E78: Why Benchmark is Different Than Other Firms with Sarah Tavel & Eric Vishria

Welcome back to Turpentine VC, the podcast where we discuss the art and science of building successful venture firms, VC to VC. This week, we're sharing my live interview with Sarah Tavel and Eric Vishria, 2 of Benchmark's general partners. We talk about Benchmark's disciplined approach to venture capital, their minimalistic business model, investment philosophy, and discuss why true moats are often more complex than they appear. Since this was recorded in November 2023, Benchmark has announced a $425 million fund in 2024. Please enjoy this rare glimpse of how Benchmark operates.

Sarah, Eric, welcome to the podcast.

Thank you for having us.

Thank you.

So we're here today to announce some big news. Benchmark Growth. Oh yeah. Seed accelerator. We're doing it all.

Credit. Yes.

You guys have been holding back for 20 years, but this is the moment for us to talk about it.

And the investment banking division.

Yeah. Yeah. Wealth management. Yeah.

We're actually going public.

This is the next step. And international.

What took you guys so long?

You know, when other people are zigging, we're zagging.

So, yeah, people are consolidating and now it's time to go big. Speaking of, in this podcast, we've been covering the history of venture capital, looking through a few different firms— Sequoia, Kleiner, Andreessen, Benchmark. When you think of Benchmark in the context of venture capital, in the context of history of venture capital, where does it, where does it fit? Like, how do you think about kind of the era in which Benchmark came in relative to the era in which other firms came in?

It's the history is super interesting because, and I think it's actually reflected in the culture of various firms. If you, if you think about it, a lot of the original venture capital was when semiconductors were huge and like there was a lot of innovation happening there at the very foundational level. So if you think of Sequoia, for example, it's a, that's a semiconductor era firm. firm founded in the '70s. Benchmark is distinctly an internet-era firm founded in 1995. And then you could kind of fast forward, and Andreessen's like a, I guess, mobile-era firm, you know, founded in whatever, 2009 or 2010 or whatever. And, and so they're, they're all, they're all kind of reflective of that, of those eras in terms of, you know, you, you can kind of think of Like, what did it take to be really successful in those businesses? And to be really successful in a semiconductor business, you need to be very operationally rigorous and you need to like watch every penny and you need to be extremely financially oriented. And to be successful, I think in the internet era, it was a lot more forgiving that way. Like financially, it's a lot more forgiving. And so you had a lot more flexibility to let founders dream maybe. And, and you don't have to watch every penny, but you do have to like hyper-focused on growth. But, you know, it's a 1995-era firm, so we're coming up on 30 years. Um, and, and I think a lot of those attributes still exist today.

Yeah. I might add a couple other attributes that you just make me think of, which is like firms, even, you know, you see this in startups, like you set the bones of a company so early on, the culture, the orientation, and then even when it starts as a couple people and expands to thousands, you still see that early DNA. And it's very true. And then I also think about the year, the vintage that a firm has started, right? Like Benchmark was started internet era, but before it was—

The beginning.

The beginning, like where it really expanded. And then, you know, the firm was started then as if you are, thinking about that early-stage founder who is going to be going on a decade-long journey, what's the firm that you would design from that person's perspective of bringing on a partner?

Yeah.

And work backwards from there. And then when the craziness happened of, you know, the internet bubble, and, and after that Benchmark expanded, as many do during times like those types of bull runs, and then, you know, then kind of realized, came back to the knitting. And I think about some of the more recent firms too, where the firm that starts today, it's going to be very different than the firm that was started 10 years ago and very different than the firm that was started 25 years ago, just because of the capital environment too. And so it'll be interesting to reflect on that 10 years from now and see, see what's emerged.

Yeah, some firms that have aggregated a ton of capital over the last decade, it'll be interesting to see if they too sort of consolidate or narrow, or if they just keep you know, going to the moon. But you guys have transitioned very well to next eras. When you look at the most iconic mobile companies, people think what? Uber, Snap, Instagram, Tinder. I'm sure there are others that you guys have done. So what do you think about is like the Benchmark DNA that has enabled you to succeed in multiple eras?

I mean, when I think about, there's a couple things that come to mind for me. Like, you know, of course there's just the endless curiosity and that we, I think we all try to nurture in each other, and we have habits as a firm that are ingrained in our culture that are all about nurturing that curiosity and just not constraining it in any way. Like our Monday meetings, as an example, there's no agenda. It's not like, this is the time to talk about new projects, this is the time to talk about existing portfolio. It's just this open-ended thing that lets us— you know, start the strangest conversations sometimes, but are all about pulling the thread of someone's curiosity, expanding it, and see where, see where that goes. And then the second thing that I really think about is just that the joy that we all feel partnering with founders. And there is, there's nothing like that work. You know, I, I met with a founder the other day and he's like, oh, you must be so exhausted. You're just hearing pitches all day. And I was like, That is not my experience at all. That's not our experience at all. Like, every time we talk to a founder, it's just the delight in hearing the future that they see and imagining together, like, how that journey is gonna look. And I think we all feel that joy, and then it really manifests in the type of partnership that we wanna have with the founders we work with, which is like each of us making 1 or 2 investments really a year. and having the deep commitment when we do partner of what that work looks like and doing the shoulder-to-shoulder stuff of recruiting, of company building, and being really enmeshed in that, in that like whole organization so that we can be the best partner to the founder. I think that's one of the biggest things that you feel, at least in our partnership meeting, when we're talking about company building and the companies that we work with and the founders that we want to partner with, is that. that joy and delight in that partnership.

What makes Benchmark Benchmark is the, the 5 equal partners, or now 6.

Now 6.

Now 6.

As of like a month ago. Yeah.

Which we'll talk about. No platform team and just consistent fund sizes and focus, you know, fund after fund. Um, at a time where lots of other firms have aggregated, you know, lots more capital, lots more practices, um, or firm products. You guys had a stint where you, uh, sort of went bigger. Talk about what you learned from that. And do you think that that just wasn't the right fit for you or what the firm learned from that? Because I'm curious, given all the opportunities, even, you know, your success has enabled you, what would need to change in order for you guys to say, hey, actually, we should do something a little bit different, even though we've been doing the same thing for, for such a long time?

I think we, we're always asking that question, actually, is— and we think of every new partner as an opportunity to refound the firm. Um, and we think of it as a refounding of Benchmark. Every, every new partner is an opportunity to do that. Um, and so I think, you know, you always have to be questioning your assumptions and are you doing the right thing and everything else. The expansion of Benchmark that had happened in the early '00s was well, well before Sarah or I were there. And even the expansion and contraction happened before. But if you talk to the founders, you know, it kind of makes sense, like The firm was founded on this idea of an equal partnership, which is like it was originally 5. They came in, a dollar comes in, they split it 5 ways. Doesn't matter who has the board seat. Everyone owns the management company equally.

Yeah.

Everyone has equal economics. There's a lot of good things with that. It gives you a lot of flexibility in terms of who you can bring on because you're cutting someone in equally in economics. And so it's lucrative to the unproven venture capitalist. It kind of eliminates internal politics because you're not jockeying for additional economics or more control or whatever, or trying to get your deal through because everyone has equal skin in the game, so to speak. It's, you know, 5, 6 people, like, okay, you can have a lot of, a lot of trust and affection for a few people and you can work together really well. But if you have— you can't have 15 equal partners. Like, you know, humans need management at some level of scale. And so just It doesn't scale. Like, it's just the reality of it. And I think one of the things that happened in the expansion is that just kind of showed, which is like, hey, we're, you know, the founders would say they were spending a bunch of time on stuff they like expressly did not want to do, which was managing a firm. We spend almost no energy managing the firm. We like literally spend no energy managing the firm. Yeah, it's, it's, it's horrific how poor we are at managing the firm, actually, because We're spending 100% of our time, you know, with entrepreneurs looking for the next great company, working with the companies that we are already working, committed to. And that's where all our time goes. We spend almost no time fundraising, like literally no time fundraising. And so like a lot of these other aspects of the job, we just don't spend any time on. And, and so I think that's one of the advantages, but it also is— it has an express constraint, which is it doesn't scale particularly well.

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And is it fair to say that the firm, the best firms that are scaling venture, that they might make more cash, but they will just make How do you think about like the trade-offs? I don't know.

I haven't really thought about their business model that much, to be honest with you. I think, I think they have put in structures in place that are probably more hierarchical, that allow like, that look more like companies than they do like firms. And they're hierarchical and they're CEOs and they're managing partners and they're people who have decision-making authority and whatnot, which is, which is great. You know, I think it takes all kinds, but it's, it's definitely different. We would utterly fail at that, and we're not well equipped to do that.

And I'd say certainly, like, our aspiration is to set the high watermark on multiples. Benchmark has a history of having done that. We wake up every day paranoid that we're going to— how do we out-hustle, outwork whoever it is that we need to do so that we can be there in front of the founder who's going to build that next iconic company. And that's, I think, the paranoia we wake up with every day is making sure that we're going to be in the room. Yeah.

It seems like the flood of capital in the past decade is challenging for your strategy because prices go up, these undisciplined firms perhaps. And so, um, for the same deals, you either don't do it because the price comes up or you just have to pay a higher price. Feel free to— how would you respond to that characterization, or how do you guys think about macro as it affects your business?

I worry about that a lot less, actually. It's kind of interesting. Sure, there's inflation. Like, inflation's real. Our initial check size, I'm sure, has gone up and so forth. But the reality is outcomes have gotten bigger.

Yeah.

So, you know, from a multiple perspective, I don't, I don't know that it is as constraining as it might seem on the surface to do that. I think we can still generate you know, 20x, 50x, 100x outcomes for our investors and have those runaway companies. The key is being with the runaway companies.

Yeah.

I think one of the really special things that makes Benchmark Benchmark is that the level of commitment that we have to have internally in our own minds to work with a company. We were talking about a company this week, actually, literally this week, that's like very exciting and a really great entrepreneur in a cool space, but maybe a space that we know less about. One of our partners, Miles, is just like, you know, if we were in a place where we would do a participatory check, like, this would be one that we— but we don't do that. And so because we don't do that, you know, if there is a company, the commitment required, forget about the money, but just like mentally, you're kind of saying like, I'm going to work on this for the next decade.

Yeah.

And I want to work with this person for the next decade and like really work with them. And it's going to be one of the, I don't know, 15 shots I take over a course of a decade.

Yeah.

Like, that's a pretty, like, reasonably high standard that you're holding yourself to in terms of the conviction that is required. And so I think that's where it, it like, it kind of manifests.

Yeah. So it's you two. It's, it's Chaython, it's, it's Miles, it's Peter.

Yes.

And it's your newest partner, Victor.

Victor.

And this is the 3rd era of Benchmark. Talk about the other 2 eras and how this era compares.

So I'd say like, how does it compare? Is maybe I'll work backwards is I think it's startlingly similar. Yeah. It's a small group of people who like each other and like to work together and call each other and talk to each other often. We have a very like pass-the-ball mentality. So, you know, Sarah sees a company that she thinks is interesting. While she starts to do work on it, she's very likely to pass it to another partner to meet and, and engage with and start pulling up questions and diligence and everything else. It's a very kind of collaborative culture that way. The group has a lot of fun together, and I think the esprit de corps of that yield better outcomes. Like, just, you know, you're, you're talking about how to help someone, help an entrepreneur, like, work through something, and then you're kind of pulling on all these stories continuously. And then, you know, the history of the firm is kind of interesting because the founders— to me, the biggest leap that the founders made wasn't founding it equally, which I think you can say, like, founding a firm as equal partners was like, how do you cut it up? Okay, like, great. But they had tremendous success right out of the gates with Benchmark I, with eBay and—

Ariba.

And Ariba, and many others. And the big leap, I think, was the first next partner that they hired and bringing that person in. So they had built all this brand equity, they had built, had generated returns, they had done the initial LP raise, which wasn't easy actually for Benchmark. It wasn't hard, but it wasn't easy. Then they brought that next person in as an equal partner. And that to me was the moment that kind of set the tradition for the go-forward. And it's something that everyone here is always super conscious of, even when you're bringing on a brand new person. When I came on, I had no investing experience, like zero, literally none. And, you know, Victor, who just came on, was the CEO of a company, Wildlife Studios, a gaming company that he scaled from zero to hundreds of millions of revenue. And he has zero investing experience, right? And but he's like hungry and curious. And so I think those are the parts that are just startlingly similar.

How do you think about partnership construction? Right? Because you mentioned you had no investment experience, your newest partner had no investment experience. Sire had a bunch of investment experience as well as some operating experience. How do you think about you know, before you just recruited Victor, like, who's someone who we need to add to the team, or what is sort of the right combination of skill sets and personalities that makes a really strong partnership?

I mean, it's, it's something that we're, we're very intentional and thoughtful about because I think one of the things that you probably are hearing from, from Eric is like, yes, the job is an individual sport, but there are moments when you come together as a group where you really wanna construct a way of working together, a partnership where in that critical moment, and there are some really critical moments that happen in venture, you know, the moment of deciding, the moment of winning, and then of course supporting the company during some really important crucial moments. Those moments are when we come together and really believe that the firm is at its best self. Because we get to be, you know, larger than the sum of the parts, basically. And so when we think about then those moments, the sourcing, the deciding, closing, supporting, and then, you know, finally exiting, you know, and you think about on the sourcing side, on the kind of top of funnel, like, well, where, where do we not have a lot of exposure right now as, as a group? You know, you think about the deciding part, like, how is somebody's— perspective going to come to the table and bring, you know, make us all better? Maybe somebody spikes. We all have different ways in which we spike. So does somebody spike in business model analysis and kind of the people relationships and in the empathy for the founder, whatever, whatever it might be? And then you kind of think through that all the way down. So you have like a little bit of context awareness almost when we're having these conversations. And then ultimately, in the same way that It's a bit falling in love with a founder and a company. When we meet it, there's something that ends up just feeling right when we, when we meet somebody and develop a relationship with them. After me, there was Chetan, whom Peter was on the board of Elastic with. Miles was on the board of Benchling with Eric and, and SuperGreat with me. You know, Victor is the CEO of a Benchmark company, and so we got to see him through a few years of of him being an act— you know, the operator of an investment of ours. And so we get these moments of, you know, a moment that you lead up to where you make a decision 'cause you've fallen in love, and it has that, the depth of relationship usually, and also that context awareness.

And so is it more bottoms-up, hey, we just have to have this person, or is it somewhat tops-down of, hey, we're weak in this network area or weak in this sector, and we're comparing, let's say, Victor with other people who are kind of—

I, it's, it's, it's, there's no like one way, you know, but it has these elements. It's kind of like, you know, people ask, oh, are you roadmap investors? Are you thesis investors? And I would say like some, some of us will develop a thesis and certainly we'll see like an area that we believe is, is coming together so we can, you know, nurture a prepared mind. And then you just meet a founder and you didn't expect to be excited about that, that area or company, but they say something and you just see something you can't unsee.

Yeah.

And it's, it's a similar dynamic.

So you guys are poachers. Uh, you're gifted poachers. You know, as the investors you've mentioned, you know, Victor, you said CEO, Miles was at Thrive, Jathan was at NEA, you were at Greylock. Um, so you, you just happened to work with these investors. Like, hmm, they would be even better at Benchmark. Obviously you have a better offer than any other firm given how your firm's structured, but what's the process of like getting to conviction and, and sort of poaching? How do you guys think about it?

It's long and, uh, it's long and tortured and windy. Um, it's such an organic process because it, again, it's such a commitment, right? Something we, we bring on a new partner. I think when I joined, 6 years had gone by between Matt. Matt was before me and then, um, might've been even closer to like 6, 6 or 7 years, like between Matt joining and, and me joining.

So you were the bridge between the Between the third—

between— yeah, I think the beginning of the third generation maybe. And, and it's just an organic, long process.

Are you deliberately recruiting or like—

We're always recruiting. We're always recruiting. We spend time on it weekly, really. And part of it is like, what do you— this is where it's kind of amorphous and weird is like you're not recruiting to say like, wow, we need an enterprise SaaS infrastructure investor at this level. Like, you know, it's not, it's not anywhere close to that rigorous, right? It's that part of the job is perpetually meeting amazing people. And so you're kind of constantly trying to, to meet great people in the industry and super smart up-and-comers. Like, we spend a lot of time with, you know, 20 to 30-year-olds who are, are proving themselves and breaking out and making, making a name for themselves or building a reputation that of, of having huge impact and being really savvy. And so we're kind of constantly trying to meet those people. And then every once in a while you'll have a conversation with a CEO or with a fellow investor or with an entrepreneur that makes you think like, huh, the person might be really good, you know, and would fit right in and, and add dimensions to us, but relate and, and would be a good cultural fit. And let's explore that further.

Yeah.

And, you know, and then I'll be like, hey, Sarah, I met this person. Yeah, it tickled my fancy. Like, let's meet again. Um, and so it's kind of— it's, it's pretty organic that way in terms of process. It takes a lot of time, but it's, um, it's really rewarding.

Our friend Scott Belsky, um, who worked with you guys for, for a few years and, and remains good friends, of course. One thing that was surprising to him in a good way about his time at Benchmark is not just that you guys spend time talking about products and founders and spaces, but also that there was this kind of sophistication about what's happening more macro, what's happening in economy, what's happening in finance. And, um, kind of a funny analogy I'll make is this, uh, sometimes I see like some war veteran complaining about the direction the country has gone, or when I talk to older venture capitalists and they look at the past decade of venture, they're like, I can't believe it's been, it's been, it's been like this because you haven't been rewarded for playing the right way. And many people have, have been, I mean, many people have lost for playing the wrong way. But many people have also been rewarded for playing, I don't say the wrong way, but a little fast and loose or a little bit just sure, not super, not super, you know, fundamentals by the book. And so it must have been challenging for you guys or even just the past generation being so fundamental and by the book, or maybe having to stretch at certain times in an era where it was more chaotic.

You have to play the game on the field.

Yeah.

But at the same time, it's really hard to time these bubbles. I think one grounding thing that's really helpful I think anybody, it doesn't matter if you're an athlete or a musician or an executive or a venture capitalist or an engineer, you do your best work when you're doing something you love to do.

Yeah.

Like, if you love it, like really love it, love, love the job, love what you're building, what you're doing, the people you're working with, you'll do your best work. And I think that actually, that resolves a lot of problems, right? Which is like, in the sense that if you're like, I don't want to speculate. It's not in my nature. It's not fun for me because I get value and satisfaction looking at a durable company that is compounding year after year.

Yeah.

And I know that 10 years from now, it is still going to be here and it's going to be 5 times the size and making an impact to their customers and to their employees and to their investors. And I get a lot of satisfaction from that. I don't get a lot of satisfaction from Like, you know, winning, winning a hand at a casino. Like, it just doesn't, it doesn't do anything for me in the same way. But you're definitely right. Like, in the last several years, people have made a lot of money doing that and speculating or momentum investing or whatever. And that's fabulous. Like, I think that, you know, it's great. It's great that they, they've been able to do that. But I don't know that we get a lot of satisfaction from that and a lot of joy. And so by focusing on what you love and like that and just the great entrepreneur with a great idea at a special moment in time, I think it solves a lot of the FOMO.

I agree with that. And like, what I'd add is, you know, actually when we look at our investment pace, and I think it was 2020, 2021, it was historically slower.

Yeah.

And it's because we value so deeply the depth of relationship that we form with the founders that we end up backing. So true, so true. felt in that era was this, you know, Zoom screen. You know, it was just like the founder, like, it was just like we were another face. And every time you would, you would have a first call with a founder for Zoom, we have 6 term sheets.

Yeah.

You know, and I'm happy for them, but like, what are they looking for? And it just became a little bit this optimization that things were just moving so quickly all the time. And, And it wasn't that depth of relationship that we, we value and is what brings us the joy in the work that we do of partnering over these good times and bad times with, with companies that all inevitably go through, especially now. I mean, holy cow, things just thrash all the time.

Yeah.

And so the person you have in your corner, I think, on the board is more important now than it probably has been. in any of the prior eras. Like, that just wasn't as much of a fit for us.

Yeah.

And, and then I look at this year and we're actually on pace for making the most new investments in a year than we have been for 10 years.

Wow.

And it's just because like now it's back. I think there's a couple things, which is like, one, you just think about the last few years It has been so hard to be a founder.

Yeah.

Right? Like, you've gone through these incredible moments of thrash. You know, COVID's behind us, but then you have, you know, the interest rates changing, what happens there. You have Silicon Valley Bank and what happens there. And these, like, crazy weekend where everybody was wondering how they're gonna make payroll. And these things happen now that no matter what size company you are, you're gonna have to deal with these huge systemic shocks. And I think that makes founders care and really value so much more, not the firm, but who that person is that you're gonna be partnering with. And so like, that's like number one where like people care now more than ever, not more than ever, but certainly more than the last 10 years.

Yeah.

Of who that partner is that you're, you're choosing. And I hear that a lot with the founders that I, I meet every, every day. And the second thing is that, there's a little bit of like, ugh, thank, you know, we're not in that craziness of having to make these very fast decisions. And then you have the founders who did make those decisions and warn other founders not to do it.

Yeah.

To like really get to know the partner that you're, you're having on your board. And I think those 2 things coming together, and of course, you know, so many of the interesting trends that are happening in the, in the world of technology, has meant that we just feel like this is, you know, this is the type of time that we love to, to make new commitments.

It feels like the last few years there was a lack of discipline between— and the relationship between investor and, and founders. Maybe investors were a bit too submissive, founders were raising all these crazy rounds, etc. And now is a return to back to basics. I'm curious how you guys think about today, sort of the proper pushback between You know, in the investor-founder dynamic?

I think that in any relationship like that, we're trying to create something or build something, you need some tension, right? Like if you think about like engineers working with product managers and designers, like you need push and pull, like you need constraints, like you need it to go back and forth. And through that tension, you get better results, right? And at times it swung like it swings too far one way or too far the other way, right? Like I think one of the challenges, for example, would be with the East Coast. Coast venture capitalists or the European venture capitalists. Like, the financing for tech companies was such a— so scarce in those geographies for so long that they had too much power. Like, the investors had way too much power in it, and I think it led to suboptimal results. Like, you didn't have, um, the ambition or the dreaming that you would get otherwise. You're, you're kind of getting forced to cash flow break even as a 3-year-old company. Like, that's not— that's not necessarily useful.

Yeah.

And by the same token, I think it can swing too far the other way. Right. And, and so I think it needs to be productive. But ultimately, like the relationship and the partnership with the founder is, is really based on like working closely together and trust, because then I think you can all realize like, hey, we're pushing back or asking a question or pulling on something with the same objective of creating the biggest and best company that we can.

Yeah.

And I think that North Star alignment is really important.

To me, that's, that's exactly what comes down to is I think there's almost a positive selection bias. And I feel this all the time when meeting with a founder. There's, you know, a group of founders that they just wanna build the best—

Yeah.

Damn company they can build, the one that has the most impact. They have the ambition to build something as great as they possibly can.

Yeah.

And those founders don't want someone to just come to the board meeting and clap. You know, they want to know—

Mm-hmm.

What does great look like when they're hiring that next leader? We always think about pulling forward the future into the present. So you're not just optimizing for that next round, but you're really optimizing for like, what is the end state of this company and how do we build, you know, a company that has the best fundamentals, you know, escapes competition, has, the culture that is gonna have all the right checks and balances to, to really build something that endures. And, and so I find that I get most energized when we're pushing a little bit more. I think like, you know, and this is one of the benefits of only making 1 or 2 investments a year, is that we're more enmeshed. We're almost always involved in recruiting all the leaders. We know the the founders really well, and we can start to see, okay, it looks like, remember that thing we heard in the back channel when we were hiring this person? I think it's starting to show up.

Yeah.

You know, and like pulling forward some of those decisions. And when you make a decision 10% earlier and you make the hire 10% better or 10% faster, whatever it ends up being, those things compound. But oftentimes it means that we're advocating for something that we see as important, but not necessarily urgent.

Yeah.

Before the founder themselves might otherwise have seen it because there's so much else going on. And oftentimes the last thing you wanna do when you're a founder is, you know, think about adding something new to your plate, even though, you know, it's probably the right thing to do and it'll be the right investment and it'll help you 2 quarters from now, even if it's gonna hurt you, you know, next 2 months. But that And that work means pushing a little bit.

Yeah.

And advocating a little bit. And we hope it ends up bending the curve a little bit more for these companies and leading to founders that want that.

One of your beliefs is that platform teams exist to scale the GP rather than get leverage to the founder. And I found that curious because don't you want to add as much support as you can, you know, or get as much leverage? You have assistants, you have Principal and Blake. take on that is that you believe the costs of having a platform team in terms of all the coordination or sort of how it excuses maybe, you know, the GP to spend less time outweighs the benefit of getting the extra support for the founder.

We are not a group of individuals that rests on our laurels. We're always, you know, thinking of redefining benchmark, reasking. You meet somebody who's a super talented talent leader, you know, should we?

Yeah.

And I think what we realize is even if we had it, we wouldn't use it because we actually love the work.

Yeah.

Of, you know, helping a founder, you know, find that great sales leader. And we think that we, by being involved and, and, and ourselves as, as partners, getting the reps over and over and over again, that we ourselves get better at advising the founder on, you know, the different types of engineering leaders or sales leaders or whatever it is, the network, you know, the backchanneling, whatever it is. And then of course, helping close. We want to be involved in that and fully integrated. And having a blind spot on any leader, I feel it. Like, when I'm not involved with helping recruit one of the leaders, I'm— it feels to me almost like a little blind spot on the team that I just don't know that executive as well as I know the other ones.

Yeah.

And having that full, like, really having the full experience with the founders, going through those recruiting calls together, I think ends up meaning a better, um, a better relationship with the founder and our ability to be a better partner to the founder. And so if we had it, I think it would be the least used talent team. And so, you know, it's just not us.

Yeah.

I think so much of the value of a partnership with an entrepreneur happens in these like very few moments a year. Like I think there's like 2 or 3 It's not every month where the entrepreneur is faced with a key decision, you know, a crossroads of some kind and what to do, what not to do, and how to change something. And like, by definition, that it's, it's not an obvious answer. Like, of course they've listened to the podcast and they've read the blog posts and they've looked at all the VC content marketing and they've read the books of the companies. But like, but it's situation specific, right? It's market specific, it's company specific, it's personnel specific.

Yeah.

And in those moments, the entrepreneur wants a sounding board, a partner to just navigate it, to try to make it, as Sarah said, like a little bit better decision. Right. And the question is like, what do you need to have in order to be a really effective sounding board in those moments? Because I think all the value comes from those moments.

Yeah.

And I think in order to be a really valuable sounding board in those moments, You just have to have the context, and you get the context by doing the work on an ongoing basis. And then in those moments, you can be really valuable as a sounding board, ask the right questions, help the entrepreneur have conviction or more conviction or confidence in the decision that they're making, um, in their recommendation, and as Sarah said, bend the curve.

Yeah.

And so like, I think that that's so much of How we tackle the job.

That's well said. I'm only 33, but even I've been amazed at how every few years there's just a new crop of entrepreneurs. It's amazing.

Yeah.

And kind of the board changes a bit. And, you know, I imagine that there's some percentage of deals for whom you guys have a unique perspective on that there aren't other firms competing for. And then there's some percentage of deals that you mentioned earlier, the 6 term sheets, they're very competitive. You know, it's a very competitive venture landscape. And you mentioned that deal activity this year is up, but past few years has been down. And other firms, you know, do more on content marketing and they do more deals. And so if, if these next crop of entrepreneurs are, hey, their, their deals are funded by X firm and that firm also just is more out there, how do you guys think about remaining the most relevant or the most top of mind or the most favored firm relative to your best peers?

It's a perpetual challenge. There's no doubt about it. Like, it, it's a perpetual challenge. There are 6 of us covering technology.

Like, it's—

that's tough. Um, and it's, and it's a tall order. So I think, I think that part's there. I think there are kind of maybe 2 comforting things, um, in it. One is the entrepreneurs we do work with have to— we have to deliver for them. And because there are not that many of them, we really have to deliver for them. Yeah. And, and we want to do that and we're incentivized to do that, I guess, is the point. And so I think in every competitive situation I've ever been in, it's the entrepreneurs that we work with that have been the biggest advocates that have tipped it in our favor every single time. And so I think we have to continue to foster that. The other part is you don't have to do all of the investments like you don't have to get every company. You don't have to do that.

Right.

We aspire to be in the few that matter and that really turn into big, really special companies. But that isn't all of them. It's not most of them. It's not even a large percentage of them.

So you don't worry about seeing every deal. Some firms need to, need to see everything and they can't miss anything, but just can't. Yeah. You're not structured that way.

Yeah, we just can't. Like, it's just not possible.

Yeah.

What we have to do is, is really Double down on selection.

Yeah, selection and, um, and giving the founders a great experience. Um, in the last decade, we had a lot of— part of it was the sort of economic environment, but also we had this, this philosophy of blitzscaling, right? Um, and particularly around sort of tech-enabled businesses that weren't necessarily software-first businesses. And there's dozens of them that raised tons of money. Some of them did well, some of them did less well. WeWork is one in your portfolio. I'm curious what you think the broader lessons are from these kind of tech-enabled businesses and if you think venture will keep investing in them or, yeah, what do you think are the lessons that you've gone pretty deep in marketplaces, some of which are more software than, than others?

I think it was Bill who talked about how, um, the more optimistic the, or the looser the funding environment, the lower the gross margins are in the businesses that get funded. And certainly that is a dynamic that you see a lot or have seen a lot and, and is very different. Now, I think the other thing that I think about a lot is, you know, we had one, a CEO of a big public company come in and he'd use this expression that I love, which is that bad breath is worse than no breath.

Hmm.

And he was talking about account executives, basically, that so many companies during the last, you know, 5+ years, 10 years, the last part of this bull run have been so oriented towards growth.

Yeah.

The bar has been set by all these companies where everybody's aspiring to the 3x growth, the 4x, you know, like these numbers that end up meaning a few different things. They mean, and it's an orientation towards consuming more capital more quickly. It is a land grab orientation. And there's reasons to do a land grab. If you have a network effect, then you wanna run fast.

Yes.

You know, you wanna, The, the stronger your network effect, the further ahead you are than, than the pack, the more dominant you become. And then it's just this self-fulfilling prophecy. And so there's certainly types of businesses for which, like, that game is never gonna change. And we love to play that game when we can do it, when it, the company, it's the, it's the right company for that type of, of orientation. But more often than not, you see this dynamic where people chase growth before the fundamentals are there, before they're able to support it with the right kind of organization, where it might actually, you know, in kind of a classic marketplace, the idea of going after 15 cities very quickly as opposed to really going deep and dominating one city, that orientation, I think, has really changed just because the funding environment, you know, as interest rates go up, Yeah. there's a very clear, counterweight that happens on the company's ability to fund these early days. And I think it's gonna be healthier for these companies long-term in terms of, again, the bones and the DNA that they end up crafting.

Sequoia famously in, I believe, 1999 funded, was it Webvan?

Benchmark did too. It was a joint investment.

Okay. I say famously, it was the only to say that that company didn't work out according to hopes, but they thought, hey, it's still the right thesis. And maybe it's not the wrong time or the wrong, you know, company, but a decade and a half later, Instacart, you know, and then that one worked out. And I'm curious, going back to tech-enabled businesses, there's a lot of like real estate companies that have, you know, raised as tech companies, not just real estate, but other kinds of companies. And I'm curious if you, if you could imagine a similar story in the future of like, hey, was, was WeWork the, the right business model for venture scale? Just, you know, not the right time or execution or whatever. I wonder if If you guys are thinking about more discipline there or actually, no, these are, these are good businesses. Software is eating the rest of the world and they make sense for us, just business models.

I could totally see. I say never, say never.

Yeah.

We looked at a bull semen company this last week or the last couple of weeks.

Bull semen.

Bull semen. Like literally bull semen, like semen from bulls. Any press on time? Right. Well, this is the right— it's the right question. Which is like, it's, uh, you know, I think this is like the amazing thing. Like, we never invested in a transportation company until we invested in Uber, right? Like, we certainly didn't invest in a real estate company until we invested in WeWork. And, um, you know, we've made very few hardware investments over the last 15 years, um, but we have an AI chip company called Cerubus. And like, the point is that all these are capital-intensive businesses, right? And so I'd say never say never. You're trying to like look for where the ground is shifting. in the world where there's a seam between, like, between incumbents or something's changing that is going to allow— create a crack of opportunity for an ingenious, scrappy founder to break through.

Yeah.

Like, that's what you're looking for, right? And like, sometimes it's just a granite wall and there's no crack, and that's a bad time, right? And Maybe you can use a lot of money and get a lot of dynamite, but it depends how thick the granite is.

Yeah.

But other times there's cracks, and if you look in the right way and you twist your head and you turn, you can kind of see a path through.

Yeah.

And that's kind of what you're looking for. And those are the best actually in some ways because it requires this cocked head looking sideways and the sun just right to see the path.

Yeah.

Which means a whole bunch of people won't see it.

Yeah.

And then sometimes there's just like a giant wide open path. And what happens in those cases is like, you know, 20 people will see it and like everyone will try to funnel through. And like a lot of times that just doesn't work for anybody. And so like it— so you kind of— it's a risk capital business and you want to keep taking those shots. And I think, you know, I think Instacart Like, did work, and they seem to have done a really nice job.

Yeah, kudos to them.

Yeah, kudos to them. Just incredible job executing in what is a tough market. And then the last thing I was going to say is in markets like— it's particularly difficult when you go through like a ZIRP environment, right? Zero interest rates for a long time. Capital is raining down. There's new sources of capital. That's one thing we haven't talked about, which is there's all new sources of capital for venture. That outside of the traditional endowments and foundations, you have a lot of sovereign wealth money and other things that have come into venture family office, which some will pull back, but whatever. There was a lot of new capital. And then all of a sudden, it changes and interest rates start going up very quickly. And of course, you have a global pandemic, which completely changes office policies and whether people are in the office or not in the office.

Yeah.

I would also say those are all— they're not small complexities. Those are societal-changing things that have happened that make it particularly difficult in those kinds of businesses versus a traditional software business where you're high gross margin, your primary cost is headcount. Those are much easier to adjust or turn the dials on, and especially in a recurring revenue business.

Right.

Some businesses are very forgiving to those types of macro changes and others are not.

So what's the Bull Semen Company do?

Super interesting company, amazing founders solving a real problem. And it's kind of one of these ones where it's obviously way off the beaten path for us and not something we know a lot about, but you have to look.

What do you guys think about when you think about the companies in your portfolio? Like, what are companies that scream like this is a benchmark company. This is the type of investing that we want to be doing.

You know, I think about Chainalysis, which was my first investment at Benchmark. What was so fun about that company is like, you know, number one, it's kind of the classic hearing about a company, having a little bit of a thesis on the area, just kind of being intellectually really interested, provoked by what was happening in crypto, trying to figure out and think through, you know, we talk a lot about this, idea of, you know, seeing the present clearly and looking at all the use cases and not really having a lot of clarity at that point on what the use cases were going to be in crypto beyond, you know, what was happening at the time, which was store of value, raising money, you know, more illegal things or, you know, outside of, you know, the normal legal framework, reaching out. And while everybody else at that point in time was thinking about ICOs, and token investing and all these things. Here we saw a company and a set of founders who saw something that other people didn't see. Michael, the CEO, had been at Kraken, one of the exchanges, and realized that if crypto was going to become a big thing, there was going to need to be a company that was going to partner both with the public sector and the private sector to get the public sector more comfortable Yeah. With the private sector that was regulated, was touching fiat.

Yeah.

To then participate in crypto as well. And so he saw something before other people did, brought in 2 incredible founders. And then we saw, you know, both the early traction momentum and a possibility for this company to become the dominant player in their space.

Yeah.

You know, which is rare to find in, in, you know, software as a service companies. And it wasn't actually at the time that competitive of a deal. The company was over here, this exception to where all the, the momentum was in crypto at the time. And we got to partner, be the first board member, which is always our aspiration to partner as, as early in the company's, you know, life as, as possible, ideally that first board member. And now it's been, you know, 6, almost 6 years of partnering. Uh, and hopefully many more to come.

My first investment at Benchmark was Confluent, and it was the 3 founders, and they were like coming out of LinkedIn. They had started this open source project called Kafka, um, and that was it. And they, they were still employees. And, um, so it was the initial round of financing and, um, and backing them. And it was a popular open source project, but people viewed it as kind of this like component that wasn't that important. That was a pipeline to something else. And the founders, led by Jay Kreps, painted this vision of why, like, that view was incomplete and it was actually going to be a much, much bigger thing. And here were the path that they were going to take to it. And it was like, you know, going back to this like granite wall analogy, like, you know, cock your head and look right through and here it is. Like, this is how it's going to go. And we have a lot of history with a lot of open source companies going back to Red Hat. It was like data infrastructure stuff that I like and really authentic founders who just like lived and breathed the problem, the solution, had thought about it extensively. And so, you know, what a cool project to get to be an investor in, participant in, and Here we are now, I guess, 9 years and, you know, it's a whatever, $10 billion public company. So from nothing to that over the course of that time has been a spectacular journey. And I think like crawling through that crevice was, was something that they did astonishingly well.

Let's go deep on some, on some sectors. I want to start with consumer social. So you guys have done some of the more iconic consumer social companies over the past 20 years. I mentioned Snap, Instagram, others, and I remember we were talking a few years ago, Sarah, before the pandemic that you're saying, hey, maybe there's an opportunity to disrupt some of these giants. You know, people are bearish, but just maybe there's an opportunity. I'm curious for your reflections on what's, what's happened. Let's say I went in a coma, you know, right before the pandemic or right when we were chatting. What are your learnings or what happened in consumer social?

This would have been a good move to go into a coma. I mean, look, like I think you and I talked about a post I wrote about participatory social and like this idea that I still believe in. And, you know, which is that so much of what social is today is this lean-back experience where you kind of just feel bad about yourself.

Yeah.

You know, it's one of the things I almost, I always loved about Pinterest, which was that it felt like this space you could go to online, which was rare and wouldn't make you feel bad about yourself. It was about dreaming and being inspired and thinking about a more creative life. But so much of social had become, this space, and we see it in anxiety levels and depression levels of young people, is like, it doesn't make people feel good about themselves. But what makes people feel good about themselves is participating, engaging with their friends, doing that work. And so, you know, I still believe that there's going to be a company that comes along that maybe it starts off looking like a game, but will be about that connection. That will emerge and will have the the potential to disrupt these incumbents. But what happened instead in, like, you know, the last 4 or so years was you had these 2 things come together, which was this, you know, real maximization of the algorithmic feed. So you're bringing in this kind of global maxima of content, you know, personalized for each individual, which makes these experiences, you know, so much more of what they already were. And then you also have the most addictive format that we've had in social, which is short video.

Yeah.

And so of course those 2 things come together with TikTok, which has just consumed minutes. And, you know, Instagram is doing a really good job doing something that I've never seen another social company do, which is take the same atomic unit of another platform and, and establish it in their own and, and make it happen. But so they did it with stories, they're doing it now with short video and reels. And it's just so addictive. I read this book, Dopamine Nation, went on a social fast. And the thing that I just found that most pulled you in was short-form video. And it's everywhere. You can't get away from it. And it just means that the job of building a social network was always really hard, right? Like the list of companies that tried to do it and haven't succeeded is exceedingly long. And then that level of hardness just got turned all the way up. And so it's tough, but I think it's kind of back to looking for the exceptions and a little bit not giving up when everybody else has. Continue to be open-minded here, but it has not been easy.

There's always this hope that every new generation has its own social network. Um, and so hopefully it's not just, you know, this thing forever. But it seems like LinkedIn is just the professional network for every— like, it feels like you mentioned the graveyard of companies have tried to compete with it. It feels like there's just no disrupting that. Is that something you believe or is that something you've, you've looked for?

I mean, certainly, like, I've seen a lot of companies that are, yeah, we're the mobile-first, Gen Z-first LinkedIn. I think the, the companies that I've been more interested in are actually the marketplaces that have labor and are building a profile for those workers. So we have 2 companies in our portfolio that I can speak to. One is Instawork. I mean, this is just an incredible founder who has had an extraordinary level of grit because it was a marketplace for workers for events. You know, imagine you're hosting an event and you need a bartender, the waiters, waitresses. They are a marketplace for that. It was pre-COVID. You can imagine this company was growing like crazy. COVID happened.

Yeah.

Nothing really took the company down to the studs. Launched in a new vertical, industrial warehouse use cases. And now, of course, it's doing incredibly well having these 2 verticals going back to events and then the industrial use cases. And every worker, you know, if you're a bartender, Are you on LinkedIn?

No.

But you have a profile with Instawork, and the history of your work is on Instawork. The other example is a company called Medley. It's a marketplace for nurses. You know, you're an outpatient surgical center, and you're— somebody calls in sick, you, you need a nurse, you know, pronto. You use Medley for that, and then you start realizing this is what happens with Instawork too, that instead of having the people there on staff, You can actually rely entirely on this new network of workers to, to fulfill all of the work that you have. And same thing, these nurses have profiles now on, on, on Medley that is a reflection of their history as a nurse. And so these kind of vertical networks that have emerged, I think there's going to continue to be other verticals. Real estate always seems like one of the obvious ones. where you're going to see these types of networks form that way. And they never look like the last generation, right? This is not a network. It didn't start with a network and then become recruiting. It kind of started with the human capital and then became a network. Who knows what the next generation will look like?

The question I've been curious about for many years now, but I've never figured out the right solution for, is, is how you bring reputation online. We've done it with certain, certain categories like Rate My Professor, things like that. But reputation is so valuable. I mean, reference checks that we do is just, it's so redundant on so many levels. And at the same time, it also feels like information that just doesn't want to be on the internet or something. But I think at some point someone's going to figure out an elegant way to represent that because it's, it seems like one of the great scarcities in this new AI era is information that's in people's heads that's not on the internet.

Yes. Rich Barden was the CEO of, uh, many, uh, incredible companies, just in Expedia, Zillow, was a venture partner with Benchmark. And one of the things he always talks about is, yeah, The, the data that is in the shadows, you know, whether it's a data system that's already kind of exists, that's structured, and you can bring it online, or in our brains, and you can bring it into public domain. Glassdoor being an example of that, another company that he helped found. That is always a recipe for really a big opportunity.

Yeah, it feels like, you know, we've been talking about different eras, internet era, mobile era, you know, we had a bit of a crypto, you know, we're in AI, we'll get to that. It feels like different eras, you know, values accrue differently between incumbents and startups. It feels like the internet era produced, you know, literal trillion-dollar companies. Mobile era, you know, hasn't been as long, so maybe they'll get that big, but it feels like they won't. It feels like they, you know, produced some epic companies. We've talked about some of them, but it feels like it was an extension of the internet. It actually enabled the internet companies to get to trillion-dollar. And it feels like that's sort of the consensus on, on AI, that in some ways it feels like an extension of something that will continue to compound, that there will be big companies, but the biggest gains will be reaped by Is that an accurate read, or do you share that read, or how would you edit that characterization?

I think we don't know. I think we don't know. I think it's early. Like, I think in the AI world, it feels like there's kind of 3 distinct things that are happening, and I'm sure many others, but one is the model piece, right? And the foundational models and everything else. And I think that that's an area where there's a few organizations who are spending gobs of money. And 9 months later, there are open-source alternatives that are almost as good and maybe even better in specific applications and like were developed by, you know, 3 guys and a dog and a couple million bucks. And so like it's kind of an astonishing element and it's such a tremendously depreciating asset like that, the foundational models. There's a lot of cool work happening there. You know, we're, we've always been long open source. I think that continues to be really interesting and there'll be a lot of cool stuff happening there. Second part is something that Sarah's talked about before, which is like there's new vertical companies where they're selling the work. A lot of it's selling entry-level white-collar jobs, whether it's, you know, medical transcription or paralegal work or assistants or analysts. And so forth. You know, LLMs in particular are really good at that. There are new companies that are developing to do that. I think there's a real question as to the durability or defensibility of those companies, but they're super interesting. They're getting real traction and they're solving real problems. So like, I think that's the second category. And then third is what you mentioned, which is their incumbents, whether it's, you know, GitHub with Autopilot or Copilot or, you know, Microsoft introducing the writing capabilities into, into the Office platform and so forth. where there is enhancement to an incumbent base product and distribution, which seems to, like, work really, really well. And I think in that third category, AI has the ability to actually reshuffle the deck. There's some hierarchy of those products and those companies, and you could totally imagine the 4th or 5th place player or the startup Who kind of comes in with better AI or a more AI-centric approach, leapfrogging the winner just because it becomes so necessary. And I think you're going to see a lot happening there. You know, I think we're like watching all 3 and we're in it. And where does value accrue? Like, are we going to see some breakout companies in that second category, in those vertical applications? I think it feels like we will. It's hard to decipher right now, but like, I think we're meeting them all and like trying to understand that and develop a conviction, uh, one way or another. And then the same kind of thing with the incumbents and, and, you know, with the models, you know, maybe I'm a little more skeptical right now. Um, just, it feels like amazing technology and I'm excited to see open source continue to win, but there's, there's a lot of work to do to turn those into monetizable opportunities.

Oftentimes the first wave of companies that emerge can create a head fake in a way for people and how they analyze the industry. And so it is natural for the first wave of companies to kind of continue the mental model that we've had for the prior generation. And I love this saying, I forget who said it, which is like, the startup has to race to get to distribution before the incumbent gets to innovation.

Yeah.

And certainly, like, a lot of what has happened is that you've seen startups that, you know, saw GPT-3, took advantage of it, and ran really quickly. But man, the incumbents are really good at innovating right now. And so they caught up very, very quickly. And that created this kind of sentiment in the ecosystem of like, oh, the incumbents are going to be the main beneficiaries.

Mm-hmm.

But now we're starting to see this next generation, and I think a lot about what Eric was talking about with work as an example, where you always have to think about what the jiu-jitsu move is gonna be when you go against the incumbents. Like, you know, in marketplaces, actually, it doesn't really matter how big, you know, the incumbent is. It's always like, how much better are you at making the customer happy than the incumbent can? And what's a jiu-jitsu move here? Like, certainly there's like new surface area, right? Like going after verticals that wouldn't have otherwise supported a software company that had to sell a productivity lift, you know, 10%, 15%, whatever, trying to make that business model work versus a company that's actually just selling work, which is—

Yeah.

A 95% productivity improvement. That's like very disruptive. It's new surface area that I really believe is gonna create a new generation of companies. And then when you think about the incumbents, you know, Eric's third category, well, where are they vulnerable? They're vulnerable in that most of them charge per seat.

Yeah.

And that is a real innovator's dilemma. And so, yes, they can, you know, make each of their seats more productive, give them superpowers, but it might be that a company comes along and doesn't need to charge by seat, has a different way of thinking about what they're building, the value proposition, how they price it to the customer. that is disruptive. Adam D'Angelo, the CEO of Quora, another company that— another founder we get to work with, talked about this as the next industrial revolution.

Yeah.

And it really feels that way. But there's something unfair with like, okay, if you're a trillion-dollar company and you leverage AI in order to build 10% more market cap, that's a lot of money.

Yeah.

And so there's kind of a little bit that dynamic that we all face. But when you're thinking about it from where we are, there's going to be some really important companies that get built.

Yeah, it is interesting. You mentioned GitHub. GitHub was a company that had very low revenue when it sold. Is that, is that accurate?

I think it had a couple hundred million, $300 million.

Oh, okay. Sure. But it, you know, I just saw Hugging Face raise this big round. It feels like they have pretty low revenue. Like, it feels like there's some companies that raise very high valuations that have some real value there, a really strong community with strong data, but just haven't figured out monetization. And it feels like I don't know if they're built to sell to incumbents, but it feels like it's unclear how they become independent, you know, massive businesses.

There's definitely a hype cycle in AI right now. And so I think that's just the reality. It always happens. It's fine. But here's the thing about hype cycles. Normally in one of these hype cycles, there are a handful of companies that like you almost could pay whatever and it still works as an investment. Like there are some like amazing things. And part of the reason there's hype and all these companies get marked up at these incredible prices is because everyone's looking for them. Everyone's looking for one of those companies that is going to be so special. And so it turns out if you overpay for a company that ends up being a trillion-dollar company or a $100 billion company, it doesn't really matter. That's fine. And there's always a lot to figure out. People forget the early days of Google. They didn't have monetization.

Yeah.

Amazing, amazing growth, right? In terms of, it was, they were stealing share. This is, I'm talking about like '99, 2000, I think 2001 even. They had just stealing tremendous share from other search engines because it was a better product. And they, they were really unclear on how to monetize it. I think at one point there were, they were actually worried that they were going to run out of money because they were spending all their money on data center costs, like to get the, to keep it up. And so you can figure it out. Like is my point.

If you have enduring value.

If you have enduring value and you have something that is there, it gives you the license or the opportunity to figure it out. It gives you the freedom to figure it out, um, with, with some period of time. And, you know, that was always one of the big pushbacks on social networks, right? For a long time, if you remember, it was like, how are these social networks going to ever make money? Are they ever going to make money? Do they have a business model? Blah, blah, blah. And then like, here we have Facebook, which is what, $500 billion, $600 billion right now? And so like, you know, it turns out like it can work. Yeah. And configure them out.

What we've seen in this era so far is it companies can, can grow insanely fast or much quicker and get attention, you know, quicker, but they can also lose that quicker as well. And, um, you know, there's this whole sort of, uh, you know, meme at this point of like the just wrapper around GPT or people, I think Jasper is an example of some company that, you know, grew super quick and maybe people are unsure about at the moment. How do you think about, I think you wrote something to this effect, Sarah, of like, what are the types of companies that are going to have enduring value or truly defensible?

When you think about most SaaS companies, the reality is, is that very few of them have had a tech moat, right? Sometimes occasionally, I know with Amplitude as an example, like they did work on like the core database to like deliver the service in a way that wouldn't have been cost prohibitive for them to do it. But like very rarely are these companies actually the, you know, really about some special IP. It's always about— What is the advantage of scale that you get? The getting at the market faster, with a better product, the work that you do as you build more and more of the features that people need so that you can deliver more and more value to, to the customer. And I think certainly you see that a lot even with Jasper, of, you know, the work that they do, fine-tuning, getting more enterprise ready. Like these things, you kind of take it for granted, but it's like real work that has to happen in these companies. But, you know, one of the things that I think about a lot also is, is there something that as you build it, you're building something else that has accruing value for the company? You know, whether that's the dataset that you're building that lets you fine-tune and make kind of the value proposition stronger and stronger, whether you're creating a new system of record for something, whether you're— there's a new data asset that you're creating that's almost an exhaust from doing the core work, but is itself valuable. And there's also just like the last thing, which is the core enterprise software work that sometimes has to happen of like building the functionality that makes it easier for these, you know, companies to, to grow in an organization. And so, you know, the thing that I worry more about is trying to get distribution before the incumbent gets innovation. That just seems, you know, there's a lot of companies that were, you know, a new document type that you could use to, you know, use a large language model to help you write. And then Notion adds, you know, uh, something exactly like that where you already are. It's really, really hard to compete with that.

Yeah.

You're not trying to do that race against innovation for, you know, for the incumbent. You're building something new that is a new surface area. That feels like the really important thing to focus on.

I think the nature of moats, like moats are much more complex than they seem on the surface, I think. And I'll use a, I'll pick a controversial company, Tesla. And I think one of the things that's interesting, so a large car manufacturer CEO said this, an incumbent car manufacturer, internal combustion engine one. It's like, what's the moat for one of those companies? And his view was that the moat was how they build a car. And his primary concern wasn't electric versus this or that. It was like, did Tesla figure out a better way to build a car? And what was meant by that was everything, like the unibody design, the biggest casting machines in the world, The emphasis on software battery development and how do you manage that? And his point was every single thing that they had done over the last 100 years was built around one way of building a car, an assembly line where you do things a certain way and you go this way. And Tesla may have figured out a better way to build a car. That's the moat, and that's the thing that has shifted. We're trying to figure it out, like where is the moat on a lot of these AI companies and how do you think about it? But I think it might be more hidden in underlayers or really like more convoluted or more complex maybe than, than it seems on the surface.

Say more about where you think people kind of misunderstand moats in general. Is it that they see them—

Well, like you hear like these kind of, kind of simplistic things which are like data is the new oil and data is the moat. It's like, is it? Okay, maybe. Or one that's popular around the AI companies right now is access to compute or whatever. It's like, is it? I don't know. And those feel like things which are more transient or there are ways— I think data, take data as an example, people have very consistently figured out ways around that. And I'm sure I'm wrong about some other case. There's some case where there is a huge proprietary dataset that's really valuable, like, you know, RenTech, right? Renaissance Technologies. Like, they have built, uh, I think their business, they would say, as a fund, right, an investment house, is their data moat, which they have built over however many years and, and really took time to develop. But like, in general, I don't know that most of these companies who think they have a data moat have a data moat. Like, I don't think there's There's that much value in their proprietary data. It turns out, like, yeah, they have their data and someone else has data that's available on the internet and it's basically as good.

So they're defensible for other reasons? Or they're not defensible?

Yeah, it seems like, I mean, that seems like it, right? And so I think you kind of keep going through these things and you see examples like that where you can kind of come at it from a different direction. Let's take another example just because we're talking about these really interesting businesses. It's like forever people thought like with Netflix, like their back catalog was the moat. It changes.

That's really interesting. Venture capital firms don't have data moats.

No, we do not have data moats.

We, we, we benefit from strong brand moats, like long feedback loops. So brand becomes a moat.

But yeah, I think, I think brand is a moat. And then like you just have to wake up every morning running.

Yeah.

With absolute reckless abandon hustle. Yeah. To maintain that.

Peter said that, yeah, the day that I, Peter, don't want to, you know, cold email a founder or think I'm too good to do that is the day where I stop being a good VC or something.

Yeah, it's just, it takes that.

There really is something to that. Okay.

We talked a bit about AI. I want to talk about crypto as well. Here's my read from the outside on Benchmark Crypto. You guys made some great, you know, you made, made some money, made some great bets. Chainalysis, you know, Bitcoin early, Zappos, I'm sure.

Sorare. Yeah.

Yeah.

Global Illumination.

I'm sure, you know, a few others, but relative to your peers, I don't want to say you sat out, but you didn't go all in in the same way you were. You were disciplined, relatively disciplined. Um, the firms that lost the most and, and maybe, you know, won the most feel like they were just more comfortable YOLOing.

Mm-hmm.

And it feels like that's not as much in the Benchmark DNA because you're more fundamental, you're more sophisticated, you're more, you know, going to do the thing that Guaranteed does well versus willing to take these kind of like, you know, bet it all, uh, type thing. Is, is that an unfair read? I'm sure part of it's YOLOing, but also part of it is, um, It's just kind of like a different kind of fundamentals, which is more like, what are other buyers going to do? Like, going to, going to do, or more about like, you know, even NFTs is such a status-driven thing, more like, um, sort of awareness of the markets and just like a different kind of investing than fundamental venture investing.

Yeah, I think that's what it comes down to is actually like the way I think of it is like there was a class of companies playing in the crypto space where they were founders that believed that company building was going to be really important.

Yeah.

They were founders that were excited about the technology that, you know, was getting more and more mature around blockchains and crypto generally, but also recognize, you know, are oriented towards building an enduring company, doing the company building.

Yeah.

And I think we have a very large percentage of those companies. you know, the founders of Sorare are just incredible. And from the very beginning, even though they were participating in this NFT world that had a lot of hype around it, they were very oriented on finding a partner to help them build a really enduring company. Same thing with Global Illumination, which we just sold to OpenAI. And then, you know, Chainalysis.

Yeah.

Wences with Zappos.

Yeah.

And so those companies, those founders were very oriented towards those types of businesses. Then there was another class of company, which is where, you know, the crypto-focused funds ended up really orienting towards, that were very focused on, you know, kind of the example of Uniswap of like, you know, a company that built extraordinary amount of value with a super, super small team because they were able to use tokens and token economics in order to not need to do the company building and to— to create the right incentives to enable and facilitate that ecosystem. There were great examples of companies there, Uniswap being one of them. There are many more. And there were a lot of companies, kind of to the earlier conversation with Eric, that it felt like a very, very short-term orientation.

Yeah.

I felt a little bit like it was, you know, the culture that kind of got set in crypto with ICOs where you write the white paper, you raise a lot of money, and then you'll figure out how to build the thing.

Yeah.

And, and like the founders at that point, they don't, they don't even need to be around the hoop because they've already got their tokens from the, from the ICO raise. That permeated so much of the culture of building in crypto. It permeated how people thought about NFTs. And that just isn't our orientation. Like, It's a game that a lot of people were able to play extraordinarily well and like kudos to them. But like, that just isn't who we are. Like if we wanted, there are ways that Benchmark, we could all make more money, right? Like, you know, we were joking before we started about the Benchmark Growth Fund. Like, you know, wealth management. We could, yeah, wealth management, all those things. Like there are always those types of opportunities. And certainly that era felt like it for a while. I joked once that, I felt like I was a professional basketball player and I took a rocket ship to Mars and I like tried to shoot a hoop and then the ball just like floated away. Like there was so much that wasn't who we are and the game that we wanna play, which is that building enduring value, really partnering with the founder who wants to do that. And that's, that's why we're here.

Yeah.

Is doing that work and that type of partnership. And that just felt very different. And so, I think we, of the companies that fit the mold of partnership that we want, we were there.

Yeah.

We were in that arena, but we just, the other thing, you know, people did a lot of great investing, made a lot of money. That's not, that just wasn't, that type of orientation wasn't our thing.

We're all in the arena just trying stuff. Some will work out.

Yeah, I can't believe I said arena.

Yeah, exactly. Let's talk about healthcare for a minute.

Uh-oh.

Yeah, I was wondering if things have changed because we talked a few years ago. You know, your wife is a longtime healthcare entrepreneur and investor, and you were bearish about it after going a little bit deeper as a firm about it. Just, it's so hard, etc. Nothing changed?

Not looking at Sundar. Healthcare, health tech is— it's just a— it's a really humbling space for a founder. And like, you know, there's a number. I met with a founder just the other day, so super talented team that, you know, one of these, they had an idea using AI for, for a value proposition that makes so much sense. And then you start to ask the question of like, well, who's gonna pay? And how is the, where are the incentives gonna come from for that to happen? And you're just like, oh, these poor guys. Like, they're gonna, I introduced them actually to a friend of of ours, Malay, 'cause I was like, Malay, like, these are super smart guys, but, you know, they need help guiding the topology of healthcare and just the incredible incentives that are so not what you would rationally design if you had a blank sheet of paper.

Yeah.

And so I think it's one of those spaces. There's some spaces in venture and what we do where I joke, you have to marry them, you can't date them.

Yeah.

I actually felt kind of crypto token world was one of those spaces where if you try to date it, it's gonna be really difficult. It's so specialized. I think healthcare is one of those too, where it's a really hard one to date because you just have to have that mental map in your mind of all the incentives and all the different players and how it all fits together. And it's really tricky to be surfacing there.

To take the contrarian view.

Please.

There are emerging areas. You're on the board of Medley.

Yes.

Nurse marketplace. I work with Benchling and a company called AcuityMD, which serves the medical device companies. And so, like, there are these areas that are not directly hospitals and patient care.

Yeah.

And the weird triumvirate of insurance, patients, and providers, and, like, everything that goes on between them, and the weird incentives between them, but actually all of these other areas around them, which really do contribute to a better patient experience, better medicines, um, you know, better patient experience through better medical devices or better nurses, um, you know, better drugs that are important. There is a lot of interesting innovation happening, and we are actually bizarrely invested That's true. And, um, and, and actually all those companies are doing well, um, which is kind of interesting too. And so I think there's this other dynamic which is just like maybe the way to tackle the industry isn't to mess with this like triumvirate which is at the core of it, or have to integrate with the EMR which is, you know, controlled by one company largely that That has literally no incentive to do anything except increase the percentage of GDP that we spend on healthcare in the country. It's just like, maybe we just have to come at it this way.

Yeah, totally.

And I think we'll continue to see those and excited to see those companies because there is a lot of spend there, there's a lot of waste there, there's a lot of room for innovation. And so, it's just finding the angle of attack.

I appreciate the, the light disagreement there. I said as a segue to when you guys are debating sort of the, the, the refounding of the firm, what, what are the debates that keep coming up or what are the conversations or questions that you guys are asking yourself when you think about, hey, you know, I know we've said we're gonna do this for so long, but is this something we should, we should consider? What, what are the, what are the questions?

Probably the one that I think about the most, in, in part because I grew up in the industry this way. Yeah. You know, I started my career in venture as an analyst at Bessemer. And so lowest rung of the ladder, you know, cold calling founders, which has, was kind of an early idea of, you know, Jeremy Levine started that program at Bessemer and now has become, you know, the default in a way. Like these other firms, you know, as we talked about earlier, they see 100% of the companies that are getting founded or funded. And one of the conversations always, we have chosen thus far, to be really the 6 general partners. We have, you know, Blake, who's incredible as a principal. I think we've had maybe 5 of, 5 Blakes in Benchmark's, you know, 20-year history. Yeah, 25-plus-year history. And so, you know, the paranoia that I certainly have all the time is there is gonna be that founder whom mistakes our lack of outreach for a lack of interest. We are constrained by the fact that we have 6 people, and other firms have dozens of people who are reaching out to seed funds, you know, talk like cold calling the founders. And so the found— you know, it's very easy for a founder then to kind of look at their inbox and decide whom they're gonna raise from based on their inbox.

Yeah.

I actually had a funny experience with a, a friend of mine who's a YC founder. And he was telling me, he's like, my process, you know, it's just not moving that well. And I was like, well, tell me who you're talking to. This was like pre-revenue company. And I looked at his list and it was all these like multi-stage venture firms who had reached out to him. I'm like, oh my God. Like, yeah, it's like, it's a wrong signal, but a lot of people make that mistake. And so, you know, there is a corresponding, you know, the trade-off of course to having more people at Benchmark besides the GPs. One of the biggest ones is just, does it end up atomizing our attention away from the collaboration that we have with each other? And there are many, many other things to think about. But that is certainly when you ask me where I'm most paranoid.

Yeah.

I wanna make sure I'm seeing the best companies that I can possibly see, getting to meet those founders.

Yeah.

People tell stories about us, you know, oh, you—

Totally.

They, you know, they move, whatever, they're gonna want a lower price or they're gonna want, they're gonna be slow or whatever. Like, you know, people tell these stories, they only say yes once or twice.

Yeah.

Don't, you know, whatever it is, we need to work against that all the time. Yeah. To meet those founders and other firms have developed machinery around it that we don't have. Totally. And that's, that's a trade-off.

It's interesting 'cause yeah, if you, if you, in a competitive market, you don't want to be— no one wants to be like a worse version of, of other firms playing their game. You want to play your game to the max.

100%.

So yeah, you could have a little bit of platform team, but these firms have massive— you never— no one's ever going to compete on that level. But what they're not going to compete with you on is GP time and attention and focus. And so maximizing that is a great—

like, you know, one of the tradeoffs is like when, you know, we cold email, cold DM people all the time, right? And, or, you know, do the kind of the first call. That is us reaching out. There's no army of people who are doing it. It is us. And that, and like, there's no person when we engage with a company, there's no person to whom I say, oh, like, reach out to the, you know, these other companies or do these diligence calls or go through the spreadsheet if there's a spreadsheet. There rarely is.

Yeah.

But that's us. And And again, we think that leads to a better experience for the founder. It leads to better decisions by us, but it, you know, there are trade-offs to everything.

Yeah. Benchmark does the work. That's a great place to, to wrap. Uh, Eric and Sarah, thanks so much for coming on the podcast.

Thanks for having us.

Yeah.

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