Chi-Hua Chien
ted schlein

Kleiner Trial Is A Front Row Seat To A VC Firm In Flux

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“Didn’t you tell Ms. Pao at the time that one of the reasons you chose Randy Komisar to be a board partner was that Randy ‘needed a win’?” asked Alan Exelrod, the lead counsel for the plaintiff in the case of Ellen Pao V. Kleiner Perkins.

This came during a particularly tense point in the questioning of John Doerr in San Francisco’s Superior Court today. Exelrod was pressing Doerr for answers as to why Komisar, rather than Pao, was appointed to the board of a startup called RPX in 2008.

To that question, Doerr, who has been portrayed thus far by all of the trial’s witnesses as a strong supporter of women in technology and venture capital, provided one of the most animated responses he’d given up until that point in his testimony. He asserted that his actions had nothing to do with gender.

“Randy needed a win. Kleiner needed a win. Everybody needs wins,” he said. “I could use some wins,” Doerr concluded with a wry laugh.

It was funny, but it also rang painfully true.

Kleiner’s rough patch, revealed

Few things are crystal clear at this point in the often plodding Pao V. Kleiner Perkins trial, which has entered its second week in court and currently has no end in sight. But one notable thing that has emerged in the ongoing testimony is that Kleiner Perkins Caufield & Byers, a Sand Hill Road stalwart since it was founded in 1972, experienced quite a fall in recent years.

To be clear, today Kleiner is arguably in a much better position than it was from 2007 to 2012, the time period around which much of the Pao trial is focused. Presently, the firm’s Digital Growth Fund, which Doerr leads along with Mary Meeker, has a number of investments in hot, high growth, high profile startups such as Slack, Instacart, Snapchat, and Uber.

But there were some rough years in between. Over the past decade, KPCB faced a number of things that chipped away at its dominance — lackluster investments in green tech, competition from upstart firms and increasingly powerful angel investors, and the damage to its reputation from the ongoing salacious legal case, to name a few.

At the time, Kleiner had been able to gloss over its turbulence quietly, with very little public documentation (though there was a good deal of mostly private chatter in Silicon Valley circles.) But now that the firm’s dealings from the past nine years are under subpoena, what really happened is being laid out for all to see. The ongoing court proceedings are providing a front-row view into what happens to a proud institution while it is at risk of losing its mojo.

Rising stars hit by layoffs

On the stand this past week, Kleiner’s top partners have been forced to confirm publicly for the first time that the firm did in fact conduct layoffs in 2012 as part of a necessary downsizing. At the time, the changes were first reported in a series of exclusives in Term Sheet, the excellent and scoop-driven newsletter that’s become a must-read for the finance industry.

The situation was then portrayed as a natural progression for the firm, positioning partners who had previously been labeled as rising stars leaving of their own volition. Those headlines at the time read, “Exclusive: Big changes coming to Kleiner Perkins,” “Exclusive: Kleiner Perkins makes major changes,” and “Kleiner’s Chi-Hua Chien may raise his own VC fund.” (I later reported for TechCrunch that sources said Chien’s new fund was a result of him being transitioned out of Kleiner, but hadn’t been able to get word from Chien or KPCB on the matter.)

In reality, it’s come out this past week, partners including Chien were directly asked to leave the firm, as KPCB was forced to tighten up its ranks after a number of damaging losses.

“In 2012, the partnership was not performing at the level it should have been. It had gotten too big, and our decision making was not as crisp,” longtime Kleiner partner Ted Schlein said on the stand Friday. “We needed to make hard decisions and ask people to move on, as we got smaller. And we made those decisions with Trae [Vassallo], Chi-Hua [Chien], and Amol [Deshpande].”

Doerr corroborated Schlein’s account of the layoffs in his testimony today. “We downsized. When it came time to organize KPCB 16, we made it a smaller fund.” He referred to Deshpande, Pao, and Vassallo’s departures as “transitions” initiated and facilitated by the firm. “We helped Mr. Chien move on also,” he said.

Soft landings, sub rosa

Indeed, the trial has revealed the lengths that firms like Kleiner go to to ensure that its tough times are kept quiet and provide soft landings for people in its network. Vassallo, Deshpande, and Chien all remain listed under the “Team” section on Kleiner’s website as strategic advisors, and the firm has also invested in seed funds started by both Chien and former Kleiner partner Aileen Lee.

And though Kleiner’s trial defense is centered largely around its assertion that Ellen Pao’s failure to advance at the firm was because she lacked skills as an employee, the way that Kleiner ultimately dismissed her could be mistaken for a promotion — that is, to someone not familiar with the ways of VC.

Court evidence presented last week showed that Pao’s termination came in the form of a gently worded “separation agreement” advising her that she would not be advancing to a senior partner role. In the memo, Kleiner Perkins detailed that she’d continue to receive a base salary of $33,333.33 per month for the next six months, receive up to $200,000 in additional payments if she did not find another job in the following months, and still be eligible for a bonus.

It’s not only former staffers that receive nice perks. Doerr frequently writes letters of recommendation and makes personal phone calls advocating for university admissions and job offers for those in Kleiner’s extended family. “There are few things we can do that matter more than helping a friend’s spouse, son, or daughter get an opportunity which changes their lives,” Doerr wrote in an email shown in court evidence today.

It’s really no surprise that those in VC’s upper echelons live in a privileged world. But it is still fascinating to see the extent of the privilege, how people benefit from it, and the privacy in which it normally dwells.

Don’t kill yourself to kill it

It cannot be overstated that none of this is unique to Kleiner Perkins. All investment firms, and private organizations in general, go through their ups and downs — and often succeed in keeping a stiff upper lip to the outside world. Those in Silicon Valley especially are known to work hard to maintain a reputation of “killing it,” even when the reality is much more rocky.

The only difference is that because of this court case, the gap between the reality of Kleiner Perkins’ low point, and its public representation in that time, is being shown for all to see. This could provide an important learning opportunity that might just help encourage venture capital firms and the wider tech community to have more transparency from the get-go.

After all, as the old saying goes, you’re only as sick as your secrets: The more that you obscure, the more is at risk if and when you are exposed. If the end result of the Kleiner Perkins trial is a more honest and open Silicon Valley, well, that would be a silver lining to an otherwise very dark case.

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