E2: Kleiner Perkins Makes the Case for Craftsman VC, with Mamoon Hamid and Ilya Fushman

0:06Welcome to Turpentine VC, a podcast where we discuss the art and science of building successful venture firms, investor to investor. I'm your host, Eric Torenberg, entrepreneur, investor, and co-founder of Village Global, On Deck, and Turpentine. This week, I'm joined by Mahmoud Hamid and Ilya Fushman, general partners at Kleiner Perkins, the storied 51-year-old venture firm. Prior to teaming up at KP, Mahmoud co-founded Social Capital and was a partner at USVP, and Ilya served tenures at Index, Kostla, and Dropbox. Mahmoud and Ilya joined the firm in 2017 and 2018 respectively, receiving and carrying forward the torch of the iconic brand, helping drive the next chapter of its history.

0:47In this conversation, we uncover new ground and insights as to how KP functions as a firm and partnership, including how they go about decision making, the majors and minors framework, the craftsman approach to venture, and the value of discipline. We also deep dive into the topics of how to evaluate and instill agency into rising investment of talent, what the NBA draft adventure might look like, and more. If you like what you hear, please subscribe and leave us a review. Now, let's hear from Mamoun and Ilya. Mamoun, Ilya, welcome to the podcast. Thanks for joining. Thank you, Eric. So take us to, I don't know if it's 2015 or at some point where people are realizing, hey, we need to take a different track.

1:27Maybe we need some new blood in. Who's making these decisions? And take us to what happened. It's also an insight into how venture firms work and how partner transitions work. Yeah, yeah. So at the time, there were a number of partners, so general partners, some who were dedicated to specific funds and some who were across different funds. But I would say the person who I owe a lot of credit in terms of recruiting me is Touchline. Got it. And does he make the decision or is there a committee who makes the decision? No, it's a team. It's a partnership, right? And that's the beauty of Kleiner Perkins, It's a 51-year-old partnership.

2:05There is no CEO. There is no one person who makes a decision. And I think that is a beauty of a feature of a partnership. It's like you have a group of smart individuals who get to make decisions. And so Ted was really the person who recruited me. And there's lots of other folks in the background who I spent time with and who are really important to the decision-making. I would say it's like if they're just like a company, if they're two people who just don't want to support hiring a person, you're not going to hire a senior hire, right? And so that's sort of how things work over here as well.

2:44But in terms of folks, Ted Schlein had been helping sort of figure out what the future of the firm would look like and what the team that could help him enable in accomplishing that would look like. and that's where some of the young blood came in. Yeah. So you guys were having conversations many years ago about what building a firm from the ground up could look like. Talk about what that vision was and what some of the conversations about, you know, what that could look like. I mean, I think it's kind of like what we are building here, which is - Craftsman approach. Craftsman approach. I mean, we've both been apprenticed in venture, right?

3:23Working for others for a while, absorbing the business, learning how it's really done because it's not a business you can learn from a textbook, right? You kind of have to have reps on companies. You have to spend time. You have to really be in it to understand it. But generally speaking, it is kind of what Kleiner Perkins used to look like in that golden era, which is a small team of people who really understand what company building is about, who've ideally practiced the craft of building or being in a company, whether it's early stage or late stage, and you have empathy for what it takes to really do that and really what matters at every stage of company, right?

3:58What's critical at any given juncture. And you can be a great advisor to an entrepreneur who's trying to do that. And you can actually discern what's a good idea and what's a good entrepreneur and what's a good market and what's not. And preserve that small group and furthermore, keep it focused, right? So KP was first of many, first of many to do growth, first of many to do China, first of many to do a Java fund, an iOS apps fund, other types of programs. But at the end of the day, what really matters is you did the series A of like the consumer company or the enterprise company, exactly. And you've then kind of had the foresight to know, hey, this is working and let's really concentrate and let's try to build up as big of a position as possible to sort of help the company grow as much as possible.

4:49And that's kind of what we try to espouse here, which is small team. Everybody has majors and minors. So major is something you really understand and are really good at. Could be enterprise software, could be consumer, could be something else, could be AI for some of our newer hires. And the minors are domains of interest, right? It could be financial services for somebody. It could be consumer for someone else. It could be enterprise productivity for somebody else. And those majors and minors kind of overlap. And that's how we can become good partners to each other. Because that's when you can really help somebody build conviction or help somebody sort of, or, you know, push on their conviction and really test it.

5:28And, you know, personally, where our process works, I've been on both sides of it, where sometimes I come in and I'm sort of like gung-ho on a deal and folks ask me really good questions. And it makes me take a step back and reassess. I've also been in the situation where I feel like I'm on the edge and my partners are asking me, hey, you know, if you didn't do this deal and the company does really well, how would you feel? And that makes me kind of lean forward and do the deal. And that's really the dynamic you want. And I think that's the dynamic that results in the best outcomes. We have trusted partners, small groups, everybody really understands what everyone is doing.

6:02And you have this shared context in between. Talk about how you guys do decision-making at Kleiner and how that's maybe different from how we see it at other firms or the different approaches maybe. Yeah. So we have two funds now. We have a venture fund, currently$800 million and a growth fund, it's about a billion. On the venture side, we're really partner conviction driven in the sense that anybody, any partner can come in and propose a deal. Our job as partners is again to test or reinforce that conviction, but we don't have a formal vote. In practice, the way it really settles out is you look across the room and if everybody looks really skeptical, your partners are smart and they probably have a reason to be skeptical, but you could still do that deal.

6:46Now you can do that only so many times because eventually once you do a bunch of deals that nobody likes and they turn out to be bad, it's kind of shame on you. But a lot of times you have the conviction and folks ask good questions and you still believe in it. So you do the deal. So we try to basically give people as much agency as possible to make these decisions because the best deals out there aren't obvious, right? And they do typically come out of dissent and sort of discussion and some conflict, right? Because it's sort of trite, right? The obvious deals would be pretty obvious. So we try to foster that on the venture side.

7:22On the growth side, you know, we do want to be a lot more rigorous. We have to be a lot more rigorous. These are bigger checks. And so we do have a formal process for data deck, for understanding the model, for valuation. And then we do require unanimity. So everybody has to vote positively on that deal. Yeah. How is the growth fund different from the growth fund that existed when you came here and that team, even just the approach and strategy? Yeah. So we call our growth fund select. It's meant to be selective. So it'll have anywhere between 12 and 15 logos in it over the lifecycle of that fund.

8:00So in some cases, it'll get very concentrated. And it's meant to really be a high conviction vehicle. A lot of the companies will be companies we've backed out of our venture fund, where we see something from the inside that gives us the conviction. And some will be companies we missed or didn't see or didn't have the conviction on at the early stages. But ultimately, we want to have a very strong position in any company we back out of the growth fund. And so that's kind of it. The main thing about the growth fund today versus the prior iteration is that it's much closer to venture. So it's sort of an extension of venture into the later stages than it is a standalone growth fund.

8:41And having a growth fund that's sort of hyper-growth oriented versus more venture-leaning probably would require a big separate team, which is not something we want to have. We want to have one team that looks at all the deals, that has shared context, and folks who maybe are more growth-leaning will still do a Series B or a Series A, right? Because we want this to be one partnership One of our core values is one team, one dream. And you can't really have that core value by having very separate teams. So it's sort of a venture plus model. And it's really meant to pick off and concentrate in companies that are just going to be outsized mega winners.

9:19So I look at you guys and Jason Horowitz playing just like a very different game or a very different approach to that game. I'm curious if you look back at Kostler Index, is it like the same game with some minor variations? or how do you kind of compare the firm approaches to the craft? I mean, I think everybody has their own approach, right? I'd say I think we've both kind of learned a lot and borrowed from places we've been at before. I think, for example, at Index, we had a separation of vehicles between venture and growth, but they're still very much the same team. I think that works very well.

9:56Coastline has a slightly different, fairly similar, but a little bit different structure. But both are actually relatively similar in the sense that generally focus on a smaller team and kind of a sort of small partnership venture model versus maybe a more multifunctional, multi-product firm. So, again, like more of the roots of Kleiner Perkins and taking it back to that.

10:24it feels like when people do a bunch of or when companies do a bunch of different things some of them work some of them don't work it's often easy and maybe accurate to say hey you spread too thin it's kind of retrench but then when you retrench and things are really working it's tempting to do other things again it's a fundamental challenge of venture capital you raise funds and the obvious next question is what are you going to do with it who are you going to hire what other things are you going to invest in and you have to be really disciplined to keep focus um and i think again it comes back to you know these outsized outcomes are randomly occurring you know independently distributed events that happen every one two five years uh and you just have to be ready for them and you the the main thing that matters is you did the series a or the series b of one of these amazing companies and then you have the right uh and the opportunity to concentrate trade into it with growth.

11:22And if you can do that, you can sort of generate the types of returns that, you know, KP generated in its early days. Totally. Um, we want to talk a little bit about the social capital approach because that was very, um, similarly to maybe Kleiner in the beginning, like it was first in some ways, like social capital felt like it was really trying, um, new ways of, of approaching venture, a data-driven approach. They were also getting into different asset classes. Why don't you categorize some of the experiments that you guys ran at social and what is your perspective on them going forward in terms of how you think about how you may or anything you may want to adopt as you think about Kleiner going forward?

12:02I would say that our earliest days and including all the way through 2017 were focused around early stage venture capital. It was own substantial amount at the earliest stages, join the boards of these companies, work hard for these companies for a long period of time before you see much of any return. So I'd say traditional early stage venture capital. We did employ some tools around. We had a data science team that would help our portfolio companies with data efforts. and at some point I think there were a bit more data-centric ways to actually even investing in companies. That was sort of after my time.

12:51But I would say most of the time that I was there, it was a very traditional sort of early-stage venture capital model. Yeah, that makes sense. I mean, it's interesting when you take a detached look at the ecosystem and you see something like a Y Combinator that has taken a drastically different approach to venture right um or or an adjacent arwitz which has also taken a pretty drastically different um approach to to firm building and um and it's interesting it's one is tempted i mean in this conversation we've been talking about going back to climbers roots but there's always also the question of like hey does venture evolve or or does it kind of like is it more of a craft that stays the same over decades and you just get better and better at it but really what's important is is getting back to basics or is it, hey, just like the industries we invest in, they evolve using software or some other dislocation effects.

13:46I say that to ask like 20 years from now, do you think it's gonna look pretty similar? How do you think about that? Just like the craftsman approach versus like the product. I think we voted with our actions, right? Which is we believe in the craft approach, which isn't too dissimilar from the approach from 30 years ago, 40 years ago. do we employ tools that allow us to do our jobs more efficiently better like have a of you know software that didn't exist 20 years ago absolutely i think that there and do we run our back office do i do do we do our portfolio management uh with software and analytics that allows us to be better stewards of the capital you manage of course we do yeah so there's all that but but i think when you talk about the craft of investing it's we're a small team you know Ilya said one team, one dream, which is to invest in history-making companies.

14:41And we strongly believe in less is more. And I think some of the other examples of firms that you mentioned, which are different just from an approach standpoint, we're seven partners today. And we may not be more than that ever. I don't know. Not much more than that. So I think there's a breaking point. We always talk about, we do our team meeting in the room next door here. And we talk about how can we make really good decisions together as a team sitting around on the table, which is maybe the Amazon two pizza thing. But it's our own version of it, which is like that conference room table. And you're all based here.

15:21We're all based here in the Bay Area. We all meet here in person. Every Monday we're here together. Then the rest of the week, we split between San Francisco and Menlo Park. But we see each other like multiple times a week. And that's, again, that's by design. And yeah, we don't hire outside of the Bay Area. It's all centered. How do we really, how do you make good decisions? Like the, you know, the business obviously is evolving. I mean, what are the things that are changing? What's easier to start companies than ever before, right? There's just more information out there. More industries are accessible.

15:55There are more consumers for different types of products, whether it's consumer or enterprise software. And so you have more companies to look at, and there will be probably more and bigger winners, right? If you look at some of the companies that have grown in the past decade, 20 years, they become bigger and they grow faster than ever before. So what do you need to do to adjust as a venture firm? Well, one is you need to see more, right? And so you can build tools for that. You can build scouting programs, right, like the other scout fund as well, to earmark some of these investments. so you can process the pipeline a little bit more efficiently with tools and signals from the app store, payment data, and things like that.

16:35But at the end of the day, it's about meeting that entrepreneur, assessing their ability to build a giant history-making outcome company, and it's about the relationship that you can establish with them to convince them that, hey, you are the right partner for them. So at the end of the day, it's still a human connection type of business, And it should be because that relationship goes on for a very long time, right, if you're successful. And then, you know, the other thing that happens is these companies are staying private longer and generating bigger outcomes than before if they are winners.

17:10So you have the opportunity to actually invest more or deploy more capital into a winning company than ever before and generate an outsized return relative to what you could have done. And that you can address through fund size and fund construct, right? You can have a venture fund and a growth fund the way we do. You can do other things. But at the end of the day, it really all still comes back to that initial point of contact between you and the entrepreneur and your team and the entrepreneur and how they perceive the brand, how they perceive your ability and the firm's ability to help them grow.

17:41And that you can address through folks that help with go to market, with marketing, with talent. And those are the types of teams and the types of constructs you build around this small investment team to help it scale. But at the end of the day, it's still a very small investment team that has to make those critical decisions and really arrive at the right ones. Totally. Hey, we'll continue our interview in a moment after a word from our sponsors. On the fun size point, what is your methodology for coming up with$800 million instead of$500 or$1.5? How do you think about that? I think it's really indicative of the environment in which we're investing.

18:18so I was going to ask to what extent does macro play a role in it yeah it's a decent role so uh in the last five venture funds that we've invested out of uh we've had exactly 35 investments uh and and so we size a fund based on can we do 35 investments out of this next fund and get to the level of ownership that we're accustomed to for a fund this size uh and so 35 is like a good sampling of statistically generating returns that we'd want our LPCs to see from us. So the last fund,$800 million, actually feels a little large to us. But it's at the time when we raised it in 2022, early 22, was 35 companies with X amount of ownership, with Y amount of dollars in, is about$800 million.

19:11Yeah, that makes sense. and so um going back a little bit i want to hear how you guys think about partner construction maybe we'll start with you mamoon because you're given the the keys so to speak alongside the team and saying hey you know rebuild this this once great and still great franchise how what's going through your mind in terms of how you're thinking about okay who do i need my team with me yeah so uh just going back to august of 2017 um got to work right away which was hey who would you want to have on your team, early stage venture team. And I literally put together a spreadsheet, still have it, and of folks that I knew in the industry who could just be great partners, had a domain expertise, were technical, like had some operating backgrounds that mattered.

20:02And I'm not shitting you here. Should I say that again? You can say it. Yeah, yeah, yeah. But Ilya was like the number one person on that list. But I went down about halfway down that 50-person list, and I think I talked to probably 25 to 30 of the folks on that list over that two - to three-month period, including Ilya. And it was, yeah, with Ilya, we had a working relationship through the Slack board, Intercom board, Arch Nemesis, the Dropbox guy. but it was a here's someone who has just insane amount of founder love in the areas that actually that i invest in as well and it was like a little bit annoying actually that ilia was so competitive yeah i heard stewart was trying to hire you originally and then when he couldn't he said hey i gotta have him you know i'm a boarder exactly exactly and as and it was like wow i can't have this guy just be out there investing for some other firm he's got to be part of this team So, and so, yeah, it was a, you know, kind of just an instant match in terms of his personality, like what we saw in terms of what we could do at KP together.

21:12So there was a rationale to it, especially in like the first few folks that came on board in this new, for this new generation. And I'll give you the other example of our partner, Bucky Moore, who joined actually a few months prior to Ilya. but we had sort of a big gap in enterprise infrastructure and developer tooling, and that's where Bucky played, and so where he continues to play almost six years in. And so that was another type of background we need, and we need to invest in this area because it's going to produce a lot of really incredible companies over the next decade. And so Bucky joined, I think, like four months into my time here.

21:56So that was sort of the early team. In fact, actually, if you go through the whole team here, the average tenure of us working together at this point now is of the seven folks, like five plus years. So we really, we sort of hired that team in 2017, 18, and have been together since then. So this has been the team that we've had a chance to build together. there. And a lot of the folks have, like us, actually been groomed from within. Ilya mentioned that both of us were groomed in venture. Associates became principals, became partners at other venture firms. And similarly, we've had our partner, Josh Coyne, Andy Case, join as associates, became principals, and became partners here.

22:43And that's just a model that's worked really well at Kleiner Perkins. In fact, John Doerr joined as an associate. Brooke Byers joined as an associate. And so these folks in Touchline joined as an associate. So we've seen that model of apprenticeship and venture really work well. And so we continue to invest in that. Yeah. And when does someone become a partner? Like what do they have to, what is the path? I'd say you become a call for founders in your domain. So if you're working on developer tools, it's like, okay, you, folks are seeking you out. Like I want to talk to Bucky at Kleiner about my seed or series A because most of our investments that we make are founder referrals and our founders, you have to talk to Bucky.

23:30He is the man when it comes to new databases or pick a thing, vector databases in AI. And I think that's sort of the virtual cycle. And to become a partner, I think, is like you are one of the calls because you've demonstrated that you are a really great thought partner to an early stage founder and helping them build a business. Yeah. And Ilya, what was the pitch that got you to join Kleiner or KP that didn't get you to join Social Capital? Was it, hey, build it? Was it - There are many reasons I wanted to join Social Capital, but - Was it build this firm with me or - Draw off my moon is great, but - No, no.

24:11Look, I mean, so candidly leaving Index was a really difficult decision for me. I mean, it's a phenomenal firm. It's phenomenal people who, you know, took a bet on me coming out of Dropbox. You know, I wound up bringing in and hiring a bunch of folks as well that I used to work with. So it was very much like a family and one that I helped sort of build and be a core part of. So I wasn't, you know, looking for a different venture job. But, you know, look, the opportunity to take the story brand of Kleiner Perkins, which frankly is the brand in venture capital and build its future, it's really a once-in-a-lifetime next-level opportunity, right?

24:55And to me, you know, that was a huge draw, obviously. The other part of it was, you know, really the relationship in the conversation with Moon is like, hey, we can do this together and we can do it the way we think is the right way to build it, right? where you're not trying to mold and shape a firm that's sort of got its momentum and has some scale. It's really fundamentally you can really kind of chisel away, take a block of granite and chisel away the parts that are necessary and start with this kind of perfect core. And if you can do that and if you can then be a winning team and a winning firm, you really created something truly bespoke, like you're a part of that creation process.

25:40And you get to generate real upside, not just personally, but really for the industry. Because if you look at the body of work that this firm has produced, it's really technology and companies we touch and we work with and we live with every day. And that's ultimately why you're in this business, because you get to really be part of that building process. So that to me was like, holy crap, you get to do that. That's amazing. I think, you know, we've over the years talked with a bunch of folks and, you know, I'm always the, to me, the opportunity was obvious. It was sort of like, hey, this is a no brainer.

26:18Like it was hard. It was a hard decision, but it was such an obvious decision that I had to make it. And I think sometimes we, you know, we talk to folks where I'm like, you know, it's a freaking no brainer. Like, yeah. So you guys team up and you say, okay, we're going to make this a world-class firm. We're going to build it from the ground up, just like we've been talking about for years. presumably the first thing you guys think about is who else are we surrounding ourselves around the table and you know if i use some nba analogies you know some teams try to build super teams they try to get a number of different stars big personalities and hope it works out some teams like uh like the miami heat you know they have maybe one or two stars and then they have these diamonds in the rough or kind of they take bets on people early and um they've proven they grow them within the team and they've proven and it seems like you've taken a hybrid where you two teamed up and then you said, hey, let's find some up and comers or people we really want to take bets on and help them rise up within that ecosystem.

27:12Is that accurate? And then I'm curious how you do that, how you find those people. What are you really looking for? I noticed you had two people from Founders Fund join and join in promotion capacities. So you're willing to take early bets and bet big. Why don't you talk about how you think about partner selection? Well, one of them is technically from Kleiner Perkins originally. Oh, yes. Everett used to be, yeah, we got him back. We knew he was great. Yeah, I think the NBA analogy is a great one, actually. Teams of five, you know, I think. And for a while, we were actually five partners. So thinking about who do you draft in the next draft coming up here, which I would say is more the associates, who do you groom?

27:59and so we have a couple of folks in that camp for us even here. And then you have, who do you trade for? But I think in order to win championships, you need to have someone who's pretty dominant in every position. You need to have a dominant power forward, shooting guard, point guard. What are the equivalents within venture? Like positions? How do you think about it? I think about its domain sectors. Like, you know, someone who's deep in enterprise software applications, in infrastructure, consumer, digital health, fintech. These are all the areas that we cover here. So it's very much like in order for us to be at the top performing firm and fund, we need to have folks who are the first, second, maybe third call for a founder in each one of those categories.