Vinod Khosla doesn't much like the limelight. But the crowds of movie, cable and computer executives that formed around him every time he loped through the lobby of the Beverly Hilton during this week's Digital World conference made it hard for him to maintain his customary low profile.
"We know a lot of people here," he agrees with self-conscious understatement.
It's no wonder Khosla is so popular: He's the man with the money. Khosla is a partner with one of Silicon Valley's oldest and most successful venture capital firms, Kleiner Perkins Caufield & Byers, which for months has been working behind the scenes to lay the groundwork for an interactive media industry that analysts believe--hope?--could exceed $100 billion by 2000.
A fragmented, undeveloped industry with the potential for explosive growth, interactive multimedia has lately become a magnet for venture capital, as well as for mature media and entertainment companies anxious to get a piece of the new pie before it's gobbled up.
But with Khosla as its point man, Kleiner's 13 partners have, by many accounts, moved faster and more aggressively than others. With about $25 million in a handful of start-ups so far and plans to more than double that investment over the next two years, the firm has quietly staked out a powerful--and potentially very lucrative--role for itself in shaping the fast-evolving business.
A key part of the firm's strategy is to facilitate the merger of high-tech and Hollywood, which many believe is crucial to the new medium. And in what remains a world of promises and forecasts, their efforts are beginning to show results.
Twentieth Century Fox President Strauss Zelnick's announcement this week that he would leave the studio to head Crystal Dynamics, a tiny multimedia software publisher in Palo Alto, was due in large part to Kleiner Perkins, for example. One of Crystal's main backers, it actively recruited Zelnick, whose move raises the profile of both Crystal and its industry.
The ubiquitous Khosla also engineered this week's announcement of the planned merger of video game companies Spectrum Holobyte and Microprose, pushing Spectrum to raise $10 million in one week to complete a deal that he hopes will position the company to be one of the four or five major new players expected to emerge as the hundreds of small software firms consolidate over the next five years. Earlier this year, Khosla helped persuade Paramount to buy a 7% stake in Spectrum.
Now Kleiner Perkins is talking with Hollywood studios about partnering in a several-million-dollar venture uniting dozens of interactive artists and programmers in a studio system modeled after United Artists. Rather than setting up their own marketing, manufacturing and distribution system or producing for other publishers on a title-by-title basis, the software developers would own equity in the "studio" and work on a long-term contract, the way actors and directors did in the early days of Hollywood.
Ruthann Quindlen, an investment banker who recently left Alex. Brown & Sons and may head the start-up, says the idea reflects an approach that differentiates Kleiner: "They don't wait for entrepreneurs to come to them with an idea. They create the idea and make it happen."
Indeed, Khosla likes to say that the firm's strategy is aimed at creating a mass market for new media, not simply building a few successful companies. To that end, the firm is backing 3DO Co., which is developing technology for a new generation of interactive software, and aiming other investments at supporting 3DO.
"If you can create an experience that someone prefers over buying a book or Nike shoes or a new hairdo or renting a video or going to a movie, then you've won," Khosla says.
But 3DO isn't guaranteed success in the emerging world of interactive technology, and the 38-year-old Khosla, a founder of Sun Microsystems, has recently been lobbying cable firms, telecommunications companies and others that will ultimately influence the shape of the new industry in defense of his vision and investments.
Khosla, along with many others, fears that the Cablesoft alliance between Tele-Communications Inc., Time Warner and Microsoft Corp., for example, could establish a closed standard that would limit the growth of the interactive industry.
Partly because the landscape is unstable, some Kleiner competitors take a more measured approach. Michael Levinthal, a partner at Menlo Park, Calif.-based Mayfield Group, sees Kleiner's approach as riskier than Mayfield's entrepreneur-driven strategy: "You can be very visionary, but if it takes 10 years instead of three for a market to materialize, it can be very expensive," he says.
Palo Alto-based venture capital firm Kleiner Perkins Caufield & Byers plans to plow more than $40 million into new media investments over the next three years. Recent deals include:
* 3DO: Kleiner Perkins has made $50 million (on paper) since San Mateo, Calif.-based 3DO went public in March. Other backers include Matsushita, MCA, Time Warner and AT&T.
* Crystal Dynamics: The year-old Palo Alto software publisher made headlines by luring 20th Century Fox President Strauss Zelnick as chief executive in a deal Kleiner Perkins helped engineer. Crystal is developing interactive games for 3DO.
* Spectrum Holobyte: Best known for its flight simulator and Tetris games, the Alameda company announced plans to merge with rival Microprose. Spectrum is developing an interactive version of Paramount's "Star Trek: The Next Generation" for 3DO.
Other Kleiner investments include America Online, Digital F/X, Macromedia, Academic Systems, Internet Systems.