Entrepreneurs should like their venture capital investors as people, but VCs aren't supposed to be their friends.
That's according to Vinod Khosla, founder of Khosla Ventures, and former cofounder of Sun Microsystems and former investor at Kleiner Perkins Caufield & Byers. The straight-talking, self-described venture assistant (don't ever call him a venture capitalist) spoke in a talk at South By Southwest with 500 Startups' Dave McClure.
Instead of partying with their entrepreneurs, investors should be pushing them as hard as possible and helping them solve their toughest problems, Khosla said.
"Investors should be your friend but that's not their primary job," Khosla said. "The primary job is to help (entrepreneurs) avoid risks that companies face. And think about the issues you're missing. They should think about strategic ideas you may not think about, minimize the risk, and maximize the potential to the greatest extent you're capable of. (Entrepreneurs should say) 'he pushed me more than anyone else.' That ends with you saying you wouldn't want to have anybody else on the board."
Khosla added, however, that he is friends with many of his entrepreneurs.
Khosla also said it's important to have diverse opinions inside companies and to build that into the culture of the startup early on. "It's engineering the gene pool of the startup. The more debate you have and the more questions you have (the better). It's really important not to have everybody come from the same background... Disagreement isn't the same as disrespect... At Khosla Ventures no two people have anything similar in their backgrounds."
Khosla has a test for his CEOs. It's the Sunday night test: "This is always a test of a good CEO. You look at what you're doing Sunday night. Half your calendar should be free. If not, you're mostly reactive, not proactive. You're not leading the team where it needs to go. You're not helping the team succeed. You're reacting to emails and phones calls."
McClure also asked Khosla about his comments about Y Combinator, in which Khosla said entrepreneurs often need more mentoring and help in incubators. Khosla clarified what he meant, saying it is extremely valuable for entrepreneurs to go through incubators like Y Combinator. But he said startups shouldn't focus too much on presentation, and should make sure their investors are the best ones for their company, not just the ones with the highest valuation offer.
"When you finish that process, that learning is very valuable. But if you end up with a slide deck that's too polished, sometimes you fool yourself on what's real. You start believing your own bullsh**. It's a common mode of failure for entrepreneurs. It's important to realize when you're overconfident prematurely. Confidence is a good thing. At the same time... you fail because of the weakest link, not the strongest link. When looking for funding (you should be) not looking for the best valuation, you're looking for the best help for the particular risks you face in your venture."
Khosla Ventures recently added former Square COO Keith Rabois as a venture capitalist. It also recently partnered with Condoleezza Rice's RiceHadleyGates to get the former Secretary of State's firm's insight for international and policy issues for its companies.
