Vinod Khosla is used to playing long odds on some of the startups he backs. Now, the billionaire venture capitalist is using a similar approach for another project: a legal battle over public access to his beach south of San Francisco.
Khosla believes he has the right to cut off the lone road to the waterfront at Martins Beach, a property he paid $32.5 million for a decade ago. State law says the public owns all coastline on the ocean side of the mean high tide line. Khosla says he shouldn't have to open up his private land without compensation to allow passage to the cove, which is buttressed by cliffs and impossible to reach otherwise except by water.
By the time he shut the gate in late 2009, surfers had been hitting the waves at Martins Beach for decades. When he cut off their access, a stream of lawsuits followed.
Taking a strong and unpopular position is vintage Khosla. His views on public beach access transcend the familiar world of venture capital and have made him the subject of widespread criticism. In coming months, he'll learn if the U.S. Supreme Court plans to take on the case.
Khosla's petition earlier this year to the highest court in the land raises the question as to why, in an era of enormous perceived arrogance by technology companies, Khosla is giving the public yet another reason to rage about industry leaders.
“It's a matter of principle, not whether the timing is right,” Khosla says about the case in an interview. “This is about unfairness, and I don't tolerate unfairness.” In a country based on rule of law, squelching the rights of property owners is just wrong, he adds.
“I've never seen anyone who needs a PR person more than Vinod right now,” says James Markarian, who once advised portfolio companies at Khosla Ventures and thinks highly of Khosla. “You need world class, the Johnny Cochran of PR.” Khosla says that at the advice of a top aide he recently met with a prospective public relations professional but decided against hiring her.
Public relations factor little into his motivation in general, even when the situation concerns a powerful financier seemingly trampling on the enjoyment of regular folk. Instead, Khosla's decision to take the fight to the Supreme Court reflects a man obsessed with winning and what he sees as fair play.
‘I Push Them To The Edge’
Khosla’s determination dates from at least his earliest days in Silicon Valley. Originally from Delhi, Khosla came to the U.S. for a master's degree in biomedical engineering at Carnegie Mellon University. He then applied to Stanford University's Graduate School of Business, which rejected him.
Bent on getting in, Khosla lobbied school officials, first sweet-talking his way onto the waitlist, and then making a series of calls to the head of admissions saying he would take the spot of whichever admitted student didn't show up. He won entry two days before classes began.
Khosla has been in Silicon Valley ever since, working at a design-automation company, Daisy Systems, and then co-founding Sun Microsystems, the computer services company behind the programming language Java. Sun's 1986 initial public offering cemented his fortune, building on a payout from the Daisy IPO earlier.
When he started his eponymous venture firm in 2004, Khosla was winding down a nearly two-decade run at Kleiner Perkins Caufield & Byers, known for early investments in Amazon.com Inc. and Google. Along with his successes there, such as backing Juniper Networks, he built a reputation as a venture capitalist with a very particular style.
Some entrepreneurs complain that Khosla enjoys driving hard deals compared with other venture capitalists over valuations of their companies. Khosla disagrees strongly, saying he just doesn't like bargaining and equating it with playing games. “I decide what's fair,” he says. “They can do it or not. I don't go back and forth six times.” But he can be disarmed. One entrepreneur, aware of Khosla's tough reputation, came in with red boxing gloves to signal his willingness to fight and suggested a number; Khosla accepted it. He says that was because the proposed valuation was reasonable.
Khosla also tosses out suggestions that don't always match the portfolio company's status, for example, suggesting an aggressive entry into a market the company isn't yet big enough to tackle, or an expensive overhaul of a website. He says setting big goals encourages the companies to stay ambitious, adding that those who disagree with his advice are under no obligation to take it or even keep meeting with him. “I push them to the edge of what they're comfortable with,” he says. “I get them to think as big as they can. I view that as my job, not just to be popular with them by saying nice things.”
A voracious reader, Khosla often will push a sometimes relevant, sometimes not, theory he has just boned up on in a new business book, entrepreneurs say, or will cite an old favorite such as “The Black Swan,” a 2007 bestseller on preparing for improbable events.
Many Silicon Valleyites see themselves as operating outside the herd; Khosla actually shuns it. He hasn't become a member of popular organizations such as the Menlo Circus Club or the Battery. He won't join the National Venture Capital Association, the industry’s main trade group. He doesn't play golf. He turns down invitations to dinners with other venture capitalists.
“I’d rather spend the time with entrepreneurs,” he says. That leads to a perception of aloofness that some enjoy taunting; a few years ago, a parody twitter account sprang up for @VinodColeslaw. “Guys, relax,” the last tweet says. “It's MY beach.”
When not in Silicon Valley, Khosla spends time at one of his vacation homes, including in Deer Valley, Utah, and in Big Sur, California. He hasn't visited Martins Beach in several months. To get around, he travels on a Gulfstream V.
Conversations with people who have worked with Khosla as investors and entrepreneurs reveal a man who relishes engaging in heated debates on strategy. During those debates, he doesn't mince words. “He doesn't suffer fools," says someone who has sat through many such meetings. “He'll look you in the eye and say ‘That's completely stupid,’ not because he's trying to make you feel bad, but because he has no filter,” says the person, who requested anonymity because he wants to preserve a cordial business relationship with Khosla.
Khosla prefers to describe his style as “brutal honesty.” Still, he acknowledges sometimes going too far. “If I had to do it over again,” he says now, “I'd couch my honesty, I'd say it nicer, but say the same thing.”
Partners in Khosla's firm and entrepreneurs who stand up to him and can rebut his points raise their standing in Khosla’s eyes. Those who can’t are left shaken and angry. He practiced the philosophy long before the current vogue for “radical candor,” mocked recently on the HBO show “Silicon Valley.”
He’s also known for defending portfolio companies publicly in situations where other backers tend to go quiet. After Bloomberg reported that Khosla portfolio company Hampton Creek, a vegan mayonnaise maker, was inflating sales figures by purchasing jars of its own product, Khosla went on Bloomberg TV and said entrepreneurs “push the edges.” He called allegations over revenue projections by another investor “not credible.” The following year, Khosla’s board representative and all other outside directors resigned from the Hampton Creek board.
His defenders counter that the loudest complainers are the worst performers. Truly talented entrepreneurs will know which pieces of advice to take, and when. Good analysis relies on debate. And fostering a sometimes adversarial relationship between two executives can tease out the best performance from each, they say.
With Khosla, “it's the same pro and the same con,” says Jagdeep Singh, founder of battery company Quantumscape, the third he has started where Khosla holds a board seat. “He really doesn't care about what anybody thinks. He's doing what he thinks is right, and he'll stick by it.”
The confrontations are juxtaposed with moments of tenderness, especially when it comes to his family. Khosla's assistant, Ruthie Dionisio, recalls having to enter a 2010 meeting at Khosla Ventures between Khosla and former British Prime Minister Tony Blair, then an adviser to the firm. Khosla had asked her to remind him when the hour was up so he could arrive on time for what he considered a more important appointment: helping his son with college applications.
He’s a generous donor to many charities and has signed onto the Giving Pledge, an initiative created by Bill Gates and Warren Buffett to encourage people to give away at least half their net worth to philanthropy.
One person who has worked with him compared Khosla to a “Tiger Parent,” the type of highly demanding adult who ultimately has a child's best interests at heart.
Relishing Intellectual Debate
Khosla's approach to California law parallels his treatment of a portfolio company: He relishes the intellectual debate on property issues and the exercise of forcing precision on California law almost as much as the prospect of winning his case.
In his writings on venture capital, Khosla says many potentially transformative investments have a 90 percent chance of failure. To some degree, that's how his efforts over the beach appear: The odds of the Supreme Court taking a case and then ruling in the petitioner's favor are low, but if it does, the payoff is enormous—in this case, potentially the ability to keep a long and exceptionally beautiful beach to oneself.
On Thursday, the court asked the group Khosla's battling, the Surfriders Foundation, to respond to Khosla's petition by June 13. While this is no guarantee the justices will take up the case, the request signals at least initial interest in Khosla's arguments.
Khosla believes that if the state wants public access to the beach, it needs to compensate him for an easement—the road cutting across his property that beachgoers would use. Not doing so amounts to a violation of the U.S. Constitution's takings clause and due process clause, he says. And because lower courts have held that he can't paint over a billboard that previous owners had used to advertise the beach, he argues, they have violated his First Amendment rights.
For their part, the Surfriders, who originally filed their case in 2013, are taking a more technical approach. They argue that Khosla is violating California's Coastal Act by not seeking appropriate permits before halting access to the beach. A lower court ruled that keeping the beach open requires a public-access easement over Khosla's property, but it didn't require compensation because the easement wouldn't necessarily be permanent.
Khosla's lawyers point out that lower courts have differed on the issue of whether a taking of property must be permanent to require compensation and are asking the Supreme Court to resolve the split. For now, the gate to the beach is generally open.
Meanwhile, Khosla won a separate suit filed in 2012 by a group called Friends of Martins Beach. They argued that the prior owners of the beach had created a right of public access by running a business including a paid parking lot, restrooms and a store. In January this year, a state judge agreed with Khosla that the prior owners had not established that right because access wasn't continuous and required a fee. Friends of Martins Beach is appealing.
A third case in federal court, brought in 2016 by Khosla and alleging harassment and constitutional violations, is on hold while the state cases proceed. Khosla says state and local bodies are applying laws unfairly, for example, requiring him to obtain permits for planting trees at Martins Beach, but not his neighbors.
“We have stringent rules protecting public views of the coast, and Mr. Khosla is not the only property owner who has been required to remove trees,” says Steve Monowitz, community development director at the San Mateo County Planning and Building Department. “I disagree with the assertion that our regulations are not being fairly applied.”
Despite the legal maneuvering popping up regularly in loal news, the beach case doesn’t seem to have affected Khosla Ventures. For every entrepreneur who decides not to do business with the firm, many more are eager to tap the expertise of Khosla and his partners, who count some big successes in the portfolio. Square, an investment brought to the firm by former partner Gideon Yu, is one. Cloud-storage company Nutanix, valued at $2 billion at its 2016 IPO, is another. The firm also backs Impossible Foods, maker of a popular meat-alternative burger, and View, which makes windows that automatically darken and lighten, among other investments. Earlier this year, Khosla Ventures filed to raise a $1 billion fund, Khosla VI, plus a $400 million seed-investing fund.
The controversy swirling around Khosla isn’t discussed openly at his firm. A rare exception came in 2014 during a meeting of portfolio companies at a boutique hotel on the San Francisco Bay. At one point, according to a person who attended, Khosla Ventures partner Samir Kaul joked to nervous laughter that one lucky entrepreneur would win a grand prize: a weekend at Martins Beach. No beach invitations materialized.
This article was provided by Bloomberg News.
