“Exploring Klarna Controversy and Fundraising: Insights from IVP’s Eric Liaw on Succession Plans in Today’s Market”

After its announcement of closing its 18th fund, I reached out to Eric Liaw, a longstanding general partner at IVP, to gain some insight. In light of the current market conditions, securing $1.6 billion in funding from investors may appear to be a more challenging feat compared to the $1.8 billion fund announced during the more exuberant year of 2021.

I was also curious about the path of succession at IVP, a growth-stage firm with successful investments in Figma and Robinhood, where the presence and influence of its founder and initial investors continue to loom large – both figuratively and literally. A recent article in Fortune highlighted how pictures of firm founder Reid Dennis can still be found scattered throughout the IVP office in San Francisco. On the other hand, photos of former general partners Todd Chaffee, Norm Fogelsong, and Sandy Miller, now serving as “advisory partners,” are placed among the general partners on the firm’s website, a visual representation that may seemingly leave less room for the current generation.

Last but not least, I wanted to speak with Liaw about Klarna, a company in their portfolio that recently made headlines when a disagreement over board membership became public. Here is an edited excerpt from our conversation, focusing on the most important parts. You can listen to the full discussion on our podcast.

First of all, congratulations on your new fund. I’m sure you can finally take a breather for a few months! Was the fundraising process more or less challenging this time around, given the current market conditions?

It has been a rather turbulent period throughout. To go back in time, when we raised our 16th fund in 2018, it was a more “normal” environment. The next fund, which was slightly larger, was raised in 2021, a not-so-normal climate. One thing we are grateful for is that we did not raise an excessive amount of capital compared to our strategy, and we were able to gradually deploy it, unlike some other players in the industry. So, we’ve been pretty consistent in that regard.

Did you have any investors from Saudi Arabia? Accepting investment from that region has become more commonplace. I was wondering if the Public Investment Fund (PIF) was a new or existing limited partner (LP).

We generally do not reveal information about our LP base, but we do not have capital from that specific region.

Speaking of regions, you were based in the Bay Area for many years, with two degrees from Stanford. However, now you are in London. When did this move happen and what prompted it?

We relocated about eight months ago. I’ve been in the Bay Area since I was 18, for my undergraduate studies at Stanford. That was many years ago, and I don’t want to divulge the exact number at this point. The expansion to Europe has been a natural progression of our investment strategy. Our first investment in Europe was back in 2006, in a company called MySQL in Helsinki, Finland, which was later acquired by Sun Microsystems for $1 billion – something that was not very common at the time. In 2013, we invested in Supercell, another Finnish company. We also became an investor in Klarna in 2014. Currently, our European portfolio consists of around 20 companies, spanning 10 different countries, and it accounts for approximately 20% of our active portfolio. So, we felt that having a presence in Europe was the logical next step.

There has been a lot of drama surrounding Klarna recently. What are your thoughts on The Information’s reports about the dispute between former Sequoia investor Michael Moritz and Matt Miller, the partner who represented the firm and has since been replaced by Andrew Reed?

We don’t have a significant stake in Klarna, and we are not actively involved in board discussions. However, we are excited about their business performance. It’s worth noting that they have had the worst of both worlds – since they are a public company, they are subject to a lot of scrutiny, yet they do not have the advantages that come with being a publicly traded entity. In fact, I believe that CEO and co-founder Sebastian Siemiatkowski recently mentioned that they will go public in the near future, which is something we look forward to. As for the reporting, I cannot comment on its accuracy, but I do not understand the motives behind it. I am just relieved that it has been resolved, and the company can now focus on its operations.

We have previously discussed different countries and their respective strengths, the challenges in the consumer startup sector, and the potential of companies such as BeReal in France, which is currently seeking Series C funding or considering a sale. Has IVP explored investing in this company?

We have done our research and had discussions with them in the past, but we are not currently investors, so I am not privy to their current strategies. The consumer sector can be notoriously difficult, despite its potential for massive success. However, there are occasional breakthroughs – take Snap, for example, in which we invested early on, or Discord, which has established its niche in the market. Of course, there is also the phenomenon of TikTok, which has been hugely successful worldwide. The prize is big, but it takes a lot to reach it. This is one of the challenges we face at IVP – investing in consumer apps and identifying the ones with the potential to become the next big thing, and which could fade into obscurity.

Moving on to your new fund, that Fortune article pointed out that the firm is not named after founder Reid Dennis, as a testament that it was designed to outlive him. However, it also mentioned that there are photographs of Dennis and other past partners displayed prominently on the firm’s website, raising the question if younger partners have enough room to grow.

I can undoubtedly say that they do. We have a strong culture of promoting our employees and providing them with opportunities to reach the top echelons of the general partnership. I am fortunate to be an example of this, as are many of my colleagues. While this path is not the only one at IVP, it is a legitimate option that our people have.

We do not have a managing partner or CEO; we welcome individuals into the firm, and when the time comes, they move on to new challenges while continuing to serve the firm and our LPs. This, in turn, creates more opportunities for younger employees to take on additional responsibility and help drive the firm’s success.

One final question – do these advisors still receive carry?

You can ask, but I would prefer not to comment on the financial side of things. We highly value the advice and contributions of our advisors, based on their many years of experience with the firm.

Overall, in light of the ongoing valuation reset, which seems to affect every company except for the big language model firms, you may have easier access to the best companies, but your existing portfolio companies may also face challenges. How is IVP navigating through this environment?

When it comes to companies seeking funding, the most promising ones will always have options, and there will always be competition for those rounds, leading to what may seem like high valuations. I don’t believe that anyone has ever achieved significant success in the venture capital world by thinking, “This deal came at a steal.” There’s always a degree of discomfort, but the potential of the company outweighs it. This is part of the excitement of the job.