Vinod Khosla's Brainchild Comes of Age

Date:   Monday , August 31, 2020

Vinod Khosla is an Indian American billionaire businessman and venture capitalist. He is the founder of Khosla Ventures and the co-founder of Sun Microsystems. Establishing Intel, inspired Vinod at his young age to pursue technology as a career. After completing his education, Vinod initially worked for a startup Daisy Systems. Within two years he Co-Found Sun Microsystems along with his Stanford classmates. Until 1984, Vinod served as the first chairman and CEO and left the company to become a venture capitalist.

It\'s late 1998 and three men are working overtime to define the initial technical plan for a startup. They\'re jammed into an office space no bigger than the average bedroom. The scene has a familiar ring to it. \'98 is still the heart of the dot-com craze, and similar setups are in place all over the valley-in San Francisco lofts, Palo Alto apartments, Stanford dorm rooms, and the like. These are days when everyone thinks they have a shot at being the next Yahoo!

But this particular setup is a little different. The three men in the tiny office are not really traditional \"dot-comers.\" They have all just left senior positions at Oracle, and, to make things more interesting, the Oracle stock that they left on the table is on its way to quadrupling in value since their departure. The three men are, no doubt, a little uneasy about their decision to start out on their own. It seems they have put their careers on the line.

Yet are they really taking a big risk? Because the other unique thing about this scene is that the office that the three men are working from--though small--is the furthest thing from a loft, dorm room, or out-of-the-way office building. Here, the parking lot looks like it might be a combined Mercedes and BMW dealership, with sparkling new examples of German auto engineering on all sides. This is no ordinary setting for a startup. We\'re on peaceful Sand Hill road and the sign on the door of the building reads \"Kleiner, Perkins, Caufield & Byers.\"

VC Incubation

What were these three guys doing at the world\'s top VC firm? The three men mentioned above are Asera co-founders Kenneth Ng, Anil Nori, and Chin Hong. The story goes that Ken Ng \"bumped into\" Vinod Khosla in mid \'98 and Khosla pitched him an idea that he had for a new company--now Asera. Ng, Nori, and Hong became Khosla\'s hand-picked management team, and the three were \"incubated\" in a manner of speaking by the VC firm. Khosla had hired someone from Stanford Business School to write up a business plan for the prospective company and it was the three engineers\' job, in Khosla\'s words, \"to decide if it was a good enough plan.\"

\"In a sense I feel spoiled,\" concedes Anil Nori about living his first entrepreneurial venture with the backing of Kleiner Perkins from day one. \"I\'ve heard stories about going from venture capitalist to venture capitalist,\" he says in a manner that would make many young entrepreneurs mad with envy. But to be fair, Nori and the team were not just along for the ride.

It\'s true that Khosla and KPCB had already agreed on the funding structure from day one. It\'s also true that they were waiting for the founders to prove to them that they could build a viable business. Says Khosla, “The question wasn\'t what the deal would be, but if we would do it.\" While Nori, Hong, and Ng were still in the tiny office, watching their abandoned Oracle stock increase in value, and trying to prove that they could make Khosla\'s idea a reality, Kleiner was just looking on and waiting for the results. Khosla explains, \"We wanted to know--can we do it? In how much time? Is it competitive?\"

Soon more people came on board. \"Money wasn\'t a problem,\" Nori explains, \"Vinod believes in recruiting key guys in each area.\" The object was to reach critical mass quickly in order to execute the plan. In January of \'99 the team presented the plan to all the Kleiner partners and the company was funded. In February, Asera had a core team of 30 people in place.

The Business

So what was this idea that Vinod Khosla just had to bring to life? Nori explains, \"At a company like Cisco, all interactions are done over the Web-from customer interactions, to interactions with the sales force. Cisco brings in 80 percent to 90 percent of its revenue over the Web. But to achieve that they spend millions of dollars and have an IT department that numbers in the thousands.\" The Asera goal was to build an architecture that would offer the same level of Internet integration as a pioneer like Cisco, but achieve it at sharply lower cost and offer the system as a service to the masses.

It was a time when the concept of \"everything as services\"--championed by Khosla--was just beginning to emerge. The ultimate plan involved offering any number of application solutions for B2B companies in a customized framework that would offer a unified look and feel, as well as a unified business process. The goal was to make the product highly service oriented.

Admittedly, the initial Asera concept sounds like a pitch for a B2B-based ASP (application service provider). But Nori assures that Asera has grown into much more than that. He maintains, \"Asera is not a pure ASP. Asera provides a service that is customized for our customer...and where customers can plug in their own applications as well. Typical ASPs offer little scope for customization and personalization.\" Asera is also unique in that it generates revenue through activation charges and subscription fees--making it a kind of monthly service for its customers. Says Nori, \"It\'s like subscribing to a phone company--you try out call waiting and if you don\'t like it you drop it. That\'s a very attractive model for the customer.\"

For now, none can argue with Asera on paper. The company has just received $115 million in series C funding-on top of a previous $50 million. Asera\'s investors have tagged the company with an impressive valuation of approximately a billion dollars-up from a previous $250 million for the series B round. \"It\'s a huge market space,\" says Vinod Khosla. But will the company live up to the multiples? Asera will undoubtedly not be alone in the space--but it\'s hard to ignore the power of the Khosla/KPCB pedigree.

Taking On the Giants

All of this said, the quest for success, per se, is not really the end of the road for this blossoming Kleiner-incubated venture. Asera is now housed in its own building--a brilliant white structure in Belmont, CA. The company has over 350 employees and has customers like BP Amoco and Novell. But there\'s more to be achieved.

Anil Nori asks himself the question, \"Can I build a company that can topple Oracle?\"