At the height of the optical networking buzz, Vinod Khosla unveiled the next big thing, an optical startup named ight-Lay. Speaking to investment bankers at a CIBC World Markets conference, the Kleiner Perkins Caufield & Byers partner described how ight-Lay would “revolutionize the future of telecommunications.”
Investors were hooked, approaching Khosla with offers to write checks. Even a top investment banker told the VC he would quit his job to join the startup.
Alas, ight-Lay pig Latin for Light – existed only in the imagination of Khosla, who spliced together bits of similar companies to teach investors a lesson about the dangers of hype.
Khosla unwittingly fueled such hype with his successful investments in companies such as Juniper Networks Inc., Redback Networks Inc. and Qwest Communications International Inc., which today have a collective market capitalization of nearly $30 billion.
While Khosla’s star status within the venture industry has caused some to compare him with star athletes, the fact that his advice is followed by so many young investors may mean his most far-reaching influence is not as a player, but as a coach. Think of him as Bobby Knight – without the chair throwing.
Like Knight, Khosla manages to stay in the spotlight no matter the state of his professional fortunes. And they may have never been lower than when early Internet bet Excite went under last year. Technically, the Excite investment was a win for Kleiner Perkins, thanks to a $6.7 billion buyout by @Home in 1999, but it’s the equivalent of a playoff loss for Khosla. He says disdainfully that he is not an “investor” and that he gets nauseated by the term “return on investment.” Instead, he claims to see himself as a business builder who looks back with pride on the entrepreneurs he’s willed to victory over the years.
Khosla’s iron will is legendary in entrepreneurial circles, where his reputation as a brilliant hard-ass seems to have survived last year’s tech meltdown. In fact, many of his entrepreneurial “players” keep coming back to him.
For example, Khosla helped lead a Kleiner investment last spring in Zepton Networks Inc., a Sunnyvale, Calif.-based company currently working on secretive optical networking technology. Zepton is headed up by Jagdeep Singh, a serial entrepreneur who had previously founded companies like OnFiber Communications Inc. and Lightera Networks Inc. Khosla sat on the boards of both.
Khosla doesn’t apologize for telling entrepreneurs exactly what he thinks. “If I tell a team they’re doing great when I think they’re screwing up, then I’m hurting the team,” he says.
“Mentoring entrepreneurs, working closely with really bright people – where you are always learning from them – and building companies is what it is about. Early-stage VC is about understanding technologies, people, organizations and markets and how technologies impact them.”
Despite Khosla’s rep for being tough on entrepreneurs, Zepton’s Singh is unconvinced.
“Frankly, we’re not sure why people are so focused on Vinod being difficult,'” he says. “The key is that he works through his ability to persuade not through an order or dictate or anything like that. He recognizes that in the end the decision is the entrepreneur’s to make. … Vinod has very much earned the right to try to persuade the entrepreneur in this way.”
Zepton currently has $86 million in venture backing from firms like Kleiner, Accel Partners, Benchmark Capital and Venrock Associates. It also fall into Khosla’s optical networking sweet spot, but Khosla seems more than ready to broaden his investment horizons. Recently, he has led Kleiner investments in companies like e-business software developer Asera, application infrastructure provider Centrata Inc. and storage solutions developer Zambeel Inc.
Whether it is optical networking, enterprise software or some other sector, Khosla’s M.O. has been to take an obscure technology, embrace its potential and work closely and tirelessly with the founders. In 1996, he invested about $8 million for a 30% stake in Cerent. Three years later, Cisco Systems acquired it for $8 billion, making Kleiner’s investment worth $2.4 billion.
When the Cerent deal is considered alongside other Kleiner winners like Jupiter and Qwest and even Excite, there is every reason to believe Khosla will continue adding to his firm’s capital coffers in the coming years.
Partner, Kleiner Perkins Caufield & Byers
Investment focus: Optical networking, enterprise software
Biggest Hits: Juniper Networks
(NASDAQ: JNPR), Cerent (sold to Cisco),
Board seats: Asera, Centrata, Juniper Networks, RedBack, QWEST Communications (9 total).
Years in VC: 17
Did you know? When Khosla stepped down as CEO of Sun at age 30, John Doerr convinced him to work “part time” for KPC&B.