E63: How Mamoon Hamid and Ilya Fushman Continued Kleiner Perkins’ Legacy

0:04Welcome back to Turpentine VC, the podcast where we discuss the art and science of building successful venture firms, VC to VC. This week, we're releasing my 2023 interview with Mamoun Hamid and Ilya Fushman, partners at Kleiner Perkins, the storied 52-year-old venture firm. In 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. Now let's hear from Mamoun and Ilya. Mamoun, Ilya, welcome to the podcast. Thanks for joining.

0:43Thank 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. Maybe we need some new blood in. Who's making these decisions and take us through 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 were who were across different funds. But I would say, you know, the person who I owe a lot of credit in terms of recruiting me is Touchline. Got it.

1:21And does he make the decision or is there a committee who makes it? It's a team. It's a partnership. Right. And that's the beauty of Kleiner Perkins, the 51 year old partnership. It's there 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 know, you have a group of smart individuals who get to make decisions. And so Ted was really the person who recruited me. And, you know, 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.

2:02right and and so that's sort of how things you know work over here as well uh but in terms of folks it's a ted schlein uh 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 uh in accomplishing that would look like and that's where some of the young blood came in yeah so um 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 what that could look like. I mean, I think it's kind of like what we are building here, which is - Craftsman approach.

2:43Craftsman approach. I mean, we've both been apprenticed in venture, working 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, what's critical at any given juncture.

3:23and 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. 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 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.

4:13And that's kind of what we try to espouse here, which is a 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 then 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.

4:51And, you know, personally, the way 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.

5:23Everybody really understands what everyone is doing. And you have the 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. 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.

5:58And in practice, the way it really settles out is you look across the room and if everybody looks really skeptical, you know, your partners are smart and they probably have a reason to be skeptical, but you could still do that deal. Now, 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, you know, 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.

6:33and they do typically come out of dissent and sort of discussion and some conflict because sort of trite, right? The obvious deals would be pretty obvious. So we try to foster that on the venture side. On the growth side, 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 a data deck, for understanding the model, for valuation, and then we do require unanimity. So everybody has to vote positively on that deal. 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?

7:13Yeah, 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. So 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, or 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.

7:50And 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. 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.

8:27one 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. Yeah. So 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?

9:02I'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. CoSLA 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.

9:47It feels like 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. And I think it kind of comes back to you know these outsized outcomes are randomly occurring you know independently distributed events that happen every one to 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 into it with growth and if you can do that uh you can sort of generate the types of returns that you know kp generated in its early days.

10:52Totally. Moon, talk a little bit about the social capital approach because that was very similarly to maybe Kleiner in the beginning. Like it was first in some ways. Like social capital felt like it was really trying new ways of approaching venture. A data-driven approach. They were also getting into different asset classes. When do 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, you know, anything you may want to adopt as you think about Kleiner going forward? I would say that our earliest days and including all the way through 2017, were focused around early stage venture capital.

11:35It was own substantial amount at the earliest stages, join the boards of these companies, you know, 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. But I would say most of the time that I was there, it was a very traditional sort of early stage venture capital model.

12:23Yeah, 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? Or an Andreessen Arwitz, which has also taken a pretty drastically different approach to firm building. And it's interesting. One is tempted. I mean, in this conversation, we've been talking about going back to Kleiner's roots. But there's always also the question of like, hey, does venture evolve? 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.

12:59But really what's important 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. I say that to ask like 20 years from now, you know, do you think it's going to 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.

13:39Absolutely. I think that there, and do we run our back office? Do we do our portfolio management with software and analytics that allows us to be better stewards of the capital you manage? Of course we do. So there's all that. But I think when you talk about the craft of investing, we're a small team. Ilya said, one team, one dream, which is to invest in history-making companies. And 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.

14:25I 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. Yeah, and you're all based here. We'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.

15:01It's all centered. How do we really, how do you make good decisions? It's 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. There are more consumers for, you know, 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.

15:40So 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 we have a scout fund as well to earmark some of these investments. You can process the pipeline a little bit more efficiently with tools and signals from the app store, payment data, and things like that. But 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.

16:15So 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 if you're successful. And then the other thing that happens is these companies are staying private longer and generating bigger outcomes than before if they are winners. So 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. You can have a venture fund and a growth fund the way we do.

16:49You 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 and 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 it's still a very small investment team that has to make those critical decisions and really arrive at the right ones.

17:24Totally. Hey, we'll continue our interview in a moment after a word from our sponsors. How deep do you go to seek out an answer to a question? Maybe you've spent hours clicking the source links on an obscure Wikipedia page, or maybe you're even the type of person who checked out the entire shelf on the topic at your library. If you're nodding along, then check out GiveWell, an organization that researches questions about global health and philanthropy. Even if a satisfying answer might require years of reviewing studies, talking to experts, and over 300 footnotes. GiveWell has now spent over 17 years researching charitable organizations and only directs funding to a few of the highest impact opportunities they've found.

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18:32To claim your match, go to GiveWell.org and pick Podcast and enter Econ 102 with Noah Smith and Eric Torenberg at checkout. Make sure they know that you heard about GiveWell from Econ 102 with Noah Smith and Eric Torenberg to get your donation matched. Again, that's givewell.org to donate or find out more. 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. I was going to ask, to what extent does macro play a role? Yeah, it's a decent role. So in the last five venture funds that we've invested out of, we've had exactly 35 investments.

19:17Uh, 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, a good sampling of like statistically like, uh, um, uh, generating returns that, you know, we'd want our LPCs to see from us. So it's, so the last fund in her 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 ownership uh with x amount of y amount of dollars in is about 800 million yeah that makes sense and so um going back a little bit i wanted 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 in my team with me?

20:18Yeah. 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? Um, early state venture team. And, uh, I literally put together a, a spreadsheet still have it. And, uh, of folks that I knew in the industry who could just be great partners uh had a domain expertise were technical like had some operating backgrounds that mattered and uh and i'm not shitting you here should i say that yeah but but ilia was like the number one person on that list so but i went down about halfway down that 50 person list and i think i talked to probably 25 or 30 of the folks on that list over that two to three month 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 I invest in as well and it was like a little bit annoying actually that Ilya was so competitive.

21:34I heard Stuart was trying to hire you originally and then when he couldn't he said hey I gotta have him you know, I'm on board or exactly, exactly. And I 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, we, 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. So there was a rationale to it, especially like the first few folks that came on board in this, 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.

22:13But 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. So 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.

22:54So we really, we sort of hired that team in 2017, 18, and have been together since then. And so this has been the team that we've had a chance to build together. 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. And 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.

23:37And 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, folks are seeking you out 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 he is the man when it comes to new databases or vector databases in AI and I think that's sort of the virtual cycle that 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 ilia what was the pitch that got you to join uh kleiner that or kp that didn't get you to join social capital was it was it many reasons i want to join social capital but was it was it build this firm with me or You're off my moon is great.

24:56Look, 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 took a bet on me coming out of Dropbox. 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 looking for a different venture job. But 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.

25:40And to me, 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 you know take a block of of granite and chisel away the 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 like you really created something truly bespoke like you're part of that creation process and you get to you know generate real like real upside and you know for not just personally but really for for the industry because if you look at the body of work that this firm has produced like it's really technology and companies we touch and we work with and we live with every day and that that that's i mean ultimately like why you're in this business because you get to really be part of that that building process so that to me was like this holy holy crap like you get to do that like that's amazing i think you know we've 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 like it was hard it was a hard decision but it was such an obvious decision that i i had to make it um and i think sometimes where we you know we we talk to folks i'm like you know this is a freaking no-brainer like yeah 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 they've proven, they grow them within the team and they've proven.

27:47And it seems like you've taken a hybrid where you two teamed up and then you said, Hey, let me, let's find some up and comers or people we really want to take bets on and, and help them rise up within that ecosystem. Is 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 Bergens originally. Oh, yes.

28:21We got him back. We knew he was great. Yeah, I think the NBA analogy is a great one, actually. Teams of five, 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 and 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?

29:10like positions I think it's domain sectors like someone who's deep in enterprise software applications in infrastructure, consumer, digital health fintech these are all areas that we cover so it's very much 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. And I think you, you have to construct a partnership that is able to fulfill, fulfill that. And so for, in some cases we've groomed from within. So, you know, Bucky worked for a couple of firms before he joined us at KP, but he came in as a principal and very quickly became a partner here and you know, has been able to really capture the hearts and minds of lots of incredible infrastructure founders.