Venture capitalist Vinod Khosla revealed how Elon Musk‘s funding withdrawal from OpenAI created the investment opportunity that led to his conviction bet on the artificial intelligence startup, according to his recent appearance on the Uncapped podcast with Jack Altman.
What Happened: Khosla, founder of Khosla Ventures, described his OpenAI investment as “more than twice the largest initial investment I’d made in four years of venture capital,” emphasizing it was a conviction play based on fundamental analysis rather than “herd mentality.”
The investment decision came in 2018 when Tesla Inc. TSLA CEO Musk failed to meet his funding commitments to OpenAI.
“When Elon backed off funding OpenAI, he committed a lot of money that he didn’t meet his commitments for, and when Sam [Altman] called me I looked at that and said ‘We have the right team,'” Khosla explained during the podcast.
The veteran investor expressed concerns about competitive dynamics in the AI landscape, particularly regarding Chinese company Baidu Inc. BIDU and Alphabet Inc.‘s GOOGL GOOGL Google. He noted that Google “was moving very slowly” while Baidu “was stealing Google’s people by setting up an office down the street and stealing their expertise.”
Why It Matters: Khosla’s investment thesis was built on years of preparation. He had been tracking AI progress since 2000, when he predicted AI would redefine humanity. By 2012, he published blogs questioning whether AI would replace doctors and teachers. His 2016 presentation to the National Bureau of Economic Research examined which occupations could be displaced by AI technology.
The decision to back OpenAI stemmed from Khosla’s analysis of talent influx and performance benchmarks. “I looked at the rate of progress and the rate of talent influx, those two things convinced me the moment for AI was soon,” he said. Despite uncertainty about timing, Khosla told his partner the investment was “too important to not try.”
OpenAI’s current valuation has reached $300 billion following a $40 billion funding round, with backing from Microsoft Corp. MSFT and SoftBank Group Corp. SFTBY. The company’s transition from nonprofit to for-profit structure has drawn legal challenges from Musk, who co-founded OpenAI before departing in 2018.
Khosla’s track record includes the $7 billion return on a $3 million Juniper Networks investment, achieved by betting against industry consensus on internet protocols.
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