The King of Green Investing

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Vinod Khosla |

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During nearly two decades at Kleiner Perkins, Khosla lost far more often than he won. He wasn't responsible for the firm's best-known successes of his era -- Amazon, Netscape, and Google. By my reckoning, he was most closely involved with 42 startups. Most were sold or closed, although a few still operate privately. Eleven, however, went public (mostly during the dotcom bubble). That's better than 25% -- not at all bad in the VC world. And measured by return on invested capital, Khosla's record has been outstanding. His half-dozen best deals at Kleiner Perkins multiplied $314 million in investments into $15 billion in cash and stock -- an increase of nearly fiftyfold, and five times more than all the money invested in all 42 companies.

It was at the peak of his success in late 2000 and early 2001 -- when Fortune named him the "most successful venture capitalist of all time" and he later appeared on the covers of two other national business magazines in a single week -- that he decided to change. Shares in his most successful company, Juniper Networks, were trading at more than 40 times their offering price a year and a half earlier. But he foresaw a bleak near future for optical networking equipment, in which he had made his name. Just as telecom stocks, including Juniper, were reaching all-time highs, he warned in a keynote at a Goldman Sachs conference that at least one of the industry's most famous companies would soon be bankrupt. "If I really believed what I was saying, I told myself, then it was time to look elsewhere," he recalls.

Around that time, a friend introduced him to a space-research scientist with a business idea unlike any Khosla had considered before: generating electric power from water, oxygen, and natural gas. Seven years later, the company, now known as Bloom Energy, has yet to introduce its first product, but Khosla marks his initial support for it as a turning point in his career. "I knew then I wanted to go green," he says. In 2004, he struck out on his own. "I felt that energy needed more exploring than a responsible venture fund should do," he says.

At Khosla Ventures, he has put his own money into graphics-display, data-center, and wireless technologies, but environmental startups are what excite him. He has been on a campaign to end American dependence on petroleum since oil was trading at a quarter of its present price. Unlike his more famous former partner at Kleiner Perkins, the energetic John Doerr -- who has choked up onstage recounting his daughter's worries about climate change -- Khosla is unemotional about going green. He hopes to improve the world by developing, for example, cleaner-burning coal and cars that run leaner, but his more fundamental motivations seem to be the size of the potential market and, even more important, the intellectual challenge of intractable problems.

Some Khosla Ventures deals are so preliminary that even he calls them "imprudent science experiments" rather than companies. "Science experiments are key to solving the problems of global warming and energy independence," he says. "Incremental approaches will not work." He has backed a company developing automobile injection systems that could double the fuel efficiency of gasoline engines, if its technology works. He has millions riding on efforts to make fuel from materials other than corn, although none has advanced beyond the pilot or demonstration phase. He has put money into a company that believes its microbes, which can turn sugar into the basis for a malaria drug, also can turn it into cheap substitutes for gasoline -- and he did so long before the founders had figured out what the company's product would be. "We've funded an incredible number of things that would make no sense at all for a traditional venture fund," he says.

Khosla has long seemed drawn to venture capital by the chance to satisfy his curiosity and to demonstrate that, whatever the question, he has the answer. "I've never been interested in business, surprisingly," he tells me. "I'm a techie nerd. What I like is intellectual stimulus. It's fundamentally what I enjoy."

He was smitten by Silicon Valley as a teenager in New Delhi in the 1970s. Every week, he would rent and carefully read worn-out copies of what was then the startup publication of record, Electronic Engineering Times. In the 1990s, he was inspired to concentrate on optical communications while reading books on the physics of optics -- during a vacation in Hawaii. On another typical summer break, he studied complex systems at the Santa Fe Institute; to prepare, he worked for six months with a tutor, brushing up on calculus and linear algebra. When he got interested in climate change, he prepared an extensive briefing book for himself, loosely based on Danish political scientist Bjørn Lomborg's book, The Skeptical Environmentalist.