The money will be split in two different funds. One will be a seed stage investment fund worth $250 million, the other will be dedicated to larger deals and it will be worth $750 million. Khosla will throw in 150 million of his own dollars to the fund. CalPERS is rumoured to be kicking in $200 million.
With venture capital investment and fund-raising hobbled in this economic environment, the move could be brilliant or foolish. Brilliant, because Khosla will be able to invest in many companies at a lower valuation. Foolish because venture capital’s exit strategies are limited nowadays.
The latter shouldn’t be a concern for Khosla. He invests in cleantech projects, many in the biofuel space. Investments like that typically take longer to mature, so the next year or two of the recession shouldn’t be a huge concern for return on the investment.
Raising this sum of money is impressive. Khosla was aided by a “conflicts committee” he made part of the deal. Investors were worried that Khosla would take their money and just plow it right back into failing startups he’d already funded. So, he created a committee that will make sure the money is invested wisely.
It seems odd to us, but hey, if we were handing out hundreds of millions of dollars in the Great Recession, we’d probably want some extra assurance the money was being used wisely.
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