Last week on StrictlyVC At an event in San Francisco, we spoke with Mamoun Hamid and Ilya Khushman, two longtime venture capitalists. They met as children in Frankfurt, Germany, and were brought in about six years ago to reboot the famed venture firm Kleiner Perkins.
They seem to have accomplished their mission of polishing the brand. Among Kleiner's recent bets is Rippling, a workforce management company founded by serial entrepreneur Parker Conrad that was valued at more than $11 billion last year. Loom is a video messaging company that was recently acquired by Atlassian for just under $1 billion. And Fushman and Hamid argue that Figma, the design tools company that nearly got acquired by Adobe for $20 billion, is now well on its way as an independent company.
Perhaps unsurprisingly, the Kleiner team also leans heavily into investing in AI, which is what we spent the most time talking about. A video of that chat is at the bottom of the page. Meanwhile, excerpts from our conversation, lightly edited for length and clarity, follow below.
The last time we sat together in person was four years ago at a previous StrictlyVC event. At the time, Softbank dominated the news. Since then, it has shrunk. What impact do you think it has had on the industry?
IF: We've been putting an incredible amount of money into venture companies for three or four years, and it's not just SoftBank, it's a lot of people who have growth funds and crossover funds. And that flood of capital led to several things. The first is that it created many large companies. 2. Some of those companies [became] There is a surplus of funds and some of them now have to rationalize what will happen to them. Our contrarian approach when we were here four years ago was to go back to basics and focus on the early stages. [startups] Mainly when we said, “We're going to build a venture fund and a very small team.” We've always considered this to be much more of a boutique business than these large companies.
Your company looks bigger than when we last sat down. Now we have investors, professionals, and advisors from the old guard. [at KP]Bing Gordon and John Doerr.
MH: I think we may actually be smaller than the last time we met. I think the total number of employees in the company is in the low 50s.
Will “all AI” change anything? Can you do more with less? Or do we actually need more people to follow the AI researchers who keep leaving Google to start companies?
MH: It's incredible to see such a wave of technological innovation. I moved to the Valley in 1987 when he was in the middle of the internet boom, and it's like a dream that he gets to experience an internet boom like this twice in his lifetime. So I think there's never been a better time to be alive and invest in startups. Because to your point, there will be a step-function change in how we all live, experience life, and work. That's in the form of productivity that we all get through AI, and I think we're already seeing it in the kinds of businesses we support, like law, medicine, software development. . AI is actually significantly increasing the number of the highest-paid types of employees in the world. Get more done in less time.
With all these AI engineers spinning out, are VCs actively approaching these large companies and making offers for investment? Have you ever done this?
Image credits: tech crunch
IF: I think that's definitely happening, but the pull factor of AI, the wow factor, is really pulling people away from these companies themselves. As these tools become more useful and data more accessible, these opportunities will become more obvious and more accessible. As we faced the first wave of people trying to start these companies, it was important for us to try to understand, “Are these really the people who know how to do this?” was. We rely on our founders to [help with these questions]; We're looking for people who know that lineage, how these things work.
If you look back over the past decade in venture, there's been a wave where technical talent becomes the most scarce resource, and we're seeing it now.
How are your portfolio companies addressing this challenge in terms of hiring? Meta, Google, and OpenAI are offering multi-million dollar packages to retain this talent.
IF: There are companies like Harvey that are transforming the legal profession. There are companies like Ambience that are transforming healthcare. There are companies like Viz that do automated stroke detection and medical diagnostics. This mission is sure to resonate with those who join these companies. That's a big factor. Second, platform companies are building a lot of incredible infrastructure, but as they get into real-world use cases and get into these niches that get really big over time, they have to fine-tune their models and You find yourself potentially needing to build your own infrastructure. It has a unique model and potentially unique infrastructure, which makes it a very interesting technical challenge and also very attractive.
From the outside looking in, it's hard to understand how these startups are building their moats, or how powerful these moats are given how quickly everything is changing. It Is difficult.
IF: It depends on the company. Moat and overall market size are the most difficult things to understand as an investor. They are usually the most error-prone.
One thing we've learned throughout history is that we always underestimate the biggest winners. Companies that do their best always grow faster. They create or expand the market much more than anyone expected. So we're looking for some intangibles, one of which is great engagement from our customers. For example, once a product becomes part of everyday use, it becomes very difficult to tear it apart.
The more obvious part of the outer moat is the part of the market you are in. Many of the companies we support, especially those in AI, are occupying large problem spaces that companies can and should own. For example, in the case of Enterprise Assistant, it's a big field, and the first people to figure it out will be the ones to act the quickest. When you look at AI, unless you create a great product that flies off the shelf, you can't give it away for free like you can with mobile. AI requires distribution, and improving product experiences requires data. That's why we believe that the first person to define a product category can do it much faster than anyone else.
Image credits: tech crunch
How many AI-related pitches do you see each week or month?
MH: In terms of percentage, I would say it's over 80%. Honestly, if you were starting a company in 1996 and you didn't mention the Internet, you'd be insane, right? Similarly, not mentioning or leveraging AI would be a missed opportunity. Become.
And how active are you in this area?
MH: If you look back at the first three quarters of last year, this was the slowest year in 13, 14, 15 years. December was a really good month.
That was around the time you led the Together AI deal, which was a very hot deal. Why are people so fascinated by this company?
IF: We run a platform and set of services for people who want to run their own models. In a sense, this is like a bet against some kind of oligopoly. [centered on OpenAI, Microsoft and Google] It's an infrastructure company, but it's a company with great customers, really strong growth, an incredible name team, and the numbers speak for themselves. Again, we're building vertical experiences in healthcare, law, software, engineering, and science. [proprietary] Some of these use cases may require modeling, so the opportunity is actually quite exciting.
I hear you're also investing in wearables, which was started by someone VC's salivating over. Please tell us more!
MH: I don't know if I can say more today. I don't think they want that. next time.
Based on what you're seeing, do you think one AI wearable will win? Will we only carry one wearable device, just like we carry one cell phone?
MH: I think we're all asking ourselves the question: What is a computing platform beyond a mobile phone? Some people wear Oura rings, others Fitbits. I'm wearing hoops. These are very basic wearables. They're not that smart.
What captures the imagination of all of us is what computing wearables that are not similar to mobile phones will we adopt in the future? There's Rabbit, there's Humane AI pins, and Vision Pro coming soon. Exciting things are happening. But as we know, it's very difficult to get consumers to adopt new form factors and new ways of doing things. That requires great design, low-cost products, and beautiful interfaces, all of which I think we're excited to see.
Figma, whose Series B round you led in 2018, cut its valuation in half from the $20 billion that Adobe was planning to pay to $10 billion. Where do we go from here?
MH: Figma is one of those once-in-a-decade companies, both in terms of the team, the product they built, the love from the community, the revenue profile, and the profitability. It's a venture capitalist's dream. So it's not sad that the company is charting its own trajectory. For everyone around the table, agreeing to sell the company in September 2022 was extremely bittersweet. So we feel very energized about the future and I think the company continues to do incredibly well.
(Note to readers: The next StrictlyVC night will be held in Hollywood on Thursday, February 29th, in partnership with Lightspeed Venture Partners. If you're looking for another night of drinks, snacks, and good conversation, don't miss out! You can enjoy your seat here! The recent San Francisco event sold out and we expect the Los Angeles event to do the same.)