Kanwal Rekhi is a technology entrepreneur and investor who believes that large valuations give false sense of success for start-up entrepreneurs. In a post on LinkedIn, Rekhi wrote: "In any case, large valuations give a false sense of success and too much cash to the entrepreneurs." It inculcates a bad habit of spending money to scale a losing business and gives a sense of safety. Rekhi is a prominent name in Silicon Valley and Indian start-up circles. Indian-American businessman is currently head of venture capital firm Inventus Capital Partners as Managing Director and Co-founder. He is also known for taking smart ethernet card maker Excelan public on NASDAQ in 1987. It later merged with a Massachusetts-based software company, Novell.
In the LinkedIn post, he stated that the goal of investors and entrepreneurs is to get profitable unit economics if not profitable businesses. He said that the goal should be to get to a profitable unit economics, if not actual profitable business, before investing to scale. Rekhi said unicorns are mythical and unicorn companies valued privately are even more mythical. Unicorn is a company that is worth $1 billion or more.
He said that there is an incentive for the founder to value his startup in order to minimize dilution. There is a perverse incentive for the big VCs too. It gives them a bragging right to tell their LPs Limited Partners how great they are by the number of unicorns in their portfolio. The Indian start-up ecosystem is struggling with several challenges, such as funding winter, wherein funding for late-stage start-ups has nosedived at an all-time high. IPOs such as Paytm, Zomato, PolicyBazaar, Delhivery, and others have been trading way below issue prices.
These challenges have ignited conversations around profitability and sustainable growth, and why a growth-at-cost may not be a great approach for start-up entrepreneurs.
The lesson was finally learnt by entrepreneurs and the VC community at large, according to the Silicon Valley-based investor.