So much of the EEStory is murky. As AD2 pointed out so eloquently in a recent post, "for every pro there's a con, and for every con there's a pro".
One factor repeatedly asserted by EEStor® True Believers is that Kleiner Perkins is a very well-respected venture capitalist investment firm, and that KP's frequently reported (altho never acknowledged) investment gives a major boost to EEStor®'s credibility.
But does it, really? The claim has been made that KP is so adept at their "due diligence" that the very fact they are willing to invest in a company proves its worth.
But there have been counter claims recently; that just like every other VC firm, most of KP's investment fail. So I decided to do a bit of checking on that, because unlike nearly everything else in the EEStory, this is something for which we *should* be able to get solid facts.
I found the following in an interview of Robert Sutton, author of Weird Ideas that Work:
At Kleiner Perkins, their ability to predict which of the companies that they fund are going to succeed remains terrible. They're no better than anybody else. Maybe they get a little better deal flow, but they still have an incredible failure rate. But what Kleiner Perkins and other great venture capitalists do, they can create confidence in the outside world that a company is going to succeed, and they can create confidence in the management team that they're going to succeed, to the day that they pull the plug on the company.
And they'll tell you, if they can't express incredible confidence in the management or in the company, then they should pull the plug. So, while knowing that 80 or 90 percent of the deals that they're involved in are going to fail, they're still expressing the greatest possible confidence in their success. Because the most well-proven motivational tool on earth, and the cheapest, is the self-fulfilling prophecy. If someone is convinced that they're wonderful and they'll succeed, their odds of actually succeeding go way up.
I like that because it explains so much of the behavior I've seen in Silicon Valley. I've tried to talk about their failure rate to quite a few venture capitalists. They get upset because they don't want to talk about their failures; they think I'm dissing them.
I've got some emails from two different venture capitalists who gave me estimates of their failure rates. They were estimating about 25 percent.
I had a doctoral student look up the failure rates of their companies—the failure rate defined as companies that were funded by them that never went public, or were never sold for what appeared to be, you know, a decent amount of money to a large company, which is the second most favored option. Empirically, they had a 75 to 80 percent failure rate. But they're getting rich off that, and that's the way the game works. And I think that self-delusion is necessary in that business.
I don't at all suggest that this is the final word on the subject. But it's a start. Does anyone else have better documented data on KP's success rate?
