Role of VC in Valuation 
Role of VC in Valuation
by Stanford / Vinod Khosla
Video Lecture 6 of 20
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Date Added: December 30, 2009

Lecture Description

Things aren't ever as good or as bad as we think. Today (2002) is one of the best environments to be an investor. The last three or four years were not a lot of fun--if Khosla went to someone to build a reasonable business, the response he would get was that another company was willing to give more money for less work. He would have to explain that the role of a VC was to help companies develop a real economic model and to give an honest valuation.


The fact is things aren't ever as good as the number one venture capitalist in the world - there is no such thing, and that things are never as bad. Today to answer your question more directly, it's one of the best environments to be an investor. The last three or four years was not a lot of fun. And it wasn't a lot of fun for the following reasons: If I went to somebody and said, "Here's what you need to do to build a reasonable business." The response I almost always got was, "That other venture capitalists willing to fund me for 10 million dollars." There was a small group called Centroda. They won the MIT 50K competition entrepreneurship competition came to me and I said, "You don't have a plan. You're doing peer-to-peer which is a terrible area from a business model point of view. But I like some of the things you're doing and the way you guys work. So, we'll fund you but we'll fund you with a million dollars which you have to make last a year." And in the process developed, they came back to me and said - but in another VC offered them 10 million dollars. And so I had to sit down with them and explain. I wasn't going to give them 10. I wasn't going to give them a 10-million dollar valuation. I was going to put them to the ringer in developing a real economic model for a year, before he even knew what he got funded and he have to make his choice. And he could go take the 10 million dollars. He agonized over it for a long time. Actually, this is a small group, the team agonized over it and finally decided they'll work with us. Today, I think they'll tell you, if they've taken the 10 million, they wouldn't be in business today. But I've seen 90 percent of the people take the 10 million dollars. It was hard to argue they shouldn't.

Course Index

Course Description

An interview with Vinod Khosla on Entrepreneurship for Stanford University students, on April 24, 2002. Vinod Khosla, partner at Kleiner, Perkins, Caufield & Byers, was bitten by the entrepreneurship bug early in life when he heard about Intel starting up. He was enamored by the idea of being able to start your own company. Intel served as as a great role model, he says.

Vinod Khosla

Khosla Ventures

Vinod grew up dreaming of being an entrepreneur. He was raised in an Indian Army household with no business or technology connections. When, at age 16, he first heard about Intel, he dreamt of starting his own technology company.

Upon graduating with a Bachelors in Electrical Engineering from the Indian Institute of Technology, Delhi, he tried to start a soy milk company to service the many people in India who did not have refrigerators. He then came to the US and got his Masters in Biomedical Engineering at Carnegie-Mellon University. His startup dreams attracted him to Silicon Valley where he got an MBA at Stanford University in 1980.

In 1982, Khosla started Sun Microsystems to build workstations for software developers. At Sun he pioneered "open systems" and RISC processors. Sun was funded by long time friend and board member John Doerr of Kleiner Perkins Caufield & Byers.

In 1986 he switched sides and joined Kleiner Perkins where he was a general partner. There, he worked with Nexgen/AMD, Juniper, Excite, and many other ventures.

In 2004, Khosla formed Khosla Ventures. Khosla Ventures offers venture assistance, strategic advice and capital to entrepreneurs. The firm helps entrepreneurs extend the potential of their ideas in both traditional venture areas like the Internet, computing, mobile, and silicon technology arenas but also supports breakthrough scientific work in clean technology areas such as bio-refineries for energy and bioplastics, solar, battery and other environmentally friendly technologies.

Related Links:

Last Updated: Thu, Oct 23, 2008

Course Details:

- Entrepreneurial Thought Leaders Lecture

- Stanford University's Entrepreneurship Corner (ecorner)

Original Course Name: Entrepreneurial Thought Leaders Lecture.


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