Peter Fenton & Victor Lazarte - Purpose and Partnership - [Invest Like the Best, EP.354]

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Patrick O'Shaughnessy is the CEO and founding partner of Positive Sum and the CEO of O'Shaughnessy Asset Management.

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My guests this week are Peter Fenton and Victor Lazarte. Peter and Victor are both general partners at Benchmark Capital. Of the 6 equal partners at the storied venture firm, Peter is the longest serving and Victor is the newest, having spent the past decade founding and building Wildlife Studios into one of the biggest independent mobile gaming companies in the world. Peter has been a board member at Wildlife for the past 4 years and has a remarkable track record of tech investing over his 2 decades at Benchmark. In our discussion, we talk about the core motivators behind great entrepreneurs, Benchmark's unique operating philosophy, and what it's like to transition from builder to investor. Please enjoy this conversation with Peter Fenton and Victor Lazarte. Gentlemen, this is going to be so much fun. I don't think I've done a group one like this in a while, and it's one of my favorite things to do. And Victor, I think it's the first time that you're doing one of these, which is my for sure. Since you're new to Benchmark, I thought a fun, interesting opening topic would be what is most surprising to you about the partnership, the style of investing, really anything about the team or the firm relative to your expectations coming in so far? I know it's just been a few months, but I'm still interested.

I've been curious about Benchmark for a long time. I'm originally from Brazil and I started my company there. Eventually, many years after starting the company, I ended up raising my Series A from Benchmark. Initially made me curious. Growing up in Brazil, I was curious about all great venture capital firms. And the thing that was interesting to me is there's a small number of firms that are involved with a lot of the great outcomes. I was always thinking there must be a formula, there must be a playbook. And when I joined Benchmark, I think the thing that surprised me the most is The lack of structure. A lot of what we do is around a conversation. We don't do memos. We don't have a sourcing process or anything like that. In the beginning, I actually thought, oh, that's probably a weakness. And slowly I started to understand is we're in the business of finding the exception, finding a fantastic founder, finding someone that defies gravity. And a lot of times frameworks prevent you from doing that. So By not having these frameworks, when you meet a founder, you're able to sit across this person and just be present and see what's in front of you.

Do you think that that sharp contrast from the operating life, which I want to ask you a lot about since obviously you were very good at that too, what are the trade-offs? What, if anything, do you miss about the operating life that you don't get when it's such a slimmed-down, focused, almost like art?

I don't see myself as an investor because I've been a founder for 13 years and I've been an investor for 3 months. So I think slowly over time my identity will change and hopefully in 13 years I'll think of myself as an investor. And for the time being, I think about myself as a founder. At some point I wanted to make this change. And to me, the thing that I was missing by being an operator for 13 years is just go very, very deep in one industry, and you know the ins and outs and you have a team that you have been working with for over a decade and formed these very, very strong relationships and you move over. So at Benchmark, we spend Mondays together, but the rest of the time you're a lot of time on your own, you're doing your own thing, you're meeting with founders. And so I think what you get is this breadth. You get to learn about so many different industries and you get to meet so many incredible people. What I miss, I think what you lose is this connection with your team, this feeling that we're together on a mission.

Peter, can you reflect on what to me is the single most fascinating thing about this firm structure, which is this unbelievably elegant model and incentive structure paired with this like incredible fragility that because there is no infrastructure, There's just the people. It's a very small number of people. Benchmark's fairly unique in the sense that it's had a number of successful succession moments where new blood has come in and done really well. That's the exception in the investing world for sure. And it just seems to me that it's both the only place that you could get someone great to come in, but also that if you don't get someone great to come in, that the model is incredibly fragile. And I'd just love to hear you riff on You've been there a long time on that delicate balance to make it work.

Ephemeral. I can't imagine a world where there's a Benchmark in 30 to 50 years. Accepting the finitude of the project, I think, protects you from investing ego and identity in aspects of the firm that don't connect with the core work, which is working, partnering with an entrepreneur like Victor and being They're shoulder to shoulder with them and having the overwhelming energies that you summon up every day connected to the partnership with an entrepreneur versus the building of the franchise and managing the franchise changes the nature of the relationship, I think, so that you can have depth. That if our product was Benchmark and that that was the company we were building, Then the atomic unit of the quote unquote deal would be the companies we're investing. But that's not how we conceive of it. I encouraged my partners last night to watch Chimp Empire. None of them will watch it, so I'll give you the shorthand. But in Chimp Empire, which is a great little Netflix series, we both have a love of primatology and Sapolsky, which hopefully we can talk about. But there are two tribes. There's the largest tribe they've ever recorded of chimpanzees, the central tribe. So they have over 100 chimpanzees, which is. Remarkably large. And there's an alpha male. Yes, they're— at least through the lens of the TV show, they're alpha male-dominated societies. And so Jackson, the alpha male, controls the central tribe. And there's retribution, there's all sorts of internecine conflict, political moves from other chimpanzees who want to take him out. I won't give you the spoiler. And next to them, there's a much smaller tribe, you know, maybe 30 or 40 Chimpanzees, but they hold their own against the central tribe by being equal and flat. And women and men carry relatively equal loads in protecting the territories of the tribe. They share food equally. And it, to me, captured the essence of— as strange as it may sound— looking at primatology. The benchmark model requires to have a standard that gets maintained over many years. A prevention against the egoic rise of an alpha, meaning the one partner that seems like— that feels like they're better, that's in charge, that's the chief. If we were large, we'd need that, and the energies of that person would be largely consumed, as they are in the central tribe, with protecting the position that person has, because there's lots of people who want that position. And there's no competition for that inside a benchmark like the western tribe. And this is in Uganda. And what happens is that you have a freedom of movement, an absence of the glucocorticoids that come from displacement of your bad feelings towards the person who's below you in the hierarchy, because there's no hierarchy. Its vulnerability, of course, is that you could establish a norm of complacency. Hey, it's all good. We're all happy here. And so if you don't internalize a sense of excellence, a sense of doing the best work that you can do and have that be the dominant force in your life, the firm could very quickly become irrelevant and complacent and comfortable. When I joined the firm, I was the 7th partner. Mitch and Matt came after me, and some of the founders raised their hand and got off the playing field. But our average age when I joined was 43, 44, all relatively tall white men. Today, the average age, I think, is 39, 38, 39. The median vacation home for the partners is zero. And so you have a group that I think is deeply committed to being not just there, but in the Bay Area principally. But we've backed a lot of entrepreneurs who come to the Bay Area and some who are outside of the region and don't have the corruption that can occur that leads to complacency yet. And the question— I say yet because I think we're all vulnerable All of us as humans to the wandering attention. And I think the firm structure has to come back to these principal truths. One is this is your central life's work. And the other central tenet is this contract, for lack of a better term, but this idea that we're partners to entrepreneurs who will always be bigger than us, who always have more. We want all the limelight on them, all the attention. Which makes talking about the firm very awkward because it's sort of not who we are. It's why we don't have a website. It's why we don't have a PR agency embedded inside of our firm. These are things that run against our culture. So the long-term question you're asking, which is how do you sustain this and how does an LP make the next commitment and not know that we're just going to revert to the mean of the industry returns? I don't know.

Yeah.

But I can say that the structure, because it has one more important constraint that we discovered when we bore witness to the firm at 7 partners, at 8 partners. Go to a dinner conversation and there's 8 people, you're going to have 2 conversations typically, sometimes 3. Something broke. And I can only say the phenomenon of it breaking was hard for me. None of us really stood by and said, okay, we're going to let this be the firm because you could feel the atomization of the effort. So by coming back to a core number, and we got down to as low as 4 partners, 5 actually, because Bruce was in that fund, but it was Mitch, Bill, myself, Matt, and Bruce. And then we had our best period of time. It was Uber, Instagram, Twitter.

Snapchat.

Snapchat.

Discord.

Discord.

Many such cases.

WeWork. Say them all. Yeah.

Okay.

So you discover these things through lived experience, but the fragility of, okay, you can have 6 partners is a constraint. People need to be equal. And I remember I thought a lot about this when I joined the firm. What's the end look like so that partners who were there could feel like we're approaching the end, there was a way to stay connected. In my experience of the end of other firms, I was at Accel and it was not binary. There wasn't just like, boom, they're out. And when people would leave, there would be narratives about them leaving that were not kind. Oh, they became this or they became that. And Bob Kagle did it, just raised his hand and said, Such a cool act. I'm out. And we're like, but, but, but— and he's like, this is it.

It's yours.

I've done my part.

See you later.

It's yours. There was no negotiation about the residual economics. There was nothing.

Incredible.

And we tried to give him— and he's like, no, no, no, no, you don't understand. This is an ephemeral thing. My struggle in general with firms is that I think it's the ego that wants to attach to something that will outlive them. To me, it's all a form of not accepting the total finitude and ephemerality of our existence. And I think Benchmark embodies that, which is why I don't think that Yuri said this to me over dinner. He's like, do you have any reason to believe Benchmark will be around in 50 years? And as he has pictures of the cosmos behind him, I said, in the grand scheme of things, no. But then, you know, our planet's not going to be around probably in any life-bearing form in a billion years. So there's some point in time where it all goes away.

You said a phrase there which means a lot to me. You said life's work. And I've probably spent more time thinking about those 2 words than any other in my career. I've come to believe very deeply in the concept, and I'm curious to hear you riff a little bit on it from a couple perspectives. Maybe Victor, starting with you. You spent 13 years doing one thing. You're embarking on a new mission. Just like what that term means to you. Does it mean anything to you? When I get to Peter, I'd love to hear how you suss that out in founders, because it seems like with life's work, you get duration and persistence cheaply or for free even, but it's really hard to tell upfront. But since you did something for a very long time, and I'm sure poured your heart and soul into it, What does the phrase spark in your mind?

Up until now, I think, what's my life work? And I think we all derive so much happiness from creating something that people use. My life work up to this point, I feel like I started this mobile gaming company, just my brother and I, and we created games that over a billion people played and have been downloaded 4 billion times. And when I think about the hours that people had fun with it. That's something that makes me really happy. It's much more than we thought when we started it. And as I think about, okay, what is it that I want to do now? And I think so much of things going way beyond what you think they could go, partnering with really special people. After spending a lot of time with games, my curiosity led me to different places and meeting interesting people. And one of these interesting people that I met is Back in Brazil, I met these 2 kids that had this interesting idea, ended up spending a lot of time with them. Eventually they started a company that I'm on the board of, it's called Brex. And I think one of them came here to your podcast. Like a couple months ago, Henrique came to me and he told me, you're the closest thing that I have to a co-founder outside of the team.

That landed.

Yeah, I was like, wow.

Did you ask for your share agreement?

The interesting thing is it's not about that.

Of course, I know.

It's not about that. And then to me, as I was considering a new chapter of my life, I was like, hey, what is it that I want to do? How will I measure my success? And I think that's how I'm going to measure my success. How many times do you think I can find someone that just has an idea and be a partner to that person and help the person achieve something and create something that a lot of people use? What was attractive about Benchmark, it's not like, hey, we want to be involved with the most impactful companies. Every investment firm wants to do that. But there's a second part, which is we want to be the best partners to this company. If you think about that, I think it explains a lot of decisions inside of Benchmark. If you want to be the best partner, the reality is there's a lot of really smart people out there. So you're not going to be the best partner because you're smarter. I don't think that's going to happen. But if you're more dedicated, and I think I was more dedicated to these founders that I met, and that explained it. And I got conviction that that would be the case inside of Benchmark, partially because of the experience that I had with Peter. So Peter came in and we had built a lot of things in the company. As with every company, there's periods where everything's amazing and there are periods where things are not so great. And the thing that was interesting about the way we worked together is during the times the company was doing worse were the times that he spent more time with us. So I think on average, him and I would have a weekly call. On average, he would speak to one other executive inside the company. And then if we're recruiting someone, he would get very involved. I was making the math and I was like, Okay, so Benchmark invested in Wildlife at like a $1.4 billion valuation and they put around $40 million, so they own 3% of the company. When you think about the carry, Benchmark owns 1% and it's an equal partnership, so he owns 15 basis points and—

You make me want more of an ownership stake.

And the average fund that he's been involved with 10x'd, so he's done well by himself. How does that make sense? The guy that owns so little, when he invested, we had a lot of other investors and people weren't nearly as involved. People that had larger stakes weren't nearly as involved. But I think that was very myopic for me because that thinking fundamentally missed what I understand the benchmark model to be. And the benchmark model is like, hey, we're gonna do everything we can to be the best partners. And if you do that over time, Everything else works out fine.

You asked the question in a way that triggered a whole bunch of thoughts on what we have found in the character traits of really successful entrepreneurs. Life's work. There's this insatiable energy and drive, and it doesn't get captured in a liquidity event. In working with Victor, I witnessed him go from being in São Paulo, you know, with his brother and deciding that he wanted to build a different kind of business than one that was optimizing on just being its own internal studio. And so when he came to Silicon Valley, I stayed in touch. We didn't spend a whole lot of time in person. It was during COVID and it's crazy. But then the artifact of maybe a year later is that Victor had built relationships with these people that we adore. Howie, I'm on the board of Airtable. You mentioned the team at Brex, but that's just the beginning. Dylan at Figma and Alex at Scale. It's people who are the epicenter of our industry. And here he is, this kid from Brazil who's not a kid, but To me, that is the precondition to be able to be an effective partner in the way we practice the business— deep trust. And we talked about Matt Kohler before and how you call Matt, he doesn't show up trying to cram his agenda down your throat. It's like he's humble in a way that isn't fake. And I saw that with you, which is there's sort of a disarming nature of, I'm not here to judge you. You've got some issues and problems, and I saw you do this with people and Situations that an average person that's more self-interested doesn't have the consideration of really thinking about and perceiving what is that other person going through right now. And so I got to watch Victor do that time and time again. So we're always recruiting a new partner and we're recruiting and we— this weird place where we said, gosh, the person whom we most want to work with is the CEO of one of the companies we're involved with. Yeah.

What was that conversation?

It was acts of love. They don't resolve to rationality. If they're really pure, then they form their own logic. And I think the feelings we had towards Victor, and we got to have dinner with him and some of these founders. I'm trying to remember all these different interactions, but we saw a large surface area of how Victor interacted with other entrepreneurs. And we say, there's a right answer here, which is that if he's the person that we have this resonance with as a partner, and that resonance comes from his capacity to build deep trust-based relationships with great founders. When I and Bill and I and others at Benchmark recruited Matt Kohler out of Facebook, that's what stood out. He'd done that with Reid Hoffman. He did that with Mark Zuckerberg, to a degree with Peter Thiel. And I said, the rest of it, we can figure out. Who's the first phone call on a bad day? And my guess is that Victor's the person the team at Brex will call first. And Kohler was the person that Reid or Zuck— and so to me, that is an exceedingly rare talent, gift, whatever you want to call it. that is at the epicenter of Benchmark's relationships with founders. If we don't have that, we're useless. This question, I want to get back to life's work. We had dinner with a founder last night of a company that's public and very successful. Things I'm about to say probably prevent me from saying his name. But oftentimes when we're working with founders, that life's work gets occluded. It clouds over and/or gets oxidized. And we can see this person who was nothing when we met them in terms of extrinsic rewards, accolades, fame, wealth, none of it. And then as they move through these seasons, they can become loaded up with the bureaucracy of a company, with the trappings of wealth, with the distractions that come with success. And I'd say a lot of what we end up doing in the life's works category is deoxidizing, polishing, bringing to the surface the most creative, generative capacities they have. And you know that the journey you're on, if you're a founder for a decade, you have every next milestone of success, the devil's temptations to degrade into somebody who became too interested in the vanity, too interested in just winning or whatever it might be. That's the probability set because the numbers can get through to that. Pick your measure of radical success. What always struck me about Mark Zuckerberg is that He kept it fresh. And I think you sit down with Marc today, you see the same dynamic energy matured that we saw when we were at Accel in 2005. Some people either don't grow and evolve, and that's one of the traps for founders. They just stay rigid in their place. Others mature out of the generative place that led to the company start.

Victor, just because many people won't be intimately familiar with the Wildlife story, I'd love you to Tell it in whatever format you want. With, for me, the angle on it being so incredibly interesting is that it's very much a business that you would expect to have been VC-funded and backed. It's a software business, it's a gaming business. There's tons of funds that do this sort of stuff. Everything I understand is it's quite expensive to build games. Certainly the big marquee ones are expensive, but even the small free-to-play mobile games seem like they cost quite a bit of money to build. And you built these things in a way, I want to hear how you did it because it was cash generative. from the start, it was bootstrapped. It was you and your brother. You didn't raise money. Like, you did this totally different in a very different place, and it got you to a very different outcome that I think would be the envy of anybody listening. So tell us what it is, how you did it, and, and a little bit about that unique path that you've taken.

The reality is we bootstrapped it not by choice. We actually tried to raise money, but we got turned down by everyone. So I started it with my brother and We're both from Brazil. Shortly after college, we were talking about how much we loved games, and this was end of 2010, beginning of 2011, and the app stores were first getting traction. So that thing that was a passion of ours started to feel like a good business opportunity as well. So when we decided to do it, we set out to raise a seed round. But unfortunately, the best term sheet that we got is someone offered us roughly $50,000 for half the company.

Good deal if you can get it.

Yeah.

That speaks to the importance of a good venture capital community. And when I look at Brazil, there aren't a ton of super interesting technology companies being made out there. And I think part of it is this venture capital scene that is not well developed and leads to a lot of bad behavior. Trying to get a company for that cheap. But in the end, things worked out for us because you're right when you say that games are expensive and even mobile games are expensive to make, but it wasn't true back then. Console games and PC games, they're expensive to make, but the best mobile games, the software development part is actually not that expensive, but marketing is quite expensive. But this wasn't true back then. In 2011, This was a time where people were making paid games, and if you made a compelling experience that was free, you'd just get a ton of downloads. You wouldn't have to worry about marketing. So that's what we did. We found a bunch of mechanics that worked well in other platforms or worked well as paid games, and we just made compelling products that were free. And the first game didn't work, but the second one did, so we used that to build a better team and build better games. So over a 9-year period, we scaled the business.

I want to hear a little bit more about this notion of borrowing a mechanic that worked somewhere else and then putting it in a new format and the power of that move in business, not just in games, not just in free-to-play games, but just in general. So maybe describe literally what you did. What was the mechanic? Where did you find it? How did you incorporate it in that first game?

The thing that interests me about games, it's that it's part creativity, part game design, and part just studying businesses. So I started studying what were the most successful games of all time, and there's this pattern that emerges, which is typically a game that becomes very successful is an evolution of a previously good mechanic that you just found a better way of getting it in the hands of people. And that is true for the largest games in the world. For example, League of Legends, it's an evolution of Dota. So Dota was around, it was just very hard to play because you had to buy a disc. And then League of Legends came around and it was like, hey, it's a slightly improved experience, but it's free. And even nowadays, largest mobile game in the world right now is this game called Monopoly Go. And when you look at it, it's just an evolution of this game called Coin Master.

Yeah.

Which was very successful, but it was not very approachable. So Scopely did this fantastic work of finding a great IP, making it more accessible, but the core mechanic is the same because the reality is humans like the same game mechanics for a very long time. Like, think about chess or poker or things like that. And then for us, the first successful title was this game called Racing Penguin. And there was a couple of games that were inspiring.

Yeah.

That was just paid games on the App Store. They use the same mechanic, deliver it for free and people will like it.

I would love to hear you reflect, especially because Wildlife obviously had the benefit of being at the early part of an incredible tidal wave that in the App Store and the phone and everything else, that if you were early to it, there was just so much white space and you've invested in so many companies that have benefited from all these platform shifts, from cloud, from probably AI now, from mobile, from internet, from all these things, the degree to which my romantic notion of life's work, like the person meant to do the thing, how that stands up to the power of a great tailwind.

In my view of this, we see openings in distribution end up creating an explosion of momentum in areas that you have high consumer demand. This is what I'm most interested in at the moment, at least in AI. Which is where's the distribution dislocation? And I don't see it in the way that I think I did, say for example, we did in mobile or with the early internet or social. Inside of that, you have people, and so they're enjoying these forces that are out of their control by definition. And you get types of entrepreneurs in tailwinds. There are the hypercompetitive entrepreneurs that care about winning at all costs. And that can serve you really well in a high disruption of distribution because you gain share. And sometimes that is the game on the field. I would say that was a defining attribute of Travis more than any human I'd ever met. Possibly the few others running large companies at the moment are in the same phenotype, but there are another type of entrepreneurs that come in these cycles that are more, their primary drive is more generative. There was a really interesting podcast with Andrew Huberman and Paul Conti, and I've been studying Paul Conti's work for a while, but he disambiguates these 3 different drives. I heard it, I said, this maps completely and directly onto the entrepreneurial framework. And I think as an investor, it's actually really well served for you to think about that, which is there's a primal aggressive drive that we all have, and I'm sure it's set up in our mesolimbic reward pathway to win. Outcompete. And that aggressive assertive drive is innate, and I don't think it's not healthy to try and suppress it to the point where it doesn't come out. There's a pleasure drive, which is this notion of— think about food, sex, all the things that people do to experience that rush. It has the problem, of course, of being— you habituate. Unfortunately, we always want more. And then there's a generative drive. And the generative drive is this thing that you would describe as being able to Create, serve, contribute, build. And in an entrepreneurial journey, and I think this is true in any tailwind sector, there's entrepreneurs that— and I think of our iconic names, Brian Chesky comes to mind as having a super high generative drive, also very aggressive and competitive because you had to be to compete and win. You're going into really difficult regulatory dynamics and obviously competing for capital, for team members and all that. But in these cycles where you have a disruption of distribution, I think there are a few entrepreneurs that come out that have protected their generative drive, protected their curiosity, their creativity as they manifest their aggressive drive. And they didn't let their pleasures and their enjoyment of success corrupt them in a way that took their eye off the ball. But I think those 3 different drives end up explaining a lot of what we see in the primary data of what's going on with this entrepreneur. And I've worked with some amazing people who took advantage of the tailwind of the shift to cloud, and then they arrived at this continent of wealth. Who am I to judge? The pleasure drive took over.

Right.

And so there's a lot of things people prefer, I think, understandably, I think, for some people that don't want to make the sacrifice that's required to really keep your generative drive at peak levels. And one of the most important things we do as partners to founders Is to nurture that, protect it.

How, what are the protection of that drive or the nurturing of that drive seems like just, again, you're hitting on what interests me.

These are some of the things that Victor and I talked about. We as an industry have systematized and scaled transactional relationships. And I think one of the core values is to let go of the transactional relationship model and replace it with a deep concern And you talk about the importance of people, a deep concern for relational well-being and mental well-being, which is not transactional. So the mental challenges that you were going through and I bore witness to as you transitioned your business model, Victor and I would always talk. I said, how you doing? I'm doing good. I'm busy. No, he'd say, I'm not doing great. As a partner, you have to create a lot of space for that and say, oh, tell me more. What's most important is in those moments that my experience, the entrepreneur Who's going to go through these challenges doesn't feel alone. It is the most lonely position at the top of a company, carrying all the embedded stress of your employees, of your external constituencies, of your customers. And if you can be there— and I don't mean that in some transactional way. It's weird that we're on the board. It's weird that we have power. You put that to the side and you start with how is mental health and making it the number one priority of the relationship. And I don't think I could stress that enough. And if you're not starting there and ending there, you're putting yourself into a risk zone where somebody ends up going off the mental health into the ditches on either side of them as they're building their company. And they may never come out in the form that is recognizable to be the leader of that business. So if you're aware of that, my experience there didn't come from some training as a psychotherapist. It was from the lived experience of seeing these people whom I admired and adored get off of that vector of growth and generative drive, and then saying, okay, what might be behind that? What could I have done differently in my own sense of being a partner to them? And I tell you, as a young venture capitalist, I was not good at it because I just took this aggressive notion. And sometimes my CEOs say to me, and I've had a few experiences, CEOs I'm lucky to work with, We just want to win. I thought, oh, win what? And then we open up a real conversation. And I'm saying, that is not a purpose that's going to satiate your team and make them feel connected to the purpose of your business. Let's work backwards. What do you mean in a way that's not at the loss of someone else? There was a week about 3 years ago where Patrick Collison and Toby both indirectly, actually somewhat directly in the case of Toby, said, you got to go read this book, Infinite and Finite Games. The premise of the book, I think, is it gets back to a mental health observation, which is that when you're in the infinite game where there's— the company is a manifestation of what you want to contribute to the world, and you're letting these talents work through you as opposed to grabbing them and owning them and beating, then there's never enough. It's the cliché. It's the happiness of pursuit versus the pursuit of happiness.

Victor, when you were running the business, I'm curious how those 3 categories of motivation felt to you. So aggression, desire, and ultimately healthy generative drive. Did you rotate between them? Did you feel all of them? Did one of them dominate? Between the 3 of us, you've spent the longest time building an operating business. So how do they manifest for you?

I think I have many different sources of motivation. You got to tap into all of them at different times. There's some fuels that burn cleaner than others, and this generative drive is the one that Burn cleanest. And if you can tap into that and you can do different things to keep that alive, I think that's the best source. The aggression drive is very powerful. So sometimes the business needs more of you and you tap into that. You have a competitor and you have to tap into this instinct of, okay, like this guy's a competitor, he wants to kill me, so I need to kill them. It's good for sprints, but you can't sustain that for years. The hardest thing is the pleasure drive. That is the most dangerous one because it just feels so good.

Before we invested, Victor and his brother had built such a profitable business without this filthy venture money that they could afford dividends that allowed a lifestyle.

What a novel thing.

Yes. But a lifestyle that would, for the average pleasure-seeking human being, be more than enough to swallow you whole. And it wasn't to say you were going to parties and things like this, but it was wealth that would've very easily— and I imagine that this is a challenge with your teammates who have experienced this wealth, like, why are we working so hard?

Hey man, we made it.

It's a conflict.

How did you deal with the desire part?

We're lucky that we're in an industry that if you were successful, you got dividends early on. On the first year of the company, we were paying out lots of dividends. And I read somewhere that—

Tens of millions to help you in the first year.

Yeah.

I read that money changes you. If you're spending a lot of money, it distracts you and changes you. I decided that for the first year, I would spend 1% of the money that hit my bank account. And that was a weird thing, but that was great discipline. I think that's one of the core advantages of Silicon Valley. Why people build amazing companies at Silicon Valley is you see these amazing people, these fantastic entrepreneurs, They're not spending their money. Us humans, we're just so influenced by the things that are around us so that the culture of the place you're in becomes a huge advantage or disadvantage. If you're in a place where spending money is cool, you can't fight it and like you are going to spend money. Like in Silicon Valley, like spending money is not cool and what's cool is having great ideas.

I think this is such a deep insight. This idea That the background waters you're swimming in, which I think this is felt to me acutely in San Francisco and the Silicon Valley, if you were to include the areas around Stanford and Berkeley, and is that it yanks you back into the generative drive. If you try to pursue pleasure, you get alienated. Okay, you can hang out with different people and then quickly you find that the system and the reinforcement loop around the generative drive. I don't think that's true in São Paulo. I didn't know that he did the 1% thing. At some point you relaxed that constraint.

I started spending too much time with you, so it was hard to relax that.

I am so fascinated by this notion that founders say they want to win. Win what? Often it's money. Implicitly, the reward in business is money. That is the game that we're playing.

I'd challenge that.

Oh, no, I have a lot of the impression that—

For sure. That's one scorecard.

We're talking about money here, and I don't want anyone to get the impression that we're not capitalists. I think, at least me, I think capitalism is the number one invention that humanity had. And the number 2 was probably companies.

He was careful not to project capitalism on me.

So I'm from Brazil and I've traveled around as many people have, and turns out that there's places that are very good for human beings to live in and there are places that are not good. I'm now living in the Bay Area and I can tell you that living in the Bay Area is a lot better than living in São Paulo where I grew up. And the principal difference is there are great companies in the Bay Area. That is the difference. The externalities of companies are insane. And then on this like, hey, entrepreneurs wanna make money. Yeah, they wanna make money. It's a funny thing. When I became a venture capitalist, the most frequent comment that I got from my friends is, oh wow, you moved to the dark side of the force. To me, it was just so surprising that people would say that to me. And part of me was hurt. There's some sort of resentment against the investor class. And I think about that as like a why, what's behind it? And I think that the primary motivation of the great entrepreneurs, it's achieving the mission. And for most investors, the primary motivation is make money. I thought a lot about this question and I think those 2 things in the very long term, they're somewhat aligned, but not in the short term. You go to the greatest entrepreneurs of our generation and you ask them, you go to Elon and say, hey, would you give up half of your wealth to have a city on Mars? You've created a city on Mars. I don't know him, but I'm pretty sure that he'll take that. But if you go to a hedge fund manager and say, hey, we're going to take half of your returns, but your companies will all have accomplished their mission, and I don't think hedge fund managers will take that. When I talk to entrepreneurs, it matters a lot what they're trying to optimize for. And the best entrepreneurs, they're there to achieve the mission. Turns out that if you achieve the mission, other stuff works out just fine.

Talk about the business model and why you were able to produce so much cash so quickly. I think we're entering into this era where the interest in cash-producing businesses is going up quite rapidly with interest rates. You did this and built one and built one that kept producing lots of cash as it grew. Say a bit about that, especially with your VC hat on, where now you're funding businesses which often maybe won't have that same trajectory, but how did that experience inform how you think about your business philosophy, the other sorts of businesses that you want to be able to back, and so on?

When we started the company, we only had $100 to start the company. And so we moved back to our parents' place and we did everything ourselves. But then we scaled it to hundreds of millions of dollars in annual revenue. I think that was only possible because when a new market is created, it takes a while for people to understand that there are consumer need that is now possible to satisfy that is not being well satisfied. A lot of people think about, okay, what was the innovation there? I think it wasn't as much as mobile. I think it was much more the advent of in-app purchases because when you create a free game and then people are able to download the game for free, play it before they decide to invest their money in, that's what really expanded the market. But of course, the market matured and then you're not able— today, there's no opportunity for you to have a game that commands that profitability today because of course, to get downloads now, you have to spend a lot in user acquisition. The way this shaped my understanding is if you have a business where you have to pay a lot to acquire customers, it gets very, very hard to make it very lucrative. What are the new things that are emerging? That's the importance of like, hey, how do you earn into a market? Because if you do that, one of the first few people, especially in a consumer experience, if you're one of the very first few people offering experience, That's when you get organic downloads, that's where you get organic traffic, and that is the key to generating a business that produces cash flow. And I think the problem that we have today is, okay, in consumer, the big platforms, they're a gateway to accessing these consumer experiences. And a lot of these consumer companies, they have to acquire their users from Google or from Meta. It makes it very, very hard to build a profitable business. I think most great businesses, they first consume cash before they generate something, but you got to understand, okay, what is your path to one day generate these profits? I see a lot of businesses being caught up on this like, oh, okay, we're spending money today. In gaming, this happens a lot. It's like, we're spending money today and we're always going to have to acquire a ton of users so you can grow and grow and grow, but there's no path to producing lots of profit.

One of the shocking stats about Benchmark to me every time I do the quick napkin math is if you just add up the dollars deployed by a given even partner, even with a long run, it is a shockingly small amount of money in the grand scheme of the big investing businesses. It's the size of one check that one guy writes one quarter at Capital Group or Fidelity or T. Rowe or something like this. And you've certainly earned the right to manage and deploy far, far, far more capital than the $500 million funds that you raise. So why that constraint? Why keep it small? Why wouldn't more dollars allow you to do more support of the great generative entrepreneurs out there.

I'm maybe the lone partner who thought, why don't we raise this fund that's half as big? Because it'll force more discipline on us to establish the basis of the relationship in a non-monetary form. Venture's a hack. It came from other investment models that tried to do this upside sharing. How do you deal with risks that are asymmetric? Models from oil well development were applied and It's this weird hack where it's like, I'm going to be your partner in the fullest sense, but I'm also going to buy the relationship. And by the way, once we invest, there's a bunch of my friends you'll never meet that are going to move into your cap table. And they run pension funds and they deal with large institutions that you'll never see and they'll never lift a finger to help you. And they're going to own more than your VP of sales. And you're like, whoa, whoa, whoa, whoa, whoa. Let me understand that. And so I think by forcing the structural discipline to not buy our relationships, but to earn them, that it keeps it clean. I don't know, it sounds maybe naive, but if we're over the 3 to 5 rounds that are done prior to IPO involved early, what we found is that the founders experience significantly less dilution because benchmark Thanks to our former partners, some of the existing partners have a track record that allows the next round to have a lower risk to getting done at a higher price. We did this analysis recently, thanks to Victor asked the question. The average founder who takes money from us is going to have a 6 to 7x increase in value over 5 years post-investment. That's average. So there's ones that are way above. Of course, there's failures. In a way of establishing a relationship that puts the primacy of that on the partnership and not on the capital, We preserve the ability to raise lots of money downstream. We're not competing. Very often we take much less than pro rata. People— Miles came in, he's like, that's crazy. Why aren't you taking pro rata? I'm like, meh. We're not trying to maximize absolute cash returns. We're trying to, in a way, maximize— if the objective function financially were to be made explicit, it's cash-on-cash multiple. And so when we're doing pro rata, we're lowering our multiple. Now you can say, well, you're putting in that company versus the company that'll lose you money. So it's like, yeah, meh. So the answer to the question of a larger and larger fund undermines the purpose. It increases the pressure on the financial transaction side of the relationship. We come back to the mission, and I remember Jack had challenged the discussion of mission and said it should be about purpose, not mission, because missions can be accomplished. And I think there's truth in that. When I joined the venture business, Kleiner Perkins was saying, we want missionary founders, not mercenary founders. This is not a binary state. I think it's an interesting concatenation of motivational forces. Many of the great entrepreneurs will say that the financial rewards are fueling the continued sustained generative drives of their business. Perhaps they're rationalizing it, but I do know that when they start to go down the path of consuming those gains personally, historically has really undermined their capabilities as great founders and as great leaders. One of the people whom I most admire in our entire ecosystem is Pavel at Telegram. There's so much that can be learned from a company that has close to a billion monthly active users and 30 employees. He's an aesthete. The idea that he would indulge himself with the largesse of his wealth, he contributed out of his own pocket to the bulk of the funding of Telegram with no revenue model. And you feel from him, this is one of those things you just get somewhat decent at identifying characters, people, aspects where it's infinite and not in some false way, but the purpose that the really great founders feel has a sensational aspect. And yet we're all humans, so we have these meaningful vulnerabilities. And for the vast majority of us, we get caught. And if you have a good partner, they're going to tap you on your shoulder.

It's like, eh.

And if someone's doing that in a threatening relationship, you get defensive. You can't hear it. It doesn't work. I think that ultimately, if you ask the question of Benchmark, why don't we start a growth fund? Why don't we say, yeah, it really feels like it goes right against our core value.

What have you learned about the very hardest situations in this business when a founder needs to go or a business is killing itself because of some strategic blunder? You're a fiduciary investing pension fund capital. I certainly share with you both this deep desire to work with generative life's work entrepreneurs, building incredible things. And then sometimes things go sideways and dealing with those situations well is incredibly important. What have you learned about that part of this discipline?

That it is profoundly difficult. There are no single sources of truth. Everyone needs to lighten their grip on their certainty that they know the right outcome and to have a lot of humility. And when unfortunately you do get to a place where it's really fallen apart, You need something to come back to, to guide you. And I think that historically for me has always been the purpose of the company. Beneath every business, there's a customer, or above every business, there's a customer. And if there are competing points of view on the best way to serve that customer's need and to fulfill your purpose, good. But when an individual or a collection of stakeholders has put their interests in front of that purpose, it's a good way to come back to truth as you see it in the relativist sense. And so I think what I've found is invariably it could be a founder who can't keep a management team or has done something that undermines the ability to have trust and safety inside of the company. And you come back to that guiding principle and does it work every time? No. And it's really challenging. And we obviously have had some very public examples of this with Uber, and we work as a partner to the people going through that. I can just say how Profoundly challenging that was from a human standpoint. There were no certainties beyond this faith that there's a better company that could be built. Whether that's true or not, one never knows. There's not a parallel universe where you get to run an A/B test. And so— But what I have found is that there's a decency that's available to everyone I've worked through in the most difficult situations and the drama, the human emotional roller coasters. There's a decency beneath it all that comes back to this business exists. I don't know that I can— I don't want to say to make money, but to serve a customer. And the outcome of that is that we all get the ability to have capital to do it at a greater scale. Going in, I think I always put a ton of weight on creating a condition of safety, which is that people feel comfortable being vulnerable. And the biggest pathology that emerges in a board dynamic is a absence of vulnerability. It's happened in, I'd say, a third of the boards I worked on, which is gone. And it starts with the CEO, but then the VPs that come into the room, and there's just a big defensive shield that prevents a real discussion. Because if they're not going to be vulnerable, then they're not going to listen. There's not a dynamic of dialectic that can push because they're defending a position. And if they did let themselves be vulnerable, my God, the cultures in these companies that go wrong that way eat you alive. But the CEO has to be the one modeling that behavior. It's one of the things you and I talked about. And when he was the CEO, I said, listen, there was some communications to the team and I thought, uh-uh, doesn't seem as vulnerable as it might be. And then he overcorrected and he was so vulnerable. I said, you know, you don't have to put a wool shirt on and whip yourself to strike the balance.

Victor, if you think about the strange path the business took from a financing standpoint, I'd love to understand why you decided to take your first outside investment again in the business that was spewing cash for a long time, I think at a multi-billion dollar, certainly greater than billion dollar valuation. And the dollar amount I think was like relatively small. So there must be something kind of interesting going on there. Why did you decide to take some outside capital when it's my understanding that the business really didn't need it?

So after 9 years of building the business, my brother and I, we wanted to have an act 2 for the company to go from like a company where him and I were the designers to creating this platform. And what we needed wasn't really the capital, but it was more the expertise. So I was living in Brazil. I decided to move to San Francisco because we thought that if we were going to make a company that would change the business model of games, it's like a platform for creators, we needed to be in the Bay Area. So I moved there, and very soon after moving, I understood that it's not enough to be there. You got to be plugged into the ecosystem. And I thought that as I started meeting investors, and to me it became apparent that partnering with a great investor, it's a great way to get plugged into the ecosystem and it's a great way to access all the knowledge that is in the region. So that was the major force behind me wanting to partner with someone.

What would you say is Peter's superpower?

I think the thing that contributed most was amplifying the founder's ambition. So Arthur and I were building the company, and I think founders, they're all quite ambitious and you're dreaming about a new future. But then as you start executing, you have a large team. And so at Wildlife, okay, we have 700 people and there's just so many details that get in the way of building your ambition and going through all the friction of the day-to-day. It's easy for you to starting lowering your bar of what you want to build. So I think a great board dynamic is when your board comes in and asks you, what would it take to be 10x bigger? Asking that question puts you back in dreamer mentality of, okay, what's possible? What can go right? So at Benchmark, there's this tradition that I love that every Monday we have a dinner with someone that we really admire, someone that changed an industry. So before I joined a few months ago, they had dinner with Jeff Bezos, and then one of the partners asked him, what do you expect of a board member? Like, what's a great board member? And Jeff told this story of the day that he presented a plan to the board where he said, okay, like, I have a plan to reach a million subscribers on Prime. And then the thing that he wished is to have a board member that is more ambitious than he is. that would come in as like, what would it take to have 100 million subscribers to Prime? To me, that's basically 3 things that a great VC or a great board member should do is one is amplify the founder ambition. The second is recruiting. And the third one is helping measure the right things in the company. I think this first one is by far the most important, which is how do you amplify the founder ambition? And you ask the question of what's possible. And I think That's what Peter did for us.

How do you plan to suss out in founders the kind of people for whom that first thing could be powerful? Having your ambition amplified sounds great, but I imagine that a certain kind of person it would be far more powerful for than for others. So how do you make sure that you're partnering with the right people? How do— testing before you've worked with them, how do you test for something like that ahead of time, do you think?

I think it comes down to 3 things. You got to meet a person and you have to feel that this person has a big goal, almost more so than what exactly it is. You got to feel, okay, this person is— there's this energy, there's this boldness that the person's trying to build something big. When you're partnering early stage, so many times what you're trying to do changes. It matters more that you're trying to Build something that matters. I think you've got to see this thing. And then the second part is you've got to be really intense. Building companies is just super, super hard. And the third one is, okay, your ability to simplify. So you have these 3 things and you have the right ingredients. But then for me to be able to partner with the founder in a way that I'm able to amplify his ambition, I think a lot of it comes down to building trust and having a relationship that allows for that. And unfortunately for this part, it just requires a ton of time. It requires spending a ton of time together. When I decided that I wanted to take a next chapter in my trajectory and come to Benchmark, one of the things about Benchmark that attracted me is at Benchmark, this is the idea that we don't delegate spending time with founders. We simplify a lot of other stuff so that we can spend a lot of time with founders. And that resonates with my mental model of, hey, how can you be a successful partner to someone? It's like you spend a ton of time, you build that relationship, And you have so much context on what that person wants to do, and you have context on what that person cares about. And when the person is being restricted by all the constraints of reality, you're able to come in and ask questions that are provocative. It's like, hey, what would it take to be 10 times bigger?

Another way that you're unusual is that you became very wealthy building your own business to go to a firm to write very small checks. in the grand scheme of things. And not to be too crass about it, in many ways you could just literally write the same checks yourself, which is often not the case for VCs. Why do you want to do this in a different way than that?

I think a lot of it comes down to what are you optimizing for? And the thing that I optimize for is, hey, I want to work with the most amazing people and I want to be a great partner to them. And I think the partnership, there's just so many things I can learn from the different partners. And being a group of 6, we all complement each other. So to me, that was like how to understand a business. That to me was invaluable. And the other part is there's something special about the Benchmark model. The thing that always attracted me is like, okay, it's such a small firm. We make 10 investments a year. They're typically Series A. And how come investing in so few companies at such an early stage, there's so many interesting companies that Benchmark was lucky enough to be a part of, like Uber or Snap or Instagram. And to me it's this model of you select very few things, you spend a lot of time building trust with the founder, you spend a lot of time trying to amplify their ambition. And I don't think there's something that I could do on my own because when you partner with the founder, if you're optimizing for the short term, what you do is you write a lot of checks. Write a bunch of checks, and then realize after you wrote the check, you're incentivized to spend the least amount of time possible with the founder. But somehow there needs to be a belief from the founder side that, oh, this person's going to invest in me and is going to spend a meaningful amount of time trying to make me better. And you can't put that into a contract. It doesn't work. So the only way it works is if you have a reputation to do that. Benchmark is like, okay, we say that we don't make bets, we make commitments to founders. And I think that the average, once we make a commitment, I think the average length of the relationship is 10 years. At Benchmark, we have this thing where we say, hey, we have very few rules and people can do different things, but the one thing that you'd get in a lot of trouble is if you're not dedicating time to the founders that you're partnering with. If you do that, then you'd get into a lot of trouble. Inside of Benchmark. So I think there's just a ton of things that if I tried to go on my own, I wouldn't be able to come close to it.

I'd love to go through the various people that you've now spent some time with and just hear you react with one idea or one thing you've learned from them or about their style that you like, that you appreciate so far. We'll start with Sarah.

She's so analytical and she's about understanding everything that is happening in a sector. She's just so diligent. She's knowledgeable. There's a few things that she cares about and she puts in the work. She understands what goes on. And so I think out of all of us, she's probably the more disciplined one.

How about Eric?

There's many ways you can measure success in your career, if you want to call it. And the way I want to measure my success is like, okay, how many times I identify this great person and I'm a meaningful part of their journey 10 years in. I joined Benchmark and very shortly after Eric said, hey, do you want to come over? I'm having like 3 of my CEOs for a beer at my house. We're going to meet up for an hour. So I come over and it's Jay from Confluent, Spencer from Amplitude, and Saj from Benchling. And Eric had this like relationship for many, many years, over 5 years for all of them. And what was supposed to be a 1-hour meeting turns into a 7-hour hangout. And we're there and these 3 guys, they're learning from each other. You see the depth of the relationship. And it's a Friday and people want to be there. People want to spend time with Eric. And what shocks me is these people respect his opinion and want to spend time with him. When I looked at this, it's like, this is how I'm going to measure success. I hope that 5 years from now or like 10 years from now, I'm going to invite a few of the founders I work with and they will all have relationships because I will have a few of these encounters and they will trust me and they will see me as like, okay, like this is a guy that is an important part of our journey. And when I was there, I was like, okay, like I came to the right place.

That's an incredible one. We'll do Chetan next. And I always feel honor-bound that anytime I bring up Chetan's name, it's important that I say that he probably gave me the single most valuable piece of business advice that I've ever gotten, which is I think really a testament to the quality of thinking in the partnership. So I always feel like I need to say that when I bring up Chetan's name, to whom I'm always grateful. What have you learned from him so far?

Chetan spends more time on things that are further away from my areas of interest or where I spend a lot of my time, but What he does that impresses me is his knowledge about his space and he has this commitment of when people come in to pitch, lots of times we're going to say no, but how do you make it so that the person leaving the meeting is happy that he was there? So to the extent that people want to hear it, he'll tell people coming in everything he knows about the space, everything he learned about the space. And the idea is that, okay, even if people say no, They're getting free work from someone that is knowledgeable and has been in there for a long time.

It's a wonderful answer too. As you view the landscape, again, I know these are silly, ridiculous questions. You're 3 months into this, but what excites you the most about the current setup in the world, especially vis-à-vis enabling technologies or tailwinds? I've heard Peter use the term thermonuclear markets. I love that way of thinking about this. What is it out there that is most drawing you in and getting your attention and wanting to meet the people investigating a certain space?

I think computers speaking natural language is a big deal.

Seems so.

I think, I think like humans being able to talk with computers in the way that they talk with each other, I think that changes things. So one of the things that as a CEO and running the company, I'll just get distracted is, you know, there's all these things being invented. There's so much that could be better. One thing that I'm particularly excited about is I always loved messaging. I think messaging is great because it's at the core of communication and connecting with humans. And you think about the messaging experience today, it's so suboptimal. You have a conversation with someone when you're live, it's just way more fun and it's way more effective. Than if you're texting with someone. And as you think about, wow, now we can talk with computers and computers can understand us and they're getting better and better and better understanding us, what does that do to communication? I think that's one small example of a lot of different experiences that are being created. And cool thing is I think LLMs are a piece of it, but there's all these other things that need to be built around it. I think LLMs are there to do a bunch of really great things, but all these other pieces around We have the smartest entrepreneurs in the world working on things like that. So that is what gives me great pleasure today is meeting people that are building these types of experiences.

It sounds like you think our attention is maybe missing key spots around this session, rightfully so, with these incredible foundational models. What else are you seeing that catches your attention in this exciting area?

I'm predicting that there's a sub-30, probably sub-25-year-old founder That is imagining in a generative sense an experience that is deeply missing today around human connection, that the use of these technologies will fill that void. And it's going to happen. Our industry will see it in a way that we experience it and feel it before we think about it. So if I'm projecting it and all that, what do I know? And to steal Matt Kohler's claim, our job is to see the present most clearly. And I think we're at risk of missing and not paying attention to the bubbling up, the inevitable bubbling up of a technology in the hands of somebody who's generations younger than many of the people using these technologies today. And I think that that's an inevitability in the same way that I think we're going to see the use of large language models combined with core enterprise technology Build a new continent of software application companies whose business models will not be selling seats, it'll be selling work. If you're buying work, your operating expenses is what you're looking at. Where's the OpEx going? What could I buy? Totally different framework than the history of software, which is like, I'm going to buy a tool and then make my current work more efficient versus getting rid of whole swaths of your OpEx. And so, to me, those forces are a debate we've had internally of, is AI a Distribution disruption or technology disruption? And I think many smart people would say, no, it's really a technology disruption. So therefore it advantages the incumbents because it's the same distribution model. I think that's wrong in 2 ways. There's a demand disruption, meaning I think every single company I'm involved with, but I imagine the large global companies have the same top-of-mind question of how does this apply to our business? And that is a disruption that's not just Well, we talked to Company X that we're buying from today and they told us what it meant. Microsoft told us it means this, Salesforce tells us it means— no, there's a distribution disruption on people's ability to bring in new technologies and take risks. Okay, so weird things are going to happen. There's going to be some epic failures. There already have been some. The other distribution model disruption I think is pricing and the way that people think about buying software will change. To me, that changes the distribution model because I'm no longer licensing or renting, but I'm consuming a completely different experience on the other side. And I think that's probably true from the way we experience applications, meaning we've trained this whole ecosystem on look at a screen and go like this. And I think the primal acts for AI may be different. We're not investors in any of these equipment companies, but yeah, what are the downsides? Is there stuff in— We ask this question in part because we like to fancy ourselves intelligent about growth companies in the public market, there's a lot of companies that got left behind post their COVID. So somewhere in there we're missing something. And if I was looking systematically, where are we in recovery? I think it's inevitable to look back. There's more than a few 10xers sitting right now in the $1 to $5 billion market cap in the public sector. The statistical probability to pick one of those and getting 10x is much greater than picking one of the late-stage private companies that raised at a bloated valuation that's somewhere between $1 to $5 billion. If I was a shrewd investor, I'd say we're probably in a— maybe it's 6 months, maybe it's 3 years— chance to get the 10x in the public market in a not overly priced software business.

How do you think about the notion of platforms and platform businesses in this new era? It seems like platforms, there's the disruption in distribution is one aspect of what's driven some of these explosions. Some new platform also is often a key ingredient in some explosion of great ideas, applications, whatever. Sounds like basically you were building a platform in— at Wildlife. I would love to hear you both riff on the role that this concept plays in your investing, in the technology, and what makes you excited, and whether it'll be different this time.

A lot of people are making the analogy that it can make sense of, okay, there were the app stores, like mobile was this great platform, and then there were apps stores. And then the app stores are this, you can think about a platform or a marketplace. Okay, you have developers on one side and you have people consuming the applications on the other side. And now maybe you have a different platform, which is an LLM platform, when people are creating these new applications, which are, you can think about it as bots. You have an LLM at the core, but you start putting a lot of modules around it. And right now we're seeing these very thin wrappers around LLMs. And a lot of people are saying, oh, these platforms, think about Character AI or OpenAI's new platform or Poe. And then when you play with some of these bots, you're like, wow, this is so thin. This is a very, very thin wrapper around an LLM. And so this is never going to go anywhere. But if you think about the early days of the iPhone App Store, what were the first apps that got traction? That was the fart app.

Yeah.

And there was a beer app. Which is just, it was a glass of beer and when you tilt it, sloshing around, whatever the heck. That was even thinner maybe. So I think one big question is, are the new platforms bought app stores? I think that's one possibility that is intriguing.

We get pitched a lot of companies that use that word platform.

It ceased to have any meaning.

Well, I was going to say it becomes one of those tells. It's like when we get pitched anything for anybody, Your skeptical register gets activated. And Adam Bosworth, I don't know if you've met Adam in the past, he was at Microsoft for 20-plus years and said something to me about startup companies. Like, you guys, you only startups can use the word platform. A platform is a company that has a million developers. When you have a million developers, you can call yourself a platform. Before that, I don't really want you to use that word.

That's simple.

So I think this reality is going to be that there will be over a million developers that are writing to large language models, and you assume that is the foundational, quote unquote, platform. Does it become commoditized? Likely. We're radical believers in open source, in that that force will be unstoppable here. It has a number of interesting, not at all well-understood ethical implications for these models and what the forces towards open might lead us to. And I don't think any of us have a— again, this is a case where we have—

Yeah.

loosely held beliefs that we're constantly trying to update and to make sure we're not missing something. But I think as a result of the million-plus developers that are accessing transformer-based models, there will emerge from that mass empowerment of creativity the next 3 to 5 half-a-trillion-dollar market cap companies. Maybe it's 1 to 3, but it is the substrate. In which I think those companies will be born. Is it one of the existing companies? Is it OpenAI? I don't know. We do not have an investment in a foundation model company at Benchmark. And I think our view is that, first of all, it doesn't really fit with our model of we like to back a small team investing in companies like Instagram and Snap when they had less than 10 people and they didn't have a plan to go hire 300 people. They had We plan to get to a billion active users, but we start there. And that tends to be where we can take advantage of, for lack of a better term, of this is a thermonuclear force, this capital that's gone into buying equipment, NVIDIA processors combined with putting that online, making it available. And so that last mile lighting up of a developer ecosystem that's happened, I think it gives us such optimism that even in spite of all the sclerotic issues of the COVID overcapitalization of the industry, both the funds and the companies, this is right now broadly defined, a million-plus developers that will launch the biggest returns probably of my venture career, and been doing it for 25 years. And is it possible that we've gotten it all wrong? Yeah. I mean, there's definitely a worldview that it's a possibility. Is this crypto all over again? And We don't need to know the answer to that. It sounds weird, but it's not our job to decide if this is right or wrong. It's to— to be overly redundant— to partner with the best entrepreneurs in this segment. That best is defined by like the ones with the maximum generative drive, hyper-curiosity, hyper-competitiveness. And, and if it's wrong, the great ones reinvent themselves, then they become Discord.

How do you think about the presence of, let's call it, the largest 5 to 10 technology companies in the world, which are almost possibly huge. It's hard to imagine how big they are, how big their market caps are, how many divisions they have, how much power they have. Generally, they're amazing companies. If you look at it from a fundamental investor's perspective, these things are modern business marvels, but they're way bigger than when you started your venture career. And therefore, I assume they have way more gravity in In how you think about new companies entering this space, what's changed? How do you think about the presence of these Death Stars lurking out there as the little X-wing tries to make a go of it?

It gets back to looking for disruptions in distribution because one of the struggles that we've had in our industry is that they're compounding network effect businesses, and that network effect winner takes most. Concentration of wealth, concentration of users, concentration of forward investment capital and resource allocation makes whole segments uninteresting. When I joined the venture business, Microsoft had its space that you just stayed away from, and it was the Death Star. And you said, if Microsoft's your competitor— now, if IBM was your competitor— More fun.

It wasn't so bad.

But now it's like, yeah, you've got at least 3, possibly 4 or 5 Death Stars. There are 2 or 3 There are 3 things that give me optimism. One is that the nature of an entrepreneur— Steve Jobs, Mark Zuckerberg, Jeff Bezos wouldn't work for one of those companies. And I adore them as people. They've built great cultures and great companies. But we still have our primary source material, which is a founder that is typically disagreeable, truth-seeking, and nonconformant, and doesn't like to go get a cookie in someone else's system. Those people exist in an almost fixed ratio of humanity. And our belief is they just need the right substrate in which they can work. And so you wait. And crypto was a place you could have gone. There was definitely a lack of incumbency there. In fact, incumbents were structurally disadvantaged there. I think we'll probably see, as we look back in the course of time, in 10 years, that we can't deny the fact that Bitcoin Ethereum, Solana collectively created over $1 trillion of today's sustained market value. Okay, that's where it happened. Now, what are the companies? It's not so easy because of the nature of crypto. I think if you look at large language models and use of transformative technologies, is it the incumbents' game? This is where all energies come back to. Where is there distribution disruption? I think you're going to find that there's a consumer experience that those incumbents aren't well-suited to go create, that they don't have on some whiteboard today. Maybe there's someone there that's frustrated who quits and goes and does it. But for reasons that relate to their own capture and their internal atmospheric of the bureaucracy, they'll suffocate it if it comes out, or they'll do something grandiose that just flops. And on the other end of the spectrum, I think you have the enterprise where I think this nature of people are buying work, not software, totally different. So, you know, that's the hope. We have to believe that. I know the entrepreneurs didn't stop being manifest in the social-emotional landscape of humanity. So they may be unhappy right now relative to, say, 2010.

Victor, as you think about the role of gaming in the world, you've built something that as many people have used as probably anybody. How has your thinking on that evolved? Is there a common thread that unites the great games or the great gaming businesses? I would just love to hear all that you've learned as one of the privileged few that's built such a big thing in that space?

I think we're entering a golden era of game development. And the reason I think about that is game is a creative endeavor. And I think what this new wave of technologies allows for is game development tools that make the creation process so much better. Back in the day, the really hard part of making a game was the technical challenge. Everyone knew, okay, what game should you do? Everyone knew what you wanted to do. The hard part was just getting it done, having low latency, having high-resolution graphics. And over time, thanks to great tools that were created, it got easier and easier and easier to create a game. And what this does is it allows a smaller and smaller team to create something. And it turns out that With a work of art, most times it's the creation of a small group of people. A lot of times it's one, and it's a person that has a vision, and then he needs to create this vision. With AI tools, the vision that one person will be able to create will just be much better. I'm excited about tools like Midjourney, for example, that creates 2D art, and it's great. But as you think about it, What if you could create art for a game in the same way? You prompt and have the entire art for a game and someone will build that tool. When we get there, we're going to have games that are all better. I think a lot about the beginnings of the book industry. And in the very beginning, the core advantage that a book company had is it had a great printing press. You're better able to print the books. So you go and you hire an author, and you pay him a little bit of money and he gives you a manuscript and you print the book. When printing got commoditized and it was very easy to do, a lot more people were writing, and then every great writer out there was able to express themselves. And what had happened is you just have a better choice of books. Gaming is still a huge passion of mine. It connects 2 of the things that I really love, which is understanding human psychology and technology. And a lot of times humans love to play and like to play on every space that emerges. And so whenever there's a new technology that gets invented, very quickly people create games for that. So that was true for computers, that was true for phones. And now with AI, there's so many new games that can be done and people are starting to experiment with it. And we're not there yet because it takes a while for humans to understand what can be created. It takes a lot of experimentation.

As an observer of the gaming market, it's got its own challenges of incumbency. I think the industry's really suffered as a result of the moves on do not follow. So acquisition engines are sputtering, the growth rates are elusive, and they're still giant businesses, but it doesn't feel like— people always feel like, hey, you know, remember we were growing 80% at 100% 50% a year and you're growing at 7% to 10%. And that there's a sense of it needs to be disrupted because mobile has become congested. There's this question of, okay, well— and I'm curious, Guy, my partner, I could ask this question. Do you think there'll be a company founded in the next 2 to 3 years that will pioneer a new business model? Or do you think it's going to be a version of free-to-play and that that's a fixed constant now? Because that's the nature of distribution.

I believe a game needs to be free. So I think free-to-play—

Is that a practical or a philosophical view or both?

I think it's practical. The idea that you can experiment before you make a commitment, I think it's just really great. There's people that care a lot about the game and it becomes their hobby and they contribute a lot to it and they subsidize for the rest of the population. I actually think it's good for everyone. I still consider myself to be young. At some point I'll be old. Because I'm married to things that revolutions. Free-to-play was a revolution in gaming. So many more people started playing because of that. I think we're going to see so much innovation, but I don't think the innovation is going to be on business model. I think games will continue to be free. I think the first innovations, the tools will get so good that getting your imagination to be executed will be the easy part, and imagining great experiences will be the hard part. And that's fantastic for everyone involved.

Victor said something to me that really stuck, which is it's not hard to make a game that's really compelling. It's really hard to make a game that's compelling in long duration.

One of Mitch's forever games.

Yes. And so you have this sense of this explosion of content. If there's an explosion of games to be played, then there becomes this discovery problem. And then certain aspects of games that are going to carry through, okay, to play, but business model dimensions that have a structural network effect. And that seems like it's inevitable, but the form that it takes, we'll recognize it after it happened.

I think the interesting thing is new technologies allow for new patterns of gameplay. So the dominant games were games that you used to sit down and play for an hour. And the dominant games were games that 60 hours of gameplay. And the dominant games now are games on mobile that you play for 3 minutes, but you continue to play the same game for many years, like play the same game for 5 years.

People still play chess and backgammon. So thousands of years.

Talk about forever games. Yeah. I'm always interested where people feel like they have the most room to still grow. And that's why I asked this question on where you feel the most incomplete. Especially interested in asking this to you two because You've been doing this a long time with a Hall of Fame career. You're 3 months in, but my guess is you both still have something that you feel incomplete on. So I would love to hear what you both think.

Doing a job now for 25 years, in my case, you burn off motivational systems that are easily satiated. What does that mean? Well, from my standpoint, it was first of all not failing. That was a motivational system. And Maybe I still can pull that off. I still have some time left on this earth as a venture capitalist. Then there's a motivational system of being decent in my peer group. And the motivational system that now is at the center, it comes back to this earlier conversation about generative purpose. And I think what I feel like I'm still learning and where I have humility is I would say that I have infrequently had full potential relationships with founders. I look back on a 25-year career, I know what it looks like and what it feels like, and I know it's possible. And to say I can activate that now every day when I get up, it will be measured in the depth of impact and the meaning, the joy that comes out of those relationships for me and for the counterparts. And we're blessed because it's not just the founder, it's The company, it's their customers that they serve. So it scales in a way, but it didn't need to for me because it ultimately resolves down to the relationship I have with Victor. Knowing that in relational life, there's always a higher level of flourishing possible. I would score myself, if I were being brutal, on a scale of 1 to 10, as having gotten above a 5 in full potential. Occasionally, I get to an 8 or a 9. But boy, nothing feels better when it's really working. And that requires me to continually grow as a human being. Nothing's made me better in the job in the last decade than being a parent to 5 kids because it's not that different. You start with connection. If you don't have connection with your children before you try and correct them, good luck. Really internalizing our role not as in a power structure, but as a relational partner. And then maybe that's one component. The second is, yeah, you always tilt towards, can I recognize it more clearly? Clearly, when I see it, which is the next great company and entrepreneur and founder. And so much of this is outside of our control. And so you sit there and you quote wait for the perfect pitch. Buffett has said this: We don't have to swing. And part of not having three billion dollars of assets under management, we stay really patient. But we also care about working and being relevant in a way that we don't accept that. This year, guarantee there's a company that is going to get founded that's. going to break through $10 billion in market value. The probability is, as you start in any calendar year, really low that you're going to be the partner to that entrepreneur. And that provides a source of endless healthy anxiety.

How about you?

That's an easy question. I've been an entrepreneur, and— but now I've just started this new journey. There's more that I need to learn than the stuff that I know, which is scary and exciting. And there's this energy of being at the very beginning. And as I think about the things that make a successful investor, I think there's, you source, you select companies, and then help them build the companies. On this third bucket, I think I feel very confident because I built a company. I built games that generated a couple billion dollars in revenue and did that without using any investor capital. So I'm confident that I can help people build companies. But everything else is a big question mark.

What matters most to you both that we haven't talked about?

It's such an interesting question. My sense is that one of the major future not-yet-founded companies is going to end up addressing the pathologies that experience anyone who's on TikTok or Instagram 20, 30, 40 minutes later. They don't feel so good at the end of that. And so I think we're Relatedly, going to be more aware of the sources of human flourishing in the ethic of the companies that we're building and how we think about the choices we make when we fund them and how they get built. This is not to say they should all become nonprofits. I actually think the recursive success of a profitable company is you get more resources and the system works. I agree with you. I'm a capitalist. But whenever you go into this train, you can come across as being sanctimonious. And so I'm very humbled to not get there. But I do think the thing we haven't talked enough about in the industry is broadly in the category of mental health. We brushed on it today, but it is behind the greatest forms of suffering in the internal lives of entrepreneurs, but also in the external lives of the companies that are getting built.

I had an argument, or a discussion I should say, with my friend Jeremy, me taking the Hans Rosling side of these incredible improvement curves in human history. And him taking the side of, well, yeah, but if you take some other measures such as suicides under a certain age, it's the worst it's ever been. Mental health measures are very bad, and there's not a factfulness book about that quite yet. And so I, I'm sympathetic very much so to that idea.

Oftentimes founders are on a journey that can go to some very unexpected and traumatic places. It's unfortunate because those are moments when they feel most alone. And I think a lot of people have gone through that post-COVID because there have been major headcount reductions and they feel laid bare, defeated, beleaguered. And one of the really alarming things to me when I bring it up is I said, oh, one of the greatest entrepreneurs of our life, Marc Benioff, went through a few seasons of those things where there were discussions about does he stay an independent company or not? And people are like, he did? So this relatability, that feeling of being defeated and dispirited is all part of the adventure. And yet on the other side of it, as you go through more experiences, you can put it into context. And I think that a lot of times decisions that you're making in those troughs become fatal for the company because you're just at that point where you got nothing left.

I'm sad to be forced to wind this down and ask my traditional closing question. What is the kindest thing that anyone's ever done for you?

To me, the first thing that comes to mind is my daughter, Natalie. After a really tough day of parenting where you feel completely unseen and unappreciated— this was Easter 3 years ago— sits down with me, and I'm doing my best to hide it. And she put her arm on me and she said, I know it was really hard for you today, but we love you completely. And It was really a great day in the grand scheme of things. And sometimes kids, they should never be parents to us because we have to have a certain degree of— but I come back to that moment and the grace of that human being at that point in time. And I think most parents can relate to having a moment like that in their life.

How old was she?

At the time, she was 9 years old.

Wow. I have to go with my grandmother, and she taught me, me and my entire family, The value of hard work. This is not compatible with the idea that we don't have free will, but this is the idea that hard work does transform your life. So she comes from a poor region in Brazil and she had 10 kids. And when my mom was 3, my grandfather was murdered and she had no education and somehow she worked really hard. And my mom, Not always had enough to eat, but through her work, she created a radically better experience for me. And that made me ask the question like every day is, what could I achieve if I worked a little harder? I think that asking myself that question radically changed my outcome. When I think where I was born and the things that happened in my life, I'm pretty happy. And a lot of times if you're living like every day, if I work a little harder, what can I do? No question has helped you more, and she taught me that, and for that I'm super grateful.

What an incredible, awesome pair of closing answers. Thank you so much for your time.

Oh, thank you.

Thank you.

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