Not all CEOs of KP companies are invited to invest. "Since we have about ten times {as
many} request{s} as supply, we have to focus on people in our initiative areas," says
Compton. Today that means the Internet, enterprise computing, and telecommunications
infrastructure and equipment, in that order.
For the CEOs who do get to invest, the side funds are a great gig, because the quarterly
investor statements read like a dispatch from the cutting edge. "It's a real insight into
where things are going, and you're catching these companies at the formative stages. I'm
aggressively pursuing some of these companies as customers," says Hank Nothhaft, CEO
of Concentric. Besides, where else are the CEOs going to get 70% annual returns? "It
really works out to a pretty synergistic kind of deal," muses Mackenzie.
Sometimes the investors in these side funds seem more important to KP than the
considerably larger investors in its main funds. That certainly was the case when KP did
what's known as an amendment of its KPCB VII fund. In late 1995, a networking
technology known as gigabyte Ethernet was all the rage, and VCs were hovering around
Sun co-founder Andy Bechtolsheim's entry into this hot market, Granite Systems.
Bechtolsheim had promised KP it could invest when he was ready to do a financing round.
Doerr was on Granite's board, and Khosla had spent nights working to develop the
Granite business plan. But to underscore just how much KP cared about Bechtolsheim, it
offered to let him invest additional money in KPCB VII at the original price--even though
the $255 million fund had been closed for more than a year, and its value had already
appreciated considerably. "They offered it to me," says Bechtolsheim. "In this business,
you don't ask for these things." KP also offered the opportunity to Barksdale. Some
institutional investors back East were not thrilled that guys who were already really rich
could now piggyback on the institutions' initial assumption of risk, but KP insisted, and the
pair bought in. Granite was later acquired by Cisco--KP never got to invest.
The center of all of this is one man. "John's like a bee that floats pollen from one company
to another," says Jermoluk of @Home. Doerr's so well connected that he needs five phone
numbers, a two-way alphanumeric pager, two cell phones, and two laptops, all of which he
carts around in a chauffeured minivan stocked with several changes of clothing. (He
acquiesced to hiring a driver a few years ago when friends convinced him he was
reckless.) Doerr has even been known to slip a cell phone inside his ski helmet so he can
talk while shredding the slopes of Aspen. "Hands free!" he says gleefully. An introduction
by a beeping and buzzing guy like this is often enough to make two CEOs want to work
together. "I don't think you can be consistently successful at venture capital without a
strong network of relationships," says Doerr.
Singling out Doerr is something he and his partners are desperate to avoid. Despite
FORTUNE's numerous pleadings, Doerr refused to pose alone for a photo for this story.
Such attention risks making the 12- man firm look like a one-man show. Which it isn't,
really: All new investments require unanimous approval. The partners gather for a
daylong meeting each week to talk about current investments and head to offsites every six
months to plan long-range initiatives. Whatever discrepancies in personal style exist
among them are hammered out behind closed doors, from which they emerge with locked
arms, all for one and one for all.
But it's undeniable that Doerr personally accounts for many of KP's most significant
recent successes. Had it not been for him, Clark, who's been known to call VCs
velociraptors, might not have brought Netscape to KP. "By and large, it was John," says
Clark. Similarly, when Amazon was choosing among VC suitors, Bezos made it a
prerequisite that Doerr, not any of the other KP partners, join Amazon 's board.
While all the partners recruit for their companies, Doerr seems to make the biggest
impression. Mike Long recalls getting constant phone calls from Doerr last year, when KP
was courting him to become CEO of Clark's Healtheon, a health-care information-services
startup that KP is helping bankroll. "John's just tenacious," says Long. "He calls your wife
and your kids and builds relationships with them. Then he's got these damn airplanes and
shows up on a moment's notice." One Sunday, Long, who lives in Austin, Texas, told
Doerr he was headed to a conference in Washington, D.C., and probably couldn't meet
with him until late in the week. "When are you leaving?" Doerr asked. Doerr said he
would hop on his chartered Citation jet, be in Austin within a couple of hours, and give
Long a lift. "How can you say no?" asks Long.
Part of Doerr's sales genius is to cast whatever he's selling in a framework of something
much, much larger. To lure Roger Siboni from his post as head of KPMG's
$3.6-billion-a-year consulting operation to run enterprise-software startup Epiphany,
Doerr explained that joining Epiphany wasn't merely about building software; it was about
coming to Silicon Valley, where the world is being re-created. Doerr and Mackenzie, who
aided in the recruiting, also discussed a long- term relationship between Siboni and KP. If
for some reason Epiphany didn't work out, he'd be reincarnated in some other part of the
Kleiner network. "They've backed me for my next career, not just Epiphany," says Siboni.
Doerr sells with passion and evangelical enthusiasm. He commits to memory how many
new jobs companies like Sun and Compaq have created, and recites the numbers to anyone
who'll listen. Since he's John Doerr, many do. It's a big reason KP is so effective at
getting people to focus on the successes in its keiretsu and not on turkeys like Digital
Generation Systems. The San Francisco startup went public in 1996 at $11 a share, sailed
south, and now is scraping along at $3. It has a solid and slowly growing business building
systems that feed digital commercials to radio and TV stations. But it has received no
trumpeting by KP partners at conferences and has zero buzz within the keiretsu. None of
the executives of other Kleiner companies FORTUNE polled had even heard of Digital
Generation. CEO Hank Donaldson doesn't get to invest in the side funds; nor has he ever
been invited to Aspen.
This attention deflection is part of the magic of KP. The partners are keenly aware of the
power of their name and do, in fact, sit around and discuss it, probably at length.
Internally, they talk about the "Kleiner mystique," as evidenced by an E-mail Doerr
accidentally sent to The Red Herring, a Silicon Valley technology- business magazine.
Several years ago a writer E-mailed KP to propose a story chronicling a day in Doerr's
life. Doerr circulated the query to his partners under the heading: "Does this violate the
Kleiner mystique?" Doerr doesn't remember sending such an E-mail.
Recently, however, Doerr gave FORTUNE a taste of a talent KP truly does value:
thinking big. "@Home made a billion dollars," he told me over dinner at Il Fornaio. That
may be true--you just have to understand it in a Silicon Valley kind of way. What he
meant was not that the three-year-old startup has generated $1 billion in profits (there
have been none) or even sales ($23 million to date is more like it). He meant that @Home
has made $1 billion for KP and its investors. That would be $300 million for Doerr and
his 11 partners, and $700 million for KP's investors.
What Doerr also left unsaid is, well, it's not exactly $1 billion yet. If you factor in the 6.8
million shares of @Home stock that KP has distributed to its investors and @Home's
Internet-craze market cap of $5.8 billion, the gain he's referring to is more like $559
million. But those are messy details. A billion makes the point much better.
{BOX}
THE SIDE FUND
GOOD FRIENDS get to invest millions in a side fund that matches KP's regular funds.
KP's pals are a Who's Who of the tech industry.
Marc Andreessen, Netscape Jim Barksdale, Netscape Andy Bechtolsheim, Cisco Steve
Case, AOL John Chambers, Cisco Scott Cook, Intuit Andy Grove, Intel Eric Hahn,
Netscape (formerly) Leo Hindery, TCI Bill Joy, Sun Jerry Kaplan, Onsale Mitch Kapor,
Lotus (formerly) Joe Kraus, Excite Scott McNealy, Sun Brian Roberts, Comcast Mickey
Schulhof, Sony (formerly)
{BOX}
KP'S IPO RECORD
79 KP companies have gone public since 1990*
19 are big hits Stock is trading above NASDAQ 24%
5 are trailing NASDAQ 6%
55 are total turkeys Stock is trading below first-day close price 70%
*Does not include acquired companies.
SOURCE: VENTUREONE
{BOX}
STRIKING IT RICH AGAIN AND AGAIN
CURRENT VALUE
TOTAL KP DATE OF OR VALUE AT KP'S RETURN AS KP'S RECENT
INVESTMENT INITIAL DISTRIBUTION* A MULTIPLE OF HOME RUNS in millions
INVESTMENT in millions INVESTMENT
@Home $6.4 1995 $559 87x
Netscape $5.0 1995 $398 80x
Amazon .com $8.0 1996 $352 44x
Excite $3.0 1994 $218 72x
Rambus $2.8 1990 $144 51x
Citrix Systems $3.3 1989 $131 40x
FORTUNE TABLE *FORTUNE estimates.
{BOX}
VENTURE CAPITAL IPO SCORECARD
Number of companies taken public 1993 to June 1998
Kleiner Perkins 73
New Enterprise Associates 57
Sequoia Capital 55
Hambrecht & Quist 47
Summit Partners 43
Mayfield Fund 41
Advent International 39
Greylock Management 38
SOURCE: VENTUREONE
Quote: "JOHN'S LIKE A BEE THAT FLOATS POLLEN FROM ONE COMPANY TO
ANOTHER." "WE'RE A KLEINER COMPANY. YOU'RE A KLEINER COMPANY.
LET'S GET TOGETHER." OVER TWO YEARS, KLEINER'S 12 GENERAL
PARTNERS MADE AT LEAST $210 MILLION. VCS CAN SUCCEED EVEN IF
THEIR COMPANIES TANK IN THE PUBLIC MARKETS.
COLOR PHOTO: PHOTOGRAPHS BY NATHANIEL WELCH A
GATHERING OF KLEINER: At headquarters at 2750 Sand Hill Road in Palo
Alto, Kleiner Perkins' general partners posed with CEOs of their companies.
Back row: Kevin Compton, KP; John Doerr, KP; Donna Dubinksy, one of the
creators of the Palm Pilot, now CEO of JD Technology; David Perry, Chemdex;
Peter Neupert, Drugstore.com; Russ Siegelman, KP; Mary Ann Byrnes, Corsair
Comm.; Tom Jermoluk, @Home; Ted Schlein, KP; Hank Nothhaft, Concentric;
Doug Mackenzie, KP; Cynthia Healy, KP; Joe Lacob, KP. Front row: Brook
Byers, KP; Vinod Khosla, KP; Sandeep Johri, Oblix; Scott Kauffman,
AdKnowledge; Kim Polese, Marimba. COLOR ILLUSTRATION: FORTUNE
GRAPHIC BY LINDA ECKSTEIN FAT CATS CRADLE THE UNIVERSE:
The chart at right illustrates how companies that get funded by Kleiner Perkins
also get membership in what it calls its keiretsu. Using the key, you can see
which companies have entered partnerships with others and which share
executives and directors. (The smaller charts below unwrap these two aspects.)
These 20 companies are just a sampling of oufits in which the firm has invested
in the past few years--the KP octopus has even more tentacles than we've shown.
{Diagram of keiretsu of companies funded by Kleiner Perkins} COLOR
ILLUSTRATION: FORTUNE GRAPHIC BY LINDA ECKSTEIN THE
PARTNERSHIPS: Extracting sets of detail from the chart above reveals how
closely tied KP companies are. In recent years KP's investments divide into
companies related to the Java computer language and Internet companies.
Netscape's the hub: Its Website features Intuit personal-finance pages and Excite
searches, for instance, and its browser incorporates Macromedia software.
Marimba's links with Sun and Intraware help it sell software to businesses.
Preview Travel can compete with Microsoft's Expedia, thanks to deals with
Excite and AOL. {Diagram of partnerships of Java and Internet companies}
COLOR ILLUSTRATION: FORTUNE GRAPHIC BY LINDA ECKSTEIN
THE DIRECTORS: KP partners think of themselves as company builders. Most
Kleiner companies have a partner on the board of directors. Some partners are
in great demand, especially John Doerr, who is on the board of Sun, Amazon ,
Intuit, and Netscape, and who retired recently from Macromedia's. KP also
spreads its expertise by having execs from one outfit serve as directors of
others. Enterprise-software startup Oblix, for example, surely gets a boost from
having @Home networking whiz Milo Medin on its board. {Diagram of
companies with Kleiner Perkins partners on board of directors} COLOR
PHOTO: ANDY FREEBERG LUCK HAD a role in Kleiner's success. Bill Joy
(left) told John Doerr (right) a 20-year-old would change his business. Then Jim
Clark came calling with Marc Andreessen. {Bill Joy and John Doerr} COLOR
CHART: FORTUNE CHART {Chart not available--bar graph of IPO record of
Kleiner Perkins} COLOR PHOTO: PHOTOGRAPHS BY NATHANIEL
WELCH KP PERSUADED Mike Homer to move from GO, one of its failures,
to Netscape. COLOR CHART: FORTUNE CHART {Chart not available--bar
graph comparing IPOs of Kleiner Perkins to those of other venture capital firms
from 1993 to June 1998} COLOR PHOTO: PHOTOGRAPHS BY NATHANIEL
WELCH ROGER SIBONI, with daughter Elisabeth, left KPMG for a startup
when Kleiner promised him a career, not just a job. {Roger Siboni and
Elisabeth Siboni} |
