Vinod Khosla Talks Shop

The veteran entrepreneur and Sun co-founder discusses the future of clean energy, the art of startups, and the importance of managed conflict

By Jeffrey Gangemi

To many entrepreneurs, the name Vinod Khosla is synonymous with Silicon Valley, startups and venture capital. Khosla co-founded Sun Microsystems (SUNW), and as a former general partner at venture capital firm Kleiner Perkins Caufield & Byers, helped launch pioneering Web portal Excite (IAC) and semiconductor company NexGen, which was purchased by microprocessor company AMD (AMD), among other ventures.

His most recent endeavor is Menlo Park (Calif.)-based venture capital firm Khosla Ventures, which he founded in 2004. "What McKinsey is to the Fortune 500, that's what we try to be to the technology startup," he says, describing his firm's mission.

Khosla Ventures, which predominantly invests family money, helps entrepreneurs develop businesses in areas such as the Net, computing, and mobile and silicon technology. But Khosla and his partners take special pride in also supporting breakthrough scientific work in clean tech and other environmentally friendly technologies (see BusinessWeek.com, 8/14/06, "Wall Street's New Love Affair").

He's a vocal supporter of bio-fuels, renewable plastics, and the spread of financial services to the poor through microfinance (see BusinessWeek.com, 9/20/06, "$50M Microfinance Pledge Is Largest Ever").

Khosla recently spoke with BusinessWeek.com reporter Jeffrey Gangemi about clean-energy technologies, entrepreneurship, and the importance of managed conflict in an organization. Edited excerpts of their conversation follow:

With gas prices down, which clean energy technologies will survive?

We try and do things that are not subject to those kinds of fluctuations, so most of my focus is on stuff that has long-term legs, not just a function of the short-term subsidies or incentives.

We try to avoid the stuff that's going to yo-yo, because our typical cycle for investment and return is more like five years than five quarters or two quarters or one. Sometimes incentives are needed to accelerate adoption, but we don't invest in technologies that cannot be market-competitive unsubsidized within five years or so.

Today's photovoltaic solar is not leading to a competitive technology. So, we are looking at both photovoltaic and thermal solar approaches that will be cost-competitive with fossil technologies like natural gas and coal, especially if carbon limits are imposed. Ethanol plays are definitely market-competitive unsubsidized. They're not short-term plays.

Speaking to entrepreneurs, where is the most innovation needed?

Batteries are an example where there is a lot of work; a lot of incremental breakthroughs but not a lot of big breakthroughs. We are looking more for the big breakthroughs…than the small ones in batteries.

Is there room for small operations to make big breakthroughs?

Absolutely. This is often misunderstood. Startup companies and universities have small groups of scientists, but it's very "deep" science. Once you get the deep science done, it's very easy to scale the other parts.

We don't care about the short term. Once we have the breakthroughs, we can deploy gobs of capital. So, our goal is with small focused groups to have big breakthroughs. Then we find the really large teams to deploy the technology. That's generally not that hard for us. We think the early part, the scientific breakthrough, is the hard part.

What are the obstacles to scaling in clean energy initiatives?

Solar power is not cost-effective yet. That's the biggest problem with many of these clean energy technologies.