The Ellen Pao vs. Kleiner Perkins sexual discrimination trial revealed some of the inner workings of VC firms. One Pao testimony stated that she had brought Twitter to their attention, and it was never adopted. Why Twitter is so important? After its IPO, I know one early New York investor whose 3% early investment in Twitter brought him $900 million. And this trial highlights my earlier comments on how VC firms operate: they have one mandate only – to bring in high flying, fast growth companies to the fold for their limited partners. The minimum growth should be about 30% annually or ROI of 10X. And if any startup is interested in presenting a company to any such VC firm and that company does not demonstrate that it is capable of meeting that target, then don’t bother calling them.
Virtually all VC firms are not here to save the planet or find a cure for an orphan disease. Each director, as the Kleiner trial showed, has to meet some metrics that fulfill the investment strategy for that firm. Or, as in the alleged case of Pao, you get canned.
There is considerable pressure on junior partners to deliver. They have to sift through hundreds of business plans, identify a subset to bring to the firm, and follow up on due diligence. Then the term sheet offer is made. They will look at the best organized presentation in the right space.
And I stated early, raising capital is a marketing problem. One must deliver what the investor expects. That is what the Kleiner trial highlights.