Brad DeLong's Semi-Daily Journal: A Weblog: Vinod Khosla in Action

September 24, 2004

Vinod Khosla in Action

Paul Kedrosky gives us Joe Krause talking about Kleiner Perkins's Vinod Khosla:

Infectious Greed: Great vs. Good vs. Bad VCs: Joe Krause (of Excite fame) relates an instructive story about Vinod Khosla of Kleiner. Why is this story instructive? Because it shows the difference between a great VC and a merely good VC (and don't even get me started about bad ones). The latter, blessedly, doesn't waste time and gets to the "money question" (i.e., how do you make money?) quickly. Khosla, on the other hand, answered the money question to his own satisfaction before the entrepreneurs came in -- and used his time with the Excite entrepreneurs to have them answer an empirically testable question where they had expertise and he didn't.

While we were still in the garage (literally), we met with at least 15 different venture capital firms. The meetings we're all the same. We showed them our search technology, showed them "concept-based" search, and showed them targeted advertising. To a firm, the first question they asked was a very reasonable one: 'great stuff guys, but what's your business plan? how are you going to make money?' Of course, being 22 years old and fresh out of college we replied, 'we thought you could help us out with that.' Apparently, that's the wrong answer. Who knew?

Rinse, lather, repeat.

Then we met Vinod...

By then, our deal had developed a certain "smell" -- smart guys with interesting technology but an uncertain business plan. The demo to Vinod started off like they all did, but about 10 minutes into the meeting things got very different. He interrupted

"Can the technology scale? can you search a large database?"

Big Pause. It's not the money question. No one has ever asked us this before. Ummm.

"We don't know, we can't afford a hard drive big enough to test."

Then, an amazing thing happened. Ten minutes into this meeting, his first introduction to the company and us, he pulls out his his cell phone, dials his assistant and buys us a $10,000, 10Gb hard drive.

Posted by DeLong at September 24, 2004 10:00 AM | TrackBack

Comments

CEO of one of Khosla's companies had to do staff cuts. It was Christmas time and CEO wanted to do the cuts after the holidays. Nice Mr. Khosla told him to do the lay off before Christmas - "so that laid-off workers can spend the holidays with support of their loved ones". He told this story to the reporter and was actually quite proud of himself.

Posted by: a at September 24, 2004 10:40 AM

Last time I looked, the monument to such "greatness" was two large vacant buildings next to 101 in Redwood City.

Posted by: Paul Callahan at September 24, 2004 10:41 AM

The truly amazing thing about this story is that eight years a 10gb hard drive cost $10,000, where today it would cost about $10.

Posted by: James Surowiecki at September 24, 2004 11:34 AM

James, I was DP Mgr for a company which paid $5,000 for a 13.2megabyte hard drive for an IBM S/34, and that was from SunData (not the same Sun we all know now), a discounter.

Never regretted it, either. It doubled our storage capacity at the time.

Posted by: Linkmeister at September 24, 2004 02:08 PM

"Nice Mr. Khosla told him to do the lay off before Christmas - "so that laid-off workers can spend the holidays with support of their loved ones". He told this story to the reporter and was actually quite proud of himself."

In this case, I'm going to side with Khosla. If your company's cash negative (like most VC-funded firms) and you need to staunch the bleeding, you do no-one any favours by dicking around and waiting before amputation; you're just destabilizing the firm further.

As for the "where's your business plan" question; I'm surprised that a good VC would find that an issue: the correct answer, if the technology is good, is to put the technies in touch with a good entrepreneur who can write the plan for them. A business plan is just dressing on the following four questions:

1. What's the need?
2. What's your approach to meet the need?
3. What are the benefits of your approach?
4. What is/will be the competition?

Posted by: Tom at September 24, 2004 04:32 PM

"Last time I looked, the monument to such "greatness" was two large vacant buildings next to 101 in Redwood City"

That's the corpse of @Home; @Home crashed and burned (tried to expand too fast), but Excite continued. The merger of the two was dumb.

Posted by: Tom at September 24, 2004 04:35 PM

> That's the corpse of @Home; @Home crashed and burned (tried to expand too fast), but Excite continued. The merger of the two was dumb.

After Excite@Home closed shop, all that was left of Excite was the brand name, which was bought at a bargain by another company. The www.excite.com page is a knock-off that was written without any access to Excite's code base.

Posted by: Paul Callahan at September 24, 2004 08:10 PM

Tom: If your company's cash negative (like most VC-funded firms) and you need to staunch the bleeding, you do no-one any favours by dicking around and waiting before amputation; you're just destabilizing the firm further.

I know, I know, self-interest for the masters, self-reliance for the servants. Myself, I always wondered if we should just shoot the retirees - I mean, its not like the buggers are useful or anything.

Posted by: a at September 24, 2004 10:57 PM

Being laid off before Christmas at least enables one to effectively resist "urge to splurge" both in self and family.

Posted by: jm at September 25, 2004 07:28 AM

Spin it any way you want. Basically, there are two types of corporations: Those that treat their employees like assets, and those who treat them like expenses.

The above example was of the latter. While layoffs before Christmas seems tactically sound, companies that pull this crap tend to implode and burn out, like white dwarfs. The reason?

Because layoffs before Christmas pisses off the employees you KEEP. DUHH. Treat your cast-offs like trash and you've instantly made every employee still on your payroll an apathetic mercenary.

Idiots.

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