Michael Deem

About Me

The Top 7 Things I Learned at Khosla Ventures

Michael Deem

I was an Entrepreneur in Residence (EIR) at Khosla Ventures for a year. Here are the top 7 things I learned.

There are 4 legs to the startup stool: Management, Market, Timing, and Defensible Moat (e.g. blocking Intellectual Property). These are the unfair advantages of the startup. A high-quality Seed stage startup will have three of the four legs. A high-quality Series A stage startup will have all four.

For Khosla Ventures (KV), Science is the most important technical feature of the startup. Venture capitalists may look to different distinguishing features of the startup. For KV, a company with technology that can create an entirely new solution to a problem in an existing market is super exciting.

A generic deck is not very helpful. A really knowledgeable venture capitalist could write it. A ‘mom and apple pie’ deck does not showcase the unique features of the startup, the four legs of the startup stool, and your unfair advantage.

Khosla Ventures often uses 2 ways to value your company. The first is the VC method: the startup is raising $X and the fund would like to own Y%, so the post-money valuation is $X/Y%. Here $X is set by the startup, and Y% is somewhat negotiable. The other method: valuations of comparable companies at comparable stages of comparable quality.

You need a referral to meet a partner – down, up, or sideways from other firms. The deal flow at a tier-1 venture capital firm is amazing. Vinod Khosla himself is famous for being generous with his time and taking meetings with first time, interesting founders. Generally speaking, though, deals come to decision-making partners at a tier-1 VC by referrals.

Term sheets can come very quickly, or take a long time. Depending on the competitive landscape for the startup, the time to term sheet can vary quite a bit. It will usually come soon after a Monday or Friday partner meeting.

Networks are very important. All partners are highly connected. That is a key value they bring to the firm, over the knowledge they have.

In a sense, VCs are in a service business. Partners are founder facing. Despite the heady environment, the most effective partners remain humble and serve the founders. They are helping others create the future. The General Partners also feel this way, as they build a financial return, impact, and legacy for the investors (the Limited Partners). In return, as a founder, respect the value that VCs bring to your startup.

Best of luck with your startup. You are creating a better world!