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Benchmark Part II: The Dinner

Season 11, Episode 5

Limited Partner Episode

October 17, 2022
October 17, 2022

We sit down with all five current Benchmark GPs for one of their legendary weekly dinners, during which we ask all of the unresolved burning questions from Part 1. How do THEY think about Benchmark v3? What are their day-to-day emotions trying to keep the equal partnership “bending toward greatness? Why is there no growth fund? What does it take to become the next Benchmark GP? Why is there a secret Principal program? We cover all these and much, much more. We also recorded the whole thing on video — which we highly recommend watching even if you normally only listen to the audio feed!

If you want more Acquired, you can follow our public LP Show feed here in the podcast player of your choice (including Spotify!).

Links:


Sponsors:

  • Thank you to our presenting sponsor for all of Season 11, Fundrise! If you’re considering raising a growth round of capital in the next year, you should definitely explore raising some of it with the Fundrise Innovation Fund. Just email notvc@fundrise.com, and tell them Ben & David sent you. And if you’re an individual looking for exposure to private growth-stage technology companies, you can invest in the Innovation Fund here.
  • Thank you as well to Pilot.

‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.

Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!

10. Marvel

Purchase Price: $4.2 billion, 2009

Estimated Current Contribution to Market Cap: $20.5 billion

Absolute Dollar Return: $16.3 billion

Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…

Marvel
Season 1, Episode 26
LP Show
1/5/2016
October 17, 2022

9. Google Maps (Where2, Keyhole, ZipDash)

Total Purchase Price: $70 million (estimated), 2004

Estimated Current Contribution to Market Cap: $16.9 billion

Absolute Dollar Return: $16.8 billion

Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!

Google Maps
Season 5, Episode 3
LP Show
8/28/2019
October 17, 2022

8. ESPN

Total Purchase Price: $188 million (by ABC), 1984

Estimated Current Contribution to Market Cap: $31.2 billion

Absolute Dollar Return: $31.0 billion

ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”

ESPN
Season 4, Episode 1
LP Show
1/28/2019
October 17, 2022

7. PayPal

Total Purchase Price: $1.5 billion, 2002

Value Realized at Spinoff: $47.1 billion

Absolute Dollar Return: $45.6 billion

Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.

PayPal
Season 1, Episode 11
LP Show
5/8/2016
October 17, 2022

6. Booking.com

Total Purchase Price: $135 million, 2005

Estimated Current Contribution to Market Cap: $49.9 billion

Absolute Dollar Return: $49.8 billion

Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.

Booking.com (with Jetsetter & Room 77 CEO Drew Patterson)
Season 1, Episode 41
LP Show
6/25/2017
October 17, 2022

5. NeXT

Total Purchase Price: $429 million, 1997

Estimated Current Contribution to Market Cap: $63.0 billion

Absolute Dollar Return: $62.6 billion

How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.

NeXT
Season 1, Episode 23
LP Show
10/23/2016
October 17, 2022

4. Android

Total Purchase Price: $50 million, 2005

Estimated Current Contribution to Market Cap: $72 billion

Absolute Dollar Return: $72 billion

Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.

Android
Season 1, Episode 20
LP Show
9/16/2016
October 17, 2022

3. YouTube

Total Purchase Price: $1.65 billion, 2006

Estimated Current Contribution to Market Cap: $86.2 billion

Absolute Dollar Return: $84.5 billion

We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”.  With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.

That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.

YouTube
Season 1, Episode 7
LP Show
2/3/2016
October 17, 2022

2. DoubleClick

Total Purchase Price: $3.1 billion, 2007

Estimated Current Contribution to Market Cap: $126.4 billion

Absolute Dollar Return: $123.3 billion

A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...

1. Instagram

Purchase Price: $1 billion, 2012

Estimated Current Contribution to Market Cap: $153 billion

Absolute Dollar Return: $152 billion

Source: SportsNation

When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.

Instagram
Season 1, Episode 2
LP Show
10/31/2015
October 17, 2022

The Acquired Top Ten data, in full.

Methodology and Notes:

  • In order to count for our list, acquisitions must be at least a majority stake in the target company (otherwise it’s just an investment). Naspers’ investment in Tencent and Softbank/Yahoo’s investment in Alibaba are disqualified for this reason.
  • We considered all historical acquisitions — not just technology companies — but may have overlooked some in areas that we know less well. If you have any examples you think we missed ping us on Slack or email at: acquiredfm@gmail.com
  • We used revenue multiples to estimate the current value of the acquired company, multiplying its current estimated revenue by the market cap-to-revenue multiple of the parent company’s stock. We recognize this analysis is flawed (cashflow/profit multiples are better, at least for mature companies), but given the opacity of most companies’ business unit reporting, this was the only way to apply a consistent and straightforward approach to each deal.
  • All underlying assumptions are based on public financial disclosures unless stated otherwise. If we made an assumption not disclosed by the parent company, we linked to the source of the reported assumption.
  • This ranking represents a point in time in history, March 2, 2020. It is obviously subject to change going forward from both future and past acquisition performance, as well as fluctuating stock prices.
  • We have five honorable mentions that didn’t make our Top Ten list. Tune into the full episode to hear them!

Sponsor:

  • Thanks to Silicon Valley Bank for being our banner sponsor for Acquired Season 6. You can learn more about SVB here: https://www.svb.com/next
  • Thank you as well to Wilson Sonsini - You can learn more about WSGR at: https://www.wsgr.com/

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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

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

David: I'm David Rosenthal. I'm an angel investor based in San Francisco, where we were for this very episode.

Ben: Indeed, and we are your hosts. Last episode, we told the four-hour story of Benchmark, the legendary venture capital firm that stayed small while all their competitors ballooned in size. At the end of the episode, we mentioned that their partner meeting had this dinner at the end of it, where the five equal partners of Benchmark sit down for an open-ended discussion, sometimes with a special guest.

We were talking with the Benchmark partners about that last episode. They invited us to be their guest for one of these dinners, and for the first time ever, record it even on video. We are so pumped to share this with all of you. We got to ask them about a lot of the open questions we had about the future of balancing those out out-there consumer investments with their B2B portfolio, how they think about making sure that they see that next world changing company, the pressure of inheriting a top venture firm and trying desperately not to mess it up. Of course, there are some good war stories from the portfolio companies in there too, David.

David: Indeed. Man, this was such a special episode on so many fronts. This by far is a record on an Acquired episode for a number of guests that we have concurrently.

Ben: We had seven microphones running.

David: We did buy $5000 worth of gear just for this episode. I think it was worth it, though.

Ben: Next time, I need to account for the fact that there will be violent laughter when I'm setting the audio levels, because we just had a blast. You'll definitely hear it when you listen. For our presenting sponsor on this episode, we have a company that you know very well at this point, Fundrise and this very interesting thing they've been sharing with us this whole season called the Fundrise Innovation Fund that enables their customers not just to invest in real estate, but also private, late stage growth tech companies. We are back today with Ben Miller, the CEO and co-founder to dive a little deeper into the model.

David: I want to ask how you are identifying companies that you want the Fundrise innovation fund to invest in.

Ben Miller: We're a different kind of investor than most venture funds. We are also a tech company with 100 software engineers. When we went out looking for great companies to invest in, we started thinking, what are great technologies we want to use? If we liked the product and our engineering team could vet them, then pretty much anybody would want to buy them. That's a good, good signal that we should invest in them.

We reached out. We had our engineering team set up calls with companies we thought were potentially interesting. We started integrating even more advanced technologies than we probably would have otherwise. RudderStack, incredible company. Retool, incredible company. We're going to be customers of those products and hopefully investors. We're investors now so not to choose anybody, but I think it's very consistent with Fundrise's approach.

When we invest, Fundrise wants to bring as much value as we can. We have a million and a half users and individual investors that's going to bring brand awareness, that's going to bring future developers who adopt the product, and we'll be a customer. You think of dogfooding, right?

We don't need to look at Tegus reports to figure out if the product is good. We're going to actually diligence it with our software engineers. Even though I do like Tegus, it's a great product.

David: It is a great product.

Ben Miller: Yeah. Every time we make an investment, especially big notable investments, we send out an investor update. That's almost like a combination of an investor report and Instagram story. It's really how investor reporting should work. We send it out to basically almost 2 million people, a million half people will get this. It's a whole different form of comps for companies that I think is really going to be valuable, but people actually have never seen it before.

Ben: It's a little bit like going public.

Ben Miller: Yeah, it's just without all the nightmare of actually being public.

Ben: Our thanks to Fundrise, the largest private investment platform in the world for retail investors. You can click the link in the show notes. If you're a founder and you want to get in touch with them about the innovation fund participating in your next funding round, email, notvc@fundrise.com.

We just launched the Acquired 2022 Survey. We will be eternally grateful if you would take the three minutes to participate and help us learn a little bit more about who listens. One winner will get a second generation AirPods Pro and 10 winners will get t-shirts from our merch store. It's a huge help, so please, and thank you.

We have an update to the merch store. We got many requests about this. Gosh, why isn't there a dad hat? Well, we called up the good folks at Cotton Bureau and we did some horse trading, because I wanted a really good one. I wanted one that was embroidered, that felt nice. For the next couple of weeks, there'll be a limited edition dad hat embroidered with ACQ right there on the front. Get them before they're gone at acquired.fm/store.

All right, join the Slack, acquired.fm/slack. The LP show has been on fire recently. For those of you who are paying LPs out there, we just dropped an interview on the profitable growth playbook for B2B companies with Jaleh Rezaei, the CEO and co-founder of Mutiny. That is live just for LPs right now for another week or so, and then it will hit the public feed. You can become an LP at acquire.fm/lp or get those episodes after they're made public by searching for the LP Show in your favorite podcast player.

Now without further ado, on to the dinner. Listeners, as always, the show is not investment advice. David and I may have investments in the company we discuss. This show is for informational and entertainment purposes only. Okay, our first question is, what are we doing here? Where are we at? Peter, it feels like you would be the best person to explain this dinner tradition.

Eric: Why do we have a dining room in the office?

Miles: On the 19th floor?

Peter: When I joined Benchmark, there was great optimism between Bill and me about injecting new practices, new habits, new ideas into the firm. Bill had just read the Ben Franklin biography. Ben had four dinners, if I recall, a week, but they were going deep on finance, then on chemistry, and then on life sciences. He took the catalyst to say, why aren't we doing dinners?

Anyway, we had this playful experiment where we said, well, let's try a few of them. We had a big dinner towards the end of the year. I think it was like 2007, maybe 2006. 2006, that was actually my first year, and it was amazing. Time stood still.

Ben: Just the partners or?

Peter: No. We had four outside guests. Caterina Fake, Mike McHugh, Gideon Heugh, and Martin Mikos, if I'm not mistaken. And it was electric. We came out of that. Bill, he'd always called me in the car after and like, what do you think of the dinner, Mike? Ah, it was fun, but I want to go to bed. He's like [...]. Alcohol had been served.

Ben: Like it was his baby. He wanted to keep working on the concept.

Peter: We danced with this idea. The concept that I came to is that firms are full of strategies that aren't coupled to reality. If you look at a venture firm, eventually, it's just a collection of habits. This is stealing from William James who I think was the greatest American thinker. We are nothing but an inanimation of our habits and how a bit of character this is, so everything.

The idea that we should be nurturing curiosity, which is the essential lifeblood of the firm, needed a habit. Mondays, as much as they're attempted, you sit around the office and you joke around, and you try and dive into topics, they're limited. The dynamic range of a dinner with an open-ended, no agenda, wild explorations of the most bizarre things your partners might be curious about might definitely have gotten a few rat holes with this group, and they pulled me out.

It just became one of those things that honored the purpose of the firm, which is the sense of constantly learning and activating our curiosity, but in a collective effervescence of a group that we could never get in a one-on-one dinner. One of the challenges which has been manifested right now is that in a table where there's a head of the table, you can get a dominant participant in a dinner conversation. But the problem of the table is that you either have a rectangular structure which carries a power structure embedded in it or you have a circular table, which atomizes the group.

I'd seen this table, the Seven by Jean-Marie Massaud who's a French designer, and ran with the idea. Something would be organic that could expand and collapse, but most essentially, destruct or deconstruct power centers and create a non-hierarchical construct with intimacy. But this table ends up being Olle Lundberg designed. I gave him a hand sketch and he ran with it. It allowed Olle's lifestyle to meaningfully upgrade, because the number of people with means that have sat at this table to decide that they need a table just like this.

Ben: The people you have at this table, just for listeners who don't understand the gravity of this dinner, it tends not to just be the five partners. You have pretty esteemed guests come to these.

Peter: It's the spotlight of attention, which is the biggest gift you can give to another human being on an individual. More often than not, somebody that we haven't worked with or invested in, and I think you guys might have mentioned this in the podcast, that we've had dinners with people like Dylan Field. Oh, you come away, you're swept off your feet. This is why we exist, to serve people like that. Toby from Shopify. We traveled with Jeff.

David: Do you bring the table?

Chetan: Unfortunately, it's not portable.

Ben: The Dino side, Seattle side, LA.

Peter: We have been in LA, we've been in Seattle.

Chetan: I think you can see the ethos of the firm in the structure of the table too, which is that you can't have a sidebar conversation in this table, because everybody else can hear it. It's all one conversation. That sort of coming from the outside and then being put at Benchmark.

The one conversation element of everything that we do on Monday is so powerful, because we're all tuned in on whatever is being discussed. Sometimes it's not great news, sometimes it's good news, sometimes it's tough news, whatever it is. Getting the whole group tuned in, I think, is the essential power of this structure. I really like the table for that.

David: I'll never forget early in my venture career, when I was a venture capitalist, I remember an older partner taking me aside and saying, if you want to bring something up at the partner meeting, you need to have had a side conversation with everybody else before you bring it up at the table.

Ben: Which is so funny, because when we're talking to Bruce Dunlevie, our one rule was no pre-selling a deal. You can't walk around the hallway and say, hey, I'm super excited about this one later. I think you'll be excited to, like, vote for it.

Sarah: That's one of the great perks, especially for somebody who has come from another venture firm to Benchmark, so you don't write a memo. When your memo really is a vehicle to obviously give background on a company, all the work you've done, but it is also a little bit of a presell before the company comes into the present.

David: It's persuasion.

Sarah: Yeah. A lot of hours get consumed by the writing of it and the reading of others. To have a founder come in, and there's none of that. It's a blank sheet, and you just get to have the experience of the founder.

Eric: Sarah uses this phrase which is truth seeking, which I think is a really good one. It's like, is the company incredible, and does that company have the chance to be one of these few extraordinary companies every decade? That's actually all that matters. That's all that matters for all of us. If you find that, then you really don't need to sell it. You don't need to sell it.

Ben: Do you have any sort of format of codifying your thinking? Because memos serve the purpose of forcing you into clarity of thought, in addition to creating a sales artifact. What things do you do in your partnership to gain clarity of thought?

Chetan: I would say the memo is a crutch often, because yes, it can force you into clarity of thought. But it also allows you to fill in blanks that the entrepreneurs themselves are not saying. It pushes the sort of bias and perspective that maybe the firm has. Maybe you have a sector thesis and there's a lot of manifestation of ego when you put a memo together.

Not having a memo does not replace work, does not replace the calls, and does not replace the conversations. What I find so amazing about our Monday discussions, when you're relaying the calls you have, relaying the notes you took on those calls, you're actually telling exactly what you've discovered. Without the overarching bias, without your ego pushing into it, you're not pushing anything into the firm. You're just saying, this is what I've discovered. We all just heard from the entrepreneur. It either confirms their views and how they want to roll through this market, or we found some challenges.

I think you will mention it on your podcast, which is that when you talk to Benchmark partners, it feels like we don't have some hard stops, we can just keep going. That is the beauty of that Monday meeting, which is we don't have a next topic to jump to. It's not like we're working through a list. We allow ourselves to have that open discussion.

Eric: There's an agenda. You have to go through the CRM and update the CRM. If you haven't updated your CRM, you're going to get negative points.

Chetan: Yeah, like I don't see all these calls logged in the serum.

Miles: The artifacts, they live in the memories and the lived stories of the partners. If there's a curiosity in that direction, call up Matt, call up with each other. Call up Matt, call up Bill. Those learnings, those stories, that wisdom sort of still walks.

Chetan: One of my first experiences is this. Unbounded agenda on a Monday was brought up...

Eric: It's so uncomfortable.

Sarah: Actually, you know that that's going to be what Monday is like coming on your first Monday.

David: Are four or the five of you GPs of other firms before this?

Sarah: Yeah. We already have boys. You talked to Bruce or whoever. Monday has no agenda, but I get it.

Ben: You can intellectually get it.

Sarah: Yeah. I remember my first Monday, and sorry I interrupted you on your first Monday. But you sit there and you keep on waiting for like, well, when are we going to talk about pipeline? Or when are we going to talk about the portfolio updates? And it doesn't happen. Instead, it's these random roving conversations, but then the topic of substance will come out in a natural way,

Ben: You have to really enjoy being around each other in order for that to work.

Sarah: One of the things we then talk about for our dinners is by getting to engage on these topics that aren't just the business of what we do every day. You just get to enjoy being together and you get to know each other in different dimensions, some of the stories I got told.

Eric: Last week was a deep dive in psychedelics.

David: For a deal or for?

Sarah: There may be ones. It is critical to then what happens on the Mondays and everything in between.

David: Sarah, you and Chetan both mentioned, lack of structure, lack of memo, is not a replacement for doing the work that I assume happens during the week. I'm curious, what does

Chetan: And the meeting itself. There's no reason why we can't call somebody that we want to talk to when we're together.

David: Do you put them on speakerphone?

Chetan: Yeah. It's like, hey, you're on speaker with all of us. We have a couple of questions for you.

David: How do entrepreneurs react when they get a call from the partnership?

Ben: Hey, it's Benchmark?

Chetan: No, I think it's surprising to everybody, whether it's entrepreneurs or whether it's people that we call in the industry. We're just like, hey, we're all together. This question came up, and we want to talk to you about it. It's like, oh, wow, that's actual teamwork. You're working together as a team.

I think you both have investigated the venture industry so much that sort of like all the stories that are told at Benchmark are all about the group going and accomplishing something. There's a lot of like, we did this, we did that, and then this happened, and then we did this. I think, broadly, the stories in the industry naturally tend to be one person. The venture capitalist is the hero.

The truth is that's hardly the truth. Part of that is all five of us are engaged on that and working as a team for that. When you call somebody together, you're exercising that motion, you're exercising that muscle.

David: One of the things we spent a bunch of time talking about on the first episode was, what the psychology must be like, Ben and I speculating of being around this table here as a partner with you guys. Our thesis was that for an ordinary group of people, it would trend towards mediocrity. But if you have a cultural norm of we are all bringing it all the time, then it trends towards greatness.

Ben: And why would it trend for mediocrity?

David: Well, because it's the line that a bunch of other GPs said about Benchmark when it was getting started was that's communist capitalism. It's going to trend, it's going to end up like communism. But obviously, that is not the case here. I'm curious what that feels like for you guys on a day-to-day, week-to-week basis, knowing we've got this partnership, this relationship. We spent all this time together, but obviously we each need to really bring it.

Eric: Right before Sarah was joining. Do you remember this?

Sarah: Yeah, of course.

Ben: This is five and a half, six years ago?

Sarah: Yeah.

Eric: Something like that. She texted me on a Saturday. We didn't announce. We hadn't decided anything, but we were close. She's like, do you have time tomorrow? Okay.

Anyways, we got brunch at the pub. She's like, Eric, okay, what's our job? This is V3 or whatever at Benchmark. What is it? I was like, Sarah, job number one, don't fuck it up.

Ben: No pressure.

Eric: Don't fuck it up, because I think there's a real risk. You could imagine a risk where you feel like you're born on third base or whatever the analogy you want to use is. I think one of the things that you have to hope for is that every single person who you add feels like, hey, I'm in service of the entrepreneur, and it's my job to find, work with, and help the next great entrepreneur. Believe me, I wake up every fucking morning hungry that I don't want to be the beginning of the end. You want to contribute.

Ben: Where does that come from for you personally?

Eric: Because I'm a failed entrepreneur. I think that really is it for me, which is I know how hard it is because I did it and failed to not live up to expectations. I started a company. It's really hard, and it didn't work. I think you just realize how difficult it is.

The privilege of the job is there are people out there who are super smart, who have an idea that's often against the grain that wants to change the world in some way. It's doing what you can to help them. I think about that all the time. I think that's a chip on your shoulder or whatever to prove.

Peter: There are different motivational systems.

Eric: Yeah, fair enough. That's one.

Peter: I think some part of them, all of us, some of those motivational systems are fear-based. Don't fuck it up. Some are joy-based. I remember saying to Bruce, we had a long conversation about, well, you guys are moving on. I'm going to leave the firm in a better place than when I joined. It doesn't get to the core of your question, which is how do you maintain standards of excellence? Well, peer pressure is a really powerful mechanism.

A lot of directions, so why does it bend towards excellence? I think we had this sort of insight that the joy you feel, the total, complete joy of working with a great entrepreneur is contagious. It's energizing. It's the currency of our firm. If we look up towards that, we can all recognize that Benchmark probably isn't going to be around in 30 years. Bruce said to me, you don't need to keep me at Benchmark. We didn't try to start this over and outlive us. I mean, it was sort of an accident.

David: They didn't name the firm Benchmark, though.

Peter: They didn't attach to its name, which I thought was telling, but the idea that this is a femoral. You said like everything's a femoral. The structure, institution franchise, all those words make us nauseous, because really, the nature of the business we're in is that we want to destroy the incumbents. I think we're collectively aligned around being anti authoritarian, destroying the incumbent.

David: Which absolutely was the DNA of the founding of Benchmark, as we talked about in great detail.

Peter: We want no part of this firm to become the incumbent. How do you do that? Violent rejuvenation with a common culture of collective joy in serving entrepreneurs. If you stay true to that and ruthlessly true to it, then you fire yourself, because there's a day where you realize, I will not give to the firm more than I take. In the case of everyone who's left this firm, and I've never seen this in the history of investing, you study all these firms, every single partner fires themselves.

It was that ethic that was recursive. You feel it and it's intrinsic. I think it's also partly because the minute you're in a position to be the incumbent, I'm the last man standing. I want my partners to destroy me. That's joy, which means I've succeeded, now we're big limited partners. That's also joy.

David: What is the relationship of past Benchmark partners to this group? One of the things I remember from the research and hearing Eric, you and Bill both talk about with Cerebrus. We got to call Bruce, we got to call the old guys. What is that relationship like for you five?

Eric: The official relationship is they're our LPs. That's the official relationship. They're our LPs with those other LPs. I think the more the feeling of a relationship is, you call them. They want to see you succeed for all the reasons Peter's talking about. They'd pick up the call and help and put their network at work to help you. They have a lot of insights and have seen a lot of stuff.

Peter: I would say when we went shorthand, it feels more like uncles and aunts than they do like parents or grandparents.

Eric: Yeah, that's perfect.

Ben: For listeners who don't know, because I didn't know until Chetan just showed us the Benchmark partners, none of you have offices. You all sit at this crazy round table. It looks like you're going to war, and you're trying to put the strategy up on the board.

David: You guys need a holodeck in the middle.

Eric: We had a poop emoji so far.

Ben: There are aunts and uncles with computers over there. There were not five computers. There were seven, eight, nine.

Peter: We're getting rid of them. Not fast enough, but they'll be gone soon enough.

Ben: You're saying that I shouldn't read into that. Like, they're here still.

Peter: Friends and uncles. It's fine if they visit, but not stay too long.

David: They can watch the kids every now and then.

Peter: Right, but as soon as there's a real problem, that's funny because aunts and uncles say, here's your baby. Literally, that's what happens. This is going to be hard work. Oh, no, no, no. You're the parents, I got to go home. It's great being an aunt or an uncle. I have five children and I can tell you, I should have learned that lesson. I love my children dearly, but my brother's in a good position.

David: Okay, so picking up on that theme. One of the things that I always have appreciated about you all having done some co-investments in past lives and just your reputation in the industry, the hard work. What are examples of hard work, like real examples?

Ben: We're going to ditch this to Chetan.

David: I know you have a story here, a very recent one. But the aunts and uncles are not going to do it anymore.

Ben: What are the ways in which you get put to work by your portfolio companies, Chetan?

Eric: Chetan, and part of the reason he's discombobulated and has a cold burn in front of him, [...] watching the video at 5:00 PM is he got an international flight three hours ago, four hours ago.

Miles: But was with me on Monday.

Eric: Which was with us.

Sarah: And decided to go.

Eric: On Monday, and today's Wednesday. So here we are, 48 hours later.

Chetan: I'm doing great.

Ben: What are the circumstances that lead to us suddenly deciding that you need to be in Europe?

Chetan: I think this is a great story of how the firm and we as a group operate, which is that there was a portfolio company that was going through an important decision. There was a decision that was made Friday morning. It felt like there was a finality to that decision. It was like, okay, this is what we're going to do.

People go to the weekend, emotions rise up. They have conversations with their friends, and stuff starts to get off track. I got a call Sunday night. It's just like, things are getting off track. What do we do? We're all on a group chat, and so I put it immediately in the group chat that says, here's what's going on, I'm looking for advice.

It was late at night. Eric called me at 11:00 or 11:30 PM. We talked for 30, 40 minutes, where we're just walking through everything. What was so incredible about that moment is when you're in it, it's really hard not to get wrapped up in the emotion and sort of stop thinking logically.

What was great about our conversation is Eric was able to zoom out and say, look, we're in the service of entrepreneurs. We only recommend and guide entrepreneurs. It's ultimately their company. It's their decision. What Eric said on the call is, what I would do is and what I know you would do is...

David: I know you, Chetan, would do this, right? Right?

Chetan: Yeah. Which is, if you weren't in the moment, you would make the phone call and say, hey, this is your decision. I'm here and 100% supportive no matter what. We got off the phone. I made that phone call.

Ben: But also, here's what I think?

Chetan: No, I think because you've gone through all that.

Eric: Yeah, it's already been done.

Chetan: There is no more thinking.

Eric: It's your call. We're the sounding board, you make the call.

Chetan: All the facts, all the reasoning, all that had been laid out. There was no more logic, and there was no more explanation required. At this point, it was emotional. After that conversation with Eric, I made a call. I just said it's your company. This was Sunday night. This is like midnight, I made the call.

David: So you're all in the circle on Monday.

Chetan: Yeah. We come in Monday morning, we're talking. And then at some point in the conversation, Peter said, this is not a conversation that should happen on the phone or on Zoom. It needs to happen in person. I was like, okay, let's do it. Okay, yeah. It's like, okay, I should get on a plane right now.

Here we go, time to go to San Francisco airport. As I was leaving, Eric goes, are you going to come back for the Acquired? I was like, oh, yeah. Okay, don't worry, I'll find my way back.

Ben: Not only am I getting on a last minute flight to Europe.

Chetan: And you have to come back by a certain hour on Wednesday. What transpired was as I was getting on the plane, that meant so much and set such a positive signal, that by the time I landed, everything had just gotten in place. I didn't say anything, I didn't do anything.

Just showing that level of support and commitment changed all the dynamics, which is like, oh, you actually meant what you said that you're here to just support me, support us, and support the team. You're right, it is our decision. That was it, it changed the tenor of the conversation completely.

Miles: I would say it's also broadly a manifestation of the orientation to investing. There's a lot of people who would say investing, oh, we made this bet. You might hear that word a bunch of times. Oh, it's a good bet, it's a good risk adjusted bad, or hopefully it'll be good.

Eric: It's, I'd like to own that asset.

Miles: Yeah, I'd like to own that asset.

David: The investment bankers speak.

Ben: It's a metaverse play.

Miles: But it sort of pervades a very passive view of almost like trying to superforecast a set of odds, and you did the diligence to superforecast those odds. We never talk in that way. When we think about partnering with a founder, it's not, oh, we want to make a good bet. It's like, we want to make a commitment.

That commitment manifests as a group to be vulnerable, honest here, collectively get that feedback, and then with the founders to be on the field denting those odds. Each year, big years, and even a couple times every year, there are important moments where you can tell we can't transform necessarily when I say we got some silver bullet, but that commitment can really change the odds.

Sarah: Each of us make one or two of these commitments a year. There's a level of relationship that then happens with the founders because there's only one or two a year. What you end up feeling is that you really just care about every company that you work with and the founders, the teams, and everything.

When these moments happen, it's not a transactional thing of one of a lot of companies with which you work. It's a founder that you really work closely with that you know so much about. That level of support doesn't feel unusual for us to do. It's something that we just expect of ourselves. And that's the relationship that we'll have with these teams.

Ben: This may be drifting into an area that's harder to talk about. We can abstract it a little bit away. We talked about Uber on our episode, but I want to abstract it to how you think about this generally. The role of a general partner in a venture capital firm, traditionally, is that you have a fiduciary responsibility to your LPs to maximize their returns, and you have a second fiduciary responsibility when you join the board of a company to the company. It's hairy enough trying to balance the trade off, because sometimes those things are at odds.

You're representing all shareholders on the company's side. With your LPs, you're representing their interests. You then introduce this third thing which is the thing you care the most about, which is support of the founder and empowering the founder. When do those things get hard? How do you balance those things? I assume most of the time, you're indexing strictly to we're partnering with this founder and we trust them, but when do you have to juggle those things?

Peter: When people go to therapy often, they only talk about the shit that's going wrong. I think it's useful to think about what's going right. If there's not a DSM for flourishing, there's a DSM for dysfunctions. We could open that book up and we can have all sorts of flavors in a dysfunctional family. I think we could do that, and that would be illustrative and informative about how it can go wrong. I would flip it and say, when it works well, what are the preconditions of where you have alignment? And then you look at degradations from that.

I think one of the words that's vital to any durable founder, Benchmark partner relationship is vulnerability. If there's ever caution or pause, if I can't share this information with my, then we've degraded the relationship, and we have to fix that. You fix trust. It's fixed intimately one on one. You have conversations that allow you to zoom up to say, okay, what's the collective purpose?

I think that we could talk about Uber. I have every reason to believe Travis's purpose was the biggest, most extraordinary Uber imaginable. We had a collective gaze on that together. In many situations, this was one of them, pathologies creeped in. You learn this through a course or from experience, which is when you start to see that happening, you need to act immediately

The minute we get othered, and it's not about us in this joint purpose, but it's you and me, it's my agenda, my LPs' agenda, and all that, I suddenly see that with a lot of the other firms in the industry, because it's not necessarily the partner in the room that's got the issue. It's their partners that have told them that they need to do this or they need to do that. I see it and I'm like, oh, man, I adore you, but your partners, I have different feelings about.

You're here trying to rattle because they've said, why are we meeting our plan? The entrepreneur immediately vulnerability snaps like that, it closes, and then you have no trust. Now they come to us, typically, and they say, we got a problem with one of our directors. I'm like, okay, we'll up and off sidebar with them and say, what's going on here? How can I help you with your partners?

As much as you look at situations where it falls apart, let me give you an inverse story, which is where it really only could have worked, I think, in this firm model. I was on the board of a company that wrecked somewhere between $200-$300 million of capital, and I'm pretty accountable. Now I should be fired if this job actually had standards, governance, and practices. And that company is called Docker. I was just in Miami yesterday at their all-hands meeting.

David: When you invested, it was called dot-cloud, right?

Peter: Dot-cloud. The last time we did an all-hands meeting at Docker, it was three years ago. There were 60 employees that we'd spun out of the prior company, and the valuation was zero. We've gone from over a billion, 4 billion, 5 billion, to zero.

I was working with some of the great venture capitalists in the industry at that company. Aside from Insight Partners, crickets, gone. All left, bail. This is okay. What was different with Benchmark, Insight is another story.

David: There's a very fun quote that we don't often talk about on the show. I don't think we ever talked about this on the show, but a very prominent firm, one of their mantra quotes is "Focus on your winners." I think that's what you're talking about here.

Peter: Yeah. At this point, it was a pretty big loser. But the vulnerability that I was able to have with the team that remained to say, we made mistakes, we're accountable to it, here's how we work through this. Because you know what, if you look up on the purpose of Docker, this is cliche. It's the beginning. We have 30 million developers that use this product every day.

Ben: Yeah, that's the craziest thing. Unbelievable product success that completely changed the industry, but business model and strategic failure, such that there wasn't effective value capture.

Peter: There was value destruction, hundreds of millions of dollars of value destruction. My two partners, I came in and I said, I may be drinking my own bathwater. I don't know what to do here. I was really vulnerable. I said, if I've gone off the deep end, no part of that truth seeking exercise would allow me to spin position, blame, be a victim.

I was being accountable. I said, what have I done? They said, not only do we believe in this company, can we put it in the new fund too? I thought, well, that's crazy, but you're right. If you believe, you have to have that founder level. I always joke, employees can quit, founders can unfound the company. I think we feel that way in our commitments. We can't un-commit that founder permanence.

Oftentimes, it outlives every executive that gets recruited. Not every, but a hyper majority of executives. This case of flourishing, and then that was a case of trust, all these things that come to stress, the LPs agenda, the founders' agenda. It's not that hard. You just look up and say, what's the purpose of the company? Let's resolve around that, and that will sort the rest of this stuff out.

It's the Bezos thing. The long term, there really is no conflict, but delighting in a [...], impressing the customer and creating shareholder value. Our customer is not the founder. We say it is, but it's really the purpose of the founder. It turns out that the purpose if that's the customer.

One of us may be deviating from that, and we can keep each other accountable. That happens internally. Me and my partner said no. The purpose of Docker is just the beginning. My God, it's going to get developers to program the global computer. Okay, so then you could dust off $300 million of loss capital.

David: I want to do a big topic we really wanted to cover with you guys in this session. Stay focused on the early stage, not having a growth fund, especially when your entire peer set has become lifecycle capital providers. I actually think this is a good entry into it. Peter, the story you just told of when things are not going right, the Benchmark approach, I'm actually really curious when things are going right.

Your competitive set has said, when things are going right, we should go along. We are going to interpret that. I think in large part, it's a competitive response to you guys during the past fab four era. We are going to become lifecycle capital providers. We're going to put a ton of money round, after round, after round into our best winners.

Ben: It wasn't in response to Benchmark. That was in response to there's a crap ton of fees to make on. Any founders will keep taking our money, and we have brand new LPs. Benchmark stayed so true to their thing.

David: Okay, I think there are three classes of firms. There's a class firm that fits that, there's Benchmark, and then there's a class of firms that actually, we're making a strategic decision. We care about carry, we're playing for carry, we think we can...

Eric: Harvest it.

David: Yeah, and those were valid decisions in their class, but you guys have not done that despite, I assume, every opportunity in the world to do so. Why?

Ben: Can we ask Miles? You were the newest to join.

Peter: He's going to try and change that.

Chetan: Well, actually. Funny.

Eric: This is a great point to announce, Benchmark growth.

David: We've got an even bigger dining room upstairs. How far can we stretch this trial?

Mile: Certainly, all of those opportunities to do that, I think Sarah says it nicely in part. Our job, we're really focused on how we scale those companies. As part of that, having a relationship that doesn't get sort of adulthood by this question of us making another commitment decision.

We're in and we're not evaluating anymore. We're not deciding what a fair price is anymore. We're not trying to decide how to maybe make a strategic call with a company that optimizes for a moment for us to get more capital. There should be, want to remove any chance of doubts, alternative incentives, or questions in that relationship. It can be fully vulnerable.

If we do that well, and we've partnered with ideas with great purpose and a long, endless runway to work on, we're all successful scale through their success. We don't need to scale ourselves independently of those companies. I think we'll all view it being small. We'll all do perfectly well,

David: But there are literally million dollar bills on the ground for you to pick up if you were to just put more money in your own companies.

Eric: I totally agree with Miles. I would just add one thing. It doesn't feel like work if you love doing it. What do you love doing? I think that's the biggest thing, which is if you love working with founders, then you want to spend your time working with founders. That means you don't want to spend your time managing a staff that's scaling. You don't want to spend your time doing marketing to LPs or others.

You don't want to spend your time meeting investments that are outside of your purview. You want to spend your time with those founders. I think that's the, what do you love doing? I think that's the biggest thing. I don't think there's any question that over the last few years, the growth investors have done extraordinarily well.

There were millions of dollars to be picked up doing that. But I think the question of what do you love doing really resonates. One thing that's super nice is the cycles turn, and the strategy persists through cycles. I also don't worry about $100 million holes.

David: We were joking before we started. I would imagine we were here eating dinner. You guys must be licking your chops right now. This is your time to shine here in late 2022.

Peter: Well, yeah. With the caveat that I think because we're at an early stage, what does that mean? It's moved in terms of its definition. We have faith that every year, some number above zero, a company will be founded that is going to be worth more than $10 billion. And then bet every two or three years, a company is going to be found that this can be worth more than 100 billion. And it seems to be independent of the cycle.

Yeah, things are a little crazier and they get a little depressed. But the growth fund thing, I'll come back to answer it a little differently, which is that I would like this group, I guess I'm part of this group, to set a high watermark for multiples on a fund. I think it's kind of fun to think about, okay, it's great. You can scale capital, but if we had a 20x fund, can we get a 50x fund?

I'm not sure we can do that. All we're doing is investing more money in late stages, we're lowering our returns. That's all we're doing, because our commitment is fixed. It's not like we're going to be more committed. You could say you're getting more cash on cash, yeah, but we're lowering our returns.

The hack of the venture business, which is coupling capital from other people and ourselves with the partnership that it comes with, I think it's a little more inflamed when you're stuffing large sums of money into a company as opposed to keeping it pure. I will say, like, what would make me proud of this team? Maybe after I'm gone, it sets a new high watermark. They won't do that with a growth fund. The rest of it, it's like, that's cashing out. Yeah, but I also want to know what our limited partners say, there's nothing like a Benchmark fund. When it works, it sets the pace in the industry.

Miles: There's a quote Sarah and I used with a team the other day, the Jony Ive quote. It's like, what's the focus?

Sarah: I was going to say the same thing.

Miles: Focus is when, in some ways, every bone in your body thinks that idea is a really good idea, but you don't do it. It's a fine idea. It's not to say we don't have opinions on later stage ideas or valuations.

David: If you guys had a billion dollar opportunity fund stapled to Benchmark with the same team, you would, for sure, have good returns.

Ben: It would be one of the best growth funds in the industry.

Miles: We like to think so if we're going to do it. But I think to be able to have that focus, that conversation on Monday and our time together Monday, is an hour of roving curiosity of fertile ideas right at the edges that seem weird and bizarre.

David: At least you got to be weird at the early stages.

Miles: Instead of, okay, what's the growth pipeline? And is that a good valuation? Is now a good moment to sort of get in? I think the focus is...

Chetan: And we have to have a CRM if we did a growth fund.

Sarah: For us, it is at the end. We're all here, because we want to partner with founders as early as possible in that kind of relationship on the board. Anything to this Jony Ive, just the focus, like anything that distracts from that. We have five people. This is it.

David: We got to ask you about the principal program, but we'll come back to that.

Sarah: But the capacity to take on more things would take away from our getting in the room with that founder who is going to build that next iconic company and support the ones that we have. We're forced in a way by the constraint of the SEAL team of six people never to be more than that to be ruthlessly focused. That's what we're here for.

Ben: That's super real. Just to validate it, there are lots of opportunities that you can always pursue that seem like good ideas. We have this struggle at Acquired, we're two people. There's a thing that we know is uniquely differentiating, which is these ridiculous, deep dive podcasts that are just us.

Sometimes we have guests that are wonderful to be here, thank you for doing this with us. But we know that the most differentiating thing that we do is this unique format that just we can do. Every time we start taking on more stuff, I'm like, oh, man, the golden goose is getting worse. I can feel the golden goose getting worse because we're doing other stuff.

Ben: You're really good about keeping us both honest on that, too.

Eric: It's funny that you use that phrase. In 2008, there's a first time somebody said to me, you should consider venture capital. I didn't join Benchmark until 2014. In 2008, a very famous, nameless, venture capitalist said, our early stage program is our golden goose. That early stage, everything that we do protects that golden goose.

David: Longtime listeners will probably know exactly what you're talking about.

Ben: Peter, I just want to clarify something that you said that's interesting. You define the scoreboard as fund multiple, and it's not total cash return to LPs. I think that's a clarifying mindset about the way that you guys look at this.

Peter: I can tell you, I think of it as an LP. The Benchmark fund, of course, again, we don't show up and say let's drive returns. It would be alienating into everything we stand for to think of it that way. It's the outcome, not the input. I think the cash and cash multiples, both as an LP, it's a real problem for LPs, I will say, because we have large LPs who look at us and like, why did we waste our time with Benchmark? I say, oh, yes, you're right.

David: Can you say the number of your largest LP, like what their dollar per fund?

Peter: They're like $25 million, $30 million. I could get it wrong, I'd probably piss them off listening to this.

David: In the context of a Harvard or Stanford, that's barely worth their time, right?

Sarah: Some of our retired partners are our largest LPs.

Peter: Indeed. There are some discussions among some people in the firm that that over time is the way the model sort of endures. The LPs become the former GPs. Anyway, it's hard to say that the LP construction has much to do with anything of our day to day performance.

I do think this idea, though, of the principle of the firm being standards of asymmetry in our exposure to the volatile material, the startup. Asymmetry is a 20x, 50x, 100x fund. If we degrade that, it sort of misses the point. Many of us in this place, we pay crazy as a GP. I pay carried interest and management fee to my fellow GPs as an LP. That's crazy.

Ben: Oh, you don't get like a GP allocation that doesn't?

Peter: I get a tiny.

David: Now we expose the tension.

Peter: But for the super majority of my investment in Benchmark, I'm paying limited partner rates and management fees. It's not tax efficient. This is the point. We have aunts and uncles, we don't have overlords that are there getting their deep point on our...

Mile: It's the point of equality. An equal partnership, that is taking it to every extreme along the way.

Eric: You never want your partner to feel like they're working for Peter, in this case.

David: Am I understanding this right that the longer tenure you have as a Benchmark GP, the worse your economic deal gets?

Peter: It's the same.

Eric: That's a horrible way of characterizing.

David: As your LP commitment goes up and you're paying fees and carry on.

Eric: The Bruce's counter argument, which I think is 100% right, isn't the worst economic arrangement, because the returns will be higher, so you'd be happy to pay the fees.

David: This is one of the thesis of every successive generation of technology should be bigger outcomes, because you're addressing bigger markets.

Peter: To make it more simple, you cannot get allocation to the Benchmark funds. Getting any allocation is going to be better than the alternative.

Eric: You're happy to pay the fees and carry, because it works and it's still the best investment you can make.

David: I see. Your marginal economic deal goes down, but your aggregate economic deal gets better.

Ben: You're cash on cash, even though your multiple goes down.

Miles: You guys know more about this than we do.

David: We did spend a lot of time searching you guys. Okay, one more thing I want to say because I kind of think only we can say this, you can't really say this, on the strategy before we move on.

I think one of the most persuasive things that we heard in our research for part one about maintaining the model is we definitely talked to entrepreneurs in the current Benchmark portfolio who believe that aggregate in the long run, they took less dilution by having Benchmark invest, and you guys not having your growth fund and having to put more money into them than they would have had you or whatever early stage firm they had taken money from, been wanting to put more money in in subsequent rounds.

Just to connect the dots, if that had been the case, then you would have a conflict as that investor, when things are going well, to put more money in at a better advantaged valuation for yourself, and you don't have that conflict.

Ben: And what you actually have is quite the opposite, because this happens all the time, where someone is an investor and they're like, ooh, this company's doing well, I'm going to preempt their round, and I'm going to see if I can get a slightly lower basis than if they went to market. That's Firm A.

Firm B is not a Benchmark firm who also doesn't have a growth fund. They go out and they raise at market rates, but then there is a Benchmark brand, so option C is taking Benchmark's money. I think, and you guys probably are sure of this, your companies tend to raise better series Bs at higher valuations with more certainty than your average series A funded startup. Is that the picture?

David: Yeah. I'm just speaking purely in the realm of when things are going right. The company is super hot. The fact that there's not a conflict in a future round allows the entrepreneur to optimize valuation for future rounds better than if you were to try and put more money in.

Eric: I told you this.

Ben: This is a question we're just selling for Benchmark.

David: I didn't think they would say it, but I think it's important. We literally heard that from multiple entrepreneurs.

Eric: I believe that the founders own more of their companies at exit, at S-1 time, whatever it is, in this case, for those reasons and one other really important reason, which is a founder is going to raise a series B, series C, series D, or an IPO one time in their career, maybe two times in their career. If we're doing our jobs, and the people around this table have all done this multiple times, and you will help them raise better rounds from better investors, have a better process, and get to a better outcome...

David: You'd have to talk to the entrepreneurs that I've invested in. But I suspect if you were to talk to them, the value that I can provide to them since I stopped being a professional venture capitalist as part of the firm, is exponentially higher than when I was within a firm because there's no conflict.

Eric: Because there's no conflict. You can help them through that part, and that outcome results in de -risked. The subsequent rounds are de-risked, sure. I think there are a bunch of brand firms that can say that same thing. There's no conflict. I think there are very few firms that can say that part. The multiplicative effect of those two plus the help, I think, should yield better outcomes.

Ben: Strategy is just all about making trade-offs and aligning all of your trade-offs, so that they're a force multiplier rather than in conflict with each other. If I had to sort of summarize why Benchmark works, it seems like all the trade-offs are actually just thought through very clearly and tried to align them all so they sort of amplify each other rather than conflicting with each other.

Sarah: There is one big trade-off with our model, though, that I think about all the time just because I'm a paranoid person, which is at the end of the day, our job starts. The thing that we have to be paranoid about every day is, how do we make sure we have that first meeting with the founder that's going to build that next iconic company? So much of what we do is about maximizing that probability that we do get to meet that founder and then end up partnering with them.

A lot of firms, I mean, all the other firms outside of us have built machines around that. You have lesions of people at these firms. I grew up doing this. I was an analyst at Bessemer. Cold calling startups. Yeah.

You have all these firms who have built these big teams to do that. They nurture relationships with seed funds, invest in the seed funds, relationships with angel investors, incubators. They have this machinery that's smart, because it's all about making sure that every deal, every round that happens, they're going to be in the mix.

There are five of us. There's always the risk that one of those founders who kind of mistake basically our lack of outreach for a lack of interest when it's really just a constraint. We do everything we can. Of course, it's not like we're just resting on our laurels and waiting for calls. We're doing everything we can to make sure that we are in the mix. But at the same time, we are limited.

David: Even if you work 24/7, you still have a lot less hours.

Sarah: We're limited. That is the big constraint that I know keeps, I think, all of us up and just making sure, the founder that is going to raise that round, many are intentional about, how do I make sure that I'm going to find the right partner for me for the arc of the journey that we're all going to be on together?

David: You guys at this point have such a, for better or worse, mystique. I think for a lot of, especially first time founders that are younger, that are at an earlier stage, they're probably like, oh, I'm not going to call. I've got these other firms calling me. That's great. I'm going to go, but am I going to call Benchmark? Wow, that's a lot of pressure.

Peter: That's a potentially lethal risk for us. Because if you think about us being the incumbent, and come back to the fact that a number of the people at this table have a lot of capacity in the sense that they could dive in, they can give their all, and they're very available, one of the things you think about is the shift in the last 15 years since I've been here. The investments that are occurring before we get engaged have gone up by about 100x, at least 30x.

Ben: I mean, seed was not an asset class?

Peter: I didn't know I was a seed investor, but I guess I was a seed investor. But a third of what I've done was formation of a company investments. It's so weird when people say to us, I didn't think you're at this early stage. Some people say, it's probably too late for you.

Ben: You're like, New Relic was incubated in your office.

Peter: Yeah. Okay. I think our challenge, and I think you say it well, is that I would love to know, which is why if someone sends us something and anybody who listens to your podcast, but. I start with the premise emphatic, yes, let's meet, because I have always will create time as much as it may impact. When I don't have enough time to take that next marginal meeting, I shouldn't be practicing.

What I would love to know is the people who send it to us say, the biggest favor I can do to this entrepreneur is to open this door because the gold plated, whatever terms you want to use, high quality experience they're going to get. It's going to stretch their thinking. There are so many times when someone comes back, even when we don't say yes and say, I'm so glad we met, because I've learned something that really helped shape the course of the company.

The point of this is that our competitors, if we call them that, they’re our peers most of the time. I have tried to build vertical systems, which is to say, integrate into the very inception of the company all the way through to the last drop of capital going in as they go off of whatever.

David: From seed to IPO and beyond.

Peter: One of the strategic vulnerabilities we have is that people tell stories that were this way or they're that way. No, we're just like everybody else, but we're highly available to meet. We're quite responsive. The last two or three investments I've made were an example of the following, which is that there was an angel in the ecosystem who saw a deal going down and they said, you know, you probably should talk to Benchmark. When they did, we committed in the last two instances and less than a day. Oh, if you knew it was only a day, we would've talked a while ago.

David: Then you would've taken a week if you had one.

Peter: This is illustrative, because the system we built is to do just that. Our biggest risk is that people tell stories. I think sometimes those stories are propagating their agendas. We're widely available and open. We're in most times an emphatic yes for someone who would introduce something to us. What we'd love to know is the person who makes the introduction and we honor this, says, wow, I just did a huge favor for the founder.

Now we have to earn that every single time we meet the founder. We don't always get it right. We've screwed up in the past. We've been less and fully present. Okay, we take that seriously. That's the vulnerability of the model, which is that capital always carries its agenda.

Oh, let me tell you about the way. We're this or that, and it's always threatening and attacking other layers. We're hoping that we play a different game, which is serving the founder's purpose and show up and be decisive in less than a day. That's pretty common.

David: All right, listeners, for our second sponsor of this episode and all of season 11, we have one of our very favorite companies here in the Acquired family, pilot.com. Pilot sets up and operates the entire financial stack for startups and growing companies, including finance, accounting, tax, and even higher level CFO services like investor reporting, all of which, all of you founders out there would otherwise be hiring an old school accounting firm or building out your own finance team with half a million dollars of additional burn that you don't really need to have or the very, very worst option that we know most founders take, because they think they're going to be frugal and save the company money is learn QuickBooks and do it yourself. For God's sake, please don't do that.

Ben: Stop.

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Ben: Pilot is so good at all of this stuff. We were just at their office in San Francisco, actually, right before we went to Benchmark. We met with Waseem and got to get a little tour of everything going on at Pilot HQ right now. They're just executing really well. It's a great company.

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Ben: Killer deal.

David: Killer deal. Thank you, Pilot.

Ben: Thanks. Pilot.

David: Besides the five of your 24/7 being on, what things do you do to keep your radar operating, to try and address this?

Ben: Yeah, how do you solve that problem?

Sarah: We all have different ways. There is no single way for us, I would say. I always talk about having an air game and a ground game. For me, it helps me learn to write. You write about things, like areas that you're interested in, and it tends to be kind of a virtuous loop also of the founders who are thinking about building a marketplace or a next social product, a social network.

We'll see something that I wrote, Bill wrote, or whoever wrote, and then kind of come into the fold that way. The consumer lens that you have, you have a little bit of a wider funnel that you have to kind of keep. You never know where these things are going to come from. There are so many different domains where the next consumer company might come. I think the B2B stuff, the developer oriented companies are closer to the ground.

Chetan: Yeah. I think we all have our own strategies. I would say, one thing that's always interesting is to compare our different strategies of sourcing and how we source investments.

I was sharing this note internally, which was that I found that 100% of the investments that I've made as a Benchmark partner were all sent to us by an entrepreneur and not necessarily an entrepreneur that we had backed. It was often an entrepreneur who had met with us once or twice, or we engaged in their process and we didn't get to the finish line with them. But they enjoyed the process so much. Going back to what Peter said, they went to the next entrepreneur and said, you should go to the process. Like, just talk to them.

Eric: That's the most meaningful introduction we can get. That carries so much weight.

David: You have them at one of these dinners.

Miles: I think it's in part because there isn't really a process. If there's diligence, oftentimes, founders will ask, well, what's your process?

Ben: It's the funniest question.

Miles: I don't know. We're going to explore this together and we'll chat together.

Eric: What you're saying, it's like Elon Musk's tweaks?

Miles: Yes, it's exactly like that. Let's just text back and forth a bit. What did you do today?

Ben: To frame it more precisely for founders who are like, what does that mean, you do as much diligence as you need to do to get convictions.

Miles: Yeah. The experience hopefully is great for the founders in part, because we're not trying to sell internally. We're trying to truly seek. The coming and meeting with all of us or meeting a small group of us is not us trying to get some information, again, to try to superforecasting odds.

We're putting ourselves in the shoes because we make the commitment to start working on this and work together to say, okay, how will we think about navigating that? Where could this full start or local maximums be? How could we realize the full purpose? That comes with dynamic sharing of stories, history, and learning from the past.

Hopefully that sort of leads to a lot of the introductions and comes out of that in part, because it was sort of this reverberation of discussion around the potential that they had and how to navigate that correctly. They got an interesting view on their own business together.

Eric: I think the best founders ask questions on these things. One of the things that I've noticed is the great founders will often use their fundraising process to get connections and introductions. Sometimes it's customer introductions, sometimes not. Sometimes it's just like people connect to people who've been there before you.

We just went through this process on a recent investment, and we introduced the founder to other CEOs who were further along. She extracted knowledge basically from them not in a reference context, but literally, how do you build the company? How did you make this decision? How did you know when you had product market fit? How did you raise the next round? And pulled and built connections that way. I think that's a sign.

Ben: That's what it's like whenever you meet with someone who's worked at Amazon for a long time. It's scary. You sit there, and they're silent, and they manage to just extract all this information from you.

Sarah: You said our process is as long as it is for us to get conviction, but actually I think it's really important that it's a process of getting conviction on each other. That should be part of it.

One of the things that makes me sad about some of the conversations in the industry is just the idea that a board member is just somebody who shows up. It feels like that's what everybody's been reduced to. We hold a higher bar for ourselves.

We try to have that level of commitment that ends up manifesting in all different ways for the company, whether it's helping close an IC engineer or whatever, having those late night conversations or whatever it is. That is in the best form can be a really meaningful relationship for the founder and from the company from the very beginning.

A founder should realize that, of course, you get into the anxiety and the stress of, am I going to get funded? What are the terms going to be? All those things, I want to get back to building my business, all that. But at the end of the day, it is this relationship that you're beginning. It's really important for the founder to recognize also that they're getting conviction through the process on what it's going to be like to partner with that person.

Miles: It's this trope in the industry, which is you want to be the founder's first call. I've never really liked it so far because it's very reactionary. It's like, oh, they'll call me, I'll pick up the phone and respond.

Eric: It's a low bar.

Miles: I think it's a low bar. I think, hopefully, founders would say of us, we are their best caller. They've been proactive, had the space, thoughtfulness, contacts, and trust to be able to do that.

I remember when Peter and I worked on Airtable. Pretty close to the initial investment right after it happened, Peter, you could imagine it was a decently high price in some ways, like a high multiple. Okay, let's press sales, whatever. Peter came in and was proactively sort of shattering the frame and saying, let's give away more for free. Why constrain this and squeeze juice from what we have?

Let's unfill this even further. It's a database at the end of the day. Why would you constrain people putting stuff in a database? There's so much that happens on top of that.

Ben: As you're evaluating mutual fit on an investment between the entrepreneur and Benchmark, in eBoys, there's some famous line about venture capital is more a ball's business than a brain's business. Let's stop using that phrase immediately.

David: But it's so eBoys. It's the most eBoys thing ever.

Ben: It seems to me, Benchmark has shifted to become much more analytical over time. Do you think about that? Do you think about the right balance of gut feel and courage versus?

Chetan: Having done analytical things, I would disagree with that completely. I would say that we're not particularly analytical.

David: So it's still courage more than a brain business?

Chetan: No, I think it's very gut-driven. I would characterize it as it's a set of discussions that you have that resonate or don't resonate. It's like, I really want to commit to this puzzle for the next 10 years, and let's go do it. There's going to be a lot of fulfillment here. If everything works and we serve that great purpose that we're all aiming for, then the financial returns are going to be excellent.

There's no sort of like outcome scenario analysis here that says like, here's the 10% upside, bull case, bear case. These are all things that those of us that came from other places had all done. One of the interesting things is watching the firm externally and seeing how this works inside of boardrooms, like Miles just talked about as an example. I was on a board with Peter for a long time before I joined here.

Ben: In Elastic?

Chetan: Yeah, that's right. I was on a number of boards and I would see all sorts of board members. One of the things that stood out to me that I aspire to and I modeled a lot of my behavior after was every board meeting, the amount of preparation that Peter would do ahead of the meeting, he was by far the best prepared board member I had ever worked with, ever.

The number of discussions he would have, the number of calls he would make, and just how present he was in the board meeting itself, was just so foreign. Any other board member that I had worked with, I was like, I need to model my behavior to that, because that is the model board member.

I don't think that work, that dedication, and that commitment, comes from any sort of analytical work you do on the macro. Because if you do, then you start getting tied to your own biases and you never let the company, the founder, the team breathe, because there may be a thesis, but you rapidly pivot to something else because it's working or you're getting different signals. I think that there's so much of this that is just instinct, gut feeling, emotion, commitment, et cetera, et cetera, but it's not analytical.

Eric: I think most of the investments we make, it differs, consumer, enterprise, marketplace. All of them are different in different ways. There's just very little data to analyze, period.

Ben: But when you're looking at something that's like a consumer social app that seems to be catching fire, there are things you can know, like viral coefficient or week over week growth.

Eric: I think that a lot of things will lead you the wrong way.

Sarah: The truth is, in this market, oftentimes you're making a commitment before there's enough enduring data to really know what it is.

David: Which is different than 10 years ago.

Sarah: Which is very different, yeah.

David: Ten years ago, Benchmark was making commitments when there was Uber, like Instagram. It was early, but there was data proving.

Sarah: I always think, in a way, to make great investments, you have to be okay looking crazy, maybe even stupid in the short term, on the outside. But it comes from a place of deep conviction when you're in front of the entrepreneur. They see something that other people don't see, you feel it too, and nobody else who hasn't had that conversation sees it. From the outside, you see all the time, people always critique other people's investments. It's like, oh, I can't believe that person did this.

Ben: I looked at that deal and that's a margin profile.

Sarah: Yeah, exactly. I remember when we invested in Chainalysis, all these ICOs...

David: Which was your first deal, right?

Sarah: Yes. All the ICOs were going crazy. Everybody was thinking about tokens. Two people I remember calling me after we announced it and it's like, you invested in a SaaS company? Shouldn't you be putting the money in tokens?

Ben: They're going to the moon, what are you doing?

Sarah: Yeah. Not really, but also not right. It looked like a stupid investment in the beginning and before it can have room. I think part of the relationship that we then have with each other is the comfort of seeing something that can be contrarian or misunderstood from the outside. You have to nurture that.

Peter: In Benchmark—no pun intended—I guess one measure of quality for the firm will be how good our failures are. Webvan was a really good failure.

Ben: Yeah. This is the perfect venture-backed.

David: We talk about this a lot. Webvan was awesome. You should make that bet a thousand times over.

Peter: It's a shame that most venture capitalists felt maybe contempt towards the venture firm just before I was here. It's laughable. It's stupid. If we start to look, we should probably get worried about the long-term degradation. Eventually, we go away, so it all doesn't matter, but I think we pulled it off in the last fund or two.

Ben: Does that include fund seven?

Peter: [...] a real stinker. I think honor the fact that we are still just as gullible, just as naive, and fallible as the prior generations. Not yet more so, but we're working at it.

Eric: Webvan is a good venture investment. There is a set of them, I think, in my head in recent funds where it's definitely a good venture investment. It was a good use of venture capital dollars. It was a worthwhile endeavor. An entrepreneur pursuing that should get funded. They should get funded by the best, and we should do everything we can to give them the best odds of success.

Peter: And have another partner be on the board.

Chetan: I joined right before our 9th fund, so I've been here through fund 9 and we're now deploying fund 10. Most of it is not analytical. I would say that if you just look into it, there are going to be some bad investments that come out of it, but it doesn't mean that we have gone through the process and look back at how we made those decisions, it's exactly what Eric was talking about. That was worth a shot. That was worth the effort.

Ben: The pivots validate why you can't be super analytical. Did you think that the game was going to become Discord?

David: You guys have the best pivot.

Eric: Discord, NextDoor.

Miles: Docker in some ways is a business model.

Ben: It's like Uber learning from Lyft's discovery of the UberX model. That's the business.

Miles: It's like you have some stalling theories and you get in the mud.

Ben: It always is funny reading my old investment memos. I've only been doing this for five years, but I don't think I could have predicted how wrong I was about what the businesses would ultimately go on to do when you're doing this ridiculously early-stage stuff.

Miles: That's why we don't write memos.

David: Right. There are no artifacts of my stupidity.

Peter: We don't do portfolio reviews. At least these people try to do portfolio reviews, and I don't show up. I do remember one attempt at a portfolio review a while back, and it was the apex of the failure of Benchmark. I think I have one of those in my portfolio now. You guys can guess.

Kevin Harvey said this one has the dual benefit of being a bad idea poorly executed. It turns out that a bad idea well-executed is a problem because then you give it more money. Or a good idea poorly executed hurts because you think, oh. We can think of companies like Friendster and think, oh.

David: It's so true. Those are the second best investments in venture. Clearly, that was wrong. It's the middle ones that are [...].

Peter: I love Norm MacDonald's jokes where he was trying to explain the fact that you get in front doing a stand-up—[...] has already died, of course—and nobody laughs. He says, then I start laughing to myself. He's like, here I am, these people have paid money. It's a whole thing. I just did this thing just to make them laugh and nobody laughed. We have a few of those.

David: That was the early days of Acquired.

Ben: Can I ask? I had a really dumb question prepared that we sent over, and I want to try and ask a smarter question.

The dumb question was to maximize your chances of getting that great decade-making company in the portfolio, double the partnership, keep the same number of board seats, and raise twice as much money. That way, everyone's managing the same amount of capital that they are now on an average basis.

But I would ask the opposite question. If the thing that makes this all work is the fact that all of you can be ridiculously focused and say no to most distractions on your time, could you raise less money and have a more concentrated portfolio?

Peter: I've thought about this and I think it's an interesting provocation. There's the extreme, of course, which is to raise no money, just go on the boards, and say, we're tired of the hack.

This is a funny story because you say, okay, oh, it's nice to meet you. Imagine dating and then you have a relationship. It's like, by the way, a bunch of people I don't really know very well and you definitely don't know are going to be moving in. They're going to take up about 20% of your cap table. They're very decent people.

David: We do work for noble causes.

Peter: It's like, woah, why are they on my cap table? Because you get to work with me. But I didn't choose them. You kind of did because I bring them along wherever I go. They're unpacking their stuff right now in your basement and they're going to have more equity in this company than your VP of sales or your VP of engineering.

That doesn't seem right. You play with this idea. As an LP in Benchmark, there's a limit to this when you take this idea.

Ben: GP, I think.

Peter: As a GP, yeah, but I think this interesting construct is what's the residual value that is separable from the capital?

Bruce used to joke, we can pay a higher price because we add more value, but we could afford to pay a higher price and get better terms if we have more value. It's a joke, but the point is the same, which is that we've confused these two things, capital which seems to have been free. Now, it's not free. They may be fused again in capital and partnership.

David: You guys have done some deals where you put no capital in.

Peter: There have been examples. There's some awkwardness to talking about it publicly. One of the ones that's probably a good example is Tinder. Barry Diller said, what do you want? It's like, well, we want equity in Tinder.

Eric: He's like, shut up. What do you want?

Peter: We want equity in Tinder. Barry is like, I don't need cash.

David: I'm just imagining me being the fly on the wall of Benchmark negotiating with Barry Diller. I would pay a lot of money to watch that.

Peter: It's more bizarre than your imagination can allow. Go there and then go past that, and you'll get close.

This question of can we decouple is something that I look at as the residual value of the firm. Are we generating multiple equity points for a contribution? I think what I would love to know as our best reference is what a founder is able to say, I look at my cap table and I look at where the equity went.

This is what burns me. There are a lot of people on that cap table who will say they bought a ticket versus they made a huge impact on our total success. That's equity. That was the best return on my allocation of that equity.

Every time you're taking on dilution, you're asking that question of what's the return on that on that allocation? A lot of times, the return is 100% towards the person who got on the cap table, not the other way around. That's what I think. Maybe there'll be a model where we're not going to be CAA where we take 10% and all that, but with the capital light, you could raise less? Why not?

Ben: I bet if you raise $400 million in your next fund and you have five fewer companies, your scoreboard number, that multiple, could go up.

Peter: At the last discussion, they're like, we're going to do it with the same-sized fund. I'm like, why don't we cut it in half? Others will say we're becoming irrelevant.

Ben: It's so different from what they say now.

Peter: Anyway, we might one day. Who knows?

Chetan: If it's $425 million, go down at $200 million.

Peter: Was it $40 million per partner per year?

David: The old Benchmark website.

Ben: That was such a good line. "Other firms are overfunded with over $20 million per partner of capital."

David: The Wayback Machine is such a gift to humanity.

Okay, last big topic. We asked a lot of folks in the ecosystem what they want us to ask you. We're the vehicle for that. Universally, everybody responded that they want to know what is the process, what's involved, and how do you think about who's taking the next seat at this table? How does that work here?

Miles: I think it's 250 hours of board meetings together.

Chetan: Right. It's a 10-year-long process. You have to serve on the board with one of us, we're going to watch you grow, and then we say, that person would fit in here.

Miles: You would think Mitch was an exception. Bill and Mitch had 200 hours of board meetings together maybe.

David: Eric, you're the only one who didn't have to go there.

Chetan: I was just joking.

David: I know, but it literally seems to be the model, serve on the board with a Benchmark partner.

Ben: And how you get to know people and build really deep relationships is you need to go through [...] together. The [...] can be the company is going really well and we have to react to a super-dynamic environment, but getting coffee every once in a while is not a great way to get to know should I take someone on as my spouse effectively?

Eric: I think that's right. Actually, I was just thinking about it because it's been different for everybody.

The story with Peter is he was repeatedly showing up competing for investments that Benchmark—before he was here—was working on.

David: You were walking out the door as they were walking in.

Eric: Yeah. And that's telling. The story of Miles is Miles was there before. He invested in Benchling and Supergreat before us and was early on Airtable at the same time. That's a really important signal. Chetan worked with Peter on the board. Sarah...

Sarah: I just glowed.

Eric: Sarah and I think had no professional overlap in that context.

Peter: Who made the first phone call issue? I've lost track.

Ben: I'm like, I don't think he's lost track.

David: I don't think Peter loses track much.

Peter: I think the way in is something that's common. What we've heard from the people we've recruited—and maybe Eric is an example of this—is that they don't want to join a venture firm. The only firm they could imagine being at would be Benchmark. It's the last job you're going to take, so there's this underlying love of the craft. It sounds a little romantic, but it's intended that way.

I left Stanford Business School embarrassed that I went there maybe at some level. I dreamed about getting a job at Benchmark. Bruce canceled his meeting with me, and then I waited. Another time, he was late and he sent me a handwritten note saying, oh, I have bigger things to deal with. Basically, it's what the note said. And then I think he gave me a T-shirt.

Seven years passed. Typically, I sent him a note, saying, hey, I'm working at Excel just to see if I could catch his interest. He said, good luck.

David: Did that motivate you?

Eric: Don't you know Peter Fenton?

David: I feel like I do.

Ben: Was that printed out on your wall?

Peter: Kevin and I went on the board together at a company that was not particularly successful. I was wondering, why is Kevin doing this investment? It's [...] say about Benchmark. He later confessed that he felt the same way.

Then, you get to work with the firm. There's something that I would say is underneath it, which is the totality of I would do the job even if I didn't get paid, that sense of all-in, and this is a craft. And I am so oriented toward that.

When I first met Matt in 2005 around the time he presented Facebook to us at Excel, you knew immediately that he was going to be in the venture business. There wasn't like, maybe one day, no. Matt was going to be a great venture capitalist because the single most important thing we have to do in our job is to partner with, earn the trust and respect, and earn the ability to be a partner and a guide—in his case, to both Reid Hoffman and to Mark Zuckerberg. You think, okay, he's overqualified at some level because these are giants of our industry. If you're doing that, you're really close to one of the greats.

You were doing it with Ben at Pinterest. I, of course, knew about Sarah because we both tried to invest in GitHub. That's a funny story, maybe for drinks later.

David: If I remember it right, another firm did that at a very high valuation. For a moment, that seemed crazy and was actually a good idea.

Ben: It was $100 million or $750 million, but at that time, that was the first institution of capital.

Peter: There might have been some secondary selling. One of the things I found is that when there's secondary selling, it does tend to clarify people's interest in the price. [...] selling because of the equity on the cap table, but when you're selling your own shares, you start to get really focused on we're not running an auction, but this is the highest price. All of a sudden, that seems to be the right answer.

Anyway, the point is that we orient towards extraordinary, so to get close to Benchmark, get close to extraordinary. Who were the best entrepreneurs? Build that rapport and relationship. The single best thing that we can see is that you've earned that trust and respect to be a confidant and a partner to the great ones. Or serve on the board with us with one of those entrepreneurs.

I guess there are some self-serving interests. We could say send us your best investment. That will help, but our responsibility is to be the best introduction that you make if you're looking at a great company. If we fall short of that, we deserve to be told and punched in the stomach.

Ben: Maybe ask a related question which gets to Eric. This is what we love to do, wake up, and focus on every single day. If each of you has a bias on things you're obsessed with, like Chetan, you wake up in the morning and you look at net retention rates. I'm trying to come up with some boring enterprise software things. Chetan just eats, sleeps, and breathes sales kickoffs.

Chetan: This is getting better for me.

David: Chetan is so far underground right now.

Ben: He showed up. I'm really grateful for it.

David: He's here. He came all the way here for this.

Ben: There are probably a dozen people on a shortlist that you're like, gosh, we would kill to work with that person. Ultimately, a factor that probably needs to be there is a thing that they're obsessed with that we need on our team at this moment in the technology industry. Is that part of the calculus? Do you look for where we need additional strength?

Eric: Loosely. I thought about it, and it happened. It wasn't intentional. When I joined Benchmark in 2014 at the end of the Fab Four era or whatever as you called it, the partnership, the four were predominantly consumer investors. Peter was working on Twitter at the time. Obviously, Bill with Uber, Mitch with Snapchat and Discord, and Matt having just come off Instagram among others.

Ben: All of those you just listed were ridiculous.

Eric: It's ridiculous. You join that group and in a way, it was just the perfect time for someone who had some enterprise exposure. Then, lucky enough, the first investment that walked in the door was Confluent.

But now, if you look at the group, it's almost turned in the sense that there's a lot more enterprise heaviness. That wasn't intentional. It didn't come up, but it happened over time naturally. I think this is just a big element of Benchmark overall, which is the entrepreneurs lead the way and the markets lead the way. We're following that in some sense and hopefully seeing it in conjunction with the market evolving, but it's less intentional.

When Chetan joins and does Modern treasury as an example or Sarah joins and does Chainalysis, that wasn't intentional like, oh, there's this big crypto thing and Sarah is an expert in crypto. I don't think she knew anything about crypto at the time, or maybe she knew a little bit, I don't know, but that wasn't part of it.

I think the firm evolves. If you go back even further, obviously, the firm had semiconductor expertise. We have no semiconductor expertise anymore.

David: Like you do.

Eric: I have a semiconductor investment, a different thing than having expertise in it. I think the market takes us and entrepreneurs take us.

Peter: We make a mistake repeatedly—probably once a week—in the portfolio of confusing phenotype and genotype, meaning we hire people because of the phenotype that has been expressed or because they have experience in areas X, Y, or Z. Underlined genotype doesn't actually get our attention, so you would tend to lower your selectivity when someone has some background of relevance.

The issue that you're seeing at Benchmark today is a question of wait, where's the equity value being created? Where are the $10 billion–$100 billion outcomes of the last 7–10 years? Consumer has been a little more ephemeral in that regard or a little harder to capture because of the incumbency effects. What's going on in the phenotype of the firms that may look tilted to the enterprise?

I can tell you that the genotype is we are total generalists. I can say very explicitly, I think that somewhere between AI, crypto, and not AR or VR—sorry for the future areas—don't have the incumbency of some of the traditional network effect giant trillion dollar market cap companies. Our genotype is such that we will then go populate those arenas and you'll see us become what looks like experts in those areas, but that's not who we are.

Is our next partner likely to have some background and experience in an area with high disruption? Absolutely, yeah. And it'd be great. We got Cohler to join the firm at still the beginning quarter of the social offer. Who knows? You could say the issue with a social offer is we have a big problem with incumbency and distribution being constrained. On top of that, the capital was at least for a long time limitless. You're looking at things that are little increments at the end.

Feynman complained about this in physics, which is if you came 30 years after the theory of relativity, you were cleaning up the mess, whereas the people there the first 3 years look like geniuses even though they're third-rate physicists. They're working on first-rate problems. We can be first-rate or whatever working on third-rate problems if we're not in areas of high disruption. What are the areas of high disruption right now is something that we obsess over.

David: But you don't think about it as we need expertise in that area.

Peter: I think the genotype is we want somebody that is roving and curious. There's no great venture capitalist in my view that isn't aspiring to be a wide dynamic range. This is why Eric is going to become one of the great consumer Internet investors of the next decade. No pressure, but John Doerr, Mike Moritz, and my former partner, Jim Goetz are the people who showed that you can do both because the underlying connection with the entrepreneurs is not so different. There's a similar gestalt. Chetan's next to them. He'll probably be there in the internal dynamic.

David: Chetan's still going to be the sales kicker.

Peter: Sarah crossed the line with SaaS.

Miles: Even if you look at the greatest companies—Amazon, Microsoft, Shopify, Adobe, and Square—they're all crossover. Even if we took something of high disruption like AI, what's happening in generative media and large language is unbelievable.

Ben: Right. Our LLM is just going to be a consumer thing, absolutely not.

Miles: Exactly. The first version of it might be something like Jasper which is actually a B2B product, but there's a really interesting opportunity. What version of the Twitch relationship that starts to form in a parasocial relationship is with a bot potentially, an artificial character that has a relationship with you. Is that a consumer thing or is that an AI thing?

David: We just did an LP episode with Mutiny. They're using DPT-3 to generate a landing page.

Eric: The founders and entrepreneurs know the product. They know the technology. That is the thing they bring. That's their invention.

Chetan: And they've discovered the insight.

Eric: They discovered the insight, but there's a whole bunch of things that come to turn that technology into a product and that product into a company that's really valuable. That's the part that we can partner on.

Chetan: How many success stories are there in venture and even through Benchmark's history of that market was dead, that market is done, that market doesn't exist, or that market isn't real?

David: That's the best time to invest.

Chetan: Yeah. It's like the founder figuring something out.

Eric: And having that insight. That's the part where you're sitting in the meeting, you're three minutes in, and the founder says something that you've never heard anywhere else. Nobody has said it, nobody's put a blog post down on it, it's an insight. That insight is the magic.

Chetan: That's honestly how it should work.

Miles: That's why I think I would like to say there's a specific set of experiences one needs. [...] thesis-driven. I don't think anyone here is terribly thesis-driven, but we're very change-aware. There's the question of pulling the curiosity and roving into it, not like with physicists with a set of rules we've got to check or a net dollar retention that's got to be assigned.

David: In my prior life, I was trying to do that for a living. I totally agree with everything you're saying. You guys vote with your feet. You only have one of those moments in the first three minutes of a pitch once, twice, or maybe zero times a year. The rest of the days can get depressing.

Eric: No. You can learn something in every moment. The amazing thing about the job is every day, people come in and talk to you about something they're experts in.

Miles: Or you can help someone who is great. Maybe you don't see it entirely but someone who's fantastic can help them.

Eric: They'll teach you something and you'll learn something. You'll just ask questions, they'll tell you, and you'll learn.

Peter: There's a firm that shall remain nameless who came in. They said, why don't you have a clock on your wall? I'm like, I don't know. Because then maybe we're in a meeting, we'll look at it, and it's not so good.

This person said, no, we move all our clocks six minutes forward. If it's a bad meeting, we can get out. That's a good way to deal with it. We didn't do that. People suggested this. Anytime you go to a venture firm, check the clock on the wall, look at yours, and then you know are they playing the game?

Ben: I was looking at it earlier, and David and I made a comment to each other that is a really subtle way to put a clock in the room, but it doesn't work.

Peter: Oh, look. It's 2:30 PM. It's time for dinner.

David: We got to ask before we go. Another thing we can't let go, what's the purpose of the principal program?

Peter: To honor the statement that false consistency is the hobgoblin of little minds.

David: Okay, you got to unpack that.

Ben: God, Peter is just on another level.

David: You all are deeply committed to the equal partnership model clearly.

Peter: We don't have principles, so we have principals.

Miles: I think it's a way to surround ourselves with a person who we want amongst us all who pushes us and challenges us as well.

Peter: Maybe I'll loosen up the response. We don't know what we're doing. Blake is amazing. When you meet Blake, you want to work with Blake, so you find a way. Is it a program? No. Mile's got a British accent. It's a little hierarchical, so he should hire associates. I don't want to work with that associate. Bless his heart, but remember when you called him my junior partner or baby partner?

Blake is amazing. You meet Blake and you say you find a way. It's been a pretty good launchpad, it turns out, for people to come in for our non-principal principal program.

David: The principal, you don't talk about it [...].

Peter: Yes, because we don't want to have false consistency. It was [...] who said or was it Emerson? It's exactly right in that when you have a little inner fundamentalist, you need to have a conversation with that person and tell them to calm down. Now, that doesn't mean we're going to have eight partners and a growth fund. There are hard lines, we just say, but this is getting closer to people who embody our values but at a different stage in their careers. That's okay with us.

Ben: You have to break your rules when you find an extenuating circumstance.

David: Maybe this is an institutional version of this. The times in my life when I've held too tightly to something is when you're effed. Is this a way to hold tightly to the thing that's a core value of the firm but not too tightly?

Eric: I think we should call it a fellow.

Miles: We're constantly oriented to special people. Sometimes, there's a special person like Blake. I'd wanted to work with Blake for quite some time and I know Sarah had to, so we said, Blake, do you want to come work together? Let's do it.

Chetan: I would say that we don't have associates, but one of us may hire an associate. We don't have principles, we have a principal, EIRs, and venture partners. You're trying to figure stuff out.

Ben: You don't do growth-stage investing, but you guys did Dropbox.

Chetan: You come to the table and you say, I want to do this. I want to go explore this area, I want to go work with this person, and you just figure it out. It's not always straightforward because people have their own constraints. You're trying to fit their own model of how they can engage with you, so you just figure it out.

Eric: None of that should violate the authenticity of what we do and how we interact with people. I think that's the biggest thing that we have to be protective of, and that is what we're protective of, and the relationship we all have and how we work together as a team, we preserve that more than anything else. The fees are to be used for exactly those kinds of experiments and those types of trials. You can do anything you want with that.

Miles: I think this is the longest discussion we've had on the idea of the principal program.

David: We're here to provide value for you guys.

Chetan: I also think about how we think about EIRs. Eric can work with Josh at Benchling, and Josh was going to leave Benchling and just explore ideas. It was like, okay, well, why doesn't he just come to hang out with us and explore some ideas? We call it an EIR.

I knew Ravi from Heap. He had left Leap and wanted to explore ideas, so I brought him in. Those two knew each other from prior lives. They were like, oh, we're both at Benchmark exploring ideas. Why don't we share ideas that we're exploring? Then, they decided to start a company together which is Airplane, in which Eric is on the board of.

That wasn't like we have this thesis. We need to go attack this thesis. Let's go recruit some EIRs. Let's set them up. None of that. There's so much beauty and amazing things that can come out of just organic development. Opening yourself up to organically finding cool things is, I think, ultimately the goal.

Ben: Yup. All right, what did we get wrong in the episode? What could we have done a better job at?

Chetan: I'll start. I think one of the things that you all talked about on the episode was swimlanes and areas of focus.

Ben: I got to say that it felt extremely weird to be naming each of you in that episode. When we did our Sequoia and Andreesen episodes, these things were about firm strategy, institution building, programmatic, and thoughtful. Then, we got to the end of the episode and I was talking about each of you as individuals and articulating things that you care about and invest in.

On the one hand, I'm like, I feel gross. This feels really reductive, strange, and pointed. And on the other hand, it's the point of Benchmark, that it actually is just about you as humans and not about this institution and strategy.

Chetan: Right. If you look at it, even when it was Bill, Peter, Mitch, and Matt, if you just look at the work that they did, they were all generalists then. Peter was doing consumer in deep developer tech. Matt was working with consumer companies and he was on the board of Duo and Asana.

Miles: An AI company.

Ben: No swimlanes.

David: You're all in the pool with no other lanes.

Chetan: Yeah. And if you just look at the kind of companies and ideas that we're bringing to the table on Mondays, that's the thing that you see. There's a lot of encouragement around the table, which is if you're interested in something and something is really hitting you at the moment, just go for it. Go meet all the relevant people, bring them in, let's all learn together, and let's figure this out. It's never the conversation that I've seen in other places, which is like, woah, stay in your sector.

Eric: I went on a drone kick and definitely, Peter was like, stop it.

Peter: The only way to kill the conversation about drones is if we brought in Dedrone.

David: Is that shooting down the drone zone?

Peter: Eric was like, okay, I got the point. We didn't do that. It has probably done pretty well.

Ben: All right, other stuff we missed?

Peter: When you look at anything from the outside and you were there, you can't help but say, oh. Actually, books are written because journalists tend to write the story from the perspective of a loner who's projecting this Shakespearean plot of if I was there, what was the intention?

I read these books about us at Uber, Twitter, or WeWork. I'm like, it was so much more interesting. You guys did a remarkably good job of capturing the essential primitives of the firm. I don't know if it's interesting to the people, but it is right that this deep commitment to quality that Bob feels permeates to this day through everything we do and from the way we treat our people that aren't in the investment team and to the notion that we book most of our own meetings. We do see ourselves because we're not below anything or above anything.

I think that that's the through line that you captured so well and I think it was, as you say, asymmetric. Was it in reaction to the era's leading venture capitalists? I don't know, but I can tell you that there was a humanity to it. That always felt, to me at least, something you really want to honor. If Benchmark's anything, it's that we're available, we're flat, and there's no arrogance. You guys got to the central core of that.

That comes really from Bob's history. As they say about our companies, the founding two or three employees set the culture and it doesn't change unless there's some catastrophic event where it has to get reborn.

But good luck with Elon at Twitter. That culture was set in motion and its root system goes so deep. We'll see what happens. I'm very interested. It's a good lesson. If it does transform, then that's an example of one form of transformation. If it doesn't, then you'd say, okay. Believe me, people have been trying to [...] up the Benchmark culture. We haven't done it yet, but we're trying.

David: There's been a lot of discussion in the Acquired Slack about why have you guys not covered Elon and Twitter. We're like, no, that's not what we do here. We're not the TMZ of Silicon Valley.

Peter: I have eight years of experience there.

David: All right. We should end it on that now.

Ben: Yeah, thank you all.

With that, listeners, our thank you to Fundrise and Pilot.

Oh, so fun, David.

David: Man, what a special experience. Thank you to Benchmark Partnership too for inviting us and doing this.

Ben: Having a pretty candid conversation with us was not what I was expecting going in.

David: They're great. They were very gracious hosts.

Ben: Yes. We'd love your feedback too. Please chime in at acquired.fm/slack. Come hang out with us. Please take the survey. It only takes three minutes and means the world to us at acquired.fm/survey or clicking the link in the show notes.

Get your raffle ticket in for the AirPods Pro. We'll have 1 winner and 10 more with some sweet T-shirts from the merch store. You can get a hat there.

David: What's more valuable, our Acquired T-shirts or AirPods Pro? There are a lot of AirPods Pros out there. There are not a lot of Acquired T-shirts.

Ben: It's actually a toss-up from an expected value perspective. Do you want to enter to win one set of AirPods Pro or one of 10 T-shirts? It's pretty neck and neck. I don't know the exact AirPods Pro’s price.

David: The good thing is you are automatically entered for both, so you don't have to choose.

Ben: You are. That is the good news. On the merch store at acquired.fm/store, we also have a dad hat that is a limited edition in part because that is the only way we could embroider it. I wanted them to be great hats. You can go and get that just for the next couple of weeks, so make sure you get your order in if you want one.

David: This is how we know that you are not a dad because you're actually caring about the details of your hats. Once you become a dad...

Ben: You show up wearing appropriate hats whenever we go visit various people around San Francisco. I often see you in their merch like it's a premeditated decision.

David: It is, but that's without the kid. That's true.

Ben: All right, LP Show, if you want to listen, the episode with [...] was awesome on the B2B Profitable Growth Playbook. Her story is super impressive, so check that out by becoming an LP at acquired.fm/lp or searching LP Show in the podcast player of your choice.

With that, listeners, thank you. Thanks to the very good people at Benchmark. We'll see you next time.

David: We'll see you next time.

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