There was a time when white-shoe venture capital firm Kleiner Perkins Caufield & Byers, was the first money in hot new start-ups that defined categories. These days, it seems the best the Sandhill Road firm can do is can try to edge its way into hot Internet start-ups at a massive premium. A good case in point is the recent funding for Twitter. KPCB is leading a $200 million investment round for Twitter which values the fast-growing social information platform at a whopping $3.7 billion. At that price, assuming some, if not all previous investors participated in the round, KPCB got between 4 and 5 percent of Twitter.
Now maybe KPCB’s lead partner John Doerr will have to pull out a comment from the archives. He famously said that “I have seldom paid so much for so little of a company,” when referring to KPCB’s early investment in Google (s goog). And that was at a time when KPCB was an actual Internet kingmaker.
This isn’t the first time the firm has paid up for a piece of a hot start-up. Even though the firm talks up its Zynga connection, it had to spend big to crash that party. The firm also recently launched a $250 million sFund (Social Fund), a way for them to regain a footing in the fast-shifting social and digital media industry.
This is in sharp contrast to the days when it backed Sun Microsystems (s orcl), Genetech, Compaq (s orcl), Netscape, Amazon (s amzn), Google and @Home Networks: companies that defined not just their categories, but also spawned entire industries. The new social revolution has passed that mantle of über investor onto Fred Wilson’s New York-based Union Square Ventures (Twitter, Etsy, Foursquare) and Accel Partners (whose investments include Facebook and Groupon).
As an investor, one needs to be early in spotting trends, especially in the Internet arena, where things morph at lightening speed. Talking about the third wave in 2010 is sort of like suddenly discovering Lady Gaga today. But KPCB doesn’t have much choice. As we wrote earlier, KPCB is taking a sharp hairpin turn at a high speed as it tries to shift its investment momentum away from clean-tech to Internet and digital media investments. Hiring Mary Meeker was the right move, and now with the Twitter investment, is the fund betting it will regain its cachet?
Nevertheless, for Twitter, this money is going to come in handy, especially as it tries to expand its footprint and take on a much larger role. The San Francisco-based company is growing at a great clip, but it needs to spend on scaling its business and at the same time solve the quandary of a business model. It hasn’t quite figured out where its sales (and profits) are going to come from.
Yesterday, Erick Schonfeld pointed out that Twitter might be seeing slower growth in the U.S., which isn’t a good sign, considering U.S. (and Europe) continue to be the only monetizable Internet markets. Twitter, as I wrote earlier, is going to see significant growth in emerging Internet economies like India, Brazil and Indonesia in the coming years, which aren’t quite monetizable for U.S.-based companies.
Nevertheless, as long as there are folks looking to spend wildly to hang with the cool kids, Twitter’s trio of CEO Dick Costolo and co-founders Evan Williams and Biz Stone don’t have much to worry about.
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