There may or may not be a cash crunch in Silicon Valley, but if you are Vinod Khosla you don’t have to worry about it. His venture firm Khosla Ventures just closed a new $1 billion fund (Khosla Ventures IV), which we first reported was in the works last May. (He raised $1.05 billion, to be exact). His portfolio is half cleantech and half Internet/mobile, and he plans on keeping it that way.
Top tier firms like Khosla Ventures have the luxury of raising huge funds. The limited partners who invest in venture funds are narrowing their investments to the top 20 percent of firms who produce nearly all the profits. “We have generated close to $1 billion in profits,” Khosla tells me, referring to the returns across all of his funds so far. It was only two years ago that he raised $1.1 billion for Khosla Ventures III and a smaller seed fund. “Third-tier VCs are not getting funded,” he notes. “The number of active VCs is actually going down.”
And that is just fine with him. His advantage at getting deals comes from both his track record (at both Khosla Ventures and, previously, at Kleiner) and the staying power that a $1 billion fund gives him. “When companies come to us,” he says, “they are buying insurance against bad times or getting the first generation of the product wrong. We don’t abandon a company.” He is better than most VCs at identifying high-potential companies early and promises to back them for the long haul, in good times and bad. For the record, the global economic situation does concern him, especially in Europe—enough for him to get his portfolio companies to make contingency plans last summer in case the Greek crisis or something similar makes the global economy take a nosedive. “We have absolutely helped a bunch of our companies increase their reserves,” he says. So far, it’s just been a precaution.
Khosla likes to get in early, but only when he sees huge potential. “We will invest in seed companies that can be very large,”he says, “but not in seed companies that can be sold for 3X.” If any of his investments hit it big, as an early investor he is looking at a 10X return or greater. Khosla was the first major VC investor in Square (where he sits on the board), Jawbone, Lookout, and ZocDoc. All of these are growing rapidly and have valuations in the $700 million to $1 billion+ range.
Khosla focuses on specific investment themes across both cleantech and Internet. In cleantech, he invests in companies that increase the efficiency of oil use and oil production (like Kior and Ecomotors), as well as clean coal conversion (Ciris), energy-efficient lighting and cooling, energy storage technologies, materials and even better meat. In Internet and mobile, he invests in a “cool dozen” areas, including “data reduction” (reducing information overload to more relevant signals), big data (he recently invested in TC Disrupt startup Billguard), education, health, the interest graph, emotional computing, social, and next-gen TV.
Khosla is an out-of-the-box thinker, which is why he’s been so successful at backing companies. He doesn’t consider himself a venture capitalist so much as a “venture assistant.” At our last Disrupt conference in San Francisco, Khosla talked about his disdain for traditional VCs, his cool dozen and the stealth meat company he is investing in. Watch the interview below.