Leading cleantech investor Vinod Khosla has penned a critical piece asking what value venture capitalists actually bring to entrepreneurs when they join the boards of the startups they invest in. He writes:
A lot of VCs, especially those from the more financially oriented firms, do more harm to startups than good when they get themselves on company boards without ever having built a company themselves, or seeing one from the inside. What value can a VC as board member add to a company? We constantly ask our young guys (who are monitored pretty closely if they go on a board and are in learning versus advising mode and mostly are at Khosla Ventures for three years before they go out and be entrepreneurs themselves) is “What have you done to earn the right to advise entrepreneurs?” I don’t want entrepreneurs to get inexperienced advice on important matters.
Much of the rest of Khosla’s post on techcrunch.com devolves into an advertisement for Keith Rabois, a new member of Khosla Ventures. The subtext of Khosla’s commentary is that while most VCs do more harm than good because they know little about building a business, guys at Khosla like Rabois can help with recruiting, understanding market forces, and will push founders to answer tough questions. Promising startups, when choosing your next VC, Khosla and (Rabois) are your men. Got it.
But Khosla does raise a real question, which is fundamentally what role should VCs play? He is advocating a very active role where VCs are responsible for help with hiring, new customer channels, strategic advice, and in many ways, become the scrutinizing general, asking the tough questions and driving startups to be better.
This is a slippery slope and Khosla notes that you have to stay out of the final decision making. Essentially Khosla is saying, “get in there and push and help and advise, but when the big decisions have to be made, it’s up to the guys running the business.” This style requires a founder that doesn’t want to be left alone to run their business and who wants active engagement from its board.
In the end, Khosla’s litmus test is: did the VC expand the company’s opportunities by 2X? I like this test because it’s not about who’s right during a heated discussion. It’s about what did you as a VC/board member do to make a business more competitive and help it grow. Which is the kind of question that forces any VC to think like someone running a business, regardless of whether they’ve every actually run one.