A FALLEN EMPIRE
I’ve spent the last several months working on a magazine feature about why ‘Queen of the Internet’ Mary Meeker and her growth investing team decided to split off from venerable venture firm Kleiner Perkins Caufield & Byers in September.
But to tell that story, we have to understand how Kleiner got here in the first place. Once the very embodiment of Silicon Valley venture capital, the storied firm has suffered a two-decade losing streak. It missed the era’s hottest companies, took a disastrous detour into renewable energy, and failed to groom its next-generation leadership.
After numerous pivots in strategy over the years, Kleiner never quite found its footing. The firm’s early-stage unit repeatedly missed promising young companies like Uber, Pinterest, Robinhood, Slack, and Airbnb — only to have Meeker’s growth team invest later at much higher prices.
I spoke with more than 20 current and former employees, investors in Kleiner’s funds, entrepreneurs and other industry observers about what went wrong and how, if possible, the firm can ever regain that old Kleiner magic.
Below is an excerpt from my story:
The inability to get in on a hot startup’s ground floor, only to subsequently pay a far richer price, was all too common for the once-storied firm. Kleiner had sat out on another generation of technology investments, the crop of so-called Web 2.0 companies, including Facebook in the 2000s. Now, in the 2010s, it was failing again to make early-stage investments—the traditional meat of venture capital investing—in the most sought-after startups of the day. But this time its whiffs came with a perverse twist: Kleiner was succeeding wildly with a new strategy centered around Meeker, who ran a separate fund within the firm focused on more mature private companies that required capital to grow as opposed to merely establish themselves.
“Growth” investing, with its more developed companies, should be somewhat safer than “venture” investing and would also earn commensurately lower returns. Yet Meeker’s investment team outperformed the venture group overseen by longtime Kleiner leader John Doerr and a rotating ensemble of lesser-known investors who joined and left him over the years. Meeker, not the venture capital investing unit, was landing stakes in the era’s most promising companies, including Slack, DocuSign, Spotify, and Uber, breeding resentment over tension points as old as the investing business: Who gets the credit and, more important, who gets paid.
Worse, a class system developed inside Kleiner, evident to the outside world as well, notably among entrepreneurs mulling accepting Kleiner’s money: Team Meeker was a top-tier operation while the venture unit was B-list at best. Says Ilya Strebulaev, a Stanford finance professor who studies venture capital: “Twenty years ago, Kleiner Perkins was at the pinnacle of venture capital. These days it’s just one of many firms trying to compete.”
What happened next is another age-old tale in the business world, of how a once-proud stalwart found itself on the edge of irrelevance. It’s about just how much succession planning matters and the ramifications of not adequately grooming the right successors. And it’s a reminder that something as elusive as identifying early-stage winners from the pack of wannabes doesn’t get easier, even after more than four decades of practice.
HOUSEKEEPING: I’m leaving for the West Coast this morning, so my colleague Lucinda Shen will be in charge of Term Sheet for the rest of the week. Please send all deals & news tips her way at firstname.lastname@example.org. See you next week!
• KeepTruckin, a fleet management company, raised $149 million in Series D funding. Greenoaks Capital led the round, and was joined by investors including IVP, GV, Index Ventures and Scale Venture Partners.
• Harness, a developer of software to simplify software delivery process, raised $60 million in Series B funding at a $500 million valuation. IVP, GV, and ServiceNow Ventures co-led the round, and were joined by investors including Big Labs, Menlo Ventures and Unusual Ventures.
• Sight Machine Inc., a San Francisco-based digital manufacturing platform, raised $29.4 million in Series C funding. LS Group led the round.
• Locus Robotics, a maker of autonomous mobile robots for fulfillment warehouses, raised $26 million in Series C funding. Investors include Zebra Ventures and Scale Venture Partners.
• CleanSpark, a San Diego, Calif.-based microgrid and custom electrical equipment company, raised $20 million in funding. The investors were not named.
• Blueshift, a customer data activation platform, raised $15 million in Series B funding. Softbank Ventures Asia led the round, and was joined by investors including Storm Ventures and Nexus Venture Partners.
• Brightback, a San Francisco-based developer of customer retention automation software, raised $11 million in Series A funding. Index Ventures led the round, and was joined by investors including Point Nine Capital, Matrix Partners, and Rembrandt Venture Partners.
• Zippia, a San Francisco-based career resource site, raised $8.5 million in Series A funding. E.ventures led the round, and was joined by investors including MHS Capital, NextView Ventures and Correlation Ventures.
PRIVATE EQUITY DEALS
• MiddleGround Capital acquired Peterson Spring, a Southfield, Mich.-based specialty spring manufacturer. Financial terms weren’t disclosed.
• Gridiron Capital made an investment in Remington Products, a Wadsworth, Ohio-based provider of branded and private label orthotic solutions. Financial terms weren’t disclosed.
• Enlightenment Capital acquired Trowbridge & Trowbridge, a McLean, Va.-based provider of IT solutions to defense, intelligence and civilian government agencies. Financial terms weren’t disclosed.
• GenServe LLC, a portfolio company of GenNx360 Capital Partners, acquired Power Performance Industries, a Yonkers, N.Y.-based provider of maintenance and repair services to industrial generators and backup power solutions. Financial terms weren’t disclosed.
• DouYu International Holdings, a Wuhan, China-based live game-streaming platform, filed for a $500 million IPO. The firm posted $531.5 million in revenue and loss of $127.4 million in 2018. Morgan Stanley, J.P. Morgan and BofA Merrill Lynch are underwriters. It plans to list on the NYSE as “DOYU.” Read more.
• SciPlay, a Las Vegas-based maker of casino-like social games firm, plans to raise $330 million in an IPO of 22 million shares priced between $14 to $16. The firm posted revenue of $416 million in 2018 and income of $39 million. Scientific Games backs the firm. BofA Merrill Lynch, J.P. Morgan, Deutsche Bank, Goldman Sachs, Morgan Stanley, Macquarie Capital, and RBC Capital Markets are underwriters. It plans to list on the Nasdaq as “SCPL.” Read more.
• Luckin Coffee, a Xiamen, China-based coffee retailer with delivery, filed for a $100 million IPO. the firm posted $125 million in sales and $475 million in loss for the year ending 2018. Credit Suisse, Morgan Stanley, CICC and Haitong International are underwriters. It plans to list on the Nasdaq as “LK.” Read more.
• So-Young International, a Beijing-based online plastic surgery marketplace, filed for a $150 million IPO. The firm posted revenue of $89.8 million in 2018 and income of $8 million. Matrix Partners, Trustbridge Partners, Apax Partners, and Orchid Asia back the firm. Deutsche Bank and CICC are underwriters. It plans to list on the Nasdaq as “SY.” Read more.
• Yunji, a Hangzhou, China e-commerce site using social platforms to promote its products, now says it plans to $162 million in an IPO 13 million shares priced between $.11.80 to $13.80. It posted revenue of $1.9 billion in 2018 and loss of $335.7 million. Morgan Stanley, Credit Suisse, J.P. Morgan and CICC are underwriters. It plans to list on the Nasdaq as “YJ.” Read more.
• Torrid, a plus-sized women retailer based out of City of Industry, Calif., withdrew its $100 million. The company which spun off of Hot Topic posted loss of $29.1 million for the fiscal year ending January 2017 on sales of $640.2 million. Sycamore Partners backs the company. Merrill Lynch, Pierce, Fenner & Smith alongside Morgan Stanley are leading the underwriters in the deal. The company plans to file on the NYSE as “CURV.” Read more.
• TransMedics Group, a Andover, Mass.-based provider of system for organ transplants, plans to raise $75 million in an offering of 4.7 million shares priced between of $15 to $17. Morgan Stanley and J.P. Morgan are underwriters. It plans to list on the Nasdaq as “TMDX.” Read more.
• Trevi Therapeutics, a New Haven, Conn.-based biotech focused on neurological disorders, plans to raise $70 million in an IPO of 4.67 million shares priced between $14 to $16 apiece. TPG, NEA, and Lundbeckfond Invest A/S back the firm. SVB Leerink, Stifel and BMO Capital Markets are underwriters. It plans to list on the Nasdaq as “TRVI.” Read more.
• Montage Partners acquired Advanced Manufacturing and Development Inc, a Willits, Calif.-based provider of precision sheet metal fabrications. The seller was Avista Corp. Financial terms weren’t disclosed.
FIRMS + FUNDS
• Paul Stansik joined ParkerGale Capital as a principal.
SHARE TODAY’S TERM SHEET