Serial entrepreneur and seasoned investor Vinod Khosla has some strong, contrarian advice for the venture capital industry: don’t sit on your founders' boards. Khosla, who spoke onstage at the Upfront Summit in Los Angeles this week, spoke about the culture of capital.
“I’m not a big fan of governance; I think if you engage as a team member with a founder, you have much more influence than if you’re sitting on a board and voting,” he said. “Other VCs accuse us of being very active and very engaged -- but the flip side of it is they vote on boards. We don’t -- no matter how important an issue.”
It’s a non-consensus take in a world where VCs are being asked hard questions about their due diligence, but Khosla added that “it isn’t the VC's job to sit on a board and vote…there’s a hard line you don’t cross, which is don’t make founders or management do things they don’t want to do by voting.” Khosla says that by avoiding six-hour board meetings, he spends “more time doing decks for presentations for our founders than almost anybody I know.”
The reality, added Khosla, is that “most board members today in startups have not earned the right to advise” because many have not themselves built startups. Khosla has a history of criticizing some of the mainstream wisdom by VCs. Onstage, he pointed to a TechCrunch piece he wrote in 2013, titled: “70-80% Of VCs Add Negative Value To Startups.”
The advice comes at a reflective time for the industry. Exacerbated by meltdowns like FTX, or anecdotes about companies reportedly lying about key information, the venture industry has seen some loud examples of things that can go wrong.
In January, for example, Sequoia’s Alfred Lin spoke to TC’s Connie Loizos about his FTX investment. “I think the thing that gets me to reassess is…it’s not that we made the investment. It’s the year-and-a-half working relationship afterward, and I still didn’t see it. And that is difficult,” he said.
Other investors similarly spoke about the need for investors to rethink how to interact with founders. 01 Advisors, built by Dick Costolo, Twitter’s former CEO, and Adam Bain, Twitter’s former COO, said onstage that their biggest misses as a firm have been around backing the wrong people. The firm spoke about a questionnaire that helps them better vet a founder’s potential strengths and weaknesses (they say they use this to make investment decisions). Echoing Khosla comments, the duo also spoke to the importance of not taking a board seat so they can instead be a founder's first call.
Of course, giving up a board seat as a VC can mean giving up some oversight, along with the checks and balances that can help a founding team stay on track. As critics of the industry’s loosening approach to board seats have told TechCrunch previously, board meetings are relatedly important for senior managers who may want more time with their investors, not less. (If only the founder is talking to the startup’s venture backers, that means everyone else is out of the loop, essentially.)
While Khosla’s anti-board perspective may ruffle feathers with some of the VCs in the room, LPs don’t appear to be pushing back against it. Khosla and his firm, founded in 2004, is raising about $3 billion across three new funds, according to regulatory filings. The outfit plans to raise $1.5 billion for a Fund VIII, $1 billion for a second opportunity fund and $400 million for a new seed fund. Last year, the firm raised over $550 million for its first Opportunity Fund after taking in $1.4 billion for its Fund VII.
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