- Savita Patel
- San Francisco
Binod Khosla, a Silicon Valley veteran from India, says Indian startups with “strong fundamentals” will continue to receive funding even as investor enthusiasm wanes.
Khosla, who co-founded technology giant Sun Microsystems in 1982, told the BBC about the potential impact of the current financial environment on India’s and global start-up ecosystems and recent problems in the banking sector. rice field.
The US Federal Reserve has been raising interest rates to keep prices stable, which is straining the banking system. Two U.S. banks, including Silicon Valley Bank, which primarily made loans to the technology sector, filed for bankruptcy earlier this month. Many central banks have also announced measures to keep credit flowing through the banking system.
But Khosla, a billionaire investor who has funded several Silicon Valley start-ups, said as the availability of capital dwindles, valuations for the companies offered will drop. It warns that inflation, higher interest rates and lower earnings growth for technology companies will affect the availability of funds after a period of aggressive hiring and expansion, sapping investor sentiment. because it changed.
Previously, the 68-year-old said, “It was easy to get a billion-dollar valuation that didn’t make sense. I think it’s going to slow down.”
Over the past few years, several technology companies have gone public at huge valuations in the United States and other parts of the world. Vast wealth creation and near-zero interest rates have made the supply of venture capital easier.Many prominent funds have poured money into India, [valuations] We raised the price, but it doesn’t make sense economically.”
But as the supply of capital shrinks, this is no longer sustainable and could be positive in the long run.
“Wheat will be separated from the rice husk,” Khosla said, adding that this year “not-so-good Indian start-ups will not get funding and go bankrupt.”
As a result, the number of startups will decrease, but the scale will increase. These firms can use capital more efficiently because they don’t have to compete with smaller firms, Khosla said. I don’t know the reality of the situation,” he added. “.
Given global headwinds, investors could benefit from taking a steady, long-term approach rather than making sporadic or hype-driven impulsive investments, he said. say.
Khosla credits technology with driving much of the US GDP growth and defining the country’s global competitiveness. Now he believes India has the same opportunity.
“As a major developing country with high GDP growth, India has long-term opportunities for start-ups,” said Khosla.
He adds that these companies can also benefit from government support policies.
“Indostack, UPI [Unified Payments Interface] Others are good infrastructure for the startup ecosystem to develop,” said Khosla, referring to India’s own digital infrastructure that supports cashless transactions across sectors.
Khosla Ventures, a venture company founded by Khosla in 2004, is based in Menlo Park, California and focuses on investments in a variety of areas including enterprise, semiconductor, biomedical, big data and robotics. increase.
The company was the first to invest in OpenAI, an artificial intelligence (AI) lab headquartered in San Francisco, whose products include ChatGPT, a chatbot used by millions of people today. I’m here.
Khosla, whose firm manages more than $15 billion (£12 billion) in assets, said new venture funds surged when the stock market was strong.
Investment is cheaper when capital is readily available. And because it is “other people’s money”, speculative investments are rampant, as referred to in the investment community.
“It’s free money with zero interest and suddenly there’s a lot of bets that make sense. That’s the problem,” he says.
However, once this “hype phase” is over, venture funds that do not have access to good entrepreneurs or enjoy a reputation among them will have lower returns and will not be able to consolidate or raise more money.
“It’s already happened. A lot of money that was funded three years ago is not being funded now,” he says.
Regarding the recent failure of America’s Silicon Valley Bank, Mr. Khosla believes the crisis is over, but raises questions about the fragility of the banking sector.
The $212 billion bank collapsed after its customers, including large and small tech companies and high-profile ventures, withdrew $42 billion in a single day over concerns about its financial health. A rival bank bought assets and loans.
Khosla said the banking sector in the United States and elsewhere has been plagued by unrealized losses stemming from depreciating assets. In the current situation, this decline can be attributed to rising interest rates.
Unless regulators successfully address this underlying problem, problems in the banking sector could escalate, impacting businesses around the world, including the innovation ecosystem, he said.
But the current recession is just a natural part of capitalism’s volatility cycle, and the tech sector will ultimately benefit from tightening capital, as “money becomes concentrated in the best opportunities,” he said. says.
“A phoenix will emerge from the ashes. Really innovative ideas will be funded. When that happens, there will be fewer successful companies, much bigger and better,” he says.
And he makes one prediction about the future. “AI will dominate everywhere.”
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