By Adam Gifford
Silicon Valley venture capital legend Tom Perkins reels off the figures on how much Kleiner Perkins Caufield & Byers has returned investors.
In the 28 years since the former Hewlett Packard engineer founded a partnership with Eugene Kleiner, it has a compound internal rate of return of 37 per cent a year.
In the past five years that figure rose to 204 per cent compounded, and during the past three it was 346 per cent, making the 1990s the golden age for venture capital.
That makes Kleiner Perkins the most successful investment vehicle in history, "but the Medicis and the Rothschilds haven't submitted their data so I'm not absolutely sure.
"Are we in a bubble? We are demonstrating a mathematical impossibility that you can compound ever larger numbers at accelerating rates of return," Mr Perkins says.
"Can it continue? No."
Even so, Mr Perkins believes it is early days for the internet, with less than 5 per cent of its potential revealed so far.
"The internet is the huge thing. We were lucky to have seen it coming early, as we have in a few other areas, so we tried to cover the whole spectrum of possible investments from software through hardware."
The list of Kleiner Perkins investments is a history of Silicon Valley and the high-tech economy.
It has been lead investor in companies such as Tandem, Genetech, Compaq, Lotus, Sun Microsystems, Veriphone, Sybase, AOL, Netscape, Excite, Amazon and hundreds of others who now form part of its "keiretsu" network of companies.
From $US2 billion invested it has generated $US38.5 billion and created companies with combined revenues of above $US200 billion a year, 195,000 employee and a market capitalisation of $US658 billion.
Mr Perkins got his start in Hewlett Packard, where David Packard asked him to make a business out of the minicomputers he was developing in the labs.
Mr Perkins was also working on a "hobby" project developing a practical optical laser. The company he started to make it, Spector Physics, is one of the few survivors of the laser boom.
Then there was the biotechnology boom, the minicomputer boom, and now the internet.
"The whole trick in venture capital is timing. If you're too early the market doesn't happen. Too late and the technical and marketing risks may be gone but there's a stampede."
For their first partnership, he and Mr Kleiner raised $US8 million, the largest venture capital fund in the world at that time.
"We only invested half but we had two enormous home runs with Tandem Computers and Genetech."
Not including that first $8 million, Kleiner Perkins is now raising its 10th partnership, which will have about $US350 million to spend.
Under the classic partnership model the firm adopts, the money comes from long-term institutional investors such as Harvard University, individuals like Bill Gates ("We've had a love-hate relationship with Microsoft - we've worked with them and worked against them") and from the partners, who will be responsible for working with the companies they invest in.
"We never reinvest profits. We distribute all profits as we make them to the partners, so the partnerships run out of money by design," Mr Perkins says.
"That lets us bring in new investors and ease out others."
Investors need to bring more to the party than money.
"We are selling the most undifferentiated commodity, money. It's even less differentiated than sugar, so we have to bring something more than money."
He says Kleiner Perkins structures its deals in a different way to other venture capitalists.
Venture capital king sees internet bonanza
AdvertisementAdvertise with NZME.