Benchmark's GP, Everett Randle on Why Mega Funds Will Not Produce Good Returns

1. 0:00 – 1:46

   Intro

   1. EREverett Randle0:00

      I think we should not be placing that much emphasis on margins today. We need a new taxonomy for AI companies.

   2. HSHarry Stebbings0:07

      I'm thrilled to welcome Benchmark's newest partner, Everett Randall. Benchmark are one of the best firms in venture.

   3. EREverett Randle0:12

      Tiger died, and we got six or seven more tigers. I don't think Ravi or Hemant or even Ben and Mark at this point, I don't think that they can go to LPs and say, "Hey, we're gonna get you 5X net on that." And when you're writing billion-dollar checks, that is your main product. Go talk to the principals, the junior partners, and the associates at those firms, and you tell me that capital velocity is not the North Star of those firms. I think Tiger's gonna end up much better than anyone thought they were going to end up.

   4. HSHarry Stebbings0:38

      What do you think the biggest threat is to Benchmark being successful in the next five years?

   5. EREverett Randle0:43

      I think, um...

   6. HSHarry Stebbings0:44

      Ready to go? (upbeat music) Ev, I am so excited for this. I cannot believe we have not done this before. I think I personally timed it pretty well, if I'm honest. I'm rather chuffed with myself.

   7. EREverett Randle1:06

      (laughs)

   8. HSHarry Stebbings1:06

      Uh, but thank you so much for joining me today.

   9. EREverett Randle1:09

      Thank you, Harry. I have actually been listening to 20 Minute VC since 2017. Which ironically I think is the year that you had Peter on, uh, the first time. And it's just been so fun to watch the show and the platform that you've built grow this way. It's almost like watching a startup become, uh, y- you know, an, an IPO, uh, you know, an IPO-worthy company or something. So congrats to you, Harry.

   10. HSHarry Stebbings1:30

       Do you know what? I've had a man crush on Peter Fenton since that first show. I remember he told me that-

   11. EREverett Randle1:35

       (laughs)

   12. HSHarry Stebbings1:35

       ... price is a litmus test for your conviction, and I think about that at least on a weekly basis, and I've repeated it to my team many, many times. Before we dive into Benchmark,

2. 1:46 – 14:07

   Biggest Investing Lessons from Peter Thiel, Mary Meeker and Mamoon Hamid

   1. HSHarry Stebbings1:46

      you've worked with some of the best from Peter Thiel, obviously, at Founders Fund, Mary Meeker at Bond, Mamoon Hamid, uh, one of my big bros at Kleiner Perkins. If I were to ask you for your biggest takeaway from each, what would you say your biggest investing takeaway is from each of them?

   2. EREverett Randle2:03

      One of the things I really love about the asset class that, that we, that we practice our craft in is that there's so many different ways that you can be successful at it, and there's so many different strategies and frameworks that you can employ and still generate amazing returns. I think, um, and each of the people that you just mentioned have very, very different styles and d- very different ways of, of practicing their craft. I think if I was to lay out for Mary, for Peter, and for Mamoon, um, kind of what I learned from them specifically, I think with Mary, she does such an incredible job. Everyone thinks of her as this quantitative investor. You know, she had th- her time as an equity researcher at Morgan Stanley during the dot-com, um, bubble, and then she came to Kleiner Perkins, obviously. And everyone talks about these DCF models she creates and all the numbers that she does, but she's really the most qualitative investor that I've ever worked with. And it's a, it's a probably a surprise to hear that, but what she does is she, she... it's almost like she's reading the matrix. Like, she lays out all the sequential numbers historically for a company and then all the numbers going forward, and it's almost like she's, you know, reading the, the matrix code as it comes down. And she's seeing what the company will become on an eight to 10-year time horizon when she sees what the numbers are. And so she'll look at a DoorDash model, uh, and that was an investment that she... that, that we had led at KP out of the growth fund at the time, and she won't see, you know, you know, seven years out, 80% growth or something like that. She'll see that, uh, you know, 20% of households are going to be ordering from DoorDash on a monthly basis, and she can visualize that. And so from her, I just learned that when you use numbers in venture growth and when you wanna be quantitatively driven, don't get stuck into a quantitative lens with it. Actually use that to drive the narrative and drive the story of an investment. And that's been, that's been an incredible mental framing that I've used. With, um, with someone like Peter Thiel, Peter, I think so much of his cleverness and so much of his genius is actually in the way that he builds his firms rather even than his investments. So the way that he's designed Founders Fund is that he, he create a... he creates all these incentive structures and mechanisms almost to, like, constantly be testing your conviction. So there's a program, for example, at Founders Fund where, uh, anyone that works on an investment or if you're leading an investment, you can personally invest alongside the firm, uh, in that investment, almost as if you're angel investing. And at, at, you know, first glance, it just looks like this amazing perk that you can have by being an investor at Founders Fund, but deeper down, it's a conviction test because if you're sponsoring some pro rata of a company that's, like, doing okay but not great, but the founder really wants you to do the pro rata to not blow up the round, but you're not doing some of your portion of the individual side of that investment and your angel investment, Peter can go to you and say, "W- do you not think this is better than having your money in the SMP? Like, why would we, um, you know, give our LPs, um, this allocation in this round if you don't even wanna put your own money in this round?" Um, so there's, like, 100 different things like that that exist in, in Founders Fund that aren't, you know, explicit. Like, "Hey, like, are... do you have high conviction?" But test your conviction in deeper ways.

   3. HSHarry Stebbings5:06

      I absolutely love that in terms of a conviction test. Do you ever just reflecting on, on that fear that if you had that with a younger person, say, when you were at Founders Fund, you... if you don't have that much liquid cash, it, it is a lot when you have rent and bills, and I would hate to d- I'm, I'm thinking through this as an active partner with you now 'cause I'd love to implement that in 20 VC-

   4. EREverett Randle5:28

      Yeah.

   5. HSHarry Stebbings5:28

      ... but I would hate for people to be scared and then say no to something 'cause they didn't have the cash that could be great. What do you think?

   6. EREverett Randle5:36

      I... It, it's, it's super valid. I think, again, if you're at Founders Fund, you, you are... you know, you're, you're full in and you're all in. And so I think most of us, uh, most of us, um, that, that were young at Founders Fund at the time all had, like, debt lines, like unsecured debt lines that we were using to do, to do these, these, these side kind of personal investments. And by the way, it's like... it's, it's turned out to be an unbelievable portfolio for myself personally, and it's all worked out. Um, and so I'm very glad that I, that I had it. But, um, but I think that's part of... y- y- you know, h- he throughout his entire career has really, again, designed his organization so people are all in. He had, like, a bonus system for PayPal employees. If they lived within, like, a couple miles of the office, he would give them more money. Like, s- he just designs the orgs this way, and so, um, uh, there's less pressure for, for the young folks that don't have much net worth yet for sure, but they still expect you to be scrappy and find a way to do it.

   7. HSHarry Stebbings6:27

      What do you think no one knows about the inner workings of Founders Fund that they should know?

   8. EREverett Randle6:31

      From the outside in, I mean, obviously Founders Fund is a bit of, like, a black box. Everyone's like, "Wow, the returns are amazing." Um, there's a bunch of weird personalities within that place. Like, how does it all happen? Um, I think, um, when I was actually doing back channel references on Founders Fund before joining, something that everyone, um, said to me that they thought was a negative but ended up being a huge positive, they were like, "Oh, you really gotta watch out about the culture because, um, I've heard that they yell at each other during ICs, like investment committee meetings, and, like, they get super intense." Um, and then a few months into the actual job at Founders Fund, I realized that, like, yeah, sometimes people did yell at each other at ICs, but it was bec- it's almost like yelling at your brother or, like, yelling at your sister or yelling at your best friend. Everyone was so secure in themselves and the relationships that they had with each other, and they all have extremely deep relationships with each other, that you could actually just be extremely truth-seeking. You weren't afraid to step on toes. You weren't afraid to, um, do anything that was, that was, uh, y- you know, that, that, uh, might be seen as- as, like, "Oh, you shouldn't say that to a GP or something." It was just no holds barred, complete truth-seeking, everyone trying to get to the best answer. I remember a few months into the job, I was, like, on an email thread and just, like, teed off on Keith, r- oh boy, our- our good friend. And, you know, at any other firm, that might be a fireable offense, or you might get, you know, tongue-lashing for doing that. But at Founders Fund, it was like a pat on the back. It's like, "Yes," it's like, "That is how we do things here." It's flat. We're just trying to get to the truth. We're not trying to uphold some poli- you know, political bureaucracy or something like that.

   9. HSHarry Stebbings8:01

      And then Keith fired you (laughs) .

   10. EREverett Randle8:05

       (laughs) Yeah.

   11. HSHarry Stebbings8:05

       Dude, that is, to- to be fair, that is a bold take, though. For- for a younger person in their first years, well done. That's conviction going up against Keith in that way. If we go to Mamoun, what are the takeaways from Mamoun? I think Mamoun is just one of the greats. He's done so well with KP.

   12. EREverett Randle8:20

       Yeah.

   13. HSHarry Stebbings8:20

       What are the takeaways from- from Mamoun?

   14. EREverett Randle8:23

       Yeah, Mamoun, I- I've learned so much from Mamoun. Um, he's a wonderful mentor. I mean, we were talking before the show, Harry, about the kindness that- that he showed you when you- when you were young, and he did the same thing for me. Um, I think the biggest thing that Mamoun has taught me, and this is a reflection of what he did and has done in his career, I think the two biggest things are, one, he really imparted onto me that you need to, early in your career, see excellence up close. Uh, and you really n- and in terms of, like, a company, a management team, a founder, you need to see how the absolute best operate and do the job of company-building. Because if you don't see that relatively early in your career, uh, it's much, much harder to spot it in the wild, and you also don't know the bar to hold, um, your other founders and your other management teams too. And so his- his, like, he- I think he does a very good job of getting younger folks that work at Kleiner Perkins or, you know, even back at Social, um, involved in the very, very best companies, in those boardrooms, seeing how they operate. Because he thinks, like, once you've seen it, and once you know the it of, like, what makes an A++ team tick, you can, one, much easier see that in the wild, and then two, you can really, you know, hold the rest of your management teams and founders that you work with to that really high standard. And I think Mamoun, more than anyone, has just developed this impeccable taste around, like, a mix of products, market, and people. If you think about his huge, huge winners, whether it's Figma, Glean, Rippling, they all have, like, a common through line of the... You know, it's B2B software, but it's almost like consumer-like software that- that demands really high user love and engagement. Um, and he's just developed this really, really tight understanding of where he shines and where he has a really deep, uh, understanding of- of- of companies. Um, and then he's, like, really sharpened his taste in doing that. And so I think he engur- he encourages, he's definitely encouraged me and encourages people that he works with to really develop, like, a specific form of taste around the people and the products and the companies that you think are going to be- going to be the big ones.

   15. HSHarry Stebbings10:25

       He very kindly messaged me the other day and said, "Hey, I'd love to bring you into one of my deals, Rivo. Uh, the founder's amazing, and y- you'd be great for it." And I messaged my team just being like, "Hey, we're doing a deal. It's amazing. Mamoun's bringing us in. We're- we're done. Diligence over." And they're like, "Harry, no, you can't be serious." I'm like, "It's B2B. It's kind of PLG. It's Mamoun. Would you like your job tomorrow?" (laughs) So, I totally agree and get you there. Can I just ask, before we move to Benchmark, you mentioned, and love this dude, you mentioned Mary Meeker and the mental plasticity that she had around numbers and what the future could be. Where were you not mentally plastic where you should have been, and what did you learn from that? And so, like, a- an example for me would be, like, I met Alex at Deel when it was two on ten, and I looked at Paychecks.com and ADP, and I was like, "Nah, shit market, incumbents, distribution advantage, crap investment. What a mistake. I wasn't mentally plastic, and I should have been." What would yours be?

   16. EREverett Randle11:35

       An instance where I haven't been, y- you know, where I haven't, you know, exuded n- neuroplasticity, uh, enough, I actually have a r- like, a very recent example of this, was actually the OpenAI round at $32 billion. And, you know, I- I started my career in private equity, which I think gave me a lot of, uh, th- there's a lot of strengths that come from that, um, but has also definitely given me some blind spots in venture that I've, like, needed to unlearn a little bit. And when I was at Founders Fund, I was actually extremely positive on OpenAI. This was, like, I- I- I had left Founders Fund right after ChatGPT came out. And ChatGPT, when it came out, was one of those moments where you're like, "This, like, this product is it." Like, "This is so unbelievably cool," um, and you could just tell that it was gonna be a massive, massive product. And then the $32 billion round of OpenAI came around when I was at Kleiner Perkins, and all of a sudden, I was like, "Oh man, this structure seems really gnarly. Uh, y- you know, they're gonna have to convert this somehow. It's a nonprofit. They're selling these employee units, and I think they're gonna dilute the hell out of the investor base."... uh, and so I got spooked and I missed the forest for the trees, um, both in terms of the, the structure of the company at the time and, um, and the, the potential future dilution. By the way, both of those things were very valid risks that, uh, you know, I mean, the structure at certain poi- points have almost taken the company down, um, and then they have diluted a ton, given that they've had to attract all these AI researchers and all this incredible talent. Um, but it didn't end up mattering. Like, it didn't, like, none of that ended up mattering. What ended up mattering, um, is that it, it, you know, it's had the, uh, strongest and, and highest growth trajectory of any technology company in history, and it's probably the best and most useful product that anyone that uses, uh, uses it has in their pocket. And so I think Josh Kushner actually does probably the best job of this, um, where, you know, he talks about his intuitions and, you know, he saw Spotify and just kind of knew that no matter what, he needed to invest in the company, and same with Instagram. I still need to learn to trust my intuitions more, um, because sometimes I let silly things like that, that, uh, uh, cloud my thinking.

   17. HSHarry Stebbings13:38

       Josh taught me one of the most valuable lessons, actually. He taught me that if you're ever willing to do less in a deal, don't do the deal. You know, "Oh, I'm happy to take 10% if it means giving my buddy 3%." Don't do that deal. That's a-

   18. EREverett Randle13:50

       Yeah.

   19. HSHarry Stebbings13:51

       ... that's a bad signal. Um, I remember Vince came on the show when he did that deal, and he said, "Harry, listen. If it's a trillion-dollar company, we'll all make money." And we laughed at the time, and now it's like, "Oh, it might be a trillion-dollar company." (laughs)

   20. EREverett Randle14:05

       Now it's like 2 trillion, 3 trillion, who knows?

   21. HSHarry Stebbings14:06

       Yeah.

3. 14:07 – 24:12

   OpenAI Will Be a $TRN Company & OpenAI or Anthropic: Who Wins Coding?

   1. HSHarry Stebbings14:07

      Uh, do you think it'll be a trillion-dollar company next year?

   2. EREverett Randle14:09

      (clicks tongue) I think it'll be a trillion-dollar company next year. Yes.

   3. HSHarry Stebbings14:13

      Yeah. I do too.

   4. EREverett Randle14:13

      I think, I think they could, they could probably raise at the end of the year, yeah, you know, end of the year, Q2, I think, OpenAI could raise it a trillion dollars, no problem.

   5. HSHarry Stebbings14:22

      Would you rather be in OpenAI at 500 or Anthropic at 350?

   6. EREverett Randle14:26

      O- obviously at Kleiner Perkins we invested in a- Anthropic, and we had this debate a lot internally, um, and I think everyone kind of... th- this is, like, a fun debate, you know, OpenAI or Anthropic at last, last round price. I think they, they represent relatively different things. I think that, like, in terms of downside risk, th- like, uh, it's hard to imagine anything that could knock ch- uh, ChatGPT off of its growth trajectory. Like, I don't know what could stop ChatGPT from growing at the rate that it's growing. And so I think that asset alone, um, is, is just unbelievably valuable and is, like, completely locked in. Like, there's, there's, there's, I, I, there's just no way that it's not going to be the most im- important kind of consumer destination over the next five years, um, and consumer app over the next five years. I think where, where everything else is, is still kind of hand-to-hand combat is obviously in coding. I think OpenAI has actually done an incredible job with Codex, um, and, and made up a bunch of progress against Anthropic that they didn't have before, um, and then obviously on, everything on the B2B side. I think right now Anthropic probably has a bit of an edge on B2B. They've spent a lot more time and resources towards really mastering the kind of commercialization effort there. And then in coding, Anthropic's still with Claude Code, um, and, and, um, uh, and Sonnet and all the models that they have is, is probably still, um, a little bit ahead of OpenAI. But I think given ChatGPT, I think I would probably rather do OpenAI at 500 than Anthropic at 350. But I both think that they're, uh, relatively good investments, even today.

   7. HSHarry Stebbings15:50

      I would be thrilled with both, just in case Dario or Sam are listening. I am very happy to take some shares if you are-

   8. EREverett Randle15:55

      Very happy, yeah. (laughs)

   9. HSHarry Stebbings15:56

      ... if you wanna help me out here. Uh, Sam, I'll buy Brad Gerstners if you want that one.

   10. EREverett Randle16:00

       (laughs) Exactly.

   11. HSHarry Stebbings16:01

       (laughs) Okay? 'Cause he doesn't want them. He doesn't want them.

   12. EREverett Randle16:02

       Give us Brads, yeah.

   13. HSHarry Stebbings16:03

       Yeah. I won't ask any questions, I'll just wear a Sam, Sam T-shirt. Um...

   14. EREverett Randle16:07

       (laughs)

   15. HSHarry Stebbings16:08

       Uh, d- what happens to Cursor? 'Cause you see Codex crush it, actually, as you said there. Claude Code has done so well. What happens to Cursor? I ju- I, I don't know. I mean that with no, uh, I'm purely lost on that one.

   16. EREverett Randle16:23

       Yeah. I mean, I, I, I think, um, everyone, uh, like, I think the thing that everyone has usere- underestimated thus far is just how immense of a potential market, um, Code can be. Um, so when you think about Cursor, uh, I think a lot of people are like, "Well, their, like, relative market share has gone down a lot." Because at first it was really just them, and then Claude Code came out and then, um, Codex came out, and now Cognition is scaling. So instead of, like, yeah, I don't know, 80, like, 80% of the market or something, maybe they have 25 to 30% of, like, the overall AR in the market today. Again, what people are missing is that, uh, like, the, the market of code generation, um, has gone something like, I don't know, over the last two and a half years, it's gone from essentially zero to probably, like, six or seven billion dollars of ARR. And something that, that we used to do, um, at KPN Founders Fund is try to identify, what are the golden categories? And a golden category is a category that, uh, a- adds, like, the, the entire market for a single product adds a billion of net new ARR in a single year. Um, and like, if you find a golden category, you essentially, if yours, especially if you're a multi-stage fund, you have to have a bet in that category, because it means that it's going to produce really big outcomes. Uh, instead of adding, you know, a billion dollars of net new this year, I think code generation is going to add, I don't know, four or five billion dollars of net new across every single product and, and service that's available for, um, for, for, for people to buy, both in the B2B and B2C side.

   17. HSHarry Stebbings17:49

       Can I ask, does AI not make every category a golden category? And I don't mean that kind of, um, s- stupidly, but like, y-

   18. EREverett Randle17:57

       Mm-hmm.

   19. HSHarry Stebbings17:57

       ... customer service, of course, tens of billions of dollars. But even if you think about, you know, much more verticalized software plays, could you not apply golden category to everything then, and should we not move a billion to 10 billion?

   20. EREverett Randle18:09

       It does for a lot of categories. I mean, it remains to be seen, right? Because I think, um, I don't know, if there, like, let's say y- you know, you're doing AI for vets, like veterinarians.... a, uh, maybe there's just not enough vets that, that have enough money to, to actually create a billion of net new in a given year. Um, but I do think that, um, yeah, for so many categories that seemed like, um, you know, maybe they were kind of middling in size, um, a lot of what AI's been able to do, especially if it can touch something that, um, a labor force within a category was doing before, were seeing much, much bigger markets. As one example that I'll give you of this impact, um, we, uh, at KP were invested in a home services AI business that was essentially a 24/7, like its first product is a 24/7 receptionist, um, for, uh, you know, HVAC people, home services, anyone that would be a ServiceTitan customer. And we were calling customers and we're like, "Okay, how much do you spend on ServiceTitan?" They're like, "You know, 250K." And it's like, "Okay, well, how much are you spending on this company?" And they're like, "Oh, you know, 250K." And it's like, "Okay, you have seven products from ServiceTitan, from SaaS 2.0, and you have one product that's just out of beta from this new startup in voice AI, and you're spending as much on that as you are on ServiceTitan? Like, the system of record for everything that you're doing?" And they're like, "Yeah, well, you, you know, like, we, we no longer have to staff, you know, three receptionists, we can staff two, and then we're now able to actually, um, accept calls and book appointments 24/7 rather than, you know, the 9:00 to 4:00 schedule that our receptionists were sitting there." And so it's driving more revenue and more impact than even ServiceTitan was doing, uh, you know, given that capabilities are just so much broader, um, and, and real than, than the in- the impacts that SaaS can have on, on companies.

   21. HSHarry Stebbings19:54

       Ev, are we gonna be fast enemies?

   22. EREverett Randle19:58

       Oh, no.

   23. HSHarry Stebbings19:58

       Was that, was that ProBook?

   24. EREverett Randle20:00

       No, no. This one, um-

   25. HSHarry Stebbings20:01

       (laughs)

   26. EREverett Randle20:01

       ... Lee Marie led a round in Evoca, is, is the company's name.

   27. HSHarry Stebbings20:04

       Ah, thank God. I-

   28. EREverett Randle20:06

       Yeah. (laughs)

   29. HSHarry Stebbings20:06

       I lost this deal and I didn't know who I lost it to.

   30. EREverett Randle20:09

       (laughs)
4. 24:12 – 30:41

   Why We Should Not Focus on Margin But Gross Dollar Per Customer

   1. HSHarry Stebbings24:12

      It's so interesting. Rory O'Driscoll from Scale, who's basically like my adopted father, uh, he doesn't know that, so like, well done, you've just gained a son. Uh, but, uh, he's listening to this show like, "Wow, this is a productive show." Um, but he always tells me that, like, fundamentally, whether we make money from AI or not will be predicated on whether we see the movement from human labor budgets to AI software spend.

   2. EREverett Randle24:32

      Mm-hmm.

   3. HSHarry Stebbings24:32

      And I think exactly to your point there, for everyone who kind of is trying to understand absolute dollars in terms of profit, your margin can be lower, but because the spend is 5X, your absolute profit is significantly higher on a per customer basis, correct?

   4. EREverett Randle24:46

      Exactly. So let, let's think about AWS, for example. Like, AWS, um, I actually don't know their exact gross margins, but they're not as high. They're not 80%.

   5. HSHarry Stebbings24:54

      Mm-hmm.

   6. EREverett Randle24:54

      Let's say they're like 50 or 60%. I know that their operating margins, I think, are at about 30%. Um, the thing about AWS is it is the largest line item for essentially any large software business, um, versus anything else that they pay for. Like, you're paying more for AWS than you're paying for Salesforce, Workday, any other SaaS company by a wide, wide margin. Um, y- you know, it's like in, in the, you know, the early 2010s you had, you know, companies doing like a hundred, $150 million of, of revenue, and people started to be like, "What is this $30 million cogs line, uh, to Amazon Web Services?" Like, "What in the hell is this?" And I think that's, like, an amazing example of, yeah, do they... Does, does AWS have lower gross margins than, you know, Adobe? Of course it does. Um, but everyone that uses AWS and is a core customer of AWS spends multiples on AWS than they do on Adobe, which is why it's such an unbelievably large business, probably a trillion-dollar business if it was spun out of Amazon. So like, that, that is the idea that I think we need to all get in our heads is like, it's not gonna be every company. It's not gonna be every market, but for the right AI companies in the right markets, the size of their revenue per customer is going to be so much larger than SaaS that even if they have lower gross margins, it's going to be a much, much more valuable companies.

   7. HSHarry Stebbings26:08

      Going to that as well, what is AWS? It's a commodity.

   8. EREverett Randle26:13

      Mm-hmm.

   9. HSHarry Stebbings26:13

      And that's what I find so interesting. I, you know, I was like, "Oh, you know, models won't make money 'cause they're just commodity businesses," and then you look at Google Cloud, you look at Azure, and you look at AWS, and you're going, "Wow, maybe the best business in the world is a commodities business," to your point.

   10. EREverett Randle26:27

       One of the things I've changed my mind on over the last two years is that, uh, you know, there's these AI inference cloud businesses. So it's like, who's gonna, who's gonna be the AWS, GCP, Azure of, of the AI era? And when they were... When CoreWeave was, was first raising in private markets, I was like, "Oh my God, this is... They're reselling a commodity. You know, they're a middleman, they're a broker of compute. It's gonna be a low margin, yada, yada, yada." How wrong was I? You know, it's a... I- I mean maybe it's... The market's down a little bit, but, uh, last time I checked it was a $60 billion public company. Nebeus is a $30 billion public company. Um, e- either... There's over $100 million of public market cap, and there's several private players that are growing, um, astronomically as well in this AI inference cloud. So I think sometimes we can twist our mind in knots over like, "Oh, is the business quality okay?" When you have demand like this, like you had for, um, uh, the initial G- like, the initial hyperscaler clouds, um, and I think we're seeing an even greater cohorted demand curve for, for AI inference. Sometimes you just gotta shut your mind up and, and invest with the momentum.

   11. HSHarry Stebbings27:30

       I totally agree in terms of shut your mind up and investing with momentum, but it brings me to the other element, which is different than ever before. You mentioned now the change from margin to focus on absolute gross dollars per customer. The thing that's different is growth rates. And I think the thing that I'm struggling with is sustainable versus unsustainable-

   12. EREverett Randle27:48

       Mm-hmm.

   13. HSHarry Stebbings27:48

       ... but also being a sucker for momentum (laughs) and high, high numbers. How do you think about the importance of growth rate, optimizing for it versus s- sustainability, and do we need a new taxonomy around growth rate as well?

   14. EREverett Randle28:04

       I think we do. I think we, um... Again, I, I, I think the things that we need to hold into our head when we're thinking about, man, you know, we have companies going zero to a hundred in less than a year. We've never seen that. Um, but at the same time, is it easy come, easy go? And we had early... You know, we had, we had early examples of this. Um, I'm comfortable saying this because now the company has rebounded and, to my knowledge, is doing really well. But I remember when people were talking about Jasper. Like, the two AI investments that started the wave were Stability AI and Jasper.ai. Um, (laughs) and well, Stability, different story, but, uh, Jasper, you know, I think it went zero to a hundred very, very quickly, but then actually started shrinking. Um, and it was because it was sort of easy come, easy go with the revenue, and they hadn't built enough scaffolding, and they hadn't built enough, like, actual true value, um, in order to, like, really sustain the customer relationships they had and sustain their growth rates. So the way I've actually been thinking about this, um, especially as it relates to... 'Cause I think the other aspect of this is that, what is the risk for a lot of these app layer companies and who are, uh, they at danger against? It's the labs. Like, the labs are creating apps, they're creating more value via the models, and they're giving them directly to users. And oftentimes as an app company, you need to be doing better than what $20 a month can get you from ChatGPT.

   15. HSHarry Stebbings29:18

       Mm-hmm.

   16. EREverett Randle29:18

       And so I think the, the way to think about it is that for a lot of these categories, the labs set the baseline in terms of customer experience. They're like... They're your competition at, at your base layer. And so whatever you can get from ChatGPT or whatever you can get from, um, from anything directly from the labs' apps themselves, you need to be sufficiently differentiated from that, because they're happy to, you know, charge two, 20 or $200 per month, um, per user. And a lot of these AI companies want to charge a lot more than that in order to have a sustainable business equation and be able to, like, actually do B2B distribution. Um, so I think when you think about, like, Jasper at first, the issue that they ran into was that, you know, people... When GPT-4 came out, they started being like, "Wow, like, the outputs I'm getting from Jasper are kind of the same that I'm getting for 20 a month from OpenAI. Like, uh, I'm not, I'm not gonna pay, you know, however much more for Jasper. I'm just gonna use ChatGPT." Um, but I think what they've done now is build sufficiently differentiated workflow software and been able to, like, tie in LLMs through the life cycle of, of how their users work and operate in a way that is diff- uh, sufficiently differentiated and gives them more of a moat. Like, I don't think the sources of moats have changed from SaaS to AI, um, necessarily. Like, the seven powers are still the seven powers. All of the same ways to build differentiation, um, are there. Um, the stakes are just much higher because the growth rates are much higher, um, and the labs are just getting so much better so quickly, especially at delivering applications.

5. 30:41 – 41:15

   Why AI Labs are the Biggest Threat to AI App Companies

   1. HSHarry Stebbings30:41

      How do you feel about people who say the moats have changed? The moat that was technology is now fundamentally distribution in terms of access to customers, and data, and access to data, and-

   2. EREverett Randle30:54

      Mm-hmm.

   3. HSHarry Stebbings30:54

      ... that it shifted from technology to those two. Do you disagree with that, or do you agree with that?

   4. EREverett Randle31:00

      I, I definitely disagree with that. I think the moat is still fundamentally in technology, not in, in distribution. I think distribution obviously gives you the right to build differentiated technology, but I think one of the huge learnings that we've had, uh, as an industry is how damn hard it is to build good AI products. Like, a good AI product is so much different to build than a good SaaS product. Like, you need different people. Uh, there's so many different parts of, like, a, like, a good pipeline in terms of like, where do you bring in LLMs? How do you improve them? Like, how does it fit within a general workflow? It's not just bringing in the OpenAI API and like, you know, using it within a text box or something. Um, it's actually extremely nuanced and complex to build an exceptional AI product and one that's gonna outshine, um, the, the labs' applications themselves. So, I still think it's technology. It might just be different in terms of like, maybe it's not, you, you know, not a tech moat in terms of having, like, you know, a unique database that no one's ever built before that's more efficient for X, Y, and Z use cases. Um, but i- it's really a talent scarcity and, like, a talent tech moat where there's just not that many people that know how to build these products and build off of these models in a super intelligent, tasteful way, um, which is why you're also seeing, you know, people go for, for billion-dollar contracts and make LeBron money as an AI researcher.

   5. HSHarry Stebbings32:18

      How do you at Benchmark think about that? I, I, I struggled with this one too. I mean, my fund is 400 million. Benchmark, I believe, is 500 to 600. I mean it's always kind of-

   6. EREverett Randle32:27

      Mm-hmm.

   7. HSHarry Stebbings32:27

      You guys never really announce funds in the way that most people do (laughs) 'cause it's probably mostly just your money at this stage. Um, but, uh, uh, my question to you is, like, when you see, like, a, I, I don't mean to pick on them, but like a Mira Murati or a PeriodicLabs, great and very talented people, but these are 300 million rounds, $2 billion rounds. Do you just accept that is not a world that you play in?

   8. EREverett Randle32:50

      I- i- it kind of gets to the question that I think some people have had. I don't think you've had it, Harry. You've been very kind to us, but I think some people have asked the question, did Benchmark miss AI? Did Benchmark, you know, not get in on the AI wave because they're, you know, not in one of the labs, or they weren't in Mira's, uh, they weren't in Thinking Machine's, or, or any of these investments? And I, I'm a big believer in Conway's Law. And Conway's Law is this programming concept that when it's super dumbed down for people like us, Harry, says, "You ship your org..." Yeah. "You ship your org chart," or, "The product you ship looks like your organizational structure." I'm a huge believer in that for venture capital firms as well. I think you ship your fund size, or you invest your fund size and your team structure. So, if you have a $7 billion fund, and you have 50 people, uh, you definitively need to get in on these mega rounds. It is the only way that you can put, you know, a billion dollars of capital at work productively in a single shot. Um, and if you don't, and it ends up being successful, you are now left in the dust where all of your mega, you know, your mega fund brethren got those returns, and now you're benchmarked poorly against them 'cause you missed one of those things. For a firm like Benchmark, it might not make any sense at all to invest in a, you know, $5 billion financing in, in a, in a lab even those are, even though those are good investments, um, because of our fund structure and because of our lean size. But our lean size and our smaller fund, um, fund size also allows us to do other things that we think could even generate better returns. So our, out of our last fund, our five best investments in that last fund today held at LRP, last round price, are about a 60X. We have two 30Xs, and we have two 20Xs. Since ChatGPT was released, there isn't an OpenAI round that touches that return multiple and that money on money multiple, and we have five of them, and each of them, I think, have a fair amount of upside even from here today, or maybe a lot of upside even here from, from today. So, like you, I think you have to kind of choose the game that you're going to play, a- and it's based on how big your fund is and how many people your, your, you have on your investment team. Um, but I think there's so many different ways that we can play the game and generate maybe even better money on money returns than folks that are investing in the labs, even though I do think the labs have obviously been amazing investments.

   9. HSHarry Stebbings35:03

      Your fund size dictates the problem that you're solving for. And I think-

   10. EREverett Randle35:07

       Yeah.

   11. HSHarry Stebbings35:07

       ... when you said there about missing the OpenAI at 30, transparently, what I thought was that's, what, like, a 15X on a blunt multiple to where it is today, but with dilution-

   12. EREverett Randle35:17

       I think less.

   13. HSHarry Stebbings35:18

       O- okay. Let's say 14. Uh, let's say it's 12X. But with actual dilution, you're looking more at, like, a 6 to 8X, which don't get me wrong is fantastic, but when you do a comparison to your Legoras, to your lang chains, to your Sierras, to your Macaws, to your Firework, to... I mean, like, we're focused on cash on cash.

   14. EREverett Randle35:38

       Hundred percent. And again, I think, like, the, the lab investments are amazing as well, but I think, um, again, where our, our, our job is to if we're gonna stay small, the only way we're going to impress LPs is by having incredible cash on cash returns.

   15. HSHarry Stebbings35:54

       Do you worry you need them to stay relevant? I agree with you on LPs. I agree on cash on cash. But just relevancy with founders and with community, do you worry that you need them to stay relevant?

   16. EREverett Randle36:05

       I think it's a, it's a question that we need to constantly be asking ourselves. And I think if we ever find that our network access, the close relationships we have and the people we have access to is slipping, um, or, or, uh, or we're not getting access to the right people or the right network nodes, I think it's something that we always need to be sharp on in revisiting. Um, but I think if you, if you think about kind of, like, the cultural touchstone founders of today's AI era, like, is, is there anyone, you, you know, more than Bret Taylor who represents this wave of AI applications? He's like the, he's like the godfather of AI apps right now. And when you think about these, like, really cracked young teams in AI, you know, who do people look up m- up to more than, than Brendan at Marqor and the, what, what they've done on the AI infrastructure side? And so at least thus far, even with our strategy, even with the trade-offs that mean that we can't invest in every single good round, we've still been able to attract and partner with, um, and I think build really great relationships with a lot of the founders that people look up to in this AI wave. Um, and I think our network, uh, thus far has been, has been exceptional. But I do think it's a, it's an ongoing question because if, if all there is left is, is these billion-dollar raises, um, in order to, like, build relationships with these people, then, then that's, that's an ongoing question.

   17. HSHarry Stebbings37:18

       Well, I, if that happens then all of us will either work for the North Korean army or for Andreessen Horowitz, one or of the other, so.

   18. EREverett Randle37:26

       (laughs)

   19. HSHarry Stebbings37:26

       That's rather complete-

   20. EREverett Randle37:27

       They're one, they're one and the same to me, Harry. They're one and the same to me.

   21. HSHarry Stebbings37:31

       (laughs) . Mark and Ben, he said it, he said it.

   22. EREverett Randle37:36

       (laughs)

   23. HSHarry Stebbings37:37

       Um, you said the word slip, and then you said about McCaw. Um, now I'm in McCaw a little bit after you guys, sadly, um, but I did see the article which said about the ownership that Benchmark had in McCaw being obviously much less than the traditional, and I think it was about 10% give or take. I'm not asking specifics about company, I'm just intrigued, how do you think about discipline around ownership in a new AI world where everyone's is trending down?

   24. EREverett Randle38:07

       When I think about Benchmark's north stars, like what we really care about in our investment strategy, and this relates to the ownership that we get in our investments, or everyone else gets in their investments, we have two north stars really that we think about. We want to be the highest ROI and closest partner to the founders that we partner with. We want to be their most meaningful VC and partner that they have from the moment that we partner with them until the company no longer exists. Like, it can go public, we'll still be on the board, but, you know, until the company no longer is a, is a going concern. And we wanna generate the highest money on money returns that any of our LPs have in their venture portfolio. But that's basically it. And so I think as the asset class evolves, there are ways to, you, you know, uh, really serve those two north stars without having to necessarily get 20% ownership or, or around there every single time. And I think as, uh, we're all believers, I think you're a believer, we're certainly a believer that the outcomes are much, much, much larger in today's, uh, in today's technology landscape than they were 10 years ago, 15 years ago. There's more bites at, at, you know, potential $100 billion or trillion dollar companies. There's just, there's just m- so many bites at the apple in terms of how you can, um, both be a really meaningful partner to the founders and two, um, generate really, really exceptional returns. So in the McCaw case, yes, we, we didn't get, you, you know, high teens or 20% ownership, but I think if you talk to the McCaw folks and who their most impactful VC partner has been, I think they would say Benchmark. And I think that's gonna generate unbelievable returns for our LPs, and it's one of those ones that's, you know, you can do the math on, on what the money on money return has been, um, thus far, um, from, from our ownership stake. And so I, I think sometimes people confuse the inputs for the outputs at Benchmark where it's like, oh, like they have to have 20% ownership and they only wanna invest at 100 posts and all these things, and I think that's, that couldn't be further from the truth. We really have those two north stars and whatever the asset class allows for in terms of the relationships that we build and how we can deliver the best for our LPs and our founders, that is, that is what we're serving to and that's what we're optimizing for, not some vanilla percentage ownership number. Ironically, I, I think the last thing I'd say on that is, like, ironically, I think if you polled any of our founders and said, you know, "Do you regret the amount that the percentage ownership that you gave to Benchmark?" I don't think you'd get a single one of them to say, "No, we gave Benchmark too much." Uh, I think that's one of the really special things about the history of the partnership. It's my third week, so obviously I've contributed nothing, nothing to that. I'm just speaking to the amazing work that, that, um, all of our current and historical GPs have done for the platform. Um, but I, I also do think that, that, um, the, the, even when we get, you know, uh, and, and we so often do get really high ownership stakes, I don't think a single founder regrets that, uh, regrets that partnership.

   25. HSHarry Stebbings40:52

       Evan, it seems despite many years and venture, you still need a lesson from, from me, which is regardless of what you did, it was all credit to you for the brilliance that happened before.

   26. EREverett Randle41:02

       Exactly. (laughs)

   27. HSHarry Stebbings41:02

       Okay? It was, it was me. Yeah, yeah, yeah, yeah.

   28. EREverett Randle41:04

       (laughs)

   29. HSHarry Stebbings41:05

       I remember doing eBay back in the day. Me and Pierre, we were hanging. Uh, we basically co-founded the business together. (laughs)

   30. EREverett Randle41:12

       So good. Yeah. I need, yeah, I do need to work on that.

6. 41:15 – 55:48

   Do Benchmark Fire Founders? If so… Truly the Best Partner?

   1. EREverett Randle41:15

   2. HSHarry Stebbings41:15

      You said about, we can take this out if you want to, um, I pry and you can take out, one of your old partners, Delian, is quite vocal about Benchmark. I mean, it's kind of the popcorn GIF, you know? Um-

   3. EREverett Randle41:30

      It is.

   4. HSHarry Stebbings41:30

      And you say about being best partner, I, I think if you can answer it, it's helpful because your Delians doesn't help where he says, "Well, you just fire founders continuously." Is that not slightly incongruous being the firm that fires founders and also your best partner?

   5. EREverett Randle41:47

      I'll, I'll, I'll start with Delian's media strategy. Delian, and, you know, love Delian, he's a close buddy of mine, so I, I hope he doesn't, I don't think he'll mind me saying this 'cause he, he certainly busts my balls more than, more than enough. Um, Delian has, has always found an amazing kind of media and Twitter strategy which is go find y- you know, someone with, with, like, you know, a stalwart brand or, like, go find the, the biggest person on the playground and go punch them in the face. Um, and people love it and it gets a lot of likes and it gets a lot of clicks, um, and, and it helps raise your, your kind of profile and it, it almost, like, elevates you to, to their positioning. He's done it to Sequoia an immense amount, he's done it to Andreessen over the years, and we have not been spared the, the, the clickbait, um, you know, Delian, Delian tweets either. Um, no, I think, I mean, obviously the, like, every, every story has an immense amount of nuance and what happens between a board and a founder and a management team, um, th- there's just an immense amount that goes into every single one of those deci- decisions. And, again, like, I think, you know, times also completely change. Like, in the '90s and early aughts, um, you know, the, like, if you think about, like, if you read about or hear about the Google investment, it's like, you know, Kleiner and Sequoia do the Google investment and immediately start searching for a professional CEO. And so, like, it used to be, like, it used to be the absolute norm that it's like, it's not even like, "Oh, we're gonna push the founders out," it's like, no, you invest and then you all together go look to recruit a CEO. Um, I think 2025 is immensely different than 2000, it's immensely different than 2010. It's even immensely different than 2015.... and just the relationship between boards and founders have changed. The relationships between venture firms and management teams and companies have changed a lot. I think it's for the better. Obviously, I spent a fair amount of time of my career at Founders Fund. I love the idea of never firing founders and, and, um, y- y- you know, having them lead their companies from the moment you partner until the IPO and beyond. But at the end of the day, um, they're also... Like, I also am a believer in, like, basic governance. Like, I'm also a believer in, like, if, if you do end up investing in someone who breaks the law or someone that's, um, you know, crossed ethical lines, it is your responsibility as a board member to also potentially, um, take remediations and, and action on behalf of all of the shareholders, all of the employees in the company. Like, if you take a board seat, like we do, and you do have governance, you ultimately do have at least basic ethical and moral responsibilities, and I think it's actually a, a convenience for Delian and some of the Founders Fund folks to absolve themselves of that, of that weight and that responsibility, just by being like, "Oh, it's not part of our, it's not part of our thing." Um, but I think, you, you know, it, it's, it's almost out of, out of laziness sometimes more than it is, um, you know, some, some, you know, duty that they, that they find to founders.

   6. HSHarry Stebbings44:32

      I, I, I... You know, you said you'd give me some bangers. I also, you know, give myself spicy ones, but I think we're actually too kind on the flip side, where we now do not adhere to our fiduciary responsibility because we do not want to lose NPS so much. I'm on a company now I'm invested in where the board is deliberately obfuscating their fiduciary responsibility just to preserve founder NPS in case they say something bad. They are not looking after the cap table just because they do not want to piss the CEO off. That is a deliberate obfuscation from your responsibilities of protecting shareholders and doing what's best for them.

   7. EREverett Randle45:10

      100%. I, I completely agree, and I also think the best founders, they, they don't want sycophants in the boardroom. Like, they don't want GPT-4.0 in the boardroom telling them that everything that they do, they walk on water and that they do nothing wrong. Like, they actually want other adults in the room that are going to push them, that are going to spar with them, and that are gonna make the company better.

   8. HSHarry Stebbings45:29

      Can I ask you, you said about, kind of, um, multiple bites at the apple. I, I wrote down apple bites. Um, y- when we look at Benchmark over the years, you know, Phantom did Airtable Series C. I think Gekko was Series C. LangChain was a seed. To what extent will you push the partnership now to expand the boundaries of what we call an A and what Benchmark does to do more broad bites at the cherry or apple?

   9. EREverett Randle45:58

      Yeah. I think historically, again, going back to those North Stars that we talk about, um, I think when you marry the... Wh- when you think about the Benchmark investment strategy, it's helpful to marry the North Stars that we talked about in terms of every investment needs to be potentially absolutely astronomical money on money returns for LPs, and we wanna be the most meaningful partner to our founders. Um, there's a lot of different ways to do that. And so, I think you, you marry those North Stars with the personal investing style of each of the GPs. Like, each of us is 25% of Benchmark, and we work really well together and we're a super tight-knit team, um, but each of us has our own styles. And so even if Eric, uh, tends to love getting in right at inception and be the first check-in and be, you know, really, really in the, the, kind of, like, uh, primordial soup phase of, of a startup, it doesn't mean that myself or Chetan or Peter are always gonna operate exactly at that stage. We all have our particular preferences. I think Peter does an amazing job of just letting, like, following his founder conviction. And, like, he doesn't think about stages. Like, when he finds a Howie, when he finds a Brett, when he finds any of these founders, that is what he lets him, that's what guides him, and he's like, "I'm gonna find a way to become the most meaningful partner to this founder, and I'm gonna find a way for the investment to make them a, a lot of money for our LPs." Um, and so I, I, I think that is the mindset that we all have. And historically, I've done more growth. Like, I focus more on Series B and beyond than I focus on early stage. Um, so will I do more, kind of, Series AB or whatever we call it these days than inception seed investing, especially at first? Probably. But again, we're, we're guided by those North Stars and finding founders that we really resonate with, and then typically, we're able to find ways to make it work on the backend and for our investments to generate exceptional returns and all those things. So I, I think unlike, you know, a, a huge mega fund that is like, "We have our Series A partners, we have our Series B partners, we have our Series C partners, they do fintech, they do healthcare, they do blah, blah, blah," like, we don't think about those things at all. We really just think about our North Stars and, and I think we're realizing more and more that there's just so many different ways that you can have 10X, 20X, 30X returns.

   10. HSHarry Stebbings48:08

       I spoke to one of your former colleagues, and they said, you know, "Ev is a phenomenal growth investor, but he's a growth investor." And when I think about what matters at different stages, you know, for me, in the early stages, it's people, and in the later stages, it's market, actually. Sizing, depth, and just how big something can be. You know, we recently did Airwallex late at 4 billion.

   11. EREverett Randle48:30

       Incredible company.

   12. HSHarry Stebbings48:31

       Why? Incredible. But why? 'Cause, like, dude, fucking B2B payments. Like, you know, it's a big market. We got a lot more of them to run. How do you think about that shift earlier? Are you nervous about making it, and what changes in what matters in your mind?

   13. EREverett Randle48:48

       Yeah. I'll be, I'll be vulnerable with you, Harry, and say that this was, um... When, when I was, when I was talking, this was, this was a dinner I was having with Eric Fishery on our team, um, and I was having a moment of insecurity when I was talking to him about, about just the, the, the role of, of being a, a GP at Benchmark and saying, like, "Hey, you know, like, I- I've mostly done growth." Um, and he was like, "Dude, like, Bill Gurley was a public markets analyst before" (laughs) -

   14. HSHarry Stebbings49:13

       Yeah.

   15. EREverett Randle49:13

       ... "before he came to Benchmark. Like, you certainly are not gonna be the most, uh, y- y- you know, the most off-the-wall hire that Benchmark has made. Um, that's actually more par for the course for Benchmark." And I think also wh- when you look at, like-... who do you think are the amazing investors today? Um, I think they transcend stage. Like if you look at Pat Grady, does Pat Grady think of himself as a growth investor or does Pat Grady think of himself as just an amazing investor? Or maybe he's too humble. He's a pretty humble guy, so maybe he doesn't think about hi- himself as an amazing investor at all. But I look at what Pat does and I'm like, he finds incredible founders in- in investments that he thinks have an immense amount of upside and he goes and partners with those founders. And so I wouldn't say that I'm an amazing investor yet. I don't have the track record yet to say that, that I am but like, that is, that is my North Star and that is my goal and I'm gonna work my ass off to do that where I'm just going to find, um, I think I've, I've been able to kind of like tune my intuition and even though I've used it to execute on growth stage investing, I think if you look at a lot of even the, the people that we think are growth stage investor, they're doing earlier stage companies now, um, and doing a lot of different stages at the same time.

   16. HSHarry Stebbings50:16

       I thought Pat just did the deals his wife did?

   17. EREverett Randle50:21

       (laughs)

   18. HSHarry Stebbings50:21

       (laughs) I'm just kidding. Harvey was

   19. EREverett Randle50:24

       ... bad. He said it, he said it, not me, Pat. He said it. (laughs)

   20. HSHarry Stebbings50:28

       (laughs) Dude, I've known him for 10 years. I've said this shit to his face.

   21. EREverett Randle50:30

       Yeah, you can get away with it. (laughs)

   22. HSHarry Stebbings50:31

       I've said it for years and this is why I think he's just like, "I've never met Harry. Don't know who this guy is. No idea." Um, a thing that does change, obviously, is price and it does matter at different stages. How do you think about your own relationship to price?

   23. EREverett Randle50:46

       I, I think almost by starting my career as a growth investor, it, it actually really helps me. So one of, like the, the first investment that, um, that I did at Kleiner Perkins when, when I came back in 2022 was SpaceX at $150 billion. And at the time, it's like, oh my god, like $150 bal- billion entry price. Like the, the absolute numbers, like can we really make a good return on this investment? And having to go through the process of saying, "Hey, let's not focus on just some, uh, large absolute figure. Like let's look at the TAM, let's look at their competitive position in their market, let's look at what happens if this goes right, and let's look at the probability of it going right and who could potentially knock them off their perch, um, to make it not go right." And when you actually zoom back and said, "Hey, let's just like take a few zeroes off of every single number, the TAM, the, uh, valuation, the revenue, everything," if you were to like look at it as a vanilla widget co and just reduce, like, you know, took two orders of magnitude off of every number, you'd be like, "This is an absolute no-brainer investment with a 10X upside case." Um, so I think like doing, doing later stage investing can actually really help you think about price even at the earlier stage because it really makes you think about, "Okay, like I'm gonna ignore what feels like a large entry price relative to market." Like if you're in a, like if you're in a market where everyone's like, "Oh, the series A market's 100 post," and like if you do something at 200 post you're an idiot 'cause that's like 2X more expensive, then you miss Rippling at 250. You know the, the famous series A that Mamoon did where everyone's like, "This guy's out of his mind. He just paid 250 for, for a series A company that barely has any revenue," and obviously you miss Parker's excellence, you miss the TAM that he's going after, you miss the product sequencing, the differentiation that he's going to build, and you miss the, the, the exceptional team that he had built. And so I think if you can always try to isolate like, "Hey, I'm not gonna care about what's going on in the market, I'm going to care about what matters for an investment and how much upside I think there is in a vacuum," um, I think, I think that matters a lot more and it's something that you can actually get if you start your career in growth.

   24. HSHarry Stebbings52:44

       Do you remember when Andrew Reed did Figma?

   25. EREverett Randle52:46

       Exactly.

   26. HSHarry Stebbings52:46

       And they were like four, four million in AR and he did it at 400 and everyone was like, "This guy is cr- 100X, what? Nuts." Now I'm like just-

   27. EREverett Randle52:55

       One of the first 100X deals, I think, in SaaS and people were like, "100X AR, what the hell?" And obviously it ended up being, you know, I don't know, 30, 40X? Unbelievable investment.

   28. HSHarry Stebbings53:04

       Do you outcome scenario plan though? 'Cause you said there about market analysis and trying to do top down versus bottoms up. How do you think about that and do you not worry that it can mislead you in the wrong direction?

   29. EREverett Randle53:15

       This is a lesson I think I learned from Mary mostly and it's one of my most important frameworks and that is, you should understand what the, what the, the like base case or like the base rate future of the company looks like. So if you are like an equity analyst and this was your hundredth company that you were doing like a little forward model for and you weren't paying that much attention and you're just like, "Okay, it just tripled, tripled, so it's gonna double, double, double," or like whatever, if you just did like, "Hey, this is what the market thinks is sort of like the baseline of what this company should do," it's actually extremely helpful to lay that all out and visualize that. Um, so I don't say like, "Oh, this is the bull case, this is the base case, and this is the bear case," but I lay out like what is, like what, what are people underwriting to? 'Cause y- let's say at the growth stage people are underwriting to like a three to five X. What does that look like on paper? And then how does that jive with my mental framing of how important this company is going to be for its customers, for its market, for the U.S. economy, um, in some cases? And I think, um, when, when you, when you have a really, really strong intuition about a company in the middle of an inflection that's about to absolutely explode, you look at the numbers that people are underwriting to to get to their three to five X and you say, "This company's gonna absolutely smoke these projections." Happens very rarely, but it's really, really nice because it, it really gives you the amount of conviction, um, when you look and say, "Oh, this is just like, everyone's gonna underestimate this thing." And I think the other reason why models are, are not useful beyond that simple framing is that every successful investment you just feel st- Like if you were to model Figma's growth, you know, everyone would make fun of you. You'd be like, "Dude, come on. Like you're just trying to get this deal done. You know, why would you model it growing for, this fast for this long, this profitably. Like it's never happened in SaaS. Like you're crazy or you're just like doing the IC a disservice." And so I think beyond being like a yardstick to test your conviction, models aren't that useful, but for that, they're really, really good.

   30. HSHarry Stebbings55:07

       I always remember Ernie from Carvana coming on and being like, "The amount of investors that would be like, 'Hmm, the biggest car showroom is like $300 million market cap.'"
7. 55:48 – 59:14

   People, Product, Market: Rank 1-3 and Why?

   1. EREverett Randle55:48

   2. HSHarry Stebbings55:48

      People, product, market. Rank one through three in order of priority for you.

   3. EREverett Randle55:54

      The way you said it, honestly, people, product, and market. Um, I think that people define everything else. They are the upstream engine that makes everything go. They're the most important piece. Um, two, I think the product that the people build tell you a lot about, just tell you so much, um, about also the people. Like, it's, it's the greatest evidence of the quality of the people is the product that they build. Um, and then market third. Obviously, I, I am a believer that, like, the market you're in ends up defining the size and then the founder, uh, you know, determines how, how, like, what percent of that size you can, you can get in your exit. But I just think it's the most fungible. Like, I don't think you can turn a non-exceptional person into an exceptional person. I don't think you can take a team that can't build a good product and make them a, a team that can build a good product. But you can change markets, especially early on in a company's life. Like, most of the amazing companies and exit stories had some pivot along the road, whether you're talking about Slack or, or any of these others. And so I, I, I truly think that because it's the most fungible, um, market is the least important of those three things.

   4. HSHarry Stebbings57:01

      You said there, "The change of markets." It was on this show where Doug Leone said, "Venture capital has transitioned from a high margin boutique community to a low margin commoditized industry." Tears ran down my face, uh, with my $400 million fund, which seemed quite paltry.

   5. EREverett Randle57:21

      (laughs)

   6. HSHarry Stebbings57:21

      Uh, (laughs) do you agree with him in that statement?

   7. EREverett Randle57:25

      You know, I think Doug might've gotten that idea from me. Um, and I'm, I'm half-kidding, uh, but I wrote this piece back in 2021. I think it's the reason why we first DM'd. It was called Playing Different Games. And, uh, ostensibly, it w- the, the piece was about the rise of Tiger. But what the piece was really about was the rise of a firm-level strategy that surrounded itself around inv- uh, increasing investment velocity as the core strategy. And so the idea being that you could make more money as a firm and as a GP if you invested a lot more money per year, even if you thought the forward returns were gonna be lower on average per investment. And the idea was, like, Tiger was really the first one to take this idea and really, really run with it, um, and, and make it, you know, they raised $15 billion, or whatever they did in 2021. John Curtis basically d- deployed it all over the, that 18-month period. Um, and, and at the very bottom, I, this is the ironic part of that piece, at the very bottom, I said, "Venture capital is going to bifurcate." And on one end, you're going to have the Tiger model, which is high capital velocity, high, lot of money out of the door every single year, um, low touch, um, good prices, like, giving, giving founders really good prices. And on the other end, who did I have? I had Benchmark, ironically. And, like, that is going to be, like, the craft that is going to be high touch. It's gonna be the best signal that you can get if you're a founder and they're gonna be very, very involved. And then in the middle, I was like, we have the JCPenney Funds, which is, like, the dead zone. And I think, like, the crazy thing to me is, like, what ha- what's happened over the last four years, Harry, how many firms have moved towards the Ti- Tiger side of the spectrum? Like, Tiger died and we got six or seven more Tigers out of, like, in the last four years. And obviously, a lot of these firms are, are running different strategies, you know, Thrive and Founders Fund are doing extremely concentrated investments in really high-quality companies. Uh,

8. 59:14 – 1:04:33

   Why the Mega Funds Have Just Replaced Tiger

   1. EREverett Randle59:14

      you have the mega funds like Lightspeed and GC doing their thing. It's a lot of different, you know, flavors of, of capital velocity as a North Star, but there are six to eight firms now doing, you know, capital velocity, investment velocity as their North Star. Um, and that was one of the reasons why I was really confident and high conviction in joining Benchmark, 'cause if you look how many of those tier one brands have moved more towards the Benchmark side of the scale, there's basically none.

   2. HSHarry Stebbings59:37

      Can I just push you? Do you think they are doing capital velocity as their North Star? I mean, I, I think Josh would ardently push back on that from Thrive. Um, and I, I don't even think you could apply it to Lightspeed and GC. I think they're solving for large checks, which is why they have to be in these mega companies 'cause they need to deploy 500 million in some cases. But I don't feel like they're solving for velocity in the same way that Tiger were. And do you argue about ?

   3. EREverett Randle1:00:04

      I do. I, I would push back, um, well, there's two things. So I think obviously there's, there's different, like, sub-segments of this now. Um, so, so, like, let, let's take the actual mega fund, the people that I think are most following this, this strategy. If you were to say, "Well, are GC or Lightspeed or some of these mega funds, is the strategy investment velocity as a North Star?" To answer that question, I would have you go talk to the principals, the junior partners, and the associates at, at those firms. You interview 10 of those people and you tell me that capital velocity is not the North Star of those firms, and I will cede victory to you, Harry. I think when you actually look at what's going on at the ground floor, it doesn't matter what Ravi or Herman are saying. When you actually look at what's going on, um, at the people actually going and doing these investments, they feel it. They feel that they need to get money out that door, and that's the only way that they're getting promoted up those organizations. Um, so I think it's very, very real. On the Thrive side, I agree with you. I, I think that, that Josh would resent that, that characterization, and it was probably too blunt of a characterization. But again, I, I, I think subconsciously still as a firm, it's very, very hard to care about, like, it's, it's hard to care about something that's not your main product. And when you're writing billion-dollar checks-... that is your main product. Like it's, you know, that's what gonna make you all the money. And so if you put $3 billion in OpenAI and it's gonna turn into $12 billion, it, it just subconsciously, whether it's conscious or not, it is unbelievably hard to then go and be like, "We're also going to be the best Series A firm and we care just as much about Series A." Because why would you? Because 99 or not, not, like 95% of the profit that you're going to make and the money in your pocket is going to come from the billion dollars you put in Databricks, or the $3 billion you put in OpenAI, or any of those things that have ended up being your main product. So I think you, you just can't focus on everything and give it y- your all. And I think, so even though it's less conscious for those firms like Founders Fund and Thrive, it has become their main product and their main focus subconsciously.

   4. HSHarry Stebbings1:01:55

      If we accept that, people then often move to the, "And they're gonna do worse, ha, ha, ha." Like, you know, "We accept a lower rate of return 'cause they have, you know, the Norwegian tree pension fund. One's 4% a year and so that's what they're going for." And then you actually look at outcome scenarios and outcome sizes of, you know, OpenAI, which will be a trillion-dollar company next year. Anthropic, which will definitely be a 600, $700 billion company.

   5. EREverett Randle1:02:21

      Yeah.

   6. HSHarry Stebbings1:02:21

      Cursor which hits a hun- you know, a billion in ARR insanely fast, and outcomes are so much larger than we ever anticipated. I think they will make a huge amount of money because the outcome sizes have continuously expanded. Do you agree?

   7. EREverett Randle1:02:39

      Oh, yeah. They're all gonna make an immense amount of money. But again, let's change the framework from absolute dollars to what you're giving each stakeholder of the three legs of the, of the venture stool. So venture has three stakeholders. You have your LPs, you have your founders, and you have each other as GPs within a firm. I don't think as, as Ravi or Hemant or even Ben and Mark at this point, I don't think that they can go to LPs, one of those legs of the stool, and say, "Hey, this, this basket of funds that we're making you invest pari passu across, we're gonna get you 5X net on that." I don't think they can say that, or they at least can't say that with a straight face. Uh, and if you look at the recent return data, I think it suggests that. So I think they'll be able to make an immense amount of money on an absolute basis, but I think a lot of these LPs are in the business to make, or in venture to make high money on money returns. Like they have PE for the low return stuff and they probably get better liquidity from PE. They're here for the high money on money returns. And this is one of the reasons why I'm extremely excited about Benchmark's competitive position in today's market, because we can go to LPs, we can say, "Hey, we're shooting for higher five, than 5X net. We have the historical track record to back it up and we have the fund sizes to back it up as well." I mean, you had Miles from Carnegie Mellon come on here and do the awesome math and the very clear math of, hey, do you know how hard it is to return 4X net on $8 billion, $10 billion? It is immensely hard and it's, it, it like defies the laws of physics. So I think there's a difference between are they going to make a ton of money and are they gonna produce the returns that LPs really want this asset class to produce? Two very, very different things. But for now the, like th- the rubber is, like the rubber won't meet the road because as you mentioned, there's just so much global demand from LPs for exposure to private technology, and they are happy to take lower returns. And so I don't think there's any end in sight, but I think on a relative basis between all of these different constituents and all these different GPs, there, there's a huge, huge delta and a huge differentiation between who can actually produce venture-like

9. 1:04:33 – 1:22:10

   GC, Lightspeed and a16z Cannot Do 5x on Their Funds…

   1. EREverett Randle1:04:33

      returns.

   2. HSHarry Stebbings1:04:33

      Tiger.

   3. EREverett Randle1:04:35

      Mm-hmm.

   4. HSHarry Stebbings1:04:35

      I think Tiger will do much better than anyone an- anticipated when you look at their positions in Scale, OpenAI, and the protection that they're gonna get from a load of liq prefs that they do actually have, meaning a lot of them will get 1X plus a little bit maybe. Do you think I'm wrong in being too optimistic or do you think actually the whole ecosystem shit on them a little bit too early?

   5. EREverett Randle1:04:58

      I, I completely agree. I think Tiger's gonna end up much better than anyone thought they were going to end up.

   6. HSHarry Stebbings1:05:03

      Mm-hmm.

   7. EREverett Randle1:05:03

      I like jokingly detected some of my friends and I was like, "#JusticeforJohnCurtis." (laughs) Like I actually think everyone put him as kind of this like pariah of like the, the, you know, the, the, the personification of the, of the excesses of 2021. But again, it, it might have proven, like his strategy might have proven prudent and the correct strategy all along, because they got really big stakes in Databricks. They got, uh, they, they invested in OpenAI very, very early. I think they have a large position in OpenAI. They actually have large positions in a lot of these amazing companies that could continue to compound 5X more. And again, they'll, they'll probably, you know, benefit from, um, the liquidation preferences and, and the beauty of having, um, you know, preferred stock for a lot of the things that don't work. And so in the fullness of time, I mean, I'm sure it's not gonna be the best portfolio that, than any, any LP's ever gotten, but I definitely don't think it's gonna be like a money-incinerating fund by any means. Um, and I actually think it might end up being pretty okay if, you know, o- once Databricks is a 400, $500 billion company and OpenAI is a multi-trillion dollar company. Um, so it, it is, it is hilarious. I do think people gave them too much of a term, uh, uh, uh, a hard time probably. Um, and I do think they might end up being, being okay.

   8. HSHarry Stebbings1:06:13

      I love that hashtag. Um, I'm sure John-

   9. EREverett Randle1:06:15

      (laughs)

   10. HSHarry Stebbings1:06:15

       ... will listen to this and be like, "Yes."

   11. EREverett Randle1:06:18

       (laughs)

   12. HSHarry Stebbings1:06:18

       (laughs) "Thanks, guys." Um, uh y- when we were chatting about multi-stage funds before and going back and forth on email, you said about how it sucks to be in a mega fund. Why does it suck to be in a mega fund, Ev? 'Cause from the outside it looks pr- (laughs) from like building a firm, the idea of having mega fees, mega offices, Fiji water in unlimited supply, uh, (laughs) you know, and more EAs than you have investors, it seems pretty good. (laughs) Can you help me out here, dude?

   13. EREverett Randle1:06:48

       Okay. So yeah, m- maybe I should caveat by saying all on a relative basis, these people definitely aren't going to the coal mines and, and-

   14. HSHarry Stebbings1:06:56

       (laughs)

   15. EREverett Randle1:06:56

       ... and laboring all day under, under the hot sun or something. But, um, yeah, I think, a- and I, I know like I have so many friends at these funds and some of them are probably gonna kill me for this, this part of the, this, this part of the conversation. But some- something that I always tell, um, I- I've mentored a lot of people that are either coming out of private equity or t- or thinking about moving firms in venture growth. And one of the first things I say to them, I just think about the day-to-day that, that, uh, that I, I know exists in a lot of these mega funds. And if you think about it, if there's 50 investors...Um, if you come in and you're like the 23rd partner at- at, like, I don't know, like, Iconic or, like, one of these places, uh, well, like, what- what companies do you get to cover? And so they... Like, that- that's the first problem, is, like, you end up getting, like, a- a, like a very small sliver of the overall market because so many people have already, like, cl- like, laid claim and are the point person on the very best companies with the very best founders. And so you end up, like, being focused on this local maxima where you're like, "Okay, I have, like, 30 pretty good companies that I am the point person on the relationship. I also really need to do investments because that's how people get promoted here. Um, I really need to, like, get a couple of these in the portfolio." And to me, sometimes it just feels like a little bit of, like, uh, it just feels like a different job than, like, the craft of venture capital where you're almost playing the lottery where you're like, "Okay, I have these 30 names that I own. I'm gonna try to do two of them, and then if one of them hits and is- is a huge success, then I'm gonna get, like, tenure and I'll, like, get to be a GP, and then I'll get more coverage and then everything will be okay." Um, but there's just something that's, like, not... You know, it feels almost, like, a little bit more like investment banking or, like, a large private equity firm, um, th- than it does, like, what- what people think of when they think of, like, being in a venture capital firm, which is, like, meet really interesting, you know, founders, build genuine relationships with them, and only do the very, very best investments and- and partnerships. And I just think it's- it's really gotten away with that, and I think it's- it's inevitable and it's- it's, again, like, to that Conway's Law point of- of venture capital firms, um, it's just based on the- the fund sizes and the team structures of these places.

   16. HSHarry Stebbings1:08:51

       I agree. And if they get fed up with the private chefs and the Aesop soap in the bathrooms, then they can always go and, you know (laughs) , build their own fund and toil away and do the painful hard yards, in which case I wish them well. Um-

   17. EREverett Randle1:09:05

       Exactly.

   18. HSHarry Stebbings1:09:05

       ... I- I- I have to say, I do agree with you there. Um, I do have to ask you, you mentioned there about kind of doing those two deals out of the 30. The first deal is really hard, dude. How do you think about your first deal at Benchmark? You can fall on two sides. Just get it out, you know. It may not be your best, but it's kind of like, you know, the first shag (laughs) .

Episode duration: 1:26:42