Benchmark Part I

0:00 All right. Let's try and do it as one. And we're gonna hustle. Okay. Let's try and do it as just one. But I don't think we should hustle.

0:07 'Cause especially those early days, that's what people don't know. Right. No trade offs. And we'll let the chips fall where they do. Yeah. It's a very anti benchmark approach we're taking to this episode. Trade off nothing.

0:20 Go full depth into Gen one and gen two, fine. Yeah. Alright. We'll see how this goes. Who got the truth?

0:32 Is it you, is it you, is it you Who got the truth now? Is it you, is it you, is it you? Me down Straight! Another story

0:44 Welcome to Season 11, Episode 4 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs in our venture fund, PSL Ventures. And I'm David Rosenthal and I am an angel investor. Based in San Francisco.

1:06 And we. Are your hosts. The hardest thing to do in venture capital is create those massive outsized returns that only come from investing in one of the five or so truly important companies in Each decade. Then

1:20 Once you've done that. The next hardest thing is to keep doing it. with an entirely different generation of partners. Today we are going to talk about a firm who built one of the top franchises in venture capital. Benchmark.

1:34 that has incredibly managed to do both. Our Sequoia and Andreessen episode were about the empires that those firms chose to build. And this episode is about the empire they chose not to. Or maybe. Well there was a flirtation with an empire in there, as we'll get into. There was.

1:54 Benchmark famously believes that venture capital doesn't scale. They have zigged when others have zagged. They have not grown their fun size. They haven't tried junior partners. They don't have a platform team. They are not multi-stage, and I've heard they don't even have a CRM.

2:11 And yet They are the big early backer of so many of the world's most important companies. There were early e-commerce companies in the nineties like eBay, eShop, 1800 Flowers, or Ariba. semiconductor and networking companies like Synopsis and Juniper Networks. And of course In the next generation, Open Table, Zillow, Twitter, Instagram, Uber, We Work, Snap, Riot Games, Asana, Discord, New Relic.

2:35 and our friends of the show at Modern Treasury. We are at the moment of the changing of the guard. Bill Gurley is not a general partner in the next benchmark fund, and the majority of the current partners joined in the last five years. They clearly transition from the eBay generation to the Uber generation, and the question is.

2:54 Can they do it again? Will this third generation of benchmark continue to set the benchmark? For all time greatest venture capital funds. in history. I like what you did there. I like what you did there. That was good. That was good. Ben teed this up before we started recording of like

3:11 I really like my intro on this one. If you don't like it, stop me, but I like that. That was good. Well then. Thank you. Well, listeners, we did a very different thing in preparing for this episode. We're trying to embrace raising the bar in different ways as the show grows. So for this episode, we talked to several current partners at the firm. Several former partners, some of the original founders of the firm have

3:34 portfolio CEOs and even public company CEOs who used to be portfolio CEOs to get a whole bunch of different perspectives on benchmark. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chat bot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

4:12 So the founders did exactly what great founders do. operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's Bet Here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work.

4:45 and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Ligora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries.

5:32 And crazily they went from one million to a hundred million in ARR. In about. Eighteen months.

5:40 truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, You can learn more at Lagora.com slash acquired And just tell'em that Ben and David sent you.

6:05 All right, listeners, as you know, after this episode, you should come join the Slack to talk about it with the thirteen thousand other passionate smart Kind members of the acquired community. We also have a merch store that we launched at acquired.fm slash store. If you've already gotten your sweet, sweet gear, you should tweet it at us at acquiredfm and we will reshare some of our favorites. And if you are dying for more acquired, go check out the acquired LP show by searching for that. in any podcast player.

6:34 I feel like every episode now I'm constantly Thinking like are there gonna be any quotes from this episode that should make it into the merch store? I know, on the sequel when I was thinking about Doug talking about burning cigarettes in his arms and he wouldn't flinch. Market size unconstrained from Bezos. Absolutely. All right, David. Take us in and listeners, please know this show is not investment advice. David and I may hold investments in the companies discussed, and this show is for informational and entertainment purposes only.

7:01 Oh man. I'm so excited for this one. There's so much Silicon Valley history and I feel like We covered. Sequoia We covered Andre said.

7:10 And there's this missing gap in between the two of them. And This is Benchmark. We're gonna talk about it today. Well, I hope we can do it justice. I'm so pumped. Okay, to understand. Benchmark.

7:22 We start in the nineteen nineties in Silicon Valley. But I don't think you can actually start with benchmark. You have to start With another firm. I'm sure you know what that firm is. Are you going T V I, are you going Meryl Pickard, or you going somewhere completely different?

7:36 Some way completely different, but I bet you can guess it. Uh the eight hundred pound gorilla, Kleiner Perkins. Indeed, indeed. Uh, not just Cleaner Perkins, but specifically John Doors. Clear.

7:50 Parkins. After a very successful generational transfer of their own from Kleiner and Perkins. to John Dore. Here in the nineteen nineties, I mean John Door, we've talked about him. This season on the Amazon episode.

8:03 I mean he was Alone the eight hundred pound gorilla in The V C ecosystem in the early nineteen nineties and specifically leading up to and during the internet era.

8:15 You know, you think today of the top VCs, the top V C firms. You think Sequoia, you think Benchmark, you think Andreessen, Founders Fund. He was all of that. All in one. He was just

8:28 Absolutely. At the top of his game. K had joined Kleiner. He did not start his own firm. He started his career at Intel working for Andy Grove.

8:40 Um From that sort of just like Don Valentine when he got into the business and Don He had an advantage, he knew the future. John also knew the feature he saw.

8:51 The PC wave coming, he did Compaq, he did Intuit. He did sun, which wasn't the PC wave, but it was In that era, and that of course led to Vinode Cosla then joining Kleiner and like this dominant franchise. And then when the internet started, man. He didn't escape.

9:08 He did Amazon, as we talked about. He did Google. If you were An ambitious Young venture capitalist.

9:17 In the nineteen nineties in Silicon Valley. And that was a big if. You could do very well as a venture capitalist in that era without being ambitious. But if you were ambitious Boy you needed a damn good answer about how you were gonna beat John Dorr.

9:31 Oh yeah. To set a little context for how you could do well even if you weren't ambitious. There are one hundred times as many venture capitalists now as there were then. those businesses didn't have the economics either in terms of gross margin or addressable market size or zero distribution costs, all the things that make big tech big tech now. didn't exist then. So

9:52 For a while. the capital base and the number of venture capitalists actually made sense with the much smaller technology ecosystem. But there were always those few years of basically arbitrage. Where innovations happened that made these much more interesting investable categories, but there were still only a few venture capitalists looking around at each other like

10:13 Oh my god. And valuations were so low. I mean it was crazy when John and Mike Moritz did Google at a hundred million dollar valuation in the series A. You know, that was Earth changing. So

10:27 To understand John, you know, we've painted the picture of how dominant he and Kleiner. Were. There were two very specific aspects to his style.

10:40 Incliner style. One was He was unquestionably The guy. The guy is a good way to put it. He was

10:48 The CEO of the firm. He was the leader. He was also the best player on the field. It's like if he was Michael Jordan. And

10:57 Phil Jackson and the front office. He did Everything. So that led to plenty of situations like we talked about on the Amazon.com episode of we called Tom Allberg's wife, he aggressively came in to try and Court the deal, win the deal. And then he would try and pass off the board seat to a junior partner.

11:17 And Jeff, of course, didn't let that happen, but many entrepreneurs did. Yep. The other Very particular aspect.

11:25 to the Kleiner Perkins model at this time. Was they had adopted This idea Of a modern Kiretsu. within a venture capital firm. And this is sort of funny to think back on.

11:39 No. But it made sense at the time. You have to put yourself In the context of the nineteen nineties. A proto internet ecosystem, really. This was the AOL days leading into the Netscape days.

11:53 Biz dev deals and distribution. Was a lot more important and different than it is now. It wasn't like You could just have an idea for a company, spin something up on AWS, put it on the internet, get distribution for free on social. It didn't work that way. You needed deals in place.

12:14 product market fit was a lot less organic and quite frankly a lot less real because you didn't get this immediate signal of users finding your product and paying for it in this sort of high fidelity organic way. you had few products available to you and they were whatever products got done in these deals. And so True product market fit.

12:35 ended up being like an equal peer to your Bizdev prowess, unlike today. A core part of this. Terezzi model, a Kleiner was We help facilitate And some would argue they would do more than help facilitate they would force.

12:50 These partnerships, biz dev relationships. upon their portfolio companies. And when your portfolio companies include Netscape. And

13:00 Amazon and Exite. These would be quite valuable deals both for Excite and for the young startups. Which of course sounds great. If you are funded by Kleiner, you're sort of joining this cabal where Kleiner will sort of pull some strings behind the scenes and orchestrate what deals make sense for them as a shareholder across all of these companies. And Theoretically everyone will benefit from it by being a part of the cabal.

13:24 So Of course. KP was unquestioned. The best venture firm at the time. But they weren't the only top tier firm.

13:33 In the sort of bulge bracket, quote unquote, of Proto V C firms at that point in time. There was of course Sequoia. And Don had done. Cisco. They were about to do Yahoo. It was up and coming.

13:45 But they weren't yet the dominant. Sequoia that we think of today. It's amazing. They were almost a twenty year old firm, but they weren't Sequoia as we know them. There was Greylock. There was Van Rock, of course, and I V P one of the early

14:00 Oh David, we have to quick history on Venrock'cause listeners Care about this. What is the rock in Venrock? It would be

14:09 Rockefeller. Yes. It's pretty loose connection at this point, but was at one point the sort of uh venture arm of the Rockefeller family office. Or one of the Rockefeller family offices spin off to do a venture fund.

14:24 It did. So there were all those folks, there were the summits and the TAs kinda at the growth stage. And then there were a couple other Venture firms that you've probably Never heard of.

14:36 Probably never heard of them because they don't exist anymore. And among those were two. One. Called Technology Venture Investors, or TVI. Which had one very notable investment.

14:48 One very, very notable investment that we'll talk about in one second. And another one. Meryl Pickard. Anderson and Air. And the two of those firms.

14:57 Just so happened. To share. The same office building. On Sandhill Road. Amazing. They shared twenty four eighty.

15:07 Sand Hill Road, part of the quadrus. Office park complex. Right there in Menlo Park. And there was a reason. Or at least I'm assuming that there's a reason why.

15:17 They were in this building. Because that office park was the original office of a little company called Forthought. Which we talked about many, many years ago. On Acquired. No. Really?

15:32 Yes. Oh I had no idea. And forethought. Were The makers of a little Mac application that then became a Windows.

15:42 Called. PowerPoint. Yes. Fourth of course got acquired by Microsoft. Absorbed into the office.

15:51 Chuggernaut. And that their campus. They're in the quadris. Office complex. became Microsoft's original

16:01 Silicon Valley. Campus on Sandell Road renamed. The graphical business unit. Amazing. Now why am I saying

16:10 that it was appropriate that these two venture firms were based there at this point in that building. At least for one of them appropriate. Well it's appropriate that T V I anyway, is based there. Yes.

16:22 Who wouldn't want to be Right in the thick of Microsoft Silicon Valley business unit. Outpost. But T VI

16:31 Technology. Venture investors, they had the unique honor. And what made them Single handedly, really, part of the then top tier of venture capital firms. Is they were the

16:43 Only Venture capital investor. In Microsoft. Yep, one million dollars to own five percent of the company.

16:53 I don't believe they raised another dollar until the IPO. Imagine owning five percent of Microsoft at IPO. I don't know how long they held, or I imagine there was a pretty rapid distribution to limited partners there, but That is a rare honor. Really nothing else mattered.

17:10 At that point, you know, you could hang up your shoes after that one and declare Victory. Which is some foreshadowing. I guess that is. Exactly what would happen.

17:19 Now So these two firms. They shared this office building there at twenty four eighty Sandhill. Meryl Pickard, head done. Pretty well for itself as well. They had done Palm Pilot, remember Pompilot.

17:30 Yep. Oh yeah. One of the few successful companies of the pen computing era. They've done a bunch of semiconductor companies, they did Rampus. That was A big winner for them.

17:40 And so Both of these firms. the founders and the senior partners of these firms, T VI had made all this money on Microsoft. Male Pickard had done really well. And T VI, it was Dave Marcourt, right, who made that investment in Microsoft and was sort of the leader of T VI.

17:56 Yes, but not one of the founders, I don't think. I think he was part of the sort of second generation. But there start to be. a whole bunch of conversations within these two firms about Hmm. You know, what does the structure look like going forward?

18:11 The firms are getting a little longer in the tooth. These older GPs maybe aren't working as hard anymore. You know, they've made their money. We've got some junior investors here. That are out doing all the deals. Maybe we need to rethink some of the ownership structure of these firms.

18:28 And it's worth a quick digression here. About How does a venture firm actually work economically? Even today I think most people in uh A lot of entrepreneurs don't really know this.

18:39 There are multiple parts to the economics of a venture firm. You think about a fund and the carry within a fund, and that's pretty straightforward, you know, which partner gets What percentage of the carry. But there's also The management company. Yes.

18:55 Typically the way that this works is The founding partners of a firm own the management company. That management company is an LLC that has basically the employment relationship with all of the founders and then it

19:11 Umbrella parent over each of the funds. So each fund has its own carry that gets cut up in different ways among all the different partners for that particular fund, but over the umbrella of the whole thing is a management company, which you would sort of think of Typically an L C, but you can think about it like Kleiner Perkins Incorporated. And of course, that's sort of the governance of do we raise more funds and how big are those funds? But there's also economics. Of course, there's the economics on a fund by fund level, which is

19:41 How is the carry from this fund getting distributed in a percentage basis across everyone with carry? Yep, the performance gains from the fund. Yes. But then of course there's the fees. And the fees flow into the management company. It's a fee paid to the manager for managing the LP's money.

19:59 And the owners of the management company decide how those fees get paid out. Think of this as the salary, the fixed part of compensation in venture capital. Now Here's the important factor. The split of the carry in any individual fund, while it tends to reflect ownership in the management company, These are two wholly different entities. And so what you often had and what you had with all these firms, these old firms back at this point in time

20:26 Was The management companies were owned and controlled by the people who founded the firm and nobody else. And so you might let some of your junior partners in for pieces of the carry in future funds. But you wouldn't let them into the management company. So that meant they had no governance, they had no control, they had no right over anything, and they didn't have contractual right to any of the fees.

20:48 They were just employees. They were kinda at the largest Whatever the Managers of the management company decided that they should get in terms of salary and allocations in carry. And typically this would be high numbers. I mean, ideally, as a venture capitalist, you're getting paid more on the carry than the fees, a lot more, but it has always been a well compensated profession. So it's not like

21:09 the owners of the management company were back there saying, We're not gonna pay any cash out and sell No, they would pay a high salary, but then they would get to keep everything remaining in the management company at the end of the year and sweep it into their own bank accounts. There's this amazing New York Times article from nineteen ninety five. Why the New York Times was covering politics of Silicon Valley venture firms. I don't really know, but This is deep and like full on real housewives, this article.

21:36 So In this article New York Times. quotes an anonymous source. If Meryl Pickard had divided the rewards more equitably, they wouldn't have split up.

21:47 And then there's another quote in the article from one Robert Kegel. partner at Technology Venture Investors, as we're talking about, and he says Today the power is much more distributed. says the young Robert Kagle.

22:00 Nobody can claim that they are making all the money. For the firm. Resentment is in the air among the younger partners of venerated Silicon Valley. Venture firms at this time. And when they say today it is much more split up. You know, you can imagine Bob Cagle is sort of saying this a little wistfully.

22:20 I envision a future where this is the case, but it seems like at TVI and Merrill Pickard this wasn't the case at the moment. Well now just who is this uh Bob Kagel character. Well his story is Actually pretty freaking unbelievable. And kind of explains why he might harbor some resentment for this. Privilege that you might say of the older generation.

22:40 He grew up. In Flint. Michigan. Yes, listeners, that Flint, Michigan. His mother was a single mom.

22:48 This whole family worked. On the production lines for General Motors. The air falling on hard times. It was rough. You think about Flint, Michigan, even today, that is a hard scrabble background. So

23:00 Bob was A great student in high school, but there was not a lot of opportunity. There. In fact, the only opportunity he had to go to college, of which he was the first member of his family to go to college.

23:12 was to go to an institution called General Motors University. It's fascinating that this existed. Which was a training school. for members of General Motors employees' families. And the idea was it was kind of like a quasi vocational school to get them ready to

23:32 Work in the industry. Yeah. So I believe he works. In the company for a little while. And then he ends up Getting a chance to go to the prestigious.

23:41 Stanford Business School. And while He's at GSP. He gets a chance. to meet and intersect with someone.

23:50 A few years his senior, who had graduated a few years before, Dave Marquard. Who he had talked about. Earlier from T VI. Yep. This is right, as the Microsoft deal is going down. Quite fortuitous.

24:01 After GSP, Bob goes into consulting. uh Boston Consulting Group. And then Dave invites him. come back and join TVI.

24:09 And he does really well there. He does Synopsis, the big EDA company. It's still around today. Avant, ViaSoft, a bunch of other companies that do well the firm makes good money on. And so after ten years he's kinda like All right. I've done well here. I've risen up from nothing. But you guys are still holding on to the keys to the firm and all the economics.

24:31 Speaking about Bob and their impression of him at the time, uh he had an almost religious fervor. That anything other than an equal partnership. was just morally wrong for a venture capital firm and I totally understand where he's coming from here. I don't think Bob had any idea of the incredible amount of knock on effects.

24:53 that would come from that. absolute steadfastness of an equal partnership. And we're gonna spend the next however many hours of the story really diving into what are all the trickle out effects and different emotional states that that puts a person in at various points in a company's lifetime. This is the beginning. We didn't talk to Bob.

25:13 But I don't think he foresaw just how powerful this was gonna be. I think it was motivated. First and foremost, especially given his background by like A sense of fairness and like morally like what is the right thing to do and fair and

25:28 Proper rewards for proper work. And then almost certainly too. Economics was a core motivation here too. He was like Hey, related to the fairness. I'm doing the work. You guys are making the money. You know, you're taking my money here. For sure. And we did unearth something that I've always been a little bit curious about because people always say benchmark is an equal partnership.

25:47 It both means That each of the partners in a given fund have equal carry, but also all of the current GPs own the management company. without paying for it.

25:59 The management company is always just given to whoever the equal current GPs are. If we do a deep dive on it someday, I would be very curious to know. how the Kleiner management company transitioned from Kleiner and Perkins and Cafield and Pyers to John Door, but Is not common that it is uh just given. Yep.

26:19 So here's Bob. This is the milie we're in. And Bob in particular, you know, he's quoted in the New York Times talking about this. He feels More strongly than anybody. About This idea of an equal partnership going forward.

26:33 And as you can imagine, these discussions within TVI They're not able to get to a resolution, shall we say, within the firm. And so They decide, you know, everybody's made a lot of money, especially the senior guys, they decide to And this is the term they use.

26:49 Declare victory. And say, you know what? We won. We won. They won. They did. They did Microsoft. They won. Like what more did they need to prove? What a spin. Hey, the firm's kind of blowing up. The People we've trained don't really believe the economics are fair. They don't think there's a way to fix it within the current culture. And so therefore victory.

27:11 Victory. Well you're declaring victory and calling it a day. So That's the end of TVI. They manage out the current funds. Everybody remains on their board seats, you know. It doesn't just disappear. This is a thing with venture capital firms. There's a long

27:25 tail because all these existing firms and board seats existed. Everybody's gotta manage them out. I think Microsoft had gone public. So at least they were able to distribute that at this point. Yes, of course. It's worth noting that Dave does after TVI go on to found August Capital.

27:41 Yes. So Bobin. Future benchmark aren't the only ones that come out of this. Also, August Capital. Also in twenty four eighty Sand Hill Road. Like it's in one building, you know. Man, it's so funny. Even in the nineties, you know, we joke about the original Silicon Valley history of there were like ten people and everybody knew each other.

28:00 This is all going down in one office building. Yeah, for how concentrated tech was, Venture was much more concentrated. Much more concentrated. Before we actually get into the formation of benchmark here, it is worth lingering on Dave and TVI and the Microsoft investment for one more moment. When I was looking up what the terms of the deal were for the Microsoft investment

28:21 There's some interesting color shared by Dave. about his style of investing, and you can see that the seeds of Benchmark. really were present in TVI's demeanor toward what they believed about venture investing. So here's an excerpt.

28:36 from Dave Marcourt. The venture business is an intensely personal relationship business. And it's not an industry that scales well. He says he would never consider adding a value added service.

28:49 Companies should do that themselves. Bill Gates wouldn't let me bring in outside PR people and marketing talent. That's what founders do. My view is that the CEO ultimately is responsible and accountable for everything. They are the ones who make the decisions. The VCs are there to support and be steady.

29:07 Oh, I love that. I love that you found that. That could have been a benchmark partners quote, but it was Dave Marcourt when he was at TVI. Totally. You could copy paste those exact words. Yep. So Back to Bob here.

29:23 I think he really would have preferred to keep going at TVI and like convert it to an equal partnership. Like this is what he was agitating for. But obviously that wasn't gonna happen. So He's gotta go figure out something else. Yep.

29:37 He believed this so deeply in his soul that it is worth Not continuing at this firm or perhaps even not continuing this firm period in order to realize this dream. So what does he do? We're now in

29:51 Probably like early nineteen ninety four ish. He calls up. It's good, buddy. Bruce Done Levy. He trots up the stairwell.

29:59 Maybe takes the back stairs. To go see his buddy Bruce. Up at Merrill Pickard. Now Bruce. had gone to GSP a few years after Bob.

30:08 And when Bob was it. BCG. After G S B. Bruce Head. Intern form there. Now Bruce

30:15 Comes from quite a different Background. Then Bob. Shall we say. Bruce.

30:20 Grew up in Texas. And was a high school football quarterback in Texas, which he knows. Big deal. He goes to Rice University, where he's very erudite. He studies.

30:30 English literature. I don't know any other young V Cs who studied European literature in college and somehow managed to weasel their way into the industry. I don't know how you did it, David. I don't know how I did it either. Definitely would not work today. You were destined to become a podcaster. Yeah, right. It all works out in the end. So Bruce.

30:52 Head. gone on to work in the PC industry and then importantly at Goldman Sachs. And then join Meryl Pickett. And in his

31:00 Venture career, he was the one who did Pom Pilot. He was on the rise, he was one of the young Turks. Within Merald Pickard. But remember. He's a few years.

31:09 Younger than Bob. It's a Bob. Goes up to see him and he's like, Hey T VI's breaking up. I really believe in the sequel partnership thing. The internet, I think, is coming, like Netscape was happening here.

31:21 We're positioned to do this. And this is like early ninety four. Early ninety four. You and me. This is the same time Bezos is driving across the country and starting Amazon. What do you think about Bust and Luce out of this place and you and me start a firm together. And Bruce is like

31:38 Well Baba Monter, but I don't have the Microsoft money here. I'm a few years younger than you. I don't have the same kind of safety net. So it doesn't happen. At that point in time.

31:49 A few months go by. And More Pickard. Starts to have internal discussions about what their next fund

31:57 is gonna look like. And lo and behold, surprise surprise. The bug of equal partnership seems to have made its way around the building a little bit and infected the waters of discussion elsewhere. It's like a virus that's like infecting a very specific building in Silicon Valley. So Bruce and his fellow sort of young partner at Meryl Pickard.

32:18 Andy Ratcliffe. The two of them are like Hey guys. There's this equal economics idea. What do you think? And it turns out that that conversation

32:27 I think probably goes about the same that it went at T VI. They probably get little pats on the head. Yeah. By the way, can we just recognize Bruce was Bob's intern.

32:39 And think about the incredible vote of confidence and how counter to human nature it is for Bob to approach Bruce. And say, would you like to be my equal partner? Humans have this It's kind of a flaw. We remember people the way they were when we met them.

32:56 And so as they grow, we tend to underestimate them. And it shows an incredible amount of Maturity. And it really illustrates this obsessive sense of fairness that Bob had that the very first person he asked used to be a subordinate of his and he asked will you be my equal? Totally. It reflects.

33:14 Two things, certainly in Bob and uh And I think in all the early folks at Benchmark and Benchmark as a firm. This is the same. religious devotion to

33:24 Equality, fairness, It also reflects just like an absurd amount of self confidence. Yes. Bob's like Hey, you and me, let's together go take on this whole industry. Just the two of us. Which you know you kinda need.

33:39 Both to go do something crazy. So Bruce is a little bit more the voice of reason. He and Andy within Meryl Pickard have had these conversations. He's Amenable to the idea of leaving and

33:50 Starting a new firm, but he's like Bob Just the two of us. For what we do, we're not gonna have enough capacity to be able to create a like an actual portfolio that makes sense.

34:03 If it's just the two of us doing deals. We need to have some more investment capacity here. We need enough diversification and they were thinking sort of about round sizes at the time. They might invest a million, they might invest two million, but they're just not gonna have enough companies in the portfolio with them doing venture the way that they believe they need to do venture, you know, eight to ten board seats a person. No investments without board seats, that sort of thing. The T VI style. If they're on sixteen to twenty boards.

34:30 And that's all the companies in a portfolio. That's not enough. Right. And there's also just like a credibility aspect talking to LPs about this too. Like they're gonna start poking holes right away.

34:41 Yep. So Bruce says. All right. I'm down. But we gotta recruit some more partners here.

34:48 So they start going around the valley. They go outside of the office building. Trying to recruit folks. And The prevailing reaction, you know, I think

34:58 Maybe they thought that the religious meme of The equal partnership and Fairness and there's a new generation dawning in Silicon Valley. Maybe being within twenty four eighty Sandhill, they thought it was more pervasive than it was. Because the pretty universal reception they get around the valley as they approach other Young GPs is

35:19 You guys are freaking nuts. Right. We're in an amazing club here. Don't screw up a good thing that you got going. Didn't they try to recruit like a well known GP from Greylock who was like, um, no, I met Greylock. What are you thinking?

35:32 And that was right. That was the smart thing to do was not to go do something crazy. It was to do the John Door path. Like if people had Ambition. If young folks had ambition, it was like Hey, I'll put my time in and like Look at John, it worked for him. He was still quite young at this point in time and he had the keys to Kleiner Perkins. You know, there was no real reason to believe for a lot of these folks that they had to go

35:54 Leave their firms and do it on their own. So We got a chance to talk to Bruce and we sort of asked him about this time, this sort of interregnum period. We're like, you know, we're you How are you feeling during this time? Like were you a true believer? Did you think it was all gonna work out or

36:08 And he's like No, I started thinking maybe we were a little nuts too. Yes. But He made a complaint. Which is uh Their back was against the wall.

36:18 They burned the boats. They were gone. At this point in time, they had no other option. They had to Go make this work or they were out of the industry. This is like Michael Ovit's when his application for credit to start CAA had been discovered by the upper level management of his old firm. He was out.

36:37 He was done. There was no way to go back and undo, so you had to build the business. Yes, there is no other path forward. So They need some more folks now.

36:48 There's an obvious Recruit to Bring in to join them, who also is in the same position, and of course who they do bring in, which is Bruce's partner, Andy, from Meryl Pickard.

36:58 Yep. He's in the same building, so easy to get him. So now you got three. Now you got three. You got three pretty good folks. And Bruce, I believe it was Bruce's

37:07 You know, hey, look, we're having a tough time. Convincing other. Venture guys to come join us, other GPs. But We might actually want to look somewhere else and it might actually be a good thing for us.

37:19 If we bring in some entrepreneurial DNA into the firm. You know, we've got all these problems with the way traditional venture works. And all these other folks out there are reluctant to join us. Maybe it would be good for us to actually bring in some different

37:33 Yeah. And he says. I think I know. Just the guy. A former entrepreneur.

37:40 Who I worked with a set on his board. We actually went to rice together. Kevin Harvey. So Kevin, after I see he had started two companies.

37:48 The first one Apple had acquired. And then a second company approached software. Bruce had invested at Meryl Pickard, it was on the board, they just sold it to Lotus, had a Decent outcome. Hey, Kevin might make it pretty good.

38:02 B C so they approach him and he's like, Great. This sounds way easier than starting another company. So there you go. You've got Bob You've got Bruce, you've got Andy, you've got Kevin, the four Well known.

38:14 Found of Benchmark. But four wasn't actually the number they were going for, they thought they needed. At least five people. To have a viable farm. And so.

38:27 They go out and they do actually recruit a fifth. Founding member, the fifth co-founder of Thatchmark. Guy named Val. Vaden.

38:35 Val had also gone to G S B. And worked in Venture. But he had moved on. from true kinda early stage venture. He was doing Buyouts, like software company buyouts.

38:46 I'm thinking of like Toma Bravo and Vista, like the Precursor. to that, uh you know, at a much smaller scale. And so they bring Val on. Has.

38:55 The fifth partner. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI first world, that doesn't hold up anymore.

39:16 Yep, your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT. And your posture is different than it was last week, let alone at your last audit. Banta's own research found that around seventy percent of companies have this quote unquote shadow AI running with no security review at all.

39:37 Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRSC engineer, that's governance, risk, and compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half. In half.

40:00 Which is exactly why more than sixteen thousand companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake are All stay audit ready and catch the risks that crop up between audits across every vendor. Every AI tool. The whole environment. And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust.

40:25 We're huge fans of Vanta over here, and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get$1000 off Vanta at vanta.com slash acquired. That's V A N T A.com slash acquired for a thousand dollars off. And just tell them. That Ben and David sent you. So here we are now.

40:46 At the end of nineteen ninety four. We got the five. Members of the band. The drummer, the guitarist, the bassist, the lead singer, the rhythm guitarist. Bob, Bruce, Andy, Kevin and Valve.

40:57 They Put together. A prospectus. to go out and raise their first fund and the first thing they need to put on the prospectus is a name.

41:06 It's quite an audacious name that they come up with. Of course. Benchmark. Capital. Yeah, they went all in on signaling something to the market.

41:17 And I think what you're about to get into is how they signal that in the form of the economics that they were asking for, but they certainly signaled it in the name. It was you haven't heard of us, but we're already Important. Yes. Our aspiration is to Set a new benchmark. Four.

41:34 performance in this industry. And how venture capital. Is Done. This is featured prominently, supposedly, in the benchmark fund one prospectus. It says, quote, There is always room at the top. Oh boy.

41:50 So then what you're talking about, Ben Typical. Economic terms of venture funds, especially in those days. was standard Management fee and carry.

42:02 Management fee of two percent. Standard. carry performance element of the fund of twenty percent. Of the net. Profits.

42:10 of the fund. And for those who don't know, just quick crash course, two percent, that's an annual fee. So if you raise a hundred million dollar fund, that's two million dollars every year that goes to the management company that gets used to pay the budget and the salaries and all that sort of thing. And then the twenty percent. It's not just twenty percent of all the profits, it's typically twenty percent of the profits after one X. So you give everybody the money back. Hunter million goes back to the LPs, and then you get twenty percent participation and all of the profits after that.

42:40 Yep. So that's standard in the industry. Yeah. Think at this point. Some firms maybe just clear.

42:47 Had Charged more than twenty percent. Carry. I believe Kleiner did at this point because they were such a marquee. They were so proven. You know, if you wanted to invest with Kleiner you had to pay a premium to get him. Yeah.

43:00 They felt they had pricing power. Yeah, their pricing power. Benchmark comes out, the new benchmark capital swinging right out of the gate. With thirty percent. Curry.

43:12 Premium carry. We're gonna price And position this. Like the premium product. That it is.

43:20 Which of course from one perspective and the perspective of several prominent LPs is quite laughable. There's nothing here. And LPs at the time are looking at this like Hey, we think that fees in this industry are going down, not up. Yes.

43:34 A good allegory is actually the thing that Andy Ratcliffe went on to do after benchmark, which was Found wealth front. He's like, Oh, investment management fees, those are way too high and these strategies are only available to a small group of people. What if we democratize it and we bring down not a one percent management fee for private asset management, but like a quarter percent or whatever wealth front is. It's like kind of amazing that when he was going out to race for benchmark, he was saying Twenty percent profit will take thirty percent of the profits. Yes, yes. Uh

44:03 So great. Now this As you can imagine. One reaction that this does not engender from the LP community is is indifference. So this was a brilliant strategy. Now

44:17 Some L P. Absolutely love this. And very notably and famously, Horsley Bridge, the uh Big investment advisor.

44:27 Makes a huge bet. On This motley crew of Benchmark Capital Founders in fund one. And I think they've been in every single fund ever that Benchmark has raised and were in before any other institutions.

44:41 Yes, and I think they are still one of the very largest benchmark LPs to this day. And so they're a Big. Investor. In that funded one.

44:52 Which ends up being an eighty five million dollar fund. Which Fast forward a little bit, but becomes one of if not the best performing venture fund in history, returning billions of dollars to LPs. I think it's the best cash on cash of a large venture fund in history, period. Yes.

45:10 Still to this day, I think. There have been some small funds, I think lowercase fund one, Chris Saka's fund. But Nothing of this size, eighty five, which With inflation today is probably like one fifty, one sixty, but with venture inflation of how much these funds have grown, think about it like

45:28 the way you would think about how newsworthy a five hundred million dollar fund is in today's environment. Yeah, this is probably like the equivalent of uh, you know, three, four, five hundred million dollar. Yeah. It is the best returning fund of that caliber of venture fund in history. So Horsley loves it, a bunch of other LPs love it. Some LPs.

45:48 Absolutely. Hate. What is happening here. Every dimension. They try to go viral with their hate.

45:57 Yes. And they hate a few things. Obviously they hate the premium carry for the reason of Well that you said Ben, they're like There's more capital coming into this space, it's getting more competitive. We want fees to go down, not up. You kinda remember, we've painted the picture a little bit here, but

46:12 This was a different world in venture where you could do pretty well by being pretty lazy. In the LP world, it was even more extreme. There was nowhere near the same level of competition for institutional dollars going into private partnership alternative asset. Funds.

46:31 So if you were one of the large university endowments. A you had it pretty easy, but your team was pretty small, and so you felt like you had privileged access to this small set. Of Money managers.

46:44 And now you've got People coming in within these established firms and relationships who you like, you feel like you can deploy capital with them and get great returns, you know, year after year, decade after decade. And those firms are blowing up and now there's new firms entering the industry that you have to evaluate. And these new firms want premium carry. Right. They're pissed. And it's hard to underwrite because any LP that you talk to will tell you

47:09 It's not just the track records that we're looking at, and it's not just the meetings we're having, and it's not just the relationship we have with these individuals. It's our belief that those individuals will create magic together. Will they be The Chicago Bulls. Or will they be

47:26 The LeBron, Miami Heat. You don't know that they're gonna have that trust and that process and that demeanor And the number one fear is everything looks great on paper. So we wrote a big check, but it turns out these guys can't work with each other. And when you have a new firm with a new brand and a new set of people, that's the key risk.

47:45 And hey, you know, like The heat brought home a championship. And I think actually the analogy holds here of like a fund might bring home a championship, but if you're a large endowment, You don't care about one fund. Right. You want to back an enduring franchise. You want ten funds. Yes.

47:58 So Stanford. Your alma mater. Your esteemed alma mater. The alma mater of like almost all of these folks. Literally almost all of these folks who are starting benchmark. They get so angry.

48:12 Then not only do they not invest in the fund They start organizing Against This young benchmark capital. They call up All of their peers, the other university endowments across the country.

48:26 Including ones who have already committed. including ones who have already committed to the fund. And say We don't think this is a good idea. We want you out. Literally

48:38 Stanford black balls. Benchmark. Insane. Totally. Insane. No.

48:44 It's easy for us to pick on them now because famously They have a complete a hundred percent turnover in the management team of the Stanford Endowment. A few years later. A decade plus later. They end up being a large benchmark LP. And they do end up coming back to benchmark in the new team.

49:01 very happily for them for Stanford for my alma mater gets back into benchmark or gets into benchmark for the first time and Atones. For that sin. But man, this was a rocky birth. Of benchmark fund one, shall we say.

49:17 These guys were Going way against the grain. And actually this is a funny story. So Bob I think he probably would've had the religious fervor about the equal partnership anyway.

49:30 But Right around this time is when Jim Collins First big book built to last. Comes out. Bob reads it.

49:39 loves it as he's thinking about what's going on at TVI and what he wants. His future fund and what Benchmark would become to be. Totally aligns. With Jim's principals. In the book.

49:50 They actually hand a copy of the book. To every L P as they're pitching them going around for fund one. Which is really funny because A, I think they did believe in the values espoused therein, but it's also brilliant marketing. If L Ps care about backing

50:08 firms and funds that are gonna have multiple funds and last for decades. Right. And you're literally handing them a bestseller called built to last. And the number one risk with you is that you're new and unproven. It's just it all lines so well. So they do actually, I think slightly oversubscribe it. So I think they had eighty seven million of commitments. They cut someone back. So they're off to the races. It's eighty five million. It's these five partners. And they start investing. They overcome

50:35 The blackballing of Stanford of the L P and V C establishment. They just survived.

50:42 Coming through the fire here. And what happens next is interesting. So you know, it's towards the end of you just sort of second half of nineteen ninety five. They've raised the fund. They've just been through This journey. Frankly, there's kind of a letdown, I think. You know, maybe that's too strong, but

51:01 A few things happen here. They didn't expect that this was gonna instantly be an obvious success right out of the gate. It wasn't all a hundred percent sunshine and roses, you know, within Benchmark itself as a partnership either.

51:14 Right. It's not just that, hey, we're starting to make some investments, but like Nothing's really popping in this sort of ninety five, ninety six era. To your point it was. We're not.

51:25 Gelling as a team the way that I was sort of hoping we were. And It's not All of us. It's one of us.

51:33 Yeah. And um There were deals to be done, but During ninety five and ninety six. That would have put the firm on a very different trajectory during those early years. Those were the years when

51:46 Amazon, as we talked about, got done. That was the time when Yahoo got done. And like would benchmark have beaten John Door to do Amazon. Probably not.

51:58 You know, maybe. They weren't even really in the picture. You know, and certainly Yahoo I mean Mike Moritz is great. Like he's wonderful, but a big part of what started to make Mike Moritz Mike Moritz was

52:09 Yahoo. He wasn't Mike Meritz before he did Yahoo. And benchmark wasn't in the picture then. So There were some notable Misses during those years. Yeah, and then the team.

52:19 Val came from this very different perspective. He was coming from the buyout industry, the proto software buyout industry and Benchmark was all about doing formation stage investments in technology and internet companies. There just kinda wasn't a fit in investment styles.

52:36 Yeah, I think that is probably the right thing to chalk it up to. David and I stumbled upon this and we were like Val Vaden How have we never heard this guy's name? Like I remember thinking like wait, there was a fifth founder of Benchmark? They had people coming from a venture capital background. They had someone coming from an operational background. They would have someone who we haven't talked about yet coming from an executive recruiting background who would be a slam dunk fit.

53:01 But This person coming from more of a buyout background turned out. not to have the same fit with the rest of the firm. So At the end of nineteen ninety six

53:11 Val ends up. Leaving the firm, you know, leaving the equal partnership, which certainly was I'm sure not what any of them planned or were hoping for They've invested about sixteen million in companies by the end of ninety six, you know, which is like fine deployment, but maybe a little slow. They're having a partnership transition.

53:30 The firm is not winning. I'm sure it Must not have felt great. I mean like But I've been there. I've had friends who've been there like it can get depressing. Like if you're a new firm if you don't Come out the gate strong. You kinda end up fading away a lot of folks. Right. Lots of fun ones. Don't raise fun twos and

53:48 certainly don't raise fun threes because then you have fun one's performance to look back on that should have sort of been popping already. Yep. So I imagine there's a lot of concern at this point in time. And maybe some of the Sort of swashbuckling this. of the founding um

54:04 Has maybe been replaced by a little bit of depression. They had to call all the LPs and tell them, Hey, we came to you with talking this big talk and one of us is out. I will say after talking to a lot of different people around the firm The number one characteristic that just kept coming up over and over and over again.

54:20 They do what they say they're gonna do. They carry themselves with incredible decorum. They have tremendous discretion when speaking publicly, and this just comes through any time you hear any of them talk. And From what we can tell, there was a Very generous separation.

54:36 with Val from the firm. So much so that when you go to the way back machine, which is Just an incredible resource that this exists. Oh, you found some great stuff. You were tweeting the last couple of weeks, like just screenshots from old benchmark websites. They're amazing. It's been so fun. Val is still on the website. In nineteen ninety seven, January ninety seven. So there's the five general partners, and it says complementing benchmarks, early stage focus, Val E Vaden.

55:02 concentrates on technology special situations. And when you click on his bio, he's there, he's got a picture. It says Val will be establishing a new fund to focus on technology special situations investing. The new fund's focus builds on Val's experience investing in technology companies undergoing significant transitions, which can benefit from the capital and investing skills of a venture capitalist. These include Fallen Angel public companies. companies contemplating major acquisitions or devestiture programs, corporate spin outs, management buyouts, and in rare instances turnarounds and financial restructurings. So they're basically saying Yep, we're gonna keep using our brand to help you raise this thing that Is the thing you're good at.

55:39 Which becomes vector capital that he gets on the found and then He's part of a few other. Fetch of farms over the years. So Anyway, all this to say. Heading into nineteen ninety seven.

55:50 It was dark. If you were handicapping The future. If Vegas were betting on the odds of the young benchmark capital heading into nineteen ninety seven. The line would be long on outsize success here. Certainly nobody would think that this current fund that they are investing out of and this current basket of companies Inclusive of the ones they would do over the next twelve months, would be a ninety two X.

56:13 In just a few years. On the fund. On the fund. On the font. Wow. So nineteen ninety seven. The Anus.

56:22 Mirabellus. for Benchmark. Can you explain that for those of us that didn't study literature? Yeah. I thought that was a prerequisite for

56:31 You know, getting into this industry. Sorry, I did computer programming. I don't know if that's relevant. Latin for uh miracle here, I think. And literally it is a year of miracles. But they put themselves in a position to win it. You know, I think we're gonna talk about this more in a minute. But

56:48 A ki Key element. To benchmark and to them getting it off the ground. was both doing something different, but also having

57:00 This swagger. To them. Um Obviously they had the swagger, and I think they kinda might have lost it in those early years and so I don't know how intentional this was. I am imagining it was pretty intentional.

57:13 The the four of them. remaining sort of gut check and say like Okay, where are we headed here? Like how do we get the swagger back? How do we get back to winning? How do we get back to being aggressive?

57:25 So they go out, they decide they need to replace Val. the best way to do it. Bring in a new Fifth partner. And they Go recruit.

57:34 The most aggressive The most hyper competitive The most Swaggerful person. That they know.

57:43 The tallest. We are not yet talking about Bill Gurley. Oh no. That will be a story coming up very, very soon here. They

57:51 Recruit. The number one Executive recruiter. In all of Silicon Valley and technology. David.

58:01 Yeah. From Ramsey Byrne and Associates. That's a lot of Hutzpa to go in. recruit someone away from the firm that has their name on it. Yes.

58:12 And to go recruit. Somebody whose job it is to recruit. You can say many, many, many things about Dave, but you could never say That he doesn't have swagger and that he's not a hustler. So kinda like Bob, Dave also grew up

58:26 Pretty hard scrabble. His family was Also a General Motors family. He grows up. Pretty working class. I believe in New York.

58:34 Yeah. Ends up getting into the recruiting business. And essentially by like pure force of nature and force of will. Just Wills his way to the top. It's kinda like a Jerry McGuire type story.

58:47 He Ends up starting. His recruiting firm, Ramsey Byrne. They're based in Westchester County, New York. And they're not working in technology to start

58:57 They start? Cold calling. Prospective clients in tech and in Silicon Valley. From Westchester, New York. Dave starts code calling them and saying We're Ramsey Byrne, the leading executive search firm in high technology.

59:11 They haven't done a single retained executive search in high technology when he starts doing this. But they're not claiming anything literal or specific. So leading, sure. It's like how the new iPhone it's like a two X better camera. But they don't tell you any sort of units or what vector that is better on. Yeah, two X better than what. But they're leading.

59:32 And It becomes a self fulfilling prophecy when In the I think it's probably late eighties, early nineties. Dave gets his big break. And he gets through.

59:43 To John Dorne. John. Makes him his preferred Executive recruiter. For CEO searches. for his portfolio companies. And remember, back in these days

59:55 That's part of the standard V C playbook. You come in. You back the company, you start a search for a professional CEO. Yeah. Congratulations on finding product market fit. Surely you don't know how to do the job after this, so And we spent a lot of time talking about that in uh part one of our Anderson Horowitz uh episode involving none other than

1:00:14 Benchmark Capital. So David Ends up doing. The CEO searches for Netscape.

1:00:21 Yeah. Brings in. Jim Parksdale. Which of course is a Kleiner company and a John Dor company. He does the same for Excite. He's working all over the valley. It becomes a genuine self fulfilling prophecy. He becomes the number one

1:00:34 Retained executive search CEO recruiter. In Silicon Valley. From his outpost. In Westchester County, New York. He projects an aura of success and eventually it becomes success. So

1:00:46 Benchmark comes out. I think Bruce flies out to Westchester and convinces Dave to leave all this behind. He's making millions of dollars a year in cash. Running his own. Search for him. Yeah, none of this speculative start up equity. He's literally getting paid.

1:01:00 Yes. And The benchmark partners convince him to come out and Try his hand. Being an actual VC.

1:01:07 And to join Benchmark. And I'm sure they're thinking, and this is what plays out. They need a shot in the arm here for this firm. And Boy.

1:01:16 Is Dave that? So I couldn't a hundred percent prove this. But I believe is Web Van. Oh, is it?

1:01:25 I don't know if he did others before it, but if WebVM wasn't his first, it was certainly among the first, like right after he arrived. So I'm just gonna open up E Boys here. And for those who don't know, who have not heard of the book E Boys, it is the Authorized history of benchmark up until two thousand.

1:01:44 where the author actually sat with the partners for the better part of two years. fully sanctioned to observe conversations in partner meetings. And when it comes out, it's not the book that they thought it was. It is a little bit more gossipy and interpersonal. And definitely characterizes each person to be a little bit more tropey than they would be in real life. So it is both looked on as

1:02:09 A lot of the facts are right. But also There's a lot of drama. It's a period piece, and we're gonna talk more about you boys in a second here. But I'm just reading here from page thirty.

1:02:20 So David Byrne. arrived at Benchmark with ambitions to contribute to the partnership fast, in any way he could, And he had some ideas for new businesses for which he hoped he could find entrepreneurs. One of the concepts that kept nagging him was an e commerce business that he called MyStore.

1:02:38 Which would sell online everything for everyday needs. Start with groceries and move toward an online Walmart. We've got some. Less family friendly language here, but I'm quoting from the book, so fast forward if you have little ones listening. Well shit, Bruce Dunleevy said when Dave told him his idea, as the two sat in Dunley's office.

1:02:57 Have I got the plan for you? Dunlevy reached into a stack of papers and pulled out a business plan called Oasis. He tossed it to Burn. Explaining that he and the other partners Lacked the balls to do it.

1:03:11 Would burn. Be willing. To be the guy. And Oasis of course is. Web Van.

1:03:17 Which I remember WebBand as a creator, a cautionary tale of what could go wrong in the dot com. Excesses. But going back and doing the research here and and looking at it. This was actually a great Bet to make.

1:03:33 Oh, this is exactly the type of bet you should be making in venture capital. Totally. This is The exact kind of Swagger. Yeah.

1:03:44 With the right Aligned Asymmetric upside and downside. That if you want to be taking the right kind of risk to establish yourself as one of the premier early stage venture capital firms you should be.

1:03:55 Doing. All right, so what was Web Van? What was the company or what was the deal? What was the company and why was it so swagger filled to do it? We talked about web van on every season episode so far in season eleven, I think. That might be true. Yeah, I feel like everybody knows. The theme of season eleven is web ban. There we go. There we go. That's so true. We Probably hit it on Walmart and Amazon. So of course, as we've talked about.

1:04:22 It was Louis Borders. The founder of Borders Books. Which had then gotten absorbed by Kmart and then spun out and He had left as part of all that and he felt like Borders didn't realize his vision. He wanted another big swing, bite at the apple.

1:04:36 He knew about Kmart, Walmart. He wanted to build. Amazon. What Amazon is today. He wanted to build Amazon.com. uh the modern Amazon.com, he was just a couple decades too early. And so that's what webband was. It was

1:04:49 Anything you want, starting with groceries, that was their wedge. But it was Anything you want from the web on a van delivered to your doorstep. And importantly Now.

1:05:00 Web Van did have the sort of last mile component as the initial founding Wedge. Whereas Amazon They're like, Yeah, we'll get it to you and it might take two weeks. Of course, then they get to Prime and they get to Prime Now and now they're trying to do one day prime and all sorts of things can happen the same day if you're spoiled like me and live in Seattle.

1:05:18 And Web van had that from the start. And It was equally ambitious. Louis Borders

1:05:26 Did you? want to Do food And everything. It was the everything store. At the edge.

1:05:34 Sort of Close to your house whenever you want it. And it was so ambitious that Even the benchmark partners After they invested.

1:05:43 Kept trying to talk him into Could we just do food? Do we have to compete with everything Amazon is doing right away? And the benchmark. Partnership as a whole, but I think especially the um original four benchmark partners were the ones really pushing David to push Louis.

1:05:58 Hey, can we just do food? Can we scale down? David totally falls in love with Louie. Like this is what he's there to do from his perspective. And it did feel like this was the sell to Dave. Hey, leave your lucrative, successful executive search firm because if you come here, you can make big bets. And so I think that was the thing that was like always on his mind is Well, if there's a bet that everyone else at the firm is too scared to make, maybe I'll make it. Yep, he was that guy.

1:06:24 Which benchmark totally needed. Yes. They needed to re-inject that DNA into the farm. Yeah. And this deal. is a great deal to make, as I alluded to. So

1:06:35 Here's how the deal goes down. And this is great, because this is not how people remember it. Everyone goes, Web Van ball of flames, terrible venture investment, lit some more money on fire than I can ever remember, emblematic of dot com Insanity and incorrectness of everybody lost their mind. This is a A a great risk adjusted bet to make by benchmark, but B Not

1:06:55 Actually that big of a smoking crater. Relative to today. So It's a seven million dollar round. Benchmark splits the deal.

1:07:03 with Mike Meritz at Sequoia. Sequoia does three and a half million. Benchmark does three and a half million. Maretzenburn. Join the board.

1:07:12 I think they each get ten percent. of the company. And Then WebVam does do

1:07:19 Uh late stage. One or two. I can't remember if it was one or two. At least one. quote unquote later stage, but Meznine rounds from completely other investors. Sequoia and Benchmark don't put more money into the company. Before they go public.

1:07:32 And then webband goes public. You know, during the go go eras, it trades up. Two winning. Eight. billion dollar market cap. So you know, at the high point for this web van bet that Benchmark and Sequoia each put three and a half million into

1:07:46 That's what like lift is today. They go from Let's assume it was ten percent that they each got. And maybe there's a little delusion in there, but like let's keep it easy. Three and a half million. to eight hundred million dollars in public stock, you know, within like

1:07:59 Two, three years. So like Man. Fantastic. I don't think They got

1:08:05 Liquid on a lot of it. I think they were still locked up before. The dot com crash. happened and it cratered. So like whether they got any money out or not, you know. I don't know.

1:08:14 But like Yeah. What a great bet to make. I stand up and applaud for WebVam. And the thing that I really want to underscore here is for the asset class of actual venture capital.

1:08:26 Early stage. high risk, high return stuff. You want to back someone who's got a missionary focused dream like Louis Borders was ready for his next act and he wanted it to be really, really big and It was probably the right bet, maybe at the wrong time. It's probably a decade, maybe two decades early, but the vision was right. And so you're betting on someone that

1:08:49 kind of has to be bigger than their previous win. So they have an incentive to make it really, really big. And As a venture investor, you want to be buying all that risk. You don't really wanna be making these sort of risk mitigated bets and have a port. No, that is why you have a portfolio of thirty companies. Go get all the risk you can. And especially for three and a half million dollars, so that's less than five percent of the fund? Like for sure. Of course. Do that all day long.

1:09:16 So that starts to Bring some swagger back to Fetch Park. And then you alluded to E Boys. It takes a couple years for E Boys to get written and Come out, but What a ballsy move. These guys are like, yeah, let's bring in an established author. So Randall Strauss had written at that point Steve Jobs in the next big thing about next. And you know the tagline on the book, which I think was

1:09:37 part of you know the actual book ended up being different than I think what everybody thought but Was the first inside account. of venture capitalists at work. And it's like the benchmark guys, they got nothing to lose again at this point. So like, why not? Let's be the first inside account of venture capitalists.

1:09:53 At work and Randall gets access to Everything. Like he sits in partner meetings. He's the author in residence. He's there at twenty four eighty Sand Hill. He's in the portfolio companies. I think he even visited the web van facility. Yep, which was off limits to all press, you know, all outsiders. Super private.

1:10:11 Yeah. Even at their launch, they didn't let any press inside to see it'cause they were afraid of giving up trade secrets. He embeds with eBay. It was crazy to do this at at the beginning of E Boys. Randall writes in the introduction here.

1:10:23 There was no precedent within the venture business for providing an outsider such access. I suspect that the benchmark partners Thought that something ballsy like this. Which was sure to make the grey beards of the guild squirm, must ipso facto be a good thing. You know, which is funny. And of course it's more complicated than that. But I think it's emblematic of they got the swagger back. They're like, you know what?

1:10:47 You gotta play like there's nothing to lose here. Yep. So that leads us to The big one. The one

1:10:55 That actually Changes everything. Certainly then and Still. Right up among their own.

1:11:02 Best venture investments. Of all time. And this one required all the pieces of the puzzle. It required the executive recruiter. It required the knowledge of consumer, which at the time Consumer investing was

1:11:16 Not a thing that overlapped. with technology. It was not a thing that if you were betting on technology companies, you're usually investing in semiconductors, you're investing in networking equipment, you're investing in enterprise software. And so you needed this marriage of We need to find a killer executive for a consumer company that's building a consumer brand that has unbelievably disruptive brand new cutting edge.

1:11:40 Always falling over technology. It required Mm. Focus on and core belief in the future of the internet. And it required

1:11:50 Teamwork. Of the whole partnership working together. So June of nineteen ninety seven. Actually well before June. Pierre

1:11:59 Oh may yard. Who we talked about. On. The Amazon.com episode. Had

1:12:05 Been working. A few years prior. at a little pen computing company called Think. And they were a pen computing company.

1:12:14 And Bruce Dunleavy from Meryl Pickerd, Anderson and Air. Was An investor in the company.

1:12:21 And Inc had an interesting journey. Pretty much the whole pen computing space, except arguably Pompilot. didn't really pan out. This is like the Go Corporation of which Jerry Kaplan wrote the great book Startup about And Inc. certainly fell into that category, but

1:12:38 The VCs and the management team. refuse to kind of give up on the company and they pivot into very, very early E commerce sort of software enablement. Enterprise software for early e commerce. And the company ends up getting sold to Microsoft in a good outcome.

1:12:55 So everybody's happy. They kinda all went through the trenches together. And Pierre had been working there as an engineer during the time. He has fond memories, he got to know Bruce through that. And after Inc, do you know where Pierre goes? After Inc.

1:13:10 Right before he starts eBay. Or auction web? Ooh, I do not. Oh, you don't oh, I thought for sure you would know this. He goes to the epicenter. Of

1:13:19 Pretty much all innovation that has ever come out of Silicon Valley. General Magic. Oh that's right! That's right, that's right. I remember yes, when watching the documentary a few years ago. Yeah.

1:13:31 We should do an episode on General Magic and maybe find some of the original people. Uh that'll be fun. We should do that at um The computer history museum in Silicon Valley. That would be super awesome. I assume they have the device there. They invented the concept of cloud. They invented the concept of mobile. In retrospect, it actually makes sense that Pierre would go to general magic given his background in pen computing.

1:13:52 Totally. It all makes sense. So while he's working at General Magic, famously In his free time. Pierre starts tinkering around on the early internet. And starts

1:14:04 A collection of internet services that he calls eBay for electronic Bay Area. Although there would be lots of retrospective justifications of that name. And there was like a lot of crap on this website. It's like a courier font website that has like a bunch of stuff on it, all under this like umbrella of eBay, but it's just like a bunch of different content and like some programmatic stuff and

1:14:29 To your point, there was one link. One of the five or so main things you could do on the site. was do this thing called auction web. Which Surprise, surprise became the thing.

1:14:42 That became eBay. So we're telling all this history because A it's awesome to tell eBay history, especially having done Amazon earlier this season. But kinda painting the picture here of like Pierre's this like engineer, this is a side project. You know, it's really unclear what's going on here. That's right. He was full time.

1:15:00 He was still a full time employee at General Magic when creating eBay. You know, he's been at companies, right, but on the engineering side, he's not like a what any VC at the time would consider like, you know, CEO material. As stupid as that was. But it's very different than Jeff Bezos coming from D Shaw with a full fledged business plan and building everything out and then, you know.

1:15:20 John Dore from Kleiner Perkins cold calling him. Like that's not What happened at eBay, by any stretch of the imagination. But what does happen is it starts. Working. And at first

1:15:32 Pierre is like Just hosting these auctions for free. There's no business model. He gets so much traffic that like his server costs kinda go through the roof. And so he reluctantly Had in hand, shamefully. Ask his users.

1:15:44 to pay a small listing fee just to keep the lights on. And famously it's like The way he does it is they send checks to his apartment. He gets deluged with checks. He can't open the mail fast enough. This is product market fit. That Our friends.

1:16:01 It's product. Cricket fit. He brings on Jeff Skull, who is a newly minted MBA from Stanford Business School. To come in and be the quote unquote business guy, meaning literally like

1:16:12 Open the checks and Cash them. It is funny that like If Pierre hadn't been.

1:16:19 Needed. To pay for the server costs. There's a really good chance this could have gone the way of the Linux Foundation. Or Craigslist. And I know Craigslist is a real business now, but like it could have been or W Wikipedia could have been this like unbelievable resource for humanity that generated no profit. But instead.

1:16:36 They became the it company for a generation. Think about the way we think about fangs today. In the early two thousands and late nineties, that's how people thought about eBay. Totally. And we chronicled so much of this on the Amazon.com episode, but For our purposes here, you know, again painting the picture, this deal had some hair on it. So Pierre.

1:16:55 After he brings on Jeff's like actually, you know. Okay, I'm open to building this as a business and like obviously we've got good revenue, like We have cash flow. I don't need the money, but having experience from Inc, and then also from General Magic, he knows that

1:17:11 VCs and a professional board can Really Help the company and he remembers Bruce from the Hank days. But P and Jeff, they go around Sand Hill, they pitch this to everybody. And just about everybody else.

1:17:24 Actually literally. Everybody else. Benchmark though. Is interested.

1:17:31 And Bruce is interested and he's like You know. As you were saying, Ben. My partner Bob is actually really interested in

1:17:40 Consumer stuff and consumer marketing and consumer psychology should be My partner Bob. Bring Bob in. Then Bring David in, and David's like, I can

1:17:50 Bring in the management team. I can find the right person for this. Yeah, Kevin and Andy love it. It's really the whole team working together. They give

1:18:01 Pierre and Jeff. A term sheet. To invest. Six point seven million dollars total. in the company, you know. Series A financing had a twenty

1:18:09 Million dollar pre money. Valuation. Pierre and Jeff have One other. Term sheet.

1:18:16 A competing term sheet, shall we say. But the terms they offer are a little bit. Different. The other term sheet. Is

1:18:24 From Night Ritter. The Large newspaper conglomerate. It was basically an acquisition, right? It was an acquisition. At which

1:18:34 Jeff School. had worked very briefly after graduating from Stanford DSB for a few months before Pierre recruit him to come help open the mail. Anyway. Which kinda makes sense, right? This is a classified thing on the internet. We do the classified things for newspapers. We can do this too. Oh, how the world would have been different.

1:18:53 If you One of the nation's leading newspaper companies. had acquired the leading online classified. Business. And an interesting thing to note is

1:19:02 At this point. eBay is growing ten percent a month. So Check. fast growth company.

1:19:09 It's Profitable. all these checks that are getting mailed in, like it is generating cash and growing. So Why would you get acquired?

1:19:20 Why would you not keep running this thing? Well It was actually a pretty compelling offer. The reason you would get acquired is they offer Pierre and Jeff. Fifty million dollars.

1:19:30 Five zero. Million dollars. And that's a thing you would think about taking. That is a thing you would think about thinking, especially at this moment in time. I mean, that's like a lot of money. Right. You know, exits quote unquote didn't often happen for that size, let alone exits of like a two person company that like was barely a company.

1:19:47 Right. So there's some debate about what happens here. And there's debate among people who were there. This is a truly unknown Truth.

1:19:58 But we will give you everything we know. Yeah, it's like the AWS episode and uh like multiple origins of AWS. There is a version of the story. Where None of the money.

1:20:10 that benchmark invested in eBay was actually used by the company. That actually is probably true. They probably didn't actually burn any of the money because they were profitable. They were always profitable. They were never not profitable. I think of the portion of the six point seven million dollar Benchmark investment. that went to the company's balance sheet. I don't think any of it ever left the balance sheet.

1:20:30 Yes, I think that is correct. Perhaps not all of the six point seven million dollars went to the company's balance sheet. Perhaps. What we do know is that benchmark Got it.

1:20:41 twenty percent or more of the equity in eBay For their equity investment in eBay. What was reported was that they owned twenty two point one percent at IPO. It was also reported by the Washington Post After the IPO of EPA.

1:20:55 Yeah. Benchmark had also structured Equity backed loans to Pierre and Jeff. In the amount of seven hundred and fifty thousand dollars each. As a way to like

1:21:06 Prevent them essentially. Give them an incentive not to take The acquisition offer from Night Rider. 'Cause they're sitting there, they're like, Oh my God, this is life changing money. Right. So it's effectively a secondary. It's structured as this equity back loan, but basically

1:21:21 What? you could sort of take away from If this Washington Post article is true, is a total of one point five million dollars was paid. Two Pierre and Jeff. to say, hey, make yourselves comfortable. You know, this is a secondary effectively

1:21:35 I have also heard from a podcast where another benchmark partner at the time said that three of the six was used. as a secondary. Fifty percent. of the investment round.

1:21:47 And of course we have also heard that there was no secondary and that doesn't exist at all. I think there was At least something. And there's enough sort of smoke here around the equity back loans that was reported not only by the Washington Post, but then was in SEC filings that In addition to the equity investment that benchmark made, there was also some kind of equity back loans to give them the ability to, uh Whatever they made on the appreciation of the shares that they got as a part of the direct investment.

1:22:13 They also had A nice nice, nice return from the founders deciding to take some money off the table. So all of this is

1:22:22 Highly untraditional, highly non consensus, they're the only terms she They're willing to Probably do at least some sort of this What would come to be known as secondary transaction that Then later everybody would wake up and realize like

1:22:35 Oh, this is a great use case for this. Right. Allow the entrepreneurs to take some money off the table so they don't sell the company for fifty million dollars and instead let everybody make fifty billion dollars. But nobody else was willing to do it at this time. They were the only VC term sheet and the only ones willing to structure a deal like this. I also love how everyone was making hay during the clubhouse deal that this was some kind of like new phenomenon. Like Oh my gosh, ten million to the company's balance sheet and two million to the clubhouse founders when it's only a few months old. What is Andreas and Horowitz thinking? This is crazy town. And it's like, The benchmark eBay deal, that may have been fifty percent of the round, or at least twenty five percent.

1:23:14 So The deal gets done in the summer of nineteen ninety seven. And You don't have to wait long for The fruits.

1:23:23 Of that the Altar Ripe in. Unbelievable. In September Nineteen ninety eight. Just a little over a year later.

1:23:31 By which point in time. The company. And with Benchmark and David Byrd and Highly Involved has recruited. Meg Whitman. Superstar Meg Whitman.

1:23:40 From Hasbro and Previously of Disney Strap planning, fame and That's right. She was part of the Strat Planning Group. Yep. And I think previously to that Bane. I believe it was Bain, one of the big three consulting firms. To come in.

1:23:54 take over a CEO and lead this business and God does Wall Street love this story. At the IPO. In September nineteen eighty eight. Benchmark Steak. Of the six point seven million they invested is worth four hundred million.

1:24:09 Fortunately for them though, they're still locked up for another six months. They can't distribute. By the time the lock up expires the next spring in nineteen eighty nine, that stake is worth over four. Dollars. On an eighty five million dollar fund.

1:24:27 A six point seven million dollar investment turned into four billion dollars. In a little over eighteen months. Less than two years. The IRR on that is unreal. This alone forty seven X's their fund. Yes. Now

1:24:42 If something did or didn't happen with a secondary in these loans. And if those were incremental to the actual equity investment. Which we don't know for sure if they were or weren't. But if they were, if what is recorded in the Washington Post in that old article, which is linked to in our sources, is true.

1:24:59 That's another One billion dollar kicker. On top of the four billion dollars. Which is an additional twelve X on a fund that would have already, whatever, forty seven X. Unreal. So whether you're talking about four billion, five billion, whatever.

1:25:16 And Benchmark distributes that. They lock that in. That is real. Returns. To the funds limited partners, to the GPs. And we do know for sure.

1:25:26 that they distributed four billion dollars. Yes. I just wanna pause real quick and say Fund one. did go through the dot com runup and burst. And so in two thousand

1:25:38 After that, a lot of the investments actually not eBay, but a lot of the investments looked much worse very quickly. EBay had obviously a drop, but not like a drop to zero or anything. So depending on when they got out of certain things. At the point that E Boys was published. the mark on this fund was ninety two X. But even if it went down. We know it was at least

1:25:57 Like a fifty X,'cause we know for a fact that four billion was actually distributed to LPs. So now remember back. To the premium carry. Oh boy. Thirty percent. Remember how I was like painstakingly explaining that like the first one X goes back to the LPs, so then only after that the GPs participate. That's a rounding error at this point.

1:26:19 Even if they didn't give the first one X back. If you fifty X a fundament So even by the most conservative analysis, you know, assuming no Secondary kicker. everything just what we like are pretty sure we actually know.

1:26:36 That's one and a half billion dollars of carry. To be distributed amongst the Equal partnership. After the ePay investment.

1:26:46 And they had you know slices of carrot, you know, I'm sure. Val retain some carry after he left. And uh famously I think Bob pushed for this. They gave pieces of carry to their assistants. Yes, then you hear you know the stories about like Benchmark assistants becoming multi millionaires. Like that was it. This is how.

1:27:01 This was how I think Before the IPO. But after eBay is clearly working and Meg Whitman is there. Benchmark.

1:27:11 had been doing for a while and would really embrace bringing in entrepreneurs in residents and doing the EIR strategy of company formation. Bring somebody who wants to start a company in, house them at the firm. help them get started, you know, bring the whole partnership together to help them incubate the company. They did this with an EIR named Danny.

1:27:30 Shader. And Danny comes up with the idea. For a company calls accept dot com. He notices eBay is becoming so big, it's now this viable platform on its own that

1:27:42 But actually. Doing payments. For auctions that are completed is pretty hard. And so he says, you know, I think there's actually an opportunity to build.

1:27:52 A separate independent company to do payments. on the internet and specifically to start with. Accepting payments for sellers. On Ebay.

1:28:01 Benchmark partnership gets super excited about this. They bring in Bring in Meg. Meg's talking about like we like this, we need this, maybe eBay will invest in the deal itself too. So they

1:28:14 They fund the company, Benchmark does. The IPO Road show starts, you know, Meg gets distracted. Ebay ends up not investing. Then after

1:28:24 The IPO is done. eBay gets cold feet. They don't do the deal. They're thinking about, oh, should we build this ourselves? Should we look at other companies of acquiring PayPal doesn't exist at this point. Right. Why are we partnering at all? Shouldn't we own just like a hundred percent of this thing if we're bringing all the customers to it? So This company is kind of stillborn at this point in time. You know, what are they gonna do? The whole business plan was Payments on eBay auctions listings.

1:28:48 You'd think this would be a zero. They call up Amazon. We talked about this on the Amazon.com episode, but uh Fortuitously for them and for benchmark. Amazon was Starting to think about competing.

1:29:04 Directly with eBay and launching Amazon auctions. They swoop in and they buy. Except.com. For a hundred and seventy five million dollars of Amazon stock. So Benchmark gets some Amazon stock. And would become close with Jeff Bezos.

1:29:20 There's a sort of longstanding relationship between Jeff and Benchmark. You know, eBay then they do buy another company, but one that does not have good technology. It doesn't work out. And that's what leaves The window open.

1:29:33 For PayPal a couple of years later. There were so many points in time where like the window should have closed. For PayPal to be started. There's no reason that that company should have been successful or existed. Get. But unforced errors just kept happening in front of them and they just kept having that open window.

1:29:51 Yeah. So fun. Such a fun sidebar. And fun to tell it now from the eBay and benchmark side of things, as we yeah, we told it from the Amazon side uh a little bit ago. So why is it that In less than two years.

1:30:04 Benchmarks stake grew one hundred thousand percent. Why did eBay appreciate so quickly? And to put a finer point on that. They invest it at a twenty million dollar pre money valuation. And by the next spring, the company was worth$21 billion.

1:30:22 I think there are a few things. The simple answer to that question of is The world. And the financial markets woke up to the power of the internet. And

1:30:33 What? Here to four was a secret. hiding in plain sight right in front of everybody's faces. That like, hey. The internet.

1:30:41 There's this incredible enabling technology and you can build real businesses. That make real money on the internet. Was not something that most people believed until then. Now Other people in Silicon Valley. Did of course believe that.

1:30:55 Kleiner Perkins being. Chief among them. But there was another. nonconsensus from a Silicon Valley perspective aspect to the eBay deal. Yeah.

1:31:05 Benchmark was willing. To see and exploit. That nobody else did. Which was that the external facing aspects of this company. Did not look anything like

1:31:16 The kind of companies. That's Silicon Valley backed. But if you just looked at the numbers. It was working. This was already working. The outward factors made it look

1:31:27 Like there was a ton of risk. Investing in this business. But it was already de risked. It was already working. Yeah, from the outside it looked like This UI sucks.

1:31:38 No one will ever use this. And also it's not a real business of people selling beanie babies. Like they were getting laughed at. So it was super nonconsensus from that perspective. Sidebar. The first business

1:31:50 enterprise that I ever did in my entire life was selling beanie babies on eBay. No way. You were a merchant. Yeah, totally. I sold three beanie babies, two of them for one hundred dollars each, and one of them a Jerry Garcia bear for three hundred and fifty dollars. It's weird that I remember all this. Hm. I remember that Jerry Garcia bear. That was like the real hot commodity, right?

1:32:11 Yeah. So it's interesting, like to answer the question of like the growth, there was intrinsic value growth, certainly, of this company growing ten percent per month. And then it had some fits and starts and there were times where it was growing even faster than that. And then there were times where it wasn't growing at all because the servers were down and they had to work directly with I feel like it was like I don't know if it was Dak or Sun, but someone to like come

1:32:33 help us fix whatever we're breaking on your hardware by scaling so fast and using this for purposes that You know, you never intended it to be used for because this was pre good web servers existing. But also the multiple growth was just nuts. people were willing to project way farther in the future.

1:32:51 Because They thought okay. Retail's a big market. If the internet's actually a thing and people are willing to transact on the internet. Then my God.

1:33:01 This business is gonna enable Online. peer to peer commerce with no holding of inventory, like This is an asset light high growth pure technology business in a gigantic consumer market. Let's go.

1:33:16 And so of course, you know, bubbles happen. Ha ha and of course that would never happen again. No, of course not. It's funny I looked up eBay's market cap today.

1:33:28 And if you look at eBay's market cap. When they went public, it was a couple billion dollars, then of course ran up real fast, as we talked about, to twenty five billion dollars, stayed there through the dot com crash. The bottom of the trough I think was something around seven billion.

1:33:46 And then it would have another run up in two thousand and Four. Up to seventy seven billion. But After going up and down and buying PayPal and divesting PayPal.

1:33:57 After all this. Do you know where it is today, David? I believe it's about twenty five billion, right? twenty three billion dollars right about the market cap.

1:34:07 However many years later this is, uh twenty two years later, right around the market cap where benchmark got liquid. Wow. Wow. Oh, that's so Crazy.

1:34:18 Isn't that wild? And right about what is that, like one fiftieth of Amazon's market cap? Something like that. It's still astonishing to me that In the long run, Amazon ended up beating eBay.

1:34:31 It makes sense. It's that Bezos quote about in the long run there is Zero misalignment between customer experience and shareholder value and customers get a much better experience from Amazon holding inventory and Amazon doing all this really hard Low margin.

1:34:48 thread the needle stuff in order to create this great user experience, but That stuff compounds. Well, That is the perfect. Transition to come.

1:34:57 Back to I wanna talk about The benchmark. architecture itself and analyze why The equal partnership and the teamwork and everything worked here. All right listeners.

1:35:09 Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is uh no longer the hard part. Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks Are real.

1:35:35 Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why Service Now built the AI control tower. Yep, AI control tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with Any AI, not just theirs. Every device on your network, every permission across every system. Every AI agent visible and secure in one place.

1:36:02 And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise, the workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. ServiceNow already runs more than a hundred billion workflows annually and trillions of transactions for more than eighty five percent of the Fortune five hundred. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future, that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out service now.com slash acquired and tell them that Ben and David sent you. Alright, so

1:36:57 We've told now The story of Benchmark. Fund one from pre founding Up through fund one. raising it, the marketing, the

1:37:07 Founding religious fervor around equal partnership. The Rocky Star And then The hiring of David Byrne, the getting the swagger back. It all working.

1:37:17 I think maybe before we continue on the rest of the very much more to come of benchmark history. I think we should take a step back and talk about like Okay, this equal partnership thing itself that they marketed so much around the beginning of the firm that really was like the founding ethos.

1:37:33 How did this actually play out in Practice. Yes. So Part of it obviously was

1:37:41 Economics. Part of it was What they thought was right. Part of it was LP marketing. Part of it was counterpositioning against John Door, obviously, for sure. How do we be different?

1:37:54 do something that they will never ever do, which would have been giving up an enormous amount of their personal economics. Right. John wasn't gonna make the other partners at Kleiner Perkins equal partners to him. Like just It was not gonna happen. And there's downstream impacts of that to portfolio companies, to winning deals, but also to then working. With portfolio companies, you know. John and Kleiner almost lost the Amazon deal when he tried to hand off the board seat.

1:38:20 Not only did that not happen at Benchmark,'cause there were no junior partners to hand the board seat off to It was like In the case of eBay. It was The opposite of that. Like, hey, we'll all come help you. You know, we're gonna bring the whole

1:38:33 Talents of the whole firm and all of our varied Skill sets. To help you. Yep. And then there's

1:38:40 The other counter positioning aspect versus John and Kleiner of like You know, there's no Kiretsu here. There's no being forced to work with other companies. There's no you are a part of a larger whole. You're not a cog in the machine, like this is Boutique. By design.

1:38:58 This cannot get bigger than what it is. And everyone is special. Everyone gets attention. Every partner within the firm has full context on who you are and what you're doing. Designed not to scale.

1:39:11 Yes. So now let's talk about some of the second order benefits or effects. Everything is about trade offs. So it's the benefit that comes with the problem. It. creates a culture of unbelievable trust. I think this was some of the surprise upside of the model.

1:39:28 When Nobody has any incentive. To claim credit for anything because everyone already has the best job at the best firm. Then

1:39:40 It forces even the most competitive people, of which they all were. unbelievably competitive people. To have a sense of teamwork. That just wouldn't have happened otherwise.'Cause as we know from Buffett and everyone else who has said it over the years.

1:39:55 Incentives drive behavior. And if you truly create the incentive for this group of people to be this team oriented. then all you're left with is this culture of teamwork and this culture of trust. Where y you're all in bed with each other. I mean, you have signed up. to be for better or for worse.

1:40:16 a part of this person's success or failure. And let's unpack those incentives because I think there are several Layers to this. There's the obvious Economic incentive.

1:40:27 David Byrne made as much money on eBay as Bob Gagel made on eBay, as Bruce Dunley as Kevin Harvey as you know, Andy Ratcliffe made on eBay. They all made the same. So If one of them could help give a boost that would add, you know, an incremental Couple billion to that market cap.

1:40:46 It was well worth it to all of them. Yep. That's the most baseline. Obvious one. But I actually think that's the less

1:40:56 Salient one on a day to day basis. Having. lived myself as uh part of firms, you know, we all have too and like Obviously

1:41:05 The money is the scoreboard and your job is to provide outsized returns for your limited partners and like it matters to you. And but like on a day to day basis, like that is not part of your Mind every day. What is much more Salient, I think, to most People

1:41:22 who are working as investors within a venture capital firm. is the impact of what they are doing on their own career trajectories. And In any other structure. That

1:41:35 is either the foremost thing on your mind or the foremost thing at the back of your mind. And you may profess otherwise, but like it is There. It is there every day in what you're doing. And just as one small example, That the Yeah, sort of the older generation and and some of the current generation benchmark partners like to talk about.

1:41:53 Yeah, the older folks. Thinking back to their previous firms. Say, you know, another partner, maybe say a senior partner. Has a portfolio company that they're on the board of that they're responsible for that investment.

1:42:04 And There's an executive hire that would really help and you know a candidate who could be like the perfect candidate for that. Firm. Is it in your best interest to Send that candidate to that firm or to wait until one of your portfolio companies

1:42:20 has a spot open for that candidate. Like there's the economics, but even more than that Making that senior. Partners track record better. not only does you no good, it does you like net negative good because it widens the gap between them and you. Once you introduce a secondary incentive.

1:42:39 Which you have when there is anything junior senior. And the incentive is become senior. Then there's a misalignment. And whether someone chooses to act on that. They're not good for not doing it. They're not evil for doing it. It's just worth acknowledging

1:42:53 That new incentive exists, so it will change the behavior. And This isn't to say every fund should all be equal. The only way this works Is

1:43:04 If everyone truly brings the same amount of value to the partnership. 'Cause otherwise, over time You will have a situation where even if you're equal economically. You become

1:43:17 Unequal. in everybody realizing, hey, that person's not bringing it the way that we're bringing it. And that creates just as big of a problem. You've brought up I think the Absolute crux of this.

1:43:29 You know, we've now read and Watch and listened to probably just about Maybe not. I won't say a hundred percent, but probably ninety-five percent of all the content out there about Bench Frank. And I don't think this is talked about anywhere else, and I think this is Hopefully the biggest piece of context we can bring to The understanding of

1:43:47 Benchmark and Venture Capital in our industry with this episode. There is a very obvious question when you look at benchmark and you look at their success and you look at their success over generations. Which is if this obviously works so well. Why doesn't everybody do it? Why doesn't it work everywhere else? And

1:44:05 The Branchmark firm. Model. is very, very much in the minority. There may not even really be any other firms. That are structured. The same way.

1:44:15 as them. And I think What you just brought up to me. Is the crux of the answer. There's two ways that this

1:44:23 partnership model in the benchmark style can play out. Depending on the personalities involved. For most groups of people I think it actually trends towards mediocrity. And this was some of the criticism of

1:44:36 L Ps and some of the other GPs in the early days thinking they were crazy. They called it communist capital. This looks like communism, right? Like if everybody's responsible, nobody's responsible. And so you trend towards The squishy middle. And I think for a lot of groups of people That's what the natural outcome of this would be.

1:44:55 Not to mention you have people that are overcompensated and some that are undercompensated, if you're not all sort of bringing the same amount of value. And so the incentive there is messed up too because I think this is a different way of saying the same thing you already said, but if you're the person that brings the most value, but you're not being compensated for it. Well then Why are you giving eighty percent of your economics to these other deadbeats? You start showing up in a mediocre way. Yep, you're gonna leave. For this model to work.

1:45:20 You need every Active. General partner. Every owner of the firm. Everybody who is in that equal slot.

1:45:28 To be bringing it at an equal level. Both in terms of effort and in terms of output. To bring you at an equal level and to literally the utmost Yeah.

1:45:41 Because I think it does trend towards equilibrium and equal level of effort and bringing it that everybody brings. But you need a cultural norm of we're all bringing it like a hundred percent every day. And That's I think a big part about what that sort of uh the initial

1:45:58 Swagger that benchmark had and then that reset. Afterwards. I think really set that. As the tone. And that's what I think makes it very hard for other groups to replicate.

1:46:09 Yeah. And I also think that's why They have to retire. once they sort of age too far out of their forties. Because It is an implicit thing among the group of

1:46:22 You gotta be bringing it. All day, every day. And at some point if you want to notched down to ninety percent. It's time for you to not be a GP in the fund. And I think a lot of these things

1:46:33 Especially after talking with folks who are and have been partners. I think a lot of this is implicit. I don't think this is codified in rules anywhere, and I don't think a lot of it is explicitly set in conversation because They have an awareness of how unbelievably delicate

1:46:49 the trust is. And How You need to create an unbelievable support system for your partners. To be able to

1:47:00 succeed. you have to be super supportive of them to make the riskiest possible decision because that is the business that we're in. You have to find the outliers. You have to go find these weird marginal edge cases. And if somebody feels like they don't have the trust and support and safety in their partner group. They're not gonna do that. And so a lot of conversations, well, I think it's a very sort of like familial group and like there's sort of lore about these

1:47:28 ten now or Monday meetings where You know, it's meandering and It's jovial and it's friendly. I think the hard conversations Have to be.

1:47:38 just so delicately handled in order to Maintain this like Very Delicate state. It's constantly bounced on a knife point, I think.

1:47:48 Yes. And here's what's even harder about Maintaining That sort of knife point equilibrium.

1:47:57 And the nature of our business and particularly the nature of early stage. Even the very best investors and the most engaged, the people who are bringing it on the effort and who have produced and are likely to produce extraordinary outcomes going forward. We all hit dry spots. Right.

1:48:16 I mean, I was just recently the other week listening to uh Rulof from Sequoia did a great interview on uh Tim Ferris's show. Awesome conversation. And you know, he does he's freaking Rulof. He's running Sequoia now. He took over for Leone, right? And One of his very first investments was YouTube. So right out the gate he's crushing it. But then he hit a dry spell and it was really hard on him and it was hard on the partnership and he talks about it. So like now imagine you're within the benchmark partnership.

1:48:41 And one of the partners or multiple of the partners. hit one of these dry spells. How do you disambiguate As a member of that group. Do I think that my partner, this person Can pull themselves out. Can we as a partnership together pull them out?

1:48:57 of this dry spell will they get back to performing at the top of their game or not. Right. You have to keep their head game strong. You can't add to the pile of reasons to of self doubt. So I think this is the Trade off. Implicit.

1:49:13 architecting a firm like Benchmark the way that they have If you're going to maintain World class performance. It will not scale, but you do get this next level of trust that you can't get any other way.

1:49:28 which should lead to outcomes and which actually this is a good time I was debating if I was gonna actually mention this on the episode or not. But I want to. So in preparing for this, I was talking with Rich Barton. Rich famously started Expedia by spinning that out of Microsoft and then started Zillow, where Benchmark was an investor. And Rich for a long time was a venture partner with Benchmark, and I think it was only when he jumped back in the seat as CEO of Zillow that he

1:49:54 Stop being an an active venture partner there. And his point to me was it's way harder to cooperate your way to success. There are other ways to do this. There are obviously there are other models of very successful venture firms. We've told you. Several of them on this podcast.

1:50:12 Yeah. But this cooperating your way to success is the benchmark secret sauce. And Because of that And because the relationship with a benchmark board member who is almost like a co founder

1:50:25 And the entrepreneur. is so tight and the communication is so frequent. I mean, we talked to founders who said I'd speak to my board member every week and we talked to other people who said, we're texting or calling every single day. I mean, this is really a tight knit relationship in how they sort of think about the board role. Rich's point was This culture of cooperation and trust.

1:50:48 ends up being a model for entrepreneurs to bring into their company. And it's amazing having that kind of example to follow. And I don't think he meant that it was like super direct or overt, but I think he meant that You sort of uh

1:51:03 naturally end up learning from that and following it and implementing it in your company. Yes. There's absolutely Spills over into the portfolio company.

1:51:13 relationship. Both between the kind of Lead? You know the board member within Benchmark. You know, even more so, and I think this is what One of the things that makes benchmark.

1:51:23 Very different from other firms. The whole firm of Benchmark, the whole partnership. The firm is the partnership. There is no difference between the firm and the partnership. There's nothing else. that relationship with the entrepreneur and the portfolio company. If I'm a founder and I am Choosing a board member.

1:51:38 It's crazy how most people don't think about this'cause you're You're mostly trying to figure out can I get a deal done? Can I get a deal done at good terms, that sort of thing. But really what you want is a board member who feel psychological safety in their partnership to do the things that they think are right without conflicting incentives. It is crazy how rare that is for someone to actually have that psychological safety.

1:52:01 So Bringing it back. For a minute to the psychological makeup of the individual partners within the partnership and why it's so critical. And

1:52:13 Delicate. You know, a big theme of this first part of the benchmark story we just told was Having to have the swagger. If you don't have the swagger, if you don't have the uh One of the folks we talked to called it swashbucklingness. If you don't have that

1:52:27 The magic disappears. It's like, you know, for anybody who's played sports. The minute you start thinking when you're out there on the field It's game over. You're not gonna win. You're not gonna perform. You gotta be out there. Feeling yourself, believing I'm gonna hit that shot.

1:52:42 I'm gonna make that play. Give me the ball. I want the ball. We're gonna win. If you don't have that mindset, you're gonna crumble. And That's why I think these things are so Intricately tied together.

1:52:55 In a partnership structure like this. Okay, so now that we've laid this groundwork of how delicate it is and how essential it is, and how at the core of benchmarks every fiber of their being it is. Now let's talk about the first time that they recruit someone new into the partnership. That's gotta be pretty hard to be the first person coming in. to kind of be the next generation of the firm.

1:53:17 After The big success, right? Because David Byrne sort of was this, but like It was sort of part of almost a a reset. Yes. They haven't had that success yet.

1:53:27 So Or now Post eBay. Late ninety eight, early ninety nine. The IPO has happened. distributions are being planned underway.

1:53:39 And you've got a pretty Interesting set of circumstances here. The model worked. You had the highest performing venture fund of all time in terms of returns to LPs of a meaningful size fund. Yes.

1:53:49 It works. Bigger and better. And faster, despite the false start. Than I think any of them really imagined. And you also have This element that we just talked about of like you gotta all be all in for this to continue to work. But everybody just made hundreds of millions of dollars. Like

1:54:08 What now? Why are we raising from LPs again? Why aren't we just turning this into a family office? Of all the times to declare victory. Like they could actually declare victory now. Right, why are any of us going to work anymore at all, even if it's to invest our own capital? Right. Um

1:54:23 You know, even I think they all Do sort of recommit. And then he boys talks about this a little bit. It's hard to know what the actual psychology was of any of the folks. At the time.

1:54:33 But as painted in e boys and as born out in practice, they all do. recommit. You know, nobody You know what, I can't go a hundred percent anymore. I'm I'm gonna do other things. They do later, but they don't now. Even despite all that.

1:54:47 The game just got way harder for them. Because they went from the people painting the targets on the back of John Door and other people Two now they're the ones with the targets on their backs. And You know, that's sort of the lesser problem. The bigger problem is

1:55:01 The target of People who want to work with them. So they're now overwhelmed. With opportunity. The easy opportunities are the deals, you know, the investments, the entrepreneurs, the new companies. Even as the tech bubble starts to burst. Benchmark is now

1:55:17 one of the top tier firms, they get all the calls they get to see. Whatever they want to see, basically. Oh, and there's a bunch of things we didn't even talk about, like all the Fortune five hundreds that are calling them to say, start a joint venture with me to create a dot com. You don't even have to put any money in, but help me recruit the management team and understand how to do a startup. This is the big problem. Nordstrom and Toys R Us. This is the bigger problem.

1:55:42 The distractions. So literally Goldman Sachs calls them up and is like We want to benchmark Goldman Sachs. Joint venture. And not like you become Goldman Sachs. It's more like help us create the Goldman Sachs dot com.

1:55:55 Yeah. And you could imagine, you know, that could lead to all sorts of things. The car companies call them up GM, General Motors, you know, the original like The DNA of two of the partners, you know. They wanna do the same thing. You know, General Electric wants to do this. There is so much. And then we're gonna talk about

1:56:12 L Ps and international and all of that in a minute here. There's an opportunity to raise a lot more money. Should we do that? Eighty five million was kind of a small fund. So for the five partners There's a lot of debate about what to do now. Like it's not clear what to do. I mean A They don't have to do anything. As we talked about, but they're all committed. They want to do something.

1:56:35 Some of them. Say like Hey, are we actually cutting off our nose to spite our face by not hiring associates and junior partners here and Scaling up, scaling our capacity. You know, we started as associates, we learned the trade, and look at us now. Why can't we do the same for other people? Some of them say

1:56:52 We should be doing all of these JVs. Like we should be Moving towards a you know, more Next iteration modern version of this Kleiner Kretsu. Concept.

1:57:03 If we have a relationship with Goldman Sachs, if we have a relationship with General Motors, if we have a relationship with Toys R S and Nordstrom. Isn't that helpful to all of our other entrepreneurs? Oh, they started something if you look at their website from two thousand and two. God, I'm so glad the Wayback Machine exists. They have a page called Our Corporate Network. And they've got like thirty different companies on there that the text says The Benchmark Corporate Network is made up of key industry executives who accelerate the growth of our portfolio companies by facilitating strategic partnerships, sitting on boards. Sitting on boards.

1:57:36 And offering advice where appropriate. Companies active in the benchmark corporate network include and it's like, of course, tech companies, T SMC Toshiba, Intel. But it's also companies that are sort of bridging the old world in the news. So you've got Charles Schwab and E Trade. And of course, there's companies that were never in their portfolio, but are other big successful tech companies like Cisco.

1:57:59 So You got some partners saying we should do that. And then you've got other partners saying like Guys, don't mess with success. The model ain't broken. Don't fix it. We should stay focused and stay doing the exact same thing. Right.

1:58:13 'Cause you can paint a picture either way. I mean There's definitely a picture to be painted of like The eBay thing really worked out. And this set of principles we had was a really good way to get started.

1:58:24 But it's the world's gonna change and it's gonna pass us by. So we need to adapt. And if the new wave is the dot comification of America's greatest companies, we're in an amazing place to either seize that or let it pass us by and let it slip through our fingers. And there was a very compelling argument to be like Let's

1:58:41 be the future. And you look at like an Andrews and Horowitz, what they decided with web three They made that choice. Let's At the risk of destroying everything. Bet on this brand new big wave that we think could be the thing.

1:58:55 Well and uh Sequoia too, you know. Sequoia expanded internationally. Sequoia added a growth fund. Sequoia raised bigger funds. There are very Clear examples of success in

1:59:06 pursuing any of these paths. And listener. Where you might expect us to go here is But benchmark didn't do any of that. They stuck to their guns. They knew what made them special.

1:59:18 And they chose to ignore all the temptation. But Despite who they are today, that is not at all what happened! They tried everything! They threw the kitchen sink at corporate partnerships.

1:59:30 They expand to multiple continents at the same time. They were like, Oh, bigger fun. Let's raise a billion dollar fund. They tried it all. Two thoughts. One the one thing that they didn't do.

1:59:43 The one thing they stayed true to on. Was they didn't bring on junior partners. That's a hard decision to undo once you do that. You can undo all this other stuff. Hard. But you can, and they did.

1:59:54 The other thing I was gonna say on that, you know, the other firms we talked about that were successful with different strategies. Were architected in a way. That they could pursue those strategies. Sequoia was A CEO firm. Don Valentine was the CO.

2:00:08 And then Mike Meritz was CEO and Leone was COO, whatever you want to call it, you know. Roloff is the CEO now. There was someone who could make a call. Yes, there was someone who could make a call who could say I'm taking time as Doug talked about on our episode with him. Mike and I are taking time.

2:00:25 We are going to travel to China. And we are going to go find the right partners. For us in China and you all here are gonna keep doing what you do here, making investments in Menlo Park. Yes. What a great episode that was. That was so fun.

2:00:40 You know when Andreasin? They are. An organization. They have hundreds of people. So all the things that they're pursuing, the corporate partnerships, the web three, you know, all the there's hundreds of people working there in all different roles and levels. That's not benchmark.

2:00:54 So The one thing though. As you teet it up here. That they all Pretty much right away.

2:01:00 are in agreement on after eBay. Is Let's bring in. A sixth. Partner.

2:01:06 A new Equal general partner. Let's continue the model. And maybe we'll pursue some of these other things too. But in a minimum it's time to bring in a new. General partner.

2:01:17 So When you do this and they've done this before, of course, with David Byrne, but it was different. Now It's benchmark. Back then it was. Benchmark capital. I haven't heard of you guys. Like now it's Benchmark.

2:01:28 It is, I mean, honestly, listeners, I'll put the link in the show notes. You go to the ninety seven website and the two thousand and two website. It is comical. to see like the word benchmark. in this like they're selling so hard. And they don't sell at all now, at least in a public facing way. And it's almost like someone made a cartoon. about benchmark when you're looking at this.

2:01:50 You tweeted about this that they had directions from the airport. There's a literal map from both San Jose and San Francisco. And it's like here's San Francisco, here's San Jose, here's Stanford, and here's Benchmark. It's amazing. So now when you're bringing in a partner. with the benchmark equal partnership model. There's no try before you buy.

2:02:08 You can't bring them in as a junior partner and see what happens and be like, Oh, you know, you'll get a sliver of economics in this fund. We'll see if the partnership gels, you know, we'll see if you Perform here, you know, and then No, you can't do that. You gotta Go all in. From the beginning.

2:02:23 And so When you Except that that's the set of constraints you operate in. There's actually a sort of very narrow path that it makes sense in a very narrow pool. To fish in.

2:02:34 For future benchmark partners. Which is if you wanna be reasonably confident that somebody's gonna be a good venture capitalist. You probably want to find people who are already Good venture capitalists.

2:02:45 Yes. That's a great point. You could develop the talent internally or Well, but you can't at benchmark. Right. It's like we could develop it internally, but the way we're set up prohibits that. And so We must look elsewhere and what should we do? We should look for someone who has been in the industry.

2:03:00 Long enough. That they've burned through all the capital being a bad VC, because there's a lot of tropes about it takes seven years or it takes fifty million dollars to make a VC. Which I think are all quite reasonable because your first several investments you're like it's like you're getting the crap out. You may hit some winners, but it's probably gonna be luck, not skill. Exactly. And you don't really have the right networks yet, and you haven't sat on boards with other VCs, even seen how people at other firms operate, and there's just lots of reasons why. it takes a lot of money and a lot of time to form you into a great venture investor.

2:03:32 But You don't want someone who's been doing it so long such that they're already the most senior person at their firm, or they're toward the end of their career. If you're gonna recruit them in and make them equal partner, You want to have like twenty years of running room left in that person's career. And so that scopes you in super narrowly to like

2:03:49 You need someone who's probably like Thirty and like the best thirty year old venture investor. Yes, currently. on the field. And back to the original founding impetus of Benchmark. Somebody who's

2:04:02 operating within a firm context where they are not. An equal partner with full economics. And it's gonna be very attractive for them. Two. transition to a place where they are. And on a personality trait characteristic just to keep narrowing further and further, it's like

2:04:18 Well they need to be fiercely competitive. But also under the right set of conditions. But unbelievable. Teammate.

2:04:27 Yes. The box gets small. It gets very small. And at this moment in time. Late ninety eight.

2:04:33 Early ninety nine. There is One very obvious, very large person who fits in that very small box. Oh, and you need him to be over six five and a white man. Yes, exact. They all did fit that characteristic early on, but are fortunately more diverse now. Yeah. Which is funny now, it's uh Peter's the only uh

2:04:52 White man left as he's fond of pointing out. Which is you know, great. That is progress. Yep. Bill Gurley, of course. We're talking about Yes.

2:05:01 He sees above the crowd. I can't imagine that anybody listening now, you know, what are we, two, three hours into this podcast, uh that's still listening does not already know about Bill Gurley. But You know, his history is basically perfect for this. He's also from Texas. He's from Houston. His dad worked for NASA, I think. And then he goes to Florida, he plays basketball, he started his career as an engineer at Compaq.

2:05:25 John Door company. Goes to Wall Street starts running above the crowd there was um I think this was on there's a great interview he did years ago with Kara Swisher. I think this was where he tells the story. When he started

2:05:38 above the crowd he went to uh tech conference that Stored Allsa was putting on. They were selling this new device, you know, Pompilots at the Tech conference, you know, it's like a uh you know, like

2:05:50 new next wave of technology. And obviously Bruce was on the board. He didn't you know wasn't focused on that at the time. But Thump pilots at the conference. had the contact information for all the attendees. Of the conference.

2:06:02 Including like Bill Gates and like you know Steve Jobs people. So Bill bought the bomb pilot and then just started spamming everybody with their fax numbers for with his above the crab post. I do know Michael Movison shared this story with us that The way that Bill originally started above the crowd was there was someone else who sent out a fax that was like a weekly sort of like equities analyst

2:06:28 Effectively like blog post, like newsletter. And they would send it out by fax at a certain time. And when that person retired build started above the crowd to start sending the faxes at the same time and sort of fill the slot that this other person had. Which was of course genius. And then he added to the contact list from the Pompilot with fax numbers.

2:06:45 Circine yes. And did you know, David, he eventually also started writing for fortune. Oh yeah. I've forgotten about that. He had a regular column in Fortune.

2:06:56 He would always leave at the bottom, like if you have feedback, email I think it was like ATC at benchmark.com. I think it was like the above the crowd. That's awesome. That's awesome. He's a good growth hacker, Bill. He's un underrated on that. Very good at distribution. Very good at distribution. And it turns out venture capital investing. And it turns out. Well, we'll get into that. So

2:07:16 You know, we told the story elsewhere, he been on Wall Street, he then w worked for Frank Cartron in Silicon Valley, did the Amazon IPO with Frank. Frank promised to get him into venture if he came out. He did. Bill joins Hummer Winblad, spends about eighteen months there as venture capitalist, but he's a well known commodity. One of the rare female led venture firms. That's right. Especially at that era. There are very, very, very few. You know, Bill's just great. There's you know. What can we say about Bell that hasn't been said? One of my favorite things when we were talking to folks. It's so perfect. Bill has a Calvinist work ethic. And that is absolutely true. Absolutely true. Having worked with him on some stuff.

2:07:53 I actually pulled all my quotes from research from things people said about partners into one place, and I definitely have this one. Having someone like Bill Gurley on your board is really like bringing in a new co founder. He is always working on behalf of your company intellectually and executionally. H Sounds like the bill, I know. So he's funny. No, so all of this is chronicled in E Boys, the whole recruitment process. All the internal discussions about Bill.

2:08:19 Of course it's Yeah, boys, so you gotta take it with a great of salt. It's dramatized. But What's interesting you know when I read it

2:08:27 There's this discussion about Bill that like just screamed off the page to me, where The existing partners Are concerned about whether Bill's too intellectual. And too analytical. Like he'll overthink.

2:08:40 The decisions. There's this quote in there. from one of the partners saying I don't think it's attributed to whom You know, we all know that this is more a balls than brains business. And

2:08:50 When I read that. I just wanted to like yell at the book. I was like This is a balls and brains business. And nobody personifies that more than Bill and like, I can't believe how wrong this is and like God, this is so e boys. But talking to a bunch of folks and thinking about this, I actually see what they're getting at. Uh that

2:09:11 Era. And all of what had gone into making benchmark, benchmark at that point in time. It was more a balls than brains business. Because you had to be willing to take Ris that others weren't willing to take. They were certainly.

2:09:25 Open to doing that. And you were with the exception of eBay, with the exception of the one that was the one. You were backing companies at that era. That hadn't yet put the products in market. You had to raise venture capital for most companies. Yes.

2:09:41 Get the infrastructure. To build the product. There was no AWS yet. And You had to make that bet. You had to make those people bets. at the stage the benchmark was investing, you weren't investing

2:09:54 on product traction. Which is really interesting because Benchmark mostly markets themselves at this point as a series A firm. That is not how they marketed themselves then. They said we do seed and startup investments. Seed being pre business plan. And start up being post business plan.

2:10:13 Customer traction. Exactly. And when I was really trying to figure out like how did they shift from C to series A and why I think there's shades of gray. I think what they actually did was they shifted to series A for consumer. And they're still willing to do seeds. In B to B

2:10:30 And in fact there's a great girly quote where he says backing a repeat entrepreneur in the enterprise sector is near risk free. And so I think basically what happened is As more and more consumer startups started happening in the early and mid two thousands.

2:10:47 you basically had angel investors that were starting to like come in and fill the randomness risk, the pre-launch, no traction, who knows The product building risk. Right. Cause it was consumers so hits driven that benchmark basically said, Okay, we'll let you guys take that risk and we'll invest at the point of traction or the point of product market fit. Because these consumer products are such freaking crapshoots that We don't wanna be playing in that.

2:11:13 seed stuff anymore for consumer. I've so much to say here. So One and the most obvious thing to be here that's so funny is eBay is like the exception that proves the rule, but is the rule. Like eBay had traction when they invested, and that's what made it non consensus. But actually that was like the smart thing to do because it had traction. And that's where they made the lion's share of

2:11:34 There. Returns. So Bill joints. I'm a Winblad. And uh do you know what Bill's first deal at Benchmark was?

2:11:42 Ooh. Ur no, I don't Got some real fun Silicon Valley uh history trivia here. Nope. E opinions. Epinions. Do you know who the CEO was of Epinions at the time? No. Naval.

2:11:56 Really? Yep. That was his Debut. In Silicon Valley. Wow. And uh that did not end well for Naval. He did Venture Hacks after that. And then he went and did venture hacks. He ended up leaving the company, was replaced as CO. Then I think that was probably a big part of why he Went and then did Venture Hacks and was kinda anti V C Silicon Valley. Yeah, that led to Angel Lists and now

2:12:18 How funny, how full circle it all comes. Bill also talks a lot about this on that car sweesager. Episode is so good. So Build it. And um we gotta tell this too from E Boys. There's this really funny vignette. The the partnership can't get comfortable.

2:12:32 with like the one thing they're having trouble with with Bill is like, is he gonna overthink things? Is he too analytical? Is he too intellectual? Does he have enough balls? And Kevin Harvey. Invites him on a Hunting trip. He has a sort of hunting property. And

2:12:47 On the hunting trip. Bill. Apparently greatly impresses Kevin. Bye. Jumping over a cliff to go chase down either a deer or a boar that they're hunting and go like, you know in the rain hunt the boy. Yeah. And Kevin's like, Whoa, I wouldn't do that. Like Okay, this guy's got balls. I'm not worried about that anymore.

2:13:06 Oh so funny. So Just everything. So e boys. So Two things to talk about here. First we gotta talk about the imperial era, but first let's flash forward a little bit and I wanna talk about Bill and his investing.

2:13:21 And how it ends up transforming the firm over time. He's a great investor in enterprise and consumer, but he becomes known for marketplaces. Very analytical. He does well. He does some of these early marketplaces. Does open table.

2:13:33 does Zillow, he does Grubhub, he does what becomes ODesk, you know, dog vake that merges with Rover, you know, et cetera, et cetera. Hacker one. Yeah. In the earlier era than that, sort of the Greb Hub.

2:13:47 Those were great wins and Bill worked. tirelessly, I think, to you know, help make those companies' successes. They weren't eBay sized wins. They were far from eBay sized wins. Well Benchmark did not have an eBay sized win until Bill's big marketplace.

2:14:03 Exactly, exactly. But I think it's very retrospectively, and there's so much randomness tied into all this, but I do think that insight of the series A style investing, I think Bill and Benchmark in the sort of next generation. recognize that shift of like Oh, there's a mispricing here.

2:14:21 Benchmark used to invest in seed and formation stage taking the product risk. You can now invest at the series A post product risk where there's data and you can see if something's working or not. And you can make crazy seeming bets like Uber at a sixty million dollar valuation. That are actually like deeply in the money, cannot lose money. And that was the era when benchmark really shined.

2:14:47 And that's the thing that Bill really brought from being an analyst. And from writing regularly and from like writing, you know, we've referenced probably ten times on this show a Rake Too Far, you know, Bill's post where he sort of compares all the different take rates and what goes into a take rate and there's so much tying that into motes and pricing power and He just understands all this stuff at such a deep level.

2:15:10 And I think We shouldn't disparage the other founding partners. It just wasn't their skill set. It wasn't their strength. They didn't look at financial statements. And develop emotions around what this business was good at and bad at and what the future could look like.

2:15:25 They sat in a room with entrepreneurs and thought Does this guy have it? And I think it's a very different skill set. Very, very different skill set.

2:15:36 And to bring it back now to this moment in time when they're bringing Bill on and also facing all of these other Decisions and opportunities now that benchmark is benchmark. It's interesting that that decision, the bringing Bill on The evolving the partnership. That was the right decision. All the rest of it were the wrong decisions. So let's get into that.

2:15:59 And to dive in on your right decision, I just want to add a Little more color. The series A was the place to run to. for that period of time because of the mispricing you identified, if they had said, uh, we want to stay a gut based business.

2:16:13 And we want to stay at formation stage investing. I mін the rise of seed firms. And accelerators and angel funds meant that that got so competitive so fast. that they probably would have needed to go multi stage and raise huge funds. in order to compete rather than being lost in the

2:16:33 Baselines and lowercase and there's just no way. I mean, let's take my combinator, which is the big institutionalized winner out of all that. Benchmark couldn't have built Y Combinator. They weren't architected to build Y Combinator. But now the interesting there is this interregnum period, like it wasn't until after AWS became possible, which wasn't until the mid two thousands.

2:16:55 So from when Bill joins and all these decisions are on the table in ninety nine, two thousand. You've got another five, six years before the world. Shifts. Okay, so what are all the other decisions they made? Well

2:17:10 Like we said, the only thing they don't do is bring in junior partners, but they do Everything else. Uh, they raise a billion dollar fourth fund. And before that the first fund was eighty five. I think the second I wanna say was one fifty and the third I think was one seventy five. I think those were the core funds and then there were

2:17:28 parallel entrepreneurs funds on top of those, so you know, top it up a little bit to allow individuals and entrepreneurs to invest as well. But not Th that was the scale that they were investing at. The fourth.

2:17:43 you know, Menlo Park based, Santail based fund. They expand internationally first to Europe and then to Israel Bruce essentially. moves to London, he's commuting back and forth, but spending a lot of his time in London for the first year.

2:17:56 Setting all that up. Which again For all these things the thesis makes sense. They looked and thought eBay. Well that could have been started anywhere.

2:18:04 Right. I mean, there's no reason that needed to be here in the Bay Area. It actually, at the beginning at least, didn't require that many employees and it was matching people who were shipping stuff all around the world. So We've got a brand and we have a unique ability to raise capital from LPs, we should be leveraging that for the next eBay that starts anywhere. Yep. They recruit seven

2:18:26 Partners. new partners to come in and run. The international funds, both a separate Europe fund and a separate Israel fund. Both structured the same way, but separate partnerships.

2:18:36 Right. That's the interesting thing is that It wasn't like now we're all equal partners in one big pool. It was You guys are a fund and you have your own equal partnership. And we will come to an economic agreement where you get to rent the brand from us. But the reality was, especially in those early days

2:18:55 There was a lot of work involved from benchmark. It was benchmark LPs that were investing. It was the benchmark brand. And then they had to go recruit. The partners and put everything together and then instill the benchmark way in them or try to. Right.

2:19:08 deal with answering the questions of how how do you guys handle it when there's XYZ in the partnership? Like there's suddenly real administration in a group that's allergic to administration. We didn't mention this earlier, but there was one last tidbit I wanted to say on The upside benefit. of the trade off of running a partnership like Benchmark.

2:19:28 You get to spend all your time on the field. When you're a small equal partnership. You're not spending your time managing the firm or worrying about managing the firm or worrying about where your career's going or worrying about this, that, or the other thing. Like Literally ninety, ninety five percent of your time. is spent playing the game on the field, which is

2:19:46 Making investment decisions. Helping portfolio companies. Like there's nothing else. Right. Like imagine, David, you and I spend all of our acquired time on research, recording. final tweaks on the edit and then how do we want to message the release of an episode. And imagine if I had a recurring meeting for three hours on your calendar on Monday mornings about how should we hire the next 15 hosts to come up with and acquire all the listeners for all the new shows we're going to make. You are the exact wrong person to do that job. And that is sort of the allegory. I mean, that is a big reason why acquired is what it is today. But we talked about that years ago. Should we have more shows? Right. Should this be a company? And we were both like Absolutely not. That is not what we want to do. So yeah, you know, it's very similar here.

2:20:35 But Benchmark. To take the Personal analogy. They want it. To run acquired.

2:20:41 But they Instead decided to go build the New York Times. Right. But you can't go halfway. I mean that's the thing. You need to go all the way. If you're gonna cross that chasm.

2:20:52 You know, pretty quickly the cracks start showing in this model. Well, here's what they do. They raise the billion dollar California you know US fund. They raise a seven hundred and fifty million dollar Europe fund. They raise a two hundred and twenty million dollar Israel fund The Europe Fund, they end up cutting back to five hundred million after the bubble burst'cause they're like, we just can't invest seven hundred and fifty million, we can't deploy it all. Yeah.

2:21:14 But Even still, you're now talking about a firm that The previous fund structure. Was On the order of two hundred million.

2:21:22 Mostly in Silicon Valley, but all in the US. Two now on the order of two billion. around the world. It's a big Task that they bite off. The crack start showing almost immediately. There are three examples.

2:21:35 All of which are sins of omission, which are the biggest sins in venture capital. None of the sins of commission. Or what's really gonna hurt you, it's what you don't. The first and this happens shortly after Bill joins, but as all of this, you know architecture, all of this uh infrastructure is starting to get spun up.

2:21:57 That's when Google shows up. Does Google pitch benchmark? Well It's unclear to me exactly what happened. Bill talks about it a lot. I think this is

2:22:08 One of his few biggest regrets. He said that publicly. He had just joined the firm. And Google appears. And

2:22:18 Some subset of the benchmark partnership, including Bill. Heard about them. Met with um Hm. had an opportunity to pursue. And Bill always frames it as they failed to pursue.

2:22:31 Google. Not that they, you know, passed or like that there was a full party, but they didn't Pursue it with The typical benchmark and bill hyper competitiveness. Drive to win that we all know.

2:22:43 They declined to pursue. Would they have beaten John Door for Google? Maybe. Maybe not. Debatable.

2:22:52 Would they have beaten Mike Maritz for Google? Again, maybe, maybe not Mike had done Yahoo at that point. Maybe slightly more believable that they could be Sequoia at that point in time. But could they have beaten one of those two firms to get one of the two

2:23:08 Primary V C slots in Google. Almost assuredly. I mean at this point. This was bench where they had just done eBay. You know, they were At the height of their powers, they were the internet firm. Google was the next internet company. They had the relationship with

2:23:25 Bezos, even though Kleiner had the tighter relationship, but remember Bezos Was a very influential and large seed investor. In Google. So Gosh.

2:23:36 That's a big miss. Yeah. Okay. Google's a miss. Google's a miss. Okay, that's one.

2:23:42 Next. A much smaller miss, but still a big miss for a different reason. They've got this Europe fund now, right? What happens with a really Promising.

2:23:53 European company. that has aspirations To be a Silicon Valley company and go Global. Does the Europe Fund do it?

2:24:03 Do the core benchmark? Oh wait, can I guess where this is going? Yeah. Skype. Skype.

2:24:14 That emerges a couple years after all this gets set up. Out of Tallinn, Estonia. out of Estonia. And Bill talks about this too. He Matska. Light Skype's got this right up his alley, right up benchmark's alley.

2:24:26 eBay ends up buying Skype. But Should Bill do it? Should Benchmark Menlo Park do it? Should Benchmark Europe do it? Are they trying to hand it off in the process? They lose the deal. So that's another mess.

2:24:38 And then The third missed it. Is not directly related to the international expansion, but I think it's more Symptomatic. Perhaps of the sort of taking your eye off the ball.

2:24:51 But a Google size miss. His name is Facebook. And Well, so we know Sequoia is out for Facebook because of Sean Parker, the pajama pitch, you know, all that, the bad blood. Sequoia can't do Facebook.

2:25:03 Who else could do it? Kleiner was still Kleiner at that point, right? The tumult hadn't started there. Totally. You know, Excel ends up doing it. Excel is a great verb and Jim Briar does it, you know, like not to take anything away from them, but like Absolutely benchmark should have been and was in the conversation.

2:25:20 And this is 0405. Yep. For the series A, for the one hundred million dollar valuation of Facebook, you know, very similar to that Google round. What happened? Specifically what happened was Benchmark had invested in Frenster. And so was conflicted out. Now you could argue that was an unavoidable mistake, you know, but like Boy does that hurt.

2:25:41 I think it was Bob uh Kigel who was on the board of Friendster. And at that point. There have been some CEO turnover at Frendster, Jonathan Abrams, who then started Newsle and Founders Den was the original founder of Frentster. I'd forgotten that. Oh my gosh. With the original acquired meetup at Founders Den. Indeed, and now runs Apec Capital.

2:25:59 They had brought in Tim Coogle. As CEO of Frenster at that point, Tim had been CEO of Yahoo. Tim blocked Benchmark from pursuing Facebook. Oh, is that really what it was? Did they know about Facebook? They never got to look at it because of Friendster. That's the story. And supposedly, you know, Mark

2:26:15 Zuckerberg. Loved Bob. Love the benchmark team. Who knows, right? But like my point is If you want to be a generational defining.

2:26:24 Venture firm. By definition, you have to invest in the generational defining companies. They did that with eBay. And then the international expansion happened and then for a whole variety of conflicts and reasons. No Google. No Skype, you know Skype's not generational defining, but like they should have been there to do it.

2:26:39 No Facebook. Bummer. And I think you can probably trace most, if not all, of that back to Probably making the wrong architecture decisions. Right.

2:26:50 So this sort of like two thousand one to two thousand ten, actually not a great decade for benchmark. They had some good investments. They'd open table Not to two thousand ten. I would say until two thousand six, two thousand seven. Okay. Fair. But like if we look at the biggest wins out of that period, it's probably

2:27:10 Open table Zillow Grab um Instagram wouldn't have been yet. Nope. So that's probably those those three that we just mentioned.

2:27:21 Yeah. So finally after all this, and I don't know if this was before or after Excel doing Facebook, but right around the same time. Legend has it. One of them in Low Park Monday.

2:27:32 I think it was Kevin Harvey who finally kinda just said what probably everybody was thinking at that point in time of like Guys, why are we doing this? We don't need to be wandering in the woods. Can we go back to focusing on what we all actually want to do here, which is

2:27:50 Invest. In California. With the right size funds, the early stage. Focus only on the game on the field and not do all this. Hard.

2:27:59 Kinda, you know, supposedly one by one everybody's like Yeah, actually that sounds a lot better. I mean this is after that article came out. In Bloomberg. that I think is pretty illustrative of the time. It was in two thousand

2:28:13 And The title is still the benchmark to bet on. And it ends in a question mark. I mean it it's funny'cause like two thousand, this is still very early in their wandering in the woods years. of everything you're talking about right now, but it raises a lot of the right concerns. Yeah. And there's a great quote in there that I'm sure everybody involved regrets, but I think it was Mark Quame, uh from Square. Yeah. About uh

2:28:36 Does Benchmark have the technical to, you know, relate to the next generation of founders? That was a good dig. Like, hey, they're not technical and you know, how are you supposed to work with technical founders? It was a good dig. The other screw up that they had is they really started changing strategy. on their core stuff too. They did a late stage mezzanine investment in one eight hundred flowers that was not a good investment right before their IPO. Why are they deploying capital into that?

2:29:02 If they had a billion dollar fund, they'd put that money to work. Yep. To get on to the next one. So you know, again the benchmark roller coaster continues. It was up, it was down, it was up, but now it's down again. And this kind of thing is why you need to treat the partnership with such delicacy. This is where

2:29:20 the relationship stuff really matters. where you need to have built that foundation of safety and trust so that You can call each other on hey, we gotta like massively unwind a huge thing that we did here as a partnership and not take it personally and know that that person is thinking with all of our best interests in mind and not thinking less of me as a human because of it. Totally. And That happens. So

2:29:43 Kinda that two thousand four, two thousand five era, you know, post Facebook. They do that. Spin off Europe. Spin off Israel. Becomes Baldurton, and then Michael Eisenberg goes and starts Olif and Israel, both of which have become Great funds. Yep, yep. You know, we didn't talk to

2:30:01 Either those teams but I would imagine they're You know, hey, like they exist. They're great firms now because Benchmark helps set them up. So You know, it's not like this was Not

2:30:12 Any value creative for the world. It just Came with some real trade offs. Right. So around this time. The First.

2:30:22 Actual wave. Of retirement of stepping back. Of some of the original partners. Happens. And this is the test, right?

2:30:31 Are they actually going to take no further economics? Are they going to live up to the founding Principles. They were on the other side of that table. At this point. Ten years ago. And

2:30:46 They've now been wildly successful. They've had ups and downs. A benchmark. It's time to refocus the firm. What are they gonna do? And They do it.

2:30:56 They actually do it. They resist the temptation. David Byrne and Andy Ratcliffe, and they had brought on another GP during that period, Alex Palkanski. in the two thousand five, two thousand six fund they raise, then they all step back and They don't take Tail economics meaning

2:31:13 They're out of the management company. No longer formal decision making power in the firm. The Current ownership structure of the management company transfers to the current GPs. And they don't take Carry in the new fund. They keep working. Keep having carry in the boards that they're on from the

2:31:29 And they're LPs. They're big LPs. And they're big LPs, yes. in the future funds going forward with their own personal money. But they actually make a clean break. They do the transition that they had asked for so many years ago. So what's the GP group look like at this point? So at this point, heading into fun six, or in the mid two thousands.

2:31:49 The lineup is Bruce. Bob. Kevin. And Bill. So we're down to four. And three of the original founders.

2:31:58 Plus Bill. Still like a very good lineup, but You probably need some more firepower. to really pursue. What you want to do here.

2:32:07 Well, and kinda like what you were mentioning in the nineteen ninety six recruitment. where they went and got Dave Byrne. the spree of recruiting that they go on here to inject a little giddy up. back into benchmark. They go and get

2:32:22 hitter after hitter after hitter. It is the most impressive lineup of venture capitalists to s all suddenly join the same firm. This Retrospectively. Feels like

2:32:35 The heat But None of these people were these people yet. No, and Peter Fenton is the first of these new blood to come on board.

2:32:44 He has a quote at TechCrunch disrupts twenty twenty, many many years later. Talking about this. And he's asked about Bill and his time in this period at benchmark. And he says, Bill, like me, isn't a founder of Benchmark. But in a sense, we have acted as though we were.

2:33:00 Found of Benchmark. And this is a refounding of the firm. With the Blessing and direction of Not direction of what to do, but like

2:33:11 The Prescription from the original. Founding group. To go forth and do your thing and figure out what's gonna work now. Yep. And in many ways it's just back to basics.

2:33:23 It's back to basics. But it's back to basics in a way that makes sense. For the moment. So what did they do? Peter Fenton is the first person to come on board. And Peter joins from Excel. And Peter joins from Excel, which had just done.

2:33:38 Facebook. And Peter wasn't directly involved in the Facebook investment, but was part of that relationship indeed. The other thing about Peter That we heard from folks talking to was At that time. The existing group of GPs at benchmark and in particular Bill. They found that, you know, as they were going and meeting companies, everything that they would get interested in

2:33:59 As they were going around the valley, they'd show up. And Peter had already been there. It's like, you know, they saw him coming out the door. He was one step ahead of them in all of these companies. Peter has an interesting Background. Daddy.

2:34:13 Is Noel Fenton. who was an entrepreneur and then founded Trinity Ventures. The Venture Capital Firm Trinity. Oh, I didn't realize that. Yeah. So Peter kind of grew up in the business.

2:34:24 Well, first his dad like hated V Cs and then he became a V C. Yes, founded Trinity. Which is a common path. I think it's like I want to do things differently. Totally. But he fits the bill, you know, just like Bill, when Bill joined, he was early thirties. He had an established track record. He was young, he was hungry, he was up and coming.

2:34:43 He was a baby GP in Excel, but But he was not a full G V. Is that a formal title? Yeah, baby T V that's the formal title. Here's what I would love. If acquired can have some influence on, you know, our industry. I want transparent titling on LinkedIn or whatever. Just like be clear about what you are. So does every founder.

2:35:03 Yeah, right. Exactly. Like I'm a baby GP. I'm a you know old crusty senior GP. I've hung around too long. I have a lot of economics, but I'm not currently doing deals. Yeah, exactly. Exactly. So Peter's a baby GP. He's had a bunch of early wins. At Excel and he's clearly out there hustling. He's clearly smart. They make the pitch to him to join and again it's

2:35:27 You know, on the one hand it's an intelligence test, like it was an intelligence test for Bill to join. On the other hand, There's some questions about benchmark right now. Yeah. Oh, it's the first generational transfer.

2:35:40 It's like oh this is a firm that had One big win. And some other wins in that fund. I mean look, if you ninety X a fund or whatever and only forty X of it comes from one company. Clearly you had multiple winners, but like one fund that was really great and it's been a tough several years, and a bunch of those people from the big successful fund are stepping away.

2:35:58 Bill Gurley hasn't become Bill Gurley yet. And so what am I joining? And how certain is it? So those are the questions on the benchmark side. There's a massive

2:36:10 Question for Peter. On the Excel side. Even Well Take off the table whether Excel made a counter offer for him to

2:36:19 be uh grown up T P or not. Uh whether they did or didn't is irrelevant. He had GP economics, even if they were baby GP economics. In the Facebook font. And he's walking away from that to join Bachelor. Wow. Yeah, that's not an intelligence test. That's an emotional decision.

2:36:36 That's a gut check. Do I really, really Believe it In This sort of refounding of benchmark, this refocusing on this Do I think it's

2:36:47 Can work, do I think? Bill and I and Other people we recruit. Can bet on the future here and it'll be worth me walking away from Facebook fund economics. Yep.

2:36:58 So he does. So he takes it. He takes it. I think he's probably pretty glad he did. It becomes a great decision for everybody involved. In short order. Peter goes on to do. Twitter, Docker, Zora, Hortonworks new relic, Elastic. He brings Brett Taylor.

2:37:14 of Google Maps and then Facebook fame into benchmark as an EIR. They do Quip together Yeah. And Peter Fenton had been an investor in Friend feed when Brett Taylor started that before Brett sold that to Facebook. You're right. That is how he

2:37:31 He made the journey from Google and Google Maps. To Facebook. Yes, and unbelievably, Brett has gone on with the quip acquisition by Salesforce. to become the President co CEO of

2:37:43 Salesforce with Mark Benioff and also is the chairman of the board at Twitter. Who is the central spokesperson for this ongoing lawsuit with Elon Musk? Wild. is unbelievable. The Brit Taylor Cinematic Universe. Yes. I love that. I don't know which Avenger he is, but he's one of them. Yes.

2:38:04 Okay, so Peter is new partner number one, kinda coming in in the next slot after Bill, who's next. Next. It's Mitt Tlasky. Who Mitch, I think is really like Super under the radar and kind of uh

2:38:17 Unsung. Part of what comes to be the Fab Four era, and they truly are The analogy is the Beatles here. Mitch Had been a little bit more than

2:38:27 Founder and CEO. He's been a games industry guy. He worked in the games industry his whole life and then founded and was CEO. He started a game studio. of a early mobile games company called Jam Dat. That Bill. had led the series C in and was on Mitch's board. And

2:38:44 It's super random that Mitch, you know, he was later in his career, he'd been a founder, like he didn't like VCs either. Like why would he do this? Why would they recruit him? So Jam Dad had gone public and then had gotten acquired by Yeah. In short order, during this period where Benchmark didn't have a lot of wins.

2:39:01 It's the plate of all good games companies. You get acquired by EA eventually. Indeed. Ah, Trip. What a great episode we did with Trip back in the day. Yeah. So Mitch had actually sort of Pervade over one of the

2:39:15 Right spots for Benchmark during the That era. Criminally, so few people aren't familiar with him. He just went on Patrick's show on Invest Like the Best. Great episode. You gotta go listen to it. Like if you want to understand Mitch. And why he's so special. Go listen to that episode.

2:39:31 Games investing, but also just broadly why you would want him in your partnership. And I got to work with Mitch on the board of a company called PlayFab that was started by James Quartzman, who's now? Andry Snorowitz is

2:39:43 Gaming GP. It all comes full circle. Small world. But He joins next. And Mitch would have some. Incredible wins in these coming funds.

2:39:55 Not just in gaming, you know, gaming He would do that game company. Which is under the radar, but He's doing incredibly, incredibly well. It's literally called that game company. David's not like forgetting a word here. That is the name of the company and several other gaming investments, but also Snap Discord.

2:40:15 Big, big, big time wins. Mitch joins next. And Then The final member.

2:40:23 Of the Fab Four. It's rounded out. They recruit. From Facebook. And this is still when Facebook is a private company.

2:40:31 Leaves Facebook as a private company. Having been employee number five at Facebook. And before that, employee number I think less than five at LinkedIn. Matt Coller. Beckhuler is the single best person at understanding consumer social products. And maybe all consumer products and maybe all consumer psychology in the entire world.

2:40:54 Ah he's Super smart understood, but like He was there. Knowing the future, you know, Don Valentine knew the future because he had been a national semiconductor and he had worked with the traitor state and all that, and like he knew what was gonna happen. Matt.

2:41:09 Had been at LinkedIn. And then it'd been a face like he knew the future and just had this fundamental unfair advantage over everybody at that point in time. And he also got all of these New folks. And Bill.

2:41:22 Got. what AWS meant for the industry. And Series A investing and the difference between formation stage and seed investing and investing in data and traction. Yep.

2:41:34 Matt is the person who we have referred to on previous episodes when uh Kevin Sindstrom was negotiating to sell to Facebook and due to the court Documents. There was a uh conversation leaked about Kevin strategizing over aim. With a very strategic advisor about how to position the sale to Facebook. And of course, who would know Mark Zuckerberg's psychology and what Facebook would and wouldn't do.

2:41:58 better than employee number five at Facebook and Matt Collar, of course, is that confidant. And he also has one of my Very favorite lines that I Before doing this episode had assumed was a truism of venture all along, but I now realize What's a specific moment in time truism.

2:42:16 That something had changed. Which is He says, you know, our job as venture capitalists. Is not to see the future. But to see the present.

2:42:25 Very clearly. And all of a sudden became true at that moment in time, thanks to AWS. Thanks to the Facebook platform.

2:42:35 And where you could now do these series A's, these still early stage quote unquote investments. where there was no product risk, there was no adoption risk, there was no market risk. You're still looking at early data, but you could look at an Instagram, you could look at an Uber, you could look at a snap And you could look at the data and you could say, My God, this is working. Yes. It is awesome watching ten and fifteen year old videos of Matt on stage at conferences talking and just

2:43:01 Basically being ten years. Right than everyone else. He has a quote. I think he's on stage at a Tech Crunch disrupt with maybe Mike Errington. in twenty eleven ish, and he's like, uh I don't think anybody understands mobile advertising. This is gonna be so huge. This is much more like TV advertising. Everyone thinks it's gonna be less valuable. I think they're all wrong. The primary thing you have to understand is this is basically a TV where we can take over the whole screen and then there's it's enriched with all this other data and all this other location. And people so misunderstand the potential of mobile advertising. And of course, mobile advertising would go on to become an enormous market, and he was very right about that.

2:43:35 I've never met Matt, but in the countless hours of him speaking at various things that I sort of watch, he just has the demeanor of a beetle. Well, I think they all were at this point in time, you know, in this era. They genuinely were. I mean, let's talk about so fun six. It's sort of the Transition here.

2:43:53 Wait, Matt didn't have a background in venture. Do you know if he was like a big angel investor or I don't think so. I believe he had always wanted to get into venture, but You know, and and Mitch didn't have a background inventor either. You know, both of them actually were Yeah, we talked about The benchmark spec for hiring a GP, the best way to be reasonably confident in someone's ability to be a good venture capitalist is someone who's already been a good venture capitalist. Right.

2:44:15 They were making More riskier bets on both Mitch and Matt. Both of which Paid off hugely for the partnership. Yeah.

2:44:23 The other thing that Matt Identified I think long before much of the rest of the investing world and world at large. was the dynamics behind Uber. Even though Bill ended up doing the investment, but they worked as a partnership to source and we'll talk about it. But

2:44:38 Matt. Had this. saying back then that it was partly in you know informed by his experience with Abra, I think of The smartphone is gonna become your remote control for the real world. And that was an outlandish thing to say in twenty.

2:44:52 ten, twenty eleven. But like my God, was he right? Yep. Okay. So You have the slate now. You have the fab four. You have Bill Gurley You have Peter Fenton.

2:45:03 You have Mitch Lasky and you have Matt Collar. And of course I think Bruce Dunlevy is still an active partner at this point, too. I think Bruce and Bob are still active, at least in Fun Six, and maybe a little bit into Fun Seven, but Fun Six is the transition. And Fun sex is you know. Great.

2:45:20 I believe it'll probably end up being uh, you know, five X plus five to ten X fund. Instagram's in that fund. That's like Matt's third or fourth investment, which My God. I mean, they return the fund on the investment. But like With the sale to Facebook.

2:45:37 'Cause it sold like twelve months after they did the series A. I mean imagine doing a series A investment. I don't remember the valuation of Instagram Series A. Call it fifty million, maybe less. Right. To twenty X in a year. Yeah. It's crazy.

2:45:51 Very hard to turn that. Down. It's also funny that Sequoia claims Instagram was one of their investments where it's sold forty eight hours after they invested. They were an investor for two days. You know, hey. Branding. Success in venture capital leads to success in venture capital. Bill told me that once. So uh Instagram's in that fun.

2:46:12 Asana, which was actually Matt's first investment, which was former folks from Facebook. You know, that took a long time, but they end up getting public on that. New relic, Hortonworks, a bunch of Peter Fenton IPOs are in that fund. New relic, which was incubated in their office. Yep, because Peter had invested in Lucerne's previous company when he was at Excel. To Bill's point about repeat entrepreneurs and enterprise are

2:46:33 As close to a sure thing as you can get. By the end of fun six. It's clear there's something special going on here. And then that leads into Font Seven, which I think was twenty eleven and they raise five hundred and fifty million dollars for benchmark fund seven.

2:46:49 And it's the four of them. Benchmark Fun seven. is about as close as you can get. to speed running. in Venture Capital. This is a group that had perfectly gelled from Fun Six.

2:47:02 The world was their oyster. They raised the perfect size fund With the perfect GPs. who have expertise in all the things that were gonna flourish in the next decade. And they could look and they could just execute. And you could argue fund one was like this, and certainly from a returns perspective, fund one was actually better than fund seven, but

2:47:22 They had to wander in the woods to find their way. This was just like a perfectly set table. Yes, a hundred percent on all that. And two things I would add. One. I think they knew A secret.

2:47:34 that very few other people in the industry knew, which was this Series A is like a favorably missed price asset. Right. Which it's not now, right? Like when someone thinks it could be the next Facebook, like that's why Clubhouse gets done at a hundred million immediately and then shortly thereafter billion.

2:47:52 Most series A's are not done post product market fit anymore. Now seed and A and B are often pre-product market fit. When there's a thing that is the next big consumer social app and it's showing signs of that, everyone knows exactly what to look for and prices it appropriately. Yes. But that had not happened yet by any stretch. So that's one thing I'd add. And then two. They had the swagger.

2:48:15 They knew they had a secret, they knew they had the right team, they knew they had geld as a team. And they were willing to just go run and, you know, not overthink things and play the game on the field. It was a perfect balance of gut and intellectualism. So

2:48:31 This fund is ridiculous. Uber. Snap, Discord. That gaming company, Stitch Fix, Duo Security. Docker.

2:48:39 Elastic next door. And we work. And we work. I mean, at the time that they got liquid, I do think it was a very, very, very profitable investment for them. Yep. They got money out of that in the Soft bank uh shenanigans. Uh a quote that we had from talking to folks part of the firm and you know, other adversaires like that it was quote unquote swashbuckling insanity. But in an absolute in a good way in every dimension. Wait, is Riot Games in Fun Seven?

2:49:06 That must be fun six. I think Riot might have been fun six. Yeah. But that was another great investment. Yeah. Benchmark fund one. was one of if not the best Fond of it's

2:49:18 Size and scale ever. Benchmark fund seven is one of the best, if not the best. Fund of its size and scale. Ever. So

2:49:27 According to a twenty eighteen Wall Street Journal article, they reported that Before fees, the twenty eleven fund was sitting on a twenty five X. on that five hundred and fifty million. That is a venture fund.

2:49:41 A full sized venture capital fund That twenty five X. course it may be lower than that now, but I think it's still north of twenty. depending on when they got liquid on on what, because this is something we'll talk about in playbook. Benchmark knows how and when to sell.

2:49:57 in addition to how to identify these phenomenal companies. I think the benchmark philosophy is that they don't want to hamstring the next generation with any of their decisions. It's funny, all I have is these sort of like gut feelings from talking to people, but I think the way benchmark kind of works is When they hand it over to the next generation, first of all, they don't do it all at once. They sort of like do it in this blended way, so they can carry a lot of the institutional memory with them. But it's you guys do what's right for you. Here's what worked for us.

2:50:25 By the way, what worked for us probably will work for you, but you need to make that decision on your own. And again, I don't think it's said. I think these things are kind of unsaid. Yeah. So listeners, the Fab Four era, just to like put a fine point on this. you had by this point the very best marketplace investor in history in Bill Gurley. You had Matt Kohler, who literally helped create the DNA of the modern social media company as an early Facebook employee.

2:50:48 He's investing in consumer social. And again, these are too narrow of swim lanes. They're doing other stuff. You had one of the best games investors to ever live investing in games with Mitch Lasky, and these are super clear swim lanes. And it was the best decade of all time to be investing in the categories of marketplaces. consumer social and games with mobile having an undercurrent of all of it. And on top of all of this, you have Peter Fenton as a utility player

2:51:14 And like A total shark across all categories from doing the Twitter investment to new relic. Yeah. Especially, you know, open source software and

2:51:25 Enterprise and bottoms up adoption, you know, he did great there. But you know, they all blended too. Like Mitch did snap, you know, but uh the point is it doesn't matter. Like it was a refounding of the firm back to those original principles of like It genuinely was. They were functioning as a team. Pat found Uber, but Bill was the right board member. And like, you know, well we'll talk more about Uber in a minute here. Yeah, let's do that. 'Cause I think so far this has been the benchmark glory fest and I think The takeaway is

2:51:51 Overwhelmingly positive here, but let's continue to paint some of the trade offs and some of their tougher moments. Two things just to Put the cherry on top of the fun seven Fab Four Glory Fest. Yeah. March of twenty fifteen.

2:52:04 Which really was like Kind of the apex, I think, of this era. Ironically, after Eric joined. So there were five at this point, but Eric had just joined. Eric Fisher, yeah. Who I'll talk about in a sec. But Forbes comes out with this article, Man, I remember this article.

2:52:19 It's just like it'll always be seared in my memory, you know, working. in the industry being I was I was post G S P back in Madrona at this point in time and like This article comes out in Forbes called The Benchmark Way. Five partners,'cause it was five at this point, Eric had joined. who make other VC firms look outgunned and overstaffed. And it was just this chronicling of the Fab Four era and all these companies we've talked about.

2:52:43 Like everything they touched turned to gold. We listed all those companies that are all you know, other firms would kill to have one or maybe if they were in their wildest dreams two. of those portfolio companies in their funds. And they had like twelve. And they own like twenty percent of each of them.

2:52:59 Yes. It's not like they're like cutting little checks here and there. On average, each partner takes one board seat per year. And when they take a board seat They invest at the series A and they own

2:53:10 fifteen, twenty plus percent. In those days, I mean, I think it was twenty plus, twenty to twenty five. Yeah. Pretty wild. Yeah.

2:53:18 Wild. All right, so we talk about Uber. Yes. Yeah. Well that was a journey. And ends up being the bulk of the returns in Fun Seven.

2:53:28 Even amongst all those great companies. In twenty eighteen when that Wall Street Journal piece came out, they're holding an Uber was worth eight billion dollars. So that alone would have 16X the fund. And I think at that moment They sold. Some

2:53:43 To soft bank in a transaction at that point in time. Yep, that's their thing. They've gotten liquid On A lot of things sort of like along the way. You got February twenty eighteen, benchmark sold almost half of its stake in Snap. and realized a billion dollars in gains.

2:54:00 Somewhere, I don't remember the time frame exactly, but Benchmark sold nine hundred million dollars worth of Uber shares to Softbank and at that point still owned seven billion as of twenty eighteen. Well and to rewind the snap for a minute. Benchmark, I think, was instrumental in Encouraging pushing Snap to Go public as soon as they did.

2:54:20 Remember we did that whole episode way back in the early days of like, Holy crap, Snap is going public after like four years of existence, you know? That's crazy. Right. You know, there was a whole structure, it's all in the SEC filings of Evan got a like massive like six hundred million dollar plus bonus for a successful completion of an IPO. Did they're very good at this.

2:54:40 Yes. even this knowing when to sell thing, We work. They sold a lot of We Work shares to SoftBank, and I think it's actually still part of some ongoing litigation where SoftBank didn't want to uh complete that transaction. But As an aside, actually on We Work, I was watching a a video with Peter Fenton and he said

2:54:57 We were involved with We Work. That guy was as pathological as you could possibly imagine, and then go further. The stories would blow your mind. I almost feel like we're just not gonna get into we work on this episode. We did that whole thing with Dan Primack. Yeah, no. Either way, that's not the point of this episode. You can hear about that elsewhere. We should definitely though talk about Uber.

2:55:18 Yeah. All right. So famously. Girly been studying the space, had been looking at do you look at taxi magic? Taxi magic, we talked about it all on our Uber episode. Like he had literally been searching for this company, he tried to get Taxi Magic to become Uber, it didn't happen.

2:55:33 So much great history, go listen to that. The original Uber pitch is actually Garrett Camp coming in and pitching the limo thing, and Travis isn't CEO yet. And then finally Travis gets in the seat. There's some product market fit. It seems to be happening. Benchmark invests, girly joins the board.

2:55:49 Twenty eleven, I think that happened. twenty eleven. A ten million dollar series A at a ten or eleven at a sixty million dollar post money valuation. And one of the first investments out of Fun Seven. Yep. There's some such great fun stories of that era that I think

2:56:06 It's just fun to think back on like a happier time in Silicon Valley and show the sort of like swashbuckling insanity of Bench park at the moment. They knew they wanted to do the deal and so like before the final sort of partner meeting Travis was pitching at Sequoia right before and Uber was

2:56:24 active in San Francisco, but wasn't even active on the peninsula down on Sandhill. And so he had taken like A new bird down from San Francisco to all the firms on Sand Hill Road and told the Uber, like, Hey, just wait for me, like, you know, I've Nobody else is gonna call you here. The Benchman guys knew what was going on while Travis is inside at Sequoia, just up the street.

2:56:43 They call the Uber away. So then Travis has to run uh literally run down Sand Hill, which if you've been there, it's like a quasi highway, like there's multi lane, like anyway. Then after they do the deal, they send him a a pair of Nike's as like a joke. Fun stuff. And then uh right after that Travis goes on Jake Al's show on Twist, one of the best twist episodes ever, episode one eighty. And talks about The deal and um

2:57:11 Is that where he talks about the Michael Ovitz episode too? And just watching that was like man like God, Travis was sharp. Was is. He's just behind the scenes now. You know, I mean great upside, great downside, but like man, he was good. And Uber was good and those days were Something special.

2:57:28 Anyway so Jason asks Travis in that moment, the deal had just gotten done. Jason had been an angel investor, of course. I was like Jason, an angel investor Uber? Oh did he wait was he the third or the fourth Antill Investor? Okay. We'll have to ask him about it. J Cal, we love ya. But Jason asks

2:57:48 Travis on this episode. Why'd you go with Benchmark? Why'd you go with Bill? And Travis just like doesn't blink. He's like they're the best. I went with them because they're the best. I didn't want to work with anybody else. I knew it was Bill. I knew it was Benchmark. They are the right partners.

2:58:02 They are the best period. That is what two other portfolio CEOs said. in the exact same way that I had talked to privately to prepare for this show and I shouldn't share who they are, but they're like, Oh, well, because they're the best. There was no other need for explanation. Yeah.

2:58:18 And I actually got lots of other explanation. Like They're this unbelievable partner and like they actually can help you recruit executives and they're truly like a like three people told me they feel like a co-founder. Oh yeah, we we can get into all that in analysis, but Oh man, the overday it really was fun. I mean I just like I'm so nostalgic and wistful now. Like God, those day remember those days? Twenty ten to like twenty fifteen, like for the whole industry. It was just a different time. So much happier.

2:58:44 Feels like it, right? And I'm trying to figure out is that because there was like Was tech like intrinsically better then or did we just not Think about the downsides. You know, I don't think anything was actually different. It was just It was still early.

2:58:59 Yeah. And frankly, like there weren't enough hooks in most products yet to make you hopelessly addicted. Yeah. the sophistication of applying all the behavioral psychology and the machine learning that applies a lot of the models to like

2:59:15 Just the ruthless execution of capitalism. I don't think we realized it yet. And it was just much more nascent. Of Worker. Ah, a prime example.

2:59:28 Yeah, I mean y'all know what happens. It's interesting, right? Like so what's the right way for us to talk about this? So there's a thing that we should definitely talk about on the benchmark episode, which is Benchmark with their board seat on Uber ends up suing the founder along with a group of other people. how we got to that point.

2:59:50 Uber had a lot of bad stuff that all sort of happened. Seemingly all at once, delete Uber, but like how did we end up in a situation where shareholders were all looking at each other going We need to replace the CEO, otherwise the company will destroy all the value it's created. So I think there are multiple threads to explore here.

3:00:08 One All the reasons I think we're wistful for or I'm wistful for Twenty eleven. Twenty twelve. You know, when things were just simpler and happier. Uber, I think was you know, it was at the forefront of all the stuff that

3:00:22 Made now a a less wistful time. You know, everything you know you Said and some of those were the company's fault and some of those were Travis's fault and some weren't. You know, you look back at like delete Uber. That was just an absurd situation. Like Uber was trying to do the right thing. Yes, but that was an example of a company that You know how luck is about maximizing the opportunity for good fortune to happen to you? This was the opposite. They had built up so much ill will that a pure misunderstanding about

3:00:50 the way that they were trying to help launched a gigantic social media campaign where people assumed they were acting with malice. Yeah. Then you had the Susan Fowler stuff. In which case, many people at Uber were acting with malice. Yes, yes, no doubt about that. You know, there was the attitude that I think Needed to you couldn't have built.

3:01:11 Uber without of the Hey, the existing laws and regulations are stupid. And they don't serve consumers, and we need to fight them. Yeah. And

3:01:22 The company and Travis never Change that stance. Whereas public opinion started on their side and then as things just escalated and escalated and escalated Moved.

3:01:35 And I don't think the company in the Travis moved along with them and You know, that's a tough position for the board. So I think that's another thread. And then I think the last thread and I think this

3:01:49 Obviously, right, like the Uber situation and the We Work situation too to a certain extent, but obviously the Uber situation. is the end of the Fab Four Era. You know, there's like Tail Girly stays for a while and like there's new we'll we'll get into all that. But that's the end of like The Beatles, you know. Just like the Beatles had a ten year run. You know, the Fab Four had a ten year run. Yeah. It's not being fun.

3:02:12 And I think part of that. I suspect. Was the pressure. You get to a certain point.

3:02:21 with Uber and you know a a few years in, like so We start out with Benchmark and Bill and Travis and the company are besties, you know, lock arms for life, right? And you listen to that twist episode with J Cal Right after the series A. You listen to all the interviews with Bill. That Travis is like, you know.

3:02:38 The best, most shining example of representing of an entrepreneur I've ever worked with, all this stuff. And then it's a It doesn't go right from that to like suing the company. No there's a few years in the middle. Where Bill starts Sounding the alarm in Silicon Valley about all sorts of things.

3:02:54 And not talking about Uber, but clearly he's talking about Uber. And not naming Uber, but saying things like Hey, maybe valuations are out of control. Hey, maybe it's not in the founder or any of the company's best interests to be raising this much money at these valuations. Or you know, if you are going to to be in the private markets where like There's so much opacity for everybody involved.

3:03:19 It was unprecedented. Uber hit what a Seventy billion dollar I think valuation. Eighty on the private markets. Yep. Or maybe eighty was the number that it was anticipated to go public. Hm, could be. I know it was at least sixty, I believe.

3:03:33 Valuation. Whatever it was. That had never happened in history before. Never by an order of magnitude. Had that happened. And all of a sudden

3:03:43 The rules of the game have changed and things are very different and the amount of pressure On The company? On benchmark. On the board.

3:03:52 on the LPs of benchmark, uh a point that I hadn't thought about until I started thinking about in this research. Say you're an LP. In Benchmark. Some university endowment. You work at that. Pool of capital that is an L P in benchmark fund seven.

3:04:06 Uber's not getting marked to market, but you are getting your quarterly marks from Benchmark Fund seven based on the valuations. That Uber has achieved. Which has comp tied to it. Which has comp, your personal comp as a you know, an employee of the organization, the Z L P And for the future planning of like the disbursements from the like it reaches a point where like The amount of capital involved is so meaningful here.

3:04:31 To so many players all up the stack. Thousands and thousands of people In addition to all the employees and all the customers and the drivers on the platform. Like you actually have these Thousands, if not tens of thousands, of people impacted by paper valuations at Uber, right? And so the amount of pressure to kinda land this plane, so to speak. A Reese's just like

3:04:56 crazy heights. Uh you know, and look, who is this anybody's fault? Who do you blame? I don't know. But like I think this happened. Yeah. And so then it was like

3:05:08 Okay, we need to get public and we need to get public in a way where people don't fear that the company's gonna fall apart. So we need to stay on the same order of magnitude of the current valuation so that the world doesn't fall apart for us and all the other investors and all the LPs and all of the investors in this thing so far. And so if you have a disagreement about that, there is sort of a greater good than any single relationship you have with a founder.

3:05:34 Right. the level of scale that you're impacting here becomes way more than just like, you know You and your board member or like, you know, with a way Silicon Valley. Even even go back to the the bubble. We were talking about web ban. Yeah, WebN gets liquid, goes public, trades on the public markets up to eight billion dollars. Crazy, right?

3:05:53 We're talking about. Eighty. billion dollars. On the private markets. Yes.

3:06:00 Yeah. Pressure cooker. So Benchmark goes through with this. They know that they have existential risk to their reputation based on suing one of the most iconic

3:06:12 successful founders of all time who many other founders want to be like. And many other founders don't want to be like, right? There's a lot of people who deliberately do not want to be Travis. But still This is a A Rubicon crossing move. Right. And it's interesting. In some ways There's actually two ways where I don't think it's that big of a deal.

3:06:31 Let's start with the one that's more arguable. So Getting sued? By someone that you've signed. a very heavy contract with.

3:06:42 People talk about it like, wow, no one will ever do business with them again. That is a thing that's like sort of unique to startups and venture capital. There are lots of other agreements and lots of people who do business together where like If you start doing ill will by the other party.

3:06:59 There are lawsuits. I don't know why everyone made it out to be this big deal of like, because Silicon Valley r runs on trusts and love and sunshines. If you raise a big debt pool and then you don't use the debt pool for the intended purpose, well, like the LPs in the debt pool will sue you for that. You don't have to look very far. Look at Venture Capital's cousin private equity. Right. Nobody would bat an eye here.

3:07:21 Not that I would ever want to be in that situation and not that I would ever take any of the first ten steps that get you to that situation, but like it always struck me as like people s are getting really holier than thou around like This Rubicon of a lawsuit. Then there's the second thing of like Okay, did it actually impact them as much as sort of people projected that it could. Was this really an existential risk? I think the answer is no.

3:07:44 Yeah, I think the pretty clean is no at this point. Yeah. I think it's definitely a tool that gets trotted out. You know, if you already have all these other things stacked against you, like Benchmark doesn't have a a platform team and like Oh, we haven't even talked about that yet. And on top of that, they sued Travis, remember that it's like the cheapest shot you can take, but it's a shot you can take, and you can bet that people take that shot when they're competing for a deal that's really an important one. I think Pretty unambiguously at this point.

3:08:10 Both in my opinion. And just looking at what's happened in the intervening God, it's been five years since then. The answer to the of like does this meaningfully negatively impact benchmark is

3:08:24 No. Directly. No. And probably hasn't, but there's some question around is there some pajama pitch moment where they're not getting to see something because of this move. It's probably not this move. I don't think it's happened yet. But you know, startups take a long time to mature and we don't know what they didn't get to see and why and so who knows?

3:08:42 Yeah. So directly the answer in my mind is clear cut. No. Indirectly. Yeah. I very little doubt in my mind that we're going to be able to do

3:08:52 This Precipitates the end of the Fab Four era. Yeah. That's probably the biggest value destruction. This is the Yoko Ono moment. It causes people to retire earlier than they otherwise would have.

3:09:04 I I don't mean to blame Yoko, but like you know, whatever your pet theory is for why the Beatles broke up. This is the end of the era. Yeah. Dude, I watched the documentary. It's because Paul is full of himself. Ha ha That's the reason. Amazing. I haven't watched it yet. I gotta go.

3:09:19 We've been doing too much research. It's so good. So you know, all that comes to a head in two thousand seventeen, into two thousand eighteen. Two thousand eighteen they do fun nine.

3:09:30 Matt and Mitch step back at that point. Bill sticks around for one more fun cycle. And then of course. At this point, certainly if you're still listening at this point, Bill has stepped back now at this point, and Peter is the only current active GP.

3:09:45 From the Tab four. Yeah. So what's Benchmark.

3:09:50 Today. Flashback to start the answer to that question, we gotta go back to twenty fourteen, when they bring on Another non spec T peak. Yeah.

3:10:01 An operator, a CEO? We are of course talking about the one and only Eric. Yeah. Who you introduced me to in twenty thirteen, twenty fourteen, when he was visiting Seattle. We all got things together. Right. That's right. We went to uh

3:10:17 Oh, what was that great bar? I don't remember. Somewhere in Pioneer Square in Seattle. Pioneer Square, yeah. And uh Delicatus. Yes, that's At the time, I was like freaking out because I was like, Oh my God, this was the guy with Ben Horowitz who did Loud Cloud. I had just read The Hard Thing About Hard Things and I was like, Oh my God.

3:10:36 So fun. It is incredible the fact that he worked with Ben on and Mark. Yeah. He was VP of marketing. Loud cloud and opsware and then ended up at benchmark.

3:10:45 And not Andrews and Horowitz. So he joins and um Kind of quietly, Eric. For anybody who knows him is sort of a understated guy. But total class act like fits the benchmark

3:10:57 understated, classy, always go above and beyond, be, you know, incredibly responsive, courteous. Like that's like the Despite being I'm gonna say this in the most kind way possible, a killer. He has all those characteristics too. He's so sharp and so kind.

3:11:14 Yes, all the above. Sort of quietly, in the midst of all this, of the transition out of Through the Set back half of the Fab four era and now into the new era. Eric's just killed it. Uh there's no other way to put it. His first deal was confluent.

3:11:29 Series A. Seven million at a twenty four post. Company's trading at a seven point six billion dollar market cap today. Then he did amplitude, he did benchling. He did Cerebrus, one of our pet favorite

3:11:42 Semiconductor companies out there now? Yeah, he fit right in. So you've got Eric. So now in twenty. Seventeen. Really kinda in the midst of all the Uber stuff.

3:11:51 Going down. Benchmark. Brings on. Another general partner. In some ways.

3:11:58 Actually, like The very perfect Venn diagram. hybrid spec if there ever were a spec for a benchmark general partner. And in other ways. The most.

3:12:10 different general partner that they've ever had a benchmark. They bring on. Sarah Tavel. Good friend of the show. Friend of the show.

3:12:18 Women. Investor and Ipso facto GP. At benchmark ever. She worked at Greylock before she

3:12:26 scout the Pinterest investment and then famously went and worked at Pinterest and helped scale the company. Well that was when she was at Bessemer. Then this is why I said. Oh you're right. Bessemer to Pinterest to Greylock. Sarah. In so many ways it's like Literally, I think if you were to ask Dolly.

3:12:42 To paint a picture of a benchmark GP. It would come out looking exactly like Sarah because she started her career in Venture. As a junior analyst at Bessemer. At which She sourced. Pinterest. Which was a very nonconsensus deal at the time.

3:13:00 She then goes and joins Pinterest as a very early employee. Spends years there. Helping scale. Interesting working with Ben the C own. Building.

3:13:09 That company. And then She goes to Greylock. And joins Greylock as a Baby G P

3:13:16 I love the baby cheeky. I didn't make that up. We heard that in the research. Not about Sam, but about Peter. So y I mean literally like I can't imagine them more. Qualified. Partner to join Benchmark. And in some ways she's like the Bill protege.

3:13:33 That sort of takes his place afterwards. She does a lot of consumer, she does marketplace investing. She's very analytical. She's a big frameworks thinker. She writes a lot. No one's a clone of each other, but you can sort of see where Sarah's swim lane sort of emerged from when they were thinking, Who do we need someone like? Well. Here's the other interesting thing. About Sarah.

3:13:54 I think she's a great. You know, fit d everything we've talked about at benchmark here. Yes. You're totally right. She fits that swim lane. But Do you know what her first investment was?

3:14:04 At Ben Frank? Ooh, I do not. The very first investment. That she made. After she moved over from Greylock.

3:14:11 And Join Match Park. was chain analysis. Which does not fit any of those categories and was a very, very non consensus. Deal to do. In the middle of ICO crypto winter in twenty seventeen, early twenty eighteen.

3:14:28 She did, I believe, in the series A. And Benchmark, I believe, owns a meaningful part of that company, which is currently valued at eight point six billion dollars. That's the most risk adjusted way to do crypto. Like by the enterprise security analysis tool. Which but I think it's so funny, you know. It really like fits the benchmark She fits benchmark. And

3:14:51 That investment of like Hey. Knowing a secret, right? Like that. other people aren't willing to recognize making a correct non consensus bet. Yeah.

3:15:01 You keep saying correct non consensus and it's funny. All of the benchmark. partners or at least some benchmark partners from every generation. reference that Howard Marks axiom very often. And this is awesome because like we just had Howard and Andrew on the show. But Andy Ratcliffe says it, Bill Gurley says it all the time. Of course, in order to make money in investing, you have to be both nonconsensus and right. And I have heard another addendum to this from a benchmark partner that I thought was pretty interesting. Oh, do tell, do tell.

3:15:29 You want that to be true when you make the investment, but you don't want to be very non consensus for long. You want to quickly that consensus and right. You just don't want anybody to see it until you make that bet. But like You don't want to make that bet and then be sitting there for five years still non consensus. Knowing the personalities involved I can tell you exactly who said that, but we will.

3:15:49 Protect their identity to to protect the guilty here. But it is a great point, and it is the point that I was wanted to make in regards to eBay. That is the takeaway of like You seem like a whack job buying the company that facilitates selling beanie babies, which seems like a non market. to you know within a year having whatever it was, a hundred thousand percent growth or something like that.

3:16:12 On that investment. So that was twenty seventeen. So you got Eric joining twenty fourteen, you got Sarah joining twenty seventeen, and then the next year Twenty. Surprise, surprise, another. Spec higher.

3:16:26 Joins. Benchmark as the next GP. Of course we are talking about Jathan. Gonna go. He is a spec hire and while he's been very very successful and blah blah blah.

3:16:37 We can say that one of his greatest successes is uh joining us for the only episode that we've ever done, not about anything related to acquired or tech or business, where we analyze the last Star Wars movie together. And you two liked it. And I was like, what? Okay, wait, wait we we can't get into a holy war here'cause that's we're treading enough controversial territory here. We don't need to go into Star Wars. But that's on the L P show from like four years ago or something. So Chasin, total spec higher for benchmark.

3:17:08 It was like thirty ish. He came from NEA. He had already done elastic and mule soft and MongoDB. knocked it out of the park on all three investments. One got acquired by Salesforce, the other two went public. The exact thing that we were describing of like

3:17:27 be in venture for seven ish years and then have twenty amazing years ahead of you. Chafin is Exactly that. So now you've got two great enterprise investors with Eric there and Jathan there.

3:17:41 Not to mention, you know, it's not like Peter has left yet. You still have Peter Fenton there. Yeah. And that brings us to the most recent. person to join as a general partner at Benchmark, which is Miles Grimshaw, which was last year, David. Yeah.

3:17:58 Maybe a little over a year ago, but uh Not long ago. Miles, of course, was uh the one you're kin to uh Thrive Capital. involved in. Helping.

3:18:08 Built that firm and uh as a baby TP. All these baby TPs. Into uh Yeah, incredible. Success there, but Now part of Matrack.

3:18:18 What companies was he involved with there? Uh where you met Peter. And Benchling, uh, where he and Eric Overlapped on the board.

3:18:27 And I think Miles was very early to Bench Ling. Uh very, very early. Definitely before Benchmark and Eric. Yeah, if you want to be a GP at benchmark, just uh be on boards with them. That seems to be the takeaway. But even better. Join boards. Before they join,

3:18:43 And then have those companies be incredibly breakout successful companies. I think that's the answer. That's the playbook. So that's the lineup right now. You got the elder statesman. With uh Peter Fenton. You have Eric Vishria. Sarah Taville?

3:18:56 Jathan Puttagunta and Miles Grishaw. And that is the current benchmark partnership. All right listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on StatSig, whether they are iterating on their core product features or shipping AI powered experiences at scale.

3:19:19 Yeah. In the crazy speed of today's AI world. Shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers.

3:19:36 And how fast you can use that signal to guide what you ship next. This is where StatsIG comes in. It brings experimentation, feature flags and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to Statsig.com slash acquired to get started. Okay, David. Analysis. Of benchmark capital. This is like a hell of an undertaking.

3:20:08 Is it benchmark capital or is it benchmark? I know they used to say benchmark capital. Well the entity itself is bent by capital. At least their goofy website. Oh, we didn't tell the story of the website. Oh we gotta Okay, we gotta do it here. We gotta restart the website.

3:20:22 Yeah. As Ben has been talking about in the episode to do the Wayback Machine, they used to have A truly goofy website. Yeah. But I actually think I know something that you don't.

3:20:31 Oh, okay, go for it. All right, website. So Many people know. That benchmark.

3:20:37 has a website that just says benchmark. I think it has uh some contact information. Link to their Twitter feed. Yes. Which of course lists their announced portfolio companies in a Twitter list. And

3:20:49 I assumed that was always the case. I assume they just never updated their website because they thought That would be a uh you know, a way to keep the mystery a little bit or at least keep our operation simple. They were actually the very first venture capital firm to have a website. In the early. I did not know that. I guess in the mid nineties.

3:21:09 Yes, they were. They were very early to adopt it. And uh we'll put links to this way back machine. It's just awesome. I mean, it is like hilariously goofy. And uh you can find directions on how to drive to pitch them. And they evolved it a few times. It sort of got more and more modern. And uh then Matt Culler joins the firm and says, Hey, I think we really need to update our website. You guys like This is embarrassing.

3:21:31 Oh, I actually heard the story was the opposite. It was the the other existing partners when he joined were like You're the new guy. Your initiation ritual. You're coming from Facebook, like You deal with the website. Oh, I actually don't know which direction it was. But anyway, I think he worked on it a little bit. He sort of came up with some ideas that he, you know, needed to make it more web two point OE, more interactive, incorporate live things.

3:21:54 Ultimately one problem was it ended up putting benchmark too far Forward. It was almost like taking credit for these entrepreneurs' success. And uh that is antithetical to everything benchmark stands for. They want to be in the background. They want to do the entrepreneur show. They want to be that sort of quiet confidant and partner.

3:22:11 And they think that the best founders will be attracted to the idea that they're not taking credit by featuring those companies on the website, which I think is sort of an interesting rationale for it. I think what really happened Or at least what also happened. Is Matt was showing it to the rest of the partnership in these early revisions and got a whole lot of feedback.

3:22:33 And a whole lot of opinions. And it ultimately ended in just saying Hey, actually I think we shouldn't have a website at all,'cause I don't want to deal with this. Which also ended up brilliant because it totally added to the mystique, especially in that Fab four era.

3:22:47 All right. Let's land this plane. Let's land this plane. So Let's talk about power. I think that's a good place to start it before we get into playbook.

3:22:57 Right. I'm not sure there's a more perfect and pure illustration of counter positioning. than how benchmark started. Yep.

3:23:07 Agreed. And I think it goes deeper than just like Oh, if you are a very powerful, very wealthy senior GP at a different firm you'd have to give up a lot of your economics and no one would do that. And so therefore no one's gonna do it. Other firms.

3:23:23 We're not set up. to exclusively have partners that were truly equal to each other in value. Price is what you pay, value is what you get, you know, price is what you pay, the carry that you have to pay someone out and the salary that you have to pay someone and value is what you get in terms of them bringing great deals in and contributing something to the partnership. No other firm was set up

3:23:44 to have equal value employees. So you couldn't make everyone equal because it wouldn't solve the problem. Yep. So every other firm couldn't do this. Now it doesn't mean that this is better.

3:23:57 But It is for sure that no other firm was set up to actually do this. A hundred percent. And I don't know where this falls on this, but there's also because of everything we talked about this whole episode, because of this all star team dynamic of like for this model to work.

3:24:11 Everybody has to be an all star and has to bring it all the time and you have to be committed and capable of being the best. on the field. It's also a barrier to entry to other firms starting and copying the model. Like, sure, you can try and do that, but like you gotta be the best. And other firms have. Lots of firms out there have equal partnerships and know No associates. But

3:24:32 None of them. have twenty five X to five hundred million dollar fund. And so It's almost like Every decision you make is very risky because once it falls apart, it's done for good. Yeah.'Cause no one you're not gonna go attract the next Bill Gurley

3:24:46 If you've been mediocre for a couple of funds. The next Bill Girlie doesn't think That the other thing. Partners are exactly. Yeah. Exactly.

3:24:56 So I think one funny thing is uh realizing how much this sort of faded away. When you're An upstart, you need to be really loud and overt about this stuff. And when you're on top, you can sort of let the community speak for you, which is what they do now.

3:25:10 But I love this from Benchmark's nineteen ninety seven website. This just like says it in prose. Many venture firms recently raised mega funds. They're actually laying out here's why you should go with us, not other firms. But the numbers in this are really funny. mega funds capitalized more than forty million dollars per partner.

3:25:30 This can lead to an overextension and a lack of accessibility and responsiveness to portfolio companies. Some investors have been known to hold as many as 20 board seats at one time. That was before people learned the trick of just don't take freaking board seats. I love that they just were like, Oh, I don't know, like let's just type this all out. Well you know, back in that era though, early like everything we talked about at the top of the show, like these guys were pirates. And it was great. I love it. Totally.

3:25:56 There's another interesting quote in there where you can really hear Dave Byrne's background coming from executive search and being in a like very services forward business. That was not the common belief among venture capitalists at that time. The belief was we walk on water and people would be happy to work for us. And take our money. And I think Dave Byrne really brought this like we are a service providers mentality to it. And I think that's also very Bob Gigle.

3:26:19 That ethos, I think they all shared that. Good point. So it says benchmark is structured to provide a high level of service with maximum investment flexibility. Our capitalization of twenty million dollars per partner allows for an average of six board seats and ensures the right level of partner attention and support regardless of investment size. It's so funny that they s felt the need to spell all this out. I know. Today you would never write this. It'd be like if you have to tell me this, like you know. Right. I love the twenty million a partner too. It's like Well, uh we could only raise eighty five million and so therefore eighty five partners and so fifteen and you know, yeah. Exactly. But yes, counter positioning, you are so right. This is one of the clearest examples we've ever had.

3:27:04 Yes. The other one that is Extremely obvious to me is branding. And The definition of branding is if I hand you an identical commodity with a unbranded or brand B on it.

3:27:18 you are not willing to pay as much as you would pay for Brand A or Tiffany's. This couldn't be more true. Benchmark and all VCs are in the business of selling American green dollars. And Benchmarks American green dollars.

3:27:32 Cost a lot more. Yes. And I really would want to do the analysis of like Again, price is what you pay, value is what you get. Lots of times entrepreneurs take a deal where benchmark is asking for more of their company, aka a lower valuation, in exchange for the same amount of dollars. And then the question is on values, what you get.

3:27:52 How much should entrepreneurs be willing Two I've talked to multiple entrepreneurs where it's not just lower, it's like the lowest. Right. And they still do it. Is benchmark's money worth twice as much as a competing term sheet? That might be ridiculous.

3:28:08 Is there a 20% premium? Definitely. And It's like what are some easy ways to sort of like back into this'cause there's the squishier stuff of like All the feedback we got around it's so meaningful to have them on my board and we talk all the time and they're one of the smartest people in the world and they have these amazing networks, so they can help me recruit this fantastic executive team and they know the CEO of all these amazing people who can be customers. So like that sounds like s a little squishier, but definitely valuable.

3:28:37 The thing that is Not squishy at all is It has to be Close to a hundred percent. Of

3:28:44 Benchmark companies that raise a series B. Yeah. And so you're completely de-risking your next round of capital. by becoming a benchmark partner. And

3:28:54 It cost Benchmark nothing. to have that asset, but they now have that asset because the only people that revere benchmark more than founders So like now that they have that asset. It's like They just get better deals on everything because even when they deploy the same amount of dollars that Joe Schmo VC does.

3:29:16 Their dollars are worth more because it comes with a great series B. This is the perfect segue to jump to any other powers we want to talk about? Those are the two, obviously. Yeah. Okay. Now here's the question in the current environment. Yes. Totally agree with everything you said. And other firms have had to f you know.

3:29:33 Sequoia does their own thing, Andreessen has their way of doing things. No, there are other great firms out there too, like blah blah blah. But like In aggregate. The rest of the industry has had to figure out a way to respond competitively to this. Yes. And in aggregate, the response Has trended towards Responding to this being that if you take money from Benchmark, you are almost guaranteed your next round at good terms.

3:29:54 Which is true at Sequoia and maybe Andreas and Horowitz too and probably Founders Fund. Unfortunately, those people also could lead the rounds, they signal, whereas Benchmark can't. Oh so yes. So here's where I'm going with. The aggregate industry response to that has been Okay, we'll raise more money and then we can also provide you the same thing. We'll just bring the money. Yes. And Benchmark has very explicitly not done that.

3:30:19 Yes. And part of it's operational. I genuinely do think it's funny, I came into this research w wanting to believe like they create all this mysticism so intentionally. And like I don't actually think I think they embrace it. I think they embrace the sort of like opacity and like mystique of benchmark. But I think most of it actually originally stems from work we want to do and work we don't want to do. And they like only bring partners in who want to do a very particular style and craft of venture capital investing.

3:30:47 And those people end up sort of perpetuating the resistance to, I don't want to be a growth stage investor. I don't want to deal with the conflict of a founder looking to meet for their series B or C. Well, that and that's when things are going sideways at a company.

3:31:02 It's also a conflict when things are going well. Talk to a founder about this where things are going well. And he had a great point. It was like you know All my other VCs have these, you know, growth funds and you know, they do lots of stage like Whenever I go to raise a new round, all the conflicts come out. It's like

3:31:18 Everybody's trying to ram money down the throat. Outside investors, inside investors, blah blah blah. And Benchmark isn't a position I think this is a legitimate point to make. Where they can help make a round the best round come together without The conflict of having to force more of their own money down the company's throat. And

3:31:34 Where this shows up for a founder is how nice is it to have your board member be someone that you're not pitching. Board meetings aren't pitches'cause they are not your next round of capital. That is the thing, like with PSL Ventures having a hundred million dollar fund, that is the awesome thing for me is like we're also not your next round of capital. We aren't gonna lead your series A. And so like you actually get to have a more real relationship.

3:31:56 I do think for benchmark, I suspect they've done some bridge rounds here and there, or their participation in a round signals something to the next round investor. So it's not perfect. You do need to s to keep your lead investor excited about your company. But They definitely have a lot less of a conflict than Yeah, it's a different motion than Just about everybody else in the industry. Yes.

3:32:18 I think this is the right point here to say too. Obviously we know. All of the current generation of benchmark partners and we've had a bunch of them on the show in the past and We know lots of folks in the ecosystem.

3:32:30 You know, there's always kind of this question, uh, with any V C and with Benchmark two of like, Oh, they say X Y Z V C says they're dedicated to the craft and they do all the but like really, you know. But how can we help, you know, like that kind of stuff. We've talked to enough people. We've lived we can genuinely say like that's not the case with Metroid. They really do. They do the great like

3:32:49 Everybody we talked to like. We've seen it. We've been there like They actually do it. It's also the benefit of not having other responsibilities. Like none of them are managers, none of them have any other career aspirations. So they they literally can dedicate one hundred percent of their time to their portfolio of companies that they currently work with and the next set of companies they could work with.

3:33:09 I also will say it is surprising to me that whenever I meet with a benchmark partner, how much time they have for me, it feels like a buffet esque schedule. Rather than like a lot of times meet with people in our racket and they're back to back in thirty minute meetings all day. it never feels like that. And I'm like, don't you guys have something more important to be doing?

3:33:27 But the architecture of the partnership is such that you can allow for a lot of breathing room in your calendar. Yes. Should they have a growth fund or not? Like it's a good question. It's an interesting question to discuss. This is the moment where we should see the benchmark model really work. Right. Last year was the moment where

3:33:48 It should really not work. Right. And actually I think it continued to work pretty well through the previous cycle. But If it really, really works. This market and this year.

3:33:58 Should be a good year. All right, let's go into playbook. The first thing that I just want to say after doing the research is They are just not a thesis driven firm. Period.

3:34:08 I think a lot of people want you to have a thesis and they've been so good historically, especially the fab four, maybe a little less today, but definitely the fab four of saying, Oh, I no, I don't have themes. I have like a thesis and I have like an area I invest in. we just follow the founders and I'm good at understanding if something is unbelievably compelling and I can sort of like these days model it out more and project and work on trends and in the old days understand someone's personality more and their gut more. But either way, like

3:34:36 the partners aren't coming in with I believe this market is gonna be the huge thing. And that's why I'm betting on these 10 companies. Yep. I think part of the DNA of the culture of the firm is they're all learning machines. I think that is what they screen for, you know, and uh

3:34:51 That takes like So many forms. But one Obviously the fun form that I can't believe we haven't talked about yet is They do these dinners.

3:34:58 They started'em uh during the Fat Four era. Just legendary. Legendary. They have this custom built table in the office on Monday nights after the partner meeting. They Dude, these standards they invite somebody, you know, Bezos comes every year. Like it's just crazy. Public company CEOs and Yeah. So Michael Lewis, you know, blah, blah, blah. You know, part of that I'm sure is just fun. But one of the things they do in those dinners, and I'm sure one of the reasons they started them. They bring the CEOs of companies they missed in.

3:35:23 Brian Chesky's come to those dinners. Tony Shu from DoorDash has come to those dinners. When they miss, they wanna know why and then they wanna Adjust. Yeah, that's a great way to phrase it.

3:35:35 It's funny, my uh w a playbook theme that I had was they are experimental. And I think it dovetails off of what you were just saying. I came into the research thinking benchmark has had one opinion about what venture capital should be and always did that. And that's just like not true. All these dot com partnerships.

3:35:54 Playing around with mezzanine investing. even recently trying growth investing, like in twenty eleven, at the beginning of the Fab Four era, they did a late stage growth investment in Dropbox in their four billion dollar round. Weird, right? The Israel, Europe, doing the billion dollar fund. They made some noises in the most recent fund announcement about they might do some public company investing, you know. They held open table for a long time while it was still public.

3:36:19 Which I think this is something that puts a fine point on the analytical side of benchmark and particularly Bill Gurley's analytical side, which is I also came in thinking. They know when to sell.

3:36:30 They always sell. going into the IPO or they sell a lot. Because They know that they are private investors and the goal is to get into the companies that are gonna IPO for the most and then exit near IPO. But actually I think what they are is

3:36:43 In some ways they're value investors. They're good at understanding the intrinsic value of something, which I think is why we saw them dump WeWork, but why they were holding open table while still public. in the terrible whatever that was, two thousand eight, nine, ten. that era where it was just massively undervalued because lots of public companies were massively undervalued. So I think that illustrates for me like Sure there are lots of quote unquote rules for how benchmark works.

3:37:09 But the main thing that they're good at is breaking them when it makes sense to break them. Yep. I think we could go on on some more playbooks here. I've got plenty. I mean One I wanna highlight quickly is uh Just the All Star team aspect of benchmark. We've

3:37:22 beat that horse plenty through this episode, but like, you know, if Sequoia is the Yankees, benchmark is the all-star team, and those are two very different conceptions. I think we might have an opportunity to do some more Benchmark playbook discussion. Ooh, I think I know where you're going with this. Yes, I think we may too. One open question I have going forward, and I just want to leave listeners with this at the end of the playbook.

3:37:43 is really around consumer investing in the future going forward. because all of their biggest wins in the past have been consumer companies. Uber, Snap, eBay, Riot, Twitter. Discord is still privately held, but you know, will be a big win. These were all very contrarian bets at first. And you know, we've talked about people thought they were idiots for investing in eBay because

3:38:03 Big consumer investments seem really weird. And as more and more prestige has accrued to the firm Will they try and keep that prestigious track record going? Or will they do really weird consumer stuff? You know, are they gonna do more of these near risk free early stage enterprise investments? And if you look at the

3:38:21 partner team right now, they're set up really well to do that. So In the current partnership, Sarah no doubt is a primarily consumer investor. But she seems like the only one that's like really actually focused on it. And the swim lanes are not as clear as they were.

3:38:36 in the Fab four era. So I think their next Partner. will be really telling on this. And I think it'll be interesting to see, does Benchmark stay a great breakout consumer investing? Firm. Or do they look a lot more like

3:38:50 high performing Sass. B to B enterprise investors. It's also just a weird moment in the consumer investing landscape right now, too. That is probably the counterargument. The Fab Four era was at the beginning of mobile. And so when there's a massive disruptive paradigm and trillion dollar companies could get built.

3:39:09 You probably should Try. Actually, trillion dollar companies is the wrong probably the wrong thing, but IPOs that could be like hundredish billion dollar IPOs. That's probably the right time. And so until it becomes clear with machine learning or AR or crypto that we have the next iPhone moment.

3:39:26 Maybe This fund is the time to be going more enterprise and then we'll come back to consumer. I don't know. Yeah. Okay. How are we gonna grade this thing?

3:39:35 I let me throw something out. I think grading is a relic of the past unacquired. Oh Boom, I love it. I think like I'd like to pull a benchmark here and say grading made a lot of sense. You are Kevin Harvey in two thousand four in the partner meeting being. Why

3:39:50 The F am I getting on a plane to go to Europe? I need to be here. There's just too many episodes that are this style where we're like, let's cover this incredible story that is no doubt I mean, we just named two of the highest returning venture funds of all time. What do we grade them, A plus? This is stupid. Yeah, what what are we gonna say here? Done.

3:40:10 Grading to be revisited in some future episode where it makes sense to do that. Yeah. Or not. It's stupid. The grade is obvious by the time we're I'm at five hours and eight minutes recording here. Like if you don't know the grade, like Whatever.

3:40:25 Yes. Dead. Carvalho. I have two. One of them is directly related to this episode. Literally everyone listening to this should go watch Runnin' Down a Dream on YouTube. Ah, the best.

3:40:37 It is a talk that Bill Gurley gave it. to a I believe a room full of MBAs at uh University of Texas. It's inspiring, informative, educational Slightly analytical, but mostly

3:40:51 It's the best of VC pattern matching. applied to helping people understand what to do with their lives. And Bill's just it. Terrific speaker. Hardily seconded.

3:41:02 Yes. My second one Is The Smartless Podcast. If you watch the rest of development and you like Jason Bateman and Will Arnett, it is the two of them and Sean Hayes, who's on Will and Grace.

3:41:14 And it is so funny. It is like Just some of the best Bullshitting. of people sitting around. They have guests on I just listened to Chris Pratt, there's a Bradley Cooper episode. They're sow entertaining. Like it's just great to just leave on in the background.

3:41:31 I don't know, I wanna bring some smart list to acquired. Love it. I love like I I do the same thing. Like are each like Outside interest. This is kinda related to the benchmark, you know, dinner thing. Like There's so much we can learn and bring from

3:41:44 Other podcasts, other shows, other mediums that are not at all our world business attack to make it quite better. Uh Okay. Uh really I'm gonna I'm gonna do the same model as you then. My related to the episode Carve Out. I already mentioned it earlier, but go listen to Mitch on um Invest like the best. Such a good episode. He's just so

3:42:02 So entertaining. Both Mitch and Patrick. And okay, so that's my related and then my Unrelated one. You know, I'm I'm gonna go with what I've been A recarve out, but uh recarve out. A recar I'm recarvouting. No, but uh an updated and expanded. I mentioned Ursula Le Guin on the

3:42:21 I think it's on the Amazon.com. episode uh where it started The earth sea. Serious R C cycle, and I'm now like four bucks in and It's really good. Tastes really good. It's very, very

3:42:32 Different. Science fiction, all of her stuff is so different from one another. Highly recommend. All right.

3:42:38 We would love to have you in the Slack. thirteen thousand other smart, courteous, kind people in the acquired community, acquired.fm slash slack. We got a job board. Acquire.fm slash jobs, find your next great career move. Finally, we have merch, acquire.fm slash store.

3:42:57 All right. Alright. With that. Listeners, thank you so much, and we will see you next time. We'll see you next time.

3:43:06 Who got the truth? Is it you, is it you, is it you Who got the truth now

What you see above is a preview of the first minutes. One unlock costs 10 credits and covers this episode forever: full segment and word-level timestamps on this page, plus .txt, .srt, .vtt and word-level JSON downloads, as many times as you like.