After the class last week discussing venture capital, I wanted to tie the topic in to my blog post. I have studied it in previous classes, specifically Sequoia Capital and Don Valentine, which both are exactly what come to mind in terms of venture capital. However this week, I want to discuss a rival venture capital firm, Kleiner Perkins Caufield & Byers, which made headlines very recently announcing plans to split the firm. The growth-stage team, which makes large investments into companies on the brink of IPO’s, will break away from the early-stage investment fund, which focuses on young startups.
First off, I want to give you some insight into how Kleiner Perkins became an investing powerhouse in the Silicon Valley. The Silicon Valley-based firm founded in 1972 initially focused on early stage ventures and has since then grown to include a growth-stage fund. They primarily invest in technology and life sciences startups. Some of the most notable companies that Kleiner Perkins has invested in include Amazon, AOL, Google, Electronic Arts, Sun Microsystems, and Netscape. The companies they’ve invested in have gone on to create over 250,000 jobs, over $100 billion in new revenue, and over $650 billion in market capitalization.
The Transformation of KPCB
The firm will now primarily focus on the early-stage startups which is how the firm gained its reputation in the first place, making bets on giants Google and Amazon. This change in the company’s organization are reflective of how the world of venture capital has changed recently. With unlimited funding opportunities along with startups staying private for longer periods of time, Kleiner Perkins has struggled in managing their positioning as a firm. This was the reason behind initially adding the growth fund to tap into the market of large startups nearing IPOs. However, this addition has created tension at the company over whether to focus on the early-stage fund versus the growth stage fund. There became disputes over whether the growth stage team would invest in the early stage fund’s ventures. In addition, these internal conflicts have caused other firms to outshine Kleiner on early stage investments which was the fund’s initial specialization.
On Friday, September 14, Kleiner Perkins told their limited partners how the growth-stage investment team will be breaking away from the firm. This surprising yet greatly-needed decision is an effort to have teams that explicitly focus on specialized investing stages. Mary Meeker, who joined Kleiner Perkins as part of their growth team in 2010, came from Morgan Stanley and is well known for her annual Internet Trends Report, which is heavily referred to by investors. This year it hit on several trending factors in tech such as data and personalization, e-commerce innovation, and China’s rising interest and impact in the internet markets. Since joining the Kleiner Perkins team, she has been vital in making several key late stage investments including Uber, Square, Spotify, and Peloton, Now she, along with a few other Kleiner Perkins partners, will split to create a separate growth fund and will raise their own capital.
It’s exciting to hear about notable female executives in Silicon Valley. However, it is extremely rare to hear about them in venture, specifically. And I have to say Mary Meeker is someone who has definitely made a name for herself. Nicknamed “The Queen of the Internet” she has made an immense impact on both Wall Street and Silicon Valley. She made herself known by covering internet stocks and specifically, her support of risky internet stocks in the early 2000s. While at Kleiner, she has been a successful backer of later stage startups such as Snap, Twitter, Facebook, and Spotify. Now she is set to lead a new venture capital firm along with three other partners from Kleiner Perkins. This opportunity will allow her and her team to focus on mature tech start-ups, as well as seek international opportunities.
Aside from the strategic reasoning behind creating her own fund, I do question other reasons why she has decided to go her own way. Kleiner Perkins has come under scrutiny regarding sexual harassment allegations in the past with the Ellen Pao vs. Kleiner Perkins case. Women, specifically in high positions, have depleted quickly at the firm, and with Meeker’s departure from Kleiner Perkins, there will be no more female general partners. However, the firm has stated, even before Meeker’s departure, that hiring a new female general partner is currently the top priority at Kleiner Perkins.
The Future of Venture Capital
Venture Capital has greatly changed over the last few years. Larger checks are written early on in seed rounds and Round A, and venture capitalist input is heavily needed in the startup development process which requires specialization and time. In addition, it is easier now than ever to start a company, which has made it increasingly difficult for venture capitalists to discover the next major success. In the next 5-10 years, it is expected that we will experience some sort of recession, and this will indeed, have a major impact on how venture capitalists can invest their funds as well as execute exit strategies.