Veteran entrepreneur and investor Vinod Khosla offers some powerful and conflicting advice in the venture capital space: Don’t sit on the boards of your founders. 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 get involved as a member of a team with a founder – you have a lot more influence than if you sit on a board and vote. “Other venture capitalists accuse us of being too active, too involved — but the flip side of that is that they vote on boards. We don’t — no matter how important an issue is.”
It’s a non-consensus measure in a world where VCs ask tough questions about their due diligence, but Khosla added that “it’s not a VC’s job to sit on the board and vote… There’s a hard line you can’t cross, which doesn’t make The founders or management do things they don’t want to do by voting.” By avoiding six-hour board meetings, Khosla says, he spends “more time doing sets for our founders’ presentations than almost anyone I know.”
The truth, 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 history of criticizing some of the prevailing wisdom held by VC investors. On stage, he referenced a 2013 TechCrunch article titled: “70-80% of Venture Capital Adds Negative Value to Startups.”
The advice comes at a time that reflects the industry. Exacerbated by crashes like FTX, or tales about companies being said to lie about basic information, the adventure industry has seen some glaring examples of things that can go wrong.
In January, for example, Sequoia’s Alfred Lin spoke to TC’s Connie Loizos about his investment in FTX. “I think the thing that makes me re-evaluate is…it’s not that we made the investment. It’s the working relationship a year and a half after that, and I still haven’t seen it. And it’s hard.”
Other investors have similarly spoken of the need for investors to rethink how they interact with founders. 01 Consultants, set up by former Twitter CEO Dick Costolo and Twitter’s former chief operating officer Adam Payne, said on stage that their biggest mistake as a company was about supporting the wrong people. The company has talked about a questionnaire that helps them better examine a founder’s potential strengths and weaknesses (they say they use this to make investment decisions). Echoing Khosla’s comments, the duo also spoke about the importance of not taking a seat on the board of directors so they can instead be first call for the founder.
Of course, giving up a board seat as venture capital could mean giving up some oversight, along with the checks and balances that can help the founding team stay on track. As critics of the industry’s diluted approach to board seats previously told TechCrunch, board meetings are intimately important to senior managers who may want more time with their investors, not less. (If the founder is only talking to the startup’s venture backers, that means everyone is out of the loop, basically.)
While Khosla’s anti-plate perspective might ruffle feathers with some VCs in the room, the LPs don’t seem to be battling it out. Khosla and his company, founded in 2004, are raising about $3 billion across three new funds, according to regulatory filings. The foundation plans to raise $1.5 billion for the eighth fund, $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 Opportunity Fund after raising $1.4 billion for its seventh fund.
If you have sexy advice or lead the world of adventure, reach out to Natasha Mascarenhas on Twitter nmasc_ or on Signal at +1 925 271 0912. Requests for anonymity will be respected.