Most important, portfolio companies often engage in crucial partnerships. Early in their
development, @Home, Excite, and Verisign, a provider of security for online
transactions, forged deals with Netscape that helped lend them credibility. This was
particularly true for @Home, whose CEO, Tom Jermoluk, was persuaded to leave the
presidency of Silicon Graphics because Netscape was investing in and supporting @Home.
KP put money into AOL back in 1987, and the relationship still pays dividends. Both
invested in Preview Travel in 1995, and in the past few years AOL has made deals with
seven other KP companies, two of which involved multimillion- dollar investments.
Alliances in the Kleiner keiretsu tend to be mutually beneficial, boosting Website traffic,
revenues, and even the stock prices of both partners. Take the deal Netscape and Excite
announced last May. Excite paid Netscape $70 million to become the primary provider of
Web searches on Netscape's Netcenter home page, an arrangement that guarantees Excite
millions of additional page views a day. The boost in traffic bumped Excite ahead of
Infoseek into the No. 2 slot in the bitter wars to dominate Internet search-site traffic. It
now trails only Yahoo.
Infoseek, not a keiretsu member, had a shot at the deal until a member of the KP family
nudged Excite to step up its offer. "John {Doerr} went and told {Excite}, 'Hey, guys,
you're going to lose this, and I don't think it's a good thing,' " recalls Jim Clark. Doerr
says it wasn't him. Soon after the push, however, Excite offered more money and a license
to its directory and search technology. Excite board member Khosla, CEO George Bell,
and COO Brett Bullington hammered out a deal with Netscape's Homer before Infoseek
even realized it was being elbowed out. "I would never have selected somebody who didn't
best meet our needs," says Homer. "But when John {Doerr} sits down with me as a board
member and tells me, 'I think Excite ought to work hard for this deal because it makes a
ton of sense for us and for them,' then I go in hoping Excite's going to make it easy for
me." Excite's cash will boost Netscape's revenue by $10 million a quarter for the next
several quarters, and the deal did wonders to convince Wall Street analysts that Netcenter
is a credible portal for Web consumers.
Sometimes a KP company goes public on the strength of its keiretsu partnerships. Take
Preview Travel, which completed a successful IPO last November. Founded in 1985, the
San Francisco tour packager was repositioned by CEO Ken Orton in 1994 as an
E-commerce travel site on the Web. Kleiner Perkins and AOL invested in early 1995. A
year later, with no involvement from KP, Orton struck a simple test-the- waters deal with
Excite. But when he wanted to expand the deal and make Preview Excite's exclusive online
travel agency, Orton asked for Kleiner's help. "We took full advantage of the keiretsu. We
did not want another travel company to be in a KP family site," says Orton, who recalls
that Excite was also talking to Microsoft's Expedia and Sabre's Travelocity. Excite board
member Khosla championed Preview with Excite CEO George Bell and Will Hearst, who
was on Preview's board. Lo and behold, within a month Preview scored a five-year
exclusive deal that included co-branded travel content, revenue sharing from sales of
airline tickets and vacation packages, and the guarantee of a steady stream of online
visitors. In return, Excite gets $24 million over five years.
Preview and KP weren't finished. Orton had another deal that he wanted to expand, with
AOL. So KP partner Doug Mackenzie talked with Ted Leonsis, head of AOL Studios. A
five-year exclusive deal with AOL was in the bag before last fall's IPO. The arrangement
cost Preview $32 million, but the payoff was huge. "One question you have to answer in
the IPO process is, How are you going to get traffic to your site?" says Orton. "We were
able to answer that question because of these agreements."
The most tightly woven of the alliances between KP companies is the one that links Excite
and Intuit. The pair started working together in 1996, when Intuit CEO Scott Cook called
Brett Bullington to brainstorm about how Excite could help Intuit establish itself on the
Net. "I already knew Scott Cook," says Bullington, "but with Intuit being a Kleiner
company, it was easy for him to say, 'We're a Kleiner company. You're a Kleiner
company. Let's get together.'"
Eventually the two companies struck a truly unique deal. For seven years, Excite will
feature and promote an Intuit finance and small- business area on its Website. The
companies will share ad and promotional revenue; Excite will be featured as a search
engine in Intuit's Quicken products.
That's the simple part. More interesting are the financial arrangements that have
accompanied the pairing. Neither side "paid" the other, but Intuit made a $40 million
investment in Excite--nice, given that Excite was losing $8 million a quarter and needed
cash. A year later, Excite wanted to do its $70 million deal with Netscape but had just $9
million in cash. Who came to the rescue? The good people at Intuit, which scraped
together a short-term, low-interest loan for $50 million, money that Excite promptly
handed over to Netscape. Which is, of course, a Kleiner company.
Given all this intermingling, you'd be tempted to assume that KP somehow pressures its
companies to work together. But it's nothing so obvious; there's no arm-twisting, no quid
pro quo. What ultimately makes this all happen is what drives almost all business in the
microcosm of Silicon Valley--personal relationships. Few people in the Valley have as
many high-octane ones as KP partners.
Nurturing those ties is key to KP's success. Mostly it's a day-in, day-out kind of thing, a
matter of E-mails and phone calls, of breakfasts at Buck's in Woodside and dinners at Il
Fornaio in Palo Alto. But once a year, all the caretaking comes together at the mother of
all schmoozefests. For four days in June, some 30 KP portfolio company CEOs and other
friends of the firm, like Eric Schmidt of Novell and Naomi Seligman, who runs the
Research Board, a secretive organization for FORTUNE 500 CIOs, gather with the
Kleiner partners in Aspen. The event manages to be both well-organized and informal,
and seems to dazzle even the most jaded conference-goers. "It was amazing. The quality of
the people there was like no other," says Roger Siboni, CEO of Epiphany, a Kleiner
company.
This June, attendees gathered in the mornings to hear Netscape's Barksdale reflect on what
it's like to keep employees at bay when their beloved stock options are rendered worthless
by stock drops, and Naomi Seligman discuss the future of enterprise computing.
Afternoons and evenings were spent socializing. There were cooking schools for spouses
(almost exclusively wives) and activities for kids. Since most of the CEOs in attendance
can't resist handing out company paraphernalia, there was even a shipping service so no
one was burdened with excess baggage on the way home.
The days in Aspen aren't specifically meant to be a breeding ground for business deals,
but, wouldn't ya know it, they just happen. "At an event like this, ten months worth of
meetings can get done in a day," says Sandeep Johri, CEO of Oblix, which Kleiner backed
with money from a special $100 million fund devoted exclusively to companies building
software and products around the Java programming language. (We did mention that Sun,
which invented Java, is a Kleiner company, didn't we?)
At this year's summit Siboni talked to Active Software's Jim Green about joining Active's
board, and first raised the idea of a partnership between Epiphany and Pivitol. In 1997,
Onsale's Jerry Kaplan went to Aspen and had conversations with George Bell that led to a
distribution and revenue-sharing deal for Onsale with Excite. I 1996, when packs of VCs
were swarming around Amazon .com, Doerr invited CEO Jeff Bezos to Aspen; a month
later, Amazon closed an $8 million round of funding with KP as the lone VC investor.
That fall, Bezos gushed to the Washington Post, "Kleiner and Doerr are the gravitational
center of a huge piece of the Internet world. It's the equivalent of prime real estate."
To understand why something as obvious as everyday relationships is especially dear to
venture capitalists, consider what's required of the KP partners if they're to do their job
well. They have to check out hundreds of companies every year. The ones they like they
have to investigate carefully. Those they fund will need help finding executives, board
members, and additional funding. And they have to network like crazy, lest they miss
some trend that could make or break their businesses in an Internet second. The
inspiration to fund Netscape, after all, came to Doerr not in some dream or on a
spreadsheet, but from his relationship with Bill Joy.
Such friendship does not go unrewarded. To thank people like Joy for their help, Kleiner
invites about 50 extremely well-connected people to invest in what's known as a side fund.
Side funds mirror the investments of the larger institutional main funds and are a standard
part of the venture business. One side-fund investor describes the list of his fellow
investors as "the pecking order of the new world." In it are executives at successful KP
companies, like Netscape's Barksdale and Homer, Sun's Scott McNealy and Joy, and
AOL's Steve Case and Robert Pittman. Other movers and shakers not so commonly
associated with KP, such as former Sony USA president Mickey Schulhof and Intel
chairman Andy Grove, are also investors. "You could get a lot done just using that list and
those phone numbers," says Homer.
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