Why This Billionaire Investor Wants to Pay Higher Taxes — The WSJ Money Interview

[00:00:00] Speaker 1: I'd be happy to pay more taxes and have capital gains, which is mostly what I pay, be the same as ordinary income. [00:00:08] Speaker 2: But you have opposed the wealth tax on the table right now. [00:00:11] Speaker 1: That's a dumb idea. Not every tax is a good idea. It solves nothing. [00:00:20] Speaker 2: Vinod Khosla is widely considered one of the most successful venture capitalists out there. Today, he oversees billions at Khosla Ventures, one of the first VCs to back open AI. He invited us to his headquarters in Menlo Park to discuss the dramatic shifts that will redefine wealth over the next decade and why he actually wants to pay more in taxes. You have an unapologetically bold take on risk taking and failure in particular. Was there a turning point that shifted how you thought about risk taking? [00:00:52] Speaker 1: I've always been a risk taker. I left India in 1976, came to this country, didn't know a soul, didn't have any support, just said, I want to get to Silicon Valley and go start a company. That was a big risk. It's attitude that matters and not resources. When I first came to this country, even eating at McDonald's was a luxury. I had myself budgeted for one McDonald's meal a week. That's all I could afford. Otherwise, it was Swanson's chicken pot pies that cost 39 cents back then. They cost $1.39. I checked recently now. So I had very low minimum standards that I needed to survive. [00:01:46] Speaker 2: And that gave you some operating leverage to go for? [00:01:48] Speaker 1: Yes. It gave me a lot of freedom. [00:01:50] Speaker 2: You mentioned once that there was a moment where you realized that you had more money than your dad had ever made in his entire life. [00:01:58] Speaker 1: That was early 80s. [00:01:59] Speaker 2: So very early in your career. [00:02:00] Speaker 1: Yes. I realized money wasn't the issue and I would never call myself an investor for that reason. What we are trying to do is work on interesting problems. And that's a lot more fun than investing. Frankly, investing is a really boring business. But building companies is a very fun thing to do. Obviously, starting my first company, Daisy Systems, was the biggest risk I took because I had no experience in business. I'd never had a job. And that company was successful and went public and led to a set of ideas that got me to start Sun, which was also another big risk. Sun also went public and was successful. And then I invested in a whole lot of other companies. When I invested in Juniper in 1996, not a single person at any of the telecoms in the U.S. thought TCP/IP would be the Internet. And we just built TCP/IP and our view was we'll build it and they will come and we built it and they came. And I got a 2,500 extra return on a $3 million investment. You can do the math. [00:03:10] Speaker 2: Right. So you've been really focused on convexity, right? [00:03:13] Speaker 1: Yeah. I like to say I do option value investing. If I'm at all financial. So calculating IRRs is very hard to do because you can't predict many things, including whether you'll even get a product. Sure. But option value is very much like if the option expires, you lose one times your money. If it works, you make five times your money, ten times your money, a hundred and occasionally 2,500x. And I hope OpenAI is a thousandx or more. [00:03:45] Speaker 2: OpenAI was valued at $500 billion. There were reports that it could be valued at as much as $800 billion. What do you say to people who say it's overvalued? [00:03:53] Speaker 1: I don't care. Look, markets always have people on both sides. Somebody's buying it and somebody else is selling it. These differences of opinions settle out at whatever is the then current fair valuation for a mood. Now moods change and things go further up or further down. That's why I don't care about valuations much. I just go along with the flow and say, am I doing the most to build value and do interesting things? Frankly, the more interesting something is, the more likely it is to be what others are not doing and hence, sort of sole owner in some interesting market. That's what Juniper was. That's what OpenAI was. I go on with the long list. [00:04:38] Speaker 2: You decided to leave Daisy right after you founded it. [00:04:42] Speaker 1: Yeah, because it was clear I wanted to build sun and then it was clear I wanted to help a bunch of entrepreneurs. I had many other interests, including design. I was very interested in furniture design. So I always pursued what I was interested in, not what I was expected to do. Very proud of this table. I designed it. Really? I designed the whole table and designed the texture of the finish on this surface. [00:05:09] Speaker 2: I love the natural look. [00:05:10] Speaker 1: The feel is very different than normal veneer. [00:05:13] Speaker 2: Have you designed all of the furniture here? [00:05:15] Speaker 1: Most of it. I think most of my success is because of my design thinking. I designed everything from furniture to lifestyles to buildings. You think through what the flow of what you want. [00:05:31] Speaker 2: And that applies to entrepreneurship as well. [00:05:33] Speaker 1: Yes. Design thinking absolutely applies to entrepreneurship. [00:05:37] Speaker 2: When did you first start designing furniture? [00:05:39] Speaker 1: My college dorm, my desk and all, I designed all of it. I had to go to Home Depot to buy 6x4s and do the sewing myself and put it together. Wow. Well, go look at the paper towel dispensers in the restroom. I designed them myself, stay up till 2:00 a.m., designing paper towel dispensers. But they're different than anything else. The walls are different. Half the walls in this office are reconfigurable because, you know, you can't design a building for 100 years and say the use will remain the same. This is a busy neighborhood, but all around us are trees. Every one of these trees are planted. It wasn't like this. So you create the world you want, not what's happening to you is the key difference. [00:06:25] Speaker 2: How do you build that muscle? How do you push through? [00:06:29] Speaker 1: I've always had it. In 1971 or 72, when I joined the Indian Institute of Technology in Delhi, there was no computer programming class in all of India. So we created a hobby club and then I got interested in biomedical engineering. I was an electrical engineer with one professor, Professor Guha. We created the biomedical engineering program. If something doesn't exist, you can accept it. It doesn't exist or create it. So even at 16 or 17, I was creating a programming class. And then a couple of years later, I worked with a professor and a couple of other students to create the biomedical program, the first such program in India. [00:07:08] Speaker 2: When you left Sun Microsystems, your partner, Scott, replaced you as CEO. Did you feel a lot of doubt at that time? There were news reports that you were pushed out. [00:07:18] Speaker 1: Look, you always have doubts. As I said, you're never sure what the right thing is, but I've never let it hold me back. I don't get stressed ever. I just don't know what stress means. [00:07:35] Speaker 2: Really? [00:07:35] Speaker 1: I just decide what's the best thing I can do, do the best thing I can. Then I can't do anymore. Worrying about it going wrong doesn't affect me. [00:07:44] Speaker 2: Do you have any advice for people who struggle with risk taking and are very afraid of failure? How can we apply that option value investing to our own lives? [00:07:53] Speaker 1: This is a personal choice. Prevent the downside of one X and prevent the upside. I want to get my salary at some big company like Cisco or IBM and I don't want to take risks. When I want to make sure my kids are fed when my mortgage is paid. It's a perfectly reasonable choice. Not everybody should be like me. But people who are more ambitious in what they want to get done, you have to take risks. If it's an easy problem, somebody will have solved it. [00:08:29] Speaker 2: Do you believe in paying your fair share of taxes as compared to people who make less than $250,000 a year? [00:08:36] Speaker 1: Absolutely. I think our tax system is screwed up, especially in the world of AI. More value is going to accrue to capital than to workers. Labor is about $15 trillion of the U.S. economy. That's roughly the number, give or take a few trillion here or there. It is going to get less valuable relative to capital. I think a very fundamental thing we should consider is change all capital gains tax to be the same as ordinary income. Income tax. No difference. Wow. That would be a huge change. Yeah. Nobody's thought about it, but it is the most fundamental thing we can do. There's lots of other things to talk about on the impacts of AI. But I do think capital gains doesn't deserve a lower tax. In a world where we didn't have enough investment, it made sense to incentivize investment. We don't have that problem today. I think the world is very different and we need to tilt the seesaw towards labor and labor contributions to the economy. You know, somebody like me, because I'm mostly investing in startups that become valuable, is mostly paying capital gains. I haven't collected a dollar of ordinary income in the last 20 years. I'd be happy to pay more taxes and have capital gains, which is mostly what I pay, be the same as ordinary income. [00:10:02] Speaker 2: But you have opposed the wealth tax on the table right now in California. [00:10:06] Speaker 1: That's a dumb idea. Not every tax is a good idea. It solves nothing. I'm not moving. I'm still here. Most people move before January 1. In fact, many budding entrepreneurs, because they all expect to be billionaires, are also thinking of moving. [00:10:22] Speaker 2: I talk to a lot of people on Wall Street and many of them just hate taxes. Some of them shuttle between Miami and New York or New York and New Jersey to pay as little in taxes as possible. I could have moved. [00:10:33] Speaker 1: I have other homes I can move to. Utah is a great state. I love skiing. I have a home there. And if people want to live in the wrong place because they don't want to pay some taxes, it's a choice they make. I enjoy where I live.