Enclosed is a full-transcript of the interactive Q&A session.
=C2=A9 copyright Wall Street Journal Interactive
Q: Venture capitalists at the Harvard conference said there's a lot of mo=
ney
out there for entrepreneurs. How does one tap into it ?
VKhosla says, "Clearly, most areas have venture capital firms and they ar=
e
very approachable. The real question should be, "How do we get the right
money?" Venture capital is as much about getting the right help as gettin=
g
money."
Q: As an entrepreneur how can I protect my business ideas? How can I be s=
ure
that the VC wouldn't steal my ideas?
VKhosla says, "Unfortunately, there are bad venture capitalists. Just lik=
e
there are bad plumbers and bad doctors. Most of the large firms have to
maintain stellar reputations. Otherwise, they would stop getting a flow o=
f
ideas. The easiest way is to check in the neighborhood and see what other=
s
have to say, just like you would reference check a new employee you were
hiring."
Q: When a company goes public, how does it determine the total number sha=
res
in the company and how many to sell in the IPO?
VKhosla says, "The total number of shares is a function of how much money
the company has previously raised, what it has given out in stock options=
or
other business dealings. It depends very much on the history of the compa=
ny.
The number of shares to issue in the IPO itself is a decision generally m=
ade
by the board of directors based on the cash requirements of the company a=
nd
the amount of liquidity needed in the marketplace or that particular stoc=
k
to trade stabily."
Q: What is the biggest stumbling block to acquiring a capital loan?
VKhosla says, "Usually, it's getting a coherent business plan and a credi=
ble
team."
Q: from tjmehta: Why is a much larger percentage of VC money invested in
software start-ups, compared to biotech start-ups ?
VKhosla says, "What area we invest in is a function of where the greatest
change is happening and a determination of the risks. Today, regulatory
risks are very large in biotech and timeframes very long. That has
redirected investment dollars away from biotech into more lucrative field=
s."
Q: The VC market is really hot now. Do you see any cooling down in the ne=
ar
future? Also, do you agree that there is much more money out there than g=
ood
ideas?
VKhosla says, "I would agree there is much more money out there than good
ideas. The venture capital market will only cool once the rates of return
come down and the flow of money into venture capital declines. For this t=
o
happen, stock market buyers have to get much more discriminating about wh=
ich
stocks to buy, or which companies are durable and not just treat every
Internet IPO as hot."
Q: What do you see as the reason behind KPCB's success?
VKhosla says" The reason behind KPCB's success is a focus on great
management teams and breakthrough technologies and using them to build
durable companies instead of a Wall Street-like focus on buying and selli=
ng
stock. We are in the company building business, not in the stock transact=
ion
business. "Almost everyone at KP has a technical background. Almost
everybody has had an operating job. Most people have started companies. A=
s I
like to say, we try and collect people who have already earned the right =
to
advise entrepreneurs. By-and-large, venture firms have financial or legal
people.
Q: I've heard "more successful busplans have a market research orientatio=
n
than financial orientation." Is that true ?
VKhosla says, "Basically true. Most good business plans have a focus on
markets and people. The fundamental economics make so much sense that
detailed financial analysis is generally unnecessary."
Q: Do you believe venture capital firms should distinguish between those
that act a though they were bankers and those that are genuinely
venturesome?
VKhosla says, "When looking at venture firms, there are clearly bankers a=
nd
a small percentage of firms that act like consultants to management in
bringing great ideas to market and turning them into durable companies.
There is a huge difference between these two types of firms."
Q: You must be getting tons of business plans every day. What is your
criteria to fund a start up company and what do you look for in the busin=
ess
plans?
VKhosla says, "I think I've repeated a number of times that people are ke=
y,
markets are important and the fundamental economics of the idea more so t=
han
the detailed financial plan."
Q: Have you ever funded a company purely based on the business plan, with=
out
knowing the founders?
VKhosla says, "No. People are more important than the plan."
Q: from tjmehta: "Most entrepreneurs can only offer intellectual property
("great ideas") as collateral; all things considered, is that sufficient =
?"
VKhosla says, "Let me suggest, that most entrepreneurs aren't clear about
their own goals. It is important to know whether goal is fame, fortune,
family business or working with friends. Each of those goals will result =
in
a different strategy for the company, and they are all acceptable goals. =
So,
let me make a weather forecast for the United States. The rate of change
will accelerate (life will be more complex, busy) but innovation
opportunities in entrepreneurship will thrive. Fun and fortunes will be i=
n
abundance, and the next ten years will see the largest legal creation of
wealth in human history"
Q: How tough is it to be an indian-American in the 'valley?
VKhosla says, "It's a non-issue. Nobody looks at race here."
Q: Is number of registered users still the main attraction for startup
internet companies? If so, what do you feel is the value, in dollars or
otherwise, of each registered user. The late (proposed) acquisition of
Excite
by @home paid $404. Will this go higher in the near future?
VKhosla says, "No, one cannot use the numbers of users a reasonable metri=
c.
Every business is different. It is a combination of revenue per user, num=
ber
of users, the stability of the revenue stream, I could go on. Every busin=
ess
is truly unique. AOL has fewer users than Excite, but is valued more high=
ly
just as an example."
Q: from tjmehta: Mr.Khosla, could you possibly offer your views and comme=
nts
on the current state of venture capital, in India, and what further steps=
,
in your opinion, should be taken to achieve entrepreneurial successes ?
VKhosla says, "In most countries outside the U.S., venture capital is
treated like a financial profession. Finance is the least important porti=
on
of venture capital and once experienced venture capitalists learn how to =
be
venture assistants rather than financiers, a successful venture industry
will happen outside the U.S. In addition, role models -- successful
startups -- are very important to encourage risk-taking by entrepreneurs,=
by
managers to get them to leave their safe jobs and join start-ups. All thi=
s
helps. Often, a failure mode for entrepreneurs is not knowing what they
don't know, not knowing who's opinion is relevant on a particular topic,
spending too much time on their strengths and failing to identify their
liabilities or their weaknesses."
Q: What advice would you give to a current MBA candidate who wants to get
into venture capital?
VKhosla says, "Go start a company first. Learn what it is like to build a
company. That is the only way to learn and to earn the right to advise ot=
her
entrepreneurs."
Q: I know many VCs tend to frown on the lack of an MBA. What advice would
you give someone versed in his project but lacking in an MBA?
VKhosla says, "Lack of an M.B.A. has seldom, in my view, been a handicap.
Once the entrepreneurial idea and energy is present, a complementary team
can be built by the entrepreneur that includes M.B.A.'s, accountants,
marketers and other needed functions."
Q: Mr. Khosla, as a minority, have you found it difficult to enter the wo=
rld
of venture capital?
VKhosla says, "No. As I said before, it's a non-issue in Silicon Valley."
Q: What are the top 5 things your VC firm looks for in a startup ?
VKhosla says, "I believe the success factors are people, a business model
that includes leverage, a strategy to manage risk, paranoia and persisten=
ce,
and an inclination towards experimentation."
Q: from tjmehta: What factors do VC firms consider in launching buyout fu=
nds
? And, does KPCB's recent involvement with such a fund suggest an impedin=
g
"downward" or an unhealthy outlook for Internet companies ?
VKhosla says, "We don't have a buyout fund and we don't expect in the nea=
r
term to raise the money for a buyout fund. I am not an expert in buyout
funds and couldn't comment on other VC funds."
Q: Where do you see the venture capital market going in Europe?
VKhosla says, "Unfortunately, the European venture capital market, like m=
ost
other foreign venture capital markets, have focused on the financial aspe=
cts
of venture capital rather than the venture assistance aspects. Once they =
do
that, they will be successful. But it will take time."
Q:Persistence: I have made numerous contacts with VC firms via the net. M=
ost
fail to acknowledge the query [KPC & B responded]. How persistent should =
we
be?
VKhosla says, "Persistence always pays off. But if enough good venture
capitalists are telling you they are not interested in your idea, then I
would spend more time trying to understand why they are not interested, t=
han
trying to sell an idea that has been repeatedly rejected. This is an exam=
ple
of trying to understand your liabilities"
Q: How do you prepare your clients for going on the road to talk to analy=
sts
and the press?
VKhosla says, "Most of the time, companies understand their business well
enough that they don't need to be trained. In some cases, basic presentat=
ion
skills training is easily available."
Q: Do you have any general tips?
VKhosla says, "Start with the key messages. Understand the emotions of yo=
ur
audience and the emotional path you want them to travel. It is more
important to be coherent -- address their emotions and answer their
questions -- than to be 100% complete in your presentation of facts."
Q: In a rapidly growing company, one that has added many employees in a
short time frame, how do you maintain the commitment that fueled the
company's initial success?
VKhosla says, "That's what good management is all about -- a clear vision=
,
keeping a consistent culture, keeping the new employees motivated -- are =
all
small parts of the total management equation."
Q: Are you a firm believer that entrepreneurship can be taught per se?
VKhosla says, "Entrepreneurship can be taught by example. It is hard to
teach it theoretically or to turn somebody into an entrepreneur. It is
possible to take a person with entrepreneurial skills and teach them
entrepreneurship and increase their rate of learning."
Q: Approximately how many proposals does KPCB receives per week (say)? an=
d
what is the acceptance rate?
VKhosla says, "We receive well over 100 proposals a week. We do about 15-=
20
investments a year."
Q: What do you think of the telecomms sector vs data networking for growt=
h
over the next 3-5 years? Do you think the West coast is a better place th=
an
the east coast for telecomms ventures?
VKhosla says, "Data networking is becoming the dominant part of telecom. =
In
fact, most of the growth in telecommunications will come from the
data-networking sector. I do believe the West Coast is a much better plac=
e
to do a start-up because the support infrastructure here and the cultural
attitudes of potential employees and others significantly improve the
probability of success."
Q: Can you comment on new technologies that are not yet prevalent in
publicly traded co's?
VKhosla says, "That's a very broad question. Optical networking is very
nascent in the public marketplace. Differentiated IP services are only ju=
st
beginning both as services and equipment. There are no significant
application service providers (ASPs) in the public sector, just to name a
few. There are many more examples."
Q: What are your thoughts for the future prospects of cultural/educationa=
l
sites or portals like LatinoLink, NetNoir or Harappa.com?
VKhosla says, "The 'Net really enables specialized markets like the sites
you mentioned. There will be a lot more sites in the category "other" tha=
n
big sites like Excite and Yahoo. However, they will be small niches, but
successful and profitable niches. That's where the diversity and richness
of the 'Net comes from."
Q: Does a VC prefer any specific exit option?
VKhosla says, "The answer depends upon the venture capitalist. Almost
universally, our firm prefers public offerings over acquisitions. That's
because our emphasis is on building large public companies rather than ju=
st
focusing on rates of return or financial metrics."
Q: from tjmehta: Entrepreneurs-in-Residence seems to be a new trend among
the larger VC firms. How viable is this phenomenon and in what way does t=
his
help ?
VKhosla says, "Entrepreneurs-in-Residence are often used by venture firms=
to
lock a person into dealing just with them. That's not a healthy trend. Wh=
en
EIRs are used to cooperatively and interactively explore a business area =
and
to develop a business plan, it can be quite productive for both parties."
Q: What parts of the US is KPCB funding outside of Silicon Valley? What i=
s
you view on the prospects for NYC?
VKhosla says, "We look in all parts of the U.S., though because of our fo=
cus
on assisting entrepreneurs and personal relationships, the West Coast --
from Seattle to San Diego -- gets more of our attention. But, we will bac=
k a
good idea in any part of the U.S. and we have many investments outside th=
e
West Coast."
Q: How are VCs dealing with the challenge of finding good talent in this
market?
VKhosla says, "It's probably the single most difficult thing we do. In fa=
ct,
we really consider ourselves glorified headhunters in many ways. Hard wor=
k,
lots of networking, and persistence in pursuing good candidates is the ke=
y
to success in our business."
Q: What financial benchmarks do you look at in making a venture capital
decision?
VKhosla says, "As I said before, most of the benchmarks are not financial.
They are people, markets, technology and fundamental economics."
Q: Do you believe it is better for a startup CEO to be a visionary or a
manager. Have you seen a higher success rate for one over the other?
VKhosla says, "I personally believe vision is more important than managem=
ent
skills. As long as the entrepreneur is smart enough to surround himself w=
ith
good managers. But, the situation really depends on the specific
opportunity."
Q: As an employee in a VC-funded start-up (KPCB among them), how much do =
you
feel I should know about our funding, or what questions should I be askin=
g?
VKhosla says, "In general, good companies are very open about sharing
information about their finances. And if I were to work in a company, I
would want to know at least basics of the financial strategy and financin=
g
of the company."
Q: From your experience at Sun, what was the most difficult part of start=
ing
a company?
VKhosla says, "Probably the most difficult part was not knowing what I
didn't know and gaining credibility with other "normal" businesspeople."
Q: What is the secret behind your success?
VKhosla says, "Charming lady luck."
WSJ_Host says, "Something many people wonder about! ;-)"
Q: Who are some that have inspired you through the years?
VKhosla says, "Well, I got into entrepreneurship because of successful ro=
le
models like Intel -- Andy Grove among them."
Q: What are your thoughts on incubators such as the Idea Lab?
VKhosla says, "I view incubators the same way that I view EIRs -- which w=
e
talked about earlier. It really depends on the qualification of the peopl=
e
helping you build your business idea."
Q: How can one explore the opportunities of Entrepreneur-in-residence
program at VC firms ?
VKhosla says, "Most of it depends on personal relationships. Some of it
depends on your previous track record or the levels of skills or achievem=
ent
you've had before."
Q: I have letters of interest from AOL, and other companies like that, bu=
t
the VC community is still not interested in providing the $1.2 million se=
ed
capital necessary to launch. Any suggestions?
VKhosla says, "Don't sell them -- ask them what's wrong with your plan. T=
ry
and get blunt, honest answers. And then go try and correct that portion o=
f
your plan. If there is truly a mismatch with venture capital, try other
sources of funding. Not every good plan is appropriate for venture capita=
l."
Q: How do you deal with confidentiality of ideas. If I send something to =
a
VC who has a company that can use the idea, what generally happens?
VKhosla says, "Most venture firms are quite reputable about building Chin=
ese
walls and isolating information. Unfortunately, there are some bad ventur=
e
firms, so reference checking is the best thing to do."
Q: Can you give a real life example from inception to exit that illustrat=
es
a best case scenario?
VKhosla says, "The best personal experience has been Excite, where I fund=
ed
a couple of entrepreneurs whose idea I did not like, but where I liked th=
e
people. They had no previous work experience. We incubated them, helping
them develop their business plan, turned down some acquisition offers alo=
ng
the way that looked very attractive at that time. We continued to focus o=
n
building a long-term, sustainable business advantage and eventually
announced a merger with AtHome at about a $7 billion market cap in the sp=
ace
of a few years."
Q: The concept of valuations have fascinated me; what do you look for in
valuing an idea?
VKhosla says, "Valuation is very much a gut call. It depends on the peopl=
e,
it depends on the unfair advantage a start-up has in its market, and it
depends on the size and dynamics of that market."
Q: What kind of equity split seems to work well among founders in an
enterprise?
VKhosla says, "Every situation is unique. There are no pre-set answers."
Q: How would you compare the pluses and minuses of start ups vs later sta=
ge
ventures ?
VKhosla says, "Each has its place. You hope every start-up becomes a late=
r
stage venture. From an investment point-of-view, it really depends on the
risk profile you are looking for. I advise entrepreneurs to see what
companies their venture capitalist has personally built. The goal of a go=
od
venture
capitalist is not to be nice and charming, but to ask you hard questions =
to
make you think and confront problems early in your business, to have a
network that can build a team and recruit employees. Ask the entrepreneu=
rs
who they have funded. If their start-up would have been less attractive o=
r
less successful if their particular venture capitalist had not been
involved."
Q: What technology sectors personally interest you ?
VKhosla says,"Generally, the industries of greatest interest to me are
technology segments that are undergoing rapid change. Currently, most
aspects of the Internet, many areas of telecommunications and some areas =
of
semiconductors are undergoing rapid change. Change is an indicator of a
great new playing field for entrepreneurs."
Q: Any upcoming technology sector ipo's we should know about? Can you nam=
e
any ?
VKhosla says " I believe the telecommunications sector has not had many
IPOs. Mostly because promising companies have been acquired in their priv=
ate
stages. I believe there will be a number of new promising telecommunicati=
ons
IPOs this year.Extreme Networks has just filed; Companies like Redback
Systems, Juniper and others"
Q: How did you and your Sun co-founder divvy up responsibilities?
VKhosla says "Dividing responsibility is a function of what your skill se=
ts
and interests are. More than anything, you can't handicap a company or
increase its risk by trying to do things you are not qualified or
experienced in doing."
Q: Mr. Khosla, why did you leave Sun Microsystems and the world of
computers?
VKhosla says "I did not leave the world of computers. Kleiner Perkins was=
an
investor in Sun and John Doerr was on my board. I decided to help other
people build companies in many different areas rather than focus on just =
one
effort. To be honest, I wanted to retire. Persistence, keeping an open mi=
nd,
focusing on long-term goals, and more than anything else, surrounding mys=
elf
with great people who
are better than me."
Q: "Surrounding yourself with people better than you" - how do you make t=
hem
stay?
VKhosla says, "The key to surrounding yourself with successful people is =
to
be generous, fair and fun."
WSJ_Host says, "Fun being a very key factor :-)"
VKhosla says, "Thank you all for joining me this evening"
*******************************
Tushar J. Mehta
email: [email protected]
voicemail: (425) 558-1101
*******************************
Tushar J. Mehta
email: [email protected]
voicemail: (425) 558-1101