John Doerr2.jpgJohn Doerr, partner at one of Silicon Valley�s premier venture firms, Kleiner Perkins Caufield Byers, held a Q&A at today�s venture capital conference sponsored by Private Equity Analyst. Many of his comments at the San Francisco event were similar to those provided a few weeks ago during our own Q&A here. He only had a half-hour, so couldn’t cover much ground, but a few things made our notebook:

–Lately, the firm has started prowling for energy deals, a departure from its traditional focus on information services and healthcare. �That�s a left turn, a new initiative for Kleiner,� he told the audience, made up mostly of other venture capitalists and investors. Most of Kleiner’s investments in energy so far are still in stealth. Urbanization will be one of the biggest global trends between now and 2030, Doerr explained, citing several studies including one by the National Academy of Sciences. Asia, in particular, will be creating scores of huge cities, he said. They�ll need clean water, power and transportation.

–Kleiner’s partners have already gone on record saying they don�t intend to invest directly in Chinese start-ups, something many other VCs are doing. Why? Driving down Hwy 101, Doerr explained, he might get a call from a CEO of a portfolio company informing him that the VP of marketing had resigned. Being local, Doerr said, allows him to turn off the 101, drive to the company and talk them into staying. (This is a bit of coincidence because we got an e-mail today from Lisa Kopp, the marketing person at Friendster, a company backed by Kleiner Perkins, saying today is her last day. We called her about why, and she said the commute to Sunnyvale was killing her. She lives in San Francisco’s Marina district and said she �didn�t have a life.� And no, she said emphatically, �John Doerr never came to me to convince me to stay anywhere.�)

–Doerr brought out the �too much money in the venture industry� message again. He hammered on this last year, but has lightened up recently. Today, though, he and John Denniston � a Kleiner Partner who joined Doerr during the Q&A � said that the recent data showing a large jump in the amount of money being invested into the venture capital industry had surprised them. If the trend continues, Denniston said, it would be a �very big concern.” Too much money going to start-ups would mean more competition among the start-ups, lowering returns for everyone. Interestingly, today was the first time we heard Kleiner Perkins own up to having �slowed down the rate of investment� during the post-bubble years of 2001 and 2002 in order to focus on helping existing portfolio companies. Doerr said Kleiner Perkins did so to make sure the firm returned good money to investors in Kleiner�s tenth fund. �We doubled down� Doerr said. In previous conversations with Kleiner partners, we�d been told Kleiner kept a steady pace throughout.

–Finally, a note about what struck us during the rest of the day’s agenda. The Darwinian world of VC has only gotten more ruthless since the bubble. The top venture firms are so exclusive and so sought after that investors in venture capital firms, known as limited partners (LPs), basically have no chance of accessing them if they haven’t already by the first or second funds raised by the firm. “Since 1999, access has gotten harder,” said Greg Milani, who manages investments into venture firms on behalf of the pension funds of Hewlett-Packard and Agilent. More investors around the world are trying to access venture firms, but they’re realizing that they need to invest only in the top-tier firms because bottom-tier funds perform so terribly. There was a whole panel discussion devoted to “Breaking into the Right Funds. What does it take?” During an earlier panel discussion, titled “Where West Coast Limited Partners are Putting their Dollars in 2005,” Georganne Perkins, director of venture investments for Stanford University, put up a telling slide:

Venture Capital Pooled Mean Returns Total Value/Paid in Mulitple
Top quartile 81.41 % 3.47
Second quartile 18.79 % 1.29
Third quartile -7.46 % 0.85
Bottom quartile -21.17 % 0.52

Source: Cambridge Associates, for Stanford University, for vintage years 1990-2003, net to LPs, as of 3/31/04.

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