BOSTON – If Bill Kaiser were not a top-flight venture capitalist for Greylock Partners he would probably be an elementary school teacher somewhere in Massachusetts. In Kaiser’s view there is a strong correlation between the two fields, as each requires a passion for learning and the desire to make a difference.
“I think the very best venture capitalists are the ones who don’t get confused between who is the primary actor in the play and I think that’s akin to teaching,” he says. “The great venture capitalists that I have observed teach via the Socratic method. They ask questions. They don’t ask these questions to show off how smart they are, they ask these questions because they don’t know the answer and because they believe it’s a question that is important for the entrepreneur to be thoughtful about.”
Unlike some in his business, Kaiser says there are no investments he regrets having made, because even the not-so-great deals are instructive. “It is an old saw, but failure is the greatest teacher…one of the great things about being a venture capitalist is that you go to school everyday. There is never a day that I am bored or I have trouble getting out of bed,” he says.
Kaiser will have plenty of opportunities to teach entrepreneurs and work with developing companies, as Greylock announced the recent close of its latest vehicle, the $1 billion-plus Greylock XI LP. The firm, which focuses on early-stage technology plays, had no trouble putting together a new vehicle despite the difficult fund-raising climate because of the sustained support from its existing limited partners, Kaiser says. “Raising a new partnership…is a little bit like passing the hat around the table, so it is not really a big, discreet event for us,” he says.
A Team Effort
Founded in 1965 with offices in Boston and San Mateo, Calif., Greylock has kept a decidedly low profile over the years, Kaiser notes. “We are really trying not to emphasize the individual partners so much as we are trying to emphasize the firm and it collective strengths,” he explains.
Greylock has traditionally focused on communications and enterprise information technology deals, while also making opportunistic investments in other promising areas, including health care and biotech, Kaiser says.
The firm likes to be the first outside capital into a company and does not shy away from backing a true start-up. “We are not hesitant to get involved with something that isn’t all baked and is really just an idea it can be a set of people we think are outstanding,” he adds.
While Kaiser resists being pigeonholed in regard to his investment focus, he does admit a majority of his deals have been in security technology and digital media.
In the process of scouting for deals, Kaiser says he tries to avoid the lemming instinct that is often present in the VC world, when certain sectors and technologies become popular areas for investment. “I try to read things that are not looking in the rearview mirror, but are trying to look forward. I think the great investment opportunities are made when you are slightly ahead of the pack,” he says. So while most VCs talk about how many business plans their firms are sent in a given month, Kaiser will cold-call companies he thinks present interesting investment opportunities.
This approach has produced what he calls his three-mention rule. “When I read about a company or a technology area three times that I have never heard about previously, I force myself to drop everything I am doing and contact that company or go research that area,” Kaiser says. The three-mention rule has proven to be useful strategy, resulting in investments like Internet security software company Raptor Systems Inc., which is now a part of Symantec Corp., he adds.
With a Little Bit of Luck…
Choosing which companies to back and which to pass on is the dilemma at the heart of the venture world. When it comes to picking potential winners, Kaiser says he looks for outstanding entrepreneurs who he can have a solid working relationship with. “Part of that is also an x-factor – a tenacity and a desire to be successful – which you recognize in certain entrepreneurs that they are not there necessarily just because they want to get wealthy and go to the beach. They are there because they want to change the world,” he says.
However, even when a VC finds a seemingly perfect deal that blends committed entrepreneurs and forward-looking technology, it is by no means a guarantee, Kaiser cautions. Sometimes a portfolio company’s success or failure comes down to luck. “People don’t admit it, but there is a tremendous amount of good fortune and bad fortune, depending on the case,” he adds.
Perhaps because of his feelings about the role of luck in the venture business, Kaiser says the deals he remembers most fondly were not necessarily the biggest winners. “I tend to be most proud of a child who has struggled and who perhaps almost didn’t make it or had a difficult childhood or whatever and sort of got off-track a little bit,” he says.
For example, he points to Mainspring Inc., a digital business strategy consulting firm that recently agreed to be acquired by IBM Corp. “That was a company that re-invented itself twice along the way; and in a very, very tough environment for Internet strategy consulting firms was able to create a successful outcome for themselves and their employees through the sale to IBM,” he adds.
The Road Ahead
As the venture industry recovers from the post-Internet bubble, Kaiser suggests the more established venture firms will focus on their portfolios and keep dry powder on hand, in case it becomes more difficult to raise subsequent financing rounds. As public market volatility calms down, he noted VCs will become more confident in their ability to price rounds. “If you are in a tremendously volatile environment it is very difficult to know what a fair value is for companies,” he says.
Kaiser remains committed to being the most informed and the most helpful venture capital director who is involved with that company and to do whatever it takes that is legal and ethical to help a company be successful,” he says. “And if I do that, I have done all I can do. Then the luck factor kicks in.”