Kleiner Perkins, Disrupted

1200x-1

As the premier venture capital firm of the last quarter-century, Kleiner Perkins Caufield & Byers has funded innovators like Amazon and Google that forced a multitude of old-line companies to adapt or die.

Digital disruption is now striking closer to home. Kleiner is being sued by a former employee for gender discrimination, and the trial is exposing an enterprise that is being buffeted by forces that did not exist a few years ago and that it can’t quite control.

Venture capitalists traditionally describe themselves as self-effacing middlemen. They take money from their limited partners (universities, pension funds) and give it to entrepreneurs, who are, they say, the real stars. Inside the venture firm it is one for all and all for one.

Venture Capitalists reached their pinnacle during the dot-com boom of the late 1990s. John Doerr, a Kleiner partner, might not have had his name on the firm’s front door, but when Larry and Sergey were Stanford students, Zuck a teenager and Steve Jobs was in exile, he was the fellow who set the tech agenda. His ambitions were vast. Kleiner, one historian of the era said, aspired to be to Silicon Valley what the Medicis were to Renaissance Florence and the House of Morgan was to the steel industry.

The last decade has not been as kind to Kleiner. Entrepreneurs have less need of venture capitalists and their cash, because it is cheaper to start a company and they now have other funding sources. Kleiner also had self-inflicted wounds: An ambitious bet on alternative energy companies, also known as green tech, did not work out as well as hoped, and many opportunities were missed in consumer Internet companies. When the events at issue in the trial took place — roughly 2008 to 2012 — the firm downsized.

A struggling firm in a struggling industry is, as all connoisseurs of digital disruption know, bound to be filled with unhappiness. The jury will have to decide whether Ellen Pao, who was a junior partner, was subject to gender discrimination — she is expected to testify on Monday. But it is clear from the trial testimony that Mr. Doerr and the rest of management never realized that the troubles at Kleiner went far beyond one employee’s allegations. At the very least, it needed to reboot itself, establishing clear rules so everyone could know what was possible and what was not. The firm was losing its bearings.

In late 2011, Kleiner brought in a $575-an-hour lawyer named Stephen Hirschfeld to investigate Ms. Pao’s allegations. His report was not admitted as evidence, but he was closely quizzed as to its contents by Ms. Pao’s legal team.

Kleiner was a firm in flux, Mr. Hirschfeld recalled. One woman he talked to said Kleiner “seemed to be moving from a brand called KP to a brand of individuals that are part of KP. It was now becoming more of a cult of personality, and each personality had its own brand.” Others echoed this point, and said they had no idea how to move up, or if the firm even wanted people to move up.

“The common theme I am getting from everyone is no one knew what the deal was,” Mr. Hirschfeld said.

In the world outside, social media was making an impact. Kleiner, as it happens, was an investor in Twitter. If you have more Twitter followers than your boss, he is at your mercy. Venture capital, like just about everything else, became less low-key and more self-promotional.

Trae Vassallo, another junior partner, told Mr. Hirschfeld she had figured it out. “The key thing was to be a little more self-centered and a little more willing to hype yourself,” the investigator said.

Ms. Vassallo had run the numbers on investments led by the male junior partners and the female ones, she told Mr. Hirschfeld. “A lot of men overhyped the expected value, and it made them look more successful.”

Beyond extravagant exaggeration, to succeed at Kleiner you needed to “own the room.” The firm was competing for investments, and why would an entrepreneur take money from a shrinking violet?

So even in internal Kleiner meetings, the volume seems pretty loud.

“There are a lot of aggressive personalities around the table,” Mr. Hirschfeld testified that one woman told him. “A lot of people cut various people off, including her. She didn’t know whether it was gender-based or personality-based.”

This is why asking the junior women to take notes at meetings was such a sore point that it has come up repeatedly at the trial. No guy would be willing to be identified with the role of secretary.

Mr. Doerr and the other senior partners, having come up in a less hype-driven era, perceived Kleiner differently. “A partnership is a group of people that want to be together and work together to achieve goals,” a senior partner, Ted Schlein, testified, according to the tech site PandoDaily. He added that it was a “meritocracy, the best idea and best people win.”

A major point of contention in the trial is a company called RPX. Ms. Pao contends that she discovered the company and should get credit for its public offering, which made Kleiner a bunch of money. She says she was elbowed aside by a senior male partner, Randy Komisar, and was not even invited to the celebratory dinner.

She says that when she protested this, Mr. Doerr told her, “Randy needs a win.”

In court, Mr. Doerr did not deny saying this. “Randy needed a winner. Kleiner needed a win. Everyone needed a win. I could use some wins,” he said.

Kleiner contends that the dinner was not celebratory, and that Mr. Komisar was more experienced than Ms. Pao and that’s why he was put on the board instead of her. Mr. Doerr testified that the junior partners were there to serve the senior partners, and that Ms. Pao was persistently seen as not being a team player — more interested in herself than the partnership.

“Unlike a company our partnership is a family, with occasional disputes,” he told her in an email that was introduced as evidence. “But each of us must work with and respect everyone.”

A family? Kleiner is coming off at the trial as a place where, whatever its undoubted excellence, the loudest people win, the most aggressive win, and those who can find a mentor by sucking up win. This does not sound like a family, a meritocracy or even a place that is a successful investor over the long term.

Why didn’t Kleiner realize this in 2012, when Mr. Hirschfeld submitted his 26-page report?

Perhaps the firm was focused on the narrow issue: whether Ms. Pao was the subject of discrimination. Mr. Hirschfeld’s answer was no, and so maybe the details did not matter. Mr. Doerr testified that he never read the report. “It was summarized for me,” he said. Perhaps he heard what he wanted to hear.


There are no comments

Add yours