To accompany my presentation this Wednesday, I have written this blog post as a repository for all the need-to-know-info for our trip to Kleiner Perkins Caufield & Byers.
A Lesson in Early-Stage Financing
There are several different financing routes that a startup can take to build their company. The four main option are the following:
- Bootstrapping: By far the most common method, bootstrapping involves financing a company with internal cash flows. The use of existing resources allows a founder to hold complete ownership, but may not be sustainable as their capital requirements grow.
- Incubators & Accelerators: Similar to boot-camps, these companies and competitions provide mentoring, resources, and a small amount of capital to early stage businesses and startups. This is an ideal option for first-time entrepreneurs.
- Online Platforms: Through online platforms, startups can get a sense of demand for their product, find angel investors and mentors, and get feedback from across the globe.
- Venture Capital: These are firms or funds that provide financing for startups which are either are high-growth or posses this potential. Venture capital firms are classified as private equity.
Quick Facts: A Venture Capital firm
Kleiner Perkins Caufield & Byers (KPCB) is a Silicon Valley based, blue-chip technology venture capital firm. KPCB makes seed investments (incubation) ranging from $0.1 million to $1 million, early-stage investments between $1 million and $10 million, and growth-stage investments between $10 million and $75 million. As of 2017, the firm has raised $10 billion through 20 venture funds and four growth funds. According to Crunchbase, KPCB has participated in 1009 investments in over 850 companies and has stood as the lead investor in 250 of these. As a mark of this company’s incredible success, KPCB has made only 191 exits.
History and Founders
Founded March 1st, 1972, the company was born on Sand Hill Road in Menlo Park, California. (Out visit to KPCB will be right after they turn 46, so a happy birthday will be in order!) KPCB is named after its four founding partners: Eugene Kleiner, Tom Perkins, Frank J. Caufield, and Brook Byers.
Thomas J. Perkins, who studied engineering at MIT and received his MBA from Harvard, entered the workforce leading a computer division at Hewlett-Packard Co while simultaneously building a small laser design company. When his company merged with Spectra-Physics, Perkins became inspired to enter venture capital. Looking for help, Perkins called San Francisco investment banker Sanford R. Robertson who connected Perkins to his first partner: Eugene Kleiner. As one of the founders of Fairchild Semiconductor, an immensely successful chipmaking company, Kleiner was incredibly intelligent and familiar with the startup world. Together, the two formed Kleiner Perkins in 1972. The firm would go on to become Kleiner Perkins Caufield & Byers by 1980 after acquiring Frank J. Caufield, and Brook H. Byers as partners. Caufield also received an MBA from Harvard Business school and was a former U.S. Army intelligence officer. Byers graduated from Georgia Tech and was expert in electronic and medical technology.
Investment Strategy: Keiretsu
Like most venture capital firms, KPCB invests in talented people as they believe this is the greatest asset a business can have. A concept can be changed and grown, but the entrepreneurs behind the company must have a certain strength and intelligence. Investing in the intangibles requires asking critical questions including how do the founders work with each other? How do they communicate? What do they know that no one else knows? How are they uniquely positioned to solve this unique problem?
This said, KPCB is constantly looking for ideas that hold the promise to invent new business categories or radically alter existing ones. They focus on new technologies and applications that have the potential to drive high-impact change.
“We don’t just try to launch successful companies. We try to launch successful industries.” – John Doerr (a KPCB partner), Washington Post (1990)
KPCB leverages an informal version of a Japanese business practice known Keiretsu. Keiretsu is a term describing a group of affiliated corporations with broad power and reach that encourages resource sharing and deal making among affiliates. Under this method, KPCB offers entrepreneurs access to their unmatched company portfolio and global business relationships. With this, companies have the means to forge strategic partnerships and share insights. Ultimately this helps entrepreneurs build new ventures faster, broader, and with less risk. Additionally, KPCB partners will often sit on the boards of the companies they sponsor to further maximize the benefits of a professional name and mentorship.
The companies KPCB invests in can be broken down into 5 categories:
- Consumer digital
- Sub-categories: Digital health, eCommerce, EdTech, Gaming, Marketplace, Messaging, Mobile, New media, Social
- Examples: Airbnb, Snapchat, Uber
- Enterprise digital
- Sub-categories: Data analytics, Hardware/Semiconductors, Infrastructure, SaaS, Security
- Example: Gusto (a cloud-based payroll management and HR service)
- IoT/Connected devices
- Example: Nest (a home automation producer of programmable, self-learning, sensor-driven, Wi-Fi-enabled thermostats, smoke detectors, security cameras, and other security systems)
- Life sciences & Digital health
- Example: Spruce (a platform for communication and care outside of the exam room)
- Example: Beyond Meat (a producer of plant-based meat substitute. Beyond Meat’s Products became available nationwide at Whole Foods Markets in 2013)
Many of KPCB’s investments have gone public or been acquired including Amazon, Google, Twitter, Uber, Waze, and Nest.
I was very excited to learn that Kleiner Perkins has invested in 9 of the 23 companies our class has made presentations for and that we are planning to visit:
We will also be visiting one of KPCB’s principal competitors: Sequoia Capital.
On the topic of competition, it is useful to know who KPCB is up against. These companies are as follows: Accel Partners, Benchmark Capital, Hummer Winblad Venture Partners, Menlo Ventures, Redpoint Venture Partners, and Sequoia Capital.
Thanks so much for making it to the end of my blog, I look forward to presenting on Wednesday!