Mary Meeker’s exit from Kleiner Perkins shows Wall Street/Silicon Valley clash
September 19, 2018 | Blog

Mary Meeker’s exit from Kleiner Perkins shows Wall Street/Silicon Valley clash

Silicon Valley has always had an uneasy relationship with Wall Street. The former produces founder-driven startups that prizes growth, idealism, and independence. The latter prizes earnings, returns, and transparency.

Occassionally, that tension has boiled out in the open, most recently with Telsa founder and CEO Elon Musk threatening to take the electric automaker private because he didn’t like answering to the public markets.

But the tension has recently manifested inside one of Silicon Valley’s most venerable venture capital firms. Mary Meeker, once Wall Street’s most famous Internet equity analyst, is leaving her role as general partner at Kleiner Perkins Caulfield & Byers, according to Recode, which broke the story.

Mary Meeker, General Partner at Kleiner Perkins Caufield & Byers
Mary Meeker, General Partner at Kleiner Perkins Caufield & Byers

Recode suggested that Meeker’s exit reflects the split between Kleiner’s partners who work on unicorn deals like Meeker and those who concentrate on the firm’s more traditional focus on riskier, early stage startups.

“The way the teams operate are just very different,” Meeker told Recode.

The development is no doubt shocking, given Meeker’s clout in the industry. Her annual “State of the Internet” report is still a must read in the global tech industry.

However, in retrospect, the clash at Kleiner was several years in the making.

Unicorns are an “albatross”

In December 2015, I attended a speech given by then Kleiner Perkins leader John Doerr at the Post Seed conference in San Francisco. Despite Kleiner’s investments in unicorns, many of them led by Meeker, Doerr made no secret of his antipathy towards these private firms, which he thought were severely overvalued.

John Doerr, Chairman, Kleiner Perkins Caufield & Byers
John Doerr, Chairman, Kleiner Perkins Caufield & Byers

“Having a $1 billion valuation can be a real problem,” Doerr said. “Being a unicorn is really an albatross.”

Doerr is a legendary, old school venture capitalist so perhaps his remarks weren’t too surprising. But Doerr’s decision to publicly bash unicorns and by extension Meeker, who joined Kleiner in 2010, is certainly eye opening.

Led by Doerr, Kleiner funded and carefully developed young firms that grew into giants like Google, Amazon, American Online, and Sun Microsystems.

But since Meeker joined the firm, Kleiner turned its focus to advanced, already huge companies like Spotify, Uber, and Airbnb.

Doerr argued at the 2015 conference that unicorns were not going to file for IPOs because of their frothy valuations. Instead, the companies were unreaslistically hoping that tech giants like Google would bail out investors by buying them, he said.

Even though Google sits on billions of dollars in cash, the search giant has demonstrated it will not overpay for companies, Doerr said. And if a giant like Google isn’t willing to pay big cash for the startups, why would anyone else?

“The basic math is going to a cause a crunch there,” Doerr said. “You expect there is going to be a great coming disaster there.”

Doerr’s remarks weren’t unreasonable at the time. In 2015, there were several down round unicorn IPOs, most notably Square. (BTW: do you know who served on the Square board of directors? Mary Meeker.)

That year, five out of seven exits for tech unicorns earned a lower valuation than previous estimates that year, according to a report by Upfront Ventures in Los Angeles. By contrast, the same was true for only three out of 12 exits in 2014.

Meeker’s vision is winning out

But the disaster Doerr predicted never happened. From 2016 to 2018, 64 percent of unicorns, including Spotify and DocuSign, saw their IPO prices jump above their private valuations, compared to just 10 percent in 2015, according to a SharesPost analysis. (BTW: do you know who participated in VC deals for Spotify and DocuSign? Mary Meeker.)

What more, big tech firms were more than willing to pay top dollar to buy unicorns, even after some of them already went public. Microsoft paid $7.5 billion to acquire GitHub, or nearly four times GitHub’s private valuation. Cisco bought Duo Security for $2.5 billion, more than twice what private investors valued the cybersecurity firm. Mulesoft went public but then quickly sold itself to Salesforce $6.5 billion, more than double its IPO valuation of $2.9 billion.

In 2016, Doerr stepped down from his leadership position to become chairman, a role more focused on coaching than deal making.

Its not clear whether Meeker’s departure from Kleiner Perkins will settle things. While traditional venture capitalists may prefer to nurture young, high risk startups likely to fail, today’s investment dollars are mostly flowing into lower risk, later stage unicorns already on the cusp of an IPO.

In the second quarter of this year, the median later stage deal size jumped 76 percent to $40 million compared to $22.7 million from the third quarter of 2016, according to the MoneyTree Report from PricewaterhouseCoopers and CB Insights.

During this period, seed and early stage deals have been relatively flat.

Judging by these numbers, it appears the venture community is moving towards Meeker’s vision.

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Thomas Lee

Thomas Lee

Thomas Lee is the Senior Writer at SharesPost. He was previously a business columnist at the San Francisco Chronicle. Lee has written for the Star Tribune in Minneapolis, St. Louis Post-Dispatch, and Seattle Times. He is author of “Rebuilding Empires” (St. Martin's Press), his book on the future of big box retail in the digital age.
PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.