How the Kleiner Perkins Empire Fell

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.

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?

[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.

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

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.

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.

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

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

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.

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