Benchmark Part I

1. BGBen Gilbert0:00

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

2. DRDavid Rosenthal0:03

   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.

3. BGBen Gilbert0:10

   All right. No trade-offs.

4. DRDavid Rosenthal0:12

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

5. BGBen Gilbert0:15

   [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.

6. DRDavid Rosenthal0:24

   Yeah. [chuckles]

7. BGBen Gilbert0:26

   [chuckles] All right.

8. DRDavid Rosenthal0:26

   Uh, we'll see how this goes.

9. SPSpeaker0:29

   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?

10. BGBen Gilbert0:46

    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.

11. DRDavid Rosenthal1:00

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

12. BGBen Gilbert1:06

    And we are your hosts. The hardest thing to do in venture capital is create those massive, outsized returns that only come from investing in one of the five or so truly important companies 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.

13. DRDavid Rosenthal1:47

    Or maybe. Well- [laughing]

14. BGBen Gilbert1:49

    [laughing]

15. DRDavid Rosenthal1:49

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

16. BGBen Gilbert1:53

    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-

17. DRDavid Rosenthal3:01

    [laughing]

18. BGBen Gilbert3:01

    -for all-time greatest venture capital funds in history?

19. DRDavid Rosenthal3:05

    I like what you did there.

20. BGBen Gilbert3:06

    You did.

21. DRDavid Rosenthal3:06

    I like what you did there.

22. BGBen Gilbert3:07

    [laughing] Okay, good.

23. DRDavid Rosenthal3:07

    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-

24. BGBen Gilbert3:14

    [chuckles]

25. DRDavid Rosenthal3:15

    ... I like that. That was good. Well done.

26. BGBen Gilbert3:17

    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.

27. SPSpeaker4:19

    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.

28. BGBen Gilbert6:39

    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.

29. DRDavid Rosenthal7:32

    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?"

30. BGBen Gilbert7:39

    I know. On the Sequoia one, I was thinking about Doug talking about burning cigarettes in his arms, and he wouldn't flinch.

Episode duration: 3:48:56