CalPERS invests $60m in Khosla’s closed $250m seed-stage fund

In my earlier blog, I mentioned that a Forbes article on 20 July 2009 reported that Vinod Khosla is near to closing $1 billion in new funds. He is on the verge of announcing 2 new funds with money from outside investors: $250m vehicle for seed-stage investments and a $750m fund called “KVIII” for larger deals. California pension giant CalPERS said several months ago it had committed $200m to a new Khosla fund.

Now, more details have emerged on 12 Aug 2009 that CalPERS disclosed it committed $60 million in June to Khosla Ventures’ $250m seed fund, which CalPERS said has finished fund-raising. Khosla Ventures Seed LP will focus 75% on clean technology and 25% on information technology. See the CalPERS pdf document here (page 22 onwards).

CalPERS in February had recommended committing $200 million to the later-stage fund, Khosla Ventures Expansion Fund, which CalPERS disclosed then was targeting $1 billion (comment: is this the same as KVIII?). The 2 new funds are the first time that Khosla Ventures has raised outside institutional capital, and CalPERS would participate in the expansion fund as an anchor investor.

Cleantech is a classic venture capital industry, with high risks and high rewards, according to Vinod Khosla. “What’s amazing about this is the size of the markets,” he said at a recent AlwaysOn conference. While the failure rate in cleantech is likely to be high, he said, “the wins will be bigger. More money will be made in cleantech than in traditional areas of Silicon Valley – by far.”

Earth2Tech reported in its article, “But while Khosla has earned a reputation for putting his money where his mouth is -– he’s invested hundreds of millions of dollars of his own cash into startups -– CalPERS’ assessment of the firm as having a diversified cleantech portfolio is another story (note: see page 23 of the pdf document). Khosla has disproportionately bet on biofuels, with more than a dozen startups including Mascoma, Range Fuels and Coskata in his portfolio, many of them now in the capital-intensive project development stage. Still, to be fair, Khosla has made investments in lighting (Lumenz), engineered geothermal (AltaRock), solar (Ausra) batteries (Sakti3 and Seeo) and other sub-sectors, but the heavy focus on biofuels still stands large. The good news for venture capital watchers is that with CalPERS’ investment, Khosla Ventures’ performance will be more transparent as a result of the pension fund’s filing requirements.”

One Down: Vinod Khosla Closes $250M Seed-Stage Fund
Khosla’s $250M Seed-stage Fund Closed, CalPERS Invests $60M