Cloudflare CEO says Vinod Khosla urged him to oust his cofounders during funding talks

Cloudflare chief executive officer Matthew Prince has said that venture capitalist Vinod Khosla suggested he remove his cofounders during early-stage funding discussions in 2012.



Prince said the exchange occurred following a dinner meeting in which Khosla Ventures had issued a term sheet for a potential $50 million lead investment in Cloudflare.




He alleged that Khosla encouraged him to part ways with cofounders Michelle Zatlyn and Lee Holloway as part of the investment process.

In response, Khosla denied the claim in a public statement, saying his firm “did not give them an offer to invest based on our assessment of the team.”

He added that no discussions about firing founders or equity arrangements took place and described such claims as “totally a fictional story.”

Prince shared a screenshot of a document titled “Summary of Terms for Sale of Series C Preferred Stock,” which outlined a proposed financing of up to $100 million, including a $50 million contribution from Khosla Ventures. The document indicated a pre-money valuation of $700 million and standard governance provisions, including a board seat for the lead investor.

Cloudflare later secured approximately $50 million from other investors at a valuation of about $1 billion, without participation from Khosla Ventures.

Khosla acknowledged that his firm ultimately did not proceed with the investment, stating the decision was based on concerns about the team at the time, which he described as “retrospectively wrong.”

The disagreement surfaced on social media amid a broader discussion among founders about their experiences with venture capital firms.

Travis Kalanick, cofounder and former CEO of Uber, described pitching an investor in a parked car after intercepting him before a scheduled meeting, illustrating what he characterised as unconventional and informal fundraising encounters.



Amjad Masad, cofounder and CEO of Replit, said he faced coordinated criticism from investors after speaking publicly on geopolitical issues.



Greg Isenberg, an entrepreneur and investor, described a pitch meeting at a leading venture capital firm where, he said, a general partner fell asleep for over 30 minutes during his series A presentation, while others in the room continued without acknowledging the situation.

Zach Roseman, founder and CEO of Draftboard, questioned investor decision-making standards, suggesting that financial returns can outweigh concerns about accuracy or founder credibility in some cases.



Investor Clara Gold offered a defence of Khosla’s approach, stating that founders who work with him understand he prioritises company outcomes over individual roles.



She said such an approach can include replacing founders if deemed necessary for the company’s success and is part of the expectations when engaging with certain venture capital firms.

Kristen Anderson said that Khosla Ventures led her company’s seed round in 2019 and described the firm’s approach as direct and candid. She stated that while feedback could be harsh, it was consistent with a philosophy of “kindness is clarity”.



Khosla, responding to the broader discussion, said he aims to provide honest assessments even if they are perceived as harsh, adding that “hypocritical politeness” can be more harmful to founders than direct feedback.