By Oliver Smith on Monday 1 June 2020
The industry heavyweight is keeping an eye on “great opportunities to pick up talent or certain IP at moderately sensible numbers”.
“Acquiring a business is a massive distraction, especially if it’s tangential to where you currently are, as it dilutes the focus,” said Khosla, speaking at a Founders Forum event on 6 May.
“On the other hand, at a time like this, there may be great opportunities to pick up talent or certain IP at moderately sensible numbers, but then it’s a question of capital allocation – is that the best use of the capital you have?”
It’s the second time in as many months Khosla has indicated that OakNorth is up for a deal, telling Financial News in mid-April that: “It’s not like we’re out there saying we want to go and acquire something, but at the same time we’re saying, if there are good businesses which are synergistic, which are on-mission, we should at least be aware of them and we should have a discussion.”
The CEO also warned that fintech startups are facing an extended period of “capital scarcity” as investors retreat during the recession.
“If you look at the funding environment we’ve been in for the last few years, there’s been excess capital availability. Businesses like OakNorth have been able to raise significant sums of cash and the supply/demand equation has generally been in favour of the entrepreneur,” said Khosla.
“If you look at what’s happened now however, investors are retreating and focusing on managing existing portfolios and taking care of their existing exposures, so you’ve now got capital scarcity.”
On the positive side the OakNorth boss pointed out that many great businesses come out of a recession, indeed OakNorth itself along with Starling Bank, LendInvest and Revolut can all trace their roots back to the last financial crisis.
When AltFi asked four fintech CEOs last month whether entrepreneurs should look to launch during a recession, the overwhelming response was that they should.
“A lot of great businesses come out of a crisis and one of the reasons for that is because a crisis leads to capital scarcity which means you build in a totally different way,” said Khosla.
“You don’t have the luxury of spending the money you raise on experimenting. You have to be a lot more gritty, roll up your sleeves and bootstrap, and in a way, that creates a much healthier and more robust organisation.”