Investor Neil Mehta Answers the Panic Button

And while the Clay—a small, single-screen theater—will never be the kind of blockbuster those startups could be, Mehta’s acquisition nonetheless symbolizes part of his investing strategy: It’s a low-profile surprise deal for a down-on-its-luck asset. His ability to stride into a troubled situation and emerge from it as an eventual winner is partly what has won him a sterling reputation among Silicon Valley and Wall Street’s in crowds. Over the years, he has raised money from a who’s who of finance, including Silver Lake’s Jim Davidson and billionaires Henry Kravis and Stanley Druckenmiller. Something else that won over those titans was Mehta’s expansive mindset and varied set of skills. Recently, he has steered the $15 billion firm he co-runs and co-founded, Greenoaks Capital, down increasingly diverse paths, augmenting its core VC deals with investments in convertible debt, secondary stock sales, public equities and even distressed buyouts.

Greenoaks’ numbers bear out Mehta’s standing. On average, the firm’s funds generated a 35% internal rate of return, net of fees it charges limited partners, between 2015 and September 2023, according to an investor presentation I obtained. In aggregate, the returns would put it firmly in the top 5% of fund performances for those years, according to data from Cambridge Associates. It cashed out $8.5 billion on startups such as Robinhood, Coupang, Sonder and Clover, which went public during the last boom in tech initial public offerings. “They probably have done about as well as anyone in their world,” said billionaire financier Bruce Karsh, whose fortune from distressed debt investing has partly gone into stakes in Greenoaks funds.

Mehta hasn’t felt much need to scream about his victories, and he didn’t want to talk to me on the record for this story, either. Unlike many of his better-known San Francisco Bay Area peers, you won’t see him on CNBC or headlining a conference or talking up himself on his own podcast. “He likes doing what he does and doing it privately,” said Apoorva Mehta, Instacart’s founder (a friend of Neil but no relation to him). The low profile also means Greenoaks’ occasional misses don’t attract as much attention as those of bigger firms. We all know Sequoia and Third Point looked foolish for investing in FTX. Well, Mehta’s firm invested, too—$35 million in FTX’s January 2022 megaround—though his name is missing from most media accounts of the crypto exchange’s collapse.

Despite his stealthiness, a clear picture of Mehta emerged as I spoke with two dozen tech executives, investors, friends, and current and former Greenoaks employees: as a charismatic, opportunistic investor who has enjoyed a charmed run in Silicon Valley’s golden years and is eager to “take that next step up,” as Karsh put it, with bigger deals and an ever-widening radar for investments. Karsh, a finance elder statesman who co-founded Oaktree Capital Management, recalled Mehta peppering him with “questions about how we grew from virtually nothing to $190 billion” of assets under management, a pretty clear indication that Mehta would like to push his own firm closer to that size.

Getting there anytime soon won’t be easy. Mehta faces an entirely different environment in 2024 than the one he and Greenoaks started in. For startups of all stripes, valuations are down (in everything but artificial intelligence), while IPOs and M&A have slowed to a crawl, eliminating any easy exit paths for investors like Mehta. And Mehta feels such economic pain as dearly as his competitors do: He keeps a limited venture portfolio, just around a dozen companies per fund, eschewing one of the industry’s most basic tenets (invest as much as possible and expect most of it to disappear). That concentrated approach means any Greenoaks holding that starts to lose value—like fintech Brex as a recent example—weighs heavily on returns.

A series of investor memos I obtained shows the extent of damage caused by the broad downturn in the startup market: Between 2022 to September 2023, Greenoaks saw $2 billion evaporate—nearly 40% of its total unrealized returns—from internal cuts on the value of its stakes. Some perspective is helpful here, though. Amid the carnage, Greenoaks’ fourth fund, which it raised in 2021, had unrealized gains, net of fees, of about 3.6% through last year, according to an investor update. That puts it far behind its previous funds but still makes it a top performer for VC and far ahead of the likes of Tiger Global Management, which reported an 18% paper loss to its investors for a fund started in the same year.

Greenoaks has tried to dull the pain with creativity and by making a case to founders that it isn’t always looking for a quick flip. Many of Greenoaks’ late-stage recent investments, such as Databricks and Canva, belong to a new fund that would allow Mehta to never sell the stakes. Mehta named the fund Lindenwood after the neighborhood where he grew up in affluent Atherton, Calif. Greenoaks has considered eventually publicly listing the fund in London or New York if it produces compelling returns.

Greenoaks also put up $100 million to purchase one-fifth of a struggling luxury e-commerce site, Farfetch, and has found success with old-fashioned stock picking. One big equity winner is used-car site Carvana. Mehta began buying shares of it last fall when the stock was around $20, eventually amassing 5% of the company. With shares over $80 now, the stake is worth $455 million. “At the time, I remember scratching my head a little bit. But it was a great move,” said Marc Gamsin, who runs Carolwood Capital Management, Karsh’s family office. “It was a different kind of move than most venture firms will do.”

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In a letter to investors last year, Mehta and Greenoaks co-founder Benny Peretz included a quote from comedian Jerry Seinfeld describing how “Seinfeld” became a hit: “The show was successful because I micromanaged it.…That’s my way of life.”

“It’s also ours,” added Mehta and Peretz, who met each other when Peretz roomed with Mehta’s younger brother at the University of Pennsylvania.

Indeed, Mehta has a reputation as a demanding boss, the type who likes to make Saturday morning phone calls and singles out the slightest errors in employees’ spreadsheets. “He was intense,” one former Greenoaks employee said, “but he cared for the well-being of people.” To that latter point, a couple years ago, Greenoaks employees hit the slopes at Montana’s luxury Yellowstone Club on the firm’s dime, and during the pandemic, when Greenoaks moved a portion of the firm to London, the company paid for three months of housing, giving them a chance to get out of San Francisco and work together in person.

Outside the office, Mehta has cultivated tight relationships with some of the world’s most prominent founders, most notably Stripe’s billionaire president, John Collison. For some of these founders, Mehta plays a few roles: confidant, therapist and strategist. After meeting Instacart’s Mehta through mutual friends, Neil in 2021 advised Apoorva on how to depart from running Instacart. “We bonded on that,” said Apoorva, who eagerly beckoned the investor to fund his next startup, Cloud Health Systems.

As consigliere, Neil Mehta makes himself endlessly available to founders. When Assaf Rappaport needed money for his fast-growing cybersecurity startup, Wiz, a couple years back, Mehta answered his cellphone while in the hospital with his wife shortly after the birth of one of their daughters. “That hooked me on their commitment,” Rappaport said. And when Taylor Francis, a former Stripe employee who founded climate software firm Watershed, recently picked Greenoaks to lead its latest round of funding, “I talked to Neil and his team on Christmas Eve, Christmas day, New Year’s Eve and New Year’s Day,” he recalled.

One of Mehta’s most notable displays of holiday heroics occurred in 2017, after North Korean leader Kim Jong Un set off missile tests over Japan, stirring anxieties about nuclear war in East Asia. In the South Korean capital of Seoul, Coupang, the country’s aspiring version of Amazon, had just set out to raise a new round of funding. But the geopolitical tensions spooked investors when the company couldn’t seem to get the deal done—a total “belly-flop” that threatened Coupang’s trajectory, a person involved in the fundraising process said.

On Christmas Day, Mehta—a Coupang board member who had also invested personally in the company at its infancy—flew to South Korea for a meeting with CEO Bom Kim to assemble an emergency $430 million injection into the company. Kim, who has since turned Coupang into a publicly traded firm worth $33 billion, knew that if he hit the panic button and summoned Mehta, the investor’s deft touch at negotiations could help the talks cross the finish line. “He has a great way of making hard negotiations feel soft,” Kim said.

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Mehta first honed his business skills as a teenager when he became a top door-to-door seller of steak knives and other Cutco cutlery across Silicon Valley’s suburbs. “He can convince anyone to buy anything,” said Vivek Patel, a friend of Mehta who was the former chief operating officer of Postmates. “It’s confidence, charisma—he likes interacting with people.”

Mehta’s parents arrived in the San Francisco Bay Area in the 1980s, after moving to the U.S. from India, and his father, an operations engineer, took a post at consulting giant McKinsey. They lived for a time in Pacific Heights with Mehta and his younger brother before departing for a five-bedroom home on Greenoaks Drive in Atherton. Mehta blended tech and finance interests early, interning while in high school at both startup Tibco Software and investment bank Merrill Lynch. He attended the Harker School, an elite private school populated with the children of suddenly tech-rich immigrants. Nearly one-fifth of the 89 students in his graduating class qualified as National Merit Scholarship semifinalists.

His friends remember him not for his academic prowess but for his unshakable confidence in choosing his future profession: investor, an occupation even some of his Bay Area friends struggled to understand. “I remember asking my dad, ‘Is that a job?’” Patel recalled. While some of them might have known vaguely about Warren Buffett, Mehta “had read all the letters” Buffett writes each year, said Patel, who recalled Mehta “trying to explain insurance float to me” between classes. (That’s when Buffett’s Berkshire Hathaway uses cash from Geico and other insurance businesses to invest in stocks.)

Mehta exhibited the same enthusiasm at the London School of Economics and Political Science, starting a club for aspiring private equity investors and sharing investment ideas with friends. “He always had a trade he wanted to make,” said Shoaib Makani, an entrepreneur and college friend who later raised money from Mehta for his trucking software startup, Motive.

Mehta received an early chance to put his education into practice in Hong Kong, where he worked as a star investor for an offshoot of D.E. Shaw, a New York–based quantitative hedge fund. He invested in low-priced real estate in Macau, Korea and India, but he was more interested in studying Chinese internet businesses like Alibaba and Tencent.

After the financial crisis and the launch of the iPhone, he quit D.E. Shaw to invest in internet companies on his own. He used connections he had made at the firm for initial introductions to Wall Street elite, and then he hustled for more meetings. Overall, he raised about $50 million from luminaries like Druckenmiller, Kravis, Silver Lake’s Davidson and Oaktree’s Howard Marks. He picked well early, investing in spy software firm Palantir, Indian e-commerce startup Flipkart and Coupang.

By 2015, Mehta, now with Peretz at his side, set on raising his first fund from institutional investors. In a letter to prospective investors at the time, Mehta and Peretz stressed that they would take a slow, deliberate investment cadence. They alleged that venture capitalists too often laid out too many bets in the hopes that one of them would blossom. Too often, “most investors waste half their money, they just don’t know which half yet,” Mehta and Peretz wrote in a letter to their LPs, paraphrasing an old boardroom adage.

Mehta largely eschewed hiring investors and researchers from traditional VC firms in favor of alumni from private equity shops like Vista, Blackstone and Apollo, who were adept at turning “black-and-white financial statements into color pictures,” he wrote in an investor update. They would comb through thousands of companies, deeply researching about 100, before ultimately investing only in about a dozen per fund—far fewer than many of its competitors. Mehta wears the selectivity proudly, although investors have sometimes questioned whether he should invest more widely. “While indexing our market may be a better business model, what a boring journey it would be,” he wrote.

That choosiness has helped keep the fund’s failure rate low. Among companies where it had invested at least $15 million, only about 1% of its capital since 2015 has been “fully impaired,” finance speak for a completely busted investment, according to a presentation made to investors last year that I obtained.

Greenoaks has cushioned that track record by finding escape hatches even after investing in companies that become flubs and flameouts. When it saw Oyo, a SoftBank-backed Indian hotel operator, expanding too rapidly, Greenoaks sold nearly its entire stake in the startup for 25 times its money, a person close to he firm said. In 2017, it invested in Katerra, a construction startup co-founded by one of Greenoaks’ own early backers, Silver Lake’s Jim Davidson. But within five years, Katerra had gone bankrupt, collapsing after it experienced factory mishaps and delays. But Greenoaks largely broke even on the investment because it sold much of its stake early again. Mehta, however, was among the board members sued by creditors for breaching fiduciary duties; Davidson declined to comment.

The firm was less successful shedding its stake in FTX, which cost Greenoaks about $35 million when it went bankrupt. With FTX, the firm hadn’t followed its formula, ignoring glaring questions about the crypto exchange’s tangled governance. “There was honesty internally that this was an example of why you need to stick to your process,” a former employee said.

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As Greenoaks has added more heavyweight LPs like Yale University’s endowment fund and has even raised money from Saudi Arabia’s Sanabil Investments, Mehta has needed to stay agile when it comes to dealmaking. During last year’s Silicon Valley Bank crisis, for instance, he negotiated a $500 million cash infusion for Rippling, a human resources unicorn he initially put money into in 2019, doing the deal over that fateful weekend. Rippling founder Parker Conrad was grateful for the aid and admired Mehta’s tenacity: “There’s that old saying that you want to be aggressive when others are fearful.”

Such emergencies can come at a high cost to startups like Rippling. Indeed, the Rippling deal had terms similar to those of the transaction Mehta had done with Coupang back in 2017: Both involved convertible debt and potentially high interest rates (above 12%) if the startups didn’t get moving and go public. Moreover, the Rippling deal prioritized Greenoaks’ return over that of other investors in case Rippling eventually took a turn for the worse. It’s “a great guaranteed return” for Mehta, as one Greenoaks LP said.

At the same time, that deal intensified some sniping about Mehta in the venture world from investors, who enjoy warning founders about the perils of debt. In some corners of Sand Hill Road, speculation has increased that Mehta could turn out to be not some “nice private equity guy,” but a “wolf in sheep’s clothing,” said one VC who has invested alongside Mehta.

I asked Conrad directly if he felt Mehta had taken advantage of him, and he denied it. Later, I suggested he might be biased in Mehta’s favor, which drew a quick retort from the guy famously pushed out by his investors at his previous startup, Zenefits: “I’m someone who is the most cynical about underlying investor motivations.”

Mehta’s more recent moves simultaneously show how strange things have gotten in tech lately and underscore the nimbleness he’ll need to get through. At nearly the same time in January, he completed an acquisition valued at more than $1 billion with Coupang to buy Farfetch, a faded luxury retailer he had previously considered investing in but dismissed as overvalued. He also led the funding for climate software outfit Watershed. Along with AI, climate is one of the only areas in tech showing much life at the moment, and the opportunity cost Mehta dearly, with Greenoaks valuing the company at $1.8 billion, about 60 times the startup’s $30 million in annual recurring revenue last year.

I got the sense from speaking with his friends, rivals and employees that if Mehta can keep Greenoaks growing despite all the chaos around it, that could increasingly push him into the San Francisco spotlight. Mehta recently moved to a house about eight blocks from the Clay, ensconcing himself, his wife and three daughters into a 115-year-old, nine-bedroom mansion. (Greenoaks also got a fancy real estate upgrade last year, moving from Jackson Square to the Presidio.)

His purchase of the Clay Theatre is perhaps something of a quiet start toward accepting a greater profile around town. (The San Francisco Chronicle reported last month, without identifying Mehta, that the sale was to a "mystery" buyer.) Indeed, Mehta is already developing more plans to spend tens of millions of dollars in the neighborhood near the Clay on more real estate through a nonprofit he controls, according to people who spoke with him about his plans. Mehta plans to revive the Clay as a movie theater rather than turning it into a Glossier cosmetics store, as the previous owner once planned. He wants to swap out some of the chain retail stores in nearby buildings for locally owned restaurants and shops, the people said.

The city, however, often tends to take a dim view on what they see as the meddlesome technorati when the wealthy chase power and influence within San Francisco. Mehta’s friend Garry Tan—the Y Combinator CEO, who is himself an up-and-coming Bay Area macher (and lightning rod)—suggested I view Mehta through a simpler lens: as just a local boy eager to do good. “He really did grow up in San Francisco and feels sort of that native connection,” Tan said.

Of course, there’s the other simple lens with which to inspect the Clay—as the physical manifestation of Mehta’s investing strategy. As I stood looking up at the theater a couple weeks ago, and then walked toward the bay at the city's northern edge, my thoughts drifted back to a line Mehta penned in a recent investor letter: “Markets like today’s will reward those who spearfish, rather than trawl.”