Khosla Ventures Nears $3 Billion Closure for Venture Funds, Bucking the Trend Amid Startup Challenges

• ByStartupStory     |    November 15, 2023

Khosla Ventures is on the verge of completing a substantial fundraise of $3 billion for its latest set of venture funds, showcasing persistent optimism among some Silicon Valley investors despite the challenges faced by startups, including slower growth and reduced valuations.

This forthcoming fundraise stands out as one of the largest completed by a venture firm this year, expanding in size compared to Khosla Ventures’ previous fundraising efforts. The firm last raised $1.85 billion three years ago.

Khosla Ventures intends to concentrate on supporting startups in research-intensive domains like nuclear fusion and humanoid robots. Artificial intelligence (AI) is earmarked as a key investment area, reflecting the ongoing enthusiasm in Silicon Valley, although the benefits of AI have primarily flowed to tech giants thus far.

Seeing the less competitive market as an opportunity, Khosla Ventures aims to back startups aiming to bring technological advancements to traditional industries such as healthcare and transportation. Notably, in 2019, the firm invested $50 million in OpenAI, the creator of ChatGPT, becoming the first external investor in the company. This investment surpassed the size of any initial check Khosla Ventures had previously written for a startup.

Vinod Khosla, the 68-year-old founder of the firm and a co-founder of Sun Microsystems, emphasizes the transformative potential of socially significant areas targeted by higher-risk investments. Khosla Ventures’ strategy involves pursuing fundamentally large and socially transformative sectors.

The prevailing high-interest-rate environment over the past two years has prompted investors to curtail funding for startups after a period of rapid expansion. This trend has been observed with other venture capital firms, including Founders Fund and Sequoia Capital, which reduced the sizes of existing funds.

Founded 19 years ago, Khosla Ventures boasts a portfolio that includes software giants like DoorDash and Block, as well as research-intensive startups in sustainability and healthcare. The firm is set to raise $500 million for a seed fund and $1.6 billion for a venture fund, both larger than their predecessors, aiming to conclude the fundraise by the year-end.

Additionally, Khosla Ventures is raising a $900 million growth fund to support larger startups, an increase from its previous fund of $550 million, countering the trend of size reduction observed among many rivals in response to market contraction.

The extended time horizons and unconventional investments by Khosla Ventures have garnered strong financial performance, as noted by Larry Cohen, CEO of Gates Ventures, the family office of Bill Gates. Despite some market challenges faced by certain bets, such as QuantumScape and LanzaTech Global, Khosla Ventures remains optimistic, attributing success to early investments and emphasizing the vast potential of these markets if successful, with expected liquidity not until 2030 for current investments.

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