WEF 2025 | ‘When it comes to AI, we would invest in the shovels, not the gold mine’: Kedaara Capital
Manish Kejriwal, Founder and Managing Partner of Kedaara Capital, believes the real opportunity in artificial intelligence (AI) lies in investing in infrastructure and services that enable the AI ecosystem rather than betting on high-profile AI products.
“What we go after in situations like AI is not the gold mine, it’s more the shovels that help make the gold mines,” Kejriwal said in an interview with CNBC-TV18 at the World Economic Forum (WEF) in Davos.
Kejriwal likened the current frenzy around AI startups to the dot-com bubble of the late 1990s. “Value will be made, but you have got to make the right bet,” he said.
The sheer amount of capital chasing AI startups, coupled with promoter risk and the dominance of incumbents like Microsoft and Meta, makes direct investment in AI products risky. Instead, Kedaara prefers to invest in companies that support or enable the AI ecosystem.
This is the edited excerpt of the interview.
Q: This AI bet, and I mean anything linked to AI even remotely, the valuation skyrocketing there, is that a space that you are looking at?
A: Just to make it simple for our viewers, what we go after in situations like AI is not the gold mine, it’s more the shovels that help make the gold mines. What I am saying is, I don’t claim to understand, on taking a bet on a product, because I really think in AI, the incumbents have a huge advantage. These guys are massive, or a Microsoft or a Meta, they can deploy this the capital, they know the customer side, we can’t invest in those. We are investing in startups.
Firstly, capital, I mean you will get the amount of money going after this, you are going to get drowned. Second, promoter risk, are these the right guys you want to back? I really believe the money will be made by the incumbents. I think a lot of the money going towards startups it’s a bit like the dotcom age. It blew up in 2000, are we in 95 or 98 I don’t know, but I can see 2000 coming.
Value will be made, but you have got to make the right bet, and if we are not, and this is very early stage, we can’t pretend to jump onto that bandwagon. What would we rather do, is work around companies which offer that as a service, not how to build a product, which is what I mean by the shovels. Same thing we did when we started Kedaara consumer companies were really expensive. We got the confidence to do Vishal Mega Mart three or four years later. But remember, the first two deals we did were both proxies to the consumer space.
We did box and packaging, which made boxes. We did Manjushree, these were proxies for growth and consumer expenditure. While Unilever, that time was trading at 40 times EBITDA, we bought these companies at single times EBITDA. It is not that we expect a single EBITDA to go to 40 times, hopefully it be a little bit higher. But the problem in investing in very high multiples, in a faddish environmental like AI is as there’s a correction in those multiples, no level of growth, which is what we undertake, we can’t undertake the market, no amount of growth, both revenue, top line and EBITDA, can ever compensate you for a deal you have overpaid for. So that’s the situation.
Read Here | Davos 2025: Infosys to hire over 20,000 freshers next fiscal; 2.7 lakh employees are now ‘AI aware’
Q: 2025 likely to continue to be a seller’s market?
A: The first half would definitely be that way. But our team, and you know me well enough to know that I am normally understated, the team that we have built up in the last two years, second to none in the country today. We have managed to now attract talent from the global majors. Normally people lose, the local firms lose talent, we have been attracting the talent.
We now have two co-heads for every sector, and each of them are amongst the best around the industry. So the pipeline today has never looked stronger. Look at it as 20 deals in the pipeline where they used to be four or five. The bar is the same in terms of quality. It’s a little bit higher because of relative valuations and because we raised the $1.75 billion fund last year, we are sitting on a huge amount of capital base, so that’s not an issue.
Also, we don’t want to be pressurised to deploy capital when we are not ready to. So, of these pipelines, which is the biggest it has ever been, the question is, as I see and as you overlay risk on top of it, what will go through the funnel, there is no way of knowing. But I would hope at least two or three deals and maybe some more if valuations correct.
For full interview, watch accompanying video
Also Read | WEF 2025 | Ashwini Vaishnaw confirms electronic components PLI rollout in 2-3 months