At the time when the Indian startup ecosystem is reeling under the effects of the ongoing funding winter, Indian-origin Silicon Valley veteran Vinod Khosla believes that funding wouldn’t be an issue for the country’s startups with “strong fundamentals”. 

However, he told the BBC that lofty valuations of startups will moderate. Khosla said that it was easy for startups to get a “billion-dollar valuation which made no sense”, but that is not the case now. 

The statement comes at a time when the US-based asset manager BlackRock nearly halved edtech major BYJU’s valuation to $11.5 Bn. Besides, the US-based investor Invesco also cut foodtech major Swiggy’s valuation by over 25%.

Khosla also warned that “not-so-good Indian startups will not get funded and go bust” this year. “The wheat will get separated from the chaff,” he said. 

Hence, the ecosystem will have fewer but larger startups. These companies could use their capital more efficiently as they won’t have to compete with smaller firms, he added.

Khosla has for long called for efficient use of capital by startups. Earlier, he said that raising funding early reduces the chances of success of startups as lack of funds forces them to think about “problems much harder”.

Khosla, a tech legend, has been active on the VC circuit in Silicon Valley since 1986. He cofounded Sun Microsystems in 1982, besides pioneering RISC processors and being instrumental in Nexgen’s success and subsequent acquisition by AMD. 

According to the veteran, while technology has driven a large part of GDP growth in the US and defined the country’s global competitiveness, India currently has the same opportunity.

“There is long-term opportunity in India as a major developing country, with lots of GDP growth to be captured by startups,” he said. 

Adding that the startups can also benefit from supportive government policies, he noted that the startup ecosystem can develop using the government’s India Stack infrastructure.

Khosla is also the founder of Khosla Ventures, a Silicon Valley-based venture capital firm. The VC firm has backed many Indian startups such as HealthifyMe, healthcare startup Even, fintech startup Swadesh, and gig workers’ platform Vahan. 

After the collapse of the Silicon Valley Bank, Khosla offered personal capital to startups which had their funds locked up at the troubled bank. 

While the Silicon Valley Bank crisis has been handled, Khosla told the BBC that it raises questions about the fragility of the banking sector. According to him, the banking sector in the US and other countries is plagued by unrealised losses.

Khosla’s comments come at a time when the funding winter has forced Indian startups to fire employees to cut their losses and improve their runway. As per Inc42’s layoff tracker, Indian startups have laid off over 23,000 employees since 2022.

The funding raised by Indian startups plunged 75% to $3 Bn in Q1 2023 from $12 Bn in Q1 2022. The overall deal count also declined 58% to 213 during the quarter from 506 in the year-ago quarter.