Vinod Khosla, the Silicon Valley venture capitalist, talks about global business, market turmoil and more on Bloomberg Wealth With David Rubenstein.
By Sarah McBride
June 14, 2022
Vinod Khosla, whose investments in US technology made him a billionaire, predicts the country will soon be at a “techno-economic war” with China lasting two decades.
The conflict will pit businesses shaped by each nation’s value systems — one inspired by democracy and the other by communism — against one another, Khosla said in an interview on Bloomberg Wealth With David Rubenstein. Khosla sees tech investors playing an important role in deciding which country’s companies will succeed.
“We will have a techno-economic war over the next 20 years, globally,” he said. “And the US venture community can make a large difference in that.”
Khosla, an Indian immigrant, co-founded the influential computer company Sun Microsystems in Silicon Valley in 1982. He left to become a venture capitalist and joined Kleiner Perkins in 1986. It was there that he made his best-ever investment, he said in the interview: a $3 million to $4 million deal for Juniper Networks, which makes routers, switches and other equipment. The bet returned $7 billion in profit, he said.
Later, Khosla started his own firm, Khosla Ventures. He saw it as a way to pursue more meaningful investments and still, at age 67, talks of how tech can improve human life. In the interview, he describes the potential for artificial intelligence in health care and education, better public transit and more environmentally conscious buildings and food. Outside of his venture business, he has been engaged in a protracted legal battle in California over his intention to shut off public access to a beach he acquired in 2008 that had been open to swimmers and sunbathers for decades.
The concerns about China have been a subject on Khosla’s mind for at least the last year. He gave a talk to the National Academy of Sciences in 2021 predicting a major economic war between the US and China and said it will involve espionage. He said on a health care podcast in December that China “was willing to take on the cost of human life to have the best tech. The western world isn’t quite like that.” He tweeted in February that the conflict will “determine the next century.”
In an email after the Bloomberg TV interview, Khosla suggested parts of Africa and Southeast Asia would be molded by the ideology of the prevailing nation. “The countries leading in technology will have tremendous economic power and hence, political influence,” he wrote. “Likely this will be driven by innovation ecosystems, which means startups.”
Khosla is neither alarmed about nor dismissive of the stock market declines that have taken place over the last year. Investors will have to readjust expectations for some companies, he said in the interview taped May 11. “Google: It’s a great valuation,” Khosla said. “I would think it’d come back. But it’s a 20-some-percent growth company, not a 50% growth company.”
The interview has been edited and condensed.
What does it take to be a great venture investor? What is the skill set?
The skill set is one of, first, optimism. I always say skeptics never did the impossible. And venture is about those very large, outsized, implausible ones. So it’s about optimism but with a healthy dose of paranoia. It’s a hard personality to describe. You go between sort of real optimism about changing the world and paranoia about what’s going to happen in the next six months.
You’ve been doing this for a while. Is it a skill set that one can learn in school, or is it something you have to learn on the job?
It’s neither one of those two. It’s inherent in people. Either they’re optimistic, or they’re not. And you don’t learn optimism. Now, you need a lot of other things besides optimism. But if you have all those other things and don’t have optimism, you’re not going to get the home-run swing.
So when you’re doing a venture investment, are you hoping to make five times your money, 10 times your money or even more?
I would say at least 10, hopefully even more. And the best returns will be 50 or 100. My highest return ever was 2,400 times the money.
What was the deal?
That was a company called Juniper. And it was a classic. None of the telecommunications carriers believed the internet was going to be important in 1996. So nobody, including established players like Cisco, wanted to build equipment for the internet. And we bet on that.
In the recent couple years, the tech valuations of public companies and also private companies are staggeringly high. Many people thought it was not sustainable. And now, we’re beginning to see dramatic declines in some of these well-known companies like Netflix or Facebook. Are you surprised?
Well, the way I look at it is: What is the underlying innovation that’s going on? And how large a market is it addressing? If it’s large, then the valuations will look large. If you look at it, Google: It’s a great valuation. I would think it’d come back. But it’s a 20-some-percent growth company, not a 50% growth company.
Suppose the president of the United States called you up and said, “We need to have more technology knowledge in the government. And Vinod, you should come in and be my special adviser on technology.” What would you say?
I’m probably not very good for D.C. I probably don’t fit in. I’m probably too direct.
You do have a reputation for being direct. Where did that come from?
There’s a Stanford professor called Sam Harris, who wrote a great book called Lying about why most people lie very often. That book was a real test for me in that I really never wanted to lie. So I never want to politely say to you, “Hey, you’re doing great,” when you’re not. And so I learned that being direct helps people more than being polite.
I wish I had invested with you early on, but I always make mistakes.
I’m particularly proud of the role venture capital has played in making the US economy competitive. I actually think the most important part of patriotism is to develop American technology because I think we will have a techno-economic war over the next 20 years, globally. And the U.S. venture community can make a large difference in that.
Who would we have that techno-war with?
Most likely China. With India, we’ll have more of an opportunity to partner because it’s a belief in investment values — in democracy investment values, as opposed to a different political system in China. And they are very strong and have their own belief system.
Some of the venture capital firms now invest dramatic amounts in India or China or other parts of the world. Are you focused mostly in the United States?
We are not investing in China because it’s very hard to win for a US company in China. We do make some investments in India. We have a number of successful investments in New Zealand.
Let me ask you finally, the venture capital community in Silicon Valley: Does it have too much money now?
I do think, given the height we’ve seen the last five years, we will see a decline in returns — not for everybody. The good firms continue to be disciplined about valuations. But I do think in general for the industry, we’ll see a decline.