Pod Insights Masters in Business BONUS: Bill Gurley on Investing Early in Tech Disruptors & 'Runnin' Down a Dream' About this episode On this special bonus episode of Masters in Business, Barry speaks with Bill Gurley of Benchmark about his big bets investing early in now-common names like Uber, Zillow, OpenTable and others, plus his new book, "Runnin' Down a Dream: How to Thrive in a Career You Actually Love".
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0:00 Speaker 00 At Brookfield, we believe you can own wealth that's measured in generations. Because true ownership looks beyond today and beyond cycles. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future. Providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Past performance is not indicative nor a guarantee of future results. Please review performance and offering materials before investing.
0:38 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.
1:21 Speaker 01 But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
2:03 Speaker 02 Bloomberg Audio Studios, podcasts, radio, news.
2:11 Speaker 02 This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
2:17 Barry Ritholtz? This week on the podcast, what can I say? Another banger. Bill Gurley of Benchmark Capital, legendary VC, early investor in Uber, Zillow, OpenTable, Grubhub, Nextdoor, The List, Instagram, just Twitter. The list just goes on and on and on. What a fascinating career, filled with insights not only about venture investing, but about building a career that you love. I thought this conversation was fascinating, and I think you will also. With no further ado, my conversation with Benchmark's Bill Gurley. Before we get into the book, which I found very interesting, and your whole career,
3:02 Barry Ritholtz? let's start with your background. You get a bachelor's in computer science from the University of Florida, and then an MBA from UT Austin.
3:11 Speaker 04 Yep.
3:11 Barry Ritholtz? What was the original career plan?
3:13 Speaker 04 So I fell in love with computers at a young age. And many people that get to Silicon Valley, you hear that common refrain. I had a Commodore Vic 20 that would plug into your television, and it didn't have solid-state memory. So you'd type programs in, but when you turned it off...
3:29 Barry Ritholtz? Done.
3:29 Speaker 04 They were done.
3:30 Barry Ritholtz? Right.
3:30 Speaker 04 You had to start over. Anyway, I fell in love with programming, as many people do, and just amazed that you could create things, you know? And so that was my undergrad degree. I worked for two and... two years and change at Compact Computer Corporation using those skills, and discovered that that wasn't going to be my long-term path.
3:54 Barry Ritholtz? You said you were exceedingly bored at what looked like on paper a dream job.
4:00 Speaker 04 Yeah.
4:00 Barry Ritholtz? Explain.
4:01 Speaker 04 Well...
4:04 Speaker 04 Back then, Compaq was was a leader in the personal computer business and we would release one PC and then it usually around an Intel generation, you would reach the next PC.
4:16 Barry Ritholtz? See, kids today don't remember 38646, NTM. It was like a big deal.
4:22 Speaker 04 Yeah. And so we started on the third project that was a lot like the second and a lot like the first. And I asked myself a question, and I don't know if I realized I was doing it as as much now as much then as I do now. I asked myself the question, is this what I want to be doing 30 years from now? And in any organization, there's someone that's a lifer that you can like ask yourself, is that what I want? And there's with no judgment towards people that do that. But it became very clear that that wasn't for me. And this will be particularly interesting for your audience because it's an investment crowd. At at home at night, I had read One Up on Wall Street by Peter Lynch.
5:04 Barry Ritholtz? Yeah.
5:04 Speaker 04 And I had opened a Prodigy account, which was this precursor to AOL. And I was starting to get really interested in stocks. I had bought the Value Line. You remember this thing?
5:15 Barry Ritholtz? Oh, sure.
5:16 Speaker 04 It came with a big notebook with the one pagers.
5:19 Barry Ritholtz? Updates and the three ring binders and like a whole shelf of a mathematical.
5:24 Speaker 04 And and one thing I'd really encourage people to think about is, what are you doing in your free time? And maybe should, is there a clue that that should actually be what you do full time? And so this thing was itching at me.
5:37 Barry Ritholtz? So first gig in finance, was that Deutsche Bank?
5:40 Speaker 04 Uh, no, it was Credit Suisse First Boston. So I, while I was at the University of Texas MBA program, I thought about venture, but it seemed very hard to get towards. I like technology. I like disruption. I like programming. And it seemed hard to get at. But at that time, when you get to business school, some young adults like to pretend they're financiers. And so they read Fortune, Forbes, the Wall Street Journal, and Atrium, you know, as if, and. I would read the tech articles and there was a team at Goldman Sachs on the sell side. And the sell side, I think, was more kind of held in higher regards.
6:21 Barry Ritholtz? Back then, for sure, yeah.
6:22 Speaker 04 And this team with Dan Benton and Rick Sherlin at Goldman got quoted all the time. And I said to myself, you know, I really love my corporate strategy class. I love technology. These people get to opine on it and are treated as experts. So I went to, I came here to New York and I knocked on doors cold. I asked those, that particular team for a meeting. They let me in. I'm a freshman, our first year at the University of Texas. They let me in and I told all the other research directors, I'll be in town meeting with those guys. And I got like 10 meetings doing that. And one of those individuals was Al Jackson and he gave me a shot.
7:05 Speaker 04 And I can remember the first day of orientation, there were like 40 new people from MBA programs. And we had to go around and say our name in school. And it was what you'd expect Columbia, Wharton, Harvard. But I was the University of Texas, I was the outlier.
7:22 Barry Ritholtz? You were the odd man out, for sure.
7:23 Speaker 04 But I, I, I'm so grateful to Al for giving me that shot. The sell side analyst job has one trait that is remarkable, which is you immediately get to start talking to CEOs and CFOs. And I don't know of any other job where that just happens right away.
7:41 Barry Ritholtz? Right out of school.
7:42 Speaker 04 Yeah. So the access was amazing. I ended up getting to cover the industry I worked in, the computer industry. I got to know the team at Dell. We, we are very fortunate. This story involves our mutual friend, Mike Mobison.
7:57 Barry Ritholtz? Sure.
7:58 Speaker 04 But because of something Mike taught me, I got very bullish on Dell and it was trading at six times earnings. Cause they had had some issues and.
8:08 Barry Ritholtz? I recall the big, I think they had a CFO that was doing some dumb currency swap.
8:13 Speaker 04 They had, they had an options, a future currency thing that went wrong.
8:17 Barry Ritholtz? Yeah.
8:17 Speaker 04 And their laptop caught on fire and those, both those things. Things happen at the same time. And I'll, so Mr. Mobison had really gotten into ROIC analysis at that time. One of the first people to really get behind it. And he had me read this book, Valuation from McKinsey and the Stern Stewart book. And when I ran those ROIC calculations on all the players, Dell was like,
8:42 Barry Ritholtz? Way above everybody.
8:43 Speaker 04 Way above everybody because they were building to individual order. They weren't building to inventory. The balance sheet was not tied up at all. They had a positive cash conversion cycle. It was unbelievable.
8:54 Barry Ritholtz? You just had to weather the storm and on the other side, but that means you're buying something.
8:59 Speaker 04 We went, we went strong buy because of this RIC differential that no one was talking about. Michael kindly tweeted about my book the other day and said, he taught us some things we didn't know ourselves about our business. And it was a great run. I mean, that really launched my career because that stock went up 100X.
9:17 Barry Ritholtz? Yeah, that was a, that's a home run. That's a, that's a venture like return.
9:21 Speaker 04 Yes.
9:22 Barry Ritholtz? From a public company.
9:23 Speaker 04 Yeah.
9:23 Barry Ritholtz? How did you end up at Deutsche Bank from CSFB?
9:27 Speaker 04 Um, I had the same thing happen one night. I was at Parker Avenue Plaza on the 36th floor. And I was there at like 10 PM as the young people do. And I walked around and the lifers were in the corner offices. And I stopped in front of each of their offices and I said, is this what I want to do the rest of my life? And that night when I walked home, I knew it wasn't the sell side. But I loved the sell side. I had a great run, getting access to all those people. Being here in New York, working like on Wall Street as a young person, like it gave me so much energy and excitement. Like it's just, it's a different deal. Um, if you're in it, it's just a different deal.
10:10 Speaker 04 And but the, but I knew it was, it was time and I started looking around. I almost took a job with Capital Group who in LA, who, who I still hold in immense regard as an investment organization. Um, and Frank Quattrone called me out of the blue and Frank had, was leaving Morgan Stanley. He's the most notable high-tech investment banker of all time.
10:37 Speaker 04 And he sat down with me and we had a very candid conversation. He asked me what I wanted to do long term and I told him, I said, I've come to this conclusion. I don't want to be a sell side analyst anymore. He said, what do you want to do? And I said, I think I want to be a venture capitalist. And he said, this almost sounds too good to be true. He says, come to work for me for a while, be a sell side analyst a little bit longer. I will move you to Silicon Valley. I'll put you in the epicenter and I'll introduce you to every venture capitalist that I know. And he knew them all.
11:09 Barry Ritholtz? Wow.
11:10 Speaker 04 Um, and so
11:11 Barry Ritholtz? Yeah, he was, he was probably the axe on tech IPOs, certainly one of the top three.
11:18 Speaker 04 Yeah. And so I took that trade. Uh, he did everything he said. I only worked for him for 13 months. So it all, and in that window, we secured the mandate for the, uh, lead left position on the, on the Amazon IPO.
11:34 Barry Ritholtz? Which, which turned out to work out pretty okay.
11:36 Speaker 04 And that's such a great piece of, of kind of IPO tech history. If you, no one could name whose lead left on the Amazon IPO. And, and you can go find, I, I do this frequently. Go look at the S1 and it's Deutsche Morgan Grunfeld, lead left.
11:53 Barry Ritholtz? Wow. So how did you transition from working with Quattron at Deutsche Bank to Benchmark? If you're right in the heart of Silicon Valley.
12:04 Speaker 04 He did what he said. He introduced me to every VC. I was taking
12:07 Barry Ritholtz? So out of that list.
12:09 Speaker 04 Yeah, I'm taking quarterly meetings with Benchmark where we're, I'm, they're inviting me into their Monday meeting and we're just chatting about where the industry's going. Yeah, he really did what he said. And, um,
12:20 Barry Ritholtz? But why Benchmark as opposed to Sequoia, Kleiner Perkins, there are dozens.
12:26 Speaker 04 Actually, my first offer into venture came from Ann Winblad and I, I, I was so eager to get into venture. When the offer came at Hummer Winblad, I said, yes. And, um, I didn't know what I didn't know. I got involved in the organization. It was structured like a very traditional firm where the founders made more equity than And the young people and and there was also a bit of a power differential where you know, the person that got to dictate how things went were the the elder statesman.
12:56 Barry Ritholtz? Old school lawyer account.
12:58 Speaker 04 They're all set up that way, yeah. And the benchmark guys had lived within those frameworks and had decided to do something crazy, which was to create an equal partnership where everyone makes the exact same amount of money and everyone has the exact same power within the organization for decision making and there's no leader. And I can't tell you like what it's like to have someone from an organization like that reach out to a young person and say, come on and be a part of this versus the traditional one.
13:32 Barry Ritholtz? Be be a partner, although I would imagine the whole eat what you kill ethos could be a little intimidating.
13:39 Speaker 04 Well, but but but here's the thing, I think at those hierarchical firms, there's an upper out mentality. So the the people at the bottom live in constant fear of what you're talking about and they also get sharp elbows to the side. At Benchmark, these founders were going to split equally whatever I did. And so what I found was the cultural zeitgeist that came out of that structure is one of immense help and support. And so I immediately had four mentors who had been doing this a lot longer than I did, who were in my corner every single day. And then and then I got to live through bringing other people in. It's a wonderful recruiting tool to tell someone you're going to be equal, but then you win when they win.
14:24 Speaker 04 And, you know, those original Benchmark founders who did very well with their eBay and Arriba investment in Fund One, they all participated in the Uber investment that I brought in the table. And today, you know, Eric Visery has got cerebrus and I'm going to benefit from that. And it's it's a it is a culture that I think is really great for generational change. And when I talk to LPs about what I mean, the LP doesn't have much they can control, right? They're trying to decide. And the window for how successful a fund is moving from seven years to 15, like you're getting past, I mean, like the time you're going to
15:08 Speaker 04 turn around and analyze whether investors any good or not, you're going to be retired. And so what you can study is do you think the organization has elements that will cause it to be able to succeed with generational change? And I think one of the proudest things of just me serving as part of it is that we were able to move from a place where the founders were the ones behind all the winners to where the next generation was.
15:36 Barry Ritholtz? So when you joined Benchmark, I think you were relatively, I don't want to say a unicorn, but there weren't a whole lot of public market research folks in the VC world then. Now it seems that it's a little more common. But were you a little bit of a one-off when you joined?
15:57 Speaker 04 I know a piece of history that's probably not well-known, but Ben Rosen of Seven Rosen, who's not a brand you hear much of anymore, and we're involved in Compact, he was actually the chairman of Compact. He was a semiconductor analyst in the 70s. So he was the first one. And then, yeah, and then after me, and it was kind of at the same time, Danny Reimer was a sell-side analyst, Mary Meeker was a sell-side analyst. So the weird thing about venture is, if you polled people on their background prior to venture, there's real diversity. There's like a whole bunch of different pathways. Mike Moritz was a writer.
16:40 Barry Ritholtz? That's right. I recall that.
16:42 Speaker 04 There's a handful of us that came that path.
16:44 Barry Ritholtz? Huh, really interesting. Coming up, we continue our conversation with Benchmark's Bill Gurley, discussing his new book, Runnin Down a Dream: How to Thrive in a Career You Actually Love. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.
17:11 Speaker 00 At Brookfield, we believe you can own wealth that's measured in generations. Because true ownership looks beyond today and beyond cycles. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future. Providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Past performance is not indicative nor a guarantee of future results. Please review performance and offering materials before investing.
17:49 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.
18:33 Speaker 01 But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
19:17 Barry Ritholtz? I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Bill Gurley of Benchmark Capital. He has a new book, Running Down a Dream: How to Thrive in a Career You Actually Love. I love the Tom Petty title. What led you to start with that?
19:36 Speaker 04 I put together, back when I was super active writing blog posts, I would keep these notes in digital form, but I would start, I'd probably start three or four times as many blog posts as I finished. And so if an idea popped in my head, I'd just write notes down and see if I went back to it.
19:58 Barry Ritholtz? And that was a note?
20:00 Speaker 04 Yeah, I had read these three biographies of people that were from very different fields that all started on the bottom rung and became remarkably successful in their field. And I noticed a through line between them and I just wrote it down. The same way I would figure out how an internet marketplace company might thrive, like, oh, do this, this, and this. And I got invited one day back to my alma mater to do a speech at Texas Business School, and I asked if I could do this one. And so then I developed it a little more and I put it out there. They put it on YouTube and a few people noticed. And one of those was James Clear, who wrote Atomic Habits.
20:40 Barry Ritholtz? Sure.
20:41 Speaker 04 And I don't, I want to make this sound too mushy, but like, at some point, I decided that it was time to declare victory and hang up my boots in venture. And it was a decision, it wasn't like the other decisions. I spent 25 years in venture capital. I loved every minute of it. It was my dream job. But I wanted to start doing other things. And there's a great book by Arthur Brooks, Strength to Strength, that talks about people that reach that stage in life, and it really spoke to me. And I decided to push this book out. And two people had really gotten behind me and pushed me to do that. One of them was Tony Fadell, who in
21:24 Speaker 04 Invented the iPod and was head of engineering on the iPhone.
21:27 Barry Ritholtz? I knew I recognized that name.
21:28 Speaker 04 He has a book called Build. He also started Nest.
21:31 Barry Ritholtz? Yes.
21:32 Speaker 04 He told me that it was the best thing he'd ever done. And that's kind of hard to believe. And then I was talking to Danny Meyer last night. Uh, the famous New York restaurateur and founder of Shake Shack. And he said the same thing. He said, he said the book setting the table was more rewarding for him than anything he had done. And I asked him, why is that? And he told a story. This is a very long answer. I'm sorry. He told a story about being in Africa at a hotel. And one, one of the local workers in this restaurant we're in, he was in. Told him, look at how I'm doing the eggs. And it was a technique out of his book, Setting the Table.
22:11 Barry Ritholtz? Oh, really?
22:11 Speaker 04 And the reach, his argument was the reach that he could get in sharing what he knew via a book. You know, was exponential compared to what he could do just opening another restaurant. And that was powerful. Anyway, once again, it sounds maybe a little too, too mushy or sappy.
22:29 Barry Ritholtz? Not, not at all.
22:29 Speaker 04 But if I'd have written a book about being a VC or an investor, there's only a handful of people it might have touched. And I felt very compelled to share this because I thought it could have a bigger, much bigger reach. Because it's not just about a career. It could be applied to a career in investing, but it's a, it's a much broader book about doing what you love.
22:51 Barry Ritholtz? So, so let's talk about some of the items from the book. Starting with, there's a stat, I think it's in the, the introduction. It's not even in the first chapter. Six in 10 people say they'd do something differently if they could start over. That's a horrifying statistic.
23:08 Speaker 04 Well, we were studying this Gallup poll that said like 53% of people were, are quiet quitting at work. They're not engaged or don't consider themselves engaged at work. And I think other people have echoed those types of thoughts. And, um, we, we, on a whim, we, I was working with a co-writer and researcher. We did a, a Survey Monkey survey and asked this question, if you could start over again, would you do something different? That one came. About seven in 10. We hired, we hired Wharton to do an official academic review and that one came out six in 10. There's a book by Daniel Pink about regrets called The Power of Regrets. And he says that the regrets of inaction, the stone unturned, the path
23:51 Speaker 04 not taken weigh in our brain. We ruminate far more on those than regrets of action. So, we, we let ourselves off the hook for making mistakes. We're pretty good at getting past them and moving on. But the thing we never tried, it really eats at us.
24:06 Barry Ritholtz? I forget the name of the book. They interviewed a bunch of 90-year-old people talking about their life regrets, and it's never the commissions or errors. It's always the things they never did. Cause in your mind, you imagine an entire different pathway. And, and that's the, that's the regret.
24:26 Speaker 04 And one, one of the catchphrases we use in the book, which came from my partner Kevin Harvey is, "Life is a use it or lose it proposition."
24:33 Barry Ritholtz? For sure. Absolutely for sure. So, the idea of career regret, you lay out a variety of principles to avoid it, starting with obsessive curiosity. Dive into that. Tell us about obsessive curiosity.
24:49 Speaker 04 All of the people that we studied and, and what, we expanded it from the, the presentation I gave at the school and, and probably read 100 biographies, but, but every single one of these people are obsessive learners in their field. And, and you, you and I are both, I already mentioned, but you and I are both, uh, both friends and a fan of Michael Mobison. And, and I don't think there's a human that reads more books on finance than Mike.
25:15 Barry Ritholtz? It, it's a race between him and Lauren Buffett.
25:18 Speaker 04 Yes. And, and he fully synthesizes them. You know, one cheat code, if you want to chase a dream job in investing is you could just start by reading Michael's books because he's read all the other books. And it'd be a great place to start.
25:33 Barry Ritholtz? But I, I literally have a couple of chapters in here based on his work.
25:38 Speaker 04 Yes.
25:38 Barry Ritholtz? That, that, cause it's, he's just so seminal in, in so many ways.
25:42 Speaker 04 And, and, and, and in the Book, you'll, you'll see examples of, of Danny Meyer, the restaurateur, Bob, Bob Dylan, you know, the folk singer, there, there's this part we uncovered, you know, most, I, I'm, I'm sorry that the, the new movie missed this, but you, you get more of it if you go back to the Scorsese documentary.
26:01 Barry Ritholtz? Um.
26:02 Speaker 04 Some people called him a music expeditionary. So he studied music at a level, no one would know this, like if they just listened to Dylan, but he is obsessive about learning about the art. And the, early on, they called him a mimic because he, he was able to, to kind of parrot e- every other artist that he studied. And even today, you know, he did a podcast for a while where he went through like histories of music, his, his, his newer book goes through 50 songs that he thinks changed the world. Like this, this, this study element, um, is just inherent in so many of these people. And what I love about, first of all, I think it, it is a defining factor of success.
26:47 Speaker 04 Are you, does, does continuous learning in your field come easy to you? And it's a great test of whether you're pointing in the right direction or not, because if it feels grindy to do that, that you're not in the right place. You need to try some other thing.
27:03 Barry Ritholtz? You're gonna laugh, I, I, every morning I take a quick look at a bunch of headlines and run through, and I saw something this morning that said, there's a high correlation between people who read books and longevity. So all these, uh, folks chasing down, you know, blood treatments and all these longevity things, it turns out, just read a couple of books a month, you'll extend your lifespan.
27:27 Speaker 04 How about that?
27:28 Barry Ritholtz? Yeah, really, really interesting. So you, you mentioned Danny Meyer, you mentioned Bob Dylan, I, uh, Sam Hinky, the coach is another one. What, when I first got the book, I'm always a little nervous when I get a book and I'm like, oh, this is gonna be preachy and tedious, but it wasn't. It's interesting and narrative driven. What led you to the storytelling format of all these people's life experiences as opposed to the more traditional?
27:57 Speaker 04 Your listeners can't tell because we're not on video, but I'm smiling, grinning ear to ear, and I'm so glad you noticed that.
28:03 Barry Ritholtz? Oh, very, it's, it leaps off the page.
28:05 Speaker 04 So there was, there was, um, quite a bit of intention in that, so, um.
28:12 Speaker 04 Just as when I was, when I was a computer scientist, I was at home trading stocks as a, as an investor, I developed on the side somehow, I guess through this act of reading, just a super appreciation for really well-written nonfiction. And there's actually,
28:29 Barry Ritholtz? Back of the book, you have chapters on it, on all your favorite books.
28:33 Speaker 04 There's a, there's a book called The New Journalism and a follow-up called The New New Journalism. And the, Tom Wolfe put together the first one. The, the second one is writers, people would know more today, um, that studied the craft of great nonfiction writing. Like, that's what that book's about. And it covers Lewis and Krakauer and Gladwell and all the books that have done extremely well. And there is a through line in there that storytelling is something that people really love to read. Morgan Housel was on this podcast called Why We Write, and he went on and on about that technique. And I had discovered it as well. And so, my co-writer actually, um, does most of his work for The Atlantic.
29:18 Speaker 04 And so, every, the book's divided into two, two halves. There's, there's a profiles and there's principles. And if you look at the table of contents, we all, we interleave them, which was a, uh, technique I, I borrowed actually from Michael Dell's book, uh, where he interleaved two stories in the same book. Um, and the idea, there was, there was two things behind that. One, I thought the book would be more readable if, if it did that. A lot of the books that are the cornerstones of the career category, like, uh, Designing Your Life and What Colors Your Parachute are structured more like a textbook.
29:56 Barry Ritholtz? Right.
29:56 Speaker 04 And I, I just felt that the, if it were more readable, it would be more approachable and more consumable for more people. And then I also, and this goes back to what Morgan Housel was pushing, reading the stories is, is, I think, puts it in your memory a little bit better than just reading a principle alone.
30:15 Barry Ritholtz? Oh, we are geared to remember narratives as opposed to data or,
30:20 Speaker 04 Right.
30:20 Barry Ritholtz? you know, dry, uh, principles. And, you know,
30:23 Speaker 04 Yeah.
30:24 Barry Ritholtz? the intentionality behind telling stories.
30:28 Barry Ritholtz? Makes it very readable as opposed to, let's be honest, you know, what color is your parachute? It's been in print for, I don't know.
30:35 Speaker 04 Fifty-seven years.
30:36 Barry Ritholtz? Yeah, forever.
30:37 Speaker 04 Still in the top ten in the category.
30:39 Barry Ritholtz? But it's kind of a slog to ply through. It's like reading a textbook.
30:43 Speaker 04 Yes.
30:43 Barry Ritholtz? And when is the test? So, so I have a couple more questions about the book I got to, uh, to, to, to bring up. The book seems to be very much a bit of a pushback to modern hustle culture. Was that on purpose? Or was it really, hey, you know, it's not a grind if you're really enjoying it, and you should listen to your own body's signals that, I'm really hating this, but I'm grinding it out.
31:12 Speaker 04 One, one, um, fortunate thing in putting this book together is, and, and I think this is really just easier in the modern world. We were able to connect with some, like, true amazing leaders in this field. So, we ended up talking to Adam Grant, and Daniel Pink, and Angela Duckworth, and, and people that have really made it a name for themselves in this field. We stumbled across a podcast Angela Duckworth had done recently where she was looking back ten years after on Grit, the book. And the original thesis of grit was you need passion and perseverance. And she said if she were going to rewrite it,
31:53 Speaker 04 she would maybe instead of fifty-fifty, say two-thirds, one-third passion. And her fear was that we've taught young adults how to grind. Like, we've, and, and, and I feel that the evolution of the college matriculation conveyor belt has been negative. I feel like it's, it's become an arms race that, to get these kids into the hardest schools. The schools aren't expanding capacity, so they just keep getting harder and harder to get into. And the kids get taught to fill their schedule with, with, with programming so that that resume can be perfect. And they're not given the time to really explore and
32:35 Speaker 04 find. And many people don't really know what their dream job is, and some of them might not find it till they're thirty or forty, and that's okay, too. But we've pushed and pushed and pushed, and many of them. Have risen to the occasion of doing all that work, but they graduate from college exhausted.
32:54 Barry Ritholtz? You describe this whole section, step off the conveyor belt. I was just watching something about Norway is this tiny little country, yet it dominates the Winter Olympics despite lots of other cold weather countries. And their secret is all these kids are encouraged to join sports as kids. But unlike here, there's no, there's no trophies, there's no competition. It's do what you want, do for as long as you want, as long as it's interesting. And every one of their medalists say, yeah, I, I was a slalom skier till I was 14 and then I switched to whatever, but I had the background and it was, it was great.
33:37 Barry Ritholtz? There was no pressure, you could do what you want. It turns out letting kids play is a great strategy.
33:43 Speaker 04 And I'm not the first one to like, make that point. And there's a chapter in Coddling of the American Mind titled, The Decline of Play. And I do wonder if it's harder to find your obsession and find this thing that you're totally fascinated with, if you're stuck in this, this game that not one of your own making.
34:05 Barry Ritholtz? And you know, it's funny, the phone, which is always within reach, means that you're never bored, but boredom is what leads to creative output. And I'm wondering what this generation is going to look like down the road.
34:18 Speaker 04 Well, hopefully some of them will be able to get a hold of this book and find their way to a better place.
34:25 Barry Ritholtz? Coming up, we continue our conversation with Benchmark's Bill Gurley, talking about the state of venture capital today. I'm Barry Ritholtz, you're listening to Masters in Business.
34:50 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
35:31 Speaker 01 and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
36:16 Barry Ritholtz? I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Bill Gurley. His new book, Running Down a Dream: How to Thrive in a Career You Actually Love, is out today. He's also a member of Benchmark Capital, a legendary venture firm. Let's talk a little bit about some of my favorite. Benchmark investments that I seem to use constantly. I think it's ironic, we're recording this the day after this giant blizzard hit New York. The trains aren't running, the buses aren't running. I took an Uber here. So, kind of full circle, you're the guy who
36:57 Barry Ritholtz? brought Uber to the public attention, funded it, and walked it through the IBO. Zillow, I use all the time. OpenTable, I have to use a few times a week. Tell us about these giant consumer-facing companies that became wildly successful.
37:17 Speaker 04 So, I stumbled upon, and this actually will involve Mike Mobison again. Him and I were working together in the research department at CSFB, and we became enamored, we became book shares. And that's been true for 30 years. But we became enamored with this book, Complexity by Mitchell Waldrop, about the rise of the Santa Fe Institute.
37:41 Barry Ritholtz? Uh huh, which I know he's involved in.
37:42 Speaker 04 Yeah, I am as well. So, we're both on the board. And Bill Miller of Legg Mason's a long-time involvement. Carl Kawaja from Capital Group just joined the board. So, there's a handful of investors that get a lot out of it. But the original book highlighted this guy named Brian Arthur. And Brian had done work on what he called increasing returns. And they published one of his pieces in Harvard Business Review. It was ironically co-written by Cormac McCarthy, but no one knew it at the time. And that's come out since then.
38:21 Speaker 04 Anyway, increasing returns was this argument that if you have the right pieces in place, your company will accelerate towards winner-take-all. And
38:34 Speaker 04 When I read that and I started looking at what was capable with the internet and possible, this notion really was prominent in my mind. And I can remember, I think the first one of those that we invested in was OpenTable. And I remember my partners pushing back and saying, selling computer hardware to a restaurant is a crappy business. And, you know, SMBs, how will you ever scale it? And the idea was, well, if you got more, if you got all the restaurants on, the consumers would only want to go there. And if you got all the consumers on, the restaurants would feel obligated to be in that place. So, you know, there's no reason to have multiple
39:17 Speaker 04 of these things. And that was the thesis when we made the original bet. It wasn't straight up. We lived through the dot com burst and had to grow after that. But it did play out that way. And the network effects were present. And then from there, I started thinking about what other industries would that apply to. And that's what led to all these other things.
39:39 Barry Ritholtz? So, OpenTable leads to Uber leads to Zillow? Is that the progression?
39:43 Speaker 04 Yes, absolutely.
39:44 Barry Ritholtz? Huh. Because, because, you know, it's hard to argue that those three are pretty indispensable.
39:49 Speaker 04 Yeah.
39:50 Barry Ritholtz? What about others that stand out? Nextdoor, Grubhub? What else is in that group?
39:55 Speaker 04 Um, yeah, and Stitch Fix, you know, did really well. I, um, and then, you know, also the firm, you know, while I was there, invested in Twitter and Snapchat and so many different companies that in the, in the social space, Instagram. I don't know how we did them all.
40:17 Barry Ritholtz? Well, you didn't do them all. You have, first of all, VCs in general do something that I'm very much enthralled with. They're kind of proud of their failures.
40:27 Speaker 04 Yes.
40:28 Barry Ritholtz? Which the rest of finance is sort of terrified of. The idea that, hey, we invested in this, it went to zero. We skipped this, we missed this. A lot of VCs on their websites have, hey, here's what we blew. Here's what didn't work out. And you very famously missed Google.
40:45 Speaker 04 Yes.
40:46 Barry Ritholtz? What were the lessons from that experience?
40:49 Speaker 04 The, I think the biggest takeaway which leads to what you just described Barry is that when you miss a big winner, it's, it's very asymmetric to the, the, the counterfactual, right? If we invest $12 million and it goes to zero, you lose one time your money. If you fail to invest $12 million in Google, you miss out on
41:13 Barry Ritholtz? A thousand X.
41:14 Speaker 04 A thousand X. And so, um, over the years at Benchmark, I would tell you that I don't recall very many discussions at all about, oh, that one went to zero, you're, you know, let's study why that happened. You orient, my, my partner Bruce came up with this phrase, what could go right? You orient yourself towards the failure being missing out on a huge winner. And so, we changed how we, how, the kind of things that we studied as failure that you want to correct.
41:48 Barry Ritholtz? How different is that, an experience and a process from making investments in existing legacy public companies?
41:56 Speaker 04 Well, I don't think you have the potential for the thousand X as often. And so, you're not gonna, and the thousand X can, can, uh, can make up for, you know, eight losses that you never heard of. And so, it just forces you, if you're in that big game hunting mindset, to really, really focus on, could this work? As opposed to, could it fail? And only be obsessed about that part.
42:24 Barry Ritholtz? You, you mentioned it makes
42:26 Speaker 04 And I think it's different. I think, could, and, cause we are oriented to absorb failure at a level that you can't do in the public market.
42:35 Barry Ritholtz? So you mentioned it's one in 10. Is, is it that much? Or is it closer to one or two in a hundred?
42:41 Speaker 04 I mean, for the, for the big, big outliers, of course, it's what you're saying, but, but one in a hundred could return the fund.
42:50 Barry Ritholtz? Uh huh.
42:50 Speaker 04 You know, but you gotta find that one. I mean, think about that. That's a really weird dynamic to be out there doing.
42:58 Barry Ritholtz? So, so I'm legally obligated to ask you about AI and artificial intelligence. How do you look at this sector? What do you think is gonna happen?
43:07 Speaker 04 One last thing before you go to AI. I think that the venture industry is constantly evolving and today's venture industry looks nothing like what I practice, which looks nothing like what the, the generation before me saw. There, it's gotten in way more competitive and the best investors have become aware of power laws where these big winners go on forever and they become these, these trillion dollar companies. And as a result, they're very comfortable now betting it forward. And so we have, you know, firms like Thrive and COTU and Altimeter are willing to put big, big checks into private companies in
43:51 Speaker 04 a way they never would have in the past, making the bet that that compounding law's gonna keep playing out. So everything's changed.
43:59 Barry Ritholtz? So that raises a really interesting issue. Benchmark has stayed kinda small, early nimble, while a lot of other VCs really beefed up. What, what is it about avoiding becoming a mega fund, chasing late-stage growth that was so appealing to you guys?
44:19 Speaker 04 So, so one, I, I do think we've, we've reached the point of kind of the industrialization of the venture capital world and these funds are, and these assets under management are starting to parallel, uh, large PE firms. And I think, one, um, it's very hard to stay focused on the artisan craft of identifying early opportunities if you're running this thing that has to look after. It's hard to, it's hard to get excited about a $7 million investment if you're managing billions in writing. 500 million dollar checks and in your earning, by the way, a management fee and a venture carry on the 500, why would you like, you just get oriented differently.
45:02 Speaker 04 And, and second, I think it'll be very difficult for those firms that get that big to have IRR that that is anything other than than industry at best.
45:13 Barry Ritholtz? So you've been pretty loud about valuation discipline and and the risk of having a high burn rate, is that a function of looking at earlier stage companies or is it just simply an analyst's discipline of of looking at companies?
45:30 Speaker 04 I think it's the latter. I think it's reading all those books, like studying Buffett, Graham and Dodd, like, like I brought to the venture capital industry, a study of investing history that most VCs never have. And I think it was differentiating for me. Some people call me like the VC cynic, but that's okay.
45:53 Barry Ritholtz? So, so you're, I would think, I think of you as an elder statesman in the VC community, but you're hinting at something I'm going to ask explicitly, what rules have too many venture capitalists not learned that you think would behoove them and their firm to go back to some basics and, and, you know, focus in on that'll help both their returns, their LPs and, and their funded companies?
46:20 Speaker 04 The thing I would say to answer that, Barry, is that the, it's always going to, Howard Marks wrote this great piece a long time ago, who highlighted that the way you make really good money is to have contrarian non-consensus like
46:37 Barry Ritholtz? That's right.
46:38 Speaker 04 predictions that are right versus wrong. And right now, and AI, you know, these big waves create so much wealth that I think for a moment when the waves happen, you have to move past that and, and realize that the wave could be so big that you can just plow in, but eventually Howard's going to be right. And eventually, the market Is gonna become oversaturated. There's this great book by Carlotta Perez where she said that bubbles always follow real waves because you attract speculators and charlatans and all that. And people would want you to say if you're, if you're, if you use the word bubble,
47:20 Speaker 04 you don't believe in AI, but it's the opposite. I believe that it's real and that's why it's attracting the charlatans and eventually we'll go over the top. We always do.
47:29 Barry Ritholtz? Every new technology comes with this void of people that are deeply enmeshed in it, knowledgeable and articulate. And so there's just a rush to fill that space.
47:44 Speaker 04 They get rich quick. And when people are getting rich quick, fools rush in.
47:48 Barry Ritholtz? I love the Bill Bernstein quote, we use the word guru because it's too difficult to spell charlatan. And it's really very much true. So let's stick with the concept of variant perspective, another phrase I really like, and part of the job of being both contrarian and right. What do you think is a non-consensus view you're willing to articulate today? That's going to look obvious 10 years from now, but right now, very non-consensus.
48:19 Speaker 04 Um, I would, the thing that pops in my head, just because people have been talking about it the past few days, I think this, um, this paper that came out yesterday is just completely over the top. And the notion that every tech company in the world needs to have their terminal value set to zero is probably not true.
48:39 Barry Ritholtz? I love the barbell. Either AI is a bubble that is not going to do anything for us, or it's going to be so effective, everybody's going to lose their job. Isn't there anything in the middle? Hey, maybe this is a useful technology.
48:53 Speaker 04 Buffett's the one that said, be fearful when others are greedy and greedy when others are fearful. So if, if AI fear is the topic of the day, the contrarian thing to do would be to try and figure out where, what price points you believe represent true value. And I'm not, I'm not saying we're there yet. But, but hey, we stocks since the ZIRP period, high tech stocks have been rather expensive from a PE standpoint for what seven years now? They're on sale all of a sudden Buffett says you want to be a net buyer. So they should, we should all be excited.
49:28 Barry Ritholtz? You know, people don't, I heard last year that, that the magnificent seven, all this market concentration is going to kill us. And yet last year, only two of the seven beat the S and P 500. So this sale process started a year ago. And then so far this year, it's pretty clear. The rally is broadening out. It's going to other stocks. We continue to see sort of a rotating sell off as these AI fears hit different companies. It's going to be really interesting to see what's going to get cheap and attractive and fear driven going forward.
50:03 Speaker 04 Yes, I agree. That's where you should be looking.
50:05 Barry Ritholtz? Before I get to my favorite questions, I have one other sort of non consensus question to ask you. What do you think people are either not talking about or thinking about that they really should be? What, what topic is getting overlooked, but should really be much more front and center than it is?
50:25 Speaker 04 Everything but AI. I mean, I've never been in a scenario where everyone's so all in on this one thing. And it is important, I think the best way to protect yourself against AI disruption is to run at it and, and be the person in your field that knows the most about it. But boy, everything else is just not being discussed. Everything.
50:50 Barry Ritholtz? So, so let's jump to our speed round, our favorite questions.
50:53 Speaker 04 Let's do it.
50:54 Barry Ritholtz? We'll plow through this. Tell us about your early mentors who helped shape your career.
50:58 Speaker 04 Well, I already mentioned Mobison. It was kind of more of a peer, but still I was so lucky. Al Jackson gave me that first job on Wall Street. When I showed up there, there was a gentleman named Charlie Wolfe. I don't know if you ever met him.
51:13 Barry Ritholtz? Of course, Charlie Wolfe was one of the few guys bullish on Apple. When the first IMAX came out and the iPod and the street did not understand Apple and he's the only guy who did.
51:25 Speaker 04 And, and Charlie was a force of nature. People loved him. He was a professor, simultaneous professor at Columbia and sell side analyst on the street.
51:33 Barry Ritholtz? Great.
51:34 Speaker 04 And I got to hang out with him.
51:35 Barry Ritholtz? That's a name I haven't heard in a while. I love his work. Yeah, unfortunately. Um, you mentioned a lot of books. There's a whole chapter at the back about various books you and other people recommend.
51:44 Speaker 04 Yeah.
51:45 Barry Ritholtz? What are you reading currently? What's interesting?
51:47 Speaker 04 I'm reading a unreleased, I have an early unreleased copy of, of David Epstein's new book called Inside the Box.
51:54 Barry Ritholtz? He did range, right?
51:55 Speaker 04 He did range, which I adored. I adored range. And, uh, um, anyway, Inside the Box, where he's talking about how constraints drive creativity. And it's really been, what I love is when a book makes me think differently and about other things. And I've already, he and I have already started to have a text thread about taking it even further beyond what his intention was, which is awesome.
52:17 Barry Ritholtz? That description immediately makes me think of the scene from North by Northwest. I don't know if he mentions this in the book, having not seen it.
52:27 Speaker 04 Yeah.
52:27 Barry Ritholtz? The, the Hollywood MPAA code did not allow, uh, movies to show a man and a woman getting into bed. So it's, um, Cary Grant, and I forgot which leading lady is the woman, and they're on a train, and they're not allowed to both be seen in bed and then cut to the image of the long train driving into a tunnel, all the subtlety of a sledgehammer, that was fine, but the two of them sitting on,
52:57 Speaker 04 Yeah.
52:58 Barry Ritholtz? that's the constraint that forced Hitchcock to say, oh, you're not going to let me do this? Hold my beer.
53:03 Speaker 04 And I had mentioned earlier, Tony Fadell, he would tell me that Steve Jobs for the iPhone, he didn't come in and dictate every little thing, but he would say, I want it this thin. And by just saying that, rather than how thin can you make it?
53:16 Barry Ritholtz? Right.
53:16 Speaker 04 It forces people to think creatively about, and you, you come up, you come up with more ideation and innovation than without the constraint.
53:25 Barry Ritholtz? Huh, really, really interesting. Uh, what are you streaming these days? What, what's keeping you entertained?
53:29 Speaker 04 I just watched Pluribus and I,
53:32 Barry Ritholtz? My wife just started it without me and I'm annoyed. How'd you like it?
53:35 Speaker 04 I loved it. Actually, I really did.
53:36 Barry Ritholtz? That's on the queue.
53:38 Speaker 04 She, she, um, was so good on Better Call Saul, and, uh, but this is her shining. She already won the Emmy for it. But, uh, but the, the implic-, there's some implications from AI or for AI that are really clever.
53:52 Barry Ritholtz? Well, it's definitely on my list to check out. So, so my next two questions are kind of answered in the book. So that I ask everybody, so essentially it'll be a summation.
54:05 Barry Ritholtz? What sort of advice would you give to a recent college grad interested in the career in either venture capital or finance?
54:12 Speaker 04 Well, in finance, this is going to be so redundant, I apologize. I would tell him to go read Michael Mobison's five books because Mike has read every single, Mike's the most read financial mind that I know of, and he synthesized everything he read in those books. And so it would be like starting on first base, I mean, on second base. I talk about in the book that you should study the history of your field. And if studying the history of your field's uninteresting, once again, I think you're not in the right place.
54:48 Barry Ritholtz? Wrong field, right.
54:49 Speaker 04 And so that would be it. Like, start with the Masters, Graham and Dodd, and read the Buffett letters. Like, it's all out there. It's so wonderful. There's never been a better time to learn in the history of the world because it's all available.
55:03 Barry Ritholtz? I'm so surprised more people don't talk about the success equation because the idea of the impact of luck, and he talks about investing, business, and sports, we underestimate luck tremendously, and it's such a great book.
55:19 Speaker 04 But you can, but you can improve your luck. And we have a-
55:23 Barry Ritholtz? Increase the surface area of luck is the phrase that always sticks out.
55:27 Speaker 04 And there's a, there's a principle in the book called go to the epicenter where we recommend if you can at all, go practice where everyone else is practicing precisely to impact that equation.
55:40 Barry Ritholtz? And our final question, what do you know about the world of venture investing today? Might have been useful 25 years ago when you were first starting.
55:48 Speaker 04 It probably goes into the thing we already drilled into. Like, had I, had I been more open-minded to the question, what could go right, and pursued the Google investment, maybe I retire earlier, maybe we're not talking about the book.
56:02 Barry Ritholtz? I have a feeling you would not have retired earlier. You would have kept going because you seemed to really love what you did.
56:08 Speaker 04 I did, no doubt.
56:09 Barry Ritholtz? So, Bill, thank you so much for doing this.
56:13 Speaker 04 Can I leave you one last?
56:14 Barry Ritholtz? Yeah, absolutely.
56:15 Speaker 04 The book was written for the hero that would make this journey. But there are people in every hero's lives that act as advisors and counselors. There's parents and there's a whole bunch of people that shape your career process. I think they're going to get a lot out of this book, even though it's not written to them, because I think there's this overwhelming, well-intentioned instinct to put the economic stability of a child's life at the front.
56:48 Barry Ritholtz? Sure.
56:48 Speaker 04 And I'm not sure it's the right answer.
56:51 Barry Ritholtz? Coming up, we continue our conversation with benchmarks Bill Gurley. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.
57:12 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
57:54 Speaker 01 and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
58:38 Barry Ritholtz? I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Bill Gurley of Benchmark Capital. So Benchmark has really put together an extraordinary track record. Uber, OpenTable, Zillow, Stitch Fix, eBay. Go down the list. What is it about Benchmark's model that was so unique and really produced better outcomes than so many VCs have over the years?
59:04 Speaker 04 Yeah, I really, and I have to give the credit to the founders because they're the ones that put this structure together. But this equal partnership structure has a cultural dynamic that encourages immense amount of support from the partnership without, I certainly didn't have a fear of failure or anything like that. And also, a element of peer pressure. So the pressure's not a pressure of do this or you're out. It's a pressure of my partner's putting up these wins and I'm sharing equally. I need to do that myself.
59:46 Speaker 04 And so it's more the way maybe someone on a sports team might do well and encourage other people on the team to do well as well. And for me, and I won't say that this is necessarily true for everybody else, for me, that culture was a perfect fit. I enjoy having the camaraderie and the support of other people. I don't, I wouldn't enjoy being a solo GP and making decisions on my own. There's some great work that's been done on group dynamics and group analysis. And one of the really clever things is the group tends to know the weaknesses of the individual better than the individual themselves.
1:00:27 Speaker 04 And if you're aware of that, you can use that to help, help your group decision making. So I just adored every bit of it. I love that they're, the firm is tilted towards thinking about the work as a crafter and artisan. And I find that to be true of almost everyone I profile in the book. If you care about nuance and detail, it's typically because you're treating the art of what you do in a craft-like fashion.
1:00:59 Barry Ritholtz? Really, really interesting.
1:01:01 Speaker 04 And yeah, and I think that that's what Benchmark does.
1:01:06 Barry Ritholtz? Venture capital as a team sport, do you, do you want to draw any parallels to playing ball? Anything that comes into that?
1:01:14 Speaker 04 Well, I, I just, I mean, I, I think it could go beyond, you know, playing ball, but do you create a, a team culture that, that where greatness is going to be expected in an output and?
1:01:26 Barry Ritholtz? I bring that up because you mentioned, uh, Sam Hinkie in the book.
1:01:30 Speaker 04 Yeah.
1:01:30 Barry Ritholtz? I, I think that's the best coaches try and foster that it's not just about your individual performance.
1:01:39 Speaker 04 Yeah. And, and it's hard, but in, in people, um, I think should be more fascinated with what Bezos did at Amazon and Elon has done across multiple companies because the individual, everyone knows that Bezos and Elon are innovative and independent thinkers and contrarians. But how do they scale a company to hundreds of thousands of people? How do you take that mindset and put systems in place where it's propagated all the way down? And I don't think enough work is going into figuring out what they do. I'll give you another interesting example.
1:02:20 Barry Ritholtz? Sure.
1:02:20 Speaker 04 Satya Nadella probably led the, the, either the first, you know, probably from a market cap creation standpoint, the best turnaround of all time.
1:02:29 Barry Ritholtz? No doubt about that. Absolutely true. I, I mean, maybe Steve Jobs 20 years earlier.
1:02:35 Speaker 04 Yeah. Yeah. Okay. Those two, but, but they ask, that one almost went down to the, to the, to the, to the studs, if you will, on the remodel.
1:02:44 Barry Ritholtz? If Gates didn't save Apple, that would, it would have been it. They would have been done.
1:02:49 Speaker 04 So Steve was starting with more bare metal. Satya had to turn this bigger ship.
1:02:53 Barry Ritholtz? Yes.
1:02:54 Speaker 04 And he claims what he did is he told everyone we're going to go from being a know it all, um, to a, to a learn it all culture. And man, if, if, if that one heuristic is what was the key to this, like kudos to him. I mean, and, and what, what, what a miraculously simple insight. And, and then, you know, kudos to him on making it effective, like, like pushing it through the organ. I bet they had to push a lot of people out too.
1:03:23 Barry Ritholtz? Well, if you look at the culture between him and Bill Gates, the gap. Ballmer, very different personality, very different approach.
1:03:33 Speaker 04 Yeah.
1:03:34 Barry Ritholtz? You can make the case that Nadella was the anti-Ballmer and, you know, during Steve's reign, it wasn't great returns, although a lot of people didn't have great returns in the 2000s. So it's a little bit of both. I have another question. I kind of suspect I know the answer.
1:03:54 Speaker 04 Okay.
1:03:54 Barry Ritholtz? So you've spent decades not only picking business models, but founders, boards, addressable markets. What's the single hardest question you wrestle with, aside from what could go right?
1:04:10 Speaker 04 I'd say the thing that pops in my mind, Barry, is this notion of TAM, total addressable market. And I think the investor community gets really stuck on that one and are not open-minded enough about what's possible, especially if the technology becomes disruptive. There's a famous interplay between me and this professor at NYU around Uber. He published this piece that said Uber would never be worth more than $4 billion. And I wrote one of my favorite blog posts ever titled "How to Miss by a Mile," where I took apart his
1:04:49 Speaker 04 analysis and tried to... Well, I had an unfair advantage. He said that the market Uber was attacking was the taxi market, and he used that as the thesis for his analysis. I already knew in San Francisco that Uber was 20x bigger than the taxi market. He didn't know that. So, once you have that piece of knowledge, it's kind of an unfair game. But it gets at, like, the product became so much better than what the taxi market offered you, and it immediately became, you know, and I think in the long run will be a replacement for car ownership, which could allow for many, many years of growth.
1:05:34 Barry Ritholtz? Especially if self-driving taxis become a thing.
1:05:38 Barry Ritholtz? But by the way, huge disadvantage analyzing Uber in New York City in the early 2010s because it was monopoly.
1:05:46 Speaker 04 Well, no, not only that, in the, in the, in the report of his, which a summary version got public, but I found the background version, he admits that he had never ridden Uber and only taken taxis. So I think being in New York gave you the exact wrong mindset.
1:06:02 Barry Ritholtz? The first time you get into an Uber, you're like, damn it, I wish I was an early investor. I remember, I remember being a beta tester of Google and sending an email and saying, hey, can I invest in this company? They're like, we are good. And then the first time I got into an Uber, it's like, oh, this makes perfect sense. On your phone, it's mobile, it knows where you are, it knows where, it was so obvious after the fact.
1:06:26 Speaker 04 And credit to Dara for taking it from 40 billion to, he touched 200. So 200 billion versus four is, is a, that's what, that's what like a, a close minded TAM analysis would get you, you get your way off.
1:06:43 Barry Ritholtz? So I'm legally obligated to ask you about artificial intelligence. How are you looking at the opportunities in this space? I kind of think we addressed that. Do I really need to ask that?
1:06:55 Speaker 04 I can, you want me to?
1:06:56 Barry Ritholtz? Yeah.
1:06:56 Speaker 04 Okay. Yeah. So, look, I think there are people in the venture community that would tell you this is the biggest disruption wave they've ever seen. And there's no doubt that venture does extremely well around these dislocations. And there's great books like The Innovator's Dilemma that talk about why, but the mobile wave, the PC wave, the client server wave, all these things birthed really big companies, some of them doing the exact same thing. So there were, there were four companies in the CRM space before Salesforce came along, but the SaaS wave allowed them to steal all that, that market cap that was in those companies.
1:07:33 Barry Ritholtz? Is that a case of second mask gets the cheese?
1:07:37 Speaker 04 No, I just think it's that these waves if are, it's very hard for an incumbent to be at the front of the wave. It's kind of different here with AI because there's certainly an obsession. Within the Mag Seven about AI and what it might do to them. But anyway, VCs tend to do extremely well when these waves come and so they're, everyone's all in. And look, it's very disruptive. It's very different than anything we've seen before. I would encourage people once again to, to really dive in and ask yourself, no matter what field you're in, what is, what is AI capable of here? And, and, and to be that person in your organization that has the answer to that question.
1:08:20 Barry Ritholtz? You know, it's fascinating that all of the big hyperscalers are spending tens of billions, hundreds of billions, building out these systems. Apple's running a check to Google to put Gemini into Siri, which was early and terrible. Now it's late and terrible. I'm hoping Gemini, which has been really good, turns Siri into something useful. How do you think of that sort of approach of saying, it's cheaper to buy them?
1:08:48 Speaker 04 I, I will tell you, I have a couple of different answers to this, which I think are quite interesting. The, first of all, the Mag Seven formerly were creating, I don't know, three, 400 billion in cash flow and
1:09:03 Barry Ritholtz? Two trillion in revenue, almost 400 billion in profits.
1:09:06 Speaker 04 Yeah, but now that almost all of that has been exhausted into CapEx. And Mike Mobison and I would have long arguments about like what, what that meant from a valuation perspective. He, he, he sloughs it off and says they can stop tomorrow. So, and then the, the cash flow will come back.
1:09:23 Barry Ritholtz? Fair.
1:09:24 Speaker 04 I, I argue if you're trying to build a DCF, now all of a sudden you have to make a decision about whether that would happen or not. And whether there's a return on this CapEx investment. But, but the, the second thing I wanted to say is I have found over the years, maybe this is another contrarian thing that, not enough, that big companies think there's some kind of safety net in making an investor in a new disruptor. And, and, and so here we have Microsoft and Google, you know, doing, and, and, and Amazon making investments in these foundational model companies and
1:10:03 Speaker 04 It's not clear to me that that is actually a good hedge because I think both of those companies, Open and Anthropic, now have escape velocity. I don't think they're dependent on the partner anymore. And it hearkens back in my brain to IBM letting Microsoft put the OS inside their PC.
1:10:23 Barry Ritholtz? And we sell hardware. What good is software going to be? All right, one last quote. You said there's a mess coming from zombie unicorns that all have stale marks in private portfolios. I'm a huge fan of Cliff Asness's volatility laundering or the private ownership that doesn't get updated or mark to market. What does that reckoning look like when these marks finally show up in the real economy?
1:10:52 Speaker 04 So this is probably a three-hour conversation that I will try and do in a very short form. There is a very famous investor, or I'd call him an endowment manager named David Swinson.
1:11:07 Barry Ritholtz? Of course, Yale model.
1:11:08 Speaker 04 That is the Yale model. And David said that everyone should be more invested in privates and famously had returns that were spectacular.
1:11:20 Barry Ritholtz? But as someone who's a historian in my space, that was 40 years ago when
1:11:26 Speaker 04 No one was doing it.
1:11:27 Barry Ritholtz? No one was doing it. It was a white space.
1:11:29 Speaker 04 So I think
1:11:30 Barry Ritholtz? Absolutely. Great valuations, great opportunities.
1:11:33 Speaker 04 I think the Swinson mimic effect has now played out. And I think personally that most of the endowments and foundations in the US are over invested in private, both PE and venture. And I think that the way the industry's structured, and this would require a longer conversation, there's no incentive for the operators inside of the endowments or foundations to get the paper marks right. And there's no incentive for the GPs to get the paper marks right. And based on talking to people that do this for a living every day, I suspect both the venture paper marks and the PE paper marks and the real State paper marks are all too high.
1:12:15 Barry Ritholtz? Nonsense, yeah.
1:12:16 Speaker 04 If we had had a liquidity run, like if an endowment tax had happened, you you might get to that sooner. I think we're gonna, it's gonna take forever to unwind. You ask kinda like Wednesday, Day of Reckoning. I don't even know.
1:12:29 Barry Ritholtz? So I read over the past few months Harvard and Yale are both trying to sell.
1:12:34 Speaker 04 Some secondary.
1:12:35 Barry Ritholtz? Right, so they're doing some selling. Right, and now you see the whole issue with Blue Owl, uh, with some marks and and, uh, Boaz Weinstein making an offer to to buy assets at a substantially discounted price. Are are these one offs or is this perhaps?
1:12:55 Speaker 04 I think that's maybe the first sign of this correcting, but I I, once again, there's no, the the only thing that could really lead to a faster correction if there was a liquidity crisis within the endowment.
1:13:07 Barry Ritholtz? And we briefly saw a threat of that when the president threatened to
1:13:12 Speaker 04 Correct.
1:13:12 Barry Ritholtz? Start taxing endowments and and other things.
1:13:15 Speaker 04 There's other articles you can find about debt products inside of foundations, which hint at the fact that you're not getting liquidity from your privates and you don't want to get over allocated and so you have to borrow money.
1:13:28 Barry Ritholtz? So, yeah, well, all all all, uh, crises, um, financial crises at the underlying is is leverage and debt. Um, the other thing that to me was a big warning sign, I'm curious as to your thoughts. The whole democratization and hey, we're gonna move private credit and private equity to people's 401ks. That to me smells like someone rang a bell.
1:13:52 Speaker 04 I I'm I'm so with you on that, Barry, and I think you're gonna watch the same thing happen with with venture because as what I talked about earlier, where they're trying to keep these companies private forever. They're gonna have the same liquidity problem and I think they're gonna run out of money because they've gotten these things so big. So watch for someone to lobby to put their 401k into a
1:14:13 Barry Ritholtz? It's already started.
1:14:14 Speaker 04 Venture firm as well.
1:14:15 Barry Ritholtz? Early or already began and, um, you know, it's it's gonna be an issue.
1:14:21 Speaker 04 I fear the Swinson thing is gonna have this. Like you said, when he did it, he was the only one doing it and it was contrarian back to the Howard Marks thing.
1:14:31 Barry Ritholtz? Right.
1:14:31 Speaker 04 The fact that everyone followed him and the the time it's gonna take for that to play out and get fixed is forever.
1:14:41 Barry Ritholtz? Thank you, Bill, for being so generous with your time. I've been speaking with Bill Gurley of Benchmark Capital and author of the book, Runnin Down a Dream: How to Thrive in a Career You Actually Love. If you enjoy this conversation, well, be sure and check out any of the 600 and change we've done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you get your favorite podcasts. I would be remiss if I didn't thank the crack staff that helps me produce these conversations each week. Alexis Noriega is my audio producer. Anna-Luc is my podcast producer.
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