Sramana Mitra: If we keep on this model where everything is going to be free, then the whole economic structure of capitalism is going to get destroyed. Then, when people who are supposed to provide these services disappear or go out of business, we’re going to be left with an economy full of holes.
Vineet Jain: With the current valuation and liquidity, do you think the Valley will continue on the same path or do you think we will have some deflation?
Sramana Mitra: I think it will continue for a while. I would love to see it become saner. Part of it is there’s so much money sloshing around. Right now, you also see an international base of entrepreneurs who are validating their businesses elsewhere who are moving to Silicon Valley to raise their Series B, C, or D. We have a portfolio company that has raised Series D in Silicon Valley. It’s a $31 million round. It has become a global company but $31 million is a lot of money.
As you know, when you raise that amount of money, the threshold that you need to generate in terms of return on investment is very high. This is not going to happen in hype zone because the public market is not as sloppy. The public market has already started adjusting itself.
Vineet Jain: If you look at the industries right now, they’re riding pretty high waves.
Sramana Mitra: Dow is approaching 17,000 but Nasdaq did fall this year. I think the public market has more of a chance of adjusting whereas the private capital has a lot of money sitting around. That’s what’s driving the Silicon Valley valuation. I think that valuation and inflation is a very dangerous game.
Vineet Jain: One of my favorite investors who is a friend now, Mike Maples from Flood Gate, came in at seed, Series A, and Series B. Mike keeps on telling me we’re probably the biggest investment he’s made so far in terms of total dollars. He was joking with me. We were at a conference and he said, “Vineet, in the last two years, every VC farm has been made to look like Genesis.” He said, “The challenge is going to start from the second half of the year to see which ones are truly the great money managers.” Of course, there’s Sequoia out there on their own planet. No one comes close to them. He’s talking about the rest of them.
Sramana Mitra: Let’s see what happens. The one trend that I think is a good situation is because the rest of the world financing ecosystem is not developed as well, there are a lot of really good companies from all over the world that are coming here to set up world headquarters. As long as there are very good companies headquartered in Silicon Valley and building value, Silicon Valley continues to thrive.
Vineet Jain: I was at KPMG in my first four and a half years. I traveled the world. I would tell you there’s nothing like Silicon Valley. How long have you been here by the way?
Sramana Mitra: I’ve been here since 1996 but I’ve been in America in 1989. I did all my schooling in the East Coast.
Vineet Jain: You’ve been here longer than me. I have experienced the Valley for 21 years. Trends come and go. There’s always some new fad but the Valley is the Valley.
Sramana Mitra: If you want to scale a company, and you need management talent, and investors who have seen this stuff before, that’s all here.
Vineet Jain: I totally agree.
Sramana Mitra: Let’s keep in touch. It was a pleasure talking to you.