'Large valuations give a false sense of success': Investor Kanwal Rekhi on why too much cash is bad for entrepreneurs

Technology entrepreneur and investor Kanwal Rekhi believes that large valuations give false sense of success to start-up entrepreneurs. In a LinkedIn post, Rekhi wrote, “In any case, large valuations give a false sense of success and too much cash to the entrepreneurs. That cash gives a sense of safety and inculcates a bad habit of spending lavishly to scale a losing business.”   Rekhi is a prominent name in the Silicon Valley and Indian start-up circles. The Indian-American businessman is currently heading venture capital firm, Inventus Capital Partners as its Managing Director and co-founder. He is also known for taking smart ethernet card maker Excelan public on NASDAQ in 1987. It later merged with Massachusetts-based software company, Novell.   In the LinkedIn post, he also wrote that the goal of investors and entrepreneurs should be to get profitable unit economics if not profitable businesses. He said, “The goal ought to be to get to a profitable unit economics, if not actual profitable business, before investing to scale."   Rekhi said that unicorns are mythical and unicorn companies valued privately are “even more mythical.” Unicorn refers to a company which valued either $1 billion or more.    He wrote, “There is an obvious incentive for the founder to value his startup so as to minimize dilution. But it has turned out that there is a perverse incentive for the big VCs too. It gives them a bragging right to tell their LPs (Limited Partners) how great they are by the number of unicorns in their portfolio.”