverse flip plan. Razorpay’s US-registered parent entity is working to shift its headquarters to India. At what stage is the plan?

The capital markets in India have acquired sufficient appetite to support tech IPOs, right? That was a concern 10 years back. We now know that India is the market for us to list. At present, we are going through the process and paperwork. Not sure how long it’ll take exactly because that’s not fully in our control. Let’s say we are at 30-60 per cent of that process.

Also Read: Razorpay bets on offline, overseas business ahead of IPO

Q4. It's a long-winded legal and bureaucratic process, isn’t it? And you can’t disrupt that!

If I could, I would do that, but that’s not what we are signing up for, right? (laughs). We are also a regulated entity, so that just adds a little bit more complexity but hopefully sometime next year we should be able to do it though we haven't put any time limit to it.

Q5. Continuing on that line, let me ask about the IPO. How far away is it? (The company’s total revenue was at ₹2,500 crore in FY24, registering a net profit of ₹34 crore)

I would say the goal for the company is to get our newer business units to become more profitable (neobanking etc) and they also need to achieve sufficient scale. Once that happens, we'll look at the public markets. Thankfully we are not under pressure to go for an IPO right away (the company’s investors include TCV, GIC, Tiger Global, Peak XV among others).

So, I would say it's still some distance away. But when we achieve those milestones, I would say 2-3 years out into the future, we’ll probably go for it.

Q6. The company launched Razorpay Ventures this year with the plan to invest up to $1 million per startup. From a funding point of view, compared to 2021, this year hasn’t been that happening ...

Generally, I think the funding environment has been pretty muted. There's obviously the macroeconomic factor. Interest rates in the US are high, so capital deployment is going to be more expensive.

While a lot of the low-hanging fruits are gone, there are still a vast number of opportunities for entrepreneurs. They have to become very ambitious about tackling new-age technologies, including AI, and figure out how they can be applied in an Indian context. I don’t think you can do another payment idea or a general e-commerce idea, although you can say that quick commerce is something that came out well in the last few years. But you cannot do a copycat idea anymore and expect new results.

Also Read: For Razorpay, Cashfree and others, RBI presents a new headache

You have to keep coming up with new, bold, disruptive ideas. For the right idea, there is still plenty of capital available, even at the seed stage. But as you scale up to Series A and Series B, there are going to be some real questions asked about the exact market opportunity and the depth of disruption that one is going after. That kind of evaluation used to happen at later rounds but now it gets asked at Series B itself.

Q7. So how do you see this playing out?

I hope bold ideas and bold entrepreneurs keep coming out of India. Looking forward to 2025, I feel the worst is past us. Obviously, it's not going to go back to 2019 or 2021 which were super years from a funding perspective but it’s not going to be muted either.