What Kleiner Perkins looks for in founders and some advice for pre seed companies | Michael Abbott

So you joined in 2011, Kleiner Perkins. What was the startup culture back then compared to now?

Sorry?

The startup culture when you joined.

Yeah, it was really 2012. It was like December of 2011. But anyway, I think at that point there was certainly a lot of excitement around the industry. I mean, you were seeing a lot of companies that were continuing to drive high valuations. I think it was certainly very easy to raise capital as compared to certain times that I personally saw. I think both then and today, the— I mean, look, the capital that's required to start companies now is just fundamentally lower than it was 15 years ago, thanks to things like Amazon. You take that into account as well as, which some of you may not know, it used to be the case that most investments by venture capitalists were what's called syndicated, meaning that there's 2 I had that with my company. We syndicated Google with Sequoia when KP invested in it. That was very common. It was common because oftentimes— I had to give up a lot of my ownership of my company, but that was the nature. The power was on the venture side and not the entrepreneur. I think that dynamic's changed, which has also actually driven this transition to more VCs having an operating background. Because if I'm going out and competing, let's say for one of your companies and there's a lot of demand for you to invest, guess what? $5 million from Kleiner Perkins equals $5 million from some other firm. We have to differentiate how we are going to give our entrepreneurs an unfair advantage either through our platform in terms of recruiting or BD or the brand, or as well as that individual partner's experience.

Yeah. So from an individual partner experience, what's kind of— you— I know you talked a little bit about your specialty, but could you just go into a little bit more detail about what you personally specialize in and the investment criteria of Kleiner Perkins in general?

So just so I'm clear, as like an investor, as a board member, or areas that I'm investing in?

Areas that you're investing in.

Okay. As I mentioned before, I have a pretty broad aperture just as a function of my background. I think I first and foremost really focus on the people. I think when you look at the continuum of investing from venture to growth, on the venture early stage investing, even when you're raising a seed amount or an A, it's all about the people. You're betting on, does this person or does this team have the intestinal fortitude to actually persevere over the next decade. There's areas I'm more interested in. I'm certainly more biased to companies that in my mind are very technically defensible, which means that I'll have— that bias means that I might miss some other companies as a result of that. But I think it all comes down to an individual. And one of the things that I try to look for is why is this person starting this company, really at a deep level? I don't think there's a right or wrong answer to that, but for me, I tend to lean in towards people who I feel like are starting a company because they have some type of chip on their shoulder. They have something really deep that they need to prove to themselves or someone else, because it's that level of drive that needs you to endure the loneliness, to endure the good and the bad.

It's interesting.

really read a lot of blog posts about this because the people who are going through it are not gonna take the time to go write this. I take that same empathy even as a board member with my companies of saying, look, I get what you're doing is really hard, but here's from my— I'm really careful to not be prescriptive with our companies. I'll share an experience and I'll point out the pros and cons, and I might even indicate what I might do. But I make it very clear that it's his or her company and it's their decision. I was very close to Bill Campbell, who unfortunately passed away a couple months ago. He used to always comment how more often than not boards screw up companies. Unfortunately, that's true. I'm trying to not do that, not be that person.

I guess you could split it into a founder and a company. So when someone is coming to you, and you said one of the things that you're looking for in a founder is really having that motivation, like you say, a chip on their shoulder almost. So if you have to kind of break it down into, let's say, 3 things that you're looking for in a founder, or that you've identified in founders that you really think pushes them to the next level, and from a company point of view, 3 things in a company that you think is pushing them to the next level, how would you kind of spit that out?

So we use this term We like to back missionary founders. I think missionary founders do come from this basis of this very core why, the motivation. It's not economic. They see a problem in the world, whether that be an enterprise or consumer, and they want to go solve that no matter what, and they don't really care if we invest or not. It's that level of conviction. Of course, they have to be smart and driven and all these other things, but that's one. The second is, Do we think that this team or this individual is charismatic enough to recruit? Because when you're building a company, like I tell my CEOs, over 50% of your time is recruiting. Full stop. That's actually important even on the A to see, hey, are they able to pull people in? I think on the company themselves, I'll take a more enterprise-oriented lens to it. Do we have belief that this is a painkiller, not a vitamin? Meaning if this product exists in the world, will people actually pay for it, or is this kind of a nice-to-have? Nice-to-haves are really hard to sell when the market changes, which it will. What we don't do in terms of an anti-pattern is when we look at markets, we don't spend a lot of time on, oh, what's the total available market? At least I don't do that. The reason why is so many of these large companies that have emerged over the last decade, if you tried to do that analysis, you probably talked yourself out of actually investing because they created new markets, ones that maybe didn't exist 10 years ago. Airbnb, great example. I think you have to be really cautious around that. It's something at a firm we think about a lot too. We all come with these set of experiences, which is great.

Yeah.

But that it's also a degree of liability as we make a decision. I think the one common pattern that I've seen as I've studied even our history of decision-making in the last 4 years is the worst investments are the ones where it's unanimous that every partner thinks we should do it. Why? Because then it's too obvious. But both the best and the worst investments are also contentious. It's like, okay, that's tough, more difficult to learn from.

I think that was a really valuable lesson. I know for our students here at Draper, they're taught a lot to really think about their market size, and kind of saying to them, think about it, are you really opening up new markets, is a lesson that I think— I'm hoping that you all wrote down and that you're going to take that going into pitch day next week. So the student entrepreneurs that we have here are really sort of at the seed or even pre-seed stage. How important would you say it is to have a team established? Because I know that is something That generally we struggle with here at Draper, having a team already in place. How important is that?

I think at that stage it's not. I think, you know, I'm just reflecting back when I was doing a fair amount of angel investing. It's, you know, do you have belief that this person could do that? You know, do they have a high enough emotional intelligence? Do you, you know, reference checking? I mean, that's actually arguably one of the most, the biggest things that we do. on entrepreneurs that a seed investor would do in terms of people you've worked with. Can people speak to your character to try to get the answer on the why? Then I think in terms of other counsel, depending on the area, you might be working on a product or an idea that's going to take a long time to build, so you may not have all these proof points.

Right.

let's say customers or potential customers that an investor could talk to so he or she could actually build conviction around the opportunity is particularly important.

Maybe some kind of traction or some kind of market validation.

Some type of market validation as well as one of the things I did early on even when I was an entrepreneur is can you get some advisors? Maybe not employees, but one of the things that really sets this valley apart Which I had no idea was the case until I had this stint when I lived up in Seattle. It's this pay-it-forward kind of approach. I'll tell you, when I went up to Seattle, that's where it became so clear to me that there's something unique here, because I did not see that. I know that you guys are visiting for a particular point in time, but as much as you can ask for people to meet and expand your network, I think You know, the entrepreneurs who understand that, then you can make yourself look bigger through those advisors, and those advisors can also actually give you a lot of street cred to investors.

Being here in the Valley, one of the phrases that I hear all the time is your network is your net worth. So really building up that network is so important. So I guess my next question is, is going to be more about funding quite specifically. And I don't know, there might be some bias in this question, but would you even recommend going for VC funding at the particular stage that the students might be at? There's so many different options for funding now. There's crowdfunding.

Yeah, so my views changed over the last 4 years a little bit on this. So initially, when I joined KP, I'm like, we should be doing more seeds. Why aren't we doing this? And then about a year, I realized, Actually, for us, seed investing does not work with the economics of our fund. Now, about a year or so ago, I launched something with another gentleman named Anjana called KPCB Edge, where we do some seed investments in very specific areas, but the check sizes are no more than $100K. We would never lead. Now, I mean, the challenge is, I don't think it's a signaling risk. I don't buy that argument because that's kind of saying you're worried that you're gonna fail because if you don't fail, there's gonna be high demand anyway. So it's a weird optimization question for me. I think the challenge though for you is you only have so much time in the day and you can spend a lot of time fundraising.

Yeah.

As fast as you can get that done, the better. Certain institutions could spend a lot of time with you and then not invest. It's a long-winded answer to your question. I probably wouldn't, frankly. If you do, I would try to get it from 2 institutional investors versus 1.

Yeah.