Markets & Finance

VC Goes PC


In Silicon Valley, few venture-capital firms have developed as legendary a status as Kleiner Perkins Caufield & Byers. Over 30 years, it has provided money and assistance that has produced such companies as Google (GOOG), Amazon.com (AMZN), Symantec (SYMC), Sun Microsystems (SUNW), and Genentech (DNA). So when the firm announced on Feb. 16 that it had raised its 12th fund, other VCs and entrepreneurs listened for hints of how the trendsetting partnership will invest its latest hoard.

At $600 million, the 12th fund is 50% larger than KPCB's 11th fund, which the firm raised in 2004 and invested in a swift two years. For the first time, the partners have earmarked $100 million of their fund for investments in what they call "green tech" -- clean and affordable energy, water, and transportation technologies (see BW Online, 1/13/06, "Kleiner Perkins Energy Startups Soon to Shine"). And in another first, KPCB has raised a separate $200 million fund to invest in companies that are fighting worldwide pandemics (see BW Online, 11/17/05, "Prevent a Pandemic, Make a Profit").

The most striking change, however, is in the human face of KPCB. Four partners who presided over the firm's investments during the ultra-lucrative Internet boom of the late 1990s chose not to participate in the latest fund. In their place, KPCB has added six new partners, swelling its ranks to 19. And several young partners who apprenticed on the last fund are stepping up their roles on the new one. BusinessWeek correspondent Justin Hibbard spoke recently with KPCB's Brook Byers -- who has been with the firm for 29 years -- and new partner Dr. Beth Seidenberg. Here are edited excerpts:

Tell us about your strategy for investing your 12th fund.

Byers: Over a three-year period we'll look to invest the fund in roughly 40 companies across a set of industry sectors that include mobile computing, Web-enabled software, biotech, medical devices, semiconductors, and then an area that we are highlighting this time that we call green tech, which is new energy sources and things like that.

In this fund, you've added six new partners, and four previous partners have moved on. What can you tell us about the personnel changes?

Byers: Every time we raise a new fund, these are 10-year partnerships. And so people have to decide whether they want to sign up for another ten years. Some people say no. But everyone who has been a partner here before, whatever they go off to do, they only invest in tech with us. So it's a very loyal, cohesive set.

In the past, people at your firm had titles that implied rank: associates, principals, partners, and managing partners. But in the new fund, everyone's title is partner. Has there been a change in the structure of the partnership?

Byers: It's kind of semantics. What we've learned is we work in teams. Venture-capital firms are not like companies where titles matter. So we've done away with them. In a venture firm, you don't need them, so it's not really relevant.

Do the new partners you've added reflect a new investing strategy?

Byers: The people we've added since the last fund -- for example, Dr. Beth Seidenberg had a career at the National Institutes of Health (NIH), Merck (MRK), Bristol-Myers Squibb (BMY), and Amgen (AMGN), and then joined us a year ago. It's that kind of person, a real veteran of the industry, whom we've attracted. Same goes for Dana Mead, who was president of Guidant's (GDT) vascular-intervention division. And Bill Joy, who was chief scientist at Sun Microsystems. And Randy Komisar, who has been CEO of LucasArts Entertainment and Crystal Dynamics, and so on. These are people who fit into those investment strategies that I mentioned earlier.

Is green tech a new area of investment for you?

Byers: We have been investing in green-tech-type companies for about five years, but like a lot of companies in tech today, they wanted to remain quiet, or stealth, because they're in their R&D phase. But some of them are beginning to announce themselves. For example, there's a company, Miasole, which is working in solar cells, using a unique coating technique that will allow for more flexible solar cells and get beyond silicon. And a very innovative fuel-cell company that will be announcing itself sometime this year. We think there's a confluence of technologies and market dynamics that allow for green tech to really take off now.

Another new area for you is pandemics. What was the catalyst for starting a fund dedicated to that problem?

Byers: As we were doing our strategic planning last year, it became obvious to us that worldwide infectious diseases and the innovation toward stopping them have huge gaps in four basic areas. One is surveillance and detection. The second is diagnostics, both rapid and confirmation. The third is vaccines, novel concepts, and manufacturing methods. And the fourth is drugs such as antivirals. This is where venture capital plays a role.

Government does a good job of funding and calling attention to areas for basic research, and the public-health systems do a good job of delivery, but it's the private sector that develops the products, and venture capital has a good role when innovation is needed. So we decided to raise a specific fund to call attention to this need for innovation. And it has been a remarkable response from the scientific and entrepreneurial community. We've been approached by hundreds of people from around the world who want to help.

Do you plan to invest the pandemic fund mostly in companies that are already developed?

Byers: We'll take it wherever it comes. It's important first to not do what other people are doing well. We've gone around the world and talked to leaders at the United Nations, the World Health Organization, the Centers for Disease Control, the Department of Health and Human Services, big pharmaceutical companies, little biotech companies, and universities.

If large companies are working on part of the problem and doing it well, then we don't do that. But if we can find an existing company, say a young innovative company that is waiting for a government grant or has an additional program that could work on avian-flu pandemic or other emerging infectious diseases, then our investment plus our expertise could make a big difference to them. We've been doing drug-development innovation for 30 years. So we'll invest quite a bit in existing companies. We may do a couple of startups where we just can't find anyone working in one of these areas.

Dr. Seidenberg, you've worked in big pharma. Are large drugmakers addressing these kinds of pandemics?

Seidenberg: We're encouraged by what we're seeing, particularly from the vaccine makers now. The companies that are in the flu-vaccine area are putting more resources and focus on making vaccines in cell lines instead of in eggs. So that's very encouraging.

We'd like to see more work in newer, real innovative types of manufacturing, or new types of vaccines as one example, and we believe those are the areas where young, innovative, entrepreneurial companies will probably fill some gaps. We hope over the long run that the larger pharmaceutical companies will be interested in potentially partnering with the smaller companies.

What form might those partnerships take?

Seidenberg: It depends on what the company needs. A lot of the large companies have expertise in large clinical trials, implementation or execution, commercialization of product, and distribution. We hope they'll be important partners in the long run.

Will you work with government, too?

Seidenberg: I think it will be a collaboration on that front as well. The NIH and the universities around the country, many of which are funded by NIH dollars, are doing a wonderful job at basic research and discovery of new opportunities, whether it's targets or new ways of treating disease. We hope that we'll be able to coordinate or collaborate with them as their technology matures. The companies we're investing in, or new companies that we start, can then take that research platform and develop products.

Do you have any special insights into which areas are ripest for innovation?

Seidenberg: We have a team of experts who are advising us. They're the ones who can tell us what's emerging and what areas they need innovation in. Clearly, avian flu and annual influenza are areas that have been starved for innovation for decades.

We believe -- and the experts have told us -- that if we can find new innovation to help every year make vaccines faster, have more antivirals, have better diagnostics, we can make a difference. We'll ask these same advisers to keep us posted on what other emerging infectious agents they're worried about, and hopefully the technology we're investing in will be applicable in those areas as well.

One of your advisers is former Secretary of State Colin Powell. Is he involved in the pandemic initiative?

Byers: Yes, he's one of the people who really encouraged us to do this in a bold way. He's a strategic adviser to us, and helps coach our CEOs and management teams on leadership. One thing he helps us do is keep a global perspective.

One of the things to understand about public health is that there really are no boundaries. If you look at the avian-flu situation right now, every day when you read the paper you realize that birds don't recognize boundaries. We hope a pandemic never happens. If it does, because of international travel and the fluidity of movement around the globe now, it would travel very quickly and be very serious.

What are the most urgent threats to public health right now?

Byers: There are a lot of them. The experts tell us there are literally two dozen new infectious diseases that have come on the scene for humans since 1970. HIV is of course a tragic one, and still needs innovation. And SARS, avian flu, Marburg, Ebola, and on down the list. There's no telling when any of these will become more problematic.

Are you coordinating your efforts with public-health organizations?

Byers: Yes, it's not just about innovation. It's also about supporting the organizations that are working on all this worldwide: the U.N., the World Health Organization, the World Polio Surveillance Network. These are all great organizations. And we're encouraged that our own government's Health and Human Services (HHS) department is really organized well and thinking about this.

Congress passed a $3.8 billion appropriation back in January, and they're considering more. That's to be allocated by HHS. We're encouraged by that. And our hope is that our example will stimulate other venture-capital firms, organizations, advocacy groups, and international groups to get more involved in these areas. It's a noble cause.


Steve Ballmer, Power Forward
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