Majority of VC community in India very risk averse, says Vinod Khosla

Vinod Khosla says Indian VCs are overly focused on short-term revenue and liquidity, avoiding bold bets needed for innovation, while AI is set to disrupt IT services and BPO firms

Most venture capital (VC) investors in India have become excessively risk-averse, focusing narrowly on near-term revenue and quick liquidity instead of backing bold innovation, Indian-American entrepreneur and venture capitalist Vinod Khosla said on Friday. 

 

Speaking during a fireside conversation, he said, “The Indian VC community, by and large, is very risk averse. They turn every conversation into what's your revenue plan? How can you be liquid in two to three years or profitable? Well, you have to invest in the future. If you don't take large risks, you won't be doing large innovations.”

 

Khosla added if a VC firm calculates an internal rate of return (IRR) before investing, they are on the wrong track. “In the last 200 investments, I have never calculated IRR. It's fundamentally misleading in an area where you're starting something innovative in a new market that may not exist. Did Zomato or Flipkart exist when those companies started? Did Twitter have a market when they started? If any VC is doing IRR, they are on the wrong track. You start in the wrong place that restricts you to low-risk investments. So, those are a couple of things that are wrong in India, in the VC community.” 

 

Expanding on his remarks, where he warned that traditional IT services and BPO models will face significant disruption due to advancements in AI, Khosla added that such companies should adopt the new technologies, instead of competing with them. 

 

“In the next five years, there's hardly anything that these classes of companies - which is a large industry in India - do, that won't be capable of being done by AI. Whether it takes till 2027 or 2035, it’s hard to predict. There will be a transition period, but there's no question that all those companies are totally cooked unless they do something better and new and look forward, not backwards,” he added. 

 

Khosla mentioned that in the AI sphere, the next big areas of research can be around data and compute efficiency. He said that if such research is successful, then the concerns and “assumptions about data centres and power consumption will go out of the window.”

 

According to Khosla, countries must focus on AI to provide essential services like health care and education to their populations, “Fundamentally, the way we will make progress is to build intelligence, and there's only one intelligence that we can build. Now, it used to be called AGI (artificial general intelligence), now it's called ASI (artificial super intelligence). We have to far exceed the capacity of the human brain to be creative.”