Vinod Khosla Isn't Quiet Quitting
The storied venture capitalist isn't afraid to say whatever he wants and he says he wants to keep working for another 20 years — health permitting.
Vinod Khosla isn’t 67 years old.
“I have a new age. In hexadecimal, I’m 43,” Khosla tells me from a conference room in his venture firm’s Sand Hill Road offices.
“It feels younger and I feel younger. I no longer use the word sixty-seven,” Khosla says with a carefree, high-pitched chuckle.
Khosla, a workaholic who loves reading research papers, says he plans on working for the next 20 years. “That is absolutely the plan, health permitting.”
Khosla has grown accustomed to making his own reality. He’s been extremely rich for a long time. He co-founded Sun Microsystems in 1982. At Kleiner Perkins he made key early investments in Juniper Networks1 and Cerent Corp, returning billions to Kleiner’s limited partners.
In 1999, the Wall Street Journal headlined a profile of Khosla, “A Quiet Man Puts Some Sizzle In Latest Deal Involving Cisco,” writing, “Venture capitalist Vinod Khosla toils in the shadow of partner John Doerr, who pals around with Al Gore and graces the covers of magazines. But it’s Mr. Khosla who has the hot hand in Silicon Valley right now.”
By 2004, Khosla had founded his own venture capital firm, Khosla Ventures. The VC firm has been a major investor in Square, Affirm, GitLab, RingCentral, and DoorDash. It’s made smart bets on Stripe and OpenAI.
Khosla Ventures ranked 13th on the recent Founder’s Choice VC rankings. Today, the firm has a $1.4 billion venture fund and a $550 million opportunity fund. Forbes puts Khosla’s personal fortune at $4.9 billion.
Vinod Khosla was actually among the first big name VCs that I interviewed when I started reporting on Silicon Valley for The Information. I got maybe 15 minutes on the phone with him back in 2014. It felt a bit like dialing up the Wizard of Oz. Who was I to question the man behind the curtain?
Here was someone who really understood how the world works and yet I didn’t have enough time to get my bearings before our conversation was over. I’ve been plotting a do-over ever since.
For the past several months, I’d been courting Khosla’s new marketing chief, Shernaz Daver, for another chance to interview one of Silicon Valley’s most renowned venture capitalists. Daver and I got coffee. We hung out at Code. We’ve been swapping texts. And, with Newomer’s two year anniversary approaching, I made the pitch again. Would Khosla sit for an interview?
Finally, they both agreed.
Still, I didn’t know what exactly to expect from a conversation with Khosla. I knew him to have a reputation for having a tight grip on his firm. He’s someone who is obsessed with futurist technologies but also loves to negotiate a great deal. He can be stubborn and publicly cheers for hubris. He often dresses in all black and looks the archetypal tech investor billionaire.
I wondered if Khosla had suffered from a common Silicon Valley pandemic symptom: a fried political brain. Had the pandemic turned him against California and the Democratic Party? (A recent $1 million donation to a Democratic Super Pac and a Twitter spat with David Sacks over Ukraine suggested otherwise.)
Khosla is infamous for fighting all the way to the U.S. Supreme Court to keep an access road to his California beachfront private. If you type Khosla’s name into Google Trends, “Khosla beach” is the highest suggested related query, before even “Khosla Ventures.” I knew I’d have to ask him about the beach issue without derailing our entire conversation.
So on a recent trip to San Francisco, after a tour around the venture firm’s purple walled offices, I sat down with Khosla.
We covered a lot of ground. We talked about Elon Musk and Khosla’s thoughts on Russia and China. Biden and AOC came up. We chatted about cancel culture. Khosla outlined his philosophy on venture capital and told me how he thought things would play out as the downturn continues. He explained why his firm had avoided investing in many crypto tokens and he rebuked rivals who have played fast and loose with the law. Khosla wouldn’t tell me much about how he’s giving away his fortune. But he did say something surprising about his infamous crusade to keep his beach private.
The Tech Downturn
Before our meeting, Khosla had wrapped up a conversation with Max Levchin — the PayPal mafia member and CEO of Affirm. Coming from that conversation, the economy and interest rates were at the front of Khosla’s mind.
He told me that he thought higher interest rates — whether that meant 2%, 4%, 8%, or 16% — would be “irrelevant to venture capital.” For venture, he said, “You want very high rates of return. That means everything north of 30 to 50% is sort of the range you want your returns from an investment to be.”
I think, really, he meant it would be irrelevant for the top echelon of venture capitalists. Many others won’t make it through the downturn.
Khosla said that higher interest rates would push investors to be “much more rational.”
With fewer loose spending venture capitalists running around, startups will face fewer competitors. That means they can spend less money fighting with each other and raise fewer dilutive funding rounds.
“The better investments will be made in the next five years or 10 years,” Khosla said.
During our conversation, Khosla was already predicting that stumbling tech giants would be a boon for startups — before Facebook and Amazon’s stocks fell this week.
“There’s another phenomenon that happens in a time like this: Google’s not hiring. Facebook’s not hiring. People are clamping down,” Khosla says. “Guess what happens to their most advanced projects? They go. And guess who are the best people in any large company? The best people are working on the most advanced projects. They are the ones who want to do visionary things. They’re the fodder entrepreneur for venture capitalists. So I think many more of the best people — not because they’re not getting paid huge raises in compensation — but because they’re working on less interesting projects — will leave to follow their vision.”
He concluded, “We will have fewer startups, but many more higher quality startups.”
No venture capitalist wants to brag that they’re cheap — but that’s certainly Khosla’s reputation. He’s known for negotiating terms. I’ve heard from rival VCs who discourage founders from raising from the firm.
I asked Khosla if his firm had missed out on many promising startups because the firm wasn’t willing to pay market prices.
As it turns out, the firm recently had an internal discussion about just that, Khosla said.
“When many people in the venture business were paying high prices, our goal was not to be at the top quartile competing nor at the bottom quartile. We would like to be in the middle.”
Khosla would prefer to be the least price conscious when other investors get scared.
By way of explanation, he launched into a story about a time when Khosla backed geothermal company AltaRock back in the early 2010s. Investors had soured on clean tech. As Khosla tells it, the company had committed financing and the day before Christmas, investors backed out of signing the closing documents. So Khosla swooped in and got a deal. To help keep AltaRock in business, Khosla offered the company a bridge investment and “bought 80% of the company for a million bucks,” Khosla bragged.
It wasn’t the only time that Khosla gleefully talked about gobbling up a large share of a cap table when things started going south.
Khosla is an investor in airplane biofuel company LanzaJet. Khosla Ventures took almost half of the company’s equity when it invested $3 million in the Series A.
Khosla understands from experience just how important ownership is to maximizing venture capital returns. Big ownership positions in Juniper Networks and Cerent Corp were key to Khosla’s billion dollar returns as an investor at Kleiner Perkins.
But that hard-nosed approach can leave some founders and rival venture firms with a negative opinion of his negotiating tactics. That reputation could mean there’s some adverse selection when it comes to which deals Khosla is winning.
The Law, Politics, and Cancel Culture
I was surprised to hear Khosla defending the U.S. legal system. I’ve gotten used to Silicon Valley-types trashing government regulations after reading through stuff like Balaji Srinivasan’s The Network State or listening to Peter Thiel’s anti-California diatribe at the National Conservative convention.
“We won’t do things that cross the legal domain,” Khosla said about his venture capital firm. “I’m not interested in overthrowing the U.S. government.”
That’s meant his firm has avoided buying speculative crypto tokens. “There is a lot of illegal use — gun trafficking, child trafficking, drugs. We don’t want to do things for that market. We’re pretty clear that we won’t do societally negative things,” Khosla said.
He had harsh words for rival investors who flipped tokens for a profit. “I think the following was unethical: to buy tokens, offer them, and then dump them after you promoted them.”
He cited the Telegram initial coin offering, which ultimately was investigated by the SEC. “When the Telegram token came up, we looked at it. Most reputable venture firms in the Valley invest in them. I took the view, we won’t do it.”
“I’m very much against pump-and-dump schemes in tokens — which were very common — and I do think more people should be prosecuted for doing that,” Khosla told me. “Kim Kardashian was recently prosecuted. I was happy to see that. She deserves it. Kick her ass.”
(Kardashian agreed to settle with the Securities and Exchange Commission and pay $1.26 million for failing “to disclose that she was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax.”)
There have been exceptions to Khosla’s crypto skepticism. He’s a believer in Helium, the wireless service network powered by crypto tokens. And his firm is an investor in Worldcoin, the kind of creepy-sounding project to scan everyone’s eyes to give them their own crypto currency.
“I think the blockchain has really good uses and if we can make it compliant with regulatory regimes, it will grow faster and better.”
It’s not just that Khosla is adamant about following U.S. laws and regulations — he’s a proponent of the U.S. accepting that it is in a “techno-economic war with China.”
“It’s imperative that the venture community help the U.S. win,” he said. “I think the war is generally good for the world. If two people are competing, technology will move faster than if just the U.S. is moving.”
I brought up the idea of Srinivasan’s The Network State and the push to escape U.S. regulations.
“Great for him,” Khosla said. “I’m planning — even though I’m only hex 43 — I’m planning on living in the US. I'm not moving from the U.S. because it’s a different regulatory regime or lower taxes in a different state.”
All Khosla cares about, he said, is that there are really great intellectual things to work on in California. “So you will find me paying whatever taxes Newsom ramps us up to.”
“I’m going to live where the weather’s the best and the intellectual climate is the best,” he said from his Menlo Park office.
I asked him if he didn’t feel like his speech had been stifled in recent years — some people feel like they can’t say what they want.
I wanted to know if a billionaire felt like he could be canceled. Was he comfortable speaking freely?
“I’m saying whatever I want. I have complete freedom of speech. I have complete freedom of action,” Khosla said. “I’m never afraid to offend certain people.”
Ultimately, he said, “I want to live in a society that is more biased towards including everybody.”
On Congresswoman Alexandria Ocasio-Cortez, Khosla quipped, “I’m an AOC hater as much as I’m a MAGA hater.”
When it comes to Biden, Khosla said, “I think his spending has been too high.” And he was skeptical of student loan forgiveness. But, he said, “Mostly I’ve supported the Biden policies — the infrastructure bill, the Inflation Reduction Act.”
Elon Musk and The Experts
Khosla seemed to drift into the past tense when talking about Elon Musk’s accomplishments.
“I always admire how he became the role model for a complete transformation of the auto industry,” Khosla said. “Tesla was important. SpaceX was important. Neuralink was important. Boring Company was important. Now, other than Tesla, I think we have superior solutions in all these areas.”
He pointed to Khosla portfolio company Rocket Lab as an important competitor to SpaceX. He said he thought Rocket Lab represented “much less money spent, much more capability — other than to go to Mars, which doesn’t have a social purpose.”
Khosla is also an investor in autonomous personal transportation system Glydways — which Khosla sees as a better alternative to The Boring Company.
Khosla had a strong rebuke for Musk’s decision to speak out against Taiwan’s independence.
“I think he’s taking China’s line,” Khosla said, adding that he thought Musk was trying to juice sales in China with his foreign policy pronouncements.
“It’s the first time I thought Elon was totally unethical in taking a position on Taiwan,” Khosla said. “That is abhorrent.”
Khosla was similarly critical of Musk’s decision to offer a resolution to the war in Ukraine. He called it, “a position on Putin that, basically, at the very least, isn't thought through.”
“We can’t let a thug get away,” Khosla said.