Serial entrepreneur and seasoned investor Vinod Khosla has 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 part of a team with a founder, you have a lot more influence than if you sit on a board and vote,” he said. “Other VCs accuse us of being very active and very engaged – but the flip side is that they vote on boards. We don’t, no matter how important a problem.
It’s a non-consensual shot in a world where VCs are asked difficult questions about their due diligence, but Khosla added that “it’s not the VC’s job to sit on a board and vote…there’s a hard line that you don’t cross, which is don’t not force founders or management to do things they don’t want to do by voting. Khosla says that by avoiding six-hour board meetings, he spends “more time making presentations for our founders than almost anyone I know.”
The reality, Khosla added, is that “most board members today in startups haven’t earned the right to advise” because many haven’t built startups themselves. . Khosla has a habit of criticizing some of the mainstream VC wisdom. On stage, he pointed to a TechCrunch article he wrote in 2013, titled: “70-80% of VCs add negative value to startups.”
The guidance comes at a time of reflection for the industry. Exacerbated by collapses like FTXOr anecdotes about companies that allegedly lied about key informationthe venture capital industry has seen loud examples of things that can go wrong.
In January, for example, Alfred Lin of Sequoia spoke to TC’s Connie Loizos about her FTX investment. “I think what makes me reassess is…it’s not that we made the investment. It’s the working relationship a year and a half later, and I still haven’t seen it. And it’s difficult,” he said.
Other investors also spoke of the need for investors to rethink how to interact with founders. 01 Advisors, built by Dick Costolo, the former CEO of Twitter, and Adam Bain, the former COO of Twitter, said on stage that their biggest failures as a company have been supporting the wrong people. The company talked about a questionnaire that helps them better assess a founder’s potential strengths and weaknesses (they say they use it to make investment decisions). Echoing Khosla’s comments, the duo also talked about the importance of not serving on the board 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, as well as the checks and balances that can help a founding team stay on track. While criticism of the industry’s lax approach to board seats has said TechCrunch previously, board meetings are also important for senior executives who may want to spend more time with their investors, not less. (If only the founder talks to the startup’s backers, that means everyone is out of the loop, essentially.)
While Khosla’s anti-board perspective may ruffle some of the VCs in the room, the LPs don’t seem to mind. Khosla and his company, founded in 2004, raise approximately $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 company raised more than $550 million for its first Opportunity Fund after raising $1.4 billion for its Fund VII.
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