EVERY SPOKEN WORD
150 min read · 30,030 words- 0:00 – 3:17
Why Benchmark matters: a VC franchise that refused to build an empire
- BGBen Gilbert
All right, let's try and do it as one, and we're gonna hustle.
- DRDavid 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.
- BGBen Gilbert
All right. No trade-offs.
- DRDavid Rosenthal
And we'll let the chips fall where they do. [laughing]
- BGBen Gilbert
[laughing] 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.
- DRDavid Rosenthal
Yeah. [chuckles]
- BGBen Gilbert
[chuckles] All right.
- DRDavid Rosenthal
Uh, we'll see how this goes.
- SPSpeaker
Who got the truth? [singing] Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down, say it straight, another story on the way. Who got the truth?
- BGBen Gilbert
Welcome to season eleven, 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.
- DRDavid Rosenthal
And I'm David Rosenthal, and I am an angel investor based in San Francisco.
- BGBen 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 gonna 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.
- DRDavid Rosenthal
Or maybe. Well- [laughing]
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
There was a flirtation with an empire in there, as we'll get into.
- BGBen 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 nineties, like eBay, eShop, one-eight hundred-flowers, or Ariba. 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 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-
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
-for all-time greatest venture capital funds in history?
- DRDavid Rosenthal
I like what you did there.
- BGBen Gilbert
You did.
- DRDavid Rosenthal
I like what you did there.
- BGBen Gilbert
[laughing] Okay, good.
- DRDavid Rosenthal
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-
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
... I like that. That was good. Well done.
- 3:17 – 15:22
Sponsor + community interlude, then the real starting point: John Doerr’s Kleiner Perkins era
- BGBen 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. For our presenting sponsor this episode, we have a company that we are very excited about. It's Fundrise. On our earlier episodes, they broke some news about a fascinating new product called the Fundrise Innovation Fund, that enables their customers not only to invest in real estate, but now also late-stage growth tech companies that are still private. And this is an especially fun episode to have Fundrise Innovation Fund as our sponsor, given we are talking about the foundational building blocks of venture capital itself, which Fundrise is disrupting as we speak. So we're back here today with Ben Miller, CEO and co-founder of Fundrise.
- SPSpeaker
What does it mean to be a late-stage company these days? Usually, a company has a valuation of more than a billion dollars. So that means basically, they could have gone public in the old days, but instead, they stayed private. They raised money from growth funds. So the year Amazon went public in nineteen ninety-seven, they had two hundred and fifty employees, and they had sixteen million in revenue the previous year. So that sounds like actually smaller than most late-stage companies these days. There's six hundred and seventy-five unicorns in the United States with more than a trillion dollars of market cap, that people, ordinary individuals, ninety-eight percent of the country, can't invest in. But those companies are probably higher quality, higher growth than most of the small-cap public companies, if not, maybe even a lot of the large-cap companies. And the only way to get access is to pay a twenty percent carried interest, twenty percent of the upside to a venture fund as a toll, like a access fee, and it just doesn't make sense, and that's because of this divide between public and private markets, this divide that was created a hundred years ago, that no longer makes any sense. Our mission is to tear down that artificial divide. It gives retail investors access to these great companies, and it gives these great companies access to retail investors. More than two-thirds of all, quote, "venture capital" is actually Series C and later. Those investors aren't doing the same type of value add as early-stage investors. Early-stage investing is a totally different animal. There's tons of risk, tons of work, but by the time a company's raising hundreds of millions of dollars-... And those great companies should be accessing capital from retail investors, too, because it sets those companies up for successful public offering, way more name brand recognition, and fundamentally, how do most people invest? Passive Vanguard index funds. That's the kind of investor you want, and if you actually think about it even more, who is your long-term investor? The venture fund's gonna sell when you go public, so your actual long-term investor is this retail individual investor, and you just cut out the middleman, and you go direct to the right investor.
- BGBen Gilbert
Our thanks to Fundrise, the largest private investment platform in the world for retail investors. If you wanna join the over three hundred and fifty thousand individuals investing with Fundrise, you can click the link in the show notes. If you're a founder and you wanna get in touch about having the Innovation Fund participate in your next funding round, email notvc, that's n-o-t-v-c, @fundrise.com. All right, listeners, as you know, after this episode, you should come join the Slack to talk about it with the thirteen thousand other passionate, smart, kind members of the Acquired community. We also have a merch store that we launched at acquired.fm/store. If you've already gotten your sweet, sweet gear, you should tweet it at us at AcquiredFM, and we will re-share 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.
- DRDavid Rosenthal
I feel like every episode now, I'm constantly thinking like, "Are there gonna be any quotes from this episode that should make it into the merch store?"
- BGBen Gilbert
I know. On the Sequoia one, I was thinking about Doug talking about burning cigarettes in his arms, and he wouldn't flinch.
- DRDavid Rosenthal
Market size unconstrained from Bezos.
- BGBen 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.
- DRDavid 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 gonna talk about it today, but I hope we can do it justice. I'm so pumped. Okay, to understand Benchmark, we start in the nineteen-nineties in Silicon Valley, but I don't think you can actually start with Benchmark. You have to start with another firm. I'm sure you know what that firm is.
- BGBen Gilbert
Are you going TVI? Are you going Merrill Pickard? Or are you going [laughing] somewhere completely different?
- DRDavid Rosenthal
Somewhere completely different, but I bet you can guess it.
- BGBen Gilbert
Uh, the eight hundred-pound gorilla, Kleiner Perkins?
- DRDavid Rosenthal
Indeed, indeed. And not just Kleiner Perkins, but specifically John Doerr's Kleiner Perkins. [chuckles]
- BGBen Gilbert
After a very successful generational transfer of their own from Kleiner and Perkins to John Doerr.
- DRDavid Rosenthal
Here in the nineteen-nineties... I mean, John Doerr, we've talked about him this season on the Amazon episode. I mean, he was alone the eight hundred-pound gorilla in the VC ecosystem in the early nineteen-nineties, 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 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. [chuckles] 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! [chuckles] If you were an ambitious young venture capitalist in the nineteen-nineties in Silicon Valley, and that was a big "if," you could do very well as a venture capitalist in that era without being ambitious. But if you were ambitious, boy, you needed a damn good answer about how you were gonna beat John Doerr. [chuckles]
- BGBen Gilbert
Oh, yeah. To set a little context for how you could do well, even if you weren't ambitious, there are one hundred times as many venture capitalists now as there were then. Those businesses didn't have the economics, either in terms of gross margin or addressable market size or zero distribution costs. All 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!"
- DRDavid Rosenthal
And valuations were so low. I mean, it was crazy when [chuckles] John and Mike Moritz did Google at a hundred million dollar valuation in the Series A. You know, 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-
- BGBen Gilbert
The guy.
- DRDavid Rosenthal
"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 was Michael Jordan and Phil Jackson, [chuckles] 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 Ahlberg'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.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
The other...... very particular aspect to the Kleiner Perkins model at this time was they had adopted this idea of a modern keiretsu within a venture capital firm. [chuckles] 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, a 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, put it on the internet, get distribution for free on social. It didn't work that way. You needed deals in place.
- BGBen 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.
- DRDavid Rosenthal
A core part of this keiretsu 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.
- BGBen 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.
- DRDavid Rosenthal
So [exhales] 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.
- BGBen Gilbert
It's amazing. They were almost a twenty-year-old firm, but they weren't Sequoia as we know them.
- DRDavid Rosenthal
There was Greylock, based out of Boston. There was Venrock, of course, and IVP, one of the early institutional firms.
- BGBen Gilbert
Oh, David, we have to... quick history on Venrock, 'cause listeners are gonna care about this. What is the rock in Venrock?
- DRDavid Rosenthal
It would be Rockefeller.
- BGBen Gilbert
Yes. It's pretty loose connection at this point, but was, at one point, the sort of, uh, venture arm of the Rockefeller family office, or one of the Rockefeller family offices spinning off to do a venture fund.
- 15:22 – 23:24
Two firms in one building: TVI, Merrill Pickard, and the economic fault line in venture partnerships
- DRDavid Rosenthal
Indeed. So there were all of those folks. There were the Summits and the TAs, kinda at the growth stage, and then there were a couple other venture firms that you've probably never heard of. 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-
- BGBen Gilbert
Which had one very notable investment
- DRDavid Rosenthal
... One very, very notable investment that we'll talk about in one sec. And another one, Merrill, Pickard, Anderson, and Eyre. And the two of those firms just so happened to share the same office building on Sand Hill Road.
- BGBen Gilbert
Amazing.
- DRDavid Rosenthal
They shared 2480 Sand Hill Road, part of the Quadris 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 Forethought, which we talked about many, many years ago on Acquired.
- BGBen Gilbert
No! Really?
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
Oh, I had no idea.
- DRDavid Rosenthal
And Forethought were the makers of a little Mac application that then became a Windows application called PowerPoint.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
Forethought, of course, got acquired by Microsoft, absorbed into the Office juggernaut, and that, their campus there in the Quadris office complex, became Microsoft's original Silicon Valley campus on Sand Hill Road, renamed the Graphical Business Unit.
- BGBen Gilbert
Amazing.
- DRDavid 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?
- BGBen Gilbert
Well, it's appropriate that TVI, anyway, is based there.
- DRDavid Rosenthal
Yes. Who wouldn't wanna be right in the thick of Microsoft's 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.
- BGBen Gilbert
Yep, one million dollars to own five percent of the company. I don't believe they raised another dollar until the IPO.
- DRDavid Rosenthal
Oof.
- BGBen Gilbert
Imagine owning five percent of Microsoft at IPO. I don't know how long they held, or I imagine there was a pretty rapid distribution to limited partners there, but that is a rare honor.
- DRDavid 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?
- BGBen Gilbert
Yep. Oh, yeah.
- DRDavid 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 made all this money on Microsoft. Merrill Pickard had done really well.
- BGBen Gilbert
And TVI, it was Dave Marquardt, right, who made that investment in Microsoft and was sort of the leader of TVI?
- DRDavid Rosenthal
Yes, but not one of the founders, I don't think.
- BGBen Gilbert
Oh!
- DRDavid Rosenthal
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. You know, they've made their money. We've got some junior investors here that are out doing all the deals. Maybe we need to rethink some of the ownership structure of these firms." And it's worth a quick digression here about how does a venture firm actually work [chuckles] economically? Even today, I think most people and, uh, a lot of entrepreneurs don't really know this. There are multiple parts to the economics of a venture firm. You think about a fund and the carry within a fund, and that's pretty straightforward, you know, which partner gets what percentage of the carry, but there's also the management company.
- BGBen 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 an 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. 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?
- DRDavid Rosenthal
Yep, the performance gains from the fund.
- BGBen 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.
- DRDavid Rosenthal
Now, here's the important factor: the split of the carry in any individual fund, while it tends to reflect ownership in the management company, these are two wholly different entities. And so what you often had, and what you had with all these firms, these old firms back at this point in time, 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 kinda at the largess, whatever the managers of the management company decided that they should get in terms of salary and allocations in carry.
- BGBen Gilbert
And typically, this would be high numbers. I mean, ideally, as a venture capitalist, you're getting paid more on the carry [chuckles] 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 gonna pay any cash out in sa- " 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.
- 23:24 – 30:47
Bob Cagle’s crusade for an equal partnership (and TVI ‘declares victory’)
- DRDavid Rosenthal
Well, now, just who is this, uh, Bob Cagle 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.
- BGBen Gilbert
Yes, listeners, that Flint, Michigan.
- DRDavid 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 hardscrabble 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.
- BGBen Gilbert
It's fascinating that this existed.
- DRDavid Rosenthal
Which was a training school for members of General Motors employees' families, and the idea was it was kinda like a quasi-vocational school to get them ready to work in the industry.
- BGBen Gilbert
Yep.
- DRDavid 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 he had talked about earlier from TVI.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
This is right as the Microsoft deal is going down.
- BGBen Gilbert
Quite fortuitous.
- DRDavid Rosenthal
After GSB, Bob goes into consulting at Boston Consulting Group, and then Dave invites him to come back and join TVI, and he does really well there. He does Synopsys, the big EDA company, it's still around today, Avant, Viasoft, a bunch of other companies that do well, the firm makes good money on. And so after ten years, he's kind of like: "All right, I've done well here. I've risen up from nothing, but you guys are still holding on- [chuckles] ... to the keys to the firm and all the economics." Speaking about Bob and their impression of him at the time, uh, he had an almost religious fervor that- [chuckles] ... 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.
- BGBen 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 gonna spend the next however many hours of this 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.
- DRDavid Rosenthal
This is the beginning. We didn't talk to Bob, but I don't think he foresaw just how powerful this was gonna be. I think it was motivated, first and foremost, especially given his background, by, like, a sense of fairness, and, like-
- BGBen Gilbert
Yeah
- DRDavid Rosenthal
... 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." [chuckles]
- BGBen Gilbert
For sure. And we did unearth something that I've always been a little bit curious about, 'cause 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.
- DRDavid 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 it is not common that it is, uh, just given.
- BGBen Gilbert
Yep.
- DRDavid 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, [chuckles] 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? [laughing] We won!" We won. They won. They did. They did Microsoft. They won. Like, what more do they need to prove?
- BGBen 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.
- DRDavid 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 capital firms. There's a long tail because all these existing firms and board seats exist, and everybody's got to manage them out.
- BGBen Gilbert
I think Microsoft had gone public, so at least they were-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... able to distribute that at this point.
- DRDavid Rosenthal
Yes, of course.
- BGBen Gilbert
It's worth noting that Dave does, after TVI, go on to found August Capital.
- DRDavid 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, [laughing] 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, ten people, and everybody knew each other. This is all going down in one office building.
- BGBen Gilbert
Yeah, for how concentrated tech was, venture was much more concentrated.
- DRDavid Rosenthal
Much more concentrated.
- BGBen 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 Marquardt: "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 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."
- 30:47 – 40:01
Recruiting the founding team: from Sand Hill stairwells to a five-person band
- DRDavid Rosenthal
So what does he do? We're now in probably, like, early nineteen ninety-four-ish. He calls up his good buddy, Bruce Dunlevie. He trots up the stairwell, maybe takes the back stairs, to go see his buddy Bruce up at Merrill Lynch Picard. Now, Bruce had gone to GSB a few years after Bob, and when Bob was at BCG, after GSB, 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. I don't know any other young VCs who studied European literature in college- [laughing] ... and somehow managed to weasel their way into the industry.
- BGBen Gilbert
I don't know how you did it, David. [laughing]
- DRDavid Rosenthal
I don't know how I did it either. Definitely would not work today.
- BGBen Gilbert
You were destined to become a podcaster.
- DRDavid Rosenthal
Yeah, right. [laughing] Ah, 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, is happening here. We're positioned to do this."
- BGBen Gilbert
And this is, like, early ninety-four.
- DRDavid Rosenthal
Early ninety-four. You and me.
- BGBen Gilbert
This is the same time Bezos is driving across the country and starting Amazon.
- DRDavid Rosenthal
"What do you think about busting loose out of this place, and you and me start a firm together?" [chuckles] And Bruce is like: "Well, Bob, I'm honored, but I don't have the Microsoft money here. [laughing] 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 gonna look like, and lo and behold, surprise, surprise-
- BGBen 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. [chuckles]
- DRDavid Rosenthal
It's like a virus that's, like-
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
... infecting a very specific building in Silicon Valley. So Bruce and his fellow sort of young partner at Merrill Pickard, Andy Radcliffe, 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.
- BGBen Gilbert
They probably get little pats on the head.
- DRDavid Rosenthal
Yeah.
- BGBen 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, 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?"
- DRDavid Rosenthal
Totally. It reflects two things, certainly in Bob and, uh, 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.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
Bob's like: "Hey, you and me, let's together go take on this whole industry, [chuckles] 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 amenable 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 gonna 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."
- BGBen 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 two million, but they're just not gonna have enough companies in the portfolio with them doing venture the way that they believe they need to do venture. You know, eight to ten board seats a person, no investments without board seats, that sort of thing.
- DRDavid Rosenthal
The TVI style.
- BGBen Gilbert
If they're on sixteen to twenty boards, and that's all the companies in a portfolio, that's not enough.
- DRDavid Rosenthal
Right. And there's also just, like, a credibility aspect, talking to LPs about this, too. [chuckles] Like, they're gonna start poking holes right away.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
So Bruce says, "All right, I'm down, but we got to recruit some more partners here." [chuckles] 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 twenty-four eighty Sand Hill, they thought it was more pervasive than it was. [laughing]
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
Because the pretty universal reception they get around the valley as they approach other young GPs is, "You guys are freaking nuts."
- BGBen 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?" [chuckles]
- DRDavid 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 firms and do it on their own. So we got a chance to talk to Bruce, and we sort of asked him about this time, this sort of interregnum period, and 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 gonna work out, or...?"
- BGBen Gilbert
And he's like: "No, I started thinking maybe we were a little nuts, too." [chuckles]
- 40:01 – 49:44
Launching ‘Benchmark Capital’: premium pricing, LP backlash, and the Built to Last pitch
- DRDavid Rosenthal
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, [chuckles] of course, Benchmark Capital.
- BGBen 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."
- DRDavid 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." [laughing] 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 two percent, standard carry performance element of the fund of twenty percent of the net profits of the fund.
- BGBen Gilbert
And for those who don't know, just a quick crash course, two percent, that's an annual fee. So if you raise a hundred million dollar fund, that's two million dollars every year that goes to the management company, that gets used to pay the budget and the salaries and all that sort of thing. And then the twenty percent, it's not just twenty percent of all the profits, it's typically twenty percent of the profits after one X. So you give everybody the money back, a hundred million goes back to the LPs, and then you get twenty percent participation in all of the profits after that.
- DRDavid Rosenthal
Yep. So that's standard in the industry. Now, I think at this point, some firms, maybe just Kleiner, had charged more than twenty percent carry. I believe Kleiner did at this point because they were such a marquee, they were so proven. You know, if you wanted to invest with Kleiner, you had to pay a premium to get in.
- BGBen Gilbert
Yeah. They felt they had pricing power.
- DRDavid Rosenthal
Yeah, they had pricing power. Benchmark comes out, the new Benchmark Capital, swinging right out of the gate-
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
... with thirty percent carry. Premium carry. We're gonna price and position this like the premium product that it is. [chuckles] Which, of course, from one perspective, and the perspective of several prominent LPs, is quite laughable. [chuckles] There's nothing here.
- BGBen Gilbert
And LPs at the time are looking at this like, "Hey, we think that fees in this industry are going down, not up."
- DRDavid Rosenthal
... Yes.
- BGBen Gilbert
A good allegory is actually the thing that Andy Rachleff 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 one percent 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, "Twenty percent profit? We'll take thirty percent of the profits."
- DRDavid Rosenthal
Yes, yes. Ah, so great. Now, this, as you can imagine, one reaction that this does not engender from the LP community is indifference. [laughing] So this was a brilliant strategy. Now, some LPs absolutely love this, and very notably and famously, Horsley Bridge, the, uh, big investment advisor, makes a huge bet on this motley crew of Benchmark capital founders in Fund One.
- BGBen Gilbert
And I think they've been in every single fund ever that Benchmark has raised and were in before any other institutions.
- DRDavid 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 eighty-five million dollar fund, which, fast-forward a little bit, but becomes one of, if not the best, performing venture fund in history, returning billions of dollars to LPs. [chuckles]
- BGBen Gilbert
I think it's the best cash on cash of a large venture fund in history, period.
- DRDavid Rosenthal
Yes. Still to this day, I think.
- BGBen Gilbert
There have been some small funds, I think Lowercase Fund One, Chris Sacca's fund, but nothing of this size, eighty-five, which with inflation today is probably, like, one fifty, one sixty, but with venture inflation of how much these funds have grown-
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
... Think about it like the way you would think about how newsworthy a five hundred million dollar fund is in today's environment.
- DRDavid Rosenthal
Yeah, this is probably, like, the equivalent of a, a, you know, three, four, five hundred million dollar-
- BGBen Gilbert
Yes
- DRDavid Rosenthal
- fund.
- BGBen Gilbert
It is the best returning fund of that caliber of venture fund in history.
- DRDavid Rosenthal
So Horsley loves it. A bunch of other LPs love it. Some LPs absolutely hate what is happening here. [chuckles]
- BGBen Gilbert
And in fact-
- DRDavid Rosenthal
They hate it on every dimension.
- BGBen Gilbert
They try to go viral with their hate.
- DRDavid 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've gotta 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. [chuckles] 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 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. [chuckles] And now there's new firms entering the industry that you have to evaluate, and these new firms want premium carry.
- BGBen Gilbert
Right.
- 49:44 – 56:20
Early wobble: missed momentum, Val’s departure, and the dark pre-1997 period
- DRDavid 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. [sighs] So, you know, it's towards the end of sort of second half of nineteen ninety-five. They've raised the fund. They've just been through this journey. Frankly, there's kind of a letdown, I think. Uh, 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 one hundred percent sunshine and roses, you know, within Benchmark itself as a partnership either. [chuckles]
- BGBen 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 'ninety-five, 'ninety-six 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."
- DRDavid Rosenthal
Yeah. [sighs] And, um, there were deals to be done during 'ninety-five and 'ninety-six that would have put the firm on a very different trajectory during those [chuckles] 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. 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 kinda wasn't a fit in investment styles. [chuckles]
- BGBen 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.
- DRDavid 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 sixteen million in companies by the end of 'ninety-six, you know, which is, like, fine deployment, but maybe a little slow. They're having a partnership transition. The firm is not winning. I'm sure it must not have felt great. I mean, like, but I've been there, I've had friends who've been there. Like, it can get depressing. Like, if you're a new firm, if you don't come out the gate strong, you kinda end up fading away, a lot of folks.
- BGBen 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.
- DRDavid Rosenthal
Yep. So I imagine there's a lot of concern at this point in time, and maybe some of the sort of swashbuckling-ness of the founding, um, has maybe been replaced by a little bit of depression.
- BGBen Gilbert
They had to call all the LPs and tell them, "Hey, we came to you 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 gonna 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-
- DRDavid Rosenthal
Oh, you found some great [chuckles] stuff.
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
You were tweeting the last couple of weeks, like, just screenshots from old Benchmark websites. They're amazing.
- BGBen 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 Benchmark's early-stage focus, Val E. Vaden 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 spin-outs, management buyouts, and in rare instances, turnarounds and financial restructurings." So they're basically saying, "Yep, we're gonna keep using our brand to help you raise this thing that is the thing you're good at."
- DRDavid Rosenthal
Which becomes Vector Capital, that he goes on to found-
- BGBen Gilbert
Mm
- DRDavid Rosenthal
... and then he's part of a few other venture firms over the years. So anyway, all this to say-... heading into 1997?
- BGBen Gilbert
It was dark.
- DRDavid Rosenthal
If you were handicapping the future, if Vegas were betting on the odds- [chuckles] -of the young Benchmark Capital heading into 1997, the line would be long on outsized success here.
- BGBen 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 twelve months, would be a ninety-two X in just a few years.
- DRDavid Rosenthal
On the fund.
- BGBen Gilbert
On the fund. [chuckles]
- DRDavid Rosenthal
On the fund, wow! So 1997, the annus mirabilis for Benchmark.
- BGBen Gilbert
Can you explain that for those of us who didn't study literature?
- DRDavid Rosenthal
[laughing] I thought that was a prerequisite for, you know, getting into this industry.
- BGBen Gilbert
Sorry, I did computer programming. I don't know if that's relevant. [chuckles]
- DRDavid Rosenthal
It's Latin for, uh, miracle year, I think.
- BGBen Gilbert
Ah.
- DRDavid Rosenthal
And literally, it is a year of miracles. But they put themselves in a position to win. You know, I think we're gonna 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, [chuckles] and I think they kinda might have lost it in those early years, and so I don't know
- 56:20 – 1:10:52
Swagger injection: recruiting headhunter David Byrne and making the Webvan bet
- DRDavid Rosenthal
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 here? Like, how do we get the swagger back? 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 swagger-full person that they know.
- BGBen Gilbert
The tallest.
- DRDavid Rosenthal
We're 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 and technology, David Byrne from Ramsey Byrne & Associates.
- BGBen Gilbert
It's a lot of chutzpah to go and recruit someone away from the firm that has their name on it.
- DRDavid 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. [chuckles] So kinda like Bob, Dave also grew up pretty hardscrabble. 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.
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
It's kinda like a Jerry Maguire type story. He ends up starting his recruiting firm, Ramsey Byrne. They're based in Westchester County, New York, and they're not working in technology to start. They start cold calling prospective clients in tech and in Silicon Valley from Westchester, New York. Dave starts cold calling them and saying, "We're Ramsey Byrne, the leading executive search firm in high technology." [chuckles] They haven't done a single retained executive search in high technology when he starts doing this.
- BGBen Gilbert
But they're not claiming anything literal or specific, so leading? Sure. It's like how the new iPhone, it's like a two X better camera, but they don't tell you any sort of units or what vector that is better on. [chuckles]
- DRDavid Rosenthal
Yeah, two X 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 Doerr, and 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.
- BGBen Gilbert
Yeah. Congratulations on finding product market fit. Surely, you don't know how to do the job after this, so... [chuckles]
- DRDavid Rosenthal
And we spent a lot of time talking about that in, uh, part one of our Andreessen Horowitz, uh, episode, involving none other than Benchmark Capital. So David ends up doing the CEO searches for Netscape. He brings in Jim Barksdale, which of course, is a Kleiner company and 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.
- BGBen Gilbert
He projects an aura of success, and eventually, it becomes success.
- DRDavid Rosenthal
So Benchmark comes out. I think Bruce flies out to Westchester [chuckles] and convinces Dave to leave all this behind. He's making millions of dollars a year in cash, running his search firm.
- BGBen Gilbert
Yeah, none of this speculative startup equity. He's literally getting paid.
- DRDavid 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 [chuckles] for this firm, and boy, is Dave that. So I couldn't a hundred percent prove this, but I believe Dave's first deal is Webvan. [chuckles]
- BGBen Gilbert
Oh, is it?
- DRDavid 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 gonna open up eBoys here.
- BGBen Gilbert
And for those who don't know, who have not heard of the book eBoys, 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 tropey 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.
- DRDavid Rosenthal
It's a period piece, and we're gonna talk more about eBoys in a second here, but I'm just reading here from page thirty. So David Byrne arrived at Benchmark with ambitions to contribute to the partnership fast, in any way he could, and he had some ideas for new businesses for which he hoped he could find entrepreneurs. One of the concepts that kept nagging him was an e-commerce business that he called MyStore, 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 Dunlevie said when Dave told him his idea, as the two sat in Dunlevie's office. "Have I got the plan for you." Dunlevie 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 dotcom excesses. But going back and doing the research here and, and looking at it, this was actually a great bet to make.
- BGBen Gilbert
Oh, this is exactly the type of bet you should be making in venture capital.
- DRDavid Rosenthal
Totally. This is the exact kind of swagger bet with the right aligned, asymmetric upside and downside, that if you wanna be taking the right kind of risks to establish yourself as one of the premier early-stage venture capital firms, you should be doing.
- BGBen Gilbert
All right, so what was Webvan?
- DRDavid Rosenthal
[laughing] What was the company or what was the deal?
- BGBen Gilbert
What was the company, and why was it so swagger-filled to do it?
- DRDavid Rosenthal
Have we talked about Webvan on every season episode so far in season eleven, I think? [laughing]
- BGBen Gilbert
[laughing] That might be true.
- DRDavid Rosenthal
Yeah, I feel like everybody knows.
- BGBen Gilbert
The theme of season eleven is Webvan. [chuckles]
- DRDavid Rosenthal
There we go. There we go.
- BGBen Gilbert
That's so true. We probably hit it on Walmart and Amazon.
- 1:10:52 – 1:26:11
The eBay deal: non-consensus, founder liquidity, and a historic fund outcome
- DRDavid 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 Dunlevie from Merrill, Pickard, Anderson & Eyre was an investor in the company. And Ink had an interesting journey. 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 kinda 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 kinda all went through the trenches together, and Pierre had been working there as an engineer during the time. He has fond memories. He got to know Bruce through that. And after Ink, do you know where Pierre goes after Ink, right before he starts eBay or AuctionWeb?
- BGBen Gilbert
Ooh, I do not.
- DRDavid Rosenthal
Ooh, you don't? 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.
- BGBen Gilbert
Oh, that's right! That's right, that's right. I remember... Yes, when watching the documentary a few years ago.
- DRDavid Rosenthal
Yeah. Ah, we should do an episode on General Magic and maybe find some of the original people, and, uh, that'd be fu- we should do that at, um, the Computer History Museum in Silicon Valley. That would be super awesome.
- BGBen Gilbert
I assume they have the device there.
- DRDavid Rosenthal
They invented the concept of cloud. They invented the concept of mobile.
- BGBen Gilbert
In retrospect, it actually makes sense that Pierre would go to General Magic, given his background in pen computing.
- DRDavid 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.
- BGBen 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.
- DRDavid Rosenthal
One of the five or so main things you could do on the site was do this thing called Auction Web, which, surprise, surprise, became the thing that became eBay. So we're telling all this history because, A, it's awesome to tell eBay history, especially having done Amazon earlier this season, but kind of painting the picture here of, like, Pierre is this, like, engineer, this is a side project. You know, it's really unclear what's going on here.
- BGBen Gilbert
That's right. He was full-time. He was still a full-time employee at General Magic when creating eBay.
- DRDavid 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. E. 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. [chuckles] 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, hat in hand, shamefully asks his users to pay a small [chuckles] listing fee just to keep the lights on. And famously, it's like, the way he does it is they send checks to his apartment. He gets deluged with checks. He can't open the mail fast enough.
- BGBen Gilbert
This is product market fit.
- DRDavid 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. [chuckles]
- BGBen 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... Or Wi- 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 two thousands and late nineties, that's how people thought about eBay.
- DRDavid 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, is 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 Ink 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 Ink days. But he and Jeff, they go around Sand Hill, they pitch this to everybody, and just about everybody else, actually, literally everybody else, turns them down. [chuckles] 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 six point seven million dollars total in the company in a Series A financing at a twenty million dollar pre-money valuation. Pierre and Jeff have 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 Ridder, the large newspaper conglomerate.
- BGBen Gilbert
It was basically an acquisition, right?
- DRDavid Rosenthal
It was an acquisition, at which Jeff Skoll had worked very briefly after graduating from Stanford GSB for a few months-
- BGBen Gilbert
Oh!
- DRDavid Rosenthal
-before Pierre recruited him-
- BGBen Gilbert
I see.
- DRDavid Rosenthal
-to come help open the mail at eBay.
- BGBen 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.
- DRDavid Rosenthal
Ah, how the world would have been different if one of the nation's leading newspaper companies had acquired the leading online [chuckles] classified business.
- BGBen Gilbert
And an interesting thing to note is, at this point, eBay is growing ten percent a month, so check, fast growth company. It's profitable. All 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?
- DRDavid Rosenthal
Well, it was actually a pretty compelling offer. The reason you would get acquired is they offer Pierre and Jeff fifty million dollars, five zero million dollars.
- BGBen Gilbert
And that's a thing you would think about taking. [chuckles]
- DRDavid 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.
- BGBen Gilbert
Right.
- 1:26:11 – 1:55:35
After eBay: Accept.com, Amazon tie-in, and the deeper meaning of equal partnership
- DRDavid 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, you know, 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, 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, you know, Meg gets distracted. eBay ends up not investing. 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.
- BGBen Gilbert
Right. Why are we partnering at all? Shouldn't we own just, like, one hundred percent of this thing if we're bringing all the customers to it?
- DRDavid Rosenthal
So this company is kind of stillborn at this point in time. You know, what are they gonna do? The whole business plan was payments on eBay auctions listings. [chuckles] You'd think this would be a zero. They call up Amazon. [laughing] And we talked about this on the amazon.com episode, but, uh, 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 accept.com [chuckles] for a hundred and seventy-five million dollars of Amazon stock. So Benchmark gets some Amazon stock. [chuckles]
- BGBen Gilbert
And would become close with Jeff Bezos. There was a sort of longstanding relationship between Jeff and Benchmark.
- DRDavid 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. [chuckles] There's no reason that that company should have been successful or existed, yet-
- BGBen Gilbert
But unforced errors just kept happening in front of them, and they just kept having that open window.
- DRDavid Rosenthal
Ah, so fun. Such a fun sidebar, and fun to tell it now from the eBay and Benchmark side of things, as we-
- BGBen Gilbert
Yeah
- DRDavid Rosenthal
... we told it from the Amazon side, uh, a little bit ago.
- BGBen Gilbert
So why is it that in less than two years, Benchmark's stake grew one hundred thousand percent? Why did eBay appreciate so quickly? And to put a finer point on that, they invested at a twenty million dollar pre-money valuation, and by the next spring, the company was worth twenty-one billion dollars.
- DRDavid 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, [chuckles] the Internet is this incredible enabling technology, and you can build real businesses that make real money [chuckles] 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 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.
- BGBen 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.
- DRDavid Rosenthal
No way! [chuckles] You were a merchant?
- BGBen Gilbert
Yeah, totally. I sold three Beanie Babies, two of them for one hundred dollars each, and one of them, a Jerry Garcia bear, for three hundred and fifty dollars. It's weird that I remember all this.
- DRDavid Rosenthal
Oh, I remember that Jerry Garcia bear. That was, like, the real hot commodity, right?
- BGBen 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 ten percent per month, and then it had some fits and starts, and there were times where it was growing even faster than that, and then there were times where it wasn't growing at all because the servers were down, and they had to work directly with-... I feel like it was like, I don't know if it was Deck 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 is 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 gonna enable online peer-to-peer commerce with no holding of inventory. Like, this is an asset-light, high-growth, pure technology business in a gigantic consumer market. Let's go!" And so, of course, you know, bubbles happen.
- DRDavid Rosenthal
[chuckles] And of course, that would never happen again.
- BGBen 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 f- couple billion dollars. Then, of course, ran up real fast, as we talked about, to twenty-five billion dollars. Stayed there through the dotcom crash. The bottom of the trough, I think, was something around seven billion, and then it would have another run-up in 2004, up to seventy-seven billion. But after going up and down and buying PayPal and divesting PayPal, after all this, do you know where it is today, David?
- DRDavid Rosenthal
I believe it's about twenty-five billion, right?
- BGBen Gilbert
Twenty-three billion dollars, right about the market cap, however many years later this is, uh, twenty-two years later, right around the market cap where Benchmark got liquid.
- DRDavid Rosenthal
Wow. Wow! Oh, that's so crazy.
- BGBen Gilbert
Isn't that wild?
- DRDavid Rosenthal
And right about, what is that? Like, one-fiftieth of Amazon's market cap?
- BGBen 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.
- DRDavid Rosenthal
Well, that is the perfect transition to come back to... I wanna talk about the Benchmark architecture itself and analyze why the equal partnership and the teamwork and everything worked here. But first, speaking of Jeff Bezos and Amazon, I think we should talk about our next sponsor of this episode, the one and only Pilot.com.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
Pilot is one of our longtime, very, very favorite companies in the Acquired family. They set up and operate your entire financial stack as a startup and growing company, including your finance, your accounting, your tax, even higher level CFO services, like investor reporting. They can't yet be a software version of, like, a Meg Whitman in a box for you-
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
... but they're working on it. They will get there someday. AI, you can do amazing things. [chuckles] But even without yet getting to Meg Whitman, all of this stuff that otherwise you would be hiring either an old school accounting firm to do or spending half a million dollars a year bringing in a, you know, full-fledged CFO, VP of finance, finance team to manage for you-
- BGBen Gilbert
Recruiting Dave Byrne to then further recruit you a CFO.
- 1:55:35 – 2:31:01
Temptation to scale: mega-funds, Europe/Israel expansion, corporate networks—and costly misses
- DRDavid Rosenthal
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 wanna work with them. [chuckles] 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 wanna see, basically.
- BGBen 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."
- DRDavid Rosenthal
This is the big problem.
- BGBen Gilbert
Nordstrom and Toys "R" Us.
- DRDavid Rosenthal
This is the bigger problem, the distractions. So literally, Goldman Sachs calls them up and is like, "We want a Benchmark-Goldman Sachs joint venture." [chuckles]
- BGBen Gilbert
And not like you become Goldman Sachs. It's more like, "Help us create the goldmansachs.com."
- DRDavid Rosenthal
Yep, and you could imagine, you know, that could lead to all sorts of things. [chuckles] The car companies call them up, GM, General Motors, you know, the original, like, the DNA of two of the partners, you know. They wanna do the same thing. You know, General Electric wants to do this. There is so much, and then we're gonna talk about LPs, and international, and all of that in a minute here.
- BGBen Gilbert
There's an opportunity to raise a lot more money. Should we do that? Eighty-five million was kind of a small fund.
- DRDavid Rosenthal
So for the five partners, there's a lot of debate [chuckles] about what to do now. Like, it's not clear what to do. I mean, A, they don't have to do anything, [chuckles] as we talked about, but they're all committed, they wanna 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 keiretsu concept. 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?"
- BGBen Gilbert
Oh, they started something. If you look at their website from two thousand and two... God, I'm so glad the Wayback Machine exists, but they have a page called Our Corporate Network, and they've got, like, thirty different companies on there that the text says: "The Benchmark corporate network is made up of key industry executives who accelerate the growth of our portfolio companies by facilitating strategic partnerships, sitting on boards," sitting on boards, "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 never in their portfolio but are other big, successful tech companies, like Cisco.
- DRDavid 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. [chuckles] The model ain't broken. Don't fix it. We should stay focused and stay doing the exact same thing."
- BGBen Gilbert
Right. 'Cause 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 gonna change, and it's gonna pass us by, so we need to adapt, and if the new wave is the dotcomification 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 Web3, 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."
- DRDavid 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.
- BGBen 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-
- DRDavid Rosenthal
Wrong
- BGBen Gilbert
... where they are today, that is not at all what happened! They tried everything. They threw the kitchen sink at corporate partnerships. They expanded to multiple continents at the same time. They were like, "Oh, bigger fu- let's raise a billion-dollar fund," and they tried it all.
- DRDavid 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.
- BGBen Gilbert
That's a hard decision to undo once you do that. You can undo all this other stuff.
- DRDavid Rosenthal
Hard, but you can, and they did. The other thing I was gonna say on that, you know, the other firms we talked about that were successful with different strategies were architected in a way that they could pursue those strategies. Sequoia was a CEO firm. Don Valentine was the CEO, and then Mike Moritz was CEO, and Leonie was COO.
- BGBen Gilbert
The steward.
- DRDavid Rosenthal
Yeah, steward, whatever you wanna call it, you know. Roelof is the CEO now.
- BGBen Gilbert
There was someone who could make a call.
- DRDavid 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 gonna keep doing what you do here, making investments in Menlo Park."
- BGBen Gilbert
Tending to the chickens.
- DRDavid Rosenthal
Yes, [chuckles] tending to the... [chuckles] What a great episode that was. That was so fun. You know, in Andreessen, they are an organization. They have hundreds of people, so all the things that they're pursuing, the corporate partnerships, the Web3, you know, all the... There's hundreds of people working there in all different roles and levels. That's not Benchmark. [chuckles] 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 at a minimum, it's time to bring in a new [chuckles] general partner. 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. Haven't heard of you guys. Like, now it's [chuckles] Benchmark.
- BGBen Gilbert
It is. I mean, honestly, listeners, I'll put the link in the show notes. You go to the ninety-seven website, and the two thousand and two website, it is comical to see, like, the word Benchmark in this, like, they're selling so hard, and they don't sell at all now, at least in a public-facing way, and it's almost like someone made a cartoon about Benchmark when you're looking at this.
- DRDavid Rosenthal
You tweeted about this, that they had directions from the airport?
- BGBen 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.
- DRDavid 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 a very, very narrow pool to fish in for future Benchmark partners, which is, if you wanna be reasonably confident that somebody's gonna be a good venture capitalist, you probably wanna find people who are already good venture capitalists. [chuckles]
- BGBen Gilbert
Yes, that's a great point. You could develop the talent internally or-
- 2:31:01 – 2:54:00
Refounding and the ‘Fab Four’ era: Gurley–Fenton–Lasky–Cohler and Fund VII’s speedrun
- DRDavid Rosenthal
So around this time, the first actual wave of retirement, of stepping back, of some of the original partners happens.
- BGBen Gilbert
And this is the test, right? Are they actually going to take no further economics?
- DRDavid Rosenthal
Are they going to live up to the founding principles? They were on the other side of that table at this point, ten years ago, [chuckles] 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 gonna do? And they do it. They actually do it. They resist the temptation. David Byrne and Andy Rachleff, and they had brought on another GP during that period, Alex Pallansky. In the two thousand and five, two thousand and six 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. The current ownership structure of the management company transfers to the current GPs, and they don't take carry in the new fund. They keep working, keep having carry in the boards that they're on from the old funds.
- BGBen Gilbert
And they're LPs. They're big LPs.
- DRDavid Rosenthal
And they're big LPs, yes. In the future funds going forward, with their own personal money-... but they actually make a clean break. They do the transition that they had asked for [chuckles] so many years ago.
- BGBen Gilbert
So what's the GP group look like at this point?
- DRDavid Rosenthal
So at this point, heading into fund six, we're 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 [chuckles] to really pursue what you wanna do here.
- BGBen Gilbert
Well, and kinda 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 s- all suddenly join the same firm. This retrospectively feels like the heat, but none of these people were these people yet.
- DRDavid Rosenthal
No, and Peter Fenton is the first of these new blood to come on board. He has a quote at TechCrunch Disrupt 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 gonna work now. [chuckles]
- BGBen Gilbert
Yep, and in many ways, it's just back to basics.
- DRDavid Rosenthal
It's back to basics, but it's back to basics in a way that makes sense for the moment. So what do they do? Peter Fenton is the first person to come on board.
- BGBen Gilbert
And Peter joins from Accel.
- DRDavid Rosenthal
And Peter joins from Accel, which had just done-
- BGBen Gilbert
Facebook
- DRDavid Rosenthal
... Facebook. [laughing] And Peter wasn't directly involved in the Facebook investment, but was part of that relationship at NDA. 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 were going around the valley, they'd show up, and Peter had already been there. It's like, you know, they saw him coming out the door.
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
He was one step ahead of them [laughing] 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.
- BGBen Gilbert
Oh, I didn't realize that.
- DRDavid Rosenthal
Yeah, so Peter kinda grew up in the business.
- BGBen Gilbert
Well, first, his dad, like, hated VCs, and then-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... he became a VC. [chuckles]
- DRDavid Rosenthal
Yes, founded Trinity.
- BGBen Gilbert
Which is a common path. I think it's like, "I wanna do things differently."
- DRDavid Rosenthal
[chuckles] Totally. But he fits the bill. You know, just like Bill, when Bill joined, he was early thirties, he had an established track record, he was young, he was hungry, he was up-and-coming. He was a baby GP in Accel, but he was not a full GP. [chuckles]
- BGBen Gilbert
Is that a formal title? [laughing]
- DRDavid 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.
- BGBen Gilbert
[chuckles]
- DRDavid Rosenthal
Just, like, be clear about what you are.
- BGBen Gilbert
So does every founder.
Episode duration: 3:48:56
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