Kleiner's Doerr says investments solid despite troubled times

For high-tech start-ups, an investment from Kleiner Perkins Caufield & Byers has been like the Good Housekeeping seal of approval.

From Sun Microsystems to Netscape Communications to Amazon.com, the Silicon Valley venture capital firm has backed some of the Internet's best-known and most successful companies.

But the last six months have not been kind to many of Kleiner Perkins' companies.

Amazon, for instance, has seen its stock fall 85 percent during the last year. Online health site WebMD, which has also seen its stock price plummet, laid off 1,100 employees in September and saw the departure of two executives the next month. And teen site Kibu.com shut down in October after less than a year of operation.

As a partner with Kleiner Perkins for the past 20 years, John Doerr has had a front-row seat to all of this. He led the charge to invest in companies such as Compaq Computer, Sun Microsystems and Intuit, and he sits on the boards of Amazon, Handspring and Martha Stewart Living Omnimedia, among others.

In an interview last week in San Francisco, Doerr talked with CNET News.com's Troy Wolverton about the market boom and bust, and about Kleiner Perkins' investments.

CNET News.com: Is there anything today you wish you had invested in that you didn't invest in?

Doerr on having no regrets

Doerr: Sure. eBay would be an example. We were early passive investors in Onsale. I knew one of the founders of eBay, but they chose not to come to us because Onsale was in an auction business for PCs.

You can't make all the great investments. I wished we had invested in Yahoo. I think that's a really great company, even though its stock has been pummeled recently.

But if you look at the success and luck we've had with Internet investments, we're real pleased with our record, whether it's Netscape or Excite or @Home (now Excite@Home) or Amazon or VeriSign. These are terrific companies that are leaders in their business and are going to be permanent players in the Internet economy.

If we're looking at consumer e-commerce, which companies that you have invested in are winners, besides Amazon?
Well, there are lots of them. I won't be able to name them all, but we're really happy with how everything from Drugstore.com to Martha Stewart to Zagat to Greenlight to any one of the four or five others. Homestore.com is doing incredibly well. WebMD, I'm really thrilled how that effort to go serve consumers with medical information and services is going.

Any companies that you wish you hadn't invested in?
(Long pause.) No, in fact. Looking back at the decisions we made, some are better than others, but there's not any that I regret.

I look at a decision like deciding to invest in Google. Others in the venture community thought that (Sequoia Capital general partner) Mike Moritz and I were crazy at the time that we'd invest in another search engine or search capability at that stage, and further that we'd pay the allegedly high price that we paid for the business.

But Google is rocking, it's firing on all cylinders. It's got a superior service. They're within a quarter or two of being profitable. They're not, in my view, vulnerable to the meltdown in banner ad revenues. They've got a very targeted, different economic proposition for enterprises as well as consumers. And so I think Google is going to work fine.

What about Kibu?
Well, Kibu came to my mind and I decided I don't regret backing Kibu

Doerr diagnoses the market crash

because I really think the world of Judy MacDonald, the CEO. And I think at the time that we made the investment, it looked like it was worth trying their plan to see if they could build a targeted community of teens and find sponsorship for teens, particularly teen girls.

There's no point in having people waste their lives on a project that is not going to make a difference. And those are good people, so they've moved on to other good projects.

It's like when Go failed, our famous pen computing project. The founders of Go went on to build Netscape and run Intuit and be the CEO of VeriSign.

It's good people you'd want to stay in a relationship with, keep backing, even after a venture fails.

What's your diagnosis of what has happened over the last two years? You had a lot of investment, you had a big crash. What's the inside word on what happened?
Well, there was extraordinary growth. Let's start there.

When we first posted the Mosaic browser that later became known as Netscape, in our wildest dreams we thought we might have 10 million users by the end of the year, but we had 20 million that year! And I remember sitting around in '95 with both journalists and entrepreneurs saying, "Wouldn't it be fantastic if there were 100 million regular users of the World Wide Web by the year 2000?"

We were low by a factor of two--there were 180 million at the beginning of this year. We've got a billion Web pages. We're adding them at the rate of a billion a year. These are big numbers and incredible, unparalleled growth.

Now what else has been going on? There's been too much venture capital. There have been bad ideas funded. Bad plans, bad investments have been made. And you can't sort of sweep them under the rug of, "Well, you're supposed to take risks."

Venture capital is about taking risks, but in a really disciplined way. And it's not a smart risk to take a URL and an MBA student who has no operating experience and a 30-page business plan that doesn't have a clear value proposition and fund it.

So one of Kleiner's laws has always been that you want to get the risk up front, out of the way early. You prefer to take technical risks (rather) than market risk. And when you stick to those rules of investing, you'll have some investments that fail and some big swings at the plate that look in hindsight embarrassing, but overall you'll maximize the probability that you can help entrepreneurs make really big, important companies.

Let's talk about one of those companies. Where do you see Amazon right now? And how do you assess the job (Amazon chief executive) Jeff Bezos is doing?
I think Jeff's doing a spectacular job at Amazon. In reverse order, Amazon is well on its way to being an important durable, global, multibrand Internet company that obsesses on the customer experience.

Jeff would tell you that he has not yet built a lasting, durable company. And they have a lot of work to do. Profits are the ultimate proof of that, right? But I'm confident as I'm talking to you today that Amazon will be a profitable company and a durable and important player in the worldwide economic scene.

Is there any sense that the venture capital community has some responsibility for what has happened to the market in terms of the money that investors lost?
I don't think the venture capital community is responsible to the market. The venture capital community doesn't drive Nasdaq. That's a market of willing buyers and sellers. Underwriters have to approve taking companies public. Individuals have to choose to invest.

Doerr on venture capitalists' responsibilities

I do think venture capitalists have a responsibility, though, to the companies they invest in and the stakeholders in those companies. And those responsibilities are pretty simple. They are to make sure that you have a good management team in place and that the venture is well-funded.

But the strategy really ought to come from the team, unless the venture firm has incubated the idea itself. Unless one of the venture capitalists goes off to run the company...which happens occasionally. And the execution depends on the team.

So I think there's been far too much attention paid to--and press written about--the role of venture capitalists. We're really in a service industry assisting entrepreneurs who are driving, creating, controlling these companies.