SM: What about clean tech or green? How important is that for you?
RK: Green is a different sort of investment. It is capital intensive and it is not an order of magnitude investing like other areas. In other investment areas, you are looking for order of magnitude decrease in cost, order of magnitude increase in distribution, etc. Here we are talking about incremental value multiplied by billions across markets.
SM: Talk to me about education. John was interested in this area for some time and had set up the New Schools Fund, and it now seems as though he has lost interest or withdrawn from that.
RK: I don’t think he has. We have investments that are built on education platforms. We have been looking at education as an investment. Other than distance learning, we have not seen businesses that scale. Those that we have invested in do present some challenges that have led us to be cautious about them. We do continue to look at them largely because of the globalization issue. The ability to transfer knowledge outside the US in efficient and effective ways that people can get to is enticing.
I think the New Schools Fund was started because after breaking their pick on for-profit ventures in education, they decided that it was not actually the right place to focus attention.
SM: During the time they were active it was a bit different. This is one area where the game has changed with the Internet. You should look at companies like HotChalk. It is an interesting play that brings together students, teachers, and parents in a community.
RK: I think that is an interesting area. We pay attention to things like that.
SM: My synthesis is that because social media has opened up the opportunity to sell education media without banging on every school’s door, it gives new life to that sector.
RK: There are interesting companies there. I think advertising models are difficult in that area. We have already seen people who have tried advertising to the schools. The conflict and friction between commerce and education, particularly in a public education setting, is substantial. Overall, the sector is certainly a promising area.
SM: Healthcare and healthcare IT are promising areas as well. There have been some very successful public companies, such as athenahealth.
RK: That is definitely an area we are investing in. We just invested in a company in Minnesota that creates incentive plans for fitness and health. It goes into corporations and works with their HR and benefits people to try to install plans to provide incentives to quit smoking and lose weight.
SM: I noticed that your book had a lot of case studies about India. What is your take on India?
RK: We have a partner here who does all of our investing in India. I have not been there in four years. At that time I met with entrepreneurs, venture capitalists, and universities in a tour of the country. I tried to better understand Indian entrepreneurship and how it could be improved.
My impression at that point was that there was great talent and innovation, but it tended to be aimed at Western markets and services. In that regard, I felt that the only real advantage that the Indian entrepreneurs had was cheap labor, and that it was the wrong way to go. I lobbied for the Indians to take their innovation and focus on markets that the understood and had an advantage in, where the US could not chase them.
If they could begin to create effective broad services for India and its diverse people, economics, and infrastructure, then they would be very effective competitors in Africa, South America, and China. I fear that fundamentally India remains a service industry to the West and that they still have a hard time designing products for the West because they do not understand the markets, customers or processes.
We have made investments there in a couple of areas. They have all been focused on the Indian markets and have had good success. Most are fast-followers of the Web 2.0 services to the Indian market. They have their unique twists and are a little more mobile. Payments are different, etc, but fundamentally the strategy has been to look at what works in the US and apply it to India.
I still have not seen the type of innovation that I believe would be very powerful in India. It requires understanding the unique aspects of that diverse market and coming up with the right products and processes for that market. I really want to see them target developing economies, not the developed economies. I think they have competitive advantage there.