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The God of venture capital in Silicon Valley -- or is it God(s!)?

doerr-handsup.jpg
Doerr in India
One India technology-venture capital blog we failed to mention yesterday is VCcircle.com. It has a post that will please Kleiner Perkins' John Doerr, the evangelist. They're calling him "God" of the venture capital industry in Silicon Valley. And we've got something to say about this.

Let's move to the recently released Forbes' "Midas List" of technology's hottest dealmakers, something we've also neglected.

First, take a look at the top 3.

1. Sequoia's Michael Moritz (main reason, investor in Google)
2. Kleiner's John Doerr (main reason, investor in Google)
3. Ram Shriram (an angel investor, and main reason, investor in Google)

The first question that nagged us is why Shriram came out number three, instead of...

number one?

Remember this post, where we did some back-of-the-envelope math about whether Ram made the best investment ever? Now, since that post, you basically double his net worth because Google's stock has about doubled in price. That's right, he got about 15,000 to 20,000 times his money back.

So how do you compare Ram Shriram's investment in Google's earliest days, when it took some real talent to find and nurture these young guys (he really rolled up his sleeves and helped hire guys like Omid Kordistani, Google's first biz guy), to the decision by Michael Moritz and John Doerr, who invested in Google much later? And how do you account for the fact that Moritz, who is No. 1. on the Midas list largely because of his Google investment, got the reference to Google in large part, we are told, from folks like Shriram?

By the way, we think Forbes has in general done a great job at taking a stab at a difficult job. Ranking the performance of investors is a difficult task; information about the exact terms of an investment is often confidential, and it is often impossible to figure exactly how well investors have done.

We checked in with Forbes' David Whelan, to ask him about Shriram. Not only because Shriram invested earlier investment in Google, but also fact that he has funneled several other deals, besides Google, to folks like Sequoia and Kleiner, who come in later.

David said they don't use "return on investment" as a factor because what went in is not transparent except in rare cases:

So we use the size of the exit instead (first day ipo market cap/size of acquisition) and come up with a scoring system for how involved xyz vc was by checking boxes like: what round of funding did you come in on..Did you lead the round. How many rounds did you participate in. Were you on the board.. And did you help recruit partners, more funding, or top execs..

So I'm guessing that Shriram and Moritz got the same score, reflecting their early and deep involvement -- even if shriram might have been a bit earlier. And the score is used as a multiplier with the size of the exit to come up with points that are used to give vcs an overall ranking.

I believe Moritz pulled ahead in the overall rankings because he's had other exits in the last five years, like Red Envelope.. While Shriram hasn't yet.

Fair enough. At least we have an explanation. You can differ with the assumptions about involvement, but there you have it. Thanks David.

Meanwhile, we often get email or calls from VCs we know who gripe about their ranking on this Forbes list (though we should make clear, Ram did not contact us). As we've just explained, it is not perfect. It doesn't claim to be. And one day we will probably make up our own list here at SiliconBeat (if anyone wants to help us prepare such a list, send us a note) just so that there is some competition in this industry.

In other stuff to mention, a lot of other "Lords of the bubble," as David Whelan puts it, got kicked out or way down the list. Forbes only looks at five years of exits (IPOs and M&A). So Kleiner Perkins' Vinod Khosla, for example, who made it big with investments in networking companies like Juniper, is off because he hasn't had a company exit since then (or nothing big, anyway).

Here's another attempt at listing the falling stars.

Speaking of hits, how does 740 times your money in 20 years sound? That's what Steve Jobs just did. 20 years ago, he bought Pixar for $10M. And he just sold it to Disney for $7.4B, as Fred Wilson notes: Now he's surely taken some dilution along the way and he may have ponied up more money along the way too, so maybe he made 300 to 400 times his money. So there's yet another God. Not on the Midas list, for obvious reasons (deal came to late for list to consider). Wilson:

Say what you will about Steve Jobs, and I have said plenty about the consumer unfriendly stuff that Apple is doing with the iPod and online music lately, but he is one of the great technology businessmen of our time, maybe the greatest.

Finally, there's the other trend that we're seeing on the List. Folks like David Chao are finally rising in the list. He's the guy from Doll Capital Management, who we've writing about a lot for his big investments in Chinese (and Japanese) companies. We'll be seeing more of this going forward.


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Tracked: February 10, 2006 6:37 AM

Comments

According to Sergey, Andy Bechtolsheim wrote the first check to the founders before they opened an bank account:-)

"We met him very early one morning on the porch of a Stanford faculty member's home in Palo Alto. We gave him a quick demo. He had to run off somewhere, so he said, 'Instead of us discussing all the details, why don't I just write you a check?' It was made out to Google Inc. and was for $100,000."

"The investment created a small dilemma. Since there was no legal entity known as "Google Inc.," there was no way to deposit the check. It sat in Larry's desk drawer for a couple of weeks while he and Sergey scrambled to set up a corporation and locate other funders among family, friends, and acquaintances. Ultimately they brought in a total initial investment of almost $1 million"

Zheng on February 9, 2006 8:18 PM
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You forgot to mention that Mike Moritz was also the first investor in Yahoo...That took a lot more vision in 1995 than Ram with Google in the late '90's.

You might want to factor that into your equation...

Short Memory on February 9, 2006 10:57 PM
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Matt

You have to look at the long term when evaluating a successful VC. Anyone can get lucky with an investment. But you can't compare Ram Shiram to John Doerr.

Yes, Ram made an inspired investment in Google. But in addition to Google, John Doerr also invested in a few other successful companies including Compaq, Intuit, Macromedia, Netscape, Lotus, Sun, Amazon and Symantec. He made these investments before Ram was ever even on the scene.

Compare that to the other investments made by Ram's Sherpalo fund: Plaxo, 24/7, Elance, Combinenet, Yodlee, Tellme, Business Signatures, Zazzle and PodShow.

You tell me who would you rather have investing your money???

Also, Ram invests in earlier stage companies than KP, so you are comparing apples and oranges. If you want to compare Ram to someone, compare him with someone like Ron Conway.

WTF? on February 9, 2006 11:13 PM
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Dr. Penzias - I know he keeps in great shape, but lately does not look that young !

Mark Wendman on February 10, 2006 6:58 AM
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Hi Matt,

If you could hear the link(http://rajan.wordpress.com/2006/02/01/network-meet-with-john-doerr-ram-shriram/) that I posted earlier you can listen to Doerr say that Shriram is the top guy. They(Doerr,Lane) admitted that they invested in google because Shriram invested in google. Thus there is no doubt that shriram is the top VC. I guess folks at VCCircle would have not heard Doerr say this :) thus they report that Doerr is the 'God'

Rajan

Rajan on February 12, 2006 11:57 AM
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