Kleiner’s misadventures in China

A second founding partner of Kleiner Perkins Caufield & Byers’ year-old China Fund has left, this time to work for a competing fund sponsored by a U.S.-based venture firm, Matrix Partners. David Su’s exit follows the departure last year of Joe Zhou, who simply quit after only a few months at Kleiner.

This is getting more than a little embarrassing for the storied Silicon Valley VC firm. In April 2007, Kleiner established its first dedicated fund outside the United States, the $360-million China Fund, run by its newly recruited KPCB China team, dubbed “China Perkins” by Kleiner watchers with a sense of humor.

Kleiner invested about two years trying to figure out the best way to set up shop in China. In my numerous interviews for the Kleiner Perkins feature article in the current issue of Fortune, Kleiner partners told me how carefully they deliberated before choosing the best people to carry their name in China. The goal, said partner Ellen Pao, was “finding a team that would be on the ground that would fit our culture versus trying to get a quick fix, which had been the norm in China.” Other partners involved in the China mission included John Doerr (who opined about the importance of China on the “Charlie Rose Show”), recruiting specialist Juliet Flint, Matt Murphy, John Denniston and Ted Schlein, who currently oversees the project, along with Pao.

It seems Kleiner didn’t choose at all well. It recruited a team run by Tina Ju, who had been at a firm called TDF Capital, and Joe Zhou, who was with the Softbank Asia Infrastructure Fund. According to two sources who know Ju and Zhou, Kleiner wanted Zhou as part of the team because he has more early-stage investing experience than Ju and her team. Zhou, however, didn’t play particularly nice with others – a hallmark of Kleiner’s image – and he decided later last year to strike out on his own. He is attempting to raise a new fund. In an e-mail last week he told me: “Per my agreement with KP, I can’t comment at this point.”

Now an original member of Ju’s team, David Su, has left as well. China Perkins recently airbrushed his name from its Web site.  And Bo Shao, managing partner of Matrix Partners China, confirms by email that Su has signed on with his group.

Kleiner Perkins did not respond to a request for comment on Su’s departure.

This non-U.S. fund business is a tough one for American venture capital firms. They say the funds are extensions of themselves. But in reality they are brand extensions whereby the Sand Hill Road firm charges a “tax” that is the difference between what a top-tier firm like Kleiner collects in fees from its investors and what a less experienced investment team abroad could get. Few are willing to take the one step required to ensure at least that the China entity is infused with the culture of the firm back home: sending a successful U.S. partner to live full time in China.

When I asked John Doerr last week to comment on what was wrong in China, he declined, other than to say he wished Joe Zhou still worked for KPCB China.

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