
How the Kleiner Perkins Empire Fell - walterbell
http://fortune.com/longform/kleiner-perkins-vc-fall/
======
areoform
Something that gets missed out a lot from the conversations about VC firms is
the problem of generating deal flow. Good VC firms (and great investors) need
to not only know how to invest and support a great company but also how to get
them through the door. I suspect it's why socially adept people thrive in VC
so much - they can quickly learn how to create a spider's web around them and
listen in for deals.

For most of its life, KPCB had a web around the firm. Great companies would
come in and pitch themselves. So, for the most part, the job was to "only"
pick whom to invest in (picking is just as hard!). As an extreme outsider, it
seems that their operating rubric is so focused on this that they've lost the
institutional capacity to spin new webs of their own. They are reliant on
outsized personalities delivering the win rather than the institution itself
pulling it in.

That's a tricky spot for the firm to be in. And it's a tricker spot to
navigate out of. They'll have to rebuild institutional knowledge and prospect
like other firms now; a mindset shift that could be hard for most veterans to
get into as early on this would have been a negative signal in their careers
and for their firm. Now, that it's a requirement; it has to be a tough sell to
everyone involved (note: I don't know anyone at the firm. I have simply seen
this pattern play out a few times).

They can hire fantastic new investors who know how to hunt, but will the firm
be able to listen to them? This is a firm where getting rid of nametags was
noteworthy enough to make it into Fortune; imagine how hard a sell getting
down into the mud must be.

FWIW, such firms eventually recover. Eventually. They're just too big not to.
But it is a painful road until that point. I wish the best of luck to them.

~~~
seem_2211
This is a great point - to some degree this explains the power law in VC -
founders hustle hard to get in front of Sequoia / A16Z / Benchmark etc,
whereas you can stumble on other VC sites and see a bunch of logos but nothing
impressive.

I've been in SF for 3 years now and haven't really heard anything that
impressive about Kleiner, but looking at Crunchbase, they've led the A for
Rippling, the C for Plaid, the D round for Intercom, the B round for Figma,
the E round for Peleton. They have a bunch of other impressive logos that
they've also managed to lock in.

To your point about the web - they clearly still have it. Yes, they're out of
the loop and aren't getting the early stage deal flow that they used to (to
the benefit of many others), but they clearly have a deep moat still and can
get an ok return from that.

~~~
heymijo
I learned from the article that KP's problem was that their firm bifurcated.
They had a growth fund led by Mary Meeker which was likely responsible for a
number of those impressive logos you listed.

Meeker's success with the growth fund happened as KP's early stage venture
fund went into decline even though it was the original and the stalwart for
decades.

The article mentioned that Meeker left last year with her entire team to start
her own fund and one of KP's biggest problems has been the inability to keep
its own talent. So "they clearly still have it" is likely in reference to
people who have left with their 'web' and KP may not have anything.

~~~
seem_2211
Extremely good point

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hendzen
There is an interview with Andy Rachleff (former VC at Benchmark and CEO of
Wealthfront), where he notes that the problem with Kleiner is that the old
partners never retired. They just stayed on and did very little actual work
but since they owned huge stakes in the partnership they collected much of the
carry. Over time new firms (like Benchmark) formed that basically pushed out
partners who started coasting. If you are an ambitious young VC which kind of
firm would you work for?

~~~
winningcontinue
A top heavy old partner institutional firm is not a bad thing. The they're
usually hands off once you invest and take their money. The problem is they're
too conservative with their capital, and only invest in trends that have
passed by decades ago to pursue the next big thing. As an entrepeneur in the
dining and technology space knows how and where I want to grow my company, I'd
rather see my angel investment funders come from the old cohort than the
younger firms seeking radical changes.

~~~
mathattack
In the case of Kleiner, the article puns it on a wrong bet (green energy)
rather than being too conservative.

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mindgam3
[reposting earlier comment reply as a top level comment + edited]

Disclaimer: my whole career is on the consumer software side, so I can only
speak to that. I have zero insight on Kleiner as it relates to enterprise.

My first time inside KP was in 2003, working out of their office for a few
months during a coding internship at Digital Chocolate. Great snacks and
drinks freely available made quite impression on me as a college student.

Second time was in 2011 when I came in to pitch my first startup with Aileen
Lee. It was a pre-revenue consumer play, not particularly in her wheelhouse of
e-commerce, so nothing came of it. She was pleasant and professional. My only
complaint was that she/Kleiner didn't seem particularly "hip". Not that VCs
are particularly known for their cool factor, but for some reason I had
expected something a little less square based on Kleiner's reputation.

I think this otherwise excellent article does a disservice by not mentioning
Ilya Fushman joining on their timeline of key events. (It does mention him
later, mostly in passing). I've never worked with him, but we have mutual
acquaintances and have probably been to a few of the same parties. From my
perspective as a not-total-outsider, Fushman brings some fresh thinking to a
firm that is badly in need of relevancy/culture refresh. If they'd had someone
like him there in 2011, for example, that would have made for a much more
interesting meeting for me and other other consumer-facing entrepreneurs.

Not sure if and when they'll ever regain the kind of dominance they had at
their heyday, but I do think being hipster credibility matters for consumer
plays, and with Fushman on board Kleiner now has a solid chance to play in
this space again.

~~~
username223
> pre-revenue consumer play

So, translating that into English, you were losing money giving something to
individual people, but hoped you could do... what? Start charging money?
Harvest data? Get bought before you ran out of VC money? This sort of
"founder" bafflegab is annoying.

~~~
mindgam3
Lol. By all means, make fun of this strategy now, I do it myself, but you have
to understand what it was like in silicon valley back in those days,
2010-2011. Facebook was _the_ game in town, and these were the days when for
the true believers, myself included, it was going to deliver us from evil
(yeah, I know). The “smart money” either were Facebook insiders or wished they
were, ie everyone knew that to insist on meaningful revenue before writing a
seed stage check meant missing out on the next Facebook.

I was a first time founder who started out as a build engineer, then engineer,
tech lead, and PM. I’d been bootstrapping for two years and needed to raise. I
didn’t know shit about business or venture capital other than that it’s
apparently how dreams get made. So I figured out how to position the company
to get funded, and got it done.

Did I have a proven revenue model? No, but I had a few plausible directions,
and that was enough to get to the next phase, so I didn’t sweat it.

Would I pitch a pre-revenue startup on Sand Hill in 2019? Unlikely.

Maybe that’s obvious to everyone now. But it’s a lot easier to be on the
outside making fun of failed projects than to actually forego the cushy salary
and go for it as a founder.

~~~
username223
I wasn't commenting on the strategy (which I agree is less than great) as much
as the language. "Pre-revenue" as a euphemism for "we're losing money," "play"
as one for "likely-to-fail business," etc. I could have called it "VC jargon,"
but "bafflegab" seemed appropriate, or maybe "Newspeak."

Still, thanks for the explanation. I'm just an outsider looking in.

~~~
thoughtstheseus
Pre-revenue is a widely accepted term to describe a company, and usually an
accurate one.

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iamleppert
Maybe they should implement OKR’s over there and see how it goes for them??

~~~
heymijo
I laughed.

I can go glass half-full or empty on OKR's. They obviously have value, but
using OKR's at Google is one of the biggest selection biases possible. Google
seems to have done so many things in its history that would be death for other
org's.

The episode about firing all managers is a great in-depth story of stupidity.
Yet Google succeeded because they had and have an absolute lock on the search
market.

Dear Doerr, convince me about OKR's another way.

I would also love to see what OKR's looked like throughout some of the
products at Google that they have sunset or flopped. G+, RSS, Wave, Hangouts,
etc. \- OKR's are a useful tool but they aren't what made Google a $750
billion company.

~~~
iamleppert
I only jest because I did see John speak and give a presentation about his OKR
system while I was working at Airware (now defunct).

I was just fresh from LinkedIn, where OKR’s had recently been implemented. I
got to see how they systematically eliminated some of the best employees in
favor of those who were willing to game the system and create fake goals for
themselves.

As I sat in the audience, I thought to myself, “Finally I’m meeting the fabled
creator of OKR’s.”

Airware went out of business a few years later.

~~~
heymijo
I would have been mad. Heck, I'm mad just reading that. It's bad management.
If you are going to use metrics you have to know that they are going to create
perverse incentives.

It's management's job to be vigilant in seeing/hearing and looking for those
perverse incentives and then determining if the trade off is acceptable.

~~~
village-idiot
I feel like most "X technique led us down a bad path" are actually "we had
shit tier management and nobody could fix it" stories in disguise.

------
bedhead
I remember about 7-8 years ago seeing John Doerr give a talk somewhere and he
literally started desperately fighting back tears because he thought humanity
was _imminently_ going to go extinct because of climate change. I realized
he'd lost his mind and figured KPCB was toast. Not sure if I'm supposed to
feel good about some validation of that.

~~~
Kurtose
Spot-on.

------
maxgiraldo
I'm still under the impression that if you gave the same set of companies to
every VC in the world and had each of them bet on the winners, that you
wouldn't see that much of a difference in portfolio performance from the very
worst to the very best VCs. There's no magic formula for choosing companies
that firms like KP have--a lot of it is based on their reputation. Plus, the
next Facebook is not going to look like Facebook or whatever that maxim was.
The better companies tend to go to the VCs with the better reputation and the
cycle continues.

~~~
village-idiot
> Plus, the next Facebook is not going to look like Facebook or whatever that
> maxim was.

Everyone fights the last war.

------
gkolli
Very interesting take on KP. Anyone from the inside (recent startup founders,
ex-employees, etc.) want to chime in? Would love to hear.

~~~
srcmap
I was an employee worked for KP invested Startup by 3 extremely smart MIT
Phds. Smartest people I ever worked with - one of them can do Analog, FPGA,
Linux kernel all the same time. We created a system with 10G interface (15
years ago) deployed in Comcast and generated 40+ million revenue with < 10
employees.

After that, KP installed their own CEO with old analog modem background, fired
the extremely experience VP of engr, hire/fire 3 CTOs and hire 160 people to
"scale" the company and burn all the cash without deliver one single product
in the next 6 years. The CEO also manager to get rid of all 3 founders.

~~~
peteradio
NOICE!

------
olivermarks
My semi outsider observation is that it's a crap shoot which sector you place
your bets on. Doerr lost his shirt on green tech when it went out of fashion.
We are arguably now in another dotcom style investment bubble: KP lived
through the earlier dot com boom and bust and was probably overly cautious in
betting on which platform companies would be winner takes all post web 2.0
era. You can only have the midas touch for so long before age and experience
gets in the way as much as it helps

~~~
bobsil1
My vague impression is they were conservative, didn't make the leap to Net
valuations based on traffic and little revenues.

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United857
As usual, the headline is rather sensational. Kleiner is like a Microsoft or
Oracle of VC. They're not the latest or sexiest, but they've hardly "fallen"
\-- still one of the biggest funds out there in $ terms and will still be
around for a long time to come.

Disclosure: previously worked at a Kleiner-backed startup, but have no stake
in it anymore.

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rdlecler1
The article didn’t mention the spin out of G2VP which was surprising.

~~~
droplet123
Is that the cleantech fund? How do you think they will do now?

