You Had to Know the Future to Beat John Doerr in the 1990's

1. BGBen Gilbert0:00

   Okay, to understand Benchmark, we start in the 1990s in Silicon Valley, but I don't think you can actually start with Benchmark. You have to start with another firm. I'm sure you know what that firm is.

2. DRDavid Rosenthal0:13

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

3. BGBen Gilbert0:18

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

4. DRDavid Rosenthal0:20

   Uh, the eight hundred pound gorilla, Kleiner Perkins?

5. BGBen Gilbert0:24

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

6. DRDavid Rosenthal0:32

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

7. BGBen Gilbert0:38

   Here in the 1990s, I mean, John Doerr, we've talked about him this season on the Amazon episode. I mean, he was alone the eight hundred pound gorilla in the VC ecosystem in the early 1990s, and specifically leading up to and during the internet era. You know, you think today of the top VCs, the top VC firms, you think Sequoia, you think Benchmark, you think Andreessen, Founders Fund. He was all of that, all in one. He was just absolutely at the top of his game. He had joined Kleiner. He did not start his own firm. He started his career at Intel working for Andy Grove. And from that, sort of just like Don Valentine when he got into the business, and Don, in his very Don way, said he had an advantage, he knew the future. John also knew the future. He saw the PC wave coming. He did Compaq, he did Intuit, he did Sun, which wasn't the PC wave, but it was in that era. And that, of course, led to Vinod Khosla then joining Kleiner and, like, this dominant franchise. And then when the internet started, man, he did Netscape, he did Amazon, as we talked about. He did Google. If you were an ambitious young venture capitalist in the 1990s in Silicon Valley, and that was a big if, you could do very well as a venture capitalist in that era without being ambitious. But if you were ambitious, boy, you needed a damn good answer about how you were gonna beat John Doerr.

8. DRDavid Rosenthal2:12

   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 the things that make big tech big tech now didn't exist then. So for a while, the capital base and the number of venture capitalists actually made sense with the much smaller technology ecosystem. But there were always those few years of basically arbitrage, where innovations happened that made these much more interesting investable categories, but there were still only a few venture capitalists looking around at each other like, "Oh my God."

9. BGBen Gilbert2:56

   And valuations were so low. I mean, it was crazy when John and Mike Moritz did Google at a hundred million dollar valuation in the Series A. You know, that was earth-changing [laughs] . 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-

10. DRDavid Rosenthal3:26

    The guy

11. BGBen Gilbert3:27

    ... 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 [laughs] 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. 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 [laughs] . 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.

12. DRDavid Rosenthal4:56

    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.

13. BGBen Gilbert5:22

    A core part of this keiretsu model at Kleiner was we help 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.

14. DRDavid Rosenthal5:49

    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.

15. SPSpeaker6:06

    [upbeat music] Who got the truth? Is it you? Is it you? Is it you? Sit me down, say it straight, another story on the way. Who got the truth? Who got the truth now? Hmm

Episode duration: 6:26