correction.jpgSorry, we were moving pretty quickly yesterday, and should have checked out Bill Burnham’s post about Google’s investors a little more thoroughly. Turns out, Burnham made a significant error in his calculation about how much John Doerr, of Kleiner Perkins, and Michael Moritz, of Sequoia each made from their VC investments in Google.

In his correction posted today, Burnham says he forgot to factor in the fact that VCs invested their own money into Google too — which is in addition to the money they invested on behalf of others, including institutions like Stanford University, MIT, and so on. Since John Doerr, Moritz and other partners at their respective funds invested their own money into Google, they obviously got quite a bit of money returned to them after the IPO. But not in the way Burnham thought.

Long story, but here’s the gist: Burnham erred in assuming that all of the money that Doerr got back from the IPO represented his share of the “carry,” or the contracted profits that Stanford and others agreed to give to Kleiner Perkins as a reward for successful investing. Some of Doerr’s reward was this carry, but some money he got from the IPO was direct returns on his own investments. But by lumping Doerr’s money all into “carry,” Burnham artificially inflated the amount he said Doerr owned of his firm’s carry. Burnham concluded 40 percent. That is wrong. It is a lot less than that, and so the many other Kleiner Perkins partners enjoy more of a percentage of the firm’s profits than Burnham’s initial conclusion implied.

By the way, it’s pretty standard for VCs to invest their own money alongside their own investors — institutions like Stanford like to know that VCs like Doerr have their own “skin in the game,” assuming that they’ll make careful decisions and be more motivated.

And thanks Bill, for making such a detailed correction.