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.
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.
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.
“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.
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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