Serial entrepreneur and seasoned investor Vinod Khosla has some strong and counterintuitive advice for the venture capital industry: Don’t sit on your founders’ board. Speaking on stage at the Upfront Summit in Los Angeles this week, Khosla talked about capital city culture.
“I’m not a big fan of management; “I think if you’re engaged with a founder as a team member, you have more influence than sitting on a board and voting,” he said. “Other VCs accuse us of being too active and too involved — but the side of it is they vote on the board. We don’t — no matter how important the issue.”
It’s not a consensus in a world where VCs are being asked tough questions about due diligence, but Khosla adds, “It’s not the job of a VCA to sit on the board and vote… It’s not to get founders or management to do things they don’t want to do by voting.” “He spends more time giving presentations to our constituents than anyone I know,” Khosla said, avoiding six-hour board meetings.
The reality, Khosla added, “in today’s startups, most board members don’t have the right to advise” because many of them haven’t built startups themselves. Khosla has a history of criticizing some mainstream wisdom by VCs. On stage, He points to a TechCrunch piece he wrote in 2013, “70-80% of VCs add negative value to startups.
The advice comes at a rosy time for the industry. Exacerbated by scandals like FTX, or reports of companies lying about key information, the venture industry has seen some high-profile examples of things that can go wrong.
For example, in January, Sequoia’s Alfred Lin spoke with TC Connie Loizos about an FTX investment. “I think it’s something that makes me reassess… it’s not what we invested in. It’s been a year and a half working relationship since then, and I still haven’t seen him. And that’s hard,” he said.
Other investors have similarly spoken of the need for investors to rethink how they interact with founders. 01 Advisors, Twitter’s former CEO Dick Costolo and Adam Bain, Twitter’s former COO, said on the forum that their biggest mistake as an organization was supporting the wrong people. The firm talks about a questionnaire that helps them better screen a founder’s potential strengths and weaknesses (which they say they use to make investment decisions). Echoing Khosla’s comments, the duo stressed the importance of not taking board seats so they could instead be a founder’s first call.
Of course, giving up a board seat as a VC means giving up some control, along with the checks and balances that help keep the founding team on track. Critics of the industry’s lax approach to boardrooms have previously told TechCrunch that board meetings are just as important, not less, to senior managers who want more time with their investors. (If the founder is talking to the backers of the startup venture, that means everyone is essentially out of the loop.)
While Khosla’s anti-board views may ruffle feathers with some VCs in the room, LPs don’t seem to be pushing back against him. In the year Khosla and his firm, founded in 2004, are raising about $3 billion in three new funds, regulatory filings show. The outfit plans to raise $1.5 billion for VIII, $1 billion for the Second Chance Fund and $400 million for a new seed fund. Last year, the company raised more than $550 million for its first venture fund after taking $1.4 billion for the VII fund.
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