VC smackdown highlights East versus West
Commentary: And the winner is.......
By Therese Poletti, MarketWatch
Last Update: 12:01 AM ET Nov 18, 2010
SAN FRANCISCO (MarketWatch) — Two of the best-known venture capitalists from New York and Silicon Valley squared off in a rollicking session at a technology conference this week.
The moderator was author and New York Magazine writer John Heilemann, who started out the session at the Web 2.0 Summit saying he hoped to “incite the great VC smackdown” between Silicon Valley’s legendary John Doerr of Kleiner Perkins Caufield & Byers and Fred Wilson of New York’s Union Square Ventures. Indeed, Heilemann succeeded.
The undercurrent of the rivalry is the fact that New York City is becoming an important hotbed for startup activity, with more serious entrepreneurs than ever before and a growing number of venture capitalists and angel investors taking notice. See column on New York's rise here.
Rivalries aside, the two VC lions agreed that there is another bubble underway in terms of valuations of start-up companies in the Internet sector, both early stage and later stage firms. “There are some crazy things going on,” said Wilson, whose firm is among the investors in the popular Foursquare mobile service. “It’s getting overheated. People are showing up to their first meeting with term sheets.”
Wilson said he is seeing small companies of two to three entrepreneurs getting seed funding with valuations that were too high. “I think that’s not right,” he said.
Doerr had a more positive spin on the current bubble. “We are right in the middle of a third huge wave,” he said, after the PC boom of the 1980s and the first Internet boom of the mid 90s that began with the Netscape IPO. “I prefer to think of the bubbles as booms. I think booms are good. Booms lead to over investment.”
Eventually, the gloves came off. The two disagreed over whether Silicon Valley is the center of tech entrepreneurial development. Doerr said that while innovation is no longer just within the confines of the Valley, the platforms on which developers want to build are mostly all located in or near Silicon Valley, referring to Apple Inc. AAPL, Google Inc. GOOGand the still-private firms Facebook and Twitter.
“I think this remains a very, very good place to get engineering talent,” Doerr said. Wilson countered that New York is a great place for many types of software startups, with “a bunch of engineers building code that runs on top of the Internet stack.” Wilson’s firm also invested in Twitter.
Twitter, based in San Francisco, remains a bit of a sore spot for Doerr, who acknowledged at the gathering that Kleiner turned down an early investment in the microblogging company — and admitted that they were wrong in doing so.
Doerr got in a dig, though, adding that, “the last time I checked in on Twitter it was not down, it was up,” referring to the service’s constant outages as its popularity has increased, and getting a lot of laughs.
Where the two VCs seemed the most at odds was over Apple and Google, two big investments which have paid off handsomely for Kleiner.
Wilson first dissed Apple’s proprietary approach. “Writing an app for an Apple device is not like writing an app for the Web,” he said and compared writing for Google’s Android as a “free-flowing experience.”
“Apple has written over 1 billion in checks to developers,” Doerr shot back. “I think we ought to give Apple an enormous amount of credit.”
Kleiner may have missed Twitter but the firm had the prescience to start the iFund in 2008, an initial 100 million fund for iPhone application developers. That fund has already paid off in spades, via the sale last month of Ngmoco Inc., for about 400 million. Ngmoco is a mobile games developer that was backed by the fund and is its first exit.
Wilson managed to get some licks in about Google as well, saying that the last major innovation out of the advertising and search engine giant was Gmail and its entire suite of Office-like products that reside in the cloud.
“They have done a better job with strategic acquisitions than anyone else out there,” Wilson said. “But the last homegrown product that I think is truly transformative is Gmail and they built that quite a while ago.”
“What about Google Voice,” Doerr said. “They bought that too,” Wilson said, noting that Google also bought the company that develops Google Maps. Both VCs seemed to have forgotten Google’s Chrome browser.
Doerr then reminded the crowd that “ideas are easy” and quoted former secretary of state Colin Powell, now a strategic limited partner at Kleiner. “Innovation without execution is a hallucination,” Doerr said.
The session ended with everyone laughing over a big joke, with Wilson calling Doerr the “Michael Jordan of venture capital,” and Heilemann calling Wilson a puppy. Doerr made a mock-announcement (and perhaps a jab at TechCrunch’s big staged signing its deal with AOL Inc.) AOLsaying that Kleiner Perkins was buying Union Square Ventures, and making it Kleiner’s New York office. Moderator Heilemann warned that the joke might be blogged about everywhere as fact.
Maybe it’s not such a bad idea.