Only KPI that matters is free cash flow: Vijay Shekhar Sharma

Vijay Shekhar Sharma, Founder and CEO of Paytm, said the only metric he is concerned about is free cash flow.

VSS, as he is called by those in the startup industry, told this during a fireside chat with YourStory Founder and CEO Shradha Sharma at the inaugural edition of TechSparks in Delhi.

He said new-age tech firms should stop focusing on other "vanity metrics" and should instead focus on the one that matters—free cash flow—especially given the gloomy funding situation.

“The single most important metric you will be judged on is how much free cash flow (FCF) you generate. It is not profit, revenue, or size,” Sharma said. 

“We want to be on top in terms of FCF among all the companies. In the end, money matters,” he added. 

VSS conceded that in the past even Paytm used ideas, product-market fit, number of users, transactions, and so on for valuation. But not anymore.

One97 Communications, the parent company of Paytm, drew flak from retail investors after making a disappointing debut on the bourses in November 2021, listing at a 9% discount to the issue price of Rs 2,150 as concerns over the company’s lofty valuation and scepticism about its business model weighed on the stock.

However, since then, the fintech firm has been charting a turnaround plan on the back of diversification, tapping profitable lines of businesses like lending, along with financial prudence, resulting in operational profitability. The company's stock has surged over 100% in a year.

“I feel privileged. What we learnt in six months (during IPO), companies learn in years,” he said. 

The CEO of the digital payments major acknowledged the changing times coupled with learnings from the past, and cautioned founders to stop wasting money on “irrelevant KPIs”, and preserve cash.  

Unlike the time back then, “…now funding will be given on the basis of the actual numbers of the projected transactions. That’s what also happened when we were in the midst of the IPO,” he said.

To an extent, the CEO termed funding winter as an “overrated statement”, while showing optimism in the market for financing. 

“...it is not that the funding of money that is restricted. You are respected and acknowledged for what you build and what you eventually get in the bank at the month-end,” he said, while taking pride in the firm for touching Rs 10,000 crore annual revenue and Rs 1,000 crore profit. 

“We could do that because we entered a head-down execution cycle." 

The fintech firm recorded a 32% jump in revenue to Rs 2,519 crore in the July-September quarter (Q2 FY24) while narrowing down its losses to Rs 292 crore compared to Rs 571.5 crore a year ago.

In a recent post-earnings call, the CEO said the firm is looking to becoming free cash flow positive by the year-end.