“80% of Venture Capitalists Add Negative Value To Startups” – Vinod Khosla

Vinod Khosla, the eponymous Founder of Silicon-Valley VC firm Khosla Ventures, is known for his no-nonsense approach and frank delivery. (He committed not to lie and has praised Sam Harris’s teachings before). This 2013 comment to the Venture Capital industry’s most influential news outlet, Techcrunch, didn’t help his popularity among his peers. Do VCs add value to the startups they advise, and if so, how do they do it?

Do VCs Add Value To The Startups They Invest In?

If you ask them, most Venture Capitalists will tell you they add a lot of value indeed, beyond the money.

They help by sharing their extensive networks, recruiting top talent, making acquisitions, and making informed strategic decisions during Board meetings and beyond.

Founders have long acknowledged and praised the help they got from top VCs such as John Doerr, Marc Andreessen, Bill Gurley, and Peter Fenton, to name a few.

But how few are they, precisely? Vinod Khosla’s point is that a very limited number of investors bring value to the table. His argument: few VCs who are active today have been through hard entrepreneurial times. They can’t effectively advise startup Founders on how to manage their companies.

Khosla is a peculiar figure in the VC world. After making a fortune out of his Sun Microsystems adventure, he’s now investing in projects most VCs would not look at due to the extreme odds and long-term view. He’s the typical “maverick investor” I’ve described in another post.

He seems to have a point with this comment.

The recent wave of cross-over funds, led by Tiger Global, taking over a large segment of the Venture Capital market is a testament to how little some Founders think of VCs’ real value-add.

Is Vinod Khosla Wrong? The Bill Gurley Counter-Example

Bill Gurley, one of the most visible Venture Capitalists at elite VC firm Benchmark Capital, doesn’t fit Khosla’s description of a former entrepreneur having been through the tranches.

Gurley famously has a background in Wall Street, which has undoubtedly helped him bring a long list of tech startups to IPO in recent years. Like 37% of star VCs ranked in Forbe’s Midas List, Gurley has no operational experience.

In a recent interview with the Twenty Minute VC podcast, another Hall of Fame VC, Chris Sacca, describes how he witnessed Bill Gurley add value to a startup where they were both Board members.

Sacca recalls an Uber Board where the need for a CFO sprung up. As he was starting to think about candidates in his network for the job, Gurley takes a dossier out of his bag, lays it open on the table, and pulls out the CVs of six vetted CFO candidates who wanted the Uber position.

There are other ways the best VCs influence strategy by sharing their experiences or brokering meetings that matter. I explore them in our Startup Boards online module, the only such program available worldwide and part of our VC Career Accelerator.

Aram Founder

Aram is a veteran investment professional with 20 years of experience. He’s realized over 45 transactions across Project Finance, LBO Financings, Growth Equity, Venture Capital, and M&A in half a dozen countries on three continents.

See Full Bio

Venture Capital Entrepreneurship Fundraising