Vinod Khosla - Daisy, Sun, Juniper Networks, Excite and now, Cerent

Tushar J. Mehta ([email protected])
Tue, 31 Aug 1999 16:02:58 -0700

A Quiet Man Puts Some Sizzle In Latest Deal Involving Cisco
By Scott Thurm, WALL STREET JOURNAL on-line
August 27, 1999
Copyright =C2=A9 1999 Dow Jones & Company, Inc.
----------------------------------------------------
Venture capitalist Vinod Khosla toils in the shadow of partner John Doerr=
,
who pals around with Al Gore and graces the covers of magazines. But it's
Mr. Khosla who has the hot hand in Silicon Valley right now. Mr. Khosla, =
a
partner at venture firm Kleiner Perkins Caufield & Byers, was the driving
force behind Cerent Corp., a telecommunications-equipment start-up slated=
to
be purchased by Cisco Systems Inc. in a $6.9 billion deal announced
Thursday. Kleiner Perkins's 30% stake in the venture, for which it paid
about $8 million, is suddenly valued at $2 billion as a result of the dea=
l.
Mr. Khosla conceived Cerent in late 1996, recruited the first engineers,
served as chief executive for 1 1/2 years and, as chairman, shepherded
Cerent to what is believed to be a record purchase of a closely held
technology company. Yet Cerent is only Mr. Khosla's second-biggest hit of
the summer. The 44-year-old native of India also was a key supporter in t=
he
creation of Juniper Networks Inc., another maker of telecom gear, whose
shares have skyrocketed since going public in June, giving Kleiner Perkin=
s
another $2 billion-plus stake, from an even smaller initial investment.
Throw in his role as an early backer of Internet portal Excite Inc.,
acquired in May by At Home Corp. for $6.7 billion, and Mr. Khosla is havi=
ng
a heck of a year.
"When Vinod starts making things happen, there's no limit," says Roger
McNamee, partner at Integral Capital Partners, an investment firm associa=
ted
with Kleiner Perkins. Mr. Khosla's recent record exemplifies the increasi=
ng
role of venture capitalists as more than financiers. Not content to give =
a
simple yes or no to entrepreneurs with an idea, Mr. Khosla is among the m=
ost
prominent exponents of the view that venture capitalists actually build, =
not
just fund, technology companies. Sometimes, that strategy means Mr. Khosl=
a
creates a company around his own idea. In the case of Cerent, the idea wa=
s
to make the rings of fiber-optic cables that encircle most metropolitan
areas more efficient for carrying both telephone calls and computer traff=
ic.
In other cases, it means tapping the full potential of other people's
concepts. The six founders of Excite approached Kleiner Perkins in the fa=
ll
of 1994, after having been turned down by eight other venture firms, as t=
hey
sought backing for new technology for searching huge databases.

How Big?
How big could these databases be? Mr. Khosla asked, according to Joe Krau=
s,
now senior vice president of content for Excite At Home Corp. The founder=
s
replied that they didn't know, because the $15,000 they had borrowed from
their parents didn't allow them to buy a big enough disk drive to test th=
eir
invention. Mr. Khosla gave the founders $6,000 to buy a disk drive, then
suggested they use their technique as a search tool for the then-emerging
Web. He constantly pushed the Excite team to think bigger. When Microsoft
Corp. offered to buy the company, then-called Architext, in December 1995
for $70 million, he persuaded the founders to spurn the deal. When Netsca=
pe
Communications Corp. auctioned off the search-engine function on its home
page, Mr. Khosla urged Excite to bid $3 million, even though the company =
had
only $1 million in the bank. "He thinks huge," says Mr. McNamee. Two deca=
des
ago, Mr. Khosla was a founder of Daisy Systems Corp., a maker of computer=
s
and software for computer-assisted engineering. Two years later, he helpe=
d
found Sun Microsystems Inc., whose workstations drove down prices and sho=
ok
up the computing establishment. Since joining Kleiner Perkins in 1986, Mr.
Khosla has played key roles in starting companies involved in
semiconductors, multimedia video games, Internet software and computer
networking. His Next Big Thing is application-service providers, companie=
s
that run corporate software programs as a service over the Internet. Mr.
Khosla is on the board of one such provider, Corio Inc., and earlier this
year organized another, Asera Inc., in much the same way he created Ceren=
t.

How does he stay current?
"I have the smartest people in the world educating me every day," Mr. Kho=
sla
says. "The only thing I really do is filter and modify to arrive at my ow=
n
opinions." Associates say the most frustrating part of working with Mr.
Khosla is keeping up with a constant stream of suggestions. Mr. McNamee s=
ays
he tells companies in which Mr. Khosla invests to appoint "a senior vice
president in charge of managing Vinod." Ajaib Bhadare, a Cerent founder n=
ow
vice president of engineering, says Cerent might not have gotten out its
product so quickly if it had all the features Mr. Khosla had proposed.

Not all of Mr. Khosla's ideas are winners. With support from Mr. Khosla,
Kleiner Perkins was an early backer of hand-held computers that recognize
handwriting, funding Go Corp. and other unsuccessful companies. Mr. Khosl=
a
also backed 3DO Co., a game maker whose shares now sell for a fraction of
the '93 initial offering price. An avowed risk-taker, Mr. Khosla swore of=
f
hang-gliding and skydiving only after becoming a father. (He has four
children.) Mr. Khosla suspects he cherishes risk as a reaction to his
father, who was orphaned at three weeks and grew up to be a "very
conservative" career military officer. Mr. Khosla spurned his father's
suggestions to join the military, instead enrolling at the prestigious
Indian Institute of Technology, and then coming to the U.S. for graduate
studies at Carnegie-Mellon University. Then it was on to Stanford Univers=
ity
for an M.B.A. "I started dreaming of starting companies based on technolo=
gy
when I was 15," he says.

Tushar J. Mehta
email: [email protected]
voicemail: (206) 405-2335