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Khosla Ventures, the venture firm spearheaded by Sun Microsystems co-founder Vinod Khosla, is getting ready to close two new funds in the next two weeks: A $250 million pot to support seed-stage startups, and a $750 million pot to finance bigger deals.
Venture firms looking for funding have had a tough time recently as limited partners and institutional investors conserve their cash through the downturn. Very few new funds have made it past the starting line — the rare exception being Marc Andreessen’s new $300 million fund. Given the landscape and the special circumstances surrounding Khosla, it might be premature to say it bodes well for the overall market. Not only is Khosla one of the best-known names in the Silicon Valley venture bubble, these new funds have special protections built in for investors in case of losses, elevating them above the fray.
These protections are manifested in what Khosla is calling a “conflicts committee” — a group including investors, like CalPERS, neutral parties and partners that is meant to steer smarter investing strategies. In particular, the committee is intended to represent the interests of the investors themselves, who have a legitimate concern that the firm will sink their money into faltering portfolio companies.
With large investments in cleantech companies — significantly in biofuel — that may or may not gain traction in the coming year, it would make sense for Khosla to use some of the $750 million fund to infuse its riskier holdings. One of the conflicts committee’s key tasks will be to review follow-on investment proposals to make sure the startup in question is worth it.
About $200 million of the new $750 million fund reportedly came from CalPERS, and $150 million is said to be coming from Vinod Khosla himself. If the conflicts committee does it job and Khosla succeeds with its new funds, it will be interesting to see whether other firms will have an easier time scraping together funds of their own.
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