The end of an era on Sand Hill?

May 30, 2012, 11:07 AM UTC

FORTUNE — In the rich history of money in Silicon Valley, two venture capital firms have stood out over the last 20 years: Kleiner Perkins Caufield & Byers and Sequoia Capital. Their offices sit barely a half a mile apart on Sand Hill Road in Menlo Park. Two major pieces of news last week portend a potential end of an era — and perhaps the moment when the likes of VCs Marc Andreessen and Jim Breyer become ascendant.

At Sequoia, the 57-year-old Mike Moritz announced that he would no longer participate in the firm’s day-to-day management but would become its chairman, remaining “deeply involved” in “fresh investments, ideas and relationships.” In an e-mail to Sequoia’s investors, he disclosed that he had “a rare medical condition which can be managed but is incurable.” Moritz has been a signal venture capitalist of the Web era. A former reporter for Time in the 1980s who memorably profiled the early Steve Jobs — Moritz then decided to earn a real living — he was responsible for Sequoia’s early investments in such financial hits as Yahoo (YHOO), PayPal (EBAY) and Google (GOOG).

MORE: Exclusive: Sequoia Capital raising new funds

At KP, the 60-year-old John Doerr — along with several other partners — were identified in a lawsuit claiming gender discrimination and workplace retaliation. Doerr, who, like Moritz, is a reported multi-billionaire, scored the earliest Web home run with Netscape; Doerr also led KP’s backing of Amazon (AMZN), Sun Microsystems and Google.

The civil lawsuit, which was front-page news in the Valley, was brought by a female partner at the firm, Ellen Pao. She alleges that as far back as 2006 she was sexually harassed by Ajit Nazre, a partner who left KP last year. She also states that Randy Komisar, another partner, made unwanted sexual overtures. When Pao complained to Doerr and others running KP, she claims the firm repeatedly failed to fix the problem. Instead, she states, the firm retaliated with bad reviews, lack of advancement, and exclusion from meetings.

Most litigations of course have plausible competing tales and KP has yet to respond in court. (Its formal answer is due June 11.) But Pao’s legal filing on the surface represents a detailed unpleasant picture within a Silicon Valley institution. Wall Street and Hollywood have known such narratives for years. Even though KP has more women among its investment partners than other VC firms, it seemed to acknowledge to its investors at least a public-relations nightmare. Last week, the firm notified these “limited partners” –which can include universities, pensions funds and wealthy individuals — that they could withdraw from KPCB XV, a $525 million fund that closed its institutional commitments days before Pao’s complaint was filed. Apparently, based on legal advice, KP did not advise investors of the suit. KP’s online “News & Events” page makes no mention of the lawsuit.

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Except in the rare case like Google where they were co-investors, Sequoia and KP have long been rivals. They’ve competed even over such silliness as a professorship. Fifteen years ago, a landlord along Sand Hill Road—the late Tom Ford—honored his tenants by endowing a chair in engineering at nearby Stanford. Instead of naming it after himself, he called it the Kleiner Perkins, Mayfield, Sequoia Capital Chair. How did they work out the order of the names? Name partner Brook Byers at KP prevailed in his insistence on alphabeticalizing. (Mayfield Fund is another venerable VC firm on Sand Hill.) But at the moment KP and Sequoia find themselves both wondering about their respective futures. Sequoia is in a less of a quandary — it has a deep bench — whereas KP’s honor may be on the line. Neither, though, could have imagined being in this position not so long ago.