Flipboard recently unveiled a new version of its successful tablet magazine app as the entire staff stood around their Palo Alto, Calif. office gawking at the traffic numbers. As the needle starts moving, the room gets giddy, and the few dozen employees gather for a group snapshot. In the middle of the scrum: John Doerr, the 61-year-old billionaire venture capitalist who for years was the undisputed king of Silicon Valley, a Flipboard T-shirt over his button-down.
Doerr has been Flipboard’s champion. His legendary firm, Kleiner Perkins Caufield & Byers, is the company’s biggest booster, and Doerr went so far as to introduce Flipboard cofounder Mike McCue to Steve Jobs a few weeks before his product launched on Apple’s App Store, to great fanfare, in 2010. “I thought he was going to rip it to shreds,” says McCue. “But instead we got into a fascinating conversation about the state of journalism.” Despite Doerr’s trademark roll-up-the-sleeves advocacy, Flipboard is one of the precious few hits he’s backed lately. On this year’s FORBES Midas List of tech’s top investors ranked by the size and volume of big deals, Doerr has fallen from No. 12 to No. 26 (The Midas List will be published May 8). He hasn’t seen the top ten since 2009.
And Kleiner, a 41-year-old firm known for backing some of tech’s biggest IPOs, missed getting early into Facebook, LinkedIn and Groupon. In 2012 it was virtually a no-show on the roster of firms with sales or IPOs of venture-backed companies worth more than $200 million. Sequoia Capital led the way with nine. Accel had six. Greylock, five. Kleiner? Only two, and not big ones at that.
When asked how the past year has gone, he goes into reflexive spin. “Fantastic, really fantastic,” he says. But Doerr can do the math—from Netscape to Google he’s racked up enough home runs over the years to swell his net worth to $2.7 billion. He pauses before continuing and recalibrates. “It’s also been a very challenging year.”
He’s referring in part to the sexual harassment and gender discrimination suit filed in June of last year by Kleiner partner Ellen Pao, Doerr’s former chief of staff. He also readily cops to the firm’s high-profile missteps in green tech investing. So he sat down with FORBES for what he says are his most extensive discussions ever about the firm, to discuss what’s gone wrong and how he’s righting the ship.
He also opened up his Rolodex, a raw display of power, as he quickly arranged for interviews with the heaviest of hitters, who stood ready to heap on the praise. “I’ve known John 30 years, and he’s still the kinetic guy trying to find the next new thing,” says Bill Gates, who, FORBES has learned, is also a Kleiner limited partner. “And no, not with a 100% batting record. But better than most.” Gates credits Kleiner for introducing him to Aquion Energy, a battery company he’s subsequently invested in on his own.
“John always sees the future first,” says Google CEO Larry Page. “And he’s tenacious about pushing everyone to move faster and be one order of magnitude more ambitious.”
“Kleiner’s No. 1 competitive advantage is John Doerr,” adds Intuit Chairman Bill Campbell, the press-shy consigliere to half of Silicon Valley. “He’s one of the great product-pickers of our time. It was what Steve Jobs was fantastic at, too.”
And so it goes, with similar kudos from everyone from Genentech’s Art Levinson to Google Chairman Eric Schmidt.
But the most trenchant comment came, not coincidentally, from the youngest and newest member of this billionaire cavalcade, Jack Dorsey, of Twitter and Square. Dorsey readily agreed when Doerr asked him to address Kleiner’s partnership in January. “John said, ‘Be extremely frank and tell us where we’re screwing up.’ ” Dorsey in turn cautioned Kleiner’s partners to be careful about dismissing small ideas. “When you’ve only known these massive successes,” says Dorsey, “how do you know to look for these smaller things that could go big?”
The irony is that the man whose name has been synonymous with venture capital throughout his 33-year career has to prove himself all over again.
Going Big on Green
John Doerr doesn’t make many public speeches, so the few he’s given are memorable. Above them all: a TED talk in 2007 on the threat the planet faces from climate devastation. In it Doerr choked back tears, as he described a desire to create a better planet for his daughter to live in.
This fervent belief transferred to his investment strategy for the firm. Hoping not only to save the world with his personal dime, he also tried to position Kleiner to profit from it.
Trouble followed. Solar-power-materials startup MiaSolé raised upwards of $500 million from Kleiner and others and was once valued at $1.2 billion. But the firm couldn’t make money in the face of cheaper imported panels from China. It was sold to a Chinese firm last year for just $30 million.
Still worse: luxury electric carmaker Fisker Automotive, which raised $1.4 billion in funding from Kleiner, U.S. taxpayers and investors, including actor Leonardo DiCaprio. The company was badly mismanaged and recently fired most of its staff. In March its founder resigned, and in April Congress grilled its executives, Solyndra-style, over how Fisker got its federal loans. (Doerr sits on President Obama’s jobs council, and Al Gore is a Kleiner partner.) PrivCo, a research firm that examines private companies, says Fisker may turn out to be the “most tragic venture-capital-backed debacle in recent history.”
The other debacle for Kleiner is what it missed while focusing so heavily on green. Social, local, mobile—all were creating some of the biggest scores in the history of Silicon Valley. And just as success begets success—a fact that Kleiner has wielded to great effect for most of its history—sitting on the sidelines leads to more sitting on the sidelines. Paul Graham, founder of the Y Combinator incubator, was recently quoted as saying Kleiner is no longer at the “top” of founders’ minds, though he declined to comment for this story.
Key Hires, Digital Focus
While Kleiner remains an elite firm, having to answer for itself is an unprecedented circumstance.
Kleiner was founded in 1972 by partners with impressive tech credentials by Silicon Valley standards: Eugene Kleiner was a founder of Fairchild Semiconductor, a pioneering chip designer, and Tom Perkins, who oversaw Hewlett-Packard’s early efforts in computing.
Doerr arrived at Kleiner in 1980 after a successful stint as a salesman at Intel. The St. Louis native grew up in a close-knit, middle-class family with five children. Doerr’s father, a mechanical engineer and entrepreneur, pushed all his kids to study hard. Doerr excelled at science and got undergraduate and master’s degrees in electrical engineering at Rice University and an M.B.A. from Harvard. Soon after joining the Kleiner partnership he cemented his reputation as the Valley’s premier VC with a string of spectacular calls in tech, backing the likes of Compaq Computer, Netscape, Sun Microsystems, Amazon, Intuit and Google. He was either No. 1 or No. 2 on the Midas List from 2005 to 2009 and first appeared as a billionaire on The Forbes 400 list in 1999.
Thus it was an unusual scene in February, when Doerr and senior partner Ted Schlein went on a road show to reassure limited partners the clean-tech missteps were behind them. It was the culmination of a top-to-bottom introspection at Kleiner. After the Pao lawsuit, which “makes me very sad,” says Doerr, who stresses that Kleiner has more women investing partners than any top VC firm in the Valley, the entire partnership came together off-site to define collectively what Kleiner stands for and how it wants to work with entrepreneurs and limited partners. The list covers big things (like how to do a better job servicing entrepreneurs) and small things (like not doing e-mail during meetings).
That meeting reinforced the message that Doerr delivered to the LPs: While Kleiner wasn’t giving up on green tech (its Bloom Energy fuel-cell startup could have a strong IPO later this year), it was refocusing on digital. Ask Doerr which are today’s quintessential Kleiner portfolio companies and he cites Flipboard, Square, social network Path, digital-thermostat maker Nest and online education platform Coursera, all of which he says are on track to redefine and create new industries the way Amazon and Google did. The last four boards Doerr joined (those of Zynga, cloud-storage play upthere, Flipboard and Coursera) are all plays on social, local and mobile—the so-called SoLoMo megatrend that Doerr himself coined in 2010.
Doerr has backed this up with some key hires. Morgan Stanley’s star analystMary Meeker joined Kleiner in 2011 and runs its $1 billion Digital Growth Fund, which has placed about 26 bets on high-profile startups, including streaming-music service Spotify, music-sharing service SoundCloud, online retailer One Kings Lane and Waze, a crowdsourced traffic tool. “If we’re the underdog, I like being the underdog,” says Meeker. “It heightens one’s focus.” Kleiner hadn’t been dormant in this area—Doerr made an early bet on mobile in 2008 with the firm’s $200 million iFund, which returned half of its capital in 30 months thanks to the sale of portfolio company ngmoco, as well as designating $250 million for its sFund to back social companies, announced in 2010 with backing from Amazon, Facebook and Zynga.
Meeker moved quickly to play catch-up with the big social networks, buying into Facebook at a $52 billion valuation, Groupon at a $5 billion valuation and Twitter at a $3.7 billion valuation. The late moves highlighted Kleiner’s blown opportunities—early backers of Groupon have seen big appreciation, but Kleiner’s investment is already underwater, and it seems unlikely to pan out. Facebook is a modest win. Its market capitalization is hovering near $65 billion. The Twitter investment has the most promise: Doerr says Kleiner’s check to Twitter, reportedly for $150 million, was the largest the firm has ever written. “We’re going to miss some,” says Schlein, who joined the firm in 1996 and now runs day-to-day operations. “But if you can still figure out a way to make money on it for your limited partners, there’s nothing wrong with that.”
To ensure fewer misses, Doerr has made structural changes to his pipeline process. Kleiner built a system called Dragnet that tracks things like recruiting efforts and even the social media “noise” and app-store rankings around products and startups. In 2011 Kleiner lured away Mike Abbott, Twitter’s former head of engineering, to identify talented software developers. He’s helped to expand Kleiner’s recruiting database, which has surged past 20,000 names.
One of the beefs Jack Dorsey talked about to Kleiner partners in January was the need for a “simpler interface.” With 28 investing partners spread across myriad groups, Kleiner had become too large for most entrepreneurs to navigate.
Doerr was already out to remedy this last year when he recruited Megan Quinn, the 31-year-old former product director at Google and Square, to work the coffee shops and wine bars around SoMa, the South of Market neighborhood in San Francisco that draws startups. The firm says its “coverage ratio,” or percentage of overall funded startups it got a look at, has risen by more than 50% in the past year.
‘Helluva Win Rate’
Just as important, Kleiner changed how it greenlights deals. Around the time of its sidetrack into green tech, Kleiner decided to let working groups of partners vet decisions on investments, based on the idea that smaller, knowledgeable teams could move faster. But speed didn’t necessarily turn into success, as the most experienced partners weren’t seeing all the deals, and the allocation mix became dependent less on planned intentions than on whether one group invested faster than another.
The solution was simple: Funding decisions are now vetted by the entire partnership, as they were for almost four decades, so that “every investment is fighting for the same dollars,” says Schlein, who claims that Kleiner gets its target every four out of five times it pursues an investment opportunity. “That’s a helluva win rate,” says Doerr.
While Kleiner has changed, this is still a firm that goes where John Doerr goes. And while he admits some of the bets on green tech were too big and too broad, he still talks bullishly about green (“the lemons ripen early,” he says of Kleiner’s failures there). In fact Kleiner tied with Draper Fisher Jurvetson in 2012 for having been in the most clean-tech VC rounds, with 25, according to the Cleantech Group.
Doerr may yet get the last word on green tech. For the $21.3 billion invested in private clean-tech companies since 2000, there was a gross internal rate of return of 6.6% through the third quarter of 2012, according to an independent Cambridge Associates study of 408 venture capital and private equity funds. There was a gross total value of 1.2x on these investments. These are not terrific numbers, but they are in positive territory. Sources say Kleiner’s return on its green-tech portfolio is better than Cambridge’s numbers.
Doerr is arguably the most successful VC ever, so perhaps a more worrisome question is whether Kleiner is built to succeed past him. “The history of people doing succession planning—righting the ship—is essentially zero,” says Paul Kedrosky, a senior fellow with the Kauffman Foundation and a noted commentator on venture capital. Michael Kim, founder of Cendana Capital, which invests in seed venture funds, worries that there’s “no clear progression of leadership from legendary John Doerr.” Says Kim: “They have a lot of work to do on how LPs and entrepreneurs perceive them.”
The investors are staying the course. David Swensen, Yale University’s chief investment officer, who handles $20 billion in assets, says that while Kleiner’s recent returns haven’t been as strong as in its heyday, the firm has generated more dollar gains than any other partnership in Yale’s private equity portfolio, with far fewer dollars committed. “It’s hard to argue that it’s been anything less than a great relationship,” Swensen says. “I’m not going to bet against them.”
As for entrepreneurs, Dave Morin was working on a new mobile service called Path when Kleiner came courting in 2010. Morin asked the obvious question: Why would an entrepreneur in social networking hitch his startup to a firm that sat out the biggest consumer tech wave in a decade? “I asked ‘Where were you guys?’ and they were very honest,” Morin recalls. “I believed them. I guess I fell in love.”
It’s easy to fall in love with John Doerr, who, despite a mansion in the hills of Woodside, Calif. and a Gulfstream at his beck and call, remains down-to-earth and accessible, spending huge amounts of time personally coaching entrepreneurs. “We know what our strategy is,” he says, sharing the bowl of popcorn he enjoys at the end of each Monday at the office. “We know what our job is. We know that we’re here to serve entrepreneurs and to serve limited partners. And we genuinely like working together. I’m not going to say it’s all one great, big, happy family … but we’re all one team. And we’re all in.”
By Connie Guglielmo and Tomio Geron
Forbes.com
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