Here's How Vinod Khosla Is Turbocharging Indian Start-Ups

As a Silicon Valley venture capitalist and the cofounder of Sun Microsystems, Vinod Khosla's philanthropy takes on the same sort of character as his career. (Read Vinod Khosla's IP profile.) He strongly believes that an investment approach is the best way to help alleviate massive poverty. It's the old "teach a man to fish" model, and over the past few months, he's demonstrated this approach repeatedly.

In January, Khosla joined with Bob Gay, a former managing director at Bain Capital, and Mike Murray, a former executive with Microsoft, as well as a number of Indian investors, to provide a total of $8 million in funding to what they refer to as a "Bottom of the Pyramid" start-up called the Unitus Seed Fund. A year-old subsidiary of 12-year-old non-profit Unitus Labs, the venture capital fund is designed to provide support to Indian entrepreneurs looking to create and develop consumer-oriented services for low-income people.

According to the announcement of the gift, the Unitus Seed Fund estimates that more than 800 million people in India qualify as low-income. It is hoped that investments such as those envisioned by the new organization will have a significant social impact.

Using this new seed money, over the next four years the Unitus Seed Fund, based in Seattle, Washington, and Bangalore, India, is expected to make at least 50 new investments in Indian start-ups. Among the companies that received funds during the fund's first year were Bodhicrew Services, Hippocampus Learning Centres, and Milaap Social Ventures.

In a statement, Khosla noted, "The under­served populations of India represent not just a development need, but in fact form a series of large markets with significant and often untapped potential." He hopes that by "providing value to the masses," Unitus Seed Fund will help the businesses that serve the underserved segments of society to create new wealth.

During the previous month, Khosla joined Zillow cofounder Rich Barton to make a major investment in Seattle-based Vittana, a nonprofit that intends to wipe out poverty through educational microloans. Although the exact amount of the contribution hasn't been made public, the organization's founder, Kushal Chakrabarti, touted the contribution as the largest in the nonprofit's history, setting Vittana on a path of sustainability.

In announcing that investment, Khosla released a statement saying, "A lot of non-profits talk about changing the world — I believe Vittana truly can." Vittana's goals are lofty. Last year, the organization's microloans helped support the educational ambitions of 8,000 young people, and the goal is to more than triple that number for 2013. Educational microloans have grown from $1.6 million in 2012 to an estimated $5.25 million this year. Vittana's students have built a great credit history, with more than 99.2% of them repaying their loans.

The Indian microloan industry is growing by leaps and bounds despite some recent problems, such as a severe increase in defaults in 2010 and 2011. Vinod Khosla seems sure that, in the long run, microloans are the key to ending Indian poverty and building an Indian economic infrastructure that is second to none. Time will tell whether he's right.