Investors in India prioritise revenue over asset building: Vinod Khosla

Ace Silicon Valley investor Vinod Khosla

Investors in India have been very cautious as they prioritise revenue over asset creation, said ace Silicon Valley investor Vinod Khosla at the inaugural Moneycontrol Startup Conclave, when he was asked why Indian entrepreneurs have not been able to successfully build a large deep-tech startup.

"I think that's a problem with the investors. Indian investors value revenue too much and do not focus on building assets," said Khosla, talking exclusively to Moneycontrol's Chandra R Srikanth.

"Building assets is what deep-tech investing is all about. If you build a fusion reactor, the design itself would be $50 billion. I would think a good reactor design with no revenue. That's what I call really differentiated building. But Indian investors are more focused on revenue and running a spreadsheet," he added.

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Khosla's take on deep-tech investing aligns with that of Accel's Prashanth Prakash, another veteran investor in India. Prakash recently said bluntly that there is currently no real deep-tech ecosystem in India.

Deep tech sectors such as artificial intelligence (AI), machine learning (ML), biotechnology, and molecular discovery have particularly seen an academic push in India in recent years. Top colleges such as the Indian Institute of Technology (IIT) Madras have been promoting such innovations aggressively. In fact, IIT Madras' Research Park has incubated over 200 deep tech startups with a cumulative valuation of over Rs 50,000 crore, Moneycontrol previously reported.

Prakash also pointed out that government budgets for research and development are low for deep-tech investing, while funding from the private equity and venture capital ecosystem has also been low. Khosla corroborated this, and further said that he has never made an investment decision with returns in mind.

"In the last 20 years, when we have been investing at Khosla Ventures, there is not a single example where I have used an IRR (internal rate of return) calculation to decide whether to invest or not. That's how different our approach has been and it works well for deep-tech investing. Funding will also happen once people find role models. But I do think there's huge advantage in India for deep-tech, there's technical talent here, there's less academic research here but it is very easy to build global companies with collaboration with western universities," Khosla added.

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Khosla's take on deep-tech investments, while echoing that of Prakash, is contrarian. This is because it comes at a time when deep-tech innovations in India are on the rise and are attracting investments from venture capital (VC) and private equity (PE) firms.

For instance, investments in companies offering AI-based models jumped by nearly 10 percent in the calendar year 2022 to $5.03 billion in India, according to Tracxn data. To put this in perspective, overall funding to technology companies had fallen to $46.7 billion in 2022, down nearly 40 percent from the previous year.