Vinod Khosla bets on risky startups doing bigger, bolder things

By Shonali Advani

“The burden of innovation lies on small companies,” said Vinod Khosla, Founder Khosla Labs, a startup incubator in Bengaluru.

Khosla was in a fireside chat with Editor of Mint, Sukumar Ranganathan at Ignite 2013 an event organized by Khosla Labs in the city on September 5, 2013.

“Three years ago, there were very few product companies in India. It is rewarding to see more today,” said Khosla who was of the opinion that the country is slated to witness more deals in this space five years from now. Delving more on the topic of innovation, Khosla said he is an optimist amid the doom and gloom of the current economic climate because it is in these times when the best companies or biggest companies stop doing innovative work, entrepreneurs come up.

“People think about their plans more and become better equipped to solve risks of a startup,” he stated adding that every single area has been subject to innovation. “It is great fun to innovate, cause economic disruption and be a pain to bigger companies,” he added.

Ranganathan moved the conversation to Khosla’s personal investment philosophy and asked him if he looked at companies with a larger objective. “I will never invest in a gaming company or anything that is environmentally damaging. If I can make more impact and less money, I would rather do that,” Khosla affirmed. “I don’t tell my investors I am trying to maximize profits. Not to say we don’t care about rate of return. It is important to get investors coming back,” he added.

Narrowing focus down to investment criteria Khosla shared that the people behind ventures is the topmost factor whilst selecting companies to fund. The second aspect is if the entrepreneur is doing something worth failing. “I like risky startups doing bigger, bolder things. I like a higher probability of failure. Unless you take risks you wont do anything innovative,” he said. “I only like to do unreasonable things,” he further shared.

Most people, Khosla pointed, are limited by their thinking and not capability. “Allowing yourself to fail in small ways, because you are trying lots of small things and adjusting quickly is the way to build a good plan,” he said. The key to failure, according to him, is to make each failure small, and each success large. “That’s the math.” The third criteria he looks at is advantage in market place which automatically falls into place if the first two are met.

Shifting focus to his journey as an investor in the clean energy space, which Khosla said, “Has not been easy, but not for the wrong reasons.” However, he said that last year his fund raised $500 million in equity for about a dozen startups in this sector. “No one believed we had an increase in valuation, but we did in each of them.”

The chat ended with Khosla’s prediction for the Indian entrepreneurial eco-system which he feels will grow slowly, but get better over time. “Where you have people in a growing economy, over time that will be a vibrant environment,” he said.

Shonali Advani writes forEntrepreneurIndia