For folks who know me, they know I’m obsessed with Twitter, but this week, I had so many work-related and personal/family things going on, I simply couldn’t keep up. That said, I did certainly see all the email subject lines this morning about Kleiner Perkins, the famous Sand Hill venture capital firm, splitting up.
We have to step back and pause for a minute. Despite the firm’s missteps (and there are a bunch), most of us (myself included) can’t really comprehend how dominating Kleiner Perkins, or simply, “Kleiner,” was for so long. When you scan its Wikipedia entry and the list of truly iconic companies that started out with a check from the firm, it’s astonishing. In the U.S. venture market, only Kleiner and Sequoia can put their names beside category-defining companies across decades and generations. There are certainly (relatively) newer firms that have taken over today and are considered Top Tier, but the Kleiner name is truly storied.
[This isn’t relevant to the whole story, but I should stop here and share that I have had good friends work at Kleiner, they were the first firm to bring me on as a consultant to give me a window into the VC world (and trusted me) many years ago, and their alumni have gone on to make great contributions to technology and the VC ecosystem.]
Here are the thoughts swirling around my brain in response to the news…
1/ Leadership Succession Is Really Hard: As the multi-name brand of the firm suggests, the original founders somehow managed to hand-off leadership to a newer guard a generation ago. It helps that the new leader was John Doerr. Look at Doerr’s Wikipedia page for his signature investments. They are insanely amazing. Doerr was a force at Kleiner for so many years, finding the right companies ahead of the right waves. What Kleiner got right in the first handoff, it’s now in the process to see if it can pull this trick again, recruiting a rising mega-star VC in Mamoon Hamid, who already boasts a lights-out investment track record.
2/ Multi-Strategy Venture Capital Is Really Hard: I’m not saying it’s impossible, but investing well *across* stages in venture capital is, in my opinion, really freaking hard. There are plenty of exceptions that break this rule, but I feel this distinction personally. For years now, after I was able to hit a bunch of amazing companies in my initial seed funds, I started to get offers to join firms as a GP and “write bigger checks” at the Series A or even Series B level. In that moment, your impulse is to think “Yeah, of course, I can do that.” But the more I reflected on it, I believe these are entirely different muscles. Seed is different than Series A & B, which is really different from growth. And when firms grow and have different strategies from within, it gets more complicated — if the product of a VC firm is to make decisions, having folks with different stage expertise deciding on seed vs Series A/B vs growth deals can increase the noise to signal ratio. At Kleiner specifically, after slowly shedding the “green” energy practice (more on that below), the growth team (led by Mary Meeker, more on her below) worked with the early-stage team, which is in rebuild-mode as Doerr eventually stepped aside.
3/ It’s Difficult To Outrun The Big Missteps: Alongside the incredible successes, Kleiner had big missteps. There were serious interpersonal issues. There was the foray into “green tech.” Both of these missteps left huge financial and reputation craters behind. These events take a huge toll and could’ve easily taken down any firm.
4/ The VC Industry Is Changing Rapidly: Every day, we here pundits lament about how much money is flowing into private technology investing. Sure, it is a lot, but one way to look at this is to consider it *in relation to* the rate of startup formation rising itself. Through that lens, it is rational for more money to come into tech investing because that’s where the greatest growth opportunities reside. Because of these types of global and technological forces, the VC game is changing so rapidly. it’s harder for most of the big ocean liners to keep up. As a result, we have a flurry of new (usually smaller) VC funds sprouting up, we have funds that specialized now in terms of sector, stage, geography — even into secondaries, and more. For instance, how do founders think about pitching a firm that has an early-stage practice, a growth team, and so on? Every individual VC and every firm needs some edge, a specific swim lane to swim in, given the level of competition. There are many VC franchises which look like Kleiner (with an early-stage team and a venture team) that are firing on all cylinders. Many firms are making it work, but as the stakes get higher and as you throw in other variables (like succession and/or the operational stresses of multistrategy and/or previous missteps) the margin for error can be slim.
5/ Dealflow Patterns In Venture Have Changed Dramatically: Many firms, like Kleiner, among many others, flourished in an age when founders had (relatively) fewer choices for capital. Over the last twenty years, let’s quickly take stock of what is emerged underneath: The original wave of seed funds, AWS, crowdfunding, AngelList, Y Combinator, initial coin offerings, and so much more. As a result, it is no longer fait accompli that the best opportunities will bubble-up to the core VC funds. Yes, some of these funds do have a knack of finding some of them, but no longer all of them. In this new world, VC has sort of morphed into a top-of-funnel optimization game where marketing chops may trump other factors. Today, in 2018, no major firm can assume their brand cache will last the test of time nor that the next founders will be persuaded by whatever impression they have the firm — let alone recognizing it.
6/ Big GP Losses: This part is simple. Even looking beyond her signature “Internet Trends” annual update, I’d argue Mary Meeker is *UNDERRATED* as a VC. Look at Meeker’s track record on the KP site — just a sampling, but Meeker and her growth team invested early (say, around $1B valuation or more) in companies such as DocuSign, Square, Spotify, Slack, Stripe, Pinterest, Peloton, and many more. Sure, some of those are over $1B, but at least Spotify and Slack were. Those two alone are huge. Now that Meeker and her team are leaving the Kleiner brand behind, the franchise will be down to its early-stage roots with Hamid at the helm. (Meeker’s new fund, rumored to be out in 2019, will have *no* problem attracting investors.) Oh, and consider Beth Seidenberg, another rainmaker for Kleiner in the health/bio space who recently left to run her own shop.
So, here we are. With a brand as big as Kleiner’s, any organizational moves will be scrutinized. What could’ve killed most VC firms hasn’t signaled the end of Kleiner. It will be very hard, but I wouldn’t bet against the new team they’re building. It just takes one new deal to light that spark. A number of folks have told me about how LPs in Accel jumped off the train in the fund right before they led the Series A in Facebook — since that call, Accel has been on a roll. This type of organizational change will certainly be a big topic of conversation on Sand Hill and among VCs at the larger firms. No firm is inoculated from these forces. What can happen to Kleiner could, in slightly different forms, happen to others. It is a good sign to remind all VCs to be vigilant over their own franchises and not take tomorrow’s funds for granted today.