Khosla Ventures' Samir Kaul on leading Jeff Dean's Discovery Loop and why billion-dollar seed rounds are a losing bet

Speaker 2: Yeah. Right?

Speaker 1: Yeah. Yeah. I think that makes sense. Anyway, let me tell you about CrowdStrike. Your business is AI. Their business is securing it. CrowdStrike secures AI and stops breaches. Our next guest is Samir Hall from Coastal Ventures. He's the general partner, and he's the latest backer of Discovery Loop. Samir, how are you doing? What's going on?

Speaker 3: I'm doing I'm doing great.

Speaker 1: Yeah. I I can imagine you got you got a stake in the next Jeff Dean the first Jeff Dean company. How did that come together? How excited is the firm? Tell me about the thesis behind Discovery Loop.

Speaker 3: Well, look. I mean, we've known Jeff Dean forever. Yeah. You know, Vinod, when he was at Kleiner, was the first investor in Google. Jeff's been involved in just about everything that's important that Google's Google Brain, TensorFlow, TPUs. Yep. And he was there twenty seven years. And it's kind of one of those dreams when someone like Jeff calls you and says, hey, I'm going to do a startup, do you want to invest?

Speaker 2: Crazy. The deck or did

Speaker 3: you No. No. There's been all this talk about his deck. Yeah.

Speaker 2: I was like, why you make leading

Speaker 3: the round and I haven't seen a deck. So who's seen this deck?

Speaker 1: That's But very I I think what stuck out to me was if you dig into the blog post and you look at how Jeff is thinking about the impact that AI can have, it struck me as a real focus on tangible results. There's making solar power more economical. And that's obviously downstream of a lot of hard engineering and AI research and then models that can go and do that. But having that laser focus on the impact that I think every day people can rally around felt much less abstract and much more of a positive signal. How do you think about grappling with that where it goes and also just, hey, you know, this is a new company. There's going to be a lot of exploration. Let's keep the aperture really wide.

Speaker 3: Well, you want to keep the aperture wide. But what you brought up is exactly why you've read about all the other neo labs that have started post OpenAI and Anthropic. Yeah. And we've passed on, I think virtually all of them.

Speaker 1: Mhmm.

Speaker 3: And the reason was is you've got trust me, these NeoLabs are started by all stars. These are superstars, super talented individuals. But that alone doesn't justify the kind of money and the kind of valuations and things like that that these companies are commanding. We see That

Speaker 2: but also the the Sorry to interrupt, but I've always competitive dynamic. Frontier Lab comes out with, you know, a model. A few months later, there's an open source version of it. To me, why doesn't that, you know, as we see a NeoLab have a meaningful breakthrough, why does the same thing not happen where a FrontierLab ends up recreating what the NeoLab has built and they have the scale and the distribution to just immediately roll it out to millions of businesses all over the world. And so when I've looked at some of these NeoLab opportunities, I'm just thinking, like, even if you have this like meaningful breakthrough, how do you actually capture the value associated with that without just selling back to one of the bigger labs?

Speaker 3: You're absolutely right, which is why we've stayed away from them. Mhmm. We couldn't see a clear path to something that's meaningfully differentiated Mhmm. From the Frontier Labs. And then as such, you worry about the sustainability and the moat they create. And what Jeff and his team are doing, first of all, they're really, that's a, they're a one on one team. Mhmm. You look at what they've done, it's amazing. They've been at Google twenty seven years, and now they lift their heads up to do something different. It clearly suggests that they've decided this is something very meaningful. Otherwise, why put their legacy at risk? Mhmm. It's just incredible. And to your point John, what they're doing is exactly that. It's saying, look, we're going to take research, and we're going to figure out if you run this experiment, what do we think the outcome is? And based on that outcome, let's run thousands or millions of other parallel experiments and try to get to an answer. So, it could be what's a new material for magnets for a fusion reactor? It could be what are new materials for a solar cell to make it more efficient? It could be for batteries. It could be for scientific research. And just think about, you know, in some ways it's like coding. Why are all these code startups doing very well? Factory, Cognition, a couple that we're involved in, is because you can get a real time affirmation of what you're doing, is it correct or not? Does it spit out good code that does well? That's a good answer short term. And I think that's what Jeff and his team are trying to do with research also, is get is prove that what they're doing actually has value in a short cycle, that you can then improve upon it.

Speaker 2: How important do you feel like the work is in general right now, if you look back at the breakthroughs over the last couple week, we got a bunch of new viruses that never existed before and we solved some, you know, pretty impressive, you know, math problems. But the general population, I don't think is gonna get that excited about either of those at a time when the the data centers are getting built. But, you know, there's pushback everywhere. And I think the general population

Speaker 1: Don't forget they also accidentally hacked a whole bunch of systems.

Speaker 2: Yeah. Yeah. We started

Speaker 1: getting That's another one.

Speaker 2: Viruses. Accidental hacking. Yeah. Math problems all all impressive Yeah. In their own way, but certainly not gonna get

Speaker 3: Well, locusts haven't the locusts haven't come yet. So I think we're still okay for a little bit. But but but look, let's go through each of them. So first of all, what it can do in math is just incredible. So that just shows the power. I'm not sure there's a practical use there, but it shows the power of these models and how quickly they learn and can iterate. And it's not really that surprising, right? Because, you know, the smartest human processes data still at less than a 100 bits a second, but a GPU processes data at 8,000,000,000,000 bits a second. So how is it Of course, it's going to do things that humans can't do in way that we've not been able to do it. On the virus side, that's scary. And that gives a That's a perfect example of why we can't regulate our US companies in AI. We have to stay ahead and be at the cutting edge so we know how to protect ourselves. Mhmm. The worst thing we can do is over regulate US companies and give the advantage to our adversaries where we don't know how to defend ourselves. Mhmm.

Speaker 1: I'm interested to hear a little bit about the shape of Khosla, the strategy, and it'd be interesting to ground it in the shape of value add for a company like Discovery Loop. Obviously, Jeff Dean and the technical talent is incredible. But being I think basically first time founders this late in your career, is there actually a lot of value add that you can bring to the table with recruiting and setting up the rest of the structure? Like I imagine Jeff Dean has not had to run payroll ever or like deal with like hiring a great HR lead or or a great CFO. And if you're if you as through your network can sort of build out the rest of the shell very easily, that feels like actually incredibly impactful. But how are you thinking about helping a company like Discovery Loop in any way you can?

Speaker 2: I think when Jeff Dean is in the presence of payroll, it just runs

Speaker 1: itself. I

Speaker 3: was going to say, I think Jeff could probably by the you get a cup of coffee at Starbucks, I suspect Jeff can code an agent that does all the payroll for you.

Speaker 1: Yeah. That's probably You

Speaker 3: know, so look, one, we're super honored. I think Jeff could have picked any VC

Speaker 1: Mhmm.

Speaker 3: In the planet, and the fact that he picked us as one of two to co lead it, is just a huge honor, and a huge responsibility. So we have to add a lot of value to justify his trust in us. And so, you know, I'm very proud of, at our firm, one, every managing director is an entrepreneur. All technical. I have four nature papers, a science paper before I'd ever seen a P and L. Oh, nice. I got a gong.

Speaker 1: That's an

Speaker 2: air horn. We'll save the gong for later.

Speaker 3: Okay. Great. Alright. Air horn. So, the point is that I think where we'll add value is we've built a great platform team, and the goal there has been that these are people, whether it's recruiting, design, sales, marketing, branding, etcetera, that startups otherwise wouldn't be able to afford. Now, Jeff could afford anybody, but these are people that could really help him hopefully build out the team, figure out the right incentive structures, make the type of introductions that he would need, and be sounding boards for advice. I think Jeff didn't want people that were just going to sit back and cheerlead him. I think he wanted people that were going to push back on him and Yeah. And help him shape it.

Speaker 1: I want to get your take on sort of an odd venture strategy. I don't know if anyone's actually running running this playbook, but I think your pushback here will be interesting. So let's say that I'm sort of cynical about these like billion dollar seed rounds broadly, NeoLabs, whatever you want to call them, like huge amounts of money basically growth stage from day one. But my thesis is not that they're going to overtake any of the leaders but that there will be liquidity through acquisitions that a $10,000,000,000 acquisition is becoming more normal and so I can still underwrite a fund based on that. But that feels sort of antithetical to venture. But is there something there? Are you seeing that or have you been very conscious about staying out of that particular profile because you want to go back to thinking in decades, thinking about really long tail outcomes?

Speaker 3: There's always exceptions. Mhmm. So I'm certain that we've fallen into some of those exceptions. But by and large Yeah. I don't think that strategy will work. Mhmm. I think, first of all, you've seen some of the recent acquisitions. Windsurf, Scale AI

Speaker 1: Yep.

Speaker 3: Where they've been pseudo acquisitions, where the investors have not gotten anywhere near what the headline price is. Individuals have captured a lot of value, but investors have not. So, I don't believe that the And if you make an investment assuming an acquihire is going to be the outcome, then you're going to lose. And who cares about returning capital? You know, the beauty of our business is that we can only lose one times our money. Yeah. But on companies like OpenAI or other companies, we can make a thousand times our money.

Speaker 1: Yeah.

Speaker 3: And so, you know, we never invest being like, hey, well let's invest and at least we'll get our money back. Yeah. That makes no sense in a business that affords you a failure rate of sixty or seventy percent. And in fact, I'd argue if you don't fail 60 or 70%, you're not taking enough risk to justify the risk premium that our investors take when they invest in funds like ours.

Speaker 1: Yeah. Jordy, please.

Speaker 2: How do you how do you see the current private market dynamic playing out? It's I I've been very I've been a little bit concerned lately because, you know, we we have a lot of founders on the show. A lot of them are building great companies. Hopefully, most of them are. But every single day, there's $500,000,000 raised here, a billion dollars, you know, raised here. And it's been going on for so long now. And it's basically like a debt that the that venture is like building up. Right? This is like money that Right. Needs to be returned at some point. And, you know, there's just such a massive disconnect. There's even companies that are effectively if they were public, they would be seen as SaaS companies. But because they're private and they use models, they're viewed as AI companies Mhmm. Wildly different wildly different revenue multiples and Mhmm. And value placed on them. And, yeah. I'm I'm curious how long you think this can can go on. Mhmm. And if it ultimately even matters. Right? You know, you've seen SpaceX pay for, you know Yeah. 10,000 terrible venture investments. Right? Right. And hope many of the LPs that that were in all the bad ones are were in SpaceX in some way or another and hopefully they made it back. But how do you see this playing out? How long can this current Super cycle. Super cycle go on?

Speaker 3: Well well well, let's zoom out. So what you're you're you're There's a lot of truth to what you're saying. So remember when the word unicorn came out, it was meant because a billion dollar company was such a rare event like a unicorn.

Speaker 1: Yeah.

Speaker 3: And now you're having a unicorn born almost daily.

Speaker 2: Yeah.

Speaker 3: So there's that. On the flip of that, remember, I mean I'm old enough to remember the .com era, and the .com era, Cisco was approaching a trillion dollar market cap, and people thought that was insanity. They're like, how could how in God's name could there be a trillion dollar company? There's just no way. And now how many are there? 15 or 20? So, you know, when you've when the upside has now moved for a billion just in last what when was Unicorn coined? Fifteen years ago? Sixteen years ago, maybe?

Speaker 1: Yeah.

Speaker 3: So in in Yeah.

Speaker 2: Around that time, DeepMind was Demos was doing like a 50% dilution round at like a low single digit.

Speaker 3: Yeah. YouTube was acquired for $1,800,000,000. That would be a trillion dollar company today.

Speaker 1: Yeah.

Speaker 3: Right? Instagram was bought for a billion dollars. That would be a trillion dollar company today. Mhmm. WhatsApp was the largest private venture acquisition at the time for $19,000,000,000, and that would be a trillion dollar company today. Mhmm. I mean, so think about how fast we've gone for where a billion dollar company was a unicorn to where now a trillion dollar company is a unicorn. That's three orders of magnitude of market cap in a decade. So that's the backdrop. Now, yeah, I think, and we're in a hits business. No one cares what our slugging percentage is, what our batting average is. They care about what is our, how many dollars do we give you, and how many do you give us back. Mhmm. And if it's, you know, better than three or four x, and better than a 20% net IRR, we're going to keep giving you money to do what you're doing. Mhmm. And the only way, What I worry about most, Jordy, is that people aren't taking that type of risk. They're not going in, taking big risk, owning 20% of the company, helping build it, as opposed to just joining the Putting all of their fund in these party rounds, these companies that are valued tens of billions of dollars. I don't believe aqua hires are going to be effective at all at returning capital to people, versus the versus versus saying, like, what we're doing is we'll take a portion of our fund. When a Jeff Dean shows up, we'll take a portion of our fund and put it towards something like that, because that's something you can't say no to. But primarily, we're going to do things like we did with Commonwealth Fusion. Mhmm. You know, helped incubate it, got it off the ground. Rocket Lab. Yeah. We were the first investors. We put in, I think, $5,000,000 for a third of the company. It was a company in New Zealand. No one was paying attention to it. And we owned 28% of the company when it went public, and the company is now worth, I don't know, thirty, forty billion dollars.

Speaker 4: A

Speaker 1: lot. Getting another sound effect. There's the gong. How do

Speaker 3: you the way that I think I still think the primary returns from the better venture funds will be that model.

Speaker 1: Mhmm.

Speaker 3: And if a fund is taking 60% of their assets and putting in these large party rounds, these billionaire I'd be shorting that all day.

Speaker 1: How do you think the like skill set or valuation chops of venture capitalists is changing or needs to change? Commonwealth Fusion is fascinating. Rocket Lab is very fascinating because those are not SaaS companies where you had someone who was really good at diving into retention and Dow growth and CAC and LTV and like the standard metrics. Now there are growth investors who are fantastic at that and they had a ten to twenty year run of watching the triple, triple, double, double, happen, the IPO, everything played out in software pure play investors. Now it feels like we're closer to an era of more VCs becoming generalists. There's maybe a biotech boom that's coming on the back of AI. There's a lot of hard tech and re industrialization that's happening. And I'm wondering if the shape of talent that you're trying to recruit is changing or if you're cautioning any VCs who have spent a decade in pure software world. Are they going to get their hand burnt by touching the stove of industrials or science?

Speaker 3: I don't think so. I, you know, we promote and want people at our firm who are generalists. Because there's so many of the principles carry over. Let me just list a few. In the end of the day, it's the team. Yeah. You know, the company you build is the team you build. Why? Because if you've got a great team, they're going to hire good people. They're going to find the right markets. They're going to make sure the product has a moat. They're going to pivot when things aren't going well. That's all All those secondary things are a function of the team. How you advise the team, how you help the CEO recruit brand, market, etcetera, is all very similar. I also think, you know, specialist funds do really well in boom markets for those specialties. So, you know, the crypto specific funds kicked ass for a while.

Speaker 1: That's right.

Speaker 3: But then they sucked wind. The same thing with the SaaS. I mean, look, like the Tomo Bravos and the Vistas of the world were like just like soaring through the moon, and then now, now it's happening. So you have to be We've always been very consistent. Know, started the firm twenty, almost twenty two years ago. Bold, early, impactful. You've got to have a technology edge. We don't take market risk. If you have a product that's this revolutionary, it should sell itself, and we try to back the best founders we can, and help them do things that they need help with and not govern them, not manage them, tell them how to do their job.

Speaker 1: So follow-up. And that's worked for us. If you're hiring generalists, what does it take to make it a Coastal as an investor? How much of it is a team sport versus you eat what you kill, you got to be very self sustaining, go out, find the deal, advocate it, take it across the finish line?

Speaker 3: We're very collaborative.

Speaker 1: Okay.

Speaker 3: So I would say, you know, the MDs at our firm, we've worked together forever, decades, and have had no major issues. We haven't had turnover. We've not had a coup to replace management.

Speaker 1: That's

Speaker 3: right. And I'd say we don't even do deal attribution. It often drives our investors crazy when they say, give us deal, who did this deal, who did that deal? We don't do that. We refuse. Because we want everyone to work together, and we also believe that we're all very unique in our skill set. Mhmm. So part of our selling point to entrepreneurs is you're not just working with Samir. You're going to work with Samir, Keith, Swen, Vinod, David, everybody. You're going get the best of all of us.

Speaker 1: Mhmm.

Speaker 3: What works at Khosla is, look, we're in office five days a week. We try to be low ego. We And I tell people, you know, add value and be fun to work with.

Speaker 1: Mhmm.

Speaker 3: And I think that works. And your best grader isn't me. Mhmm. It's going to be the entrepreneurs. If CEOs are calling me and saying, hey, we want more of so and so's time, or they've added great value, or they've given us great insights, That's that's the greater. It's not me.

Speaker 1: Mhmm. What advice do you have for new entrepreneurs who are much younger? Who who should they go and do twenty seven years at Google and then start a company? Or or is it the best time ever to start a company if you're college new grad?

Speaker 3: I I think it's a great time because with AI, there's so many functions that are just more streamlined than ever before.

Speaker 1: Mhmm.

Speaker 3: And so what I would tell people is, if you have an idea, and if you have a co founder, start the company yesterday. Don't wait. Who cares? Drop out of Harvard, drop out of MIT, it doesn't matter. If you don't have conviction in an idea and you don't have a co founder, go somewhere that you'll find a co founder. So if that means going to Google, that means going to OpenAI, go there with the purpose of learning, getting more conviction in your idea and ideally finding a co founder. And when you do, leave and go do it.

Speaker 1: Yeah. Makes sense. Drew, you have anything else? I'm sure you do.

Speaker 2: Yeah. I'm curious how you you guys end up doing a lot of, you know, you're lucky to invest in great companies early that then get over like, oftentimes certain companies get overheated over time. I'm wondering how you navigate, you know, if you do a company at seed or series a. How you navigate those later rounds?

Speaker 1: If someone else is doing the overheating.

Speaker 2: Yeah. Like at what point, how are you making that decision around like let's just get diluted, we're not gonna take we'll maybe throw in a token amount that says we're investing

Speaker 3: that's that's another I think relatively unique feature. So people Mhmm. In our shop will tell you if they come present and say so and so is leading around at x, we should do pro rata, I'll throw them out of the room. To me, pro rata is completely doing pro rata by default is scandalous. It's the worst thing you can possibly do. I tell people they either should come in pounding the table to do three times pro rata, or a third of pro rata, or a fourth of pro rata. Because we have the ability in private markets to change our bet, you know, midway through. Like, Jordy, if you and I had a bet on the Super Bowl and I said you can change your bet at halftime, you'd be a fool not at least evaluate changing the bet. Mhmm. Right? And so the only time we should do pro rata as a firm, there's only two situations. One is it's a great company and it's the maximum allocation we can get. Mhmm. Or it's a good company, it deserves another turn of the cards, and we have to do pro rata to support the round. Mhmm. Other than that, we should be doing three x pro rata and piling in money, or a third pro rata and cooling our jets. Mhmm.

Speaker 2: What's your take on angel investors selling at different stages? I feel like, personally, it's can be quite awkward to even take anything off the table with founders, like if you back a company early. There's often times, especially over the last six months, there's been so many moments where I was, you know, hearing about a round getting done and thinking like, I would love to exit my whole position. But that's too rude. But, you know, maybe taking out even like a, you know, three to five x would be nice. But I I 99% of the time I've just said like, okay. I'm just riding out. I'm riding it out. Riding it to the to the end. But what's your view?

Speaker 3: I think that's between the angel investor and the founder.

Speaker 1: Yeah.

Speaker 3: If an angel is removing money in a round, I'm coming in. I don't unless it's an angel investor I know who I feel like has deep pockets and shouldn't need the capital, I don't, it doesn't bother me much. It's a fine line when the founder sells.

Speaker 1: Sure.

Speaker 3: And the question, that's worth digging into. So are they trying to buy a house? Are they trying to put away money for their kid's college? With them releasing a little bit of the pressure valve, do they go swing a swing for a bigger fence.

Speaker 1: Mhmm.

Speaker 3: Right? Those are the things you have to kind of evaluate.

Speaker 2: Yeah. What's your What's limit? Is it like You know, it because like beyond 10, it's hard

Speaker 3: is unacceptable under any situation, because you don't me it's like that $5,000,000 range, and maybe in the future round they sell another 5,000,000. Mhmm. And then you evaluate their individual circumstances. But beyond 10, I'd have I I would have to really understand what the hell was going on.

Speaker 1: Yeah. Also, I mean, like there are plenty of banks that will let you buy a house with not all the cash. So like, you don't you don't always need.

Speaker 2: Somewhat.

Speaker 1: Yeah. There yeah. There are plenty of different financial instruments for various Yeah. Moments in life. But yes, that's a good that's a good rule of thumb. Good to hear it. And thanks for coming on and Yeah. Shopping it up. I'd love to do this again. This was really fun.

Speaker 3: This was a lot of fun. Thanks, guys.

Speaker 1: We'll talk to you soon.

Speaker 2: Great to hang.

Speaker 1: Cheers. Bye. Let me tell you about Shopify. Shopify is the commerce platform that grows through business, lets you sell in seconds online, in store, on mobile, on social, on marketplaces, and now with AI agents. And let me also tell you about Figma.