Great vs. Good vs. Bad VCs

Joe Krause (of Excite fame) relates an instructive story about Vinod Khosla of Kleiner. Why is this story instructive? Because it shows the difference between a great VC and a merely good VC (and don’t even get me started about bad ones).

The latter, blessedly, doesn’t waste time and gets to the “money question” (i.e., how do you make money?) quickly. Khosla, on the other hand, answered the money question to his own satisfaction before the entrepreneurs came in — and used his time with the Excite entrepreneurs to have them answer an empirically testable question where they had expertise and he didn’t.

While we were still in the garage (literally), we met with at least 15 different venture capital firms. The meetings we’re all the same. We showed them our search technology, showed them “concept-based” search, and showed them targeted advertising. To a firm, the first question they asked was a very reasonable one: ‘great stuff guys, but what’s your business plan? how are you going to make money?’ Of course, being 22 years old and fresh out of college we replied, ‘we thought you could help us out with that.’ Apparently, that’s the wrong answer. Who knew?

Rinse, lather, repeat.

Then we met Vinod…

By then, our deal had developed a certain “smell” — smart guys with interesting technology but an uncertain business plan. The demo to Vinod started off like they all did, but about 10 minutes into the meeting things got very different. He interrupted

“Can the technology scale? can you search a large database?”

Big Pause. It’s not the money question. No one has ever asked us this before. Ummm.

“We don’t know, we can’t afford a hard drive big enough to test.”

Then, an amazing thing happened. Ten minutes into this meeting, his first introduction to the company and us, he pulls out his his cell phone, dials his assistant and buys us a $10,000, 10Gb hard drive.

Related posts:

1. The Success Secret of Jim “Good to Great” Collins
2. Khosla & the Nanotechnology Bubble
3. Yahoo Revs Up
4. Google Doesn’t Need the Money
5. Canada: Tastes Great, More Taxing