Four Longtime GPs Dial Back in KP’s New Fund –

Like a storied sports franchise, Kleiner Perkins Caufield & Byers is showing signs of age after a long string of championship seasons.

The firm’s 11th fund will be considerably smaller than its predecessor, both in size and in number of general partners. Five of the 10 general partners in KP’s 10th fund will not continue in that role in the new vehicle, which has a target of $400 million.

Kevin Compton, Will Hearst, Vinod Khosla and Doug Mackenzie – who have collectively been with KP for more than 50 years – will not be “managing partners” (also known as general partners) in the new fund. Instead, they will be “partners” in the fund. The four men will “work exclusively with the new KPCB fund on technology investing, while also planning to spend more time with family and on personal causes,” according to a statement issued by the firm. Tom Jermoluk, who came aboard as a general partner in Fund X, will not participate in the new fund.

VCJ sister publication Private Equity Week broke the news of the change in the general partnership on Feb. 26, citing a Form D that KP filed with the Securities & Exchange Commission. A Form D is a legal document filed by venture firms to let the market know that a fund has sold securities in a private placement.

There was barely a murmur when it came to light that Jermoluk had left the firm. But the fact that four longtime GPs would be cutting back caused such a stir that KP issued a rare press release, and its heavy-hitters got on the phone to reporters to do damage control. The firm’s GPs had previously declined to comment, citing concerns about SEC restrictions on speaking to the press during fund-raising.

“Some roles shift in each new fund,” John Doerr, the firm’s best-known partner, said in interview with PE Week. “The team of KPCB XI partners will continue our work together to serve entrepreneurs.”

The fact that Compton, Hearst, Khosla and Mackenzie won’t be GPs in Fund XI means that they “have not committed to be active in the management of Kleiner Perkins XI, i.e. making new investments on behalf of the fund,” says a veteran Silicon Valley venture capitalist who asked to remain anonymous.

That doesn’t necessarily mean that Khosla and the others won’t make any new deals, but they won’t be required to, the source says.

The six general partners in the new fund will be Doerr, Brook Byers, Joe Lacob, Ray Lane, Ted Schlein and Russ Siegelman.

A big change in the lineup of a general partnership could spell the death of a lesser-known fund without a track record. But because the firm in question is KP, the changes aren’t expected to make a big difference. The firm has backed so many startups that have gone on to fame and fortune – including Amazon, Genentech and Google – it will likely remain a magnet for entrepreneurs pitching new ideas no matter what GP is on the roster.

“They’re losing some outstanding guys, but the franchise will endure and continue to succeed,” says the Silicon Valley VC who asked not to be named. “Kleiner Perkins was great before Vinod Khosla got there and it will be great afterward. Tom Perkins’ greatest legacy is the institution that he helped create.”

In an apparent move to show that Khosla, 49, one of its most successful partners, is still very much engaged, KP said in a statement that, “The fund’s first investment will be in a new electronics venture where Partner Vinod Khosla will join its board of directors.” It did not disclose the name of the startup or the amount invested. A source says that Khosla brought the deal to KP.

“I expect to be quite active as a Kleiner partner, continuing to deliver venture assistance’ – more than venture capital,” Khosla said in an interview with PE Week. He declined to give any detail about how he would spend his personal time or comment on reports that he would pursue philanthropic interests in India, where he was born.

Khosla joined KP in 1986. He ranked second on Forbes’ “Midas List” this year, down from No. 1 last year. A co-founder of Daisy Systems and Sun Microsystems, Khosla made his fortune largely by investing in telecom equipment companies Cerent, Corvis, Extreme Networks, Juniper Networks and Siara Systems.

Another question that was still open when VCJ went to press was whether KP would follow in the footsteps of Sequoia Capital and Charles River Ventures, which kicked out or didn’t invite public LPs into their new funds because some public LPs have disclosed their private equity performance numbers to the public. The University of California, which has been an LP with KP since at least its second fund, was forced by a judge last year to release internal rates of return for the private equity funds in which it is an investor (see “UC Relents, Gives Up PE Performance Data,” November 2003 VCJ).

KP did not lay the issue to rest when it issued its statement about Fund XI. “The institutional limited partner investors in KPCB have remained largely unchanged over the past two decades,” it said. A partner declined to say whether UC or any other public LP would be allowed into the new fund, which still had not held a final close as of March 10.

The Form D filed with the SEC for Fund XI lists two limited partners: Harvard Management Private Equity Corp. and Yale University. The document identifies them as “beneficial owners,” meaning they have committed at least 10% of the limited partnership interests, or at least $18.2 million apiece.

A total of 25 investors made commitments to the fund, but the names of the other 23 are not listed in the From D because they made commitments of less than 10% of the total.

Besides UC, the other name that was noticeably absent from the beneficial owners list was Horsley Bridge, a fund-of-funds. Horsley and UC were listed with Harvard and Yale as beneficial owners in a Form D filing for Fund X. An SEC filing for that vintage 2000 fund showed that KP was raising a fund targeted to be $1.4 billion and that Harvard, Yale, Horsley Bridge and UC had each put up at least 10% of the $199 million raised. That document was dated June 29, 2000.

In the Form D for its new fund, KP lists the target amount as $500 million and shows that LPs had committed $182 million as of Feb. 12. In its statement to the press, KP said Fund XI “is a $400 million fund.”

It is unclear how management fees and carry on the fund will be divvied up between those who remain GPs and those who will not be responsible for actively making new investments. It depends on the culture of the firm and individual circumstances, industry sources say.

KP will continue to be a relatively large firm. It has six managing partners, six partners (including John Denniston and Juliet Flint), one principal (Matt Murphy), and four “associate partners” (Aileen Lee, Ajit Nazre, Risa Stack and Trae Vassallo).

Two sources close to KP say that Compton, 44, has been mulling retirement for some time. One source says that Compton, who has been a general partner with KP since 1990, has entertained thoughts of “teaching 7th grade algebra.” Compton sits on the boards of Citrix Systems (Nasdaq: CTXS), KnowNow, Kodiak Networks, Intersperse, Verisign (Nasdaq: VRSN) and Volterra.

Hearst, 53, joined KP in January 1995, after serving as editor and publisher of the San Francisco Examiner for 11 years. His board seats include Applied Minds, Juniper Networks (Nasdaq: JNPR), Oblix, OnFiber and RGB Media.

Mackenzie, 44, joined KP in 1989 and became a general partner in 1992. He is a director at E.piphany (Nasdaq: EPNY), Instant802 Networks, Marimba (Nasdaq: MRBA), Omniva Policy Systems, Scintera Networks and the WeddingChannel. Mackenzie participated in the “Return of Venture Capital” panel for investment bank JMP Securities in early March. He spoke mostly about consumer technology trends. Asked after the panel what his new role will be at KP, he declined to comment.

KP said that Jermoluk, 47, who joined as a general partner in 2000, “elected to leave the firm to return to an operating role. Tom continues to serve on several KPCB portfolio company boards, and the firm looks forward to calling on his expertise and insights.” Jermoluk is no longer listed on KP’s Web site.

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