By Deborah Gage And Jeff Elder
In a packed San Francisco courtroom earlier this month, John
Doerr looked exhausted, at times gloomy, after hours of testimony
in which he defended the Silicon Valley venture-capital firm where
he has worked for 35 years against allegations of sex
discrimination and retaliation.
The billionaire investor explained why Kleiner Perkins Caufield
& Byers had placed a male partner on the board of startup RPX
Corp. instead of his accuser, Ellen Pao, who pushed for the
investment.
Randy Komisar, the male partner, "needed a win; Kleiner needed a
win; everybody needs wins," said Mr. Doerr, facing Ms. Pao, who sat
some 15 feet away in front of her mother. "I could use some
wins."
Wins in this sense refer to the kind of smash-hit investments
Kleiner became famous for making, such as early bets on Google Inc.
and Amazon.com Inc.
But a courtroom win over Ms. Pao might do little to repair
Kleiner's reputation.
A six-man, six-woman jury is set to begin deliberations
Wednesday in San Francisco Superior Court after more than four
weeks of testimony in the case. The trial exposed business secrets,
details of infighting among Kleiner's partners, amorous liaisons in
parking lots and allegations of dirty talk about porn stars on a
private jet.
In interviews, some entrepreneurs and limited partners--the
pension funds, endowments and family offices that are the lifeblood
of any venture fund--have expressed concern about Kleiner.
Ms. Pao sued Kleiner in 2012, alleging that she was passed over
for promotions, and then fired, after complaining about being
discriminated against because she was a woman. Kleiner has denied
her claims, and sought more help from Brunswick Group, the
crisis-management firm it hired as the lawsuit sparked a debate
about Silicon Valley sexism.
The trial put Kleiner under intense media scrutiny. The 150-seat
courtroom was crowded with the technology press and more than a
dozen reporters from major news outlets, including several working
for Chinese-language media, who parsed the testimony via live blogs
and on Twitter.
Photographers lurked outside the women's bathroom for a glimpse
of the 45-year-old Ms. Pao.
Most days, a Kleiner marketing partner and three spokespeople
sat in the courtroom to monitor stories and complain to reporters
when they thought coverage was biased or inaccurate. Kleiner
attorney Lynne Hermle, whose cross-examination of Ms. Pao attracted
a standing-room audience, also confronted reporters about their
stories.
Mr. Doerr, 63, and more than a half-dozen current partners at
Kleiner were called to testify, including Mr. Komisar, who was
pressed on the stand to justify his decision to give Ms. Pao a book
of poetry for Valentine's Day that contained erotic illustrations.
Mr. Komisar said it was an innocent gift from his wife and related
to the fact that he and Ms. Pao shared an interest in Buddhism.
Despite Kleiner's attempts to manage the story--and emphasize
that its investment staff includes more women than the industry
average--the case has ignited controversy among those associated
with Kleiner.
"It's sad to see it; there are no two ways about it," said Bob
Ackerman, whose venture firm Allegis Capital invested alongside
Kleiner in at least three startups last year.
"When you see something like this, you can't help but do a
little self-assessment..." he said. "I think a lot of things look
worse in retrospect than they did at the time."
An investor who has backed Kleiner funds said the
limited-partner community is "disappointed and saddened" by the
case and suggested that Kleiner use the opportunity to
restructure.
Kleiner declined to comment on the case while it is
continues.
Entrepreneurs who have raised money from Kleiner or considered
doing so are divided in their support of the firm. Some founders
said they would take money from Kleiner no matter what, while
others stated they would hesitate to do so pending the verdict.
The chief executive of one fast-growing company in which Kleiner
is a major investor said that while the firm is an "excellent
investor," he is worried about his affiliation with it. "I hope
it's as they say and there's no wrongdoing," he said.
Other founders were kinder in their assessment of the firm.
"I've spent plenty of time with plenty of VCs, and there are gender
issues in the tech world, but they're not happening at Kleiner,"
said Tracy DiNunzio, CEO of Tradesy Inc., an online clothing
marketplace that raised money from Kleiner last May and granted Mr.
Doerr a board seat.
As Kleiner copes with the turmoil that comes with a public
hearing, it also continues to battle a perception that it has lost
its way as an investor.
A decade ago, Mr. Doerr seemed like he could do no wrong after
his prescient bets on Google, Amazon and Netscape Communications
turned Kleiner into a powerhouse with strong political
connections.
But by 2006, a year after the firm distributed at least $2
billion in Google stock to its limited partners, Mr. Doerr decided
it would charge hard into clean technology, dedicating hundreds of
millions of dollars to the sector over the next several years.
That proved to be a costly mistake, with Kleiner suffering
massive losses in companies such as solar-panel producer MiaSole
and the electric-car maker Fisker Automotive.
Meanwhile, Kleiner missed the rise of social media and mobile
technology and had to play catch-up with later-stage investments in
companies such as Facebook Inc. and Twitter Inc.
Since 2013, Kleiner has acknowledged its missteps to limited
partners, cut the management fees to run its fund, scaled back the
size of its main fund to $450 million last year from a high of $700
million in 2008, and reduced its senior investor staff by 33% to
eight, according to people familiar with the matter.
"We needed to get smaller to make better decisions," Mr. Doerr
testified.
Last year, the firm scored a big win when Google paid $3.2
billion to acquire household device maker Nest Labs, in which
Kleiner was an early investor. Venture-capital insiders say Kleiner
is still ranked in the upper tier of venture firms but no longer is
considered the must-have backer by young startups.
Kleiner is an investor in 17 private companies valued at $1
billion or more, according to Dow Jones VentureSource, though only
three of those investments were made at an early stage when a
company's success is less assured but investment returns are
potentially greater.
By comparison, its rival Sequoia Capital is an early investor in
eight of its 17 billion-dollar companies.
In an effort to close a perceived generation gap, Kleiner tried
to merge with a younger firm, Social+Capital Partnership, but those
talks ceased, according to a person familiar with the talks.
Kleiner continues to have "lots of conversations with lots of
people," this person said.
Like most venture firms, Kleiner doesn't have a conventional
human-resources department, only a policy covering discrimination
and retaliation. Stephen Hirschfeld--who was hired by Kleiner to
investigate Ms. Pao's complaints about a former partner with whom
she had a consensual affair--testified that partners also didn't
have a clear idea of how to succeed at the firm.
Crisis-communications expert Sam Singer said Kleiner should
change its culture, adopt new human-resources policies and
procedures and promote women and minorities to repair its
standing.
"The legal trial isn't about [Kleiner]," Mr. Singer said. "It's
about how the public will ultimately judge venture-capital firms
above and beyond financial success."
Write to Deborah Gage at Deborah.Gage@dowjones.com and Jeff
Elder at jeff.elder@wsj.com
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