Benchmark Part I

Benchmark Capital. We tell the tale of the legendary equal partnership that accomplished something no other venture firm can claim: twice it has produced the highest returning fund of its cycle, each time with a 100% different GP lineup. If ever there were a playbook for successful generational transfer of a generational-defining venture firm, this is it. We spend 3.5+ hours digging into how the dotcom “eBay eBoys” transformed into the rockstar Fab Four of the Uber, Instagram and Snap mobile gold rush (spoiler: not by a straight line!), and what the future holds for Benchmark’s next GP generation. If you’re a student of the venture game from any angle — founder, GP, LP, etc — this is a story you need to tune in for! *Links:* - Benchmark’s website circa 1997: https://web.archive.org/web/19970222220811/http://www.benchmark.com/ - Benchmark’s website circa 2000: https://web.archive.org/web/20020926024038/http://www.benchmark.com/ - Benchmark’s website today: http://www.benchmark.com - Episode sources: https://www.acquired.fm/episodes/benchmark-capital#sources *Carve Outs:* - Bill Gurley’s Runnin’ Down a Dream talk: https://youtu.be/xmYekD6-PZ8 - Smartless Podcast: https://www.smartless.com - Mitch Lasky on Invest like the Best: https://www.joincolossus.com/episodes/99764091/lasky-the-business-of-gaming?tab=transcript - Ursula Le Guin’s Earthsea Cycle: https://www.amazon.com/Earthsea-Cycle-Set-Books-1/dp/B07PBZX7HT *More Acquired:* - Get email updates https://www.acquired.fm/email and vote on future episodes! - Join the Slack http://acquired.fm/slack - Check out the latest swag in the ACQ Merch Store https://www.acquired.fm/store! _Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions._

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  All right, let's try and do it as one and we're gonna hustle.

• 0:03David Rosenthal?

  Okay, let's try and do it as just one, but I don't think we should hustle. Cause especially those early days, that's what people don't know.

• 0:10Ben Gilbert?

  All right, no trade offs.

• 0:12David Rosenthal?

  And we'll let the chips fall where they do.

• 0:16Ben Gilbert?

  It's a very anti benchmark approach we're taking to this episode. Trade off, nothing, go full depth into gen one and gen two, fine.

• 0:26Ben Gilbert?

  All right.

• 0:27David Rosenthal?

  We'll see how this goes.

• 0:45Ben Gilbert?

  Welcome to season 11, episode four of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.

• 1:00David Rosenthal?

  And I'm David Rosenthal and I am an angel investor based in San Francisco.

• 1:06Ben Gilbert?

  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 each decade. Then, 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, 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.

• 1:47David Rosenthal?

  Or maybe, well, there was a flirtation with an empire in there, as we'll get into.

• 1:52Ben Gilbert?

  There was. Benchmark famously believes that venture capital doesn't scale. They have zigged when others have zagged. They have not grown their fund 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. 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 90s like eBay, E-Shop, 1-800 Flowers, or Arriba, semiconductor and networking companies like Synopsys and Juniper Networks. And of course, in the next generation, OpenTable, Zillow, Twitter, Instagram, Uber, WeWork, Snap, Riot Games, Asana, Discord, New Relic, and our friends of the show at

• 2:37Ben Gilbert?

  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 transitioned from the eBay generation to the Uber generation. And the question is, 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?

• 3:05David Rosenthal?

  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, I really like my intro on this one. If you don't like it, stop me. But I like that. That was good. Well done.

• 3:17Ben Gilbert?

  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, 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 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.

• 4:01David Rosenthal?

  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. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 4:22Ben Gilbert?

  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 GRC 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.

• 4:44David Rosenthal?

  In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 5:02Ben Gilbert?

  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. 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 $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you. All right, listeners, as you know, after this episode, you should come join the Slack to talk about it with the 13,000 other passionate, smart, kind members of the Acquired community. We also have a merch store that we launched at acquired.fm/store. If you've already gotten

• 5:46Ben Gilbert?

  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.

• 5:59David Rosenthal?

  I feel like every episode now, I'm constantly thinking, like, are there going to be any quotes from this episode that should make it into the merch store?

• 6:06Ben Gilbert?

  I know. On this Aquila, when I was thinking about Doug talking about burning cigarettes in his arms and he wouldn't flinch.

• 6:11David Rosenthal?

  Market size unconstrained from Bezos.

• 6:13Ben Gilbert?

  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.

• 6:26David Rosenthal?

  Ah, man, I'm so excited for this one. God, there's so much Silicon Valley history and I feel like we covered Sequoia, we covered Andreessen, and there's this missing gap in between the two of them. And this is Benchmark. We're going to talk about it today. Man, I hope we can do it justice. I'm so pumped. Okay, to understand Benchmark, we start in the 1990s 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.

• 6:57Ben Gilbert?

  Are you going TVI? Are you going Merrill Pickard? Or are you going somewhere completely different?

• 7:01David Rosenthal?

  Somewhere completely different, but I bet you can guess it.

• 7:05Ben Gilbert?

  The 800-pound gorilla Kleiner Perkins?

• 7:07David Rosenthal?

  Indeed, indeed. Not just Kleiner Perkins, but specifically John Doerr's Kleiner Perkins.

• 7:16Ben Gilbert?

  After a very successful generational transfer of their own from Kleiner and Perkins to John Doerr.

• 7:22David Rosenthal?

  Here in the 1990s, I mean, John Doerr, we've talked about him this season on the Amazon episode. I mean, he was alone, the 800-pound gorilla in the VC ecosystem in the early 1990s and specifically leading up to and during the internet era. You know, you think today of the top VCs, the top VC firms, you think Sequoia, you think Benchmark, you think Andreessen, Founders Fund. He was all of that, all in one. He was just absolutely at the top of his game. He had joined Kleiner. He did not start his own firm. He started

• 8:02David Rosenthal?

  his career at Intel, working for Andy Grove. And from that, sort of just like Don Valentine, when he got into the business and Don, in his very Don way, said he had an advantage, he knew the future. John also knew the future. He saw 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 Vinod Khosla then joining Kleiner and like this dominant franchise. And then when the internet started, man, he did Netscape, he did Amazon, as we talked about, he did Google. If you were an ambitious young venture capitalist in the 1990s in Silicon Valley, and that was a big if, you could do very well as a venture capitalist in that era without

• 8:47David Rosenthal?

  being ambitious. But if you were ambitious, boy, you needed a damn good answer about how you were going to beat John Doerr.

• 8:56Ben Gilbert?

  Oh, yeah. To set a little context for how you could do well, even if you weren't ambitious, there are 100 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 of the things that make big tech, big tech now, didn't exist then. So 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, oh, my God.

• 9:39David Rosenthal?

  And valuations were so low. I mean, it was crazy when John and Mike Moritz did Google at $100 million valuation in the Series A. That was earth changing. So 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, and Kleiner's style. One was, he was unquestionably the guy. The guy is a good way to put it. He was the CEO of the firm. He was the leader. He was also the best player on the field. It's like if he

• 10:19David Rosenthal?

  was Michael Jordan and 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, he called Tom Alberg'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. And Jeff, of course, didn't let that happen, but many entrepreneurs did.

• 10:46Ben Gilbert?

  Yep.

• 10:47David Rosenthal?

  The other very particular aspect to the Kleiner Perkins model at this time was they had adopted this idea of a modern Kuretsu within a venture capital firm. And this is sort of funny to think back on now, but it made sense at the time. You have to put yourself in the context of the 1990s proto internet ecosystem, really. This was the AOL days leading into the Netscape days. 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,

• 11:32David Rosenthal?

  put it on the internet, get distribution for free on social. It didn't work that way. You needed deals in place.

• 11:39Ben Gilbert?

  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 ended up being like an equal peer to your biz dev prowess, unlike today.

• 12:05David Rosenthal?

  A core part of this Kuretsu model at Kleiner was we helped facilitate, and some would argue they would do more than help facilitate, they would force these partnerships, biz dev relationships upon their portfolio companies. And when your portfolio companies include Netscape and Amazon and Excite, these would be quite valuable deals, both for Excite and for the young startups.

• 12:32Ben Gilbert?

  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.

• 12:49David Rosenthal?

  So of course KP was unquestioned the best venture firm at the time, but they weren't the only top tier firm in the sort of bulge bracket, quote unquote, of proto VC 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, but they weren't yet the dominant Sequoia that we think of today.

• 13:13Ben Gilbert?

  It's amazing. They were almost a 20 year old firm, but they weren't Sequoia as we know them.

• 13:18David Rosenthal?

  There was Greylock based out of Boston. There was Venrock, of course, and IVP, one of the early institutional firms.

• 13:26Ben Gilbert?

  Oh, David, we have to quick history on Venrock because listeners are going to care about this. What is the rock in Venrock?

• 13:32David Rosenthal?

  It would be Rockefeller.

• 13:35Ben Gilbert?

  Yes. It's pretty loose connection at this point, but was at one point, the sort of venture arm of the Rockefeller family office or one of the Rockefeller family offices spinning off to do a venture fund.

• 13:49David Rosenthal?

  Indeed. So there were all those folks. There were the summits and the TAs kind of at the growth stage. And then there were a couple other venture firms that you've probably never heard of. You've probably never heard of them because they don't exist anymore. And among those were two, one called Technology Venture Investors, or TVI.

• 14:10Ben Gilbert?

  Which had one very notable investment.

• 14:12David Rosenthal?

  One very, very notable investment that we'll talk about in one sec. And another one, Merrill, Pickard, Anderson and Air. And the two of those firms just so happened to share the same office building on Sand Hill Road.

• 14:28Ben Gilbert?

  Amazing.

• 14:28David Rosenthal?

  They shared 2480 Sand Hill Road, part of the Quadress 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 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.

• 14:55Ben Gilbert?

  No, really?

• 14:57David Rosenthal?

  Yes.

• 14:58Ben Gilbert?

  Oh, I had no idea.

• 15:00David Rosenthal?

  And forethought were the makers of a little Mac application that then became a Windows application called PowerPoint.

• 15:10Ben Gilbert?

  Yes.

• 15:11David Rosenthal?

  Forethought, of course, got acquired by Microsoft, absorbed into the Office juggernaut. And that their campus there in the Quadress Office Complex became Microsoft's original Silicon Valley campus on Sand Hill Road, renamed the Graphical Business Unit.

• 15:33Ben Gilbert?

  Amazing.

• 15:34David Rosenthal?

  Now, why am I saying that it was appropriate that these two venture firms were based there at this point in that building, or at least for one of them, appropriate?

• 15:43Ben Gilbert?

  Well, it's appropriate that TVI, anyway, is based there.

• 15:47David Rosenthal?

  Yes. Who wouldn't want to be right in the thick of Microsoft Silicon Valley Business Unit outpost? But TVI Technology Venture Investors, they had the unique honor. And what made them, single-handedly, really, part of the then top-tier venture capital firms is they were the only venture capital investor in Microsoft.

• 16:13Ben Gilbert?

  Yep. $1 million to own 5% of the company. I don't believe they raised another dollar until the IPO. Imagine owning 5% 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.

• 16:33David Rosenthal?

  Really, nothing else mattered at that point. You know, you could hang up your shoes after that one and declare victory, which is some foreshadowing, because that is exactly what would happen. Now, so these two firms, they shared this office building there at 2480 Sand Hill. Merrill Pickard had done pretty well for itself as well. They had done Palm Pilot, remember Palm Pilot?

• 16:55Ben Gilbert?

  Yep. Oh, yeah.

• 16:56David Rosenthal?

  One of the few successful companies out of the pen computing era. They'd done a bunch of semiconductor companies. They did Rambus. That was a big winner for them. And so both of these firms, the founders and the senior partners of these firms, TVI had made all this money on Microsoft. Merrill Pickard had done really well.

• 17:15Ben Gilbert?

  And TVI, it was Dave Markort, right, who made that investment in Microsoft and was sort of the leader of TVI?

• 17:21David Rosenthal?

  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, "Hey, you know, what does the structure look like going forward?" The firms are getting a little longer in the tooth. These older GPs maybe aren't working as hard anymore. 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. And it's worth a quick digression here about how does a venture firm actually work economically? Even today, I think most people and a lot of entrepreneurs don't really know this.

• 18:04David Rosenthal?

  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. Which partner gets what percentage of the carry? But there's also the management company.

• 18:19Ben Gilbert?

  Yes. 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 is the sort of 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 in LLC. 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.

• 19:02Ben Gilbert?

  Of course, there's the economics on a fund by fund level, which is how is the carry from this fund getting distributed in a percentage basis across everyone with carry?

• 19:12David Rosenthal?

  Yep, the performance gains from the fund.

• 19:14Ben Gilbert?

  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. 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.

• 19:34David Rosenthal?

  Now, here's the important factor.

• 19:37David Rosenthal?

  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, 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. They were just employees. They were kind of at the largesse, whatever the managers of the management company decided that they should get in terms of salary and allocations in carry.

• 20:23Ben Gilbert?

  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 the owners of the management company were back there saying, we're not going to pay any cash out. And so, 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.

• 20:47David Rosenthal?

  There's this amazing New York Times article from 1995. Why the New York Times was covering politics of Silicon Valley venture firms, I don't really know, but...

• 20:56Ben Gilbert?

  This is deep and like full on Real Housewives, this article.

• 21:01David Rosenthal?

  So in this article, New York Times quotes an anonymous source, "If Merrill Pickard had divided the rewards more equitably, they wouldn't have split up." 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 Kegel. "Nobody can claim that they are making all the money for the firm. The resentment is in the air among the younger partners of venerated Silicon Valley venture firms at this time."

• 21:38Ben Gilbert?

  And when they say today it is much more split up, you know, you could imagine Bob Kegel is sort of saying this a little wistfully. 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.

• 21:51David Rosenthal?

  Well, now, just who is this Bob Kegel 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. He grew up in Flint, Michigan.

• 22:08Ben Gilbert?

  Yes, listeners, that Flint, Michigan.

• 22:11David Rosenthal?

  His mother was a single mom. His whole family worked on the production lines for General Motors. They were falling on hard times. It was rough. You think about Flint, Michigan, even today. That is a hard scrabble background. So 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, was to go to an institution called General Motors University.

• 22:43Ben Gilbert?

  Fascinating that this existed.

• 22:45David Rosenthal?

  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 work in the industry.

• 22:58Ben Gilbert?

  Yep.

• 22:59David Rosenthal?

  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 Stanford Business School. And while he's at GSB, he gets a chance to meet and intersect with someone a few years his senior, who had graduated a few years before, Dave Marquardt, who we had talked about earlier from TBI.

• 23:22Ben Gilbert?

  Yep.

• 23:23David Rosenthal?

  This is right as the Microsoft deal is going down.

• 23:25Ben Gilbert?

  Quite fortuitous.

• 23:26David Rosenthal?

  After GSB, Bob goes into consulting at Boston Consulting Group and then Dave invites him to come back and join TBI. And he does really well there. He does Synopsys, the big EDA company, it's still around today. Avant, Viisoft, a bunch of other companies that do well, the firm makes good money on. And so after 10 years, he's kind of 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 farm and all the economics. Speaking about Bob and their impression of him at the time, 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.

• 24:10Ben Gilbert?

  I don't think. Bob had any idea of the incredible amount of knock on effects that would come from that absolute steadfastness of an equal partnership. And we're going to 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?

• 24:36David Rosenthal?

  This is the beginning. We didn't talk to Bob, but I don't think he foresaw just how powerful this was going to 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 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.

• 25:06Ben Gilbert?

  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. 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. The management company is always just given to whoever the equal current GPs are.

• 25:29David Rosenthal?

  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 Caulfield and Byers to John Doerr, but is not common that it is just given.

• 25:43Ben Gilbert?

  Yep.

• 25:44David Rosenthal?

  So here's Bob. This is the milieu 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. 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, quote unquote, and this is the term they use, 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?

• 26:23Ben Gilbert?

  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, victory, we are declaring victory and calling it a day.

• 26:40David Rosenthal?

  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 of capital firms. There's a long tail because all of these existing firms and board seats existed. Everybody's got to manage them out.

• 26:56Ben Gilbert?

  I think Microsoft had gone public. So at least they were able to distribute that at this point.

• 27:01David Rosenthal?

  Yes, of course.

• 27:02Ben Gilbert?

  It's worth noting that Dave does, after TVI, go on to found August Capital.

• 27:06David Rosenthal?

  Yes. So Bob and Future Benchmark aren't the only ones that come out of this. Also, August Capital, also in 2480 Sand Hill Road. Like, it's in one building, you know? Man, it's so funny. Even in the 90s, you know, we joke about the original Silicon Valley history of there were like 10 people and everybody knew each other. This is all going down in one office building.

• 27:28Ben Gilbert?

  Yeah. For how concentrated tech was, venture was much more concentrated.

• 27:31David Rosenthal?

  Much more concentrated.

• 27:33Ben Gilbert?

  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, 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 from Dave Markort. "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. Companies

• 28:14Ben Gilbert?

  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."

• 28:32David Rosenthal?

  Ah, I love that. I love that you found that.

• 28:35Ben Gilbert?

  That could have been a Benchmark Partners quote, but it was Dave Markort when he was at TVI.

• 28:41David Rosenthal?

  Totally. You could copy paste those exact words.

• 28:44Ben Gilbert?

  Yep.

• 28:45David Rosenthal?

  So back to Bob here. 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 got to go figure out something else.

• 29:02Ben Gilbert?

  Yep. 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.

• 29:14David Rosenthal?

  So what does he do? We're now in probably like early 1994 ish. He calls up his good buddy Bruce Dunleavy. He trots up the stairwell, 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. And when Bob was at BCG after GSP, Bruce had interned for him there. Now Bruce comes from quite a different background than Bob, shall we say. Bruce grew up in Texas and was a high school football quarterback in Texas, which you know is a big deal. He goes to Rice University where he's very erudite. He studies English literature.

• 29:57David Rosenthal?

  I don't know any other young VCs who studied European literature in college and somehow managed to weasel their way into the industry.

• 30:04Ben Gilbert?

  I don't know how you did it, David.

• 30:06David Rosenthal?

  I don't know how I did it either. Definitely would not work today.

• 30:09Ben Gilbert?

  You were destined to become a podcaster.

• 30:10David Rosenthal?

  Yeah, right. It all works out in the end. So Bruce had gone on to work in the PC industry and then importantly at Goldman Sachs and then joined Merrill Pickard. And in his venture career, he was the one who did Palm Pilot. He was on the rise. He was one of the young Turks within Merrill Pickard. But remember, he's a few years younger than Bob. And so Bob goes up to see him and he's like, hey, TVI is breaking up. I really believe in this equal partnership thing. The internet, I think, is coming like Netscape. You know what's happening here? We're positioned to do this.

• 30:48Ben Gilbert?

  And this is like early 94.

• 30:50David Rosenthal?

  Early 94. You and me.

• 30:51Ben Gilbert?

  This is the same time Bezos is driving across the country and starting Amazon.

• 30:56David Rosenthal?

  What do you think about busting loose out of this place and you and me start a firm together? And Bruce is like, well, Bob, I'm honored, 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. A few months go by and Merrill Pickard starts to have internal discussions about what their next fund is going to look like. And lo and behold, surprise, surprise.

• 31:26Ben Gilbert?

  The bug of equal partnership seems to have made its way around the building a little bit and infected the waters of discussion elsewhere.

• 31:33David Rosenthal?

  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 Merrill Pickard, 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, I think, probably goes about the same that it went at TVI.

• 31:56Ben Gilbert?

  They probably get little pats on the head.

• 31:58David Rosenthal?

  Yeah.

• 31:59Ben Gilbert?

  By the way, can we just recognize Bruce was Bob's intern? 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. 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?

• 32:37David Rosenthal?

  Totally. It reflects two things, certainly in Bob and, and I think in all the early folks at Benchmark and Benchmark as a firm, this religious devotion to equality, fairness. It also reflects just like an absurd amount of self-confidence.

• 32:56Ben Gilbert?

  Yes.

• 32:56David Rosenthal?

  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 kind of need both to go do something crazy. So Bruce is a little bit more the voice of reason, you know, he and Andy within Merrill Pickard have had these conversations. He's remenable to the idea of leaving and starting a new firm, but he's like, Bob, Just the two of us, for what we do, we're not going to have enough capacity to be able to create like an actual portfolio that makes sense if it's just the two of us doing deals. We need to have some more investment capacity here.

• 33:32Ben Gilbert?

  We need enough diversification and they were thinking sort of about round sizes at the time. They might invest a million, they might invest 2 million, but they're just not going to have enough companies in the portfolio with them doing venture the way that they believe they need to do venture, you know, eight to 10 board seats a person, no investments without board seats, that sort of thing.

• 33:51David Rosenthal?

  The TVI style.

• 33:53Ben Gilbert?

  If they're on 16 to 20 boards and that's all the companies in a portfolio, that's not enough.

• 34:00David Rosenthal?

  Right. And there's also just like a credibility aspect, talking to LPs about this too. Like they're going to start poking holes right away.

• 34:07Ben Gilbert?

  Yep.

• 34:07David Rosenthal?

  So Bruce says, all right, I'm down, but we got to recruit some more partners here. 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 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 2480 Sand Hill, 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 you guys are freaking nuts.

• 34:45Ben Gilbert?

  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'm at Greylock. What are you thinking?

• 34:57David Rosenthal?

  And that was right. That was the smart thing to do was not to go do something crazy. It was to do the John Doerr 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 leave their farms 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, were you, how are you feeling during this time? Like, were you a true believer? Did you think it was all going to work out?

• 35:32Ben Gilbert?

  And he's like, no, I started thinking maybe we were a little nuts, too.

• 35:37David Rosenthal?

  Yes, but you made a good point, which is their back was against the wall. 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.

• 35:51Ben Gilbert?

  This is like Michael Ovitz, when his application for credit to start CAA had been discovered by the upper level management of his old firm. He was out. He was done. There was no way to go back and undo. So you had to build the business.

• 36:07David Rosenthal?

  Yes, there is no other path forward. So they need some more folks. Now, 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 Merrill Pickard.

• 36:23Ben Gilbert?

  Yep.

• 36:23David Rosenthal?

  He's in the same building, so easy to get him.

• 36:25Ben Gilbert?

  So now you got three.

• 36:27David Rosenthal?

  Now you got three. You got three pretty good folks. And Bruce, I believe it was Bruce says, 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 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 perspectives. And he says, I think I know just the guy, a former entrepreneur who I worked with, sat on his board. We actually went to Rice together, Kevin Harvey.

• 37:10David Rosenthal?

  So Kevin, after Rice, he had started two companies. The first one, Apple had acquired. And then the second company approached software. Bruce had invested at Merrill Pickard, was on the board. They just sold it to Lotus, had a decent outcome. Bruce thought, hey, Kevin might make a pretty good VC. 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 founders of Benchmark.

• 37:42David Rosenthal?

  But four wasn't actually the number they were going for. They thought they needed at least five people to have a viable firm. And so they go out and they do actually recruit a fifth founding member, the fifth co-founder of Benchmark, a guy named Val Vaden. Val had also gone to GSB and worked in venture, but he had moved on from true kind of early-stage venture. He was doing buyouts, like software company buyouts. I'm thinking of like Toma Bravo and Vista, like the precursor to that, you know, at a much smaller scale. And so they bring Val on as the fifth partner.

• 38:22Ben Gilbert?

  All right, listeners. 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 no longer the hard part.

• 38:36David Rosenthal?

  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.

• 38:50Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 39:00David Rosenthal?

  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.

• 39:17Ben Gilbert?

  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.

• 39:33David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. 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.

• 39:50Ben Gilbert?

  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?

• 39:59David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. So here we are now at the end of 1994. 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 Val. 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. It's quite an audacious name that they come up with, of course. Benchmark Capital.

• 40:38Ben Gilbert?

  Yeah, they went all in on signaling something to the market. And I think what you're about to get into is how they signaled 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.

• 40:54David Rosenthal?

  Yes, our aspiration is to set a new benchmark for 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."

• 41:14David Rosenthal?

  Oh, boy. So then what you're talking about, Ben, typical economic terms of venture funds, especially in those days, was a standard management fee and carry, management fee of 2%, standard carry, performance element of the fund of 20% of the net profits of the fund.

• 41:37Ben Gilbert?

  And for those who don't know, just a quick crash course, 2%, that's an annual fee. So if you raise a $100 million fund, that's $2 million 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 20%, it's not just 20% of all the profits. It's typically 20% of the profits after 1X. So you give everybody the money back. $100 million goes back to the LPs and then you get 20% participation in all of the profits after that.

• 42:05David Rosenthal?

  Yep. So that's standard in the industry. Now, I think at this point, some firms, maybe just Kleiner, had charged more than 20% 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.

• 42:25Ben Gilbert?

  Yeah, they felt they had pricing power.

• 42:27David Rosenthal?

  Yeah, they had pricing power.

• 42:30David Rosenthal?

  Benchmark comes out, the new Benchmark Capital, swinging right out of the gate with 30% carry, premium carry. We're going to price and position this like the premium product that it is, which of course, from one perspective and the perspective of several prominent LPs is quite laughable. There's nothing here.

• 42:52Ben Gilbert?

  And LPs at the time are looking at this like, hey, we think that fees in this industry are going down, not up.

• 42:59David Rosenthal?

  Yes.

• 43:00Ben Gilbert?

  A good allegory is actually the thing that Andy Rackliff went on to do after Benchmark, which was Found Wealthfront. 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 1% management fee for private asset management, but like a quarter percent or whatever Wealthfront is. It's like, kind of amazing that when he was going out to raise for Benchmark, he was saying 20% profit, we'll take 30% of the profits.

• 43:27David Rosenthal?

  Yes, yes. So great. Now, this, as you could imagine, one reaction that this does not engender from the LP community is indifference. So this was a brilliant strategy. Now, some LPs absolutely love this. And very notably and famously, Horsley Bridge, the big investment advisor, makes a huge bet on this motley crew of Benchmark Capital founders in Fund One.

• 44:00Ben Gilbert?

  And I think they've been in every single fund ever that Benchmark has raised and were in before any other institutions.

• 44:06David Rosenthal?

  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 Fund One, which ends up being an $85 million 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.

• 44:30Ben Gilbert?

  I think it's the best cash on cash of a large venture fund in history, period.

• 44:35David Rosenthal?

  Yes. Still to this day, I think.

• 44:38Ben Gilbert?

  There have been some small funds, I think lowercase Fund One, Chris Sacca's fund, but nothing of this size, 85, which with inflation today is probably like 150, 160, but with venture inflation of how much these funds have grown, think about it like the way you would think about how newsworthy a $500 million fund is in today's environment.

• 44:58David Rosenthal?

  Yeah, this is probably like the equivalent of a, you know, 300, 400, $500 million.

• 45:02Ben Gilbert?

  Yes, it is the best returning fund of that caliber of venture fund in history.

• 45:09David Rosenthal?

  So Horstley loves it. A bunch of other LPs love it. Some LPs absolutely hate what is happening here. And in fact, they hate it on every dimension.

• 45:20Ben Gilbert?

  They try to go viral with their hate.

• 45:22David Rosenthal?

  Yes. And they hate a few things. Obviously, they hate the premium carry for the reason of what 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 got to remember, we've painted the picture a little bit here, but 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. So if you were one of the large university endowments, A, you had it pretty easy, but your team was pretty small. And

• 46:04David Rosenthal?

  so you felt like you had privileged access to this small set of money managers. 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.

• 46:29Ben Gilbert?

  Right.

• 46:30David Rosenthal?

  They're pissed.

• 46:31Ben Gilbert?

  And it's hard to underwrite because any LP that you talk to will tell you 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 the LeBron Miami Heat? You don't know that they're going to 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.

• 47:10David Rosenthal?

  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.

• 47:19Ben Gilbert?

  Right. You want to back an enduring franchise.

• 47:21David Rosenthal?

  You want 10 funds.

• 47:22Ben Gilbert?

  Yes.

• 47:23David Rosenthal?

  So Stanford.

• 47:25Ben Gilbert?

  Your alma mater, your esteemed alma mater.

• 47:28David Rosenthal?

  The alma mater of like almost all of these folks.

• 47:33David Rosenthal?

  Literally almost all of these folks who are starting Benchmark, they get so angry that 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.

• 47:51Ben Gilbert?

  Including ones who have already committed.

• 47:53David Rosenthal?

  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 Stanford blackballs Benchmark.

• 48:06Ben Gilbert?

  Insane.

• 48:08David Rosenthal?

  Totally insane. Now, it's easy for us to pick on them now because famously they have a complete 100% turnover in the management team of the Stanford Endowment a few years later, a decade plus later.

• 48:22Ben Gilbert?

  They end up being a large Benchmark LP.

• 48:24David Rosenthal?

  And they do end up coming back to Benchmark and the new team, 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. These guys were going way against the grain. And actually, this is a funny story. So Bob, I think he probably would have had the religious fervor about the equal partnership anyway. But right around this time is when Jim Collins' first big book, Built to Last, comes out. Bob reads it, loves it, as he's thinking about what's going on at TVI and what he wants his future

• 49:09David Rosenthal?

  fund and what Benchmark would become to be, totally aligns with Jim's principles in the book. They actually hand a copy of the book to every LP 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 LPs care about backing firms and funds that are going to have multiple funds and last for decades, and you're literally handing them a bestseller called Built to Last.

• 49:40Ben Gilbert?

  And the number one risk with you is that you're new and unproven. It's just, it all aligns so well. So they do actually, I think, slightly oversubscribe it. So I think they had 87 million enough commitments. They cut someone back, so they're off to the races. It's 85 million. It's these five partners and they start investing.

• 49:59David Rosenthal?

  They overcome the blackballing of Stanford, of the LP and VC establishment. So they just survived coming through the fire here. And what happens next is interesting. So, you know, it's towards the end of, you just saw the second half of 1995. 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 a few things happened here. They didn't expect that this was gonna instantly be an obvious success right out of the gate. It wasn't all 100% sunshine and roses, you know, within Benchmark itself as a partnership either.

• 50:40Ben Gilbert?

  Right. It's not just that, hey, we're starting to make some investments, but like, nothing's really popping in this sort of 95, 96 era. To your point, it was. We're not 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.

• 50:59David Rosenthal?

  Yeah. And there were deals to be done during 95 and 96. That would have put the firm on a very different trajectory during those early years. Those were the years when Amazon, as we talked about, got done. That was the time when Yahoo got done. And like, would Benchmark have beaten John Doerr to do Amazon? Probably not, you know, maybe, but 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 Yahoo. He wasn't Mike Moritz before he did Yahoo. And Benchmark wasn't in the picture then. So there were some notable misses during those years.

• 51:43David Rosenthal?

  Yeah. And then the team, 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 kind of wasn't a fit in investment styles.

• 52:01Ben Gilbert?

  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. But this person coming from more of a buyout background turned out not to have the same fit with the rest of the firm.

• 52:34David Rosenthal?

  So at the end of 1996, 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 16 million in companies by the end of 96, you know, which is like, fine deployment, but maybe a little slow. They're having a partnership transition. 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 gates strong. You kind of end up fading away, a lot of folks.

• 53:11Ben Gilbert?

  Right. Lots of fund ones don't raise fund twos and certainly don't raise fund threes, because then you have fund one's performance to look back on that should have sort of been popping already.

• 53:21David Rosenthal?

  Yep. So I imagine there's a lot of concern at this point in time and maybe some of the sort of swashbucklingness of the founding has maybe been replaced by a little bit of depression.

• 53:32Ben Gilbert?

  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, they do what they say they're going to do, they carry themselves with incredible decorum, they have tremendous discretion when speaking publicly, and this just comes through anytime you hear any of them talk. And from what we can tell, there was a very generous separation with Val from the firm. So much so that when you go to the Wayback Machine, which is just an incredible resource that this exists.

• 54:09David Rosenthal?

  Oh, you found some great stuff. You were tweeting the last couple of weeks like just screenshots from old benchmark websites. They're amazing.

• 54:16Ben Gilbert?

  It's been so fun. Val is still on the website in 1997, January 97. So there's the five general partners and it says, complementing benchmarks early stage focus, Val Evaden 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 divestiture programs, corporate spinouts, management buyouts, and in rare instances, turnarounds and financial restructurings. So they're basically saying,

• 54:59Ben Gilbert?

  yep, we're going to keep using our brand to help you raise this thing that is the thing you're good at.

• 55:04David Rosenthal?

  Which becomes Vector Capital that he goes on to found and then he's part of a few other venture firms over the years. So anyway, all this to say. Heading into 1997.

• 55:16Ben Gilbert?

  It was dark.

• 55:16David Rosenthal?

  If you were handicapping the future, if Vegas were betting on the odds of the young benchmark capital heading into 1997, the line would be long on outsized success here.

• 55:28Ben Gilbert?

  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 12 months, would be a 92X in just a few years.

• 55:40David Rosenthal?

  On the fund.

• 55:41Ben Gilbert?

  On the fund.

• 55:42David Rosenthal?

  On the fund. Wow. So 1997, the Anus Mirabellus for Benchmark.

• 55:50Ben Gilbert?

  Can you explain that for those of us that didn't study literature?

• 55:54David Rosenthal?

  I thought that was a prerequisite for, you know, getting into this industry.

• 55:58Ben Gilbert?

  Sorry, I did computer programming. I don't know if that's relevant.

• 56:01David Rosenthal?

  It's Latin for miracle year, I think. And literally, it is a year of miracles. But they put themselves in a position to win. You know, I think we're going to talk about this more in a minute, but a key, key element to Benchmark and to them getting it off the ground was both doing something different, but also having this swagger to them. And obviously, they had the swagger. And I think they kind of 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, that 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?

• 56:46David Rosenthal?

  How do we get back to winning? How do we get back to being aggressive? So they go out, they decide they need to replace Val. It's the best way to do it. Bring in a new fifth partner. And they go recruit the most aggressive, the most hyper competitive, the most swaggerful person that they know.

• 57:09Ben Gilbert?

  The tallest.

• 57:10David Rosenthal?

  We are not yet talking about Bill Gurley, although that will be a story coming up very, very soon here. They recruit the number one executive recruiter in all of Silicon Valley in technology. David Byrne from Ramsey Byrne and Associates.

• 57:31Ben Gilbert?

  It's a lot of chutzpah to go and recruit someone away from the firm that has their name on it.

• 57:36David Rosenthal?

  Yes, 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 kind of like Bob, Dave also grew up pretty hard scrabble. His family was also a General Motors family. He grows up pretty working class, I believe in New York. He 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 kind of like a Jerry Maguire type story. He ends up starting his recruiting firm, Ramsey Byrne.

• 58:17David Rosenthal?

  They're based in Westchester County, New York, and they're not working in technology to start. They start cold calling prospective clients in tech and in Silicon Valley from Westchester, New York. Dave starts cold calling them and saying, were Ramsey Byrne the leading executive search firm in high technology? They hadn't done a single retained executive search in high technology when he starts doing this.

• 58:41Ben Gilbert?

  But they're not claiming anything literal or specific. So leading, sure. It's like how the new iPhone, it's like a 2X better camera, but they don't tell you any sort of units or what vector that is better on.

• 58:54David Rosenthal?

  Yeah, 2X better than what? But they're leading and it becomes a self fulfilling prophecy when in the, I think it's probably late 80s, early 90s, Dave gets his big break and he gets through to John Doran. John makes him his preferred executive recruiter for CEO searches for his portfolio companies. And remember back in these days, that's part of the standard VC playbook. You come in, you back the company, you start a search for a professional CEO.

• 59:27Ben Gilbert?

  Yeah. Congratulations on finding product market fit. Surely you don't know how to do the job after this, so.

• 59:33David Rosenthal?

  And we spent a lot of time talking about that in part one of our Andreessen Horowitz episode involving none other than Benchmark Capital. So David ends up doing the CEO searches for.

• 59:46David Rosenthal?

  Netscape, he brings in Jim Barksdale, which of course is a client or company in a John Doerr 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 retained executive search CEO recruiter in Silicon Valley from his outpost in Westchester County, New York.

• 1:00:07Ben Gilbert?

  He projects an aura of success and eventually it becomes success.

• 1:00:11David Rosenthal?

  So 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 search firm.

• 1:00:22Ben Gilbert?

  Yeah, none of the speculative startup equity. He's literally getting paid.

• 1:00:25David Rosenthal?

  Yes, and the benchmark partners convince him to come out and try his hand, being an actual VC 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, is Dave that. So I couldn't 100% prove this, but I believe Dave's first deal is Webvan.

• 1:00:49Ben Gilbert?

  Oh, is it?

• 1:00:51David Rosenthal?

  I don't know if he did others before, but if Webvan wasn't his first, it was certainly among the first, like right after he arrived. So I'm just going to open up E-Boys here.

• 1:01:00Ben Gilbert?

  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 2000, 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 trope-y than they would be in real life. So it is both looked on as a lot of the facts are right, but also there's a lot of drama.

• 1:01:40David Rosenthal?

  It's a period piece and we're going to talk more about E-Boys in a second here. But I'm just reading here from page 30. 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 My Store, 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 Dunleavy said when Dave told him his idea as the two sat in Dunleavy's

• 1:02:22David Rosenthal?

  office. "Have I got the plan for you?" Dunleavy reached into a stack of papers and pulled out a business plan called Oasis. He tossed it to Byrne, explaining that he and the other partners lacked the balls to do it. Would Byrne be willing to be the guy? And Oasis, of course, is Webvan, which I remember Webvan as a crater, a cautionary tale of what could go wrong in the dot com excesses. But going back and doing the research here and looking at it, this is actually a great bet to make.

• 1:02:58Ben Gilbert?

  Oh, this is exactly the type of bet you should be making in venture capital.

• 1:03:02David Rosenthal?

  Totally. This is the exact kind of swagger bet with the right aligned asymmetric upside and downside, that if you want to be taking the right kind of risks to establish yourself as one of the premier early-stage venture capital firms, you should be doing.

• 1:03:22Ben Gilbert?

  All right. So what was Webvan?

• 1:03:25David Rosenthal?

  What was the company or what was the deal?

• 1:03:27Ben Gilbert?

  What was the company? And why was it so swagger filled to do it?

• 1:03:31David Rosenthal?

  Have we talked about Webvan on every season episode so far in season 11, I think?

• 1:03:35Ben Gilbert?

  That might be true.

• 1:03:36David Rosenthal?

  Yeah, I feel like everybody knows.

• 1:03:38Ben Gilbert?

  The theme of season 11 is Webvan.

• 1:03:40David Rosenthal?

  There we go. There we go.

• 1:03:41Ben Gilbert?

  That's so true. We probably hit it on Walmart and Amazon.

• 1:03:45David Rosenthal?

  So of course, as we've talked about, 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. He knew Kmart, Walmart. He wanted to build. Amazon, what Amazon is today, he wanted to build amazon.com and the modern amazon.com. He was just a couple of decades too early. And so that's what Webvan was. It was 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.

• 1:04:22Ben Gilbert?

  And importantly, now, Webvan 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 and Webvan had that from the start. And it was equally ambitious. Louis Borders did want to do food and everything. It was the everything store at the edge, sort of close to your house whenever you want it.

• 1:05:03Ben Gilbert?

  And it was so ambitious that even the benchmark partners, after they invested, kept trying to talk him into, could we just do food? Do we have to compete with everything Amazon is doing right away?

• 1:05:15David Rosenthal?

  And the benchmark partnership as a whole, but I think especially the original four benchmark partners were the ones really pushing David to push Louis. Hey, can we just do food? Can we scale down? David totally falls in love with Louis. Like this is what he's there to do from his perspective.

• 1:05:31Ben Gilbert?

  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.

• 1:05:48David Rosenthal?

  Yep, he was that guy, which benchmark totally needed.

• 1:05:51Ben Gilbert?

  Yes.

• 1:05:52David Rosenthal?

  They needed to reinject that DNA into the firm.

• 1:05:55Ben Gilbert?

  Yep.

• 1:05:56David Rosenthal?

  And this deal. Is a great deal to make, as I alluded to. So here's how the deal goes down.

• 1:06:03Ben Gilbert?

  And this is great because this is not how people remember it. Everyone goes Webvan, 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 great risk adjusted bet to make by Benchmark, but B, not actually that big of a smoking crater relative to today.

• 1:06:24David Rosenthal?

  So it's a $7 million round. Benchmark splits the deal with Mike Moritz at Sequoia. Sequoia does three and a half million. Benchmark does three and a half million. Moritz and Bern join the board. I think they each get 10% of the company. And then Webvan does do late stage one or two. I can't remember if it was one or two, at least one quote unquote later stage, but mezzanine rounds from completely other investors. Sequoia and Benchmark don't put more money into the company before they go public. And then Webvan goes public. You know, during the go-go eras, it trades up to an $8 billion market cap. So, you know,

• 1:07:06David Rosenthal?

  at the high point for this Webvan bet that Benchmark and Sequoia each put three and a half million into.

• 1:07:11Ben Gilbert?

  That's what like Lyft is today.

• 1:07:13David Rosenthal?

  They go from, let's assume it was 10% that they each got, and maybe there's a little dilution in there, but like, let's keep it easy, three and a half million to $800 million in public stock, you know, within like two, three years. So like, man, fantastic. I don't think they got 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. But like, man, what a great bet to make. I stand up and applaud for Webvan.

• 1:07:46Ben Gilbert?

  And the thing that I really want to underscore here is for the asset class of actual venture capital, 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. 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 want to be making these sort of risk mitigated bets and have

• 1:08:29Ben Gilbert?

  a port. No, that is why you have a portfolio of 30 companies. Go get all the risk you can.

• 1:08:34David Rosenthal?

  And especially for $3.5 million. So that's less than 5% of the fund. Like for sure. Of course. Do that all day long. So that starts to bring some swagger back to Benchmark. And then you alluded to E-Boys. It takes a couple of 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 and the next big thing about Next. And the tagline on the book, which I think was 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

• 1:09:16David Rosenthal?

  account of venture capitalists at work. And Randall gets access to everything. Like, he sits in partner meetings. He's the author in residence. He's there at 2480 Sand Hill. He's in the portfolio companies.

• 1:09:28Ben Gilbert?

  I think he even visited the Webvan facility.

• 1:09:31David Rosenthal?

  Yep. Which was off limits to all press, you know, all outsiders.

• 1:09:35Ben Gilbert?

  Super private. Yep. Even at their launch, they didn't let any press inside to see it because they were afraid of giving up trade secrets.

• 1:09:41David Rosenthal?

  He embeds with eBay. It was crazy to do this. And at the beginning of E-Boys, Randall writes in the introduction here, "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 gray 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? You got to play like there's nothing to lose here.

• 1:10:15Ben Gilbert?

  Yep.

• 1:10:15David Rosenthal?

  So that leads us to. The big one, the one that actually changes everything. You know, certainly then and still right up among their best venture investments of all time.

• 1:10:30Ben Gilbert?

  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 not a thing that overlapped with technology. It was not a thing that if you weren't 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, always falling over technology.

• 1:11:07David Rosenthal?

  It required a focus on and core belief in the future of the internet. And it required teamwork of the whole partnership working together. So June of 1997, actually well before June, Pierre Omidyar, who we talked about on the amazon.com episode, had been working a few years prior at a little pen computing company called Ink. And they were a pen computing company. And Bruce Dunleavy from Merrill Pritchard, Anderson and Air was an investor in the company. And Ink had an interesting journey.

• 1:11:50David Rosenthal?

  Pretty much the whole pen computing space, except arguably Palm Pilot, didn't really pan out. This is like the Go Corporation of which Jerry Kaplan wrote the great book Startup about, and Ink certainly fell into that category. But the VCs and the management team refused 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. So everybody's happy. They kind of 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 ink, do you know where Pierre goes after ink?

• 1:12:35David Rosenthal?

  Right before he starts eBay or AuctionWeb?

• 1:12:37Ben Gilbert?

  Ooh, I do not.

• 1:12:39David Rosenthal?

  Oh, I thought for sure you would know this. He goes to the epicenter of pretty much all innovation that has ever come out of Silicon Valley. General Magic.

• 1:12:50Ben Gilbert?

  Oh, that's right. That's right. That's right. I remember. Yes, when watching the documentary a few years ago.

• 1:12:55David Rosenthal?

  Yeah, ah, we should do an episode on General Magic and maybe find some of the original people. That'd be fun. We should do that at the Computer History Museum in Silicon Valley. That would be super awesome.

• 1:13:06Ben Gilbert?

  I assume they have the device there.

• 1:13:08David Rosenthal?

  They invented the concept of cloud. They invented the concept of mobile.

• 1:13:12Ben Gilbert?

  In retrospect, it actually makes sense that Pierre would go to General Magic, given his background in pen computing.

• 1:13:18David Rosenthal?

  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 a collection of internet services that he calls eBay for Electronic Bay Area, although there would be lots of retrospective justifications of that name.

• 1:13:40Ben Gilbert?

  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 to your point, there was one link.

• 1:13:57David Rosenthal?

  One of the five or so main things you could do on the site was do this thing called AuctionWeb, which, surprise, surprise, became the thing that became eBay. So we're telling all this history because, hey, it's awesome to tell eBay history, especially having done Amazon earlier this season. But kind of 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.

• 1:14:24Ben Gilbert?

  That's right. He was full time. He was still a full time employee at General Magic when creating eBay.

• 1:14:29David Rosenthal?

  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, John Doerr 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 Pierre is like just hosting these auctions for free. There's no business model. He gets so much traffic that like his server costs kind of go through the roof. And so he reluctantly had in hand, shamefully asked his users to pay a small listing fee just to keep the lights on.

• 1:15:13David Rosenthal?

  And famously, it's like, the way he does it is they send checks to his apartment. He gets delused with checks. He can't open the mail fast enough.

• 1:15:22Ben Gilbert?

  This is product market fit.

• 1:15:24David Rosenthal?

  That, our friends, is product market fit. He brings on Jeff Skoll, who is a newly minted MBA from Stanford Business School, to come in and be the quote unquote, business guy, meaning literally like open the checks and cash them.

• 1:15:41Ben Gilbert?

  It is funny that like, if Pierre hadn't 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 Wikipedia, could have been this like unbelievable resource for humanity that generated no profit. But instead, they became the it company for a generation. Think about the way we think about fangs today. In the early 2000s and late 90s, that's how people thought about eBay.

• 1:16:10David Rosenthal?

  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, after he brings on Jeff, it'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 VCs and a professional board can really help the company. And he remembers Bruce from the Inc. days. But P and Jeff, they go around Sand Hill, they pitch this to everybody. And just about everybody else, actually, literally, everybody else turns them down.

• 1:16:54David Rosenthal?

  Benchmark, though, is interested and Bruce is interested and he's like, you know, as you were saying, Ben, my partner Bob is actually really interested in consumer stuff and consumer marketing and consumer psychology. You should meet my partner Bob, bring Bob in, then they bring David in and David's like, I can bring in the management team. I can find the right person for this. You know, Kevin and Andy love it. It's really the whole team working together. They give Pierre and Jeff a term sheet to invest $6.7 million total in the company in a series A financing at a $20 million pre-money valuation. Pierre and Jeff have

• 1:17:39David Rosenthal?

  one other term sheet, a competing term sheet, shall we say, but the terms of the offer are a little different. The other term sheet is from Knight Ritter, the large newspaper conglomerate.

• 1:17:54Ben Gilbert?

  It was basically an acquisition, right?

• 1:17:56David Rosenthal?

  It was an acquisition. At which Jeff Skoll had worked very briefly after graduating from Stanford GSB for a few months before Pierre recruited him to come help open the mail at eBay.

• 1:18:09Ben Gilbert?

  Which kind of makes sense, right? This is a classified thing on the internet. We do the classified things for newspapers. We can do this, too.

• 1:18:16David Rosenthal?

  Oh, how the world would have been different if one of the nation's leading newspaper companies had acquired the leading online classified business.

• 1:18:26Ben Gilbert?

  And an interesting thing to note is, at this point, eBay is growing 10% a month. So check, fast growth company. It's profitable. All of these checks that are getting mailed in, like, it is generating cash and growing. So why would you get acquired? Why would you not keep running this thing?

• 1:18:48David Rosenthal?

  Well, it was actually a pretty compelling offer. The reason you would get acquired is they offer Pierre and Jeff $50 million.

• 1:18:58Ben Gilbert?

  And that's a thing you would think about taking.

• 1:19:00David Rosenthal?

  That is a thing you would think about taking, especially at this moment in time. I mean, that's like a lot of money.

• 1:19:04Ben Gilbert?

  Right.

• 1:19:04David Rosenthal?

  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.

• 1:19:13Ben Gilbert?

  Right.

• 1:19:14David Rosenthal?

  So there's some debate about what happens here.

• 1:19:17Ben Gilbert?

  And there's debate among people who were there. This is a truly unknown truth, but we will give you everything we know.

• 1:19:25David Rosenthal?

  Yeah, it's like the AWS episode and like multiple origins of AWS. There is a version of the story where none of the money 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.

• 1:19:45Ben Gilbert?

  I think of the portion of the $6.7 million Benchmark investment that went to the company's balance sheet, I don't think any of it ever left the balance sheet.

• 1:19:56David Rosenthal?

  Yes, I think that is correct. Perhaps not all of the $6.7 million went to the company's balance sheet.

• 1:20:03Ben Gilbert?

  Perhaps.

• 1:20:04David Rosenthal?

  What we do know is that Benchmark got 20% or more of the equity in eBay for their equity investment in eBay.

• 1:20:12Ben Gilbert?

  What was reported was that they owned 22.1% at IPO.

• 1:20:16David Rosenthal?

  It was also reported by the Washington Post after the IPO of eBay that Benchmark had also structured equity backed loans to Pierre and Jeff in the amount of $750,000 each as a way to like prevent them essentially, give them an incentive not to take the acquisition offer from Knight Rider because they're sitting there, they're like, oh my God, this is life changing money.

• 1:20:41Ben Gilbert?

  Right, so it's effectively a secondary. It's structured as this equity backed loan, but basically what you could sort of take away from if this Washington Post article is true is a total of $1.5 million was paid to Pierre and Jeff to say, hey, make yourselves comfortable. You know, this is a secondary effectively. 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, 50% of the investment round. 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 backed loans that was reported, not only by the Washington Post, but then

• 1:21:23Ben Gilbert?

  Was in SEC filings that in addition to the equity investment that Benchmark made, there was also some kind of equity backed loans to give them the ability to, whatever they made on the appreciation of the shares that they got as a part of the direct investment, they also had a nice, nice, nice return from the founders deciding to take some money off the table.

• 1:21:46David Rosenthal?

  So all of this is highly untraditional, highly non-consensus. They're the only term sheet. 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, oh, this is a great use case for this.

• 1:22:03Ben Gilbert?

  Right.

• 1:22:04David Rosenthal?

  Allow the entrepreneurs to take some money off the table so they don't sell the company for $50 million and instead let everybody make $50 billion. 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.

• 1:22:18Ben Gilbert?

  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, 10 million to the company's balance sheet and 2 million to the Clubhouse founders. When it's only a few months old, what is Andre Sonharowitz thinking? This is crazy town. And it's like, the Benchmark eBay deal, that may have been 50% of the round, or at least 25%.

• 1:22:40David Rosenthal?

  So the deal gets done in the summer of 1997, and you don't have to wait long for the fruits of that deal to ripen.

• 1:22:50Ben Gilbert?

  Unbelievable.

• 1:22:51David Rosenthal?

  In September, 1998, just a little over a year later, by which point in time, the company, and with Benchmark and David Byrne highly involved, has recruited Meg Whitman, superstar Meg Whitman from Hasbro and previously of Disney strap planning fame.

• 1:23:10Ben Gilbert?

  And that's right. She was part of the strap planning group.

• 1:23:13David Rosenthal?

  Yep. And I think previously to that Bain, I believe it was Bain, one of the big three consulting firms. To come in, take over as CEO and lead this business. And God, does Wall Street love this story. At the IPO in September 1988, Benchmark's stake of the 6.7 million they invested is worth 400 million. Fortunately for them, though, they're still locked up for another six months. They can't distribute. By the time the lockup expires, the next spring in 1989, that stake is worth over $4 billion on an $85 million fund.

• 1:23:52Ben Gilbert?

  A $6.7 million investment turned into $4 billion.

• 1:23:57David Rosenthal?

  In a little over 18 months, less than two years. The IRR on that is unreal.

• 1:24:03Ben Gilbert?

  This alone, 47X's their fund.

• 1:24:06David Rosenthal?

  Yes. Now, 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, that's another $1 billion kicker on top of the $4 billion.

• 1:24:31Ben Gilbert?

  Which is an additional 12X on a fund that would have already, whatever, 47Xed.

• 1:24:37David Rosenthal?

  Unreal. So whether you're talking about 4 billion, 5 billion, whatever, and Benchmark distributes that, they lock that in. That is real returns to the Funds Limited Partners, to the GPs.

• 1:24:50Ben Gilbert?

  And we do know for sure that they distributed $4 billion.

• 1:24:54David Rosenthal?

  Yes.

• 1:24:55Ben Gilbert?

  I just want to pause real quick and say, Fund One did go through the dot com run-up and burst. And so in 2000, 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 92X. But even if it went down, we know it was at least like a 50X, because we know for a fact that 4 billion was actually distributed to LPs.

• 1:25:29David Rosenthal?

  So now remember back to the premium carry.

• 1:25:33David Rosenthal?

  Oh, boy. 30%.

• 1:25:36Ben Gilbert?

  Remember how I was painstakingly explaining that the first 1X goes back to the LPs? So then only after that, the GPs participate. That's a rounding error at this point. Even if they didn't give the first 1X back, if you 50X a fund.

• 1:25:50David Rosenthal?

  So even by the most conservative analysis, assuming no secondary kicker, everything, just what we are pretty sure we actually know. That's $1.5 billion of carry dollars to be distributed amongst the equal partnership after the eBay investment. And they had slices of carry. I'm sure Val retained some carry after he left. And famously, I think Bob pushed for this. They gave pieces of carry to their assistants. So then you hear the stories about benchmark assistants becoming multimillionaires. Like, that was it.

• 1:26:26Ben Gilbert?

  This is how.

• 1:26:27David Rosenthal?

  This was how. And so I think before the IPO, but after eBay is clearly working and Meg Whitman is there. Benchmark had been doing for a while and would really embrace bringing in entrepreneurs and 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, bring the whole partnership together to help them, incubate the company. They did this with an EIR named Danny Shader. And Danny comes up with the idea for a company he calls accept.com. He notices eBay is becoming so big. It's now this viable platform on its own.

• 1:27:08David Rosenthal?

  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 a separate independent company to do payments on the internet and specifically to start with accepting payments for sellers on eBay. Benchmark partnership gets super excited about this. They bring in eBay, they 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 put the deal together, they fund the company, Benchmark does. The IPO roadshow starts, Meg gets distracted, eBay ends up not investing.

• 1:27:48David Rosenthal?

  Then after 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.

• 1:28:00Ben Gilbert?

  Right. Why are we partnering at all? Shouldn't we own just like 100% of this thing? If we're bringing all the customers to it?

• 1:28:05David Rosenthal?

  So this company is kind of stillborn at this point in time. You know, what are they going to do? The whole business plan was payments on eBay auctions listings. You'd think this would be a zero. They call up Amazon.

• 1:28:20David Rosenthal?

  And we talked about this on the Amazon.com episode, but fortuitously for them and for Benchmark, Amazon was starting to think about competing directly with eBay and launching Amazon auctions. They swoop in and they buy Except.com for $175 million of Amazon stock. So Benchmark gets some Amazon stock.

• 1:28:44Ben Gilbert?

  And would become close with Jeff Bezos. There's a sort of longstanding relationship between Jeff and Benchmark.

• 1:28:50David Rosenthal?

  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 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 yet.

• 1:29:12Ben Gilbert?

  But unforced errors just kept happening in front of them and they just kept having that open window.

• 1:29:17David Rosenthal?

  Ah, so fun. Such a fun sidebar and fun to tell it now from the eBay and Benchmark side of things. As we, you know, we told it from the Amazon side a little bit ago.

• 1:29:26Ben Gilbert?

  So why is it that in less than two years, Benchmark's stake grew 100,000%? Why did eBay appreciate so quickly? And to put a finer point on that, they invested at a $20 million pre-money valuation. And by the next spring, the company was worth $21 billion.

• 1:29:48David Rosenthal?

  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 what heretofore was a secret hiding in plain sight, right in front of everybody's faces, that like, hey, the internet is 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, Kleiner Perkins being chief among them. But there was another non-consensus from a Silicon Valley perspective aspect to the eBay deal that Benchmark was willing to see

• 1:30:32David Rosenthal?

  and exploit that nobody else did, which was that the external facing aspects of this company did not look anything like the kind of companies that Silicon Valley backed. But if you just looked at the numbers, it was working. This was already working. The outward factors made it look like there was a ton of risk investing in this business, but it was already de-risked. It was already working.

• 1:30:59Ben Gilbert?

  Yeah, from the outside, it looked like this UI sucks. 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 non-consensus from that perspective. Sidebar, the first business enterprise that I ever did in my entire life was selling Beanie Babies on eBay.

• 1:31:20David Rosenthal?

  No way. You were a merchant?

• 1:31:22Ben Gilbert?

  Yeah, totally. I sold three Beanie Babies, two of them for $100 each, and one of them, a Jerry Garcia bear, for $350. It's weird that I remember all this.

• 1:31:31David Rosenthal?

  Oh, I remember that Jerry Garcia bear. That was like the real hot commodity, right?

• 1:31:37Ben Gilbert?

  Yep. So it's interesting, like, to answer the question of like the growth, there was intrinsic value growth, certainly, of this company growing 10% 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 Dec or Sun, but someone to like, come 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 because they thought, okay, retail's

• 1:32:21Ben Gilbert?

  a big market. If the internet's actually a thing and people are willing to transact on the internet, then my God, this business is going to 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. And so, of course, you know, bubbles happen.

• 1:32:45David Rosenthal?

  And of course, that would never happen again.

• 1:32:47Ben Gilbert?

  No, of course not. It's funny. I looked up eBay's market cap today. 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 $25 billion. Stayed there through the dot-com crash. The bottom of the trough, I think, was something around $7 billion. And then it would have another run-up in 2004, up to $77 billion. But after going up and down and buying PayPal and divesting PayPal, after all this, do you know where it is today, David?

• 1:33:26David Rosenthal?

  I believe it's about $25 billion, right?

• 1:33:28Ben Gilbert?

  $23 billion. Right about the market cap, however many years later this is, 22 years later, right around the market cap where Benchmark got liquid.

• 1:33:39David Rosenthal?

  Wow. Wow. That's so crazy.

• 1:33:44Ben Gilbert?

  Isn't that wild?

• 1:33:45David Rosenthal?

  And right about, what is that, like 1/50th of Amazon's market cap?

• 1:33:49Ben Gilbert?

  Something like that. It's still astonishing to me that, in the long run, Amazon ended up beating eBay. 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, thread-the-needle stuff in order to create this great user experience." But that stuff compounds.

• 1:34:20David Rosenthal?

  Well, that is the perfect transition to come back to. I want to talk about the benchmark architecture itself and analyze why the equal partnership and the teamwork and everything worked here.

• 1:34:33Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:34:46David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:35:02Ben Gilbert?

  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.

• 1:35:17David Rosenthal?

  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. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:35:41Ben Gilbert?

  And they recently launched Logora 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.

• 1:36:00David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform, from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:36:30Ben Gilbert?

  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/acquired and just tell them that Ben and David sent you.

• 1:36:55David Rosenthal?

  All right, so we've told now the story of Benchmark Fund One from pre-founding up through Fund One, raising it, the marketing, the founding religious fervor around equal partnership, the rocky start, and then the hiring of David Byrne, the getting the swagger back, it all working. 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. How did this actually play out in practice?

• 1:37:37Ben Gilbert?

  Yes.

• 1:37:38David Rosenthal?

  So part of it obviously was economics. Part of it was what they thought was right. Part of it was LP marketing. Part of it was counter positioning against John Doerr, obviously, for sure.

• 1:37:53Ben Gilbert?

  How do we be different? Do something that they will never, ever do, which would have been giving up an enormous amount of their personal economics.

• 1:38:00David Rosenthal?

  Right, John wasn't going to make the other partners at Kleiner Perkins equal partners to him, like just, it was not going to 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. Not only did that not happen at Benchmark, because 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 going to bring the whole talents of the whole firm and all of our varied skillsets to help you.

• 1:38:38Ben Gilbert?

  Yep.

• 1:38:39David Rosenthal?

  And then there's the other counter positioning aspect versus John and Kleiner of like, you know, there's no kuretsu 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, 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.

• 1:39:09Ben Gilbert?

  Designed not to scale.

• 1:39:11David Rosenthal?

  Yes.

• 1:39:12Ben Gilbert?

  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. When nobody has any incentive to claim credit for anything, because everyone already has the best job at the best firm, then 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. Because as we know from Buffett and everyone else who has said it over the years, incentives drive behavior.

• 1:39:57Ben Gilbert?

  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 you're all in bed with each other. I mean, you have signed up to be, for better or for worse, a part of this person's success or failure.

• 1:40:18David Rosenthal?

  And let's unpack those incentives, because I think there are several layers to this. There's the obvious economic incentive. David Byrne made as much money on eBay as Bob Kegel made on eBay, as Bruce Dunleavy, as Kevin Harvey, as Andy Radcliffe made on eBay. They all made the same. So if one of them could help give a boost that would add an incremental couple billion to that market cap, it was well worth it to all of them.

• 1:40:48Ben Gilbert?

  Yep.

• 1:40:49David Rosenthal?

  That's the most baseline obvious one. But I actually think that's the less salient one on a day to day basis. Having lived myself as part of firms, we all have too. Like, obviously, the money is the scoreboard and your job is to provide outsized returns for your limited partners. And like, it matters to you. But like, on a day to day basis, that is not part of your mind every day. What is much more salient, I think, to most People who are working as investors within a venture capital firm is the impact of what

• 1:41:26David Rosenthal?

  they are doing on their own career trajectories. And in any other structure, that 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, you know, sort of the older generation, and some of the current generation benchmark partners like to talk about, you know, 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. And there's an executive hire that would really help.

• 1:42:08David Rosenthal?

  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 has a spot open for that candidate? Like, there's the economics, but even more than that, making that senior partner's 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.

• 1:42:36Ben Gilbert?

  Once you introduce a secondary incentive, 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 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 if everyone truly brings the same amount of value to the partnership. Because otherwise, over time, you will have a situation where even if you're equal economically, you become unequal in everybody realizing, hey, that person's not bringing it the way that

• 1:43:21Ben Gilbert?

  we're bringing it. And that creates just as big of a problem.

• 1:43:25David Rosenthal?

  You've brought up, I think, the absolute crux of this, that I've, you know, we've now read and watched and listened to probably just about, maybe not, I won't say 100%, but probably 95% of all the content out there about benchmark. 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 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 the Benchmark firm model is very, very much in the minority.

• 1:44:10David Rosenthal?

  There may not even really be any other firms that are structured the same way as them. And I think what you just brought up to me is the crux of the answer. There's two ways that this 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 LPs 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.

• 1:44:55Ben Gilbert?

  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...

• 1:45:11David Rosenthal?

  Why are you giving 80% of your economics to these other deadbeats?

• 1:45:14Ben Gilbert?

  You start showing up in a mediocre way.

• 1:45:16David Rosenthal?

  Yep, you're gonna leave. For this model to work, you need every active general partner, every owner of the firm, everybody who is in that equal slot, to be bringing it at an equal level, both in terms of effort and in terms of output, to bring it at an equal level and to literally the utmost of their capabilities. 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 100% every day. And that's, I think, a big part about what that sort of the initial swagger that Benchmark

• 1:45:59David Rosenthal?

  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.

• 1:46:09Ben Gilbert?

  Yeah. And I also think that's why they have to retire once they sort of age too far out of their 40s, because it is an implicit thing among the group of you gotta be bringing it all day, every day. And at some point, if you want to notch down to 90%, it's time for you to not be a GP in the fund. And I think a lot of these things, 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 the

• 1:46:49Ben Gilbert?

  trust is and how you need to create an unbelievable support system for your partners to be able to 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 going to 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 10 hour Monday meetings where, you know, it's meandering

• 1:47:31Ben Gilbert?

  and it's jovial and it's friendly. I think the hard conversations have to be just so delicately handled in order to maintain this like very delicate state.

• 1:47:46David Rosenthal?

  It's constantly balanced on a knife point, I think.

• 1:47:48Ben Gilbert?

  Yes.

• 1:47:49David Rosenthal?

  And here's what's even harder about maintaining that sort of knife point equilibrium.

• 1:47:57David Rosenthal?

  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.

• 1:48:15Ben Gilbert?

  Right.

• 1:48:16David Rosenthal?

  I mean, I was just recently, the other week, listening to Ruloff from Sequoia did a great interview on Tim Ferriss's show. Awesome conversation. You know, he's freaking Ruloff. He's running Sequoia now. He took over for Leonie, 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 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 themself out? Can we as a partnership together pull them out of this dry spell? Will they get

• 1:48:58David Rosenthal?

  back to performing at the top of their game or not?

• 1:49:03Ben Gilbert?

  Right. You have to keep their head game strong. You can't add to the pile of reasons of self doubt.

• 1:49:08David Rosenthal?

  So I think this is the trade off implicit architecting a firm like Benchmark the way that they have, if you're going to maintain world-class performance.

• 1:49:21Ben Gilbert?

  It will not scale, but you do get this next level of trust that you can't get any other way, which should lead to outcomes and which, actually, this is a good time. I was debating if I was going to 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 stopped being 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

• 1:50:06Ben Gilbert?

  models of very successful venture firms.

• 1:50:08David Rosenthal?

  We've told several of them on this podcast.

• 1:50:12Ben Gilbert?

  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 and the entrepreneur is so tight and the communication is so frequent. I mean, we talked to founders who said, I 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 ends up being a model for entrepreneurs to bring into their company. And it's amazing having that kind of example to follow.

• 1:50:56Ben Gilbert?

  And I don't think he meant that it was like super direct or overt, but I think he meant that you sort of naturally end up learning from that and following it and implementing it in your company.

• 1:51:08David Rosenthal?

  Yes, this absolutely spills over into the portfolio company relationship, both between the kind of lead, you know, the board member within Benchmark, but you know, even more so, and I think this is what, one of the things that makes Benchmark 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.

• 1:51:34Ben Gilbert?

  If I'm a founder and I am choosing a board member, it's crazy how most people don't think about this because 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 feels 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.

• 1:52:01David Rosenthal?

  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 delicate.

• 1:52:14David Rosenthal?

  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, one of the folks we talked to called it swashbuckling-ness. If you don't have that, 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 going to win. You're not going to perform. You gotta be out there feeling yourself, believing, I'm going to hit that shot. I'm going to make that play. Give me the ball. I want the ball. We're going to win. If you don't have that mindset, you're going to crumble. And that's why I think these things are so intricately tied together in a partnership structure like this.

• 1:52:57Ben Gilbert?

  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 recruited someone new into the partnership. That's got to be pretty hard to be the first person coming in to kind of be the next generation of the firm.

• 1:53:17David Rosenthal?

  After the big success, right? Because David Byrne sort of was this, but like, it was sort of part of almost a reset.

• 1:53:24Ben Gilbert?

  Yes.

• 1:53:25David Rosenthal?

  They hadn't had that success yet. So we're now post eBay, late 98, early 99. The IPO has happened. Distributions are being planned underway. And you've got a pretty interesting set of circumstances here. The model worked.

• 1:53:43Ben Gilbert?

  You had the highest performing venture fund of all time in terms of returns to LPs of a meaningful size fund.

• 1:53:48David Rosenthal?

  Yes. It worked 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.

• 1:54:07David Rosenthal?

  Like, what now?

• 1:54:09Ben Gilbert?

  Why are we raising from LPs again? Why aren't we just turning this into a family office?

• 1:54:13David Rosenthal?

  Of all the times to declare victory, like, they could actually declare victory now.

• 1:54:17Ben Gilbert?

  Right, why are any of us going to work anymore at all? Even if it's to invest our own capital?

• 1:54:21David Rosenthal?

  Right, and, you know, even I think they all do sort of recommit. And then E-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. But as painted in E-Boys and as borne out in practice, they all do recommit. You know, nobody raises their hand and says, you know what? I can't go 100% anymore. I'm going to do other things. They do later, but they don't now. Even despite all that, the game just got way harder for them. Because they went from the people painting the targets on the back of John Doerr and other people to 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 the target of people who want to work with them.

• 1:55:04David Rosenthal?

  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 one of the top tier firms. They get all the calls. They get to see whatever they want to see, basically.

• 1:55:23Ben Gilbert?

  Oh, and there's a bunch of things we didn't even talk about, like all the Fortune 500s 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.

• 1:55:36David Rosenthal?

  This is the big problem.

• 1:55:38Ben Gilbert?

  Nordstrom and Toys R Us.

• 1:55:40David Rosenthal?

  This is the bigger problem, the distractions. So literally Goldman Sachs calls them up and is like, we want to benchmark Goldman Sachs joint venture.

• 1:55:50Ben Gilbert?

  And not like you become Goldman Sachs. It's more like, help us create the Goldman Sachs dot com.

• 1:55:55David Rosenthal?

  Yep, 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 want to do the same thing, you know? General Electric wants to do this. There is so much. And then we're going to talk about LPs and international and all of that in a minute here.

• 1:56:15Ben Gilbert?

  There's an opportunity to raise a lot more money. Should we do that? 85 million was kind of a small fund.

• 1:56:21David Rosenthal?

  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. 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 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-Keretsu concept.

• 1:57:02David Rosenthal?

  Like, if we have a relationship with Goldman Sachs, if we have a relationship with General Motors, if we have a relationship with Toys R Us and Nordstrom, isn't that helpful to all of our other entrepreneurs?

• 1:57:13Ben Gilbert?

  Oh, they started something, if you look at their website from 2002, God, I'm so glad the Wayback Machine exists, but they have a page called "Our Corporate Network", and they've got like 30 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, and offering advice where appropriate. Companies active in the Benchmark Corporate Network include," and it's like, of course, tech companies, TSMC, Toshiba, Intel, but it's also companies that are sort of bridging the old world and the new. So you've got Charles Schwab and E-Trade, and of course, there's companies that were

• 1:57:55Ben Gilbert?

  never in their portfolio, but are other big, successful tech companies like Cisco.

• 1:57:59David Rosenthal?

  So you've 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.

• 1:58:11Ben Gilbert?

  Right. Because you could 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, but it's, the world's going to change and it's going to 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 be the future. And you look at like an Andreessen Horowitz, what they decided with Web 3, 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.

• 1:58:55David Rosenthal?

  Well, and Sequoia too, you know, Sequoia expanded internationally. Sequoia added a growth fund. Sequoia raised bigger funds. There are very clear examples of success in pursuing any of these paths.

• 1:59:09Ben Gilbert?

  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 and they chose to ignore all the temptation. But despite where they are today, that is not at all what happened. They tried everything. They threw the kitchen sink at corporate partnerships. They expand to multiple continents at the same time. They were like, oh, bigger fund, let's raise a billion dollar fund. And they tried it all.

• 1:59:40David Rosenthal?

  Two thoughts. One, the one thing that they didn't do, the one thing they stayed true on was they didn't bring on junior partners.

• 1:59:47Ben Gilbert?

  That's a hard decision to undo. Once you do that, you can undo all this other stuff.

• 1:59:51David Rosenthal?

  Hard, but you can, and they did. The other thing I was going to 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 CEO and then Mike Moritz was CEO and Leoni was COO. Yeah, Stewart, whatever you want to call it, you know, Rudolph is the CEO now.

• 2:00:15Ben Gilbert?

  There was someone who could make a call.

• 2:00:17David Rosenthal?

  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. 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 going to keep doing what you do here, making investments in Menlo Park.

• 2:00:33Ben Gilbert?

  Tending to the chickens.

• 2:00:35David Rosenthal?

  Yes, tending to the chickens. What a great episode that was. That was so fun. You know, and Andreessen, 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. So the one thing, though, as you teed it up here, that they all pretty much right away are in agreement on after eBay is let's bring in a sixth partner, 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.

• 2:01:17David Rosenthal?

  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.

• 2:01:28Ben Gilbert?

  It is. I mean, honestly, listeners, I'll put the link in the show notes. You go to the 97 website and the 2002 website 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.

• 2:01:50David Rosenthal?

  You tweeted about this, that they had directions from the airport.

• 2:01:52Ben Gilbert?

  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.

• 2:02:02David Rosenthal?

  So now, when you're bringing in a partner with the benchmark equal partnership model, there's no try before you buy. 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. And so when you accept that that's the set of constraints you operate in, there's actually a sort of very narrow path that it makes sense and they're a very narrow pool to fish in for future benchmark partners, which is if you want to be reasonably confident that somebody's going to be a good venture capitalist, you probably want to find people who are already. Good venture capitalists.

• 2:02:45Ben Gilbert?

  Yes, that's a great point. You could develop the talent internally or

• 2:02:49David Rosenthal?

  Well, but you can't at Benchmark.

• 2:02:50Ben Gilbert?

  Right. It's like, we could develop 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 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 $50 million 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.

• 2:03:14David Rosenthal?

  You may hit some winners, but it's probably going to be luck, not skill.

• 2:03:17Ben Gilbert?

  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. 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 going to recruit them in and make them equal partner, you want to have like 20 years of running room left in that person's career. And so that scopes you in super narrowly to like, you need someone who's probably like 30 and like the best 30-year-old venture investor.

• 2:03:55David Rosenthal?

  Yes, currently on the field. And back to the original fathoming impetus of Benchmark, somebody who's operating within a firm context where they are not an equal partner with full economics, and it's going to be very attractive for them to transition to a place where they are.

• 2:04:14Ben Gilbert?

  And on a personality trait characteristic, just to keep narrowing further and further, it's like, well, they need to be fiercely competitive, but also, under the right set of conditions, an unbelievable teammate.

• 2:04:27David Rosenthal?

  Yes.

• 2:04:27Ben Gilbert?

  The box gets small.

• 2:04:29David Rosenthal?

  It gets very small. And at this moment in time, late 90, early 99, There is one very obvious, very large person who fits in that very small box.

• 2:04:40Ben Gilbert?

  Oh, and you need him to be over 6'5" and a white man.

• 2:04:43David Rosenthal?

  Yes, right.

• 2:04:45Ben Gilbert?

  They all did fit that characteristic early on, but unfortunately more diverse now.

• 2:04:49David Rosenthal?

  Yeah. Which is funny now. It's a Peter's the only white man left as he's fond of pointing out, which is, you know, great. That is progress.

• 2:04:56Ben Gilbert?

  Yep.

• 2:04:57David Rosenthal?

  Bill Gurley, of course, we're talking about.

• 2:05:00Ben Gilbert?

  Yes. He sees above the crowd.

• 2:05:02David Rosenthal?

  I can't imagine that anybody listening now, you know, what are we, two, three hours into this podcast 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 Houston.

• 2:05:18David Rosenthal?

  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, a John Doerr company, goes to Wall Street, starts writing above the crowd. There was, 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 above the crowd, he went to a tech conference that Stuart Alsop was putting on. They were selling this new device, you know, Palm Pilots at the tech conference. It's like a, you know, like a 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 these Palm Pilots at the conference had the contact information for all the attendees of the conference, including

• 2:06:03David Rosenthal?

  like Bill Gates and like, you know, Steve Jobs.

• 2:06:05Ben Gilbert?

  Oh, wow.

• 2:06:05David Rosenthal?

  People. So Bill bought the Palm Pilot and then just started spamming everybody with their fax numbers with his above the crowd list.

• 2:06:14Ben Gilbert?

  I do know Michael Mobison 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, effectively like blog post, like newsletter. And they would send it out by fax at a certain time. And when that person retired, Bill 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.

• 2:06:41David Rosenthal?

  And then he added to the contact list from the Palm Pilot with fax numbers. So genius.

• 2:06:46Ben Gilbert?

  And did you know, David, he eventually also started writing for Fortune?

• 2:06:50David Rosenthal?

  Oh, yeah. I've forgotten about that.

• 2:06:53Ben Gilbert?

  He had a regular column in Fortune. He would always leave at the bottom, like if you have feedback, email, I think it was like [email protected]. I think it was like the above the crowd.

• 2:07:02David Rosenthal?

  That's awesome. That's awesome. He's a good growth hacker, Bill. He's underrated on that.

• 2:07:07Ben Gilbert?

  Very good at distribution.

• 2:07:09David Rosenthal?

  Very good at distribution.

• 2:07:10Ben Gilbert?

  And it turns out venture capital investing.

• 2:07:13David Rosenthal?

  And it turns out, well, we'll get into that. So, you know, we told the story elsewhere. He'd been on Wall Street. He'd then to work for Frank Crutone 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 Windblad, spends about 18 months there as a venture capitalist, but he's a well-known commodity.

• 2:07:32Ben Gilbert?

  One of the rare female-led venture firms.

• 2:07:35David Rosenthal?

  That's right. Especially at that era. They're very, very, very few. You know, Bill's just great. There's, you know, what can we say about Bill that hasn't been said? One of my favorite things when we were talking to folks is so perfect. Bill has a Calvinist work ethic. And that is absolutely true. Absolutely true. I haven't worked with him on some stuff.

• 2:07:53Ben Gilbert?

  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.

• 2:08:07David Rosenthal?

  Sounds like the Bill I know. So he's funny. So all of this is chronicled in e-boys. The whole recruitment process, all the internal discussions about Bill. Of course, it's e-boys, so you got to take it with a grain of salt. It's dramatized. But what's interesting, you know, when I read it, 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.

• 2:08:37Ben Gilbert?

  And too analytical, like he'll overthink the decisions.

• 2:08:41David Rosenthal?

  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 when I read that, I just wanted to like yell at the book. I was like, this is a balls and brains business.

• 2:08:58David Rosenthal?

  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. At that 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 risks that others weren't willing to take. They were certainly 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.

• 2:09:39Ben Gilbert?

  Yes.

• 2:09:40David Rosenthal?

  To 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 that Benchmark was investing. You weren't investing on product traction.

• 2:09:55Ben Gilbert?

  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 startup being post-business plan.

• 2:10:12David Rosenthal?

  Right. But not customer traction.

• 2:10:14Ben Gilbert?

  Exactly. And when I was really trying to figure out, like, how did they shift from seed 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 B2B. 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 2000s, you basically had angel investors that were starting to like, come in and fill the randomness risk, the pre-launch, no traction, who knows?

• 2:10:56David Rosenthal?

  The product building risk.

• 2:10:57Ben Gilbert?

  Right. Cause it was consumer 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 crap shoots that we don't want to be playing in that seed stuff anymore for consumer.

• 2:11:15David Rosenthal?

  I have 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 here. 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 their returns. So Bill joins from Hummer Windblad. And do you know what Bill's first deal at Benchmark was?

• 2:11:42Ben Gilbert?

  Ooh, uh, no, I don't.

• 2:11:45David Rosenthal?

  Got some real fun Silicon Valley.

• 2:11:46Ben Gilbert?

  Open table.

• 2:11:47David Rosenthal?

  History trivia here. Nope. E. Pinions.

• 2:11:50Ben Gilbert?

  E. Pinions.

• 2:11:51David Rosenthal?

  Do you know who the CEO was of E. Pinions at the time?

• 2:11:54Ben Gilbert?

  No.

• 2:11:55David Rosenthal?

  Naval.

• 2:11:56Ben Gilbert?

  Really?

• 2:11:57David Rosenthal?

  Naval Ravikant. Yep. That was his debut in Silicon Valley.

• 2:12:01Ben Gilbert?

  Wow.

• 2:12:02David Rosenthal?

  And that did not end well for Naval.

• 2:12:05Ben Gilbert?

  He did Venture Hacks after that?

• 2:12:06David Rosenthal?

  And then he went and did Venture Hacks. He ended up leaving the company. He was replaced as CEO. Then I think that was probably a big part of why he went and then did Venture Hacks and was kind of anti VC Silicon Valley. And that led to Angel List and now, how funny, how full circle it all comes. Bill also talks a lot about this on that Kara Swisher episode. It's so good. So Bill joins and we got to tell this too from you boys. There's this really funny vignette. The partnership can't get comfortable with like the one thing they're having in trouble with, with Bill is like, is he going to 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.

• 2:12:45David Rosenthal?

  And on the hunting trip, Bill apparently greatly impresses Kevin by jumping over a cliff to go chase down either a deer or a boar that they're hunting and go like, you know.

• 2:12:59Ben Gilbert?

  In the rain.

• 2:13:01David Rosenthal?

  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.

• 2:13:07David Rosenthal?

  Oh, so funny. So just everything. So e-boys. So two things to talk about here. First, we got to talk about the imperial era, but first let's flash forward a little bit. And I want to talk about Bill and his investing 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. He does OpenTable. He does Zillow. He does Grubhub. He does what becomes oDesk, you know, Dog Vacay that merges with Rover, you know, et cetera, et cetera.

• 2:13:40Ben Gilbert?

  HackerOne.

• 2:13:41David Rosenthal?

  Yep. In the earlier era than that, sort of the Grubhub, OpenTable era and all that. 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.

• 2:13:58Ben Gilbert?

  Well, Benchmark did not have an eBay sized win until Bill's big marketplace.

• 2:14:03David Rosenthal?

  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. 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 $60 million valuation that are actually like deeply in the money, cannot lose money. And that was the era when Benchmark really shined.

• 2:14:47Ben Gilbert?

  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 by 10 times on this show, A Rake Too Far, you know, Bill's posts 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 moats and pricing power. And he just understands all this stuff at such a deep level. And I think we shouldn't disparage the other founding partners. It just wasn't their skillset. 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. They sat in a room with entrepreneurs and thought, does this guy have it?

• 2:15:31Ben Gilbert?

  And I think it's a very different skillset.

• 2:15:34David Rosenthal?

  Very, very different skillset. 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.

• 2:15:59Ben Gilbert?

  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, eh, we want to stay a gut-based business and we want to stay at formation stage investing. I mean, 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 baselines and lowercase and.

• 2:16:36David Rosenthal?

  There's just no way. I mean, let's take Y 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 that all this became possible, which wasn't until the mid 2000s. So from when Bill joins and all these decisions are on the table in 99, 2000, you've got another five, six years before the world shifts.

• 2:17:05Ben Gilbert?

  Okay. So what are all the other decisions they made?

• 2:17:09David Rosenthal?

  Well, like we said, the only thing they don't do is bring in junior partners, but they do everything else. They raise a billion dollar fourth fund. And before that, the first fund was 85. I think the second, I want to say was 150 and the third, I think was 175. I think those were the core funds and then there were parallel entrepreneurs funds on top of those. So you'll top it up a little bit to allow individuals and entrepreneurs to invest as well. But not, that was the scale that they were investing at. They raise a billion dollars for the fourth, you know, Menlo Park-based, Sand Hill-based fund.

• 2:17:46David Rosenthal?

  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, setting all that up.

• 2:17:57Ben Gilbert?

  Which, again, for all these things, the thesis makes sense. They looked and thought eBay, well, that could have been started anywhere.

• 2:18:04David Rosenthal?

  Right.

• 2:18:05Ben Gilbert?

  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.

• 2:18:23David Rosenthal?

  Yep, they recruit seven partners, new partners to come in and run the international funds, but the separate Europe fund and a separate Israel fund, both structured the same way, but separate partnerships.

• 2:18:35Ben Gilbert?

  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.

• 2:18:51David Rosenthal?

  But the reality was, especially in those early days, 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.

• 2:19:08Ben Gilbert?

  Right, deal with answering the question, so 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.

• 2:19:18David Rosenthal?

  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. 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 is going or worrying about this, that, or the other thing like. Literally 90, 95% of your time is spent playing the game on the field, which is making investment decisions, helping portfolio companies. Like, there's nothing else.

• 2:19:50Ben Gilbert?

  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.

• 2:20:19David Rosenthal?

  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?

• 2:20:26Ben Gilbert?

  Right. Should this be a company? And we were both like, absolutely not.

• 2:20:29David Rosenthal?

  No, that is not what we want to do.

• 2:20:33David Rosenthal?

  So yeah, you know, it's very similar here. But Benchmark, to take the personal analogy, they wanted to run acquired, but they instead decided to go build the New York Times.

• 2:20:45Ben Gilbert?

  Right. But you can't go halfway. I mean, that's the thing. You need to go all the way if you're going to cross that chasm.

• 2:20:52David Rosenthal?

  You know, pretty quickly, the cracks start showing in this model. Well, here's what they do. They raised the billion-dollar California, you know, US fund. They raised a $750 million Europe fund. They raised a $220 million Israel fund. The Europe fund, they end up cutting back to 500 million after the bubble burst because they're like, we just can't invest 750 million. We can't deploy it all. Yep. But even still, you're now talking about a firm that the previous fund structure was on the order of 200 million, mostly in Silicon Valley, but all in the US, to now on the order of 2 billion around the world. It's a big task that they bite off. The cracks start showing almost immediately. There are three examples,

• 2:21:35David Rosenthal?

  all of which are sins of omission, which are the biggest sins in venture capital. None of the sins of commission of deals you do are what's really going to 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 infrastructure is starting to get spun up.

• 2:21:57David Rosenthal?

  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 one of his few biggest regrets. He said that publicly. He had just joined the firm and Google appears. And some subset of the Benchmark partnership, including Bill, heard about them, met with them. Huh. Had an opportunity to pursue. And Bill always frames it as they failed to pursue Google. Not that they passed or that there was a full part, but they didn't pursue it with the typical Benchmark and Bill

• 2:22:39David Rosenthal?

  hyper competitiveness, drive to win that we all know. They declined to pursue. Would they have beaten John Doerr for Google? Maybe, maybe not, debatable. Would they have beaten Mike Moritz 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 primary VC slots in Google? Almost assuredly. I mean, at this point, this was benchmark. 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.

• 2:23:23David Rosenthal?

  They had the relationship with Bezos, even though Kleiner had the tighter relationship. But remember, Bezos was a very influential and large seed investor in Google. Yep. So, gosh, that's a big miss. Yeah. Okay. Google's a miss. Google's a miss. Okay, that's one. 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 European company that has aspirations to be a Silicon Valley company and go global? Does the Europe fund do it? Do the core Benchmark, Menlo Park partners do it?

• 2:24:07Ben Gilbert?

  Well, wait, can I guess where this is going?

• 2:24:10David Rosenthal?

  Yeah.

• 2:24:11Ben Gilbert?

  Skype.

• 2:24:12David Rosenthal?

  Skype. That emerges a couple of years after all this gets set up.

• 2:24:16Ben Gilbert?

  Out of Tallinn, Estonia.

• 2:24:18David Rosenthal?

  Out of Estonia. And Bill talks about this, too. He met Skype, likes Skype, it's right up his alley, right up Benchmark's alley. 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 miss. And then the third miss that is not directly related to the international expansion, but I think is more symptomatic, perhaps, of the sort of taking your eye off the ball. But a Google-sized miss is they miss Facebook. And 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.

• 2:25:03David Rosenthal?

  Who else could do it?

• 2:25:05Ben Gilbert?

  Kleiner was still Kleiner at that point, right? The tumult hadn't started there.

• 2:25:09David Rosenthal?

  Totally. You know, Excel ends up doing it. And Excel is a great firm and Jim Breyer does, you know, like, not to take anything away from them, but like, absolutely Benchmark should have been and was in the conversation.

• 2:25:20Ben Gilbert?

  And this is 04, 05.

• 2:25:22David Rosenthal?

  Yep, for the Series A, for the $100 million valuation of Facebook, you know, very similar to that Google round. What happened? Well, specifically what happened was Benchmark had invested in Friendster and so was conflicted out. Now, you could argue that was an unavoidable mistake, you know, but like, boy, does that hurt. And supposedly, I think it was Bob Kegel, who was on the board of Friendster. And at that point, there had been some CEO turnover at Friendster. Jonathan Abrams, who then started Newsle and Founder's Den, was the original founder of Friendster. I'd forgotten that.

• 2:25:53Ben Gilbert?

  Oh, my gosh, with the original acquired meetup at Founder's Den.

• 2:25:57David Rosenthal?

  Indeed, and now runs Epic Capital. They had brought in Tim Kugel as CEO of Friendster at that point. Tim had been CEO of Yahoo. Tim blocked Benchmark from pursuing Facebook.

• 2:26:07Ben Gilbert?

  Oh, was that really what it was? Did they know about Facebook? They never got to look at it because of Friendster?

• 2:26:12David Rosenthal?

  That's the story. And supposedly, you know, Mark Zuckerberg loved Bob, loved the Benchmark team. Who knows, right? But like, my point is, if you want to be a generational defining 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. No Facebook.

• 2:26:41Ben Gilbert?

  Bummer.

• 2:26:41David Rosenthal?

  And I think you can probably trace most, if not all of that, back to probably making the wrong architecture decisions.

• 2:26:48Ben Gilbert?

  Right. So this sort of like 2001 to 2010, actually not a great decade for Benchmark. They had some good investments. They'd OpenTable.

• 2:26:58David Rosenthal?

  Well, not to 2010. I would say until 2006, 2007.

• 2:27:04Ben Gilbert?

  Okay, fair. But like, if we look at the biggest wins out of that period, it's probably OpenTable, Zillow.

• 2:27:13David Rosenthal?

  Grubhub.

• 2:27:14Ben Gilbert?

  Instagram wouldn't have been yet.

• 2:27:16David Rosenthal?

  Nope.

• 2:27:18Ben Gilbert?

  So that's probably those three that we just mentioned.

• 2:27:21David Rosenthal?

  Yep. 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, at one of the Menlo Park Monday Partners Meetings, I think it was Kevin Harvey, who finally kind of just said, what probably everybody was thinking at that point in time of like, guys, why are we doing this?

• 2:27:43Ben Gilbert?

  We don't need to be wandering in the woods.

• 2:27:45David Rosenthal?

  Can we go back to focusing on what we all actually want to do here, which is invest in California with the right size funds, do early stage, focus only on the game on the field and not do all this? And Kind of supposedly one by one, everybody's like, yeah, actually that sounds a lot better.

• 2:28:04Ben Gilbert?

  I mean, this is after that article came out in Bloomberg that I think is pretty illustrative of the time. It was in 2000 and the title is still the benchmark to bet on. And it ends in a question mark. I mean, it's funny because like 2000, 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.

• 2:28:28David Rosenthal?

  Yeah. And there's a great quote in there that I'm sure everybody involved regrets, but I think it was Mark Kwame from Sequoia.

• 2:28:34Ben Gilbert?

  Yes.

• 2:28:34David Rosenthal?

  Yeah. About, uh, does Benchmark have the technical prowess to, you know, relate to the next generation of founders?

• 2:28:41Ben Gilbert?

  That was a good dig. Like, hey, they're not technical. And, you know, how are you supposed to work with technical founders?

• 2:28:46David Rosenthal?

  It was a good dig.

• 2:28:47Ben Gilbert?

  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 1800 Flowers. That was not a good investment right before their IPO. Why are they deploying capital into that?

• 2:29:02David Rosenthal?

  They had a billion dollar fund. They had put that money to work.

• 2:29:04Ben Gilbert?

  Yep.

• 2:29:05David Rosenthal?

  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.

• 2:29:14Ben Gilbert?

  And this kind of thing is why you need to treat the partnership with such delicacy. This is where 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.

• 2:29:39David Rosenthal?

  Totally. And that happens. So kind of that 2004, 2005 era, you know, post-Facebook, they do that. They spin off Europe, they spin off Israel.

• 2:29:52Ben Gilbert?

  Becomes Balderton and then Michael Eisenberg goes and starts Alef in Israel, both of which have become great funds.

• 2:29:59David Rosenthal?

  Yep. Yep. You know, we didn't talk to either of those teams, but I would imagine they're, you know, hey, like they exist, they're great firms now because Benchmark helped set them up. So, you know, it's not like this was not any value creative for the world. It just came with some real trade offs.

• 2:30:16Ben Gilbert?

  Right.

• 2:30:17David Rosenthal?

  So around this time, the first actual wave of retirement of stepping back of some of the original partners happens.

• 2:30:30Ben Gilbert?

  And this is the test, right? Are they actually going to take no further economics?

• 2:30:34David Rosenthal?

  Are they going to live up to the founding principles? They were on the other side of that table at this point 10 years ago. And they've now been wildly successful. They've had ups and downs at Benchmark. It's time to refocus the firm. What are they going to do? And they do it. They actually do it. They resist the temptation. David Byrne and Andy Ratcliffe, and they had brought on another GP during that period, Alex Malkansky. In the 2005, 2006 fund they raised then, they all step back and they don't take tail economics, meaning they're out of the management company, no longer formal decision making power in the firm.

• 2:31:17David Rosenthal?

  The current ownership structure of the management company transfers to the current GPs and they don't take Kerry in the new fund. They keep working, keep having Kerry in the boards that they're on from the old funds.

• 2:31:30Ben Gilbert?

  And their LPs, their big LPs.

• 2:31:31David Rosenthal?

  And their 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.

• 2:31:42Ben Gilbert?

  So what's the GP group look like at this point?

• 2:31:45David Rosenthal?

  So at this point, heading into Fund Six or in the mid 2000s, the lineup is Bruce, Bob, Kevin and Bill. So we're down to four and three of the original founders plus Bill. Still like a very good lineup, but you probably need some more firepower to really pursue what you want to do here.

• 2:32:07Ben Gilbert?

  Well, and kind of like what you were mentioning in the 1996 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 hitter after hitter after hitter. It is the most impressive lineup of venture capitalists to all suddenly join the same firm. This retrospectively feels like the heat, but none of these people were these people yet.

• 2:32:39David Rosenthal?

  No, and Peter Fenton is the first of these new blood to come on board. He has a quote at TechCrunch disrupts 2020, 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 founders of Benchmark. And this is a refounding of the firm with the blessing and direction of, not direction of what to do, but like the prescription from the original founding group to go forth and do your thing and figure out what's going to work now. Yep. And in many ways, it's just back to basics.

• 2:33:23David Rosenthal?

  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. Facebook. And Peter wasn't directly involved in the Facebook investment, but was part of that relationship. And today, 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, as they're 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

• 2:34:07David Rosenthal?

  in all of these companies. Peter has an interesting background. His dad 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. Well, first his dad like hated VCs and then he became a VC. 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 30s. He had an established track record. He was young, he was hungry, he was up and coming. He was a baby GP in Excel, but he was not a full GP.

• 2:34:47Ben Gilbert?

  Is that a formal title?

• 2:34:48David Rosenthal?

  Yeah, baby GP, that's the formal title. Here's what I would love. If acquired can have some influence on, you know, our industry, this is what I'd love. I want transparent titling on LinkedIn or whatever. Just like be clear about what you are.

• 2:35:01Ben Gilbert?

  So does every founder.

• 2:35:03David Rosenthal?

  Yeah, right. Exactly. Like, I'm a baby GP. I'm a, you know, old crusty senior GP. I've hung around too long.

• 2:35:11Ben Gilbert?

  I have a lot of economics, but I'm not currently doing deals.

• 2:35:14David Rosenthal?

  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, 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.

• 2:35:36Ben Gilbert?

  Yep. Oh, it's the first generational transfer. 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 90x a fund or whatever, and only 40x 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. Bill Gurley hasn't become Bill Gurley yet. And so what am I joining? And how certain is it?

• 2:36:05David Rosenthal?

  So those are the questions on the Benchmark side. There's a massive question for Peter on the Excel side. Even, well, let's take off the table whether Excel made a counter offer for him to be a grown up GP or not. Whether they did or didn't is irrelevant. He had GP economics, even if they were baby GP economics in the Facebook fund. And he's walking away from that to join.

• 2:36:32Ben Gilbert?

  Wow. Yeah, that's not an intelligence test. That's an emotional decision.

• 2:36:36David Rosenthal?

  That's a gut check. Do I really, really believe in this sort of refounding of Benchmark? This refocusing on this model? Do I think it 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?

• 2:36:57Ben Gilbert?

  Yep.

• 2:36:58David Rosenthal?

  So he does.

• 2:37:00Ben Gilbert?

  So he takes it.

• 2:37:01David Rosenthal?

  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 of Google Maps and then Facebook fame into Benchmark as an EIR. They do Quip together.

• 2:37:18Ben Gilbert?

  Yeah. And Peter Fenton had been an investor in FriendFeed when Brett Taylor started that before Brett sold that to Facebook.

• 2:37:29David Rosenthal?

  You're right. That is how he made the journey from Google and Google Maps to Facebook.

• 2:37:35Ben Gilbert?

  Yes. And unbelievably Brett has gone on with the Quip acquisition by Salesforce to become the president, co-CEO of Salesforce with Marc Benioff, and also is the chairman of the board at Twitter, who is the central spokesperson for this ongoing lawsuit with Elon Musk.

• 2:37:53David Rosenthal?

  Wild.

• 2:37:53Ben Gilbert?

  The Brett Taylor universe is unbelievable.

• 2:37:56David Rosenthal?

  The Brett Taylor cinematic universe.

• 2:37:58Ben Gilbert?

  Yes.

• 2:38:00David Rosenthal?

  I love that. I don't know which Avenger he is, but he's one of them.

• 2:38:03Ben Gilbert?

  Yes. Okay. So Peter is new partner number one, kind of coming in in the next slot after Bill. Who's next?

• 2:38:10David Rosenthal?

  Next is Mitch Lasky, who Mitch, I think is really like super under the radar and kind of a unsung part of what comes to be the Fab Four era. And they truly are, the analogy is the Beatles here. Mitch had been 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.

• 2:38:33Ben Gilbert?

  He started a game studio?

• 2:38:34David Rosenthal?

  Of a early mobile games company called Jamdat that Bill had led the Series C in and was on Mitch's board. And the 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? Jamdad had gone public and then had gotten acquired by EA in short order during this period where Benchmark didn't have a lot of wins.

• 2:39:01Ben Gilbert?

  It's the plight of all good games companies. You get acquired by EA eventually.

• 2:39:05David Rosenthal?

  Indeed. Ah, Trip. What a great episode we did with Trip back in the day.

• 2:39:09Ben Gilbert?

  Yep.

• 2:39:10David Rosenthal?

  So Mitch had actually sort of purveyed over one of the bright spots for Benchmark during that era. And Mitch, criminally so few people aren't familiar with him. He just went on Patrick's show on Invest Like the Best.

• 2:39:25Ben Gilbert?

  Great episode.

• 2:39:26David Rosenthal?

  You gotta go listen to it. Like, if you want to understand Mitch and why he's so special, go listen to that episode. 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 Andreessen Horowitz's Gaming GP. It all comes full circle.

• 2:39:46Ben Gilbert?

  Small world.

• 2:39:47David Rosenthal?

  But he joins next. And Mitch would have some incredible wins in these coming funds, not just in gaming. You know, gaming, he would do that game company, which is under the radar, but is doing incredibly, incredibly well.

• 2:40:04Ben Gilbert?

  It's literally called that game company. David's not like forgetting a word here.

• 2:40:08David Rosenthal?

  That is the name of the company and several other gaming investments, but also Snap, Discord, big, big, big time wins. Mitch joins next. And then the final member of the Fab Four gets rounded out. They recruit from Facebook. And this is still when Facebook is a private company. 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 Kohler.

• 2:40:44Ben Gilbert?

  Matt Kohler is the single best person at understanding consumer social products and maybe all consumer products and maybe all consumer psychology in the entire world.

• 2:40:54David Rosenthal?

  A, he's Super smart, understood, but like, he was there. Like, talk about knowing the future. You know, Don Valentine knew the future because he had been at National Semiconductor and worked with the traders and all that. And like, he knew what was going to happen. Matt had been at LinkedIn and then had been at Facebook. 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 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.

• 2:41:33Ben Gilbert?

  Yep. Matt is the person who we have referred to on previous episodes when Kevin Sinstrom was negotiating to sell to Facebook. And due to the court documents, there was a 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 better than employee number five at Facebook? And Matt Kohler, of course, is that confidant.

• 2:42:04David Rosenthal?

  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 was a specific moment in time truism, 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 very clearly." And that, all of a sudden, became true at that moment in time, thanks to AWS, thanks to the Facebook platform, and where you could now do these Series As, these still early-stage, quote-unquote, investments, where there was no product risk, there was no adoption risk, there was no market risk. You were still looking at early data, but you could look

• 2:42:46David Rosenthal?

  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."

• 2:42:53Ben Gilbert?

  Yes. It is awesome watching 10 and 15 year old videos of Matt onstage at conferences, talking and just basically being 10 years writer than everyone else. He has a quote, I think he's onstage at a TechCrunch disrupt with maybe Mike Arrington in 2011-ish and he's like, I don't think anybody understands mobile advertising. This is going to be so huge. This is much more like TV advertising. Everyone thinks it's going to 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.

• 2:43:35Ben Gilbert?

  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.

• 2:43:42David Rosenthal?

  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 Fund Six is sort of the transition here.

• 2:43:53Ben Gilbert?

  Wait, Matt didn't have a background in venture. Do you know if he was like a big angel investor?

• 2:43:57David Rosenthal?

  I don't think so. I believe he had always wanted to get into venture, but you know, and Mitch didn't have a background in venture either, you know, both of them actually were, 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.

• 2:44:15Ben Gilbert?

  Right.

• 2:44:15David Rosenthal?

  They were making more riskier bets on both Mitch and Matt, both of which paid off hugely for the partnership.

• 2:44:22Ben Gilbert?

  Yep.

• 2:44:23David Rosenthal?

  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 Matt had this saying back then that it was partly informed by his experience with Uber, I think of the smartphone is going to become your remote control for the real world. And that was an outlandish thing to say in 2010, 2011, but like, my God, was he right.

• 2:44:56Ben Gilbert?

  Yep. Okay. So you have the slate now. You have the fab four. You have Bill Gurley, you have Peter Fenton, you have Mitch Lasky, and you have Matt Kohler. And of course, I think Bruce Dunleavy is still an active partner at this point, too.

• 2:45:09David Rosenthal?

  I think Bruce and Bob are still active, at least in Fund Six, maybe a little bit into Fund Seven, but Fund Six is the transition. And Fund Six is, you know, great. I believe it'll probably end up being, you know, 5X plus, 5 to 10X 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.

• 2:45:37Ben Gilbert?

  Because it sold like 12 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.

• 2:45:44David Rosenthal?

  Call it 50 million, maybe less.

• 2:45:46Ben Gilbert?

  Right. To 20X in a year.

• 2:45:49David Rosenthal?

  Yeah.

• 2:45:49Ben Gilbert?

  It's crazy.

• 2:45:50David Rosenthal?

  Very hard to turn that down.

• 2:45:53Ben Gilbert?

  It's also funny that Sequoia claims Instagram was one of their investments where it sold 48 hours after they invested.

• 2:46:00David Rosenthal?

  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 Instagram's in that fund. 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.

• 2:46:22Ben Gilbert?

  New Relic, which was incubated in their office.

• 2:46:25David Rosenthal?

  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 as close to a sure thing as you can get. By the end of Fund Six, it's clear there's something special going on here. And then that leads into Fund Seven, which I think was.

• 2:46:44Ben Gilbert?

  2011, and they raised $550 million for Benchmark Fund Seven.

• 2:46:49David Rosenthal?

  And it's the four of them.

• 2:46:50Ben Gilbert?

  Benchmark Fund Seven is about as close as you can get to speedrunning in venture capital. This is a group that had perfectly gelled from Fund Six. The world was their oyster. They raised the perfect size fund. With the perfect GPs who have expertise in all the things that were going to 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 they had to wander in the woods to find their way. This was just like a perfectly set table.

• 2:47:27David Rosenthal?

  Yes, 100% on all that. And two things I would add. One, I think they knew a secret that very few other people in the industry knew, which was this Series A is like a favorably mispriced asset.

• 2:47:41Ben Gilbert?

  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 100 million immediately. And then shortly thereafter, billion.

• 2:47:52David Rosenthal?

  Most Series As are not done post-product market fit anymore. Now, seed and A and B are often pre-product market fit.

• 2:48:00Ben Gilbert?

  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.

• 2:48:08David Rosenthal?

  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. They knew they had a secret. They knew they had the right team. They knew they had gelled as a team. And they were willing to just go run and, you know, not overthink things and play the game on the field.

• 2:48:26Ben Gilbert?

  It was a perfect balance of gut and intellectualism.

• 2:48:30David Rosenthal?

  So this fund is ridiculous. Uber, Snap, Discord, that gaming company, Stitch Fix, Duo Security.

• 2:48:38Ben Gilbert?

  Docker.

• 2:48:39David Rosenthal?

  Elastic, Nextdoor, and WeWork.

• 2:48:42Ben Gilbert?

  And WeWork, I mean, at the time that they got liquid, I do think it was a very, very, very profitable investment for them.

• 2:48:47David Rosenthal?

  Yep. They got money out of that in the SoftBank shenanigans. A quote that we had from talking to folks part of the firm and, you know, other enterprises, like that it was, quote unquote, swashbuckling insanity. But in an absolute, in a good way in every dimension.

• 2:49:04Ben Gilbert?

  Wait, is Riot Games in Fund Seven? That must be Fund Six.

• 2:49:07David Rosenthal?

  I think Riot might have been Fund Six.

• 2:49:09Ben Gilbert?

  Yeah.

• 2:49:10David Rosenthal?

  But that was another great Mitch investment.

• 2:49:12Ben Gilbert?

  Yeah.

• 2:49:13David Rosenthal?

  Benchmark Fund One was one of, if not the best, fund of its size and scale ever. Benchmark Fund Seven is one of the best, if not the best, fund of its size and scale ever.

• 2:49:26Ben Gilbert?

  So according to a 2018 Wall Street Journal article, they reported that before fees, the 2011 fund was sitting on a 25X on that 550 million. That is a venture fund, a full-sized venture capital fund that 25Xed. Of course, it may be lower than that now, but I think it's still north of 20, depending on when they got liquid on what, because this is something we'll talk about in playbook. Benchmark knows how and when to sell, 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,

• 2:50:09Ben Gilbert?

  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. 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.

• 2:50:33David Rosenthal?

  Yep.

• 2:50:33Ben Gilbert?

  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. He's investing in consumer social. And again, these are two narrow of swim lanes are 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 and like a total shark

• 2:51:16Ben Gilbert?

  across all categories from doing the Twitter investment to New Relic.

• 2:51:21David Rosenthal?

  Yep. Especially, you know, open source software and 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 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. At Found Uber, but Bill was the right board member and like, well, we'll talk more about Uber in a minute here.

• 2:51:45Ben Gilbert?

  Yeah, let's do that because I think so far this has been the benchmark glory fest and I think the takeaway is overwhelmingly positive here, but let's continue to paint some of the trade offs and some of their tougher moments.

• 2:51:55David Rosenthal?

  Two things, just to put the cherry on top of the Fund VII Fab Four Glory Fest in March of 2015, 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, who we'll talk about in a sec. But Forbes comes out with this article, man, I remember this article. It's just like, it'll always be seared in my memory, you know, working in the industry, being, I was post-GSB back at Madrona at this point in time. And like, this article comes out in Forbes called "The Benchmark Way: Five Partners," because it was five at this point Eric had joined, "Who Make Other VC Firms Look Outgunned and Overstaffed."

• 2:52:38David Rosenthal?

  And it was just this chronicling of the Fab Four era and all these companies we've talked about, 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 12.

• 2:52:56Ben Gilbert?

  And they own like 20% of each of them.

• 2:52:59David Rosenthal?

  Yes.

• 2:53:00Ben Gilbert?

  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 15, 20 plus percent.

• 2:53:12David Rosenthal?

  In those days, I mean, I think it was 20 plus, 20 to 25.

• 2:53:15Ben Gilbert?

  Yeah, pretty wild.

• 2:53:17David Rosenthal?

  Yeah, wild. All right. So we talked about Uber.

• 2:53:20Ben Gilbert?

  Yes.

• 2:53:21David Rosenthal?

  Yeah. Well, that was a journey.

• 2:53:25David Rosenthal?

  And ends up being the bulk of the returns in Fund VII, even amongst all those great companies.

• 2:53:30Ben Gilbert?

  In 2018, when that Wall Street Journal piece came out, their holding in Uber was worth $8 billion. So that alone would have 16x the fund.

• 2:53:39David Rosenthal?

  And I think at that moment, they sold some to SoftBank in a transaction at that point in time.

• 2:53:47Ben Gilbert?

  Yep, that's their thing. They've gotten liquid on a lot of things, sort of like along the way. You got February 2018, Benchmark sold almost half of its stake in Snap and realized $1 billion in gains. Somewhere, I don't remember the timeframe exactly, but Benchmark sold $900 million worth of Uber shares to SoftBank and at that point still owned 7 billion as of 2018.

• 2:54:10David Rosenthal?

  And to rewind to Snap for a minute, Benchmark, I think, was instrumental in encouraging, pushing Snap to go public as soon as they did. That, 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.

• 2:54:28Ben Gilbert?

  Right.

• 2:54:29David Rosenthal?

  You know, there was a whole structure. It's all in the SEC filings of Evan got a like massive like $600 million plus bonus for a successful completion of an IPO. Like, they're very good at this.

• 2:54:40Ben Gilbert?

  Yes. Even this knowing when to sell thing, WeWork, they sold a lot of WeWork shares to SoftBank and I think is actually still part of some ongoing litigation where SoftBank didn't want to complete that transaction. But as an aside, actually on WeWork, I was watching a video with Peter Fenton and he said, "We were involved with WeWork. 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 going to get into WeWork on this episode. We did that whole thing with Dan Primack.

• 2:55:11David Rosenthal?

  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.

• 2:55:18Ben Gilbert?

  Yep. All right, Uber. So famously, Gurley had been studying the space, had been looking at, do you look at Taxi Magic?

• 2:55:25David Rosenthal?

  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. So much great history. Go listen to that.

• 2:55:35Ben Gilbert?

  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 a happening Benchmark Invest. Gurley joins the board. 2011, I think that happened?

• 2:55:52David Rosenthal?

  2011. A $10 million Series A at a 10 or 11 at a $60 million post money valuation.

• 2:55:58Ben Gilbert?

  And one of the first investments out of Fund7.

• 2:56:01David Rosenthal?

  Yep. There's some such great fun stories of that era that I think. This is fun to think back on like a happier time in Silicon Valley and show the sort of like swashbuckling insanity of Benchmark 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 active in San Francisco, but wasn't that active on the peninsula down on Sand Hill? And so he had taken like an Uber 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, nobody else is going to call you here. The Benchmark guys knew what was going on while Travis is inside at Sequoia just up the street. They called the Uber away.

• 2:56:46David Rosenthal?

  So then Travis has to run, 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 pair of Nikes as like a joke. Fun stuff. And then right after that, Travis goes on J Cal's show on Twist, one of the best Twist episodes ever, episode 180, and talks about the deal and

• 2:57:11Ben Gilbert?

  Is that where he talks about the Michael Ovitz episode too?

• 2:57:13David Rosenthal?

  He talks about Ovitz and just watching that's like, man, like, God, Travis was sharp.

• 2:57:19Ben Gilbert?

  Was, is, he's just behind the scenes now.

• 2:57:22David Rosenthal?

  You know, I mean, great upside, great downside, but like, man, he was good. And Uber was good. And those days were something special. Anyway, so Jason asks Travis in that moment, the deal had just gotten done. Jason had been an angel investor, of course. It's like,

• 2:57:35Ben Gilbert?

  Jason, an angel investor in Uber?

• 2:57:36David Rosenthal?

  Oh, did he? Wait, was he the third or the fourth angel investor at Uber?

• 2:57:42David Rosenthal?

  We'll have to ask him about it. Like, I didn't, J Cal, we love you. But Jason asks 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. They are the best, period.

• 2:58:04Ben Gilbert?

  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.

• 2:58:14David Rosenthal?

  There was no other need for explanation.

• 2:58:16Ben Gilbert?

  Yeah. 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, like three people told me they feel like a co-founder.

• 2:58:29David Rosenthal?

  We can get into all that in analysis, but. Ah, man, the Uber. It really was. I'm just like, I'm so nostalgic and wistful now. Like, God, those days. Remember those days? 2010 to like 2015?

• 2:58:40Ben Gilbert?

  Oh, yeah.

• 2:58:41David Rosenthal?

  For a whole industry. It was just a different time. So much happier.

• 2:58:44Ben Gilbert?

  Feels like it, right? And I'm trying to figure out, is that because there was like, was tech like intrinsically better than, or did we just not think about the downside?

• 2:58:53David Rosenthal?

  Now, we just didn't know. You know, I don't think anything was actually different. It was just,

• 2:58:58David Rosenthal?

  it was still early.

• 2:58:59Ben Gilbert?

  Yeah. And frankly, like, there weren't enough hooks in most products yet to make you hopelessly addicted.

• 2:59:05David Rosenthal?

  Yeah.

• 2:59:07Ben Gilbert?

  The sophistication of applying all the behavioral psychology and the machine learning that applies a lot of the models to like, just the ruthless execution of capitalism. I don't think we realized it yet, and it was just much more nascent.

• 2:59:23David Rosenthal?

  Of which Uber, you know, becomes a prime example. 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?

• 2:59:34Ben Gilbert?

  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. Give me the like 60 seconds on like, how we got to that point. 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.

• 3:00:05David Rosenthal?

  So I think there are multiple threads to explore here. One, all the reasons I think were wistful for, I'm wistful for 2011, 2012, 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 made now a less wistful time, you know, everything 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.

• 3:00:36Ben Gilbert?

  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 the way that they were trying to help launched a gigantic social media campaign where people assumed they were acting with malice.

• 3:00:56David Rosenthal?

  Yep. Then you had the Susan Fowler stuff.

• 3:01:00Ben Gilbert?

  In which case, many people at Uber were acting with malice.

• 3:01:03David Rosenthal?

  Yes, yes, no doubt about that. You know, there was the attitude that I think needed to, you couldn't have built Uber without of the, hey, the existing laws and regulations are stupid and they don't serve consumers and we need to fight them.

• 3:01:21Ben Gilbert?

  Yep.

• 3:01:21David Rosenthal?

  And the company and Travis never changed that stance, whereas public opinion started on their side. And then as things just escalated and escalated and escalated, moved first slowly and then quickly over to the other side. And I don't think the company and 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 obviously, right? Like the Uber situation and the WeWork situation too, to a certain extent, but obviously the Uber situation is the end of the Fab Four era. You know, there's like Taylor Garland stays for a while and like this new, we'll get into all that.

• 3:02:01David Rosenthal?

  But that's the end of like the Beatles, you know, just like the Beatles had a 10 year run, you know, the Fab Four had a 10 year run.

• 3:02:09Ben Gilbert?

  Yeah.

• 3:02:10David Rosenthal?

  It stopped being fun. And I think part of that, I suspect, was the pressure. You get to a certain point with Uber and, you know, 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, the best, most shining example of representing of an entrepreneur I've ever worked with, all this stuff. And then it, it doesn't go right from that to like suing the company.

• 3:02:47Ben Gilbert?

  No.

• 3:02:47David Rosenthal?

  There's a few years in the middle where Bill starts sounding the alarm in Silicon Valley about all sorts of things. And not talking about Uber, but clearly he's talking about Uber.

• 3:02:57Ben Gilbert?

  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.

• 3:03:10David Rosenthal?

  Or, you know, if you are going to, to be in the private markets where like, there's so much opacity for everybody involved. It was unprecedented. Uber hit, what, a $70 billion, I think, valuation? Eighty on the private markets.

• 3:03:25Ben Gilbert?

  Yep. Or maybe 80 was the number that it was anticipated to go public.

• 3:03:29David Rosenthal?

  Hmm, could be. I know it was at least 60, I believe, 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, 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, on the LPs of Benchmark, a point that I hadn't thought about till I started thinking about in this research. Say you're an LP in Benchmark.

• 3:04:00Ben Gilbert?

  Some university endowment.

• 3:04:02David Rosenthal?

  You work at that pool of capital that is an LP in Benchmark Fund VII. Uber is not getting mark to market, but you are getting your quarterly marks from Benchmark Fund VII based on the valuations that Uber has achieved.

• 3:04:14Ben Gilbert?

  Which has comp tied to it.

• 3:04:16David Rosenthal?

  Which has comp, your personal comp as, you know, an employee of the organization is LP. 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 to so many players all up the stack.

• 3:04:34Ben Gilbert?

  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.

• 3:04:46David Rosenthal?

  These paper valuations at Uber, right? And so the amount of pressure to kind of land this plane, so to speak, reaches just like crazy heights. You know, and look, is this anybody's fault? Is what like, who do you blame? I don't know, but like, I think this happened.

• 3:05:05Ben Gilbert?

  Yeah. And so then it was like, okay, we need to get public and we need to get public in a way where people don't fear that the company's going to 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.

• 3:05:34David Rosenthal?

  Right. At a certain point. 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 the way Silicon Valley, even, even go back to the, the bubble. We were talking about Webvan. You know, Webvan gets liquid, goes public, trades on the public markets up to $8 billion. Crazy, right? Here we're talking about $80 billion, an order of magnitude more on the private markets.

• 3:05:59Ben Gilbert?

  Yes.

• 3:06:00David Rosenthal?

  Yeah. Pressure cooker.

• 3:06:02Ben Gilbert?

  So Benchmark goes through with this. They know that they have existential risk to their reputation based on suing one of the most iconic, 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

• 3:06:23David Rosenthal?

  A Rubicon crossing move.

• 3:06:25Ben Gilbert?

  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. Let's start with the one that's more arguable. So getting sued by someone that you've signed a very heavy contract with, 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, there are lawsuits. I don't know why everyone made it out to be this big deal of like, because Silicon Valley runs on trusts and love and sunshines. If you raise a big debt pool and then you don't use

• 3:07:10Ben Gilbert?

  the debt pool for the intended purpose, well, like the LPs in the debt pool will sue you for that.

• 3:07:15David Rosenthal?

  You don't have to look very far. Look at venture capital's cousin, private equity.

• 3:07:18Ben Gilbert?

  Right.

• 3:07:19David Rosenthal?

  Like, nobody would bat an eye here.

• 3:07:21Ben Gilbert?

  Not that I would ever want to be in that situation and not that I would ever take any of the first 10 steps that get you to that situation, but like, it always struck me as like, people 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.

• 3:07:44David Rosenthal?

  Yeah, I think the pretty clear answer is no at this point.

• 3:07:46Ben Gilbert?

  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 platform team and like,

• 3:07:54David Rosenthal?

  Oh, we haven't even talked about that yet.

• 3:07:56Ben Gilbert?

  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.

• 3:08:08David Rosenthal?

  I think pretty unambiguously at this point, 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 that of like, does this meaningfully negatively impact Benchmark is no, directly, no.

• 3:08:26Ben Gilbert?

  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?

• 3:08:42David Rosenthal?

  Yeah. So directly, the answer in my mind is clear cut, no. Indirectly, yeah, very little doubt in my mind that this precipitates the end of the Fab Four era.

• 3:08:55Ben Gilbert?

  Yeah, that's probably the biggest value destruction.

• 3:08:59David Rosenthal?

  This is the Yoko Ono moment.

• 3:09:01Ben Gilbert?

  It causes people to retire earlier than they otherwise would have.

• 3:09:04David Rosenthal?

  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.

• 3:09:10Ben Gilbert?

  Yeah, dude, I watched the documentary. It's because Paul was full of himself. That's the reason.

• 3:09:17David Rosenthal?

  Amazing. I haven't watched it yet. I gotta go. We've been doing too much research.

• 3:09:21Ben Gilbert?

  It's so good.

• 3:09:23David Rosenthal?

  So, you know, all that comes to a head in 2017 into 2018. 2018, they do Fund Nine. Matt and Mitch step back at that point. Bill sticks around for one more fun cycle. And then of course, you know, probably everybody knows 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 from the Fab Four era. So what's Benchmark today?

• 3:09:51Ben Gilbert?

  Well, flashback.

• 3:09:52David Rosenthal?

  To start the answer to that question, we got to go back to 2014 when they bring on. Another non-spec GP.

• 3:10:00Ben Gilbert?

  Yeah, an operator, a CEO.

• 3:10:03David Rosenthal?

  We are, of course, talking about the one and only Eric Vashria.

• 3:10:07Ben Gilbert?

  Who you introduced me to in 2013, 2014, when he was visiting Seattle. We all got friends together.

• 3:10:15David Rosenthal?

  Right, that's right. We went to, oh, what was that great bar?

• 3:10:19Ben Gilbert?

  I don't remember, somewhere in Pioneer Square in Seattle.

• 3:10:21David Rosenthal?

  Pioneer Square, yeah.

• 3:10:22Ben Gilbert?

  And Delacatus.

• 3:10:24David Rosenthal?

  Yes.

• 3:10:25Ben Gilbert?

  And at the time, I was like freaking out because I was like, oh, my God, this was the guy with Ben Horowitz, who did LoudCloud. I had just read The Hard Thing About Hard Things and I was like, oh, my God.

• 3:10:36David Rosenthal?

  So fun.

• 3:10:37Ben Gilbert?

  It is incredible, the fact that he worked with Ben on.

• 3:10:40David Rosenthal?

  And Mark, yeah, he was VP of Marketing.

• 3:10:43Ben Gilbert?

  LoudCloud and Opsware, and then ended up at Benchmark and not entries in Horowitz.

• 3:10:47David Rosenthal?

  So he joins and kind of quietly, Eric, for anybody who knows him, is sort of a understated guy.

• 3:10:54Ben Gilbert?

  But total class act, like fits the Benchmark, understated, classy, always go above and beyond, be incredibly responsive, courteous, like that's like the, despite being, I'm going to say this in the most kind way possible, a killer, he has all those characteristics too. He's so sharp and so kind.

• 3:11:14David Rosenthal?

  Yes, all the above. Sort of quietly, in the midst of all this, of the transition out of, through the setback half of the Fab Four era and now into the new era, Eric's just killed it. There's no other way to put it. His first deal was confluent. Series A, 7 million at a 24 posts. Company's trading at a $7.6 billion market cap today. Then he did Amplitude, he did Benchling, he did Cerebras, one of our pet favorite semiconductor companies out there now.

• 3:11:44Ben Gilbert?

  Yeah, he fit right in. So you've got Eric.

• 3:11:46David Rosenthal?

  So now in 2017, really kind of in the midst of all the Uber stuff going down, Benchmark brings on another general partner.

• 3:11:56David Rosenthal?

  In some ways, 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 different general partner that they've ever had a benchmark. They bring on Sarah Tavel.

• 3:12:15Ben Gilbert?

  Good friend of the show.

• 3:12:16David Rosenthal?

  Good friend of the show, the first woman investor and ipso facto GP.

• 3:12:22Ben Gilbert?

  At Benchmark ever. She worked at Greylock before she scouted the Pinterest investment and then famously went and worked at Pinterest and helped scale the company.

• 3:12:31David Rosenthal?

  Well, that was when she was at Bessemer, then this is why I say.

• 3:12:33Ben Gilbert?

  Oh, you're right. Bessemer to Pinterest to Greylock.

• 3:12:37David Rosenthal?

  Sarah, in so many ways, is like, literally, I think if you were to ask Dolly 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 non-consensus deal at the time. She then goes and joins Pinterest as a very early employee, spends years there helping scale Pinterest and working with Ben, the CEO, and building that company. And then she goes to Greylock and joins Greylock as a baby GP.

• 3:13:17David Rosenthal?

  A baby GP. Hey, I didn't make that up. We heard that in the research, not about Sarah, but about Peter.

• 3:13:24David Rosenthal?

  So, I mean, literally, like, I can't imagine a more qualified partner to join Benchmark.

• 3:13:30Ben Gilbert?

  And in some ways, she's like the Bill protege 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?

• 3:13:50David Rosenthal?

  Well, here's the other interesting thing about Sarah and why I think she's a great, you know, fit in 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 at Benchmark?

• 3:14:05Ben Gilbert?

  Ooh, I do not.

• 3:14:07David Rosenthal?

  The very first investment that she made after she moved over from Greylock and joined Benchmark 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 2017, early 2018. She did, I believe, the Series A and Benchmark, I believe, owns a meaningful part of that company, which is currently valued at $8.6 billion.

• 3:14:36Ben Gilbert?

  That's the most risk-adjusted way to do crypto. It's like buy the enterprise security analysis tool.

• 3:14:44David Rosenthal?

  Which, but I think it's so funny, you know, it really like, it really just fits the benchmark. She fits Benchmark and that investment of like, hey, knowing a secret, right? Like, that other people aren't willing to recognize, making a correct non-consensus bet.

• 3:15:00Ben Gilbert?

  Yep. 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 Radcliffe says it, Bill Gurley says it all the time. Of course, in order to make money in investing, you have to be both non-consensus and right. And I have heard another addendum to this from a Benchmark partner that I thought was pretty interesting.

• 3:15:27David Rosenthal?

  Oh, do tell, do tell.

• 3:15:29Ben Gilbert?

  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 be 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.

• 3:15:45David Rosenthal?

  Knowing the personalities involved, I can tell you exactly who said that, but we will protect their identity to protect the guilty here.

• 3:15:52Ben Gilbert?

  But it is a great point and it is the point that I 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, 100,000% growth or something like that on that investment.

• 3:16:13David Rosenthal?

  So that was 2017. So you got Eric joining 2014, you got Sarah joining 2017, and then the next year, 2018, you have, surprise, surprise, another spec hire.

• 3:16:26David Rosenthal?

  Joins Benchmark as the next GP. Of course, we are talking about Chathin Pudiguta.

• 3:16:33Ben Gilbert?

  He is a spec hire and while he's been very, very successful and blah, blah, blah. We can say that one of his greatest successes is 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.

• 3:16:50David Rosenthal?

  And you two liked it. And I was like, what?

• 3:16:54David Rosenthal?

  Okay, wait, wait, we can't get into a holy war here because that's

• 3:16:56Ben Gilbert?

  No.

• 3:16:57David Rosenthal?

  We're treading enough controversial territory here. We don't need to go into Star Wars.

• 3:17:01Ben Gilbert?

  But that's on the LP show from like four years ago or something. So Chathin total spec hire for Benchmark. He was like 30 ish. He came from NEA. He had already done Elastic and MuleSoft and

• 3:17:16David Rosenthal?

  And Mongo.

• 3:17:17Ben Gilbert?

  Mongo DB, 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 be in venture for seven ish years and then have 20 amazing years ahead of you. Chathin is exactly that. So now you've got two great enterprise investors with Eric there and Chathin there.

• 3:17:41David Rosenthal?

  Not to mention, it's not like Peter

• 3:17:43Ben Gilbert?

  Right.

• 3:17:44David Rosenthal?

  Has left yet. You still have Peter Fenton there.

• 3:17:47Ben Gilbert?

  Yep. 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?

• 3:17:57David Rosenthal?

  Yeah, maybe a little over a year ago, but not long ago. Miles, of course, was the wonderkin at Thrive Capital, involved in helping build that firm and as a baby GP, all these baby GPs into, yeah, incredible success there, but now part of Benchmark.

• 3:18:18Ben Gilbert?

  What companies was he involved with there?

• 3:18:20David Rosenthal?

  Bear Table, where he met Peter and Benchling, where he and Eric overlapped on the board. And I think Miles was very early to Benchling, very, very early, definitely before Benchmark and Eric.

• 3:18:33Ben Gilbert?

  Yeah. If you want to be a GP at Benchmark, just be on boards with them. That seems to be the takeaway.

• 3:18:39David Rosenthal?

  But even better, join boards before they join.

• 3:18:43Ben Gilbert?

  And then have those companies be incredibly breakout successful companies. I think that's the answer.

• 3:18:48David Rosenthal?

  That's the playbook.

• 3:18:49Ben Gilbert?

  So that's the lineup right now. You got the elder statesman with Peter Fenton. You have Eric Vishria, Sarah Tavell, Chatham Putigunta and Miles Grimshaw. And that is the current benchmark partnership.

• 3:19:02David Rosenthal?

  All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

• 3:19:08Ben Gilbert?

  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.

• 3:19:19David Rosenthal?

  Yep. 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 and how fast you can use that signal to guide what you ship next.

• 3:19:39Ben Gilbert?

  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.

• 3:19:52David Rosenthal?

  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/acquired to get started.

• 3:20:03Ben Gilbert?

  Okay, David, analysis of benchmark capital. This is like a hell of an undertaking. Is it benchmark capital or is it benchmark? I know they used to say benchmark capital.

• 3:20:12David Rosenthal?

  Well, the entity itself is benchmark capital.

• 3:20:15Ben Gilbert?

  At least their goofy website.

• 3:20:16David Rosenthal?

  Oh, we didn't tell the story of the website. Oh, we gotta, okay, we gotta do it here. We gotta tell the story of the website.

• 3:20:21Ben Gilbert?

  Let's do it, yeah.

• 3:20:21David Rosenthal?

  So, yeah, as Ben has been talking about in the episode through the Wayback Machine, they used to have a truly goofy website.

• 3:20:28Ben Gilbert?

  Yeah, but I actually think I know something that you don't.

• 3:20:31David Rosenthal?

  Oh, okay, go for it.

• 3:20:32Ben Gilbert?

  All right, website. So. Many people know that Benchmark has a website that just says Benchmark. I think it has some contact information.

• 3:20:41David Rosenthal?

  A link to their Twitter feed.

• 3:20:43Ben Gilbert?

  Yes, which of course lists their announced portfolio companies in a Twitter list. And I assumed that was always the case. I assumed they just never updated their website because they thought that would be a way to keep the mystery a little bit, or at least keep our operations simple. They were actually the very first venture capital firm to have a website in the early 90s.

• 3:21:06David Rosenthal?

  I did not know that.

• 3:21:07Ben Gilbert?

  I guess in the mid 90s. Yes, they were. They were very early to adopt it and we'll put links to this wayback machines. It's just awesome. I mean, it is like hilariously goofy and 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 then Matt Koller joins the firm and says, hey, I think we really need to update our website. You guys like, this is embarrassing.

• 3:21:31David Rosenthal?

  Oh, I actually heard the story was the opposite. It was 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.

• 3:21:42Ben Gilbert?

  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. He needed to make it more web 2.0e, more interactive, incorporate live things. Ultimately, one problem was it ended up putting Benchmark too far forward. It was almost like taking credit for these entrepreneur success. And that is antithetical to everything Benchmark stands for. They want to be in the background. They want to be the entrepreneur show. They want to be that sort of quiet confidant and partner. 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.

• 3:22:22Ben Gilbert?

  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 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 because I don't want to deal with this.

• 3:22:41David Rosenthal?

  Which also ended up really because it totally added to the mystique, especially in that Fab Four era. So, all right. Let's land this plane.

• 3:22:51Ben Gilbert?

  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.

• 3:22:57David Rosenthal?

  Great.

• 3:22:58Ben Gilbert?

  I'm not sure there's a more perfect and pure illustration of counter positioning than how Benchmark started.

• 3:23:07David Rosenthal?

  Yep, agreed.

• 3:23:08Ben Gilbert?

  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 going to do it. Other firms were 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 to have equal value employees. So you couldn't make everyone equal because it wouldn't solve the problem.

• 3:23:50David Rosenthal?

  Yep.

• 3:23:51Ben Gilbert?

  So every other firm couldn't do this. Now, it doesn't mean that this is better, but it is for sure that no other firm was set up to actually do this.

• 3:24:00David Rosenthal?

  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, 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.

• 3:24:26Ben Gilbert?

  And other firms have, lots of firms out there have equal partnerships and no, no associates. But none of them have 25X to $500 million fund. And so it's almost like every decision you make is very risky because once it falls apart, it's done for good.

• 3:24:42David Rosenthal?

  Yep.

• 3:24:43Ben Gilbert?

  Because no one, you're not going to go attract the next Bill Gurley if you've been mediocre for a couple of funds.

• 3:24:49David Rosenthal?

  The next Bill Gurley doesn't think that the other partners are.

• 3:24:53Ben Gilbert?

  Exactly.

• 3:24:53David Rosenthal?

  Yeah.

• 3:24:54Ben Gilbert?

  Exactly.

• 3:24:56Ben Gilbert?

  So I think one funny thing is 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. But I love this from Benchmark's 1997 website. This is 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 at more than $40 million per partner. 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.

• 3:25:40David Rosenthal?

  That was before people learned the trick of just don't take freaking board seats.

• 3:25:44Ben Gilbert?

  I love that they just were like, oh, I don't know. Like, let's just type this all out.

• 3:25:48David Rosenthal?

  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. It was great. I love it.

• 3:25:55Ben Gilbert?

  Totally. 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 service providers mentality to it.

• 3:26:17David Rosenthal?

  And I think that's also very Bob giggle. That ethos, I think they all shared that.

• 3:26:21Ben Gilbert?

  Good point. So it says Benchmark is structured to provide a high level of service with maximum investment flexibility. Our capitalization of $20 million per partner allows for an average of six board seats and ensures the right level of partner attention and support regardless of investment size.

• 3:26:38David Rosenthal?

  It's so funny that they felt the need to spell all this out.

• 3:26:41Ben Gilbert?

  I know.

• 3:26:42David Rosenthal?

  Today, you would never write this. It'd be like, if you have to tell me this, like.

• 3:26:45Ben Gilbert?

  Right, right. I love the 20 million a partner, too. It's like, well, we could only raise 85 million and so therefore.

• 3:26:53David Rosenthal?

  And we started with five partners and so it was 15. You know, yeah, a lot of revisionist history.

• 3:26:58Ben Gilbert?

  Exactly.

• 3:26:59David Rosenthal?

  But yes, counter positioning, you are so right. This is one of the clearest examples we've ever had.

• 3:27:04Ben Gilbert?

  Yes. The other one that is extremely obvious to me is branding.

• 3:27:09David Rosenthal?

  Duh.

• 3:27:10Ben Gilbert?

  And the definition of branding is if I hand you an identical commodity with a unbranded or brand B on it, 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 Benchmark's American green dollars.

• 3:27:32David Rosenthal?

  Cost a lot more.

• 3:27:34Ben Gilbert?

  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? How much should entrepreneurs be willing to?

• 3:27:56David Rosenthal?

  I've talked to multiple entrepreneurs where it's not just lower, it's like the lowest.

• 3:28:00Ben Gilbert?

  Right.

• 3:28:01David Rosenthal?

  And they still do it.

• 3:28:02Ben Gilbert?

  Is Benchmark's money worth twice as much as a competing term sheet? That might be ridiculous. 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 could be customers. So like, that stuff's like a little squishier, but definitely valuable. The thing that is not squishy at all is it has to be close to 100% of Benchmark companies that raise a Series B.

• 3:28:47David Rosenthal?

  Yeah.

• 3:28:47Ben Gilbert?

  And so you're completely de-risking your next round of capital by becoming a Benchmark partner. And it costs Benchmark nothing to have that asset, but they now have that asset because the only people that revere Benchmark more than founders are VCs.

• 3:29:05David Rosenthal?

  Are their VCs.

• 3:29:06Ben Gilbert?

  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, their dollars are worth more because it comes with a great Series B.

• 3:29:20David Rosenthal?

  This is the perfect segue to jump to any other powers we want to talk about. And those are the two obvious ones to me.

• 3:29:24Ben Gilbert?

  Those are the two.

• 3:29:25David Rosenthal?

  Yeah, okay. Now, here's the question in the current environment.

• 3:29:28Ben Gilbert?

  Yes.

• 3:29:29David Rosenthal?

  Totally agree with everything you said. And other firms have had to, you know, Sequoia does their own thing. Andreessen has their way of doing things. You know, 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.

• 3:29:44Ben Gilbert?

  Yes.

• 3:29:44David Rosenthal?

  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.

• 3:29:54Ben Gilbert?

  Which is true at Sequoia and maybe Andreessen Horowitz too, and probably Founders Fund. Unfortunately, those people also could lead the rounds. They signal, whereas Benchmark can't.

• 3:30:03David Rosenthal?

  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.

• 3:30:14Ben Gilbert?

  Yes.

• 3:30:15David Rosenthal?

  And Benchmark has very explicitly not done that.

• 3:30:19Ben Gilbert?

  Yes. And part of it's operational. I genuinely do think, it's funny, I came into this research 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. 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.

• 3:30:59David Rosenthal?

  Well, and that's when things are going sideways at a company. It's also a conflict when things are going well. You know, I talked to a founder about this where things are going well. And he had a great point. It was like, you know, all of 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, everybody's trying to ram money down the throat, outside investors, inside investors, blah, blah, blah. And Benchmark is in a position. I think this is a legitimate point to make. Where they can help make around the best round come together without the conflict of having to force more of their own money down the company's throat.

• 3:31:34Ben Gilbert?

  And 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 because 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 going to lead your Series A. And so like, you actually get to have a more real relationship. 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 keep your lead investor excited about your company, but they definitely have a lot less of a conflict than.

• 3:32:12David Rosenthal?

  Yeah, it's a different motion than just about everybody else in the industry.

• 3:32:17Ben Gilbert?

  Yes.

• 3:32:18David Rosenthal?

  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. You know, there's always kind of this question with any VC and with Benchmark too of like, oh, they say XYZ VC says they're dedicated to the craft and they do all this, 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 Benchmark. They really do, they do the great, like, everybody we talk to, like, they grind. We've seen it. We've been there, like, they actually do it.

• 3:32:53Ben Gilbert?

  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 100% of their time to their portfolio of companies that they currently work with and the next set of companies they could work with. I also will say, it is surprising to me, whenever I meet with a Benchmark partner, how much time they have for me. It feels like a Buffett-esque schedule, rather than like, a lot of times, meet with people in our racket, and they're back to back in 30-minute meetings all day. It never feels like that. And I'm like, don't you guys have something more important to be doing? But the architecture of the partnership is such that you can allow for a lot of breathing room in your calendar.

• 3:33:32David Rosenthal?

  Yes. Should they have a growth fund or not? Like,

• 3:33:36Ben Gilbert?

  It's a good question.

• 3:33:37David Rosenthal?

  It's an interesting question to discuss.

• 3:33:39Ben Gilbert?

  This is the moment where we should see the benchmark model really work.

• 3:33:44David Rosenthal?

  Right. Last year was the moment where it should really not work.

• 3:33:49Ben Gilbert?

  Right.

• 3:33:50David Rosenthal?

  And actually, I think it continued to work pretty well through the previous cycle. But if it really, really works, this market in this year should be a good year.

• 3:33:59Ben Gilbert?

  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. 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, 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 the partners aren't coming in with, I believe this market is going to be the huge thing. And that's why I'm betting on these 10 companies.

• 3:34:42David Rosenthal?

  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 that takes like so many forms. But one obvious, you know, fun form that I can't believe we haven't talked about yet is they do these dinners. They started them during the Fab Four era.

• 3:35:01Ben Gilbert?

  Just legendary.

• 3:35:02David Rosenthal?

  Legendary. They have this custom built table in the office on Monday nights. After the partner meeting, they do these dinners. They invite somebody, you know, Bezos comes every year. Like this is crazy.

• 3:35:11Ben Gilbert?

  Public company CEOs and.

• 3:35:12David Rosenthal?

  Yeah. So Michael Lewis, 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. Brian Chesky's come to those dinners. Tony Hsu from DoorDash has come to those dinners. When they miss, they want to know why, and then they want to adjust.

• 3:35:34Ben Gilbert?

  Yeah, that's a great way to phrase it. It's funny, my 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, playing around with mezzanine investing, even recently trying growth investing, like in 2011, at the beginning of the Fab Four era, they did a late-stage growth investment in Dropbox in their $4 billion round. Weird, right? The Israel, Europe, doing the billion-dollar fund.

• 3:36:10David Rosenthal?

  They made some noises in the most recent fund announcement about they might do some public company investing, you know?

• 3:36:16Ben Gilbert?

  They held OpenTable for a long time while it was still public, 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. 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 going IPO for the most and then exit near IPO. But actually, I think what they are is, 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, why they were holding OpenTable while still public in the terrible, whatever that was, 2008, 9, 10, that era where it was just massively undervalued because

• 3:37:00Ben Gilbert?

  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, but the main thing that they're good at is breaking them when it makes sense to break them.

• 3:37:12David Rosenthal?

  Yep. I think we could go on on some more playbooks here. I've got plenty. I mean, one I want to highlight quickly is just the All-Stars team aspect of Benchmark. We've 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.

• 3:37:34Ben Gilbert?

  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 that end of playbook, 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 will be a big win. These were all very contrarian bets at first, and we've talked about people thought they were idiots for investing in eBay, because 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? Are they going to do more of these near risk free, early stage enterprise investments?

• 3:38:19Ben Gilbert?

  And if you look at the 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 really actually focused on it. And the swim lanes are not as clear as they were 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 high performing SaaS B2B enterprise investors?

• 3:38:55David Rosenthal?

  It's also just a weird moment in the consumer investing landscape right now, too.

• 3:39:00Ben Gilbert?

  That is probably the counter argument. 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, you probably should try, actually trillion dollar company is the wrong, probably the wrong thing, but IPOs that could be like 100 ish 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, maybe this fund is the time to be going more enterprise, and then we'll come back to consumer. I don't know.

• 3:39:31David Rosenthal?

  Yeah. Okay. How are we going to grade this thing?

• 3:39:35Ben Gilbert?

  Let me throw something out. I think grading is a relic of the past on acquired.

• 3:39:39David Rosenthal?

  Oh, boom, I love it.

• 3:39:41Ben Gilbert?

  I think like I'd like to pull a benchmark here and say grading made a lot of sense for us.

• 3:39:45David Rosenthal?

  You are Kevin Harvey in 2004 in the partner meeting being like,

• 3:39:47Ben Gilbert?

  Until it didn't.

• 3:39:48David Rosenthal?

  Why the F am I getting on a plane to go to Europe? I need to be here.

• 3:39:54Ben Gilbert?

  There's just too many episodes that are this style where we're like, let's cover this incredible story. There's 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.

• 3:40:05David Rosenthal?

  Yeah. What are we going to say here? Done.

• 3:40:10Ben Gilbert?

  Grading to be revisited in some future episode where it makes sense to do that.

• 3:40:15David Rosenthal?

  Yeah, or not. It's stupid. The grade is obvious by the time we, I'm at five hours and eight minutes recording here. Like, if you don't know the grade, like, whatever.

• 3:40:25Ben Gilbert?

  Yes. Dead.

• 3:40:26David Rosenthal?

  Carvouts?

• 3:40:28Ben Gilbert?

  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.

• 3:40:35David Rosenthal?

  Ah, the best.

• 3:40:37Ben Gilbert?

  It is a talk that Bill Gurley gave to a, I believe, a room full of MBAs at University of Texas. It's inspiring, informative, educational, slightly analytical, but mostly it's the best of VC pattern matching applied to helping people understand what to do with their lives. And Bill's just a terrific speaker.

• 3:41:01David Rosenthal?

  Hardly seconded.

• 3:41:02Ben Gilbert?

  Yes. My second one is the Smart List Podcast. If you watch Arrest Development and you like Jason Bateman and Will Arnett, it is the two of them and Sean Hayes, who is on Will and Grace, 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 so entertaining. Like, it's just great to just leave on in the background. And I want to bring some Smart List to acquired.

• 3:41:33David Rosenthal?

  Love it. I love like, I do the same thing. Like, are each like outside interests. This is kind of related to the benchmark, you know, dinner thing, like. There's so much we can learn and bring from other podcasts, other shows, other mediums that are not at all our world business attack to make acquired better. So, but, okay. Really, 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 Invest Like the Best. Such a good episode. He's just so, so entertaining. Both Mitch and Patrick. And, okay, so that's my related. And then my unrelated one, you know, I'm gonna go with what I've been a re-carve out, but a

• 3:42:13Ben Gilbert?

  A re-carve out?

• 3:42:14David Rosenthal?

  A re-carve outing. No, but updated and expanded. I mentioned Ursula Le Guin on the, I think it was on the amazon.com episode where I'd started the Earth Sea series, Earth Sea Cycle, and I'm now like four books in and it's really good. She's really good. It's very, very different science fiction. All of her stuff is so different from one another. Highly recommend.

• 3:42:37Ben Gilbert?

  All right. We would love to have you in the Slack. 13,000 other smart, courteous, kind people in the acquired community. Acquired.fm/slash/Slack. We got a job board. Acquired.fm/jobs. Find your next great career move.

• 3:42:54Ben Gilbert?

  Finally, we have merch. Acquired.fm/store.

• 3:42:58David Rosenthal?

  All right.

• 3:42:59Ben Gilbert?

  All right. With that, listeners, thank you so much and we will see you next time.

• 3:43:04David Rosenthal?

  We'll see you next time.