Lesson from Khosla: Take < $1M in venture capital
Vinod Khosla, one of Silicon Valley's more successful venture capitalists (having hit homeruns backing Juniper, Cerent and Siara Systems, all of which became billion-dollar companies), has long said the trick is investing small amounts of capital.
His highest returns came disproportionately from investments where he put in less than $1m, and from where he had a board seat, according to data investor Paul Kedrosky said
he got from a recent Khosla powerpoint presentation.
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Interesting, and not that surprising.
There's probably some corelation between companies that raise less than $1MM and those that are capital efficient and must adapt quickly to the market. Companies with too much money may have a higher propensity to try and solve core issues with money.
Its true..I have a new venture starting up and initially I planned to raise $5M; and I was getting it too. Then it just so happened that we weren't 100% comfortable with the VC so we decided to hold off till the product launch. The hold off got us thinking and we came up with such cool marketing ideas that we need only $500K now.
But I will miss the kick of raising $5M vs just $500K....
Investors keep telling that we need US$5 to US$9 million, and don't know why we need that kind of money (except diluting promoters' share). It costs me US$400K to US$500K to build reusable Ajax GUI API for upcoming vector graphics platforms such as XAML/WFP/E, SVG+XUL or MXML/Flex. We wanted to do economic marketing, by taking up consulting projects to earn satisfied customers and word of mouth marketing. We live in India, so costs here are about an US$20/hour.
Yet, if you talk to a VC about a $500K investment they immediately suggest going to an angel investor.
Most new VC funds are $100 million plus with some new ones topping a $billion. To effectively invest $100 million in small quatities you would have to sit on the boards of at least 100 companies! It is the same problem hedge funds have. Getting 25% return on a few million is easy . When they grow to multi billions they have to take huge positions at high risk.
to be assured of not having to chase capital while he should be tending to R&D/operations, CEO should take more capital rather than less.