Word on the street is that Silicon Valley’s most venerable venture capital brand, Kleiner Perkins, is returning to its roots. Back to the days when, as current KP partner Ilya Fushman remarks, it was “a very small firm backing entrepreneurs at the earliest stages.”
Can a $600 million fund (KP’s 18th flagship fund since 1972) really “do [early stage venture capital] in a boutique style now, which is very high-touch”?
While not as dramatic as the emergence of the Unicorns over the last several years, or the almost 200 hundred venture rounds exceeding $100 million in 2018, or the premier of the world’s first $100 billion venture fund (well, that’s what folks call Softbank Vision Fund), the idea that Kleiner Perkins is pivoting back (well, reversing course – methinks it will be hard to turn that big a ship that far that fast) to its almost half-century old roots certainly tells us something about how the venture capital landscape has unfolded over the last five decades.
Gene Kleiner and Tom Perkins launched their first fund in 1972. That fund amounted to $8 million. For some perspective, the average seed round of venture capital in 2018 was $6 million. KP I counted a pair of 200x deals (and 18 losers) for a ten year average return of 41.5 percent. Kleiner’s first three funds totaled $75 million and averaged 50 percent per year returns. They employed a classic hands-on “value added” venture investing model where the contributions beyond capital were as important, probably more so, than the checks themselves. For a couple of decades, Kleiner Perkins was to venture capital what IBM was to the computer business: the widely acknowledged dominant firm, in terms of mindshare and performance.
Over the subsequent decades, as the venture business grew, Kleiner Perkins grew faster, if not better. Over the last twenty years, KP funds have made hundreds of single investments bigger than the aggregate capital in KP I and II funds combined.
The returns have been, well, not nearly as spectacular as the returns of the glory years. Good, but not great. It took quite a while, but today KP’s mindshare is, if not pedestrian, less than heroic (like IBM?). Most folks probably think of Sequoia as the new Kleiner, and truth be told a number of other funds stand above KP on today’s list of venture icons. It’s certainly been awhile since Kleiner merited the outsized fees and carries it merited when, from its perch on Sand Hill Road in Palo Alto, it all but defined the venture capital business.
It will be curious to see how the new/old Kleiner’s new team – none of the founders of the firm, nor any of their immediate successors, will play a prominent role in KP XVIII – goes about recreating (or perhaps reimagining) the past. $600 million is a lot more money than the old Kleiner Perkins managed when it was building its reputation for hands on, early stage investing. And much as its possible, I’d need pretty good odds to bet on KP XVIII partners Schlein, Hsieh, Fushman, and Hamid (only two of which were part of KP XVII) ever having the cachet of Messrs. Kleiner, Perkins, Caufield, or Beyers.
Still, I am cautiously optimistic about the new/old Kleiner. As much as the venture capital game has changed since 1972, there remains a place – a critical place – for hungry, get-your-hands-dirty, early stage investors. Whether folks with the fees generated by a $600 million fund lining their pockets can actually be hungry, get-your-hands-dirty early stage investors, I am not so sure. My dad used to tell me that it took millions of dollars a year to keep Ghandi in poverty. Let’s hope KP’s half-billion-plus dollar re-imagining of the old-school venture model works out as well.