Last week, during a StrictlyVC gathering in San Francisco, we had the opportunity to engage in a conversation with Mamoon Hamid and Ilya Fushman, two seasoned venture capitalists whose intertwined journey began in Frankfurt, Germany during their childhood. Approximately six years ago, they were enlisted to rejuvenate the renowned venture capital firm, Kleiner Perkins.
Their primary objective of revitalizing the brand appears to have been successfully achieved. Noteworthy investments made by Kleiner in recent times include Rippling, a workforce management entity established by serial entrepreneur Parker Conrad, valued at over \(11 billion last year; Loom, a video messaging platform recently acquired by Atlassian for nearly a billion dollars; and Figma, a design tool company that narrowly missed being acquired by Adobe for \)20 billion. Hamid and Fushman assert that Figma is currently contentedly steering its course as an independent entity.
Unsurprisingly, the Kleiner team is actively delving into AI investments, a topic that dominated our discussion. A video of our dialogue can be found at the bottom of the page, while below are edited excerpts from our conversation for brevity and clarity.
Reflecting on our last face-to-face meeting four years ago at a prior StrictlyVC event, the conversation was heavily influenced by SoftBank. How do you perceive its impact on the industry following its subsequent retreat?
IF: The past three to four years witnessed an influx of substantial capital into the venture capital sphere, not solely attributable to SoftBank but also involving various entities with growth and crossover funds. This capital surge led to the emergence of several major companies. However, some of these companies became excessively funded, necessitating a reevaluation of their trajectory. Our approach during our prior meeting was contrarian, emphasizing a return to fundamentals and a focus on early-stage startups. We opted for a boutique business model with a small, dedicated team, distinguishing ourselves from larger players in the field.
It appears that your firm has expanded since our last encounter. You now boast investors, specialists, and advisors from the traditional cadre at KP, such as Bing Gordon and John Doerr.
MH: Contrary to the perception of growth, our firm may actually have downsized since our previous interaction. The total headcount currently stands at slightly over 50 individuals.
Does the pervasive theme of ‘everything AI’ introduce any alterations? Can you achieve more with less, or does the pursuit of AI necessitate an expanded team to pursue the myriad AI researchers departing Google to establish their ventures?
MH: The ongoing surge of technological innovation, particularly in AI, is truly remarkable. Having relocated to the Valley in 1987 amidst the internet boom, experiencing a similar technological renaissance twice within a lifetime feels surreal. Presently, there couldn’t be a more opportune moment to invest in startups. AI is poised to revolutionize our daily experiences and work dynamics, enhancing productivity across various sectors. This transformative potential is already evident in the sectors we support, be it legal, healthcare, or software development. AI is significantly augmenting the efficiency of highly skilled professionals, enabling them to accomplish more in less time.
Regarding the emergence of AI engineers venturing out, are venture capitalists actively pursuing these talents with enticing offers to secure their involvement? Have you engaged in such endeavors?
Image Credits: TechCrunch
While this trend is certainly observable, the allure of AI itself has been instrumental in drawing individuals away from established corporations. As AI tools become increasingly practical and data accessibility improves, the appeal of embarking on entrepreneurial ventures becomes more apparent and feasible. The initial challenge we encountered with this wave of aspiring entrepreneurs was discerning their expertise and capabilities. We rely on our founders to assist us in evaluating these aspects, seeking individuals with a proven track record and a deep understanding of the domain.
Looking back at the past decade in venture capital, there have been distinct phases where technical talent emerges as the scarcest resource, a trend we are currently witnessing.
How are your portfolio companies addressing the recruitment challenge, especially with tech giants like Meta, Google, and OpenAI offering lucrative packages to retain such talent?
IF: Our portfolio includes companies like Harvey, revolutionizing the legal sector, Ambience transforming healthcare, and Viz specializing in automated stroke detection and medical diagnostics. The mission and vision of these companies resonate strongly with individuals joining their ranks, a pivotal factor. While platform companies provide robust infrastructure, delving into real-world applications and niche markets often necessitates refining models, potentially developing proprietary solutions and infrastructure. This technical challenge presents an intriguing proposition that attracts top talent.
Externally, it’s challenging to gauge the strength of moats these startups build, particularly given the rapid pace of change.
IF: The resilience of moats and the assessment of market size pose significant challenges for investors, often leading to miscalculations. Over the course of our history, we have consistently underestimated the potential of our most successful investments. Leading companies tend to expand their markets at an unforeseen pace, underscoring the importance of certain intangible qualities. Customer engagement is a key indicator; when a product seamlessly integrates into daily routines, its retention becomes formidable.
Establishing a foothold in a specific market segment represents a crucial aspect of building a moat. Many of the companies we support, especially in the AI domain, target expansive problem areas ripe for disruption. For instance, enterprise assistance presents a significant market opportunity, and the pioneers in this space are poised for rapid advancement. Unlike the mobile era, AI necessitates deliberate distribution strategies and leverages data to enhance product efficacy. Therefore, early entrants who define and dominate a product category can gain a substantial competitive edge.
How frequently do you encounter AI-related pitches on a weekly or monthly basis?
MH: I would estimate that over 80% of the pitches we receive are AI-related. Just as it would have been inconceivable to overlook the internet in building a company back in 1996, the same can be said for AI today. Ignoring or underutilizing AI represents a missed opportunity in the current landscape.
To what extent are you actively involved in this domain?
MH: Reflecting on the previous year from Q1 to Q3, we experienced a relatively subdued period compared to the preceding 13 to 15 years. However, December marked a notable upturn in activity.
This coincided with your leadership in the Together AI deal, generating considerable interest. What captivates people about this particular company?
IF: Together AI operates a platform and suite of services catering to individuals seeking to develop their models. It represents a distinct approach, diverging from the predominant oligopoly comprising OpenAI, Microsoft, and Google that provide infrastructure services. The company boasts a robust customer base, impressive growth trajectory, and a stellar team, all of which speak volumes about its potential. As we focus on crafting vertical experiences in healthcare, legal, software, engineering, and science, the necessity for fine-tuning and proprietary modeling in these specialized domains presents an exciting opportunity.
It has come to our attention that you have invested in a wearable technology startup led by a figure that would entice venture capitalists. Could you provide further insights into this venture?
MH: Regrettably, I am unable to divulge additional details at this juncture. Perhaps next time.
Based on your observations, do you anticipate a singular AI wearable emerging victorious, akin to the ubiquity of a singular smartphone?
The quest for the next computing platform beyond mobile phones remains a prevalent question. Individuals opt for various wearables such as Oura rings, Fitbits, or Whoop, each offering basic functionalities. The allure lies in identifying a groundbreaking wearable computing device that transcends the conventional smartphone design. Noteworthy innovations like Rabbit, Humane AI pin, and Vision Pro vision are on the horizon, promising exciting developments. However, transitioning consumers to adopt a novel form factor and operational paradigm poses a considerable challenge, necessitating exceptional design, cost-effectiveness, and user-friendly interfaces to drive adoption rates.
Figma, a recipient of your Series B funding in 2018, recently underwent a valuation adjustment from the anticipated \(20 billion acquisition by Adobe to \)10 billion. What trajectory do you envision for Figma moving forward?
MH: Figma epitomizes a rare gem in the realm of companies, characterized by an exceptional team, a beloved product within its community, a robust revenue stream, and profitability. It embodies the quintessential venture capitalist’s dream. While the decision to chart an independent path deviated from the initial plan to sell the company in September 2022, it signifies a new chapter brimming with promise. The company’s ongoing stellar performance fuels our enthusiasm for its future prospects.
