Green Gambler

Vinod Khosla calls himself a “techie nerd.” He prefers that title much more than “venture capitalist,” a label he has reluctantly worn for more
than two decades as one of the country’s most successful investors. While working as a partner with the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers, he profited on such startups as Juniper Networks, Excite, and NexGen. His goal was never to make a lot of money—although Forbes estimates his net worth at $1.5 billion. He was, quite simply, lucky. “I know how to do business,” he says, “but I’m really a techie nerd whose religion is science.”

In 2004, Khosla left Kleiner Perkins and formed Khosla Ventures, where he invests in what he calls “science experiments,” mostly in the growing areas of environmentally friendly technology. “Really what I want to do is change the world in some way,” he says.

That’s no small goal, but Khosla, 53, has already received national attention for his efforts. Fortune magazine recently named him one of the nation’s most influential ethanol advocates, noting, “There are venture capitalists, and there’s Vinod Khosla.”

When he was growing up in an army household surrounded by military personnel in India, Khosla’s high-tech dreams seemed far from reality, but he was always on the lookout for information on technology. Then at age 16, he read about Intel—the microprocessor manufacturer founded in Mountain View in 1968 by Robert Noyce, Gordon Moore, and Andrew Grove—in Electronic Engineering Times, and he began to dream of starting his own technology company. “It just sounded like a neat idea,” he says.

He headed to the Indian Institute of Technology in Delhi, India, where he earned a bachelor’s of technology degree in electrical engineering. The 20-year-old graduate attempted to create a soy milk company in India but met with some frustration. “Having no refrigeration in India, I thought that would be a great milk substitute,” he says. Unfortunately, the climate in his home country at the time wasn’t friendly to start-ups, and his company failed.

Khosla refused to become discouraged. “If you’re not failing, you’re not trying new things,” he says. “By definition, you’re not taking any risk. The definition of risk is that you fail. The more risk you take, the more often you fail. It’s when you make it a big deal that it becomes a problem. I just consider it a privilege—this freedom to fail. I know it sounds odd, but it is in fact the most important tool I have, and being able to pick myself up, get up, and go again and not worry about why I failed. I like to say, ‘I don’t mind failing, but we better take enough of a risk that it’s really worth succeeding if we do succeed. Because I don’t want to succeed in a marginal way.’ ”

It’s that all-or-nothing attitude that took him to the United States in 1976, when he accepted a full scholarship from Carnegie-Mellon University. After earning a master’s degree in biomedical engineering, he set his sights on Silicon Valley. He was drawn to the legend and the entrepreneurial spirit of the Valley, which was still alive with the personal computer revolution occurring in garages. Stanford University was a large contributor to the technological boom, and Khosla decided to apply for admission to its Graduate School of Business.

At first, Khosla was denied due to what the university called a lack of work experience. He landed a few jobs in the Pittsburgh, Pennsylvania area and reapplied. Once again, he was denied. “I called and yelled and screamed,” he says. After repeated phone calls, Khosla was put on the waiting list and eventually admitted. “I’d always had the dream of being an entrepreneur, and entrepreneurs don’t say ‘no,’ ” he says. “They don’t accept ‘no.’ ”

Upon graduation from Stanford in 1980, Khosla became one of three founders of Daisy Systems, the first significant computer-aided design system for electrical engineers. The company went on to post significant revenues, profits, and an initial public offering.

He moved on in 1982 when he co-founded Sun Microsystems with Andreas Bechtolsheim, an electrical engineering Ph.D. student in the Computer Systems Laboratory at Stanford; Scott McNealy, his roommate at Stanford’s Graduate School of Business; and Bill Joy, a Ph.D. student in computer science at the University of California, Berkeley. Their first product was a professional work station created by Bechtolsheim. “We had big dreams. We were four 27-year-olds trying to take on IBM,” Khosla says. “One of my favorite sayings is, ‘An entrepreneur is someone who dares to dream the dreams and is foolish enough to try to make those dreams come true.’ ”

Sun, which is an acronym for Stanford University Network, turned a profit in its first quarter and raked in $1 billion within five years. In 1984, Khosla left Sun when McNealy replaced him as CEO.

After a brief retirement, Khosla accepted an invitation from John Doerr to join Kleiner Perkins, a venture capital firm in Palo Alto, in 1986. Khosla and Doerr were longtime friends and worked together when Doerr was an investor in Sun.

At Kleiner Perkins, Khosla became famous for investing in successes that made billions for the firm, such as the chipmaker NexGen, which was eventually acquired by Advanced Micro Devices, and optical networking start-up Cerent, which was picked up by Cisco. In 1996, Khosla incubated the idea and business plan for Juniper Networks to challenge Cisco’s dominance of the router market. Since then, Juniper Networks has grown into a major force in the industry, earning $2.84 billion in revenues in 2007. “I have a pretty good sense of what can be successful, but the fact is I don’t mind screwing up,” Khosla says. “That gives me the sort of ability to jump out of the plane, so to speak.”

Indeed, things haven’t always worked out for Khosla. As for his exact number of failures, he says, “I couldn’t even count them.” The standouts include DynaBook, a laptop maker; Go Computing, which was working on an operating system for palm-type hand-held computers; and 3DO, a gaming device. But more than supply funds, Khosla was often involved in coaching entrepreneurs and serving on boards. In 1994, he was an early backer of the search engine Excite, which was founded by several young computer science students at Stanford and was later bought out by @Home Corp. for $6.7 billion in 1999. At the time, Excite had 20 million registered users.

Driven by the desire to pursue his growing interest in funding breakthrough scientific work in clean technology and other environmentally friendly technologies, Khosla left Kleiner Perkins and founded Khosla Ventures, funded entirely with family funds, in 1994. “I was interested in more science experiments in less traditional markets,” he says. “Three or four years ago, green tech was a non-traditional market.”

Since then, Khosla has funded a handful of startups involved in solar electric technology, batteries, and coal gasification. “We have someone working on malaria drugs [who is] now working on making new fuel for our cars,” he says. “That sounds ridiculous unless you allow free-thinking and creativity. We have a Stanford professor creating a new kind of cement. Cement hasn’t changed in 100 years! We have researchers at Lawrence Livermore National Laboratory creating new approaches to berries that nobody has thought about. I can go on and on.”

Khosla gets a thrill out of discussing the technical aspects of these projects with the inventors. “I enjoy going deep into the science and technology,” he says. “I’m probably not capable of inventing new stuff in most of these areas, but I can follow along.”

Of all his investments, his true passion is clear: Prominent on a coffee table at his Menlo Park office is the October 2007 National Geographic with the headline “Growing Fuel: The wrong way, the right way.” The article is referring to ethanol, which produces 80 to 90 percent less carbon, one of the main contributors to global warming.

What you won’t see are awards or pictures. “I don’t look back,” Khosla says. “One thing I never do is keep any awards. I don’t keep them around because I don’t want to look back. I just want to look at the future. And have a lot of fun.”

Khosla believes ethanol is the way of the future. He is convinced that the United States can replace a majority of the petroleum used for cars and light trucks with ethanol in 25 years and substantially reduce its carbon emissions.

Khosla first became interested in ethanol in 2001, around the time that the tech bubble burst. He was considering traditional energy sectors such as fuel cells and hydrogen when plans from a company called Celunol crossed his desk. He turned the Massachusetts-based company down because its business plan had problems, but he was intrigued by Celunol’s scheme to convert biomass such as switchgrass into ethanol. Two years later, he invested in Celunol. Since then, he has backed other companies that are developing methods to produce ethanol by using plant sources other than corn because that’s where he sees the most potential. Switchgrass, for instance, has an energy output fi ve times higher than corn, and agricultural waste, such as straw and corn husks, is four to eight times more effi cient than corn.

Recently, he has done more than invest in alternative fuels. He took his case to California voters and to offi cials in Washington, D.C., when he bankrolled a ballot initiative in 2006 that would have taxed oil producers to fund a variety of clean energy efforts. The group called “Californians for Clean Alternative Energy” received enough signatures to get the measure on the ballot, but it failed to pass on Election Day. “That was a battle we lost, but it actually helped us win the war,” Khosla says. “It alerted people to the new possibilities. There is
visibility which has built over time into a real storm of activity, and I am happy to be a cog in the storm—a little cog, probably.”

Personally, Khosla has taken steps to be carbon neutral, offsetting his carbon emissions with TerraPass.com and Carbonfund.org. Both websites calculate members’ carbon emissions and offer products and ideas to reduce them.

Khosla’s other passion is being a mentor to entrepreneurs, serving as a guide and facilitator. “We are more of an assistant to entrepreneurs than anything else,” he says. “If you put the interesting people together, interesting things happen. You just have to allow yourself to be enamored by them. Too many people believe the future is what the past was; it’s extrapolating the past. I’m a big believer in what computer scientist Alan Kay said, ‘The best way to predict the future is to invent it.’ And you let entrepreneurs come together, you get them in a room, and they talk to each other and come up with brilliant ideas, and all you have to do is not douse that flame with conventional wisdom, which happens all the time. I just allow myself to be an optimist and believe in these brilliant entrepreneurs and technologists and engineers.nI allow them a lot more room to dream.”

Khosla has also turned his energy to social entrepreneurship. He is a founder of The Indus Entrepreneurs (TiE), a nonprofit global network of entrepreneurs and professionals that fosters the birth of companies across the world. He also supports many microfi nance organizations in India and Africa, where loans for as little as $50 are helping to eradicate poverty. “Fifty or 100 dollars makes a huge difference in their lives,” he says. “It’s the difference between starvation and having hope. And that’s powerful.” In 2003, Khosla made a generous donation of $5 million to his alma mater in India. The gift was the largest in the school’s history and was used to establish a school of information technology for graduate and post-graduate students.

Although he has a zeal for work, Khosla lives a quiet life in Woodside with his wife, Neeru, and four teenage children. He is said to make a point of having dinner with his family “25 times a month.” With his family as his top priority, Khosla tries not to travel much, but he will fl y to technology conferences. “I am a sucker for great technologists, scientists, and entrepreneurs, so I’ll travel to see something neat, cool, or nerdy,” Khosla says, and then he reiterates,“I’m really a techie nerd; I’m not a businessperson.”