Vinod Khosla is a venture capitalist's venture capitalist. He's from the same mould as people like Arthur Rock (Fairchild and Intel), John Doerr (Sun Microsystems) and Don Valentine (Apple and Cisco). These venture investors understood the technology and the business; they were instrumental in building companies that changed the way people worked and created over $150 billion of wealth. Statistics show that Khosla's companies created six jobs for every day he spent in the US. He was responsible for creation of companies like Juniper, Cerent, and Siara. And like a true VC, Khosla has been instrumental in founding and running large companies: Daisy Systems and Sun. All these companies were instrumental in making the Internet faster, better and cheaper. At Sun, he was in the formidable founding team of Scott McNealy, Andreas Bechtolshiem, and Bill Joy.

And the man is prescient. He was on a sabbatical from his firm, Kleiner Perkins, in 1992 when he noticed that sending an email from IIT Delhi was difficult. He set about trying to find a way to speed up the Internet, as it were. Every six weeks he would go back to the Kleiner Perkins office in the US for a few days, and during those 20-hour flights he mastered optical networks. Twelve years later, optical networks are now a standard.

Now, he is taking time off again. And this time he is trying to make capitalism better, faster and cheaper. His goal is to develop a business model that will ensure that poor and dispossessed people can access the global capitalist system. It makes sense. One of the biggest challenges before all countries is to get more disenfranchised people to join the capitalist system. Without more participation, capitalism will just remain a system the rich impose on the poor. Us and them. It is not a trivial problem, and it is truly worthy of Khosla. Businessworld's Shishir Prasad spoke to Vinod Khosla to find out how he views modern capitalism and what he still finds exciting in technology. Excerpts...

• The last time you took a sabbatical you virtually conceptualised optical networking and the way the backbone of the Internet worked. You have again taken a sabbatical of sorts, what can we expect?
  
  You know, there is no one thing. I have always had a lot of interests and where my mind goes, it goes. I don't pre-direct it. You know, there are some things related to development in a place like India that are of interest to me, hence my interest in microfinance. On my website you will see a paper on what I call the 'bicycle commute economy' for rural India. And that is very much like the Providing Urban amenities in Rural Areas (PURA) idea that President Kalam has. So I have interests that are both development-related and technical.
  
  
• What about the technical side? Do you see any key shifts there?
  
  I would say, in general, that information and computer technology is given a lot of attention. The same kind of renovation is possible in other areas of technology. And so I look at what the big social problems are. I think communication is one of them, though I think communication, as a problem, is fast disappearing. We have an energy problem, for example. We have a resources problem. A wide range of areas, from energy to housing to environment, all have technical solutions. I think technology can work productively in all those areas. Energy, material science - those are things that I think are interesting. I do things out of technical curiosity. I don't do things because they are good business or because there is a big market for those things. Of course, there is a big market, and that is interesting. Big markets are always interesting. But it has to be interesting to me technically, and in terms of social impact. Technology is most useful when it has a social impact.
  
  
• Why do you find microfinance so interesting?
  
  Microfinance is simply applying the principles of free markets and capitalism to the poorest people. That is what is interesting. It is more about the economic system of capitalism and how to enable it for people who have been outside of it. I have always been intrigued about how to help people who are not affected by technology. India has done great in IT, but it makes no difference to people in the villages. It is not material to them. The question is: in that spectrum, what can you do to be impactful and help? You know, the technology stuff can really help the country overall. It can really help the engineering graduates or graduates in architecture, but most people do not have graduate degrees or specialised professional degrees. People in rural India do not have any of that
  .
  
• But doesn't technological change create economic possibilities? When you look at the poor, how can you create that economic possibility?
  
  I think if you visit Bangladesh you will see how much wealth can be created for those people. Look, India needs to achieve a 10% GDP growth, and that is difficult unless the rural economy starts growing at 10% a year. Even if the industrial economy grows at 10%, rural economy is such a large percentage of our economy it will drag everything down unless it grows too. And so we will see a much bigger economic divide between the rural and the urban unless we do something about accelerating the economic growth of rural India. I believe microfinance is a very, very powerful tool. In fact, it is the only tool with a potential to revolutionise growth in rural India. That's why it is important. It is not only important for the macro numbers of economic growth to be great, but we also must distribute wealth creation. I believe the other social problems we are going to have are 'mega-cities'.
  
  
• What is the problem with them?
  
  There are economic forecasts that see cities like Delhi becoming full of 30 million residents. Mega-cities will result in mega-slums. Cities that are large lead to a break-down of social structure. Families get broken up because people move to cities to find work. Crime increases because people migrate to the cities. And those on the margins in the cities can succumb to drinking or HIV.
  
  The idea of mega-cities is a bad idea. And unless we do something to change it, we are going to have a mega-problem. The only thing to do is to make the future interesting for the rural poor. That will slow down the migration to the urban mega-centres. And that is a really, really important concept. The very structure of economic development in the nation needs to change. China has the same problem, Mexico has the same problem, Brazil has the same problem.
  
  

  A RISCy venture Vinod Khosla's paper on the 'bicycle commute economy' is actually nothing short of a Marshall Plan for the reconstruction of rural India. The plan is called Rural Infrastructure Services for Commons (RISC). Power, telecommunications, transportation and finance are the things that go into making the infrastructure layer of the plan. Isn't that what the government has been trying to do all this while? Yes, but Khosla's approach is slightly different, if not completely original. He believes a sum of $1 million is enough to provide such services to a group of 100,000 people in the rural areas. To cover the approximately 500 million people living in the rural areas, Khosla believes a total investment of about $5 billion is needed. The crucial part of the programme is that each of these 5,000 villages (of approximately 1 lakh population each) receives the investment directly. And the village doesn't get it as a grant - entrepreneurs in the village who want to run such services get this based on a business plan of sorts. This is a distributed (federated, if you will) model, not a centralised model as is conventionally practiced. Khosla believes that if this investment increases the output per 100,000 people by just 10%, it will be enough to pay for all these services. The key to increasing these services are the motivated rural entrepreneurs. It is these people who, once they have access to funds, will start businesses that will provide employment and RISC services, thereby kickstarting the rural economy. For more information on the plan visit: www.kpcb.com/files/bios/RISCAug.2003.doc and read the frequently asked questions section given at the end of the document.

  
  
• Improving the rural economy is a noble idea, but how do you do it with the feudal structure that is there, and in absence of any governmental reforms? Is there a business model that you have seen?
  
  Clearly, microfinance does not require any of those changes. I am not saying some of those mindset changes aren't good. I think the government is trying to do the right thing. Political process moves slowly and social changes happen slowly. You have to acknowledge that. But this [microfinance] is a tool that doesn't interrupt or interfere with any of that, and it can work without that change. In fact, it accelerates that change but is not totally dependent on it. It is an independent axis of economic development. The government can keep doing things to help people from within the political structure, and there will be some good things about it. In the end, what is important is that this tool goes directly to those who are below the poverty line. It enables them, and it helps them sell. And there are thousands, if not millions, of stories in Bangladesh alone.
  
  
• Did you find anything interesting in India?
  
  Well, if you look at the rural side, organised entities like Share Microfin, Andana, SKS and CashPor are proving you can do this amongst the most backward areas of eastern Uttar Pradesh - places where people said nothing can be done. Now if there is CashPor in eastern Uttar Pradesh, Share in Andhra Pradesh, Andana in Andhra Pradesh and Karnataka, Grameen Kuta in Karnataka, ASA in Tamil Nadu, then we are on the cusp of something very, very exciting. And most of these organisations are very exciting. They are driven by people who are very, very entrepreneurial. They are CEOs who really want to make this work and make money. Exactly the Silicon Valley model. You know, all these organisations resemble Silicon Valley companies, though they are not technology companies.
  
  

  Khosla wants these people to make profit - by becoming rural entrepeneurs

• That's interesting. In what way are these organisations like Silicon Valley companies?
  
  In their entrepreneurial approach. The CEOs of these organisations are the Silicon Valley entrepreneurs of rural India...
  One would normally associate Bangalore with that tag...
  Well, there is Silicon Valley in Bangalore too, but that is more on the technical side. All I am saying is that there is a similar phenomenon happening. On the rural side, there are equally good entrepreneurs. And if we can build the infrastructure to support them, it will be the way rural India becomes a more attractive place.
  
  
• Silicon Valley has its venture funds - are there similar entities that can help these entrepreneurs in rural India?
  
  I think there will be. I think ICICI is being very active. They have a gentleman called Nachiket Mor who is very active in this. You know, like a financier for this. I think some of the state governments are doing a good job. There are a number of organisations in the US, like Unicus and Grameen USA, who are helping the organisations in rural India, . Professor Muhammad Yunus is doing a lot to help other countries - not just India but all over the world. They have what are called Grameen replicators. They replicate the Grameen model. I find it pretty exciting.
  
  
• Apart from microfinance, where else do you see interesting work happening?
  
  All the material science stuff, sometimes called nanotechnology. I think that is absolutely exciting, and it will change the world over the next 25 years. And I think we will have a dotcom [bubble] of that. Too much hype, too much bubble, over-expectation. But over the long term it will change the world. I think there will be a revolution in energy. In biology, we will see a revolution too, and that is why I think India should invest in biotechnology, especially in areas like stem cells. I think there is a lot of exciting stuff going on. I think people have realised that [the sort of] innovation that happened in information technology can also happen in other areas.
  
  
• Do we understand the end-effects of biological tinkering as we understand the cause-effect relationships in IT?
  
  Yes. It is just starting to happen. That's why I think it is so exciting. Over the next 25 years, that will absolutely happen. Systems biology is a whole new way to understand how humans work. And that is the basis for personalised medicine. For example, if there are five million people with HIV, a different drug might work for each person based on their genetic make-up. So you administer a drug based on that person's genetics, not the same drug for all five million people. These are different people, their bodies are different, and if you tailor the drug to each person's biology, that is personalised medicine. I think this will be a huge area of revolution.
  
  

  What is microfinance? Microfinance is a hard term to define. If a self-help group gives money to someone to buy a cycle-rickshaw, it is considered microfinance. Yet if a commercial bank does the same thing, it is not considered microfinance. In India, the term is generally understood to mean small loans given to the poor by NGOs to help start small businesses. The world over, microfinance is synonymous with the Grameen Bank in Bangladesh. In Bangaldesh, microfinance arose in direct response to the failure of the nationalised commercial banks to cater to the needs of the poor and marginalised. Professor Muhammad Yunus started research on effective delivery of credit to rural poor, which later grew into a mammoth microcredit programme under the name Grameen Bank. In 1983, after tasting success, the project was converted into an independent bank by government legislation.

  
  
• Talking of revolutions, a big wave entrepreneurship just went by. Some of it was good. Some not so good. What have learnt from there?
  
  You know, the digital revolution isn't done. It will continue for the next 10-12 years. Its biggest impact is yet to come. What we do know is that people get overly excited, and because of that things get hyped. And then, when things get hyped you get a bubble and it crashes. That happens in every new technology. It happened in 1850 with the railroads in England. There was huge excitement about the railroad technology between 1835 and 1850, and then there was a huge crash on the London stock markets in 1850. And the 20 years after the crash was when most of the railroads got built. And that's just the way it is.
  
  We will see a nanotechnology bubble. And after the bubble, people will go back to a rational way of thinking and a rational way of doing things. Doing things not because stock markets like them, but because they have economic value. That always happens after the hype is done.
  
  
  
• But then, why is there so much despondency in the IT world? People like Larry Ellison have said how technology is commoditised...
  
  See, despondency reflects short-term thinking. People who have no vision say this. It is the people who think short-term. It is the people who think something going up and down in the stock markets is the definition of success. Success is defined by the impact something has on the lives of people.