Venture Assistance Blog

Vinod Khosla
November 8, 2024

Many years ago, I wrote this blog in Techcrunch. Certain updates are warranted, however, the core thesis remains the same: younger (and experienced) entrepreneurs need this assistance far more than capital (funding), even if they don’t quite realize it yet.

Introduction to Venture Assistance

The concept of venture assistance is a remarkably simple, yet powerful, framework when pursuing entrepreneurial endeavors. While most venture capital firms claim to add value, their involvement is often limited and not very effective, primarily just providing networking opportunities. This is partly because investment partners are usually stretched thin, serving on many boards. The biggest issue, however, is that some venture capitalists may offer poor advice, lacking firsthand entrepreneurial experience, which is crucial for understanding and guiding entrepreneurs effectively.

Challenges with the traditional VCs

A tough pill for most to swallow is that a surprising proportion of venture capitalists, particularly from finance-focused firms, often end up doing more harm than good to startups. A lot of them join company boards without any real experience in building or running a company. The point is not to be iconoclastic, but to highlight a truth about the entrepreneurial journey. It's hard for someone to understand and guide entrepreneurs if they haven't been through that experience themselves. It's like a coach who has never played the sport they're coaching. People usually don't realize what they don't know when they're new to a job or field, which experts call being 'unconsciously incompetent’.

Many investors haven’t earned the right to effectively advise entrepreneurs. I view giving advice in this context is a serious responsibility and can be damaging if the advice is poor or too focused on short-term gains. To that end, we correct anyone internally that refers to these opportunities or companies as just "deals." These startups are the life of the entrepreneur, it’s their baby.

That leads me to one of my favorite questions around younger entrepreneurial companies: What is the role of an entrepreneurial advisor or board member? Even more importantly, what should a board member not do?

Our approach to Venture Assistance

Khosla Ventures takes a cautious approach with its less experienced team members serving on boards, focusing on them learning rather than advising. We always question these members about their qualifications to advise entrepreneurs: what makes them competent to offer advice, and crucially, what topics they should avoid advising on. I want to prevent entrepreneurs from receiving advice from inexperienced sources on critical issues. Inexperienced advice can be unhelpful and damage relationships. Additionally, while a sense of friendship and trust can develop between our team members and entrepreneurs, it's important to ensure that the advice given is substantial and not just based on camaraderie.

It's important for board members to assist in hiring key executives, making introductions, guiding through major decisions, and resolving internal conflicts. They should encourage the entrepreneurs to achieve their best, without overstepping their role by making board decisions or voting against the entrepreneurs, especially when advising on hiring.

Khosla Ventures advisors serve as guides, seeing around corners (risks and opportunities alike), and helping you navigate the difficult road of building a company from the ground up while your head is buried in ops. They ask the questions you never knew were important by leveraging their own experiences and, more importantly, their many mistakes. They also look beyond more immediate imperatives to longer-term issues and to help create new understandings of your fundamental parameters, MVPs, pivots, focus, and “S” growth curves.

Venture Assistance Roles

Our fundamental difference in the mindset of “assistance” versus “capital” is not a theoretical or a marketing statement. It is reflected in how entrepreneurs who raise capital from us and others, tend to prefer to work with us - in fact, Founder’s Choice recently ranked Khosla Ventures #1 out of all venture funds using a head-to-head Elo rating system that only founders could participate in.

Good advisors and board members help entrepreneurs avoid mistakes they might not see because they’re heads down focused on trying to build their business. Board members should serve as a trusted inner-circle of advisors that motivate company management to self-assess and improve, and good boards help founder CEOs scale by helping them build the right teams to support them. Sometimes companies need to spend time doing down-the-road planning and sometimes they need to focus on just getting stuff done for the next six months. Good boards know the difference, and they know what’s important when.

An investment partner should bring expertise to the table that can solve real problems that you and your team face. Our investing team is full of people who started companies who can provide the kind of advice mentioned above. We are extremely hands-on — whether it is helping with fundraising decks, a product strategy session, discussing brand strategy, or even writing patents. We also have multiple advanced degrees (MD, PhD, etc…) in science or engineering fields.

In addition, we have a group of operating partners who do nothing but teach and coach and mentor our portfolio companies — offering real targeted help, be it in leadership and management training, recruiting executives or engineers, AI technology or recruiting, strategy, design, manufacturing and more.

What should a startup CEO expect?

Entrepreneurs usually deal with many problems at the same time, and being a CEO is a very lonely job. They’re often so buried in the details, whether things are going great or poorly, that they fail to look up over the horizon. At the same time, in almost three decades of being on boards and advising companies, I have never once voted against what a team wants to do, even when I strongly disagree with their choice. I will debate every issue hard and push my point of view but leave the final decision to the team. I don’t believe boards of entrepreneurial private companies should ever vote (except on the one issue of hiring and firing the CEO). If the team doesn’t believe in what the board voted on, then they won’t be successful at implementing it.

If things are going great, anticipating problems is even more important since overconfidence can kill a company. Challenging the team to think about risks or position some long-term assets can make a big difference in helping an entrepreneur “create” a larger opportunity. Asking questions that an entrepreneur does not want to hear is an equally important role, and having advisors who’ve made mistakes before helps.

We intentionally cultivate a reputation of directness. Our goal isn’t to be the “nicest” among all investors, but rather to push teams to be as great as they can be, to help them see hard reality and the risks coming their way, and to press them to worry about burn rate or accelerate their spending depending upon the circumstances. By the same token, though we can push teams hard, we are extremely loyal to companies and entrepreneurs who we are engaged with closely.

One critical area for all young technology companies is hiring great talent. You have to source amazing candidates, drive a thorough and thoughtful interview and selection process, and then close the best candidates in your pipeline. Our recruiting team can provide expertise and assistance with technical talent as well as executive leaders — and perhaps more importantly can help you to hire and train a great internal recruiting team so that you can grow quickly. For critical hires, I like to personally get involved in companies where we are active. It is an area where I have seen the most bad advice given.

As we see other areas where we feel that our companies could leverage talent and expertise provided by an operating partner, we add that capability. We can help with AI and ML strategy, with design thinking, marketing, and building design into the DNA of your company, with supply chain and manufacturing if you have a hardware component to your offering, and with blocking and tackling issues like finance and legal as well.

Case Studies & Testimonials

We’ve included a few examples of companies where our venture assistance has had a material impact, along with primary testimony, and perhaps more importantly, lessons where our advice was not heeded, and the outcomes were suboptimal.

Sword Health

Sword provides AI-driven physical therapy initially to alleviate musculoskeletal morbidity, and is expanding into major areas like pain. We insisted that head-to-head wins against their #1 competitor Hinge in the self-insured employer segment should be the north star metric, building it into performance stock grants for the CEO and CRO. The Sword management team executed this plan and it resulted in a 70% win rate and $180M ARR in less than 4 years. Here is more from Virgílio (“V”) Bento, Phd, Founder and CEO of Sword Health:

OpenAI

When news broke of OpenAI’s CEO and board drama Vinod worked tirelessly behind the scenes. I also came out swiftly, publicly, and strongly in favor of Sam Altman’s return as CEO, in keeping with my philosophy of backing startup CEOs and that companies are best led by their founders.

AliveCor

AliveCor develops FDA-cleared, portable ECG devices that allow users to capture medical-grade heart rhythm data anytime, anywhere. With their KardiaMobile devices, AliveCor has enabled the remote detection of over 35 cardiac conditions, including atrial fibrillation (AFib) and other arrhythmias. Users can capture a 6-lead ECG on a compact, credit-card-sized device that syncs with a smartphone app, empowering both patients and physicians to monitor heart health remotely and respond proactively. AliveCor leverages AI-driven analytics and cloud-based tools to improve diagnostic accuracy and speed. We pushed them to expand from D2C to B2B across all channels (employer, provider, payer, pharma, etc), helped them to hire their CRO, CFO, and CHRO, developed their patent strategy and led them through their infringement case against Apple.

Fundera

PolyAI

PolyAI is transforming call centers with AI. While the founding team at PolyAI had done remarkable work in conversational AI at Cambridge, over the past few years (well before ChatGPT was launched), we have pushed the team to leverage and build on top of emerging LLMs rather than continue to build-out and invest in their proprietary models. After several strategy reviews with the same refrain and ultimately the release of GPT 3.5, the founders finally hacked a fully-automated sales development rep and allowed prospects to interact with it on the phone earlier this year. While cost still needs to go down (something we believe will happen 10x each year) and latency needs to improve (something the team has further hacked around), the results have been amazing and they are fully committed to shift off their proprietary models to LLMs. Had we not pushed as hard, it's highly likely the company would still be prioritizing their own models and at higher risk of replacement by a new entrant.

Keith Rabois’ Return to KV

Recently Keith Rabois returned to Khosla Ventures as a managing director after nearly 5 years at Founders Fund. To The Information, Keith said: “Khosla encourages lengthy weekly partner meetings with ‘unrestricted, unvarnished debate’ and promotes hands-on involvement with portfolio companies, plus additional services for startups such as recruiting support.”

SingleStore

SingleStore is a cloud-native database. Pretty soon after our initial investment in MemSQL (now SingleStore), we urged the company to quickly shift development to cloud native, rather than on-prem. While this seemed pretty obvious to most everyone, including the founders, the shift was slower than we all would have wanted - partly because of very large customers wanting to remain on-prem. The result was a hybrid offering that has some advantages, but is not being valued nor growing as quickly as pure-play cloud-based managed services offerings.  In this case, the founders listened to us and tried their best, but the gravity of large customers and the effort to shift the code base to the cloud has been a heavier lift than anticipated. From a standing start (basically $0) last year, SingleStore’s managed services in the cloud has quickly become 1/3 of the $100M ARR at the company.

Headspace

Headspace is a guided meditation app. When the CEO suggested a merger between Ginger (B2B virtual mental health coaching and clinical therapy) and Headspace (D2C meditation and wellness), we gave our view strongly advising against it. We agreed that the company needed to do something bold to become the clear leader in a crowded space, but we felt that merging two very different companies of roughly equal size is fraught with downside risk from our experience: growth rates stall, cultures clash, products don't integrate, focus becomes internal, competitors pounce.  All of this happened, and everyone diluted by 50%. After 3 years, the company is finally fully merged, the products are integrated, and there is some hope that this is the year.  This has definitely been a learning experience for the CEO, who is very good but follows his own instincts sometimes to a fault. The Ginger (B2B) business was growing over 80% at the time of the merger with Headspace, but now has a combined growth rate of less than 10% at over $250M in ARR.

Mesosphere (D2IQ)

Mesosphere (D2IQ) is an enterprise Kubernetes platform. While our investment was made well before Kubernetes became the industry standard for container orchestration, it became clear pretty soon after our investment that Kubernetes was most likely going to win in the market over Mesos. The founders fought us on this, believing that their approach was superior.  Changing our tactics, we simply asked them to imagine a world where Kubernetes won in two years time, and present to us what they wished they would have done assuming this outcome. This approach worked, and finally the company began protecting themselves against obsolescence by adopting Kubernetes as a part of their offering.  Ultimately, they chose to EOL their Mesos offering, change the name of the company (something we also urged them to do much earlier) and rebuilt their recurring revenue on Kubernetes. Unfortunately, this advice was heeded way too late, and the company failed. This was an example of founders not being willing to pivot fast enough.

SVB Crisis

In times of crisis, our venture assistance is all the more evident. I personally provided loans to startups affected by the SVB crisis to offer “no terms” (versus using LP capital to do so). This direct financial intervention was a significant deviation from the more traditional methods adopted by other firms, and especially from those who instead were predatory at this time. This action underscored our philosophy of venture assistance, going beyond mere capital investment to provide tangible, crisis-specific support, and showcasing a level of involvement and empathy not commonly seen in the venture capital industry.

The Way Forward

At Khosla Ventures, we believe that our role is to add value to our portfolio companies, not just to provide them with capital. That is why we call ourselves a Venture Assistance firm, and why we work so hard to live up to the expectations that that title sets. From mentorship about management to operational help in AI, design, brand, manufacturing, marketing, enterprise software, we strive to help entrepreneurs reach greater heights than they might on their own to the very lonely job of an entrepreneurial CEO by helping them expand their opportunity and fullest capability to ultimately deliver on the ultimate goal: build companies that truly impact the world.

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