Venture capitalist Vinod Khosla toils in the shadow of partner John Doerr, who pals around with Al Gore and graces the covers of magazines. But it's Mr. Khosla who has the hot hand in Silicon Valley right now.

Mr. Khosla, a partner at venture firm Kleiner Perkins Caufield & Byers, was the driving force behind Cerent Corp., a telecommunications-equipment start-up slated to be purchased by Cisco Systems Inc. in a $6.9 billion deal announced Thursday. Kleiner Perkins's 30% stake in the venture, for which it paid about $8 million, is suddenly valued at $2 billion as a result of the deal.

1Cisco to Acquire Cerent For $6.9 Billion in Stock (Aug. 26)
 
Mr. Khosla conceived Cerent in late 1996, recruited the first engineers, served as chief executive for 1 1/2 years and, as chairman, shepherded Cerent to what is believed to be a record purchase of a closely held technology company.

Yet Cerent is only Mr. Khosla's second-biggest hit of the summer. The 44-year-old native of India also was a key supporter in the creation of Juniper Networks Inc., another maker of telecom gear, whose shares have skyrocketed since going public in June, giving Kleiner Perkins another $2 billion-plus stake, from an even smaller initial investment.

Throw in his role as an early backer of Internet portal Excite Inc., acquired in May by At Home Corp. for $6.7 billion, and Mr. Khosla is having a heck of a year.

 
"When Vinod starts making things happen, there's no limit," says Roger McNamee, partner at Integral Capital Partners, an investment firm associated with Kleiner Perkins.

Mr. Khosla's recent record exemplifies the increasing role of venture capitalists as more than financiers. Not content to give a simple yes or no to entrepreneurs with an idea, Mr. Khosla is among the most prominent exponents of the view that venture capitalists actually build, not just fund, technology companies.

Sometimes, that strategy means Mr. Khosla creates a company around his own idea. In the case of Cerent, the idea was to make the rings of fiber-optic cables that encircle most metropolitan areas more efficient for carrying both telephone calls and computer traffic.

In other cases, it means tapping the full potential of other people's concepts. The six founders of Excite approached Kleiner Perkins in the fall of 1994, after having been turned down by eight other venture firms, as they sought backing for new technology for searching huge databases.

How Big?

How big could these databases be? Mr. Khosla asked, according to Joe Kraus, now senior vice president of content for Excite At Home Corp. The founders replied that they didn't know, because the $15,000 they had borrowed from their parents didn't allow them to buy a big enough disk drive to test their invention. Mr. Khosla gave the founders $6,000 to buy a disk drive, then suggested they use their technique as a search tool for the then-emerging Web.

He constantly pushed the Excite team to think bigger. When Microsoft Corp. offered to buy the company, then-called Architext, in December 1995 for $70 million, he persuaded the founders to spurn the deal. When Netscape Communications Corp. auctioned off the search-engine function on its home page, Mr. Khosla urged Excite to bid $3 million, even though the company had only $1 million in the bank. "He thinks huge," says Mr. McNamee.

Two decades ago, Mr. Khosla was a founder of Daisy Systems Corp., a maker of computers and software for computer-assisted engineering. Two years later, he helped found Sun Microsystems Inc., whose workstations drove down prices and shook up the computing establishment.

Since joining Kleiner Perkins in 1986, Mr. Khosla has played key roles in starting companies involved in semiconductors, multimedia video games, Internet software and computer networking. His Next Big Thing is application-service providers, companies that run corporate software programs as a service over the Internet. Mr. Khosla is on the board of one such provider, Corio Inc., and earlier this year organized another, Asera Inc., in much the same way he created Cerent.

How does he stay current?

"I have the smartest people in the world educating me every day," Mr. Khosla says. "The only thing I really do is filter and modify to arrive at my own opinions."

Associates say the most frustrating part of working with Mr. Khosla is keeping up with a constant stream of suggestions. Mr. McNamee says he tells companies in which Mr. Khosla invests to appoint "a senior vice president in charge of managing Vinod."

Ajaib Bhadare, a Cerent founder now vice president of engineering, says Cerent might not have gotten out its product so quickly if it had all the features Mr. Khosla had proposed.

Not all of Mr. Khosla's ideas are winners. With support from Mr. Khosla, Kleiner Perkins was an early backer of hand-held computers that recognize handwriting, funding Go Corp. and other unsuccessful companies. Mr. Khosla also backed 3DO Co., a game maker whose shares now sell for a fraction of the '93 initial offering price.

An avowed risk-taker, Mr. Khosla swore off hang-gliding and skydiving only after becoming a father. (He has four children.)

Mr. Khosla suspects he cherishes risk as a reaction to his father, who was orphaned at three weeks and grew up to be a "very conservative" career military officer. Mr. Khosla spurned his father's suggestions to join the military, instead enrolling at the prestigious Indian Institute of Technology, and then coming to the U.S. for graduate studies at Carnegie-Mellon University. Then it was on to Stanford University for an M.B.A.

"I started dreaming of starting companies based on technology when I was 15," he says.
 

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