Vinod Khosla — Achieving Health Moonshots in an After-COVID World

Vinod Khosla: My other principle, that the team you build is the company you build, not the business plan you make. Because most business plans evolve and change. If you have the right team, they'll evolve and change to be much more ambitious. And so there's a change in assumptions that's getting more people with experience experience to discard their comfort zones and join ambitious startups.

It is the duty of leaders to lead, of the creative to create, of the daring to do. The free world expects leadership of us. Its fate and our fate depends upon our leadership. We are industrious, inventive, restless with the fires that burn within us. Well, I say that nothing is easy and the best things are the hardest. And all our troubles, all our immense difficulties, now and in the future, can I say, be solved if we have the will, courage.

We're grateful to welcome Vinod back for the 5th time to share his wisdom with our global army of health transformers. In fact, our last talk seems like it was years ago, but it was really only 6 months ago on January 12th, 2021, but given how fast the world of health innovation is moving today, we wanted to really check in again and see how Vinod is thinking differently about today. Today we were hoping to dig into really 3 topics with you. The first, broadly achieving health moonshots in, in a post-pandemic world. The second topic really around building teams for achieving health moonshots. And then the third topic around collaborative innovation. So just to kick things off, welcome. First, where are we? We're 6 months in from the last time we spoke. How is, how is this moment different? How are you thinking differently today over the past 6 months?

You know, frankly, 6 months ago, we thought, we hoped we'd be where we are. I would only caution, we aren't sure where we are today in this pandemic. The way I like to explain it, when the virus entered human circulation, whether it was via lab escape or animals to humans, it had an R naught of 2, 2.5. It was a relatively inefficient virus. The, the, and it evolved in the UK variants and others to R naught of 4 to 5. And today the Delta variant is somewhere between an R naught of 5 to 8. Just for comparison, a virus like measles, has an R naught of 14. So in startup lingo, what we saw a year and a half ago was the virus do an MVP product in humans with a relatively poor R naught. And it's been optimizing itself, improving itself. And so without being overly either— detail on this or going too deep. I'd say we should be cautious. We think there's lots of room for the virus to optimize itself, uh, and its R-naught, uh, and its other features. Um, it, uh, but we also have among our entrepreneurs many of the tools to fight the virus. So Full circle, it's going to be a battle. We don't quite know where it'll go, but we should be prepared. I'm more optimistic today as we return to normal than— but I'm also more cautious than most people.

So as we've talked over the past decade, one word you often don't use is caution. You often talk about risk. But I've also noticed you've been incredibly consistent and stable in your philosophy and your thinking over the past decade as we've talked. How have you recalibrated your personal long-term vision for a post-pandemic world?

So my view is— my view for 2030 hasn't changed at all. And we can talk about that. Uh, not one bit. What has happened is both good and bad. So I like to tell entrepreneurs, be obstinate about your vision, be flexible about your tactics. And tactics respond to the environment fairly rapidly. Vision doesn't respond as quickly. It's more resilient. It's like saying, if you're going to Mount Everest, your goal is the same, you keep that in sight, but the path you take changes based on weather conditions and other things. So I would say tactics have changed from 15 months or 18 months ago, but a lot of it is good. Though the pandemic was horrible for, for our planet and humanity, it has been very good in other ways for entrepreneurs. And it's been very good in the following way, very specific way. You know, the world was pretty comfortable with where it was going. I would say it was relatively solidified, with its set of assumptions about how healthcare works. Specifically, experts had a lot to say, and they prevented, because of that view, a lot of innovations. Um, most experts, uh, in, you know, have a lot of experience, but when you're trying to innovate, Experience is a bias and can often be a negative bias. And that was holding back innovators like our audience here today. Um, what I find has happened is many more assumptions about the healthcare system are unjelled and open for questioning. Uh, the most obvious ones of course are things like You know, can remote care work? 15 months ago, 90% of providers would say it isn't as effective. Today, 90% have tried it and most like it. So the world has unjelled much more to innovation, but there are other changes in assumptions. So it was an assumption a drug or a vaccine would take 10 years. Do we believe today that it's possible to take only a year to get a vaccine? Absolutely. So that's another good thing.

Do you think that's freed us up? Do you think that's freed the healthcare industry up to think more aggressively about the possibilities of innovation?

I absolutely believe so. And though moonshots are still, to speak to your theme, relatively rare, the number of people willing to take moonshots is much larger in my view. So one would have expected more conservatism in response to the pandemic, and there's a little bit of that. But I actually think the number of people who want to do more meaningful things with their life has actually increased. This shock to the system has, in my experience, had more entrepreneurs say, I don't want to work on incremental things, I want to work on something that really makes a difference. Uh, now I may be a little biased because those are the kinds of entrepreneurs we love. We fundamentally don't invest in incremental technologies and approaches. And so I may be self-selecting some, but I feel more people want more meaningful innovation than just building an incremental business. That can happen much more rapidly than a more meaningful moonshot.

So how— what are some examples of how you've changed your tactics given what you just said? Are you investing more, more frequently? I know you're doing more with SPACs, for example, just on the funding side or finance side. Are there specific examples of how you're leaning into this post-COVID moment and tweaking your tactics in a way that you think may speed up innovation for where you're trying to go by 2030?

So my view is, at least for us, we always went for the larger innovation. Uh, you know, I have this sort of belief that most investors— and I don't consider myself an investor— most investors reduce the risk of their investments to the point where the probability of success goes up, but the consequences of success are less consequential. We as a firm have always said, uh, we, we don't mind a higher risk of failure, but we want the consequences of success to be much more consequential. And, and frankly, Neither of these two strategies is right or wrong. It's we do one thing, other investors do something different. And my only thing with entrepreneurs is pick the investor who matches where you want to go.

Yeah. Um, and, and I know you, you also, you think about teams in, in the same way in, in terms of how you build teams. At least the teams you invest in. I'm wondering if you could talk a little bit about team dynamics and how you factor investors into one element of the team.

So, you know, I have a fundamental view that there's a massive difference between a $0 million revenue company and a $0 billion revenue company. A $0 revenue company. The numerical number is the same in revenue, which is at startup, all startups generally have zero revenue. But there's a cultural and attitudinal difference between somebody trying to build a $0 million company and a $0 billion company. It— my other principle I use, and these are all There is a difference between a $0 million startup and a $0 billion startup, and we can tell what entrepreneurs are aiming for. The next principle that relates to this and shows up in entrepreneurs is my other principle, that the team you build is the company you build, not the business plan you make. Because most business plans evolve and change. If you have the right team, they'll evolve and change to be much more ambitious. And so, uh, I would, I would say that's a big difference. And more and more people in traditional business— and I've seen this saying, "Hey, I thought a vaccine could only be done by a big company." And guess what? Despite all the other things, Moderna and BioNTech were the two sources of our vaccines. And so there's a change in assumptions that's getting more people with experience to discard their comfort zones and join ambitious startups. You know, we can talk about aging. It's a beautiful area, uh, increasing health spans, for example, avoiding disease, um, is just one example. But there's many, many areas that say we can radically change the outcomes. So another way to put it is You know, 2 years ago, almost everything I saw— and this is not what I did— uh, people started with, what's the business? Which is fine question to ask if you're trying to build a business. We always preferred, still do, people who say, how do I change healthcare dramatically? That's a very different question than how do I build a business. So let me give you a very, very specific example. We've seen a number of autism startups. It's well compensated. You can get up to $75,000 per patient for ABA therapy. You can monetize that. You could start hiring trainer therapists and start providing that service. That's a good business. I've not seen an autism startup say something that I'm very interested in. How do you know what's going on in the brains— brain of the patient when you're doing therapy, and can you modify that? So if you take a radical approach to measuring brain activity you might actually dramatically improve the therapy, not just the billing mechanism. And I think that's a very stark example. Almost nobody doing that is taking this radical approach. I have very, very specific ideas of how I would do an autism therapy startup that would change the practice of therapy and actually improve it dramatically. Versus just say, hey, there's a billing code for this, let's go monetize it. Sorry, I keep—

this is great. So, so going back to what you were saying about building the team that is then going to, to focus on something like autism in a radically innovative way, for example, um, how do you identify that so early or at the beginning? What are you looking for in the entrepreneurs, the difference between a $0 million company versus $0 billion company in terms of their thinking? What are you looking for?

So the most important question I ask is, where do you want to be in 5 years or 10 years? You know, it's important what you do the next year, the next 2, the next 3, but much more important is where's your true north? Where's your Mount Everest? What are you shooting for? I can usually tell the difference. And the second thing, second question becomes, who's the team you're hiring for what you're shooting at? Because you're not going to change your founders in the next 5 years. Founders are founders. So this is where the team you build is the company you build comes in. Uh, it's pretty easy to tell who's being ambitious, who has an ambitious vision. Now, interestingly, a lot of people with ambitious vision don't have pragmatic tactics. So you go start with people with ambitious vision and then say, will they learn to have pragmatic tactics to do the first year, the pivots, the turns, twists, and turns in a path to the top?

And is that how you go about thinking about more of the holistic approach to a team you're looking to invest in, meaning the team dynamics, who's complemented or around that founder set, that founder team? What are you looking for there in terms of the big vision, but complemented by what or who?

So let me give you some fairly specific actionable examples. A lot of investors look for complete teams, right? That's much less important. I'd rather have an incomplete team than an average complete team. Somebody just hired a CEO or whatever, head of biz dev or something just to complete the team to look good to investors. And, and that lowers the risk for investors because they know who they're investing. Now I'd rather take the higher risk approach and say I want a team that's brilliant, but it doesn't have to be complete. That's going to hire great people so So they are self-aware in that sense of what they know and what they don't know and what kind of expertise will de-risk their opportunity and want to acquire it as opposed to have on paper a complete team. So that's one very specific example. These are, of course, nuanced, so I could talk on and on about these factors. But you, you can tell when you have it.

And how, how involved do, do you or your firm get involved in, in terms of building teams? Do you leave it up to the companies, or are you guiding them along the journey? How are you influencing that?

I probably spend more of my time helping our companies recruit than any other single activity I do. It's probably the largest chunk of my calendar in any given year. So we sit alongside them, we talk about candidates, we talk about needs. We— I personally interview candidates. There's a rare week I don't get on a call with 4 or 5 recruiters in a week on 5 or 4 or 5 different searches. That's pretty rare. I'm always on these weekly monitoring calls for searches, helping people build teams or go after superstars who might not otherwise want to join a team.

I'm wondering if you could take us back to the, the early days of Sun. I know you put together one of the, the legendary teams, the first 20 20 team members there were all really extraordinary in some way. How did you do that? Could you unpack that a little in terms of how much time did that take, you know, how you went about recruiting the talent, how you found them, anything you can share that might be relevant for, for the future as well for these these emerging companies that are building their own teams?

So here, here's what I would say. Um, first, there's a couple of pieces I've written that are on our website. Um, if Hesam, my chief of staff, is on this call, he can put these in the chat, or we can send them to you later. One's something called How Do You Engineer the Gene Pool of a Company? A second piece is, uh, the art and labor of hiring. If you're a technical founder, a PhD in biotech or something, how do you know what's a good marketing guy? Those are very hard questions and the answers are not very obvious. So, you know, if you're looking for a biz dev guy, somebody may say, hey, what are all the deals this person has done? That's a reasonable thing to do and say, he'll bring that skill set to us. I ask an additional question, just one of 10 things I could point out, but let me not harp on it. I say, how will this person who we are hiring for biz dev make everybody else on the team better? By asking really penetrating questions and improve the quality of the dialogue internally at the Monday staff meeting or whatever regular forum you have. So how, how will they fit into a team? How open will they be to criticism, ideas? The best people love critique. Is this person going to be open to that? There's ways to tell early. Will they improve other people on the executive team? Will they be a magnet for recruiting? All these things play in a big way. In fact, you know, most people underestimate how valuable a magnet can be to recruiting the rest of the team. So I, you know, again, there's a lot of nuance here, but There's two— that's one of the ways in which I feel we really try and help our companies after we've invested, by helping them with all these questions. And in each one is context-specific.

So two, two questions that came in on the chat that are relevant, I just want to weave them in. Rachel Trobman asks, What is your take on recruiters, and have you had more successes, uh, there, or utilizing existing networks?

So I find recruiters can be valuable, and more valuable than just using your network, if you use them the right way. Now, you hire a recruiter, they're going to expand, look very broadly, more broadly than you can look yourself, so you have a larger pool to select. The bad side of recruiters is their job is to get a recruiting assignment done, so they want somebody hired who's good enough. My view is good isn't good enough, great is barely acceptable. And so it depends on the entrepreneurs to define what they're looking for in a much more nuanced way.. And that's where I spend an incredible amount of time. I hate a standard recruiting spec because it sort of defines God and you never find that person. It doesn't say what trade-offs are more important than others.

So I wanted to shift gears to a theme we started to touch on the last time we spoke 6 months ago around collaborative innovation and something you said lesson really kept me up, you know, so to speak, and probably because it, it rang so true. But also, because we believe that if we can crack the code on this, this concept of collaborative innovation, we can speed up progress. And I think you said something like collaboration between startups and large organizations is largely BS, unless it's in an opportunity for, you know, at the moment of scale. But I wonder if we could focus on another element of collaborative innovation. We're seeing such progress in across different types of innovation, whether it's AI, robotics, mRNA, blockchain, There just seems to be a wave of innovation. Is there an opportunity for, for Health Transformers, for health entrepreneurs to have more unique types of collaboration cross-sector?

Yeah, absolutely. So the first thing I would say to people who rely on the traditional kind of big companies for collaboration, that no large innovation I've run into in the last 40 years has been done by somebody who really knew the area they were innovating. And this again goes back to, in radical innovate, incremental innovators can have experience in a domain, More often than not, radical innovators have very little experience in the domain, but they use first principle thinking to define the domain. So no matter where you look, you know, it isn't Lockheed or Boeing people or Airbus people who innovate space. It's companies like SpaceX and Rocket Labs. It's not hotel industry people like Hyatt or Hilton who innovate hotels, it's Airbnb, which probably has more rooms every night than Hilton has. It's not Walmart who retails, who innovates retailing, it's Amazon in biotech, for example, you know, I, I, when I joined Kleiner, Genentech was still a young company. Most pharmaceutical companies didn't believe in biotechnology. So it had to take an associate at Kleiner to leave and start Genentech. So Bob Swanson was an associate at Kleiner when he left and started that company based on research. And we've seen that more recently with BioNTech and Moderna. Now, there are things larger companies do well and using them for that, and Pfizer helped BioNTech scale. Now, interestingly, Moderna didn't really need that help. So it's clear to me BioNTech didn't have the confidence to do it themselves. They could have and probably retained a lot more of the economics and found the right partner later and built a more valuable company. I haven't looked at the market cap difference between BioNTech and Moderna, but I suspect Moderna did better on that front. From front. So that, that's sort of this notion of traditional collaboration, and you don't want to be held back by traditional large partners and the bias of the very large partners. Now, the kind of collaboration you're talking about is what I call diversity of thinking in a company. There is hardly an area in biotechnology that AI can't helping. And so should you have very diverse kinds of people on your team? Absolutely. There's new tools in robotics, in physics, in, you know, whether you're doing an OpenTrons kind of robotic startup where you're radically changing the cost of casting or doing cell engineering with AI vision and laser precision, it's physics. So a company like Celino is using physics, biology, stem cell differentiation, and AI, right, to do cell engineering effectively. So these cross-disciplinary things or diverse types of backgrounds helped tremendously. And I would give you a word of caution here to your entrepreneurs. They generally do a very good, uh, good job if they're deep domain expert, uh, as Carlos was asking, of knowing what to recognize in people in their domain. I find if a biologist is hiring an AI person, they do a relatively poor job because they all look the same. The same is true when hiring a CFO or other functions. And so being very picky and saying what's the best state of the art and knowing how to approach that problem of assembling a diverse team or the diverse collaboration is, is very critical for founders, especially people who You know, in this, there's extrapolation of the past startups and inventing the future kinds of startups, and they're very different. When you're extrapolating the past, you can hire for experience. When you're inventing the future, you actually don't want that. So you want the best of breed people in each area who keep constantly improving the quality of your thinking, and that's a different kind of team building.

So I know you, you are a prolific healthcare investor, but you also invest in, in other areas. Why, why not focus just on healthcare? Is one of the reasons because you can leverage the innovation that you're investing in, in other areas and, and bring it back to, to healthcare? Do you think we'll see more healthcare investors investing outside of healthcare, for example, to try to leap forward?

Well, you know, I do what I do because I like hard problems and I like sort of cool technology solutions to hard problems much more than I like investing per se. Uh, if I had to pick between the two, I'm very clear, I don't want to be an investor. I want to help create interesting innovations that are hard and impactful. I'm very clear on that.

Are you getting less— I know there was a lot of controversy around some of those papers, um, you know, from, from the provider community and others, um, over the, over the years. Are you getting less pushback in terms of AI-assisted care or AI or technology replacing, in some cases, providers? How has the reception changed from 6 or 7 years ago to, say, the last 12 months?

I think people are much more accepting. So I think it was 11 years ago at a Rock Health meeting that I said AI will do 80% of what doctors do, and I got totally skewered for saying that. Almost everybody who skewered me is now agreeing with me. I think it was 2010, '11 that I first wrote this piece and gave that talk. Nobody even debates whether in— In imaging, AI systems can't do better. In fact, I think it was last year that JAMA said they're no longer accepting publications that prove that an algorithm is better than humans at task A or B or C. Now, that's JAMA saying algorithms will be better than humans in radiology or ultrasound or pick your favorite. And so I think that will— that's absolutely established now. Now, there are people who are still fighting the notion that an AI can't do oncology or primary care. I'm 100% convinced it only a matter of time. It's only a matter of a few passionate entrepreneurs trying to make these things happen.

I wonder if we could spend our, our last few minutes together talking about an issue around mental health. You know, it's, it's obviously been a very challenging year for so many around the world the past year and a half, still is. And for entrepreneurs, you know, the, the issue of mental health, the challenges of the long, long-term ups and downs, the resiliency required. I wonder if you have any thoughts to share on lessons learned over the years around balance, or, or how to advise entrepreneurs to maintain their own mindset and mental health along the grueling journey of building something great under extraordinary circumstances?

You know, I don't know if I have any specific advice other than saying, if you're mission-driven and take the long view and realize this is a marathon today, your Mount Everest goal. It's easier to sustain yourself. You know, there's a presentation on our website that I wrote in 1986 where after I started Sun, and it's called the Entrepreneurial Roller Coaster, where the highs are high and the lows are low. Yeah. Now you read a lot about the highs of entrepreneurship in the press. You you don't hear as much about the lows. But even in 1986, I realized entrepreneurship has a lot of lows. It's a lonely thing. It's a— you're alone. It's very ambiguous. It's hard to decide what is the right way to make decisions. It's hard to decide whose opinion to trust, whose opinion to take. Um, so what I would say is if you have a belief system, a religion about your mission, what you're trying to do, and you have a good supportive team that also believes in your mission, it's much easier to sustain through the lows. But the other piece of thing I would say is This is a marathon. So, you know, you sort of have to do things in a more sustainable way as an entrepreneur, and good, good mentors can advise you on that. It's easier for somebody on the outside who cares about you and has seen these patterns to advise you than you might yourself realize. So looking for help is important.

What do you say to all those innovators and entrepreneurs out there, many listening, who may be on a— what most people probably tell them every day, that's impossible. That's crazy. That's not going to work. Constantly be told no, you know, what, what, what words of wisdom would you share with those those health transformers, those innovators that may be told no 1,000 times already?

Well, I would only suggest if you have religion about your belief system about what you're trying to do, it's easier. Now, the other thing that helps is having other examples of other people who were told the same thing persevere. And that's why I love to say, You know, space wasn't innovate— the cars wasn't innovated by somebody from General Motors and Volkswagen. In fact, the Department of Energy in 2010 did a report on the number of cars 25 years later in electric cars in the US in 2035. Tesla was told they're crazy, they'll go bankrupt. Go back and read all the stories from 2011, '12, '13. You can't build a car company without car execs— executives. By 2015 or 2016, it exceeded the DOE's 2035 forecast for the number of electric cars all by itself. And this is where punditry goes wrong, because the folks in the traditional auto industry knew too much to know what was not possible, but entrepreneurs did not know. So have that belief system. Let me recommend a couple of books because one of the questions was in books. Yes, I find a book like Loonshots very motivating. So I'd recommend every entrepreneur take the time to sort of believe why the Impossible is not one step to possible. You go from impossible to improbable to possible but unlikely to possible to likely to— yeah, have it happen. This gradation of probability change is what an entrepreneur does over time. And, and Loonshots is a very good book.

We actually just had, uh, the author on, um, our previous Fireside Chats. We'll post a link to that for anyone who wants to watch that.

I'd highly recommend that book, and during the lows it can be motivational. The second thing I'd say is how you run the culture within the— your startup does affect these things, and I'd recommend a book called, uh, No Rules Rules by Reed Hastings. On how to approach the culture in the team, how to make the hard trade-offs. So I've talked a lot, so let me stop there.