• Hummer Winblad Reboots

    Screen Shot 2015-04-06 at 9.25.39 AMLike many venture firms founded before the last tech boom, the San Francisco-based outfit Hummer Winblad Venture Partners seemed, for a time, to be staring death in the face owing to the market’s implosion, uneven returns, and a drawn-out lawsuit with two major record labels over its 2000 investment in the now defunct file-swapping service Napster.

    The 26-year-old firm made it through the to the other side, though, and today, it’s in seemingly good shape, newly rebranding itself as HWVP and, this morning, launching a snazzy new site to mark the occasion.

    The changes are more than cosmetic. HWVP is, like other firms of its vintage, a lot smaller than it used to be. The firm once employed a deep bench of managing directors and associates. Now it employs three managing directors: Mitchell Kertzman, a serial CEO (Liberate Technologies, Sybase, Powersoft Corp.) who joined the firm 12 years ago; Lars Leckie, who joined the firm a decade ago and was promoted to managing director in 2011; and Steven Kishi, who has spent the last 20 years bouncing between Hummer Winblad and various operating roles. (Most recently, Kishi was VP of product management at the cloud services company Altiscale.)

    Even firm cofounders John Hummer and Ann Winblad are no longer “managing directors” but are listed at the new site instead as “founding partners.”

    The amount of capital that HWVP has to invest is far less, too. The firm closed its sixth fund with $201 million in late 2007, down from the $424 million it had raised for its fifth fund in 2000.

    Leckie suggests the firm will look to close its next fund with between $105 million and $150 million. (Leckie declines to discuss HWVP’s specific fundraising plans, but he offers that he believes that “small, focused funds do the best by their investors,” saying he thinks that “$35 million to $50 million” per partner is ideal.)

    The firm’s prospects would seem pretty promising. Though forced to retrench, HWVP has never veered from its core thesis of investing in enterprise software companies. And while it missed the consumer wave as a result, its bets look pretty prescient right now. For example, the firm was the first investor in the 11-year-old, SaaS-based sales platform InsideSales, which last month raised $60 million at a valuation north of $1 billion. (The company has raised $200 million altogether.)

    That bet alone will “return our [sixth] fund,” says Leckie, who says that HWVP owns “two times what everyone else owns” of the company.

    HWVP is also among the earliest investors in Five9, MuleSoft, and Birst, among others. Five9, a San Ramon, Ca.-based call center company, went public last year. (Its market cap is $272 million, as of this writing.) MuleSoft, the San Francisco-based integration platform for connecting enterprise applications in the cloud, has raised well over $100 million from investors, closing its last round of $50 million last year at a post-money valuation of $800 million. Meanwhile, Birst, a San Francisco-based business intelligence and analytics business, just raised $65 million in Series F funding last month, bringing its total funding to $156 million. (Leckie declined to discuss its valuation.)

    Of course, mark-ups are one thing. Actual exits are another. It remains to be seen whether HWVP will see the profits it’s expecting, particularly given the widening gap between the number of richly valued late-stage, still-private companies and those going public.

    Perhaps unsurprisingly, Leckie is highly optimistic about the firm’s odds. “We’re having a kick ass first quarter,” he tells StrictlyVC. “Valuations will fall where they fall. But it is a very good time to be quietly investing in enterprise and SaaS infrastructure.”

    Luckily for HWVP, it’s been doing it for years.

    Connie

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  • The “Fuzzy” Logic of Venture Partnerships

    JOHN DOERR AND ELLEN PAO AT COURTHOUSEThe gender discrimination and retaliation case of Ellen Pao versus Kleiner Perkins Caufield & Byers has enthralled Silicon Valley in recent weeks, with everyone now focusing on what a jury that’s set to begin deliberations will decide.

    But one of the many, bigger questions the trial has raised is whether it will impact how venture capitalists nurture talent and groom junior people to become partners.

    If it isn’t top of mind for many partnerships, it should be.

    On the stand last week, Kleiner Perkins general partner Matt Murphy described the promotional path at the storied firm as “fuzzy,” explaining to jurors that when he’d come aboard in 1999, you “just weren’t going to become a partner. You stayed two years, then you went to an operating company.”

    As Murphy and then-colleague Aileen Lee were promoted to more senior roles, a “fuzzy process” of promotion began to develop that led to less collegiality and more self-interested maneuvering at the firm, Murphy testified.

    That murky process also played a starring role in Pao’s lawsuit, which is why Joseph Sellers, the head of the civil rights and employment practice group at Cohen Milstein in Washington, D.C., suggests partnerships adopt a more structured promotional path than many feature today.

    Explains Sellers: “There are certain types of workplaces where the path to advancement isn’t as well defined as others, and in some people’s minds, that might look to provide some protection; with a poorly defined path, it’s harder to hold people accountable for decisions.” The reality, adds Sellers, is that “what might be legitimate grounds on which to deny somebody advancement could be perceived as being influenced by something impermissible.”

    Asking venture firms to be more transparent about how they choose general partners is easier said than done, of course. When it comes to the promotional paths of most firms, it’s “part fraternity, part sorority rush,” notes Cliff Palefsky, a top employment and civil rights lawyer in San Francisco. “It’s always a question of: Who do you want to hang out with?”

    Murphy told jurors last week that promotions at Kleiner depend on a “critical mass of partners within the firm who are saying, ‘We want this person to be promoted . . . There have to be enough people around the table who want this person to be a partner and to work with them for a long time.”

    Given that partnerships typically last at least 10 years and involve shared economics, it’s understandable to a point, too. “There’s very much an are-you-like-me orientation that comes into play in a small partnership,” says Palefsky. “Who do you trust? Who do you go to battle with? Those are the kinds of things that sunk Ellen. No one trusted her.”

    The irony is that Pao – as well as Trae Vassallo, another female partner who is no longer actively investing on behalf of the firm – have been revealed as big money makers for Kleiner, even if they didn’t quite fit in longer term.

    If Pao had gotten her way, Kleiner would have backed Twitter years earlier than it did and made a far richer return. She also lobbied to invest in RPX, a company that later enjoyed a successful offering, and Climate Corp., a company that was acquired seven years after its founding for roughly 10 times what investors poured into it. (Kleiner invested in RPX; it passed on Climate Corp.)

    Vassallo, meanwhile, played a key role in Kleiner’s investment in Nest Labs, which sold to Google for $3 billion last year. She also led the firm’s investment in Dropcam, the camera company that sold to Nest Labs for $550 million last year. (According to two sources, Dropcam liked Vassallo so much that Kleiner’s investment in the company was contingent on securing her as a board member.)

    Says Palefsky: “One thing this trial highlighted is how men and women can be held to a different standard without people realizing it, and how you can be a successful venture capitalist without being an identical twin to the person who came before you.”

    Helping startups with strategic decisions and recruiting is great, but “you can be great on the board of a company that’s failing,” he says. Ultimately, he says, “What matters is whether the fund goes up or down because of how well you can analyze a business. And there’s zero reason a man would be better than a woman in doing that.”

    Connie

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  • In Kleiner Case, Question of Retaliation Moves Front and Center

    Matt MurphyYesterday, Paul Gompers, a Harvard Business School professor, testified that Kleiner Perkins has one of the best records in venture capital when it comes to the number of female investors it employs. Gompers had taken the stand as an expert witness of behalf of Kleiner, which is currently fighting a suit brought against it by former junior partner Ellen Pao, who says she endured gender discrimination at the firm and was retaliated against when she complained about it.

    While Gompers’s testimony cast Kleiner in a flattering light, it’s likely that his statements – and those of numerous others – will prove far less important to the case than those of Matt Murphy, a general partner at Kleiner who finished his testimony yesterday shortly before Gompers was sworn in. The reason: retaliation claims are often easier to prove than discrimination claims, and several things surfaced in Murphy’s testimony that may give jurors pause. Among them, Murphy, who worked closely with Pao, said that he didn’t begin taking extensive notes about Pao’s performance until days after she filed her lawsuit against the firm in May 2012. Murphy also acknowledged that Pao was given 60 days to save her job in July 2012. (She was asked to leave at the end of that period.)

    In two days on the stand, Murphy denied any hint that Kleiner retaliated against Pao after she filed her very public suit. Murphy said he’d experienced “various episodes of friction” with Pao over the years and had long viewed her as “overly opinionated.” Asked by jurors what he meant, he said that Pao sometimes drew conclusions about investments too quickly and without enough information. He added that it can be “common with junior partners, because you’re associated with whether an investment gets done” rather than “whether it should have been made.”

    Murphy also suggested that Pao lasted as long as she did at Kleiner only because of general partner John Doerr, who Pao had served as chief of staff in her first years at the firm. “John was very protective of Ellen and she felt protected, and that was a dynamic that persisted for some time.”

    Still, jurors had plenty of pointed questions for Murphy, including whether the 60-day performance plan that Pao was put on in July 2012 was “fair.” At the time, Pao was asked to improve on several fronts, including to be sought out as a team member, be a good networker, and to demonstrate so-called thought leadership.

    “It’s not that we’d expect definitively that you’d see black and white [change] in 60 days [given that] she had all these issues for six years,” said Murphy. “But we wanted to give her very concrete feedback and see how she responded. Did she suddenly start sourcing more ventures, be collaborative, work more with [general partner] Mike Abbott, go down the list of things we talked about? Was there a real change and did you see — was it visible — that she was behaving differently, trying harder, being proactive – all those kinds of things? If we’d seen those things after 30, 45, 60 days, we obviously would have extended it, but we did not see meaningful change in her behavior.”

    Murphy’s testimony seemingly led Kleiner into tricky terrain. For example, though Murphy described the objectives set forth in Pao’s performance plan as “concrete,” jurors might see them as subjective. “How do you prove you had a better attitude?” says Gary Phelan, an employment attorney with the East Coast firm Mitchell & Sheahan and the chair of the Connecticut Bar Association’s labor employment section.

    In situations like Pao’s, says Phelan, “The employer is both the accused and the judge of whether you’re trying hard enough.”

    Murphy also argued that Pao was difficult and didn’t understand her role as a junior partner, but her reviews leading into 2012 contained both positive and negative feedback, as did other partners’ reviews. Her compensation remained stable, too. For example, in 2010, Pao earned $362,250, with an additional bonus of $150,624 (or roughly $513,000 altogether). In 2011, Pao was paid a base salary of $380,000 base salary, with a bonus of $136,800 (or roughly $517,000).

    Speaking generally, notes Phelan, “If you were rated an exemplary employee, then you complain, and the next thing you know, you’re getting a poor review, that’s evidence of retaliation.”

    The biggest problem for Kleiner could boil down to timing. Says Phelan: “When after somebody complains about something, and all of a sudden, there’s a paper trail where [the employer] is resurrecting things from the past, that in itself is enough to show retaliation — even if maybe the employer should have been [taking notes] before.”

    Sometimes, Phelan adds, employers “kind of tolerate things for a long time.”

    Connie

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  • For Jeff Clavier of SoftTech VC, a New Partner and Some Deja Vu

    Jeff ClavierBeginning next month, the Bay Area venture firm SoftTech VC will undergo a management change, with partner Charles Hudson beginning a transition out of the firm to start his own fund, and a new venture partner, Andy McLoughlin, who cofounded the enterprise collaboration startup Huddle, joining full time to focus on business-to-business opportunities.

    For SoftTech founder Jeff Clavier, it must feel like a bit of déjà vu. It was 11 years ago, working for the venture arm of Reuters, that Clavier decided to gamble on himself and strike out on his own. SoftTech has since grown from a one-man operation into a well-regarded early-stage investment firm with more than 160 investments to its name and four funds, including an $85 million pool that it closed on last year.

    As the firm has evolved, so has its mandate. “Something like 500 companies now ping us every quarter, and we invest in four or five,” Clavier says of the firm, whose average check size today is $750,000. Not only does SoftTech “have the luxury of trying to get the right level of signals before we invest,” he adds, but the firm’s LPs expect it.

    That evolution has made it harder for Hudson to chase the nascent ideas about which he’s most passionate, acknowledges Clavier, who recruited Hudson into SoftTech as a venture partner in 2010 and promoted him to partner in 2013. In fact, says Clavier, Hudson decided several months ago to raise his own, “pre-seed” fund, an effort that Clavier says he fully supports. (Owing to SEC rules, Hudson can’t talk yet about that fund, but we’ve learned that its brand, for now at least, is Precursor VC.)

    It will be a gradual move out of SoftTech for Hudson, who is expected to manage his startups through the end of the current fund’s investing period, in the summer of 2016.

    In the meantime, notes Clavier, McLoughlin brings SoftTech far more expertise in enterprise startups as it looks to shift more of its capital from business-to-consumer startups to businesses catering to other businesses.

    Not only has McLoughlin been scaling his own enterprise business first-hand at Huddle (which remains privately held), but he has made more than 35 investments as an angel investor over the last five years, many of them on exactly the types of companies that SoftTech has grown more interested in funding. Among those bets is Apiary, a San Francisco-based company whose tools help companies build, test, monitor, and document web APIs; and PipeDrive, a maker of sales pipeline software that’s based in Menlo Park, Ca.

    “Charles and I had in mind to bring in a new investment professional [who], on the one side is a SaaS cofounder who has seen different levels [of growth] over many years, and [on the other], is someone who can help set up sales, marketing, and customer success [for our startups],” says Clavier.

    “From that standpoint — and many others — Andy is a score.”

    Connie

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  • Mary Meeker Goes to Bat for Kleiner — and Ellen Pao

    Mary MeekerIn a San Francisco courtroom yesterday, Mary Meeker, the star investment analyst turned general partner at Kleiner Perkins Caufield & Byers, took the stand, testifying that she has not experienced discrimination at Kleiner and calling the firm the “best place to be a woman in the business.”

    Kleiner is currently fighting charges of gender discrimination and retaliation by former junior partner Ellen Pao, and Meeker was called as a witness for its defense. In addition to testifying that she had never personally experienced discrimination at the firm, Meeker said she has not been excluded from Kleiner Perkins events because of her gender. She also said she hasn’t observed any gender discrimination at the firm.

    Meeker likely left an impression on jurors, particularly given her impressive career, from her early days at Morgan Stanley to her 19-year rise within the powerful investment bank, where she ultimately became the head of its global technology research practice.

    “I had a pretty good track record of finding things before others could see them,” said Meeker, pointing to companies she’d covered from almost their outset, including Microsoft, America Online, Google, Netscape, and Alibaba. In fact, Meeker said yesterday, Kleiner had “recruited me off and on for about a decade for a whole host of things.” (She finally joined the firm in December 2010.)

    Defense attorney Lynn Hermle had asked Meeker about her background to highlight the contrast between Meeker’s experience and that of Pao, who says she was denied the opportunity to advance at the firm because of her gender. Pao, who at 45 is roughly 10 years younger than Meeker, has enjoyed an impressive but far less celebrated career, including as a law firm associate, as a business development executive at numerous tech companies, and today, as the interim CEO of the site Reddit.

    Still, Meeker didn’t make as ideal a witness for Kleiner as she might have, volunteering information about Pao’s investing instincts and politely pushing against some of defense attorney Lynn Hermle’s attempts to show Pao in a poor light.

    Hermle, for example, asked Meeker to contrast her experience with Chi-Hua Chien — a former Kleiner investor who was promoted to a more senior role — with that of Pao, who was not promoted at the same time.

    Meeker called Chien “very bright, very intense” and someone who would “sort of get on the edge of his seat and jump up a bit and get really enthusiastic about the business.” Asked afterward to describe Pao in meetings, Meeker called Pao “certainly more passive, but I think thoughtful.”

    She also prefaced her comments by explaining that she had far less interaction with Pao, saying, “I was in a lot of meetings with Chi-Hua – I’d say every week. . . . With Ellen, we worked on a couple of things together.”

    One of those things was the news app Flipboard, which Kleiner’s early-stage fund had backed and whose later-stage, digital growth fund, which Meeker oversees, was also considering funding. (It passed at the time, said Meeker. “It was a little early. The company didn’t have revenue at that point.”)

    Pao also brought Climate Corp. to Meeker’s attention, Meeker said yesterday, occasionally facing Pao – who was seated 50 feet away — as if they were still colleagues. “It’s a company that has done quite well,” said Meeker. “It was acquired by Monsanto. Its founder is quite good, but the company focuses on offering insurance to farmers based on weather trends, which wasn’t an area where I thought any of us had particular expertise because we weren’t in the farming business.” (Climate Corp. went on to raise $107 million from investors; it sold for $930 million in October 2013, seven years after it was founded.)

    Hermle separately asked Meeker if Pao had ever come to Meeker and asked her to mentor her. “Not that I recall,” said Meeker.

    Meeker could have left it at that, but she added, “Bear in mind, I was the new kid on the block in 2011 and we were investing at a very rapid pace in a different area of investments than were core.”

    Hermle pushed the point. “So you were available?”

    “I think I’m around, though I can’t say I’m the most available person at all times,” answered Meeker.

    Connie

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  • Maveron’s Dan Levitan: This Time Is Not “Different”

    Dan LevitanDan Levitan, the former investment banker who founded Maveron with Starbucks founder Howard Schultz, is having a pretty good run as a venture capitalist. His 16-year-old firm has backed a long line of consumer-facing startups that have become household brands, including eBay, Groupon, Cranium, Shutterfly and Zulily, the daily deals website for moms whose late 2013 IPO transformed an early, $5 million check from Maveron into a windfall for the firm and its investors (though Zulily’s stock has more recently been sinking).

    That long string of winners has convinced Maveron’s institutional backers to provide it with nearly $1 billion over the years, including a $140 million fifth fund that the firm closed last year. Still, Levitan — who has a big personality and tells the sorts of unguarded personal anecdotes that readers love and public relations pros abhor – readily admits that Maveron has lost its way a couple of times before getting back on track.

    StrictlyVC talked with him last week in a fun chat, shortened here for length (and per the request of his watchful communications advisor).

    You’re in Seattle, but you’ve had a team in San Francisco for a few years. Do you spend time down here, too?

    I’m down at least every two weeks. Increasingly, we’ll be down there more. We’ve had some successes up here in Seattle, but as we’ve moved to a more-focused consumer-only strategy, we realize we have to be more successful in San Francisco.

    A “more-focused” consumer strategy? Maveron has always been focused on consumer startups, hasn’t it?

    We’ve always been consumer only, but we kind of justified [a] business-to-business-to-consumer [strategy] for the first 10 years, [meaning we’d back] products and services that sell into consumer businesses. We called it “powering consumer services,” and it was a mockery of a parody of a tragedy of a sham, so we decided to focus on consumer very narrowly and invest only in end-user consumer brands. It’s worked much better, including because we’re presented with more [of these types of startups]; we have a greater pool of companies facing similar problems, which helps our entrepreneurs; and our LPs are getting more consistent returns.

    Many people think of Maveron as a Series A investor, but it also makes seed-stage bets. How do you approach both types of investments, and what size investments are you making at these very different stages?

    Our seed bets are small — $100,000 to $250,000 – and we make one to two a month. Our [San Francisco-based partner] Rebecca Kaden leads the seed effort, but it’s a completely different process than our core investment effort. There are six of us on the investment team and if any two of us wants to do a seed deal, we will. It’s designed to get to know entrepreneurs and spaces we might not be familiar with, so sometimes after a day or two, we’ll say, “Fine, we’re in for $100,000.”

    If we make a core investment, it’s a more focused effort. We typically write checks of $2 million to $8 million for between 15 and 25 percent of the company. [Before we invest], basically one partner has to decide that they like it and want to champion it and they get the colleague who is most appropriate to work with them on it. Then everyone on our team meets every entrepreneur we’re going to back in a Series A deal.

    Does majority rule?

    [Not necessarily.] Someone might like [a deal] and, after issues are pointed out, says, “I can handle it.” Ultimately, I think something that’s obvious doesn’t particularly relate to great VC returns. There have been a few times in the last 16 years when we’ve funded something that was a no-brainer and it worked well for us. But most of the time, it’s not a no-brainer. Our goal is to give people the latitude to make some non-consensus bets.

    A few of Maveron’s portfolio companies have gone public in the last 18 months or so, including the sandwich chain Potbelly, Zulily, and the pet health insurance company Trupanion. What do you think of the broader trend of entrepreneurs pushing out their IPOs and staying private longer?

    I think entrepreneurs are being thoughtful that as long as late-stage [investors] value their companies at or above public market prices, why not take advantage of it? I don’t think the dichotomy between late-stage and public valuations is sustainable, though. Over some period of time, that [gap], which is so stark today, will close, either because public companies become more expensive or late-stage companies [grow less so].

    What are you seeing in terms of valuations?

    In general, it’s a good time to be an entrepreneur. We’ve seeing valuations based much more on greed than fear, which we’ve seen before.

    I’m humbled by how much we all benefit by the up cycles, but I promise that everyone who says this time is different is wrong.

    Photo by Gabriela Hasbun

    Connie

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  • At Ellen Pao Trial, Last-Ditch Efforts By Both Sides

    boxingWe wouldn’t want to be a juror at the trial of Ellen Pao, the interim Reddit CEO who is suing her former employer, Kleiner Perkins Caufield & Byers, for gender discrimination and retaliation.

    While both sides have enjoyed small victories at the trial, many of the “gotcha” moments raised by each have been neutralized when provided broader context.

    Remember those HR policies that Pao testified that she’d raised with executive members of Kleiner over the years, the ones she said she’d begged them to improve? We later learned that Pao never asked a single person to see an equal employment opportunity policy until she was preparing to sue Kleiner in 2012.

    It was a startling admission. But guess what? Yesterday, we learned that there was no EEO policy at Kleiner until 2012 or that, if there was, Kleiner’s then COO Eric Keller couldn’t find it, as he testified in the afternoon. Indeed, unable to locate one, Kleiner had one created the same year. (Recode has much more on the issue here.)

    How about the 700,000 pages of documents Pao was said to have amassed over the years to use in her case? It all sounded less nefarious once Pao was asked about them again yesterday, explaining that most was email coming from her work account, along with a Kleiner-issued hard drive and a box of documents that included “about 100 notebooks” for work that Pao said she’d filled up over the years.

    Here’s another thing: You might have read that Pao was difficult to work with. In a 2009 email exchange between Pao and her assistant, for example, the assistant told Pao she was running late because her landlord, who spoke poor English, had been in a car accident outside her house and she was acting as his translator. “It’s great that you want to be helpful to your landlord,” Pao wrote. “It would be better for me if you could come to work on time.”

    Yesterday, the incident sounded like much ado about nothing, with Pao testifying that the assistant’s tardiness was a fleeting problem and that they enjoyed a “good working relationship.” In fact, she said, when the assistant had to later choose which of her two managers to sit near — Pao, who was moving from one part of the office to another, or partner Wen Hsieh, who was not — she chose Pao.

    Keller’s day in court was just as cofounding. He testified yesterday that Pao asked for what seems like a very big payout to leave the firm before filing her lawsuit against it. “She said eight figures,” he recalled. Keller also testified to Pao’s intransigence when it came to her full cooperation with the investigator that Kleiner hired to look into complaints from both Pao and partner Trae Vassallo.

    We quickly learned, however, that the investigator, Stephen Hirschfeld, states on his own site that he works “on behalf of companies” — not employees. Asked if Keller read as much, he said he didn’t remember reading that detail when he researched Hirschfeld in late 2011. “I read the site. I looked at his qualifications. I didn’t memorize the website.”

    Court resumes at 10 a.m. again today. We’ll see what happens. But if there’s any crystal clear takeaway at this point in the trial, it’s that workplaces can be minefields. And that isn’t exactly a revelation, even if the case has been fascinating to watch.

    Connie

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  • Ellen Pao Portrays Lawsuit as Very Last Resort

    Ellen Pao.2Yesterday, in Ellen Pao’s first appearance on the stand in her gender discrimination case Kleiner Perkins Caufield & Byers, where she once worked as a junior partner, she testified that filing suit against the firm was the culmination of many discussions with various of the firm’s senior executives over a five-year period during which she flagged issues of harassment and gender discrimination and beseeched them to change the “loosey-goosey way we dealt with issues.”

    Wearing a simple, caramel-colored dress and purple blazer, Pao spoke of attempts to encourage at least four senior Kleiner executives to institute HR policies around discrimination and harassment following her affair in 2006 with her then senior colleague Ajit Nazre, who she says was “relentless” in his pursuit of her and pressured her into what would become “rocky” six-month-long relationship.

    After Pao ended the affair, said Pao, Nazre began cutting her out of email chains and excluding her from meetings. For help, she turned to then general partner Ray Lane, who was Nazre’s mentor; Lane twice suggested the two have a conciliatory lunch. (Pao says she conceded, but left mid- meal after Nazre professed his love for her.) She also reached out to general partner Randy Komisar, who told her he “didn’t want to know.”

    Pao also later told general partner John Doerr about her brief relationship with Nazre. Doerr was prepared to fire Nazre over the incident, said Pao, who added that she and Lane successfully worked together to preserve Nazre’s job at the time. But subsequent conversations with Doerr, Lane, and general partner Ted Schlein about the need for Kleiner to institute better policies to deal with such situations and prevent future problems were repeatedly ignored, she testified.

    Pao, a Harvard-educated attorney who spent two years as an associate at Cravath, Swaine & Moore early in her career, also testified that she told Juliet de Baubigny, the firm’s head of human resources, that she felt Kleiner needed a related HR policy — particularly as Pao suspected Nazre of sexually harassing three administrative assistants. In response, de Baubigny told Pao she thought Nazre was a “sex addict,” recalled Pao of that exchange, who said yesterday that she was “surprised” by de Baubigny’s characterization. “I thought [de Baubigny] must have additional information about the administrative assistants.”

    On the stand, Pao came across as likable, including smiling on occasion as she addressed questions by her attorney, Theresa Lawless. It was an image very much at odds with the picture of Pao that Kleiner’s attorneys have sought to create as someone with “sharp elbows.”

    She also seemed highly competent. Indeed, at the direction of Lawless, Pao spoke at length about the many accolades bestowed on her by Doerr during their working relationship, as well about her investing instincts. She testified yesterday, for example, that she tried convincing Kleiner to invest much earlier on in Twitter, and that her case for the company went unheeded because, according to general partner Matt Murphy, who’d previously met with Twitter, its team wasn’t business-minded. (Kleiner eventually invested in Twitter in late 2010, at a $4 billion valuation.)

    Pao also testified that she convinced the partnership to back RPX, a patent technology startup that Kleiner would not have funded without her due diligence. (It would eventually go public in 2011, an otherwise terrible time for tech stocks.) She added that Doerr gave the company’s board seat to Komisar because Pao was pregnant with her daughter and as such, “I wasn’t being considered for a board seat or board observer role.”

    She also said that upon her return from maternity leave, she had “many” discussions with Komisar about RPX. Said Pao, “[H]e was not involved with the company, and the [RPX] team had started to complain about him. Every time I heard a complaint, I would raise it with Randy. I wanted to try to help solve the problem.”

    Unsurprisingly, Pao spent much of the day describing a very male-dominated culture at Kleiner. Pao was asked, for example, about that now infamous all-male dinner at former Vice President Al Gore’s apartment at the St. Regis hotel in San Francisco, where Pao also had an apartment at the time.

    “It was pretty humiliating,” said Pao of seeing entrepreneurs in the building who were on their way up to the dinner. One of them was Mike McCue, the CEO and cofounder of the news aggregation app Flipboard, on whose board Pao sat at the time. “I was coming down the elevator and ran into people in the lobby . . . When I went outside I saw Mike McCue [parking] . . . and he said ‘OK I’ll see you up there,’ and I said ‘No, no, I’m not going to be part of this dinner.’”

    Pao also described wanting to leave the firm in 2007 owing to the company’s culture. Following conversations with the firm’s senior partners about it, and asked by Doerr to elaborate, Pao wrote him — in email shown to the courtroom — the she’d like to see “less fear in making unpopular statements. Less risk around offending others.” She also pointed to “politics,” suggesting she’d like to see “consensus building in a way that shares information and contributes to an open process.”

    Not last, Pao told Doerr she thought the partnership needed to show greater respect to entrepreneurs, regardless of whether or not the firm was interested in funding their companies.

    Said Pao, “I’d seen some meetings where we were late and would make entrepreneurs late. There was [another] meeting in particular where we weren’t interested in talking about [the] specific venture and we started talking about taking some people from [the company that was in the pitch meeting] and [hiring them into another startup]. And when you’re talking about breaking up a [company in front of its founders], that just seemed very disrespectful to me.”

    Pao has yet to be cross-examined by Kleiner’s legal team. She returns to the courtroom today.

    Photo of Ellen Pao outside a San Francisco courthouse by Jeff Elder of the Wall Street Journal.

    Connie

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  • Ray Lane Under Oath

    Ray LaneRay Lane, an emeritus partner at Kleiner Perkins Caufield & Byers, came across as a good guy yesterday during his testimony in the trial of former partner Ellen Pao, who is suing Kleiner for gender discrimination. But he didn’t do Kleiner any favors, at times seeming to blame himself for mistakes and, at others, undermining Kleiner attorney Lynn Hermle as she tried painting a picture of Pao as too inexperienced for a promotion.

    Much of Lane’s testimony centered on his handling of the complaints of both Pao and Kleiner partner Trae Vassallo, both of whom turned to Lane before anyone else at the firm to discuss former partner Ajit Nazre.

    Pao had a short-lived but intimate relationship with Nazre, which she confided in Lane in 2007 after hearing Lane remark to Nazre in her presence that it was nice to see him with his wife and children at the Ritz Carlton in Half Moon Bay. (Nazre, Pao told Lane, led her to believe that he had split up with his wife.)

    Roughly four years after that exchange, Nazre showed up in Vassallo’s hotel doorway during a work trip wearing a bathrobe and slippers. Vassallo – married with children — also went to Lane before talking with anyone else at the firm.

    In Lane’s testimony about both situations — which he said he viewed as “two very different incidents” — Lane came across as a well-meaning mentor who wasn’t necessarily equipped to handle the information he was being given.

    In one 2007 exchange with Lane, for example, Pao wrote, “Thank you for your help in working through a difficult issue. It’s a really awkward situation. In the interest of moving forward and avoiding more unpleasantness, I’m willing to live with some disagreement over what happened if Ajit can be professional and collegial . . . I’m relieved to able able to put it behind me, glad that you were listening.”

    Lane wrote back that, “I really believe ‘stuff happens’ and both of you are terrific people. . . . this should not be offset by common human behavior. No bridges were burned, mistakes were made, apologies offered, and it’s up to us to move forward, and not shoot ourselves in both feet.” He also encouraged Pao and Nazre to “talk about working together [and moving] forward . . . you both have enormous mutual respect, despite any personal liabilities.”

    Lane’s initial advice to Vassallo similarly seemed to reflect the culture of a small firm unaccustomed to dealing with thorny personal issues. The day Vassallo told him about Nazre’s unwanted advances, said Lane, he suggested that she discuss the matter with the husband so that the couple could decide on a course of action together.

    Lane explained that he thought whatever followed should be up to Vassallo and not Kleiner. Still, said Lane, he worried at the time about Vassallo’s safety – noting that “things could have gone another way, [Nazre] could have pushed his way in” to her hotel room – and expressed regret yesterday at not starting an investigation straightaway.

    “It was my mistake,” he said of waiting until Vassallo wrote a formal complaint about Nazre to Lane and other Kleiner partners roughly one week after coming to Lane.

    It wasn’t the only mistake Lane appeared to acknowledge making.

    Asked by Pao’s attorney why Nazre was promoted to senior partner in 2008, despite Nazre’s relationship with Pao and, crucially, though Nazre lied to Lane when first confronted about it, Lane answered, “Good question.” He went on to explain that Nazre “quickly” confessed to his relationship with Pao, and that Nazre, in Lane’s view, was very knowledgeable about green tech and “an important part” of the firm’s team.

    Perhaps unsurprisingly, Kleiner’s attorney, Hermle, tried steering Lane to the larger point of whether or not Pao should have received the promotion that Pao is arguing she deserved. Toward that end, Hermle pulled up two emails relating to different CEOs who expressed displeasure in working with Pao.

    One CEO had apparently resorted to ignoring Pao, who recognized she’d have to find another way to win him over and wrote to Lane of the executive: “Frank is hierarchy focused and not as comfortable dealing with me directly so I need to be more ‘velvet-gloved’ (note the number of times it took to get him to copy me on emails).”

    Asked about the exchange, Lane described the CEO as a “difficult character” who is “more than 60 years of age” and “very set in his ways.”

    Hermle also produced an email exchange involving Workday cofounder and co-CEO Aneel Bhusri, who’d been talking with Kleiner about a late-stage investment before Workday went public in 2012.

    Wrote Bhusri to Lane, who forwarded his note to partner Ted Schlein: “Frankly, Ellen seems pretty clueless, can someone else take the lead?” Wrote Lane to Schlein, under Bhusri’s comment, “I kind of agree with him.” Schlein then responded: “She ran the names of folks by me, for diligence. I can’t say I paid too close attention so could be my fault.” Lane then responded to Schlein, “I will talk to [Bhusri] live tomorrow, but we have to put somebody else in or I will handle personally. I did the same as you, allowed Ellen to work it alone.”

    Was this a “major problem?” Hermle asked Lane on the stand. “No,” said Lane. “I don’t think it was a major problem.” Added Lane, “I thought [Pao] wasn’t being sensitive that this was a company that was already valued at more than a billion dollars.” But the bigger issue, Lane suggested, was that Bhusri didn’t like Kleiner’s technical review of Workday, which involved talking with “just a few customers.”

    Said Lane, “Mr. Bhusri disagreed with the approach. I thought the approach was fine.”

    Connie

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  • The Kingmaker in the Background: Kathryn Gould

    GouldMost venture capitalists don’t curse like sailors. Most can’t boast a 90 percent internal rate of return over the course of their investing careers, either. Kathryn Gould — the inimitable founder of Foundation Capital, who today spends much of her time today on her vineyard in the foothills of California’s Sierra mountain range — is known for both.

    In select circles, Gould, who got her start in VC in the late ’80s at the now-defunct firm Merrill, Pickard, Anderson & Eyre, is also known for mentoring up-and-coming investors.

    We talked recently about her views on the industry – and which VCs she’s betting on right now.

    You used to make angel investments, including a $50,000 investment in Demandforce that returned $2 million when the company was acquired by Intuit in 2012. Why stop?

    I made three angel investments, and I wouldn’t say I won’t do more, but I’m a perfectionist and for me, making angel investments [requires as much time and effort] as running a firm. My lifetime IRR is 90 percent and I’m not going to mess with my numbers just to screw around.

    [Early-stage investor] Mike Maples and I put our personal money into Demandforce before we started Floodgate, but chance favors a prepared mind, and while I could still [make angel bets], I don’t want to.

    When you say that “we” started Floodgate, what do you mean?

    Mike [who logged time at Silicon Graphics and Trilogy Software, then cofounded a company, Motive, that went public in 2004] briefly floated through Foundation Capital [in the early 2000s] so I knew him, and we used to strategize about what was happening in venture business.

    He’d started to dabble with his own money, including investing in Twitter, which wasn’t an obvious winner. I’d retired [from Foundation in 2006], but I said, “If I were to do [another fund], I’d raise a small amount of money” [because of the changing economics of startups]. And we said, “Sh_t, let’s put together a business plan and do this thing.” So we mapped out how we’d do it, I helped him with his slides, and I introduced him to my three best investors at Weathergage, Horsley Bridge Partners, and the University of Chicago, and there he was.

    Are you an LP in Floodgate?

    Yes, though I help these guys, then invest in their firms, but I don’t get any special treatment.

    Who else have you helped get started?

    We [at Foundation] were investors in [entrepreneur-investor] Mar Hershenson’s companies. We invested in her [analog circuit company Barcelona Design], and when she developed this consumer penchant and hooked up with [angel investor] Pejman Nozad to launch their venture fund, I said, “Let me help you; I know classy institutional investors that will invest.” Even though I loved what they were doing, their written business plan was a goddamned mess. It was very random. And your slides have to be credible to go raise money from decent investors. I still see [Nozad and Hershenson] all the time to talk about things that are happening and give them ideas, and I’m an investor [in their fund].

    Most recently, I worked with Ashmeet Sidana, who was a GP at Foundation Capital for [nine years] and [left in September 2013] and started doing his own angel investing. We’d get together at a coffee shop in Portola Valley and I’d ask him what he was doing, and I was like, “This stuff is f_cking great, you should be doing this in a bigger way.” So we wrote his business plan, created his slides, I introduced him to several of his investors – he also has several Indian investors – and he just closed his first solo fund with $33 million. I think his firm, Engineering Capital, will be very successful.

    People will read this and start reaching out to you for introductions.

    I don’t want people calling me. I’m not going to help you raise your super sucky fund. I’ve known Mar for 20 years, Maples for 15. I’ve known Ashmeet for 15 years.

    I feel like I’m in the best of the best [of these small funds]. I think all the good ones are getting started or have started.

    —–

    You also coach some of Foundation Capital’s younger investors.

    There’s been solid turnover of people there and [there are] are bunch of guys who weren’t there [when I was] and who missed all my good stuff, so I’m giving some advice where I can.

    What do you tell them?

    That it’s not the calls you take. It’s the calls you make. Everyone is calling you with dumb startup ideas, and you can stay hugely busy sorting through that crap. My advice instead is to figure out who are the 10 to 20 smartest people you know and call them. One of them is always starting a company.

    You also hear VCs talk about how one company in their portfolio will be a huge winner, two or three will be also-rans, and the rest will be write-offs. Well, that’s bullsh_t. I didn’t go into a deal unless I thought it was going to be a winner. All 10 had to win, that was my attitude. A lot of VCs run and hide, but I worked hard, I was a good fixer, and I earned my money.

    I’m loath to ask, but you’re a very successful female VC. What do you make of the attention paid to the industry’s gender imbalance?

    I think all the press about it has done women a disservice. People want to bring in a woman partner now, and I’m like, “You want to bring in a good partner.” If someone isn’t listening to you [as a woman], it’s because your argument in weak. If you think instead that they aren’t listening because you’re a woman, if you allow yourself that false luxury [of thinking you’re being discriminated against], you won’t grow.

    You’ve never encountered a problem that you attribute to being a woman?

    I have. Once. I was at Merrill, Pickard, Anderson & Eyre. Bruce [Dunlevie] and Andy [Rachleff] and I all started the same year, and when those guys went off [to cofound the venture firm Benchmark with several others in 1995], I had to decide what I was going to do. I was on a roll. The 90 percent IRR thing was well on its way, I had IPOs and acquisitions and good things happening, so I talked with firms. I was picky, but there were six or seven firms I would have joined. They were all d_cking around, though, and I could see it would take a year for me to get a job with these guys. Meanwhile, I know if I’d been a guy with my numbers, I would have been snapped up in a week.

    I didn’t wait the year to see what would happen. Instead, after a couple of months, I thought, I’ll start a fund, and I had the money raised in three months. As it turns out, half or maybe more of the CIOs at [a lot of these institutional investors] are women. I’m really glad, too. I loved doing it my way.

    To this day, very few women have broken into the all-male firms. But I think the problem will go away, not through those firms hiring women, but because other firms like [the woman-led firm] Cowboy Ventures will grow up around them. I do think that for the most part, the industry is a meritocracy.

    Photo courtesy of Forbes.

    Connie

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