Rob Katz

What Khosla’s New Fund Says About the BoP Evolution

Last Tuesday, the New York Times’ Business Section led with a story about billionaire venture capitalist Vinod Khosla’s latest investment fund. Before I read the full headline, I thought to myself, “Was Khosla, co-founder of Sun Microsystems and an early investor in Google, looking into early stage technology bets? Maybe more clean tech, which his eponymous VC fund has been seeking out for the past two to three years?”

While both are reasonable assumptions, both turned out to be incorrect. With $117 million in seed capital, Khosla’s new fund will target “…ventures that aim to fight poverty while also trying to turn a profit.”

Now this is news. Khosla is arguably one of the most successful, savvy early stage investors in the world, and he’s taking a pretty large chunk of change and plowing it into companies serving the base of the pyramid. But where the money’s coming from – and where it’s going – is, in my opinion, indicative of the evolution of the BoP sector over the past few years.

The new fund will be seeded with profits made from Khosla’s investment in SKS Microfinance, which went public to great fanfare (and profits) earlier this year. Khosla bet – correctly, as it turns out – that SKS could both make money for its investors and serve the poor. He was an early investor in for-profit microfinance, a sector that’s booming these days.

Rather than take his money and exit, the new fund will, in essence, recycle Khosla’s initial social investment capital into a new, high-risk sector: firms serving the base of the pyramid.

So let’s review. Five or six years back, Vinod Khosla looked at microfinance and thought it worthy of his hard-earned money – and look how it worked out for him. Today, he’s launching a new fund in the BoP space. At the risk of overstatement, this signals to me that the BoP sector (or call it impact investing, or patient capital) is on the brink of serious growth – and of commercialization.

You won’t get Vinod Khosla’s money easily. If history is any indicator, his fund is among the first to enter the commercially viable sub-segment of BoP enterprises. Regardless of the ultimate outcome, it’s bound to be an interesting journey.

Base of the Pyramid, impact investing