Netflix's "The Queen's Gambit" may have popularized chess for modern audiences, but Nikhil Kamath liked the game way before it was cool.
So much so, that he dropped out of high school at 14 to play full time.
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"Chess teaches you how to work under a structure, in a system, but yet try and be creative within that system," Kamath told CNBC Make It.
That was the starting move in a sequence of events that would eventually earn him billionaire status as part of India's answer to trading platform Robinhood.
The opening move
Thirty-four-year-old Kamath is the co-founder and chief investment officer of Zerodha, India's largest trading brokerage.
Today, more than 15% of India's retail trades are done through its platform, as ordinary investors flocked to stocks during the pandemic.
No one was going to hire me without a college degree, which meant I had to do something which didn't require one.Nikhil Kamathco-founder and chief investment officer, Zerodha
But when the school dropout began trading at 17 years old, that wasn't the strategy: Having played chess internationally but fallen short of a professional career, he simply needed a backup plan. Inspired by his elder brother, Nithin, he took to stock trading, and taught himself on the go.
"No one was going to hire me without a college degree, which meant I had to do something which didn't require one," said Kamath.
It went well — and soon, the pair was investing for family and friends. But along the way, they found that the system was too complex.
"The problem back in the day, I'm talking about 11 or 12 years ago, is cost was very high. Brokerage fees were incredibly high in India," Kamath said. "And for a full-time trader, there were many barricades or barriers one had to cross before he could actually be profitable in any consistent kind of manner."
So the Bangalore-born brothers set to work, using their savings to build a simple and affordable brokerage platform for everyday investors.
Playing the markets
In 2010, Zerodha — a combination of "zero" and "rodha," the Sanskrit word for barriers — was born.
Today, unlike most start-ups, the company hasn't taken on any external investment.
"We've been different in a way from other companies as in, we've never taken on investors or debt or never really raised any capital. Our ethos from the very beginning was build a better product and word of mouth will bring the clientele to you," he said.
The pandemic has been good to us, which is a strange thing to say.Nikhil Kamathco-founder and chief investment officer, Zerodha
In the decade since, Zerodha has grown through word of mouth as the appetite for investments beyond gold and property has grown in India. But in 2020, all that changed during the pandemic. At the height of lockdowns, the company doubled its registered users to more than 4 million.
"The pandemic has been good to us, which is a strange thing to say. People had a lot more time, people were at home and, unfortunately, in many cases, they were in a position where an alternate income could have been very useful," he said.
Shailesh Lakhani, managing director at venture capital firm Sequoia India, said that demonstrates how the pandemic has accelerated the already growing demand for investing in the country.
"It's driven by a few different factors. One, that it's just become a lot easier with the financial services infrastructure to open a brokerage account," Lakhani told CNBC Make It.
"Second, mutual funds in the past several years have tended to underperform the equity indices or their benchmarks. And as we've had rising markets aside from the coronavirus — that fear in March, April, May — the markets have been pretty easy to make money in for a lot of folks."
Beating the competition
In 2020, the average age of an investor using the Zerodha platform fell from 32 to 30 years old. That has drawn parallels with U.S. trading platform Robinhood, which experienced a similar surge in millennials during the pandemic.
"We started, actually, maybe five years before they did," Kamath pointed out.
However, that growing market could pave the way for a future expansion into the U.S., he added.
We would look at approaching their market at some point.Nikhil Kamathco-founder and chief investment officer, Zerodha
"We would look at approaching their market at some point and seeing if there are ways in which our products can integrate with what is available in America," he said.
Even as the financial technology space gets increasingly competitive, Kamath says Zerodha has no plans to raise more capital, unlike its competitor Robinhood. That hasn't prevented talk of the entrepreneur's growing fortune, though.
In October 2020, the Kamath brothers joined Forbes India Rich List with a combined wealth of $1.55 billion, as 34-year-old Nikhil was named India's youngest new billionaire.
"For a while now, I don't think financial motives have been the focus. I don't think it's the most important thing and that's set to continue," said Kamath. "But I think more access to capital gives you the room and the courage to go out there and try new stuff."
Targeting the wealthy
In 2019, that's exactly what he did.
After struggling to find a cost-effective way to manage their growing wealth, Nikhil and Nithin once again set out to disrupt the investment industry — this time for high-net-worth individuals or people with around $1 million in financial assets.
Months later, they launched asset management firm True Beacon in a bid to address inefficiencies in the traditional asset management model.
"The fund manager or the fund house and the client are never aligned in a way," he said.
We're really putting our necks out there and saying we will create something that is different.Nikhil Kamathco-founder and chief investment officer, Zerodha
Unlike traditional funds, which charge clients a proportion of assets under management as well as set up costs and annual fees, True Beacon only charges clients a fee on performance. Kamath said that a 10% cut drives the firm to achieve better returns.
"If the client doesn't do well for any reason over a five-year period, we have no revenue as a company. So we're really putting our necks out there and saying we will create something that is different, that is totally client-aligned and very, very transparent. I guess time will tell as to how that goes," he said.
True Beacon's India-focused flagship fund aims to outperform the Nifty — the country's benchmark stock index — by 6%-8%. In its first year, the fund beat that benchmark by over 26%.
Meanwhile, client volumes grew as much as 20% month-on-month as wealthy international investors sought refuge in Indian stocks amid rising U.S.-China tensions.
In the coming years, Kamath hopes the company could hit a billion-dollar valuation, referred to as a unicorn in the venture capital industry.
"It will probably be a few years before word gets around and people actually compare like to like," he said. "But when it does and it scales, I think it will be a company that will definitely bring in some revenue. We hope it will."
A long-term game
Like Zerodha, that could position True Beacon as one of the many billion-dollar unicorns in India's rapidly growing start-up ecosystem.
India is currently home to 21 unicorns with a combined valuation of $73.2 billion. By 2025, the number of unicorns is estimated to hit 100. Sequoia India's Lakhani said it's down to several factors unique to India.
India's probably the largest market that will grow the fastest over the course of the rest of our lifetimes.Shailesh Lakhanimanaging director, Sequoia India
"We see a start-up ecosystem really fundamentally underpinned by a couple of aspects," he said. "One being the number of engineers, the amount of people writing software. In India, depends on how you count, but it's among the highest number of engineers that are writing software anywhere in the world."
"Second being an interesting consumer market. India's probably the largest market that will grow the fastest over the course of the rest of our lifetimes," he added.
But even as the country's start-up scene grows more competitive, Kamath says he's happy to share the opportunity.
"I think right now I'm kind of like totally occupied. I don't see myself having the bandwidth to do something new in the very near future — so over the next six months or 12 months, I think Zerodha and True Beacon are going to be the focus," said Kamath.
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