Silicon Valley's Unlikely Saviour

Image: Eric Millette for Forbes

Mary Meeker

Mary Meeker is sitting in the centre of the internet, literally. She’s in the big, glass-walled conference room smack in the middle of the brightly lit, high-ceilinged ski chalet that is the Sand Hill Road headquarters of Kleiner Perkins Caufield & Byers, the most storied venture capital firm in Silicon Valley. Kleiner has backed an astonishing number of important technology companies: Netscape, AOL, Sun Microsystems, Amazon, Google.

“Just look around the room,” she says, in her deep, rapid-fire staccato. Spinning her chair, the former star analyst at Morgan Stanley points to one office after another on the perimeter of the big central great room.

“You have Matt Murphy, who is an expert on mobile and helped start the iFund at Kleiner. Randy Komisar has been at a plethora of startups and helped build businesses over the years, some of which I’ve been involved with,” she says. “Ted Schlein knows as much about security as anyone around. Bing Gordon was one of the cofounders of Electronic Arts and really has a very keen understanding of user interface design and gamification.”

Meeker still seems in awe of the place, even though she joined almost two years ago as full partner. “There’s Ray Lane, on leadership. John Doerr, on thinking about big ideas, and yes, I’ve seen this movie before, yes, I can make this call and get this done ... Al Gore … Colin Powell … I could go on and on.”

The awe is real. But so is the fact that Kleiner needed Meeker more than she needed Kleiner. Though Meeker’s Hoosier conservatism would never allow her to admit it, she has played a key role in Kleiner’s bid to restore its reputation as Sand Hill Road’s top firm. Kleiner spent the post-bubble years investing, unsuccessfully, in other things: nanotech, for instance, and green energy. It brought in high-profile partners lacking any real tech experience, such as Powell and Gore, while its heaviest hitter, billionaire John Doerr, was focused on biofuels and solar cells.

That left players lower in the batting order to handle the new wave of Net startups—who missed chances to make early bets on the likes of Facebook, Twitter and Groupon. As a result Kleiner, once the undisputed king, is now just one of a half-dozen top-tier VC firms that include Sequoia Capital, Andreessen Horowitz, Greylock Partners, Benchmark Capital and Accel Partners

Meeker has done exactly what she was brought in to do: Capitalise on the big market opportunities that Kleiner was missing. Post Sarbanes-Oxley, tech startups have tended to stay private longer. Companies like Facebook, Zynga and LinkedIn stayed private even as revenues topped $100 million, preferring to raise large venture capital rounds instead of going public. Kleiner, which had always been great at nabbing hot startups in their toddlerhood, was weaker on later-stage deals.

And then along came Mary. Kleiner’s decision to lure her startled many on both coasts. It’s exceed- ingly rare for a Wall Street analyst to enter a venture firm at its highest levels. But it made sense: Morgan Stanley had taken a host of Kleiner companies public; Meeker and Doerr knew each other well. Her shift was the culmination of a 19-year run picking stocks for Morgan’s clients. Now she gets to pursue her true love: building companies.

“I’ve always wanted to invest. That’s why I started working on Wall Street in the first place, back in 1986 when I went through the Salomon Brothers training programme,” says Meeker. “My move to investing was delayed in part because I just loved what I was doing. ... I took a step back and said, ‘If I don’t do this now, I never will.’”

Kleiner put her in charge of its new $1 billion Digital Growth Fund. She and her team have already invested half of the fund’s capital in about 20 deals, with stakes in a variety of high-profile startups, including the streaming music service Spotify, the payments service Square and the online retailer One Kings Lane. The fund also caught up with deals it had missed earlier, like Facebook, Groupon and Twitter—erasing a conspicuous hole in the firm’s glittering history.

Meeker, 52, already stands out as an elite VC. For starters, she knows everyone in the Valley who matters. In a place where people actually compare Klout scores—Kleiner is an investor in Klout, by the way—Meeker has an unmatched contact list. Also key: She still approaches the world like a financial analyst. This is the woman who wrote “The Internet Report,” a seminal  1995 research piece that was so popular that Morgan Stanley actually had it commercially published and sold in bookstores. She also knows technology: Before she invests, she tries stuff out. Ergo, Meeker not only invested in the crowdsourced traffic service Waze but also has the app on her phone and checks in when there’s an accident slowing traffic on I-280.

Meeker is also willing to think big. Waze CEO Noam Bardin says that while his team was thinking bottom-up, figuring out how to sell ads against its traffic content, Meeker was thinking top-down, advising him to imagine how Waze can steal dollars from the multibillion-dollar billboard and radio markets. “She immediately saw the big picture,” he said. “Most VCs were thinking about why the business won’t work, not how big it can be. She looked at it analytically. She said, ‘Look at how much money is out there that needs to find a home.’”

For his part, Doerr raves that Meeker is “a spectacular investor, with a rare blend of intuition based on pattern matching over decades of work combined with hard-core analytics.”

Not that distractions haven’t cropped up. Earlier this year Kleiner was hit by an embarrassing sexual harassment and gender discrimination suit by fellow partner Ellen Pao. As the firm’s highest-ranking woman, Meeker became an obvious person to defend the firm’s track record, but she can’t talk about the case nor is she interested in getting ensnared in debates about the lack of female representation in venture capital. Pao accuses Kleiner of steering plum deals and board seats to male partners and denying women opportunities to advance. Kleiner has denied any wrongdoing and issued a point-by-point rebuttal of Pao’s claims.

you have to go far back in Mary Meeker’s life to find a moment when she wasn’t investing. Meeker was raised by a homemaker mom and a steel industry exec dad in Portland, Ind. Her driven father pushed her to be great at his two favorite things: Golf and investing. Meeker became captain of her high school golf team. According to Charles Gasparino’s 2005 book, Blood on the Street, Meeker also took a class in investing while still in high school, where she made her first stock pick, a Minneapolis oil refiner. The stock doubled in three months.

After a DePauw degree in 1981, Meeker spent a few years as a stock broker at Merrill Lynch before getting an MBA from Cornell in 1986. After a stint at Salomon Brothers she moved to the research department at Cowen and eventually joined Morgan as a PC hardware and software analyst in 1991. Her long relationship with Kleiner began soon after, in 1993, when Meeker picked up coverage of Intuit not long after Morgan took the Kleiner-backed software firm public.

You can peg the start of Meeker’s unique role in the growth of the internet economy to May 7, 1994: That morning the New York Times ran a story about a new startup called Mosaic Communications, founded by the investor and entrepreneur Jim Clark, a former Stanford professor who had created the computer graphics workstation company Silicon Graphics. Mosaic’s other founder, a 22-year-old wunderkind named Marc Andreessen, had created the world’s first consumer-friendly browser for the World Wide Web. Clark told the Times that Mosaic was targeted at computing’s next big trend: Navigating cyberspace.

Meeker saw opportunity knocking. She dialed her colleague Frank Quattrone, then head of tech banking at Morgan, and suggested they meet with Clark and Andreessen. “It was one of those moments,” Meeker says. “I picked up the paper and said, ‘That’s it.’ ”

Mosaic soon changed its name to Netscape. It got funding from Kleiner Perkins, among others. And about a year later Morgan Stanley was the lead bank on its IPO, the deal that effectively launched the Internet into the mainstream.

Meeker’s status as a stock-picking superstar only grew as the internet bubble inflated. Buy recommendations on Dell, Compaq, Microsoft and AOL all provided 10x returns.

Then there were Meeker’s research reports: Epic, chart-heavy and exhaustive road maps to the emerging internet economy. The series started in 1995 with “The Internet Report.” Doerr says that one became “the Hitchhiker’s Guide to the dot-com boom.”

“There’s an entire generation of entrepreneurs who have grown up on Mary’s research,” says Kleiner partner Chi-Hua Chien. “You can line them [the reports] all up, and the predictions, plus or minus 24 months, are where things ended up.”

An excerpt shows how much she nailed it: “At a minimum, e-mail should become pervasive. So should internet/web access: E-mail is the ‘killer application’ of the Internet today, and browsing through information services the ‘killer app’ of tomorrow.”

“The Internet Advertising Report” came out the next year, followed in May 1997 by “The Internet Retailing Report.” Once again she was dead-on: “The web won’t displace traditional shopping and will remain a niche channel for some time, yet it will ramp rapidly in revenue and usage. Some segments will likely see relatively significant growth: We anticipate faster take-up in insurance, financial services, computer hardware/software, travel, books, music/video, flowers/gifts and automobiles.”

More than just another analyst, Meeker made herself an indispensable consigliere to CEOs and corporate boards across the Valley. Sometimes knocked for her close ties to the companies Morgan took public, she certainly showed intense loyalty to the companies she supported.

Indeed, she took considerable heat for her unwavering faith in some of her less successful picks even in the darkest days of the dot-com bust—it took a 97 percent slide in Priceline shares before she backed off a buy recommendation on the stock, for instance.

But attempts by regulators and New York Attorney General Eliot Spitzer to go after her in the aftermath of the bubble failed miserably. While fellow bubble poster child Henry Blodget was kicked out of the securities business after privately bad-mouthing stocks on which he had buy ratings, investigators never laid a glove on Meeker.

She was more cautious in the bubble years than many recall—for instance, comparing the period to the 17th-century Dutch tulip-bulb mania in a 1999 New Yorker piece. “There is the same supply and demand imbalance. The difference is that tulip bulbs didn’t fundamentally change the way companies do business. But when all is said and done, there will be many stocks that in hindsight look like tulip-bulb stories.” Nailed that one, too.

kleiner’s approach to playing catch-up to the web 2.0 investment wave has been two-pronged. On the one hand, the company jumped into later-stage rounds for fast growers like Facebook and Twitter that in another era would have long since gone pubic. And on the other hand, it has been scouting for lesser-known companies with a chance to go large.

A case in point: Square, a rapidly growing player in mobile payments. The company offers a dongle that plugs into smartphones and tablets and turns them into wireless point-of-sale terminals. Now anyone can take credit cards. The company’s founder is Jack Dorsey, one of the co-founders of Twitter and a revered figure in the Valley.

Square COO Keith Rabois remembers the afternoon in 2011 when Meeker, Doerr and another Kleiner colleague came to Square’s office in San Francisco at 5 pm, a day before the company planned to close a new round. He says Meeker and her colleagues spent hours with Square, “asking us probing due-diligence questions and eating pizza and cold sandwiches.” They negotiated terms and had a handshake deal before the night was over.

The investment was ratified by Square’s board the next day. Meeker and Doerr, Rabois notes, “dropped everything” to get the deal done.

Meeker likes Square because it does more than simply make it possible for, say, flea-market vendors to take credit cards. Square also provides deep market intelligence for sellers. They can see all of their transaction information in an efficient, organised way, compiled in a database rather than entered manually from a pile of crumpled receipts. “This company has the potential to be really big,” she says.

Waze CEO Noam Bardin confides that he was wary of Meeker when he met her. “My first reaction was that she was not going to be able to get big deals through, that she was not a heavy hitter,” he says. “At the beginning I was not so warm to the idea of Kleiner. But she brought John Doerr in as proof she was serious, and she brought Bing Gordon in, and she quickly changed my view.” He gave them a week to close the deal, and they did. “They moved very fast. An ability to do that at a firm like Kleiner was very, very impressive,” says Bardin.

Bardin notes that during the “courting process,” Meeker talked about her broad connections to tech- and investment-sector bigs. On that score, he says, Meeker has delivered. “That is one thing that has been phenomenal. Mary knows everyone I would want to know. If I need an introduction, or a meeting, it is always there. People really respect her, they will take her call—and they will take my call because she recommends it.”

a funny thing happened after Meeker’s early phase of rapid dealmaking: She stopped. In the first quarter of 2012 Meeker did zero deals. Not a penny.
Why? She thinks that private valuations are too high, especially compared with public valuations, creating a potential trap for last-stage investors. In her latest report on the state of the internet, she forecasts “mixed trends with a negative bias” for the economy overall. She also observed that, over the period from 1980 to 2002, 2 percent of tech IPOs accounted for almost 100 percent of the sector’s wealth creation. In short, Mr Entrepreneur, the deck is stacked against you.

But Meeker is paid to put money to work, so pauses can’t last that long. A few weeks ago she ended her deal drought with a $15 million  investment in the online financial site Lending Club. This month she took a stake in Codecademy, a site that offers online training in computer programming, and the electronic signature service DocuSign.

While valuations remain a little out of whack, Meeker sees plenty of opportunity. In her recent “Internet Trends Report” Meeker runs through a long list of businesses being fundamentally changed by the online world. News and information. Drawing. Photography. Publishing. Music. Video, home entertainment and television. And so on and so on and so on.

Bubbles come; bubbles go. Mary Meeker, on the other hand, is staying right here.