Vinod Khosla, General Partner at Kleiner Perkins Caufield & Byers recently visited India. In an exclusive interview with siliconindia, Khosla discusses the changing Venture capital climate and the future of India as he sees it.

Do you see any paradigm shift in the VC investment cycle since you joined KPCB?
Today, clearly, there are a lot more VCs and lot more opportunities. Recently VCs have taken a more of a financial view of venture capital. Venture capital is not just about investing but building companies. Some of the best-known names in the venture capital business were from an operating background, hence they could help build companies as opposed to just investing in them. Most entrepreneurs are young, and they need help and guidance from VCs who bring operation skills, not just financial investing skills. However, the VC community today has a lot more people from financial business than from operations, and hence this change in investment style. Some VCs who have not been successful are leaving the business.

Do you say VCs of your tribe have decreased?
I think that is true. The new tribe, which takes on a financial perspective of investing is trying to invest in early stage rather than in private equity and expansion capitals. In the early stages of a venture company, the need is to build—which takes time and effort, and a lot of risk. The investing approach makes better sense in later stages, when it is expansion of scale. Most of the VCs of today have confused the two and are attempting an investment style out of risk capital—venture fund! Different types of investments require different types of expertise. Venture capital is not good for buyouts and VCs who attempt buyouts don’t do a very good job. Also VCs haven’t delivered from late stage expansion capital investing. So venture capital is always not the right answer. But when you are talking about building brand new companies, traditional VCs—who realize the importance of building the company—play an important role.

What do you look in for in a business plan?
I quickly get to the crux. Sun business plan was 5 pages long. That was it. Today, Harvard Business Review has done a case study on it. I can say a lot about the entrepreneur when I see his or her business plan—probably in less than 5 minutes and am right most of the times. I use my bias as judgment because I do not have time to meet every entrepreneur. When we reject a business plans, it does not mean that the entrepreneur is not good—just that the business plan doesn’t fit the model that I am looking to work with.

Kleiner is raising a $400m fund. Last year, Sequoia raised just $395m. Is this a signal to other venture firms about the new norm for fund sizes—no more billion-dollar funds?
Good venture firms will do what Sequoia is doing. If you are investing in expansion capital, it is appropriate to build large funds. Venture capital is not right for super-large funds. We were one of the firms that did not raise a billion-dollar fund even during the boom because it is extremely hard to generate a good return for such a large capital. Each firm raises funds based on its mission—though, traditional early stage venture firms won’t be successful if they raise billion-dollar funds.

What are your observations on the VC community in India?
I clearly see enough talent, expertise and culture of entrepreneurship here in India—it needs more traditional venture capitalists who are willing to take risks, who have the expertise to mentor and build the company rather than just investing in it for a quick exit. Presently, Indian VCs have taken a financial approach to venture investment—tending to do later stage expansion capital kind of investment. I would call this private equity—not venture capital because there is not much venture in the capital. Indian VCs should focus on building companies.

You have been talking about India being a hub for Stem Cell research. What should be done to achieve this?
India has mimicked U.S. policies—research policies that are not dictated by science. The Church dictates American science policies. The Church is opposed to cloning, we call it bioethics, but it is nothing more than Christian beliefs disguised by extreme Christians, not even mainstream Christians. Christianity always had beliefs that were backward-looking. It opposes family planning, which is why the Bush administration has cut funds off for anybody whose supports family planning. This is silly.
But the Hindu religion has nothing against cloning. India must pursue its liberal policies instead of copying those of the U.S. and allow experiements in cloning, which would result in a huge business. In fact, then the best companies in the U.S. would move all their research to this country because of our liberal policies. If we did that, there is no doubting that the biotech, pharmaceutical and stem cell research could be worth $50 B in the next 10 years.

What else is interesting you currently?
Microcredit. It has the power to build the next entrepreneur out of the poorest society in India.