B Capital's Raj Ganguly on Venture Capital, IPO, Consolidation

This funding winter, is it ending? You know, I, I think the funding winter is going to take at least another year before it ends. But in many ways it's a good thing. We need consolidation in the industry. There were too many startups, there were probably too many venture funds. And there's a flight and a move to quality right now, which I think over the long run is going to be good for the industry. But one of the signs that make you upbeat that we're seeing probably close to the end of this funding winter, I think there's a few signs. One is you're starting to see a little bit of IPO activity. It's still early, but you're starting to see a lot of corporate M&A activity. A lot of corporates that have cash or getting off the sidelines, they're interested in AI and they're starting to be acquisitive with all that cash that they have and that should put liquidity back into the ecosystem and eventually get us past this funding winter in venture. Therein lies the problem. AI, not a day passes by when you don't talk about AI. Some are suggesting perhaps that AI winter is coming and perhaps your end is also what we're looking at. I think it's, it's hard to predict if, if you know when this AI bubble might burst. We're definitely in AAI bubble. But I have to say that we at the capital where we really believe that AI is going to have a profound impact. Our partners at BCG are, are forecasting that five to 10% of IT corporate spend is moving towards AI. That's rapidly moving up interest in the space is is really red hot and you know it, it is still very early days in terms of adoption of the technology, but the valuations have gotten a little ahead of themselves. So too soon to talk about an AI winter, perhaps 2526, you know, is there a gauge? I'd love to say that we know when, when that bubble is going to burst, but the prices are undoubtedly high. But some of these technologies are really transformative that we're starting to see. We're starting with really just the Copilot technologies in terms of helping programmers code better and faster. I think it really changes that whole dynamics of everyone looking for those 10X coders. Now hopefully you could take a 1X or A2X coder, a really good coder and make them a 10X coder through AI technology and, and that's, that's a huge impact. Raj higher for longer. Nobody expected rates to be this high for this long. How is it impacting the funding environment? I think you know, there was a little bit of good news in the last 24 hours on the inflation side. That's what they said at the beginning of the year. I fully agree. And and you know, fundamentally I think in in venture, we don't worry that much about where the rates are. We are focused on fundamental innovation. Technology is rapidly innovating. You look at the return of the biotech industry, which in the last quarter has really been resurging. That's an industry which for three years was really quiet, but there was fundamental innovation happening and you can invest at better prices. And we all know that some of the best venture capital investments during happen during these kind of funding winter times. In the end, it is about valuations and we're talking about how the era of elevated valuation is over. What are you making valuations right now? Are they looking attractive? I think valuations are a lot more attractive than they were two or three years ago. On the venture early stage venture side, I think there's just continued to be a lot of activity. It tends to be a side that's fairly far from the capital market, so it's less impacted. Where you've really seen the impact has been in the growth market where valuations have come down anywhere from 20 to 50% and some really great assets and companies that are profitable that have been able to keep growing their revenue. So we continue to be an active investor in at B Capital across both the venture and the growth stage globally. And of course you raised $730 million recently for late stage startups. Why? I mean you're looking at companies already in your portfolio. Are you suggesting there's, you know, no other attractive status out there that you rather just focus on what you have already? I think it's a little bit of a mix. We will continue to back some of the best companies in our portfolio. We think that those are companies that even through the last two or three years where the markets have been slow that they've just really continued to perform. But we'll make some select investments in new companies which we know really well, which are later stage companies that have frankly have struggled to attract capital in this current environment. What's looking attractive and where can you find them? People talk about India, but India's had a a torrid time. You know, I long term still bullish on on India. I think sector wise, as I mentioned, biotechs come back. Think cybersecurity in an uncertain world continues to be an area that that we look at fundamentally. I think in AI, there's the AI infrastructure layer, which is very still early in its development, but we're starting to see the AI application layer. And that's really exciting. And it's not just going to be the US. We think countries like India will be a big player in the AI application layer, both in terms of horizontal applications, but also areas like fintech and supply chain. They're going to be really impacted by AI over the next few years. Let's pick up on India. We're seeing some 4th come off the market. What is that suggesting to you? I think, you know, I, I think a lot of people got very excited about some of the fundamental changes that are happening in the Indian market. One of the most important ones is that there's just more ability for companies in India to IPO in India. But we have to see how that goes. I think over the second-half of this year, you'll see a few companies that do IPO in India. In the past, you had to go to the US, you had to go to either the NASDAQ or the New York Stock Exchange. If India can develop its own liquidity market, I think that will have a big impact on the venture market in India. We're here in the Middle East. I'm just wondering what your thoughts are about the space here. I think the Middle East is for us as a global venture capital investor has always really been an interesting market. But over the last few years, you're really seeing signs that the market is is reaching that tipping point. You're starting to see more companies coming out in the AI space and the healthcare space, and especially in climate technology. We think that the MENA region will be a, a leader in climate and energy transition technology, and that's an area that we're really interested in at B Capital. You talked about how you're not too concerned about this higher rate environment. So what are the risks out there for you? I think the the biggest risk for us is to make sure that the best companies in our portfolio don't run out of funding. I think we all learned from 2008, 2010, 2000, 2004 that even really great companies, if they don't manage their cash very closely, that sometimes growth and growth, you know, coming a little too fast can really be a train on cash. That's our biggest focus, working with our companies, making sure that they are managing their cash flows, that they're growing at a reasonable rate, they're growing profitably.