🔑 Key Takeaways
- Benchmark's success lies in their conservative approach and long-term vision, while Fundrise is innovating to bring private market investment opportunities to retail investors while eliminating access fees.
- Flexibility is key in venture capital, as the needs of the industry evolve with technological advancements. Successful firms like Benchmark prioritize founder relationships and decentralization over rigid interconnectedness.
- As venture capital firms have matured, there has been a need to rethink ownership structures. In the early days, deals were necessary to create product-market fit, but as technology evolved, firms like TVI and Merrill Pickard Andreesen & Eyre disappeared. Kleiner Perkins was the dominant firm of the time, alongside other top-tier entities like Sequoia, Greylock, Venrock, and IVP. Technology Venture Investors (TVI) notably invested $1 million for 5% ownership in Microsoft, reaping great benefits. Today, venture capital firms are considering how ownership structures impact their businesses' viability over the long term as they grow and evolve.
- In the past, founding partners of venture capital firms had more control and governance. Today, there is a more equal partnership structure, with power being distributed among all partners. Carry payments are determined by the management company owners.
- Building a successful venture capital firm requires embracing an equal partnership philosophy, supporting founders, and maintaining a personal, non-scalable relationship with them while providing proper rewards.
- Embrace your values and take bold risks, even in the face of recruitment challenges. Personal confidence and fairness can help chart a successful course in venture investing.
- Bold and unique strategies can help businesses stand out and succeed, even in competitive markets. By setting a higher premium, Benchmark Capital differentiated themselves and ultimately set a new benchmark for performance in the industry.
- LPs fear the risk of underwriting new venture capital firms with unproven teams despite a promising track record on paper, leading them to evaluate new firms and sometimes risk missing out on high-performing funds like Benchmark Capital.
- Success in venture capital requires a long-term outlook and perseverance, even in the face of early challenges and missed opportunities. Upholding values like integrity and follow-through can ultimately lead to success.
- Confidence and aggressiveness can be crucial in achieving success in the business world. Having a self-fulfilling prophecy of success and a strong force of will, coupled with innovative ideas, can lead to victory.
- Investing in founders with big, ambitious dreams can lead to great returns in early stage venture capital. Making bold bets and backing the right ideas, like Webvan, can create fantastic returns on investment.
- Successful venture investing requires taking risks, betting big on visionary ideas, teamwork, and a focus on the future. Investing in a portfolio of companies allows for more risk-taking, and background experience can lead to unique opportunities.
- eBay's success story highlights the importance of product/market fit, persistence in seeking investment, and strategic decision-making in maintaining independence and achieving long-term growth.
- Benchmark's unique approach of allowing founders to take some money off the table and their EIR strategy of company formation resulted in huge returns, proving that taking non-consensus risks can pay off tremendously in investing.
- Benchmark's investment in accept.com, eBay's failed attempt at a payment solution, opened the door for PayPal's success. The potential for online peer-to-peer commerce enabled by eBay's platform proved to be a valuable asset in the growth of PayPal.
- Prioritizing customer experience can set a company apart from competitors, while outsourcing tasks like finances can save time and ensure expertise in crucial areas, allowing startups to focus on their core product or service.
- The Benchmark firm model's success is due to its unique structure that promotes teamwork, trust, and equal economic incentives. Other firms may not benefit from this model since incentive misalignments can lead to mediocrity. It highlights the importance of fostering a culture of trust and incentivizing teamwork for success in the venture capital industry.
- Trust, support, and compensation balance between every partner in the firm is the key to Benchmark's success, along with maintaining a strong relationship with entrepreneurs through frequent communication.
- When building a company, prioritize selecting board members who feel psychologically safe in the partnership and prioritize company success. Confidence in decision-making and maintaining a dedicated culture can lead to continued success.
- Successful firms must balance the benefits of pursuing new opportunities with the risk of losing their core value proposition. Adapting to change is crucial, but a firm can also succeed by staying true to what works.
- Benchmark's equal partnership model requires external recruitment of highly specific talent, such as a fiercely competitive 30-year-old venture investor, to maintain a narrow pool of future partners. Bill Gurley's former engineering experience and growth hacking expertise made him the perfect fit for the venture capital firm.
- Bill Gurley's analytical approach and willingness to take risks allowed Benchmark to successfully shift their focus to investing at the point of product traction and market fit, ultimately leading to their success in the changing startup landscape.
- Bill's analytical skills and investment philosophy in identifying market gaps and gauging company success in early stages, along with Benchmark's expansion and fundraising efforts, paved the way to the firm's success in series A stage investing.
- Focusing solely on investment decisions and portfolio management may lead to early success, but failing to adapt to changing circumstances and opportunities can have lasting consequences. Sins of omission can hurt venture capital firms more than sins of commission.
- To be a successful venture firm, investing in the right companies is crucial, but maintaining a strong partnership built on trust and accountability is equally important. Retiring partners must adhere to founding principles, and mistakes must be addressed constructively.
- With new ownership and a focus on revitalization, bringing in new talent and fresh perspectives can lead to success, even when the future seems uncertain.
- Emotional intelligence and gut instincts, rather than intelligence tests, proved to be successful in the recruitment and investments of the Fab Four at Benchmark. Clear present vision and technological advancements played a role.
- Matt Cohler accurately predicted the future potential of mobile advertising and invested in successful startups, leading to the success of Benchmark Fund Seven with the perfect team and fund size for successful execution.
- A balance of instinct and expertise, being open to new ideas, and a philosophy of fostering the next generation helped Benchmark Fund Seven achieve phenomenal success in venture capital investments.
- Benchmark's expertise in timing the exit of investments and willingness to sell shares at the right time has helped them realize substantial gains and establish themselves as quality partners to startups.
- Start-ups should prioritize building a positive reputation and adapting to public opinion, rather than solely focusing on achieving high valuations. Complex relationships between investors and founders should also be carefully navigated.
- Lawsuits may cause temporary setbacks, but a company's long-term success depends on its ability to adapt and maintain a strong reputation.
- Benchmark's venture capital success is rooted in the ability of their general partners to make correct non-consensus bets. While unique perspectives bring value, it's important to avoid staying non-consensus for too long.
- Margin of safety in investing now includes a company's ability to adapt to change. NZS Capital prioritizes management and adaptability over valuation. Adaptability is crucial in today's business world.
- Focus on sustained growth over short-term gains and value contributions beyond monetary compensation. Benchmark Capital's unique structure and low-profile approach highlight the importance of these concepts in the venture capital industry.
- Benchmark's reputation as a top VC firm and their unique team dynamic and high-level service have made them a formidable player in the industry, attracting entrepreneurs who are willing to accept lower valuations for their American dollars and making it difficult for other firms to replicate their success.
- Benchmark's different approach to venture capital allows them to invest in the most promising companies without the conflict of their own money. Their success is driven by following compelling founders and dedicated portfolio management.
- Benchmark's success is tied to their experimental and investing values, as well as their all-star team. However, their future in consumer investing remains uncertain and the next partner will be telling of their direction.
- Apart from business and tech-related content, expand your horizons by listening to recommended podcasts, books, and talks, and engage with supporting communities to improve yourself and your work. Also, consider investing in opportunities provided by trusted sponsors.
📝 Podcast Summary
Benchmark's steady approach to venture capital and Fundrise's aim to democratize private market investing.
Benchmark has managed to remain a top franchise in venture capital by not scaling up its strategies, fund size, or team members. They have invested in several world-changing companies, including eBay, Uber, and Twitter. Despite the transition of leadership and the changing of the guard, the third generation of Benchmark is expected to continue setting the benchmark for all-time greatest venture capital funds in history. Meanwhile, Fundrise seeks to disrupt the artificial divide created between public and private markets by allowing retail investors to invest in late-stage growth tech companies that are still private. They aim to provide access to quality and high-growth unicorns without charging an access fee.
The Rise and Fall of the Modern Keiretsu
In the 1990s, John Doerr and Kleiner Perkins dominated the VC ecosystem in Silicon Valley, investing in companies like Compaq, Intuit, Sun, Netscape, Amazon, and Google. John Doerr was seen as the best player on the field and was the firm's leader. They also adopted the idea of a modern keiretsu, where ventures were interconnected through a shared portfolio of investments. This model made sense at the time when distribution and Biz dev deals were more important than it is now. However, as technology evolved, the modern keiretsu became less relevant, leading to the birth of Benchmark, a venture firm founded by successful entrepreneurs, which succeeded by focusing on founder relationships and decentralization.
The Evolution of Venture Capital Firms and Ownership Structures
In the early days of venture capital, product-market fit was a lot less organic and deals were needed to get products in place. Kleiner Perkins was unquestionably the best venture firm of that time, but there were other top-tier proto VC firms like Sequoia, Greylock, Venrock, and IVP. TVI and Merrill Pickard Andreesen & Eyre were two other venture firms that don't exist anymore, but they were single-handedly part of the top-tier venture capital firms. Technology Venture Investors, also known as TVI, made a fortune after investing $1 million to own 5% of Microsoft. As firms got longer in the tooth, conversations about the existing ownership structure came up and there was a need to rethink some of the ownership structures of these firms.
The Evolution of Power Distribution in Venture Capital Firms
In venture capital firms, the management company and the individual funds are two different entities. In the past, management companies were usually owned and controlled by the founding partners, resulting in junior partners having no governance, control, or contractual rights to any of the fees. This practice resulted in resentment among younger partners of venerated Silicon Valley venture firms. With time and changing attitudes, today's venture capital firms have much more distributed power. Bob Kagle, a partner at Technology Venture Investors, rose from a hardscrabble background and believed that anything other than an equal partnership was morally wrong for a venture capital firm. Venture capitalists get paid more on the carry than on fees, and the owners of the management company decide how the fees get paid out.
The Importance of Equal Partnership in Venture Capital
The idea of an equal partnership was not fully understood by Bob's colleagues and resulted in TVI's dissolution. Bob's belief in an equal partnership motivated him to leave and pursue the realization of this dream through Benchmark. Dave's investment philosophy at TVI foreshadowed Benchmark's philosophy of supporting founders and being steady, rather than trying to add value. The early days of venture capital were highly concentrated, with all the action taking place in one building on Sand Hill Road. The venture business is an intensely personal relationship business, which is not easily scalable. Bob's strong belief in fairness and proper rewards for proper work led him to pursue a new venture with Benchmark.
Overcoming recruitment challenges and taking bold risks: The story of Benchmark's equal partnership approach.
Bob and Bruce's venture creation idea of equal partnership and fairness was contagious, but finding like-minded partners was difficult. It took Bruce and Andy time to come around to the idea. Early on, Bruce felt they did not have enough investment capacity or diversification in their portfolio, something investors would question as well. They discovered the hard way that not everybody in the industry shared their same vision. Yet even in the face of recruitment challenges, the founders were willing to take bold risks without a safety net. Ultimately, they burned their boats and went ahead with their idea, knowing that failure was not an option. Personal confidence and an obsessive sense of fairness helped Benchmark chart a new course in venture investing.
Benchmark Capital: Setting a New Standard in Venture Capital
Benchmark Capital, a venture capital firm, was founded by Bob, Bruce, Andy, Kevin, and Val. They came up with an audacious name that signaled a new benchmark for venture capital. The typical economic terms for venture funds was a 2% standard management fee and 20% standard performance carry. However, Benchmark swung right out of the gate with a 30% premium carry, positioning themselves as a premium product. Some LPs loved this strategy and Horsley Bridge made a huge bet on this motley crew. Benchmark's aspiration was to set a new benchmark for performance in the industry. This shows that having a unique and bold approach can help a business stand out, even in a competitive market.
LPs' Growing Fears and Evaluations of New Venture Capital Firms
In the early days of venture capital, LPs had privileged access to a small set of money managers. However, with the competition increasing, LPs started to evaluate new firms entering the industry that demand premium carry, which annoyed some LPs. LPs' number one fear is underwriting because it's not just about the track records, meetings, and relationships, but also about the belief that those individuals will create magic together. A new firm with a new brand and a new set of people is the key risk because the fear is that everything looks great on paper, so they write a big check, but it turns out these guys can't work with each other. Hence, Stanford University blackballed Benchmark Capital and their Benchmark Fund One, which notoriously became the best-performing venture fund in history.
Overcoming Challenges and Embracing Perseverance in Venture Capital: The Story of Benchmark Capital
Benchmark Capital faced challenges in the early years, including a lack of immediate success, partnership struggles, and notable missed investment opportunities. Val Vaden, a fifth founder with a different investment style, left the firm in 1996. Despite concerns and a dark outlook heading into 1997, Benchmark Capital's commitment to integrity, discretion, and doing what they said they would do ultimately paid off. Benchmark's current fund led to a 92X return in just a few years, demonstrating that success in venture capital requires perseverance and a long-term outlook.
The Power of Swagger and Aggressiveness in Business Success
Having swagger and being aggressive can be keys to success, as demonstrated by both Benchmark and David Beirne. Beirne's self-fulfilling prophecy of success in the executive search industry, coupled with his sheer force of will, eventually led to his recruitment by Benchmark. Benchmark's decision to recruit Beirne, who projected an aura of success, proved to be a shot in the arm for the firm. His ambition and ability to come up with new business ideas also contributed to his success. One such idea was an ecommerce business that he called my store, which eventually turned into a successful online Walmart-like store. The story of Beirne and Benchmark serves as a reminder that confidence and aggressiveness can pay off in the business world.
The Importance of Making Bold Bets in Early Stage Venture Capital
To establish oneself as a premier early stage venture capital firm, it is crucial to make bold, ambitious bets with asymmetric upside and downside. Backing someone with a big, missionary-focused dream like Louis Borders, the founder of Webvan, can lead to great returns. Despite being considered a cautionary tale of dot-com excesses, Webvan was actually an ambitious and well-thought-out idea to deliver anything you wanted to your doorstep via a van. The initial founding wedge was groceries, but it was meant to be The Everything Store that Amazon is today. Benchmark and Sequoia invested $3.5 million each and secured 10% of the company, which eventually went public and had a market cap of $8 billion during the Go-go eras, giving them fantastic returns on their investment.
Taking Risks and Believing in Visionary Ideas in Venture Investing
In venture investing, it is important to take risks and bet big on visionary ideas, even if they may not succeed in the short term. Benchmark's successful investments, such as eBay, required a combination of factors including a focus on the future of the internet, belief in the potential of consumer investing, and teamwork across partnerships. The willingness to take bold moves, such as bringing in an established author for an inside account of venture capitalists at work, helped Benchmark regain their confidence and swagger. Investing in a portfolio of companies also allows for taking on more risk. Pierre Omidyar's background in pen computing and experience at General Magic led him to tinker with internet services on the side, which eventually became eBay.
Early struggles, pivotal investment, and strategic tactics led eBay to monumental success.
eBay's success was driven by product/market fit, with Pierre reluctantly implementing a small listing fee to cover server costs and experiencing a deluge of checks in return. Despite facing rejection from most VCs, Benchmark eventually invested $6.7 million at a $20 million pre-money valuation. While eBay was growing rapidly and profitable, they were offered a $50 million acquisition from Knight Ridder, which caused debate about whether to take the offer. Benchmark structured equity-backed loans to Pierre and Jeff as an incentive to stay independent, and they eventually went public with Benchmark owning 22.1% of the company.
Benchmark's Unconventional Investment Strategy
Benchmark's unconventional approach of allowing founders to take some money off the table through equity-backed loans and secondary transactions led to a huge return on their investment. Their $6.7 million investment in eBay turned into $4 billion within 18 months, and the addition of potential secondary transactions could have led to another $1 billion. This strategy was highly non-consensus at the time, but Benchmark was willing to take the risk and it paid off tremendously. Additionally, their EIR strategy of company formation was also successful and allowed them to incubate successful companies. Overall, Benchmark's approach to investing and supporting companies was unconventional but led to massive returns for their limited partners and general partners alike.
Benchmark's Investment in eBay Leads to PayPal's Success
Benchmark saw an opportunity in eBay's need for a separate independent company to do payments for auctions that are completed. They fund the company called accept.com. The IPO roadshow starts but Meg gets distracted, and eBay ends up not investing. eBay then buys another company, but it does not work out, leaving the window open for PayPal a couple of years later. Benchmark's stake in eBay grew 100,000% in less than two years. The growth was due to intrinsic value growth and multiple growth. People projected way farther in the future and saw the potential for online peer-to-peer commerce enabled by eBay, an asset-light, high growth, pure technology business in a gigantic consumer market.
The Importance of Customer Experience and Outsourcing for Startup Success
The success of Amazon over eBay serves as a reminder of the importance of customer experience in creating long-term value. Amazon's focus on providing customers with a better experience, even at the expense of profit margins, has enabled it to beat out its competitors. Similarly, startups should focus on their core product or service and outsource tasks like finance and accounting to experts in order to optimize their limited time and resources. Companies like Pilot provide an all-in-one financial solution that removes the headache of managing finances, taxes, and reporting from a founder's plate. Not only does this save time, but it also ensures that these crucial tasks are handled by experts in the field, allowing startups to focus on what really matters - making their product or service the best it can be.
The Benchmark Firm Model: Incentivizing Teamwork for Success
The Benchmark firm model works due to the culture of teamwork and trust it creates by aligning incentives. The lack of hierarchy and equal economic incentives eliminates the need for individual credit and promotes a sense of group success. This model may not work for other firms since the introduction of secondary incentives, like becoming senior, can create misalignments and lead to mediocrity. The success of the Benchmark model is attributed to its unique structure and the personalities of its partners. This understanding provides crucial context to the venture capital industry and highlights the importance of incentivizing teamwork and fostering a culture of trust in achieving success.
The Secret to Benchmark's Success
Benchmark's secret sauce lies in the equal effort, output, and compensation of every active general partner, owner of the firm, and everyone in the equal slot. This delicate equilibrium is maintained by implicit trust, support, and safety in the partner group, even during dry spots. Maintaining this equilibrium is the trade-off of implicitly architecting a firm like Benchmark, and it may not be scalable. However, this way of cooperating your way to success is what sets Benchmark apart from other successful venture firms. The benchmark board member maintains a tight-knit relationship with the entrepreneur through frequent communication, which is a key part of the success.
The Success Story of Benchmark: Culture, Collaboration, and Confidence.
Benchmark's culture of cooperation and trust serves as a model for entrepreneurs to bring into their company. Founders should prioritize selecting a board member who feels psychological safety in their partnership with the ability to do what's best for the company. Confidence or 'swagger' is essential for success in a partnership structure like Benchmark's. After achieving massive success, it became increasingly difficult for them to stay focused on investing in startups as they were overwhelmed with distractions such as joint ventures with Fortune 500 companies. Despite the distractions, the partners committed to continuing to invest and grow the firm's portfolio. Benchmark's success is a result of their dedication to supporting their entrepreneurs and maintaining their culture.
Benchmark Capital's Dilemma: Stick to Success or Pursue New Opportunities?
Benchmark Capital faced the decision of whether they should stick to their successful model or pursue new opportunities and adapt. Some partners argued for scaling up and expanding the corporate network through joint ventures, while others believed the model should remain the same. Benchmark tried various strategies, including corporate partnerships and expanding internationally but stuck to its principle of not bringing on junior partners. However, they eventually brought on a sixth general partner and continued to pursue their successful model. The takeaway is that successful firms must weigh the benefits of pursuing new opportunities against the risk of losing their core value proposition. Adapting to change is essential, but success can also come from staying true to what works.
Benchmark's search for the perfect partner
Benchmark's equal partnership model doesn't allow for developing talent internally, so they must look externally for someone who has been in the venture capital industry long enough that they've burned through all the capital being a bad VC. The best 30-year-old venture investor who's fiercely competitive and an unbelievable teammate is ideal. The constraints on finding the perfect partner are very specific and narrow, and it's a constant search for maintaining a narrow pool of future Benchmark partners. Bill Gurley, a former engineer at Compaq who spammed everybody with their fax numbers with his Above the Crowd post, was the perfect fit. He's a good growth hacker and distribution expert, and his history is perfect for venture capital investing.
Bill Gurley's Impact on Benchmark's Investment Strategy
Benchmark was known for taking risks that others weren't willing to take, backing companies without product traction. However, as consumer startups became more frequent, they shifted their focus to investing at the point of traction or product/market fit. Bill Gurley's Calvinist work ethic, intellectual approach, and exceptional analytical skills made him a valuable asset to Benchmark. His first deal at Benchmark was Epinions, where Naval Ravikant was the CEO and was later replaced. Benchmark's shift to Series A for consumer and willingness to do seeds in B2B helped them succeed in the rapidly changing startup landscape. Bill Gurley's contribution to Silicon Valley chronicles is well documented, including his hunting trip with Kevin Harvey, where he impressed him by jumping over a cliff to hunt down a deer or boar.
Bill's Expertise in Series A Stage Investing Propelled Benchmark's Success
Bill's marketplaces investments transformed Benchmark, recognizing a shift to invest in Series A stage startups. Analytical and deeply knowledgeable of financial statements, Bill's abilities complemented the other founding partners' gut-based decision-making skills. Benchmark's decision to expand globally and hire new partners was sensible with its brand recognition and ability to raise capital. The rise of seed firms, accelerators, and angel funds made staying a gut-based business and staying out of formation stage investing a difficult task, yet Bill's expertise in identifying market gaps and gauging company successes in their early stages proved invaluable. Bill's investment philosophy and Benchmark's expansion efforts proved to be the right decisions that paved the way for the firm's success, while raising billion-dollar funds and recruiting new partners contributed to their growth and reach.
The Rise and Fall of Benchmark's Reputation in the Venture Capital Industry
Benchmark's early success was largely due to their ability to focus on the field by spending 90-95% of their time on investment decisions and portfolio company management. However, as they expanded globally with billion-dollar funds, cracks began to show, and their misses on Google, Skype, and Facebook are evidence of their sins of omission, which can hurt venture capital firms more than their sins of commission. Benchmark's inability to pursue Google with their usual hyper-competitive drive and losing Skype and Facebook deals have severely impacted their reputation in the industry.
Lessons Learned from Benchmark's Missed Opportunities
To be a generational-defining venture firm, it's important to invest in generational-defining companies. Benchmark missed out on investing in companies such as Facebook due to conflicts with their investments in other companies. They also made wrong architecture decisions and changed their core strategy. The partnership should be treated delicately to build a foundation of trust and safety to call each other out on mistakes without taking it personally. Retiring partners must live up to founding principles and take no further economics to test their commitment. Despite the trade-offs, Benchmark helped create value in the world by setting up great firms such as Balderton and Aleph.
A Successful Transformation: How New Blood Revitalized Benchmark
Benchmark experienced a change in ownership, and the original GP group stepped back to refocus the firm. To inject new energy into the company, a recruitment spree was undertaken to bring on new blood. Peter Fenton was the first of these new GPs, joining from Accel. He was considered a baby GP but had already made early wins at Accel. Benchmark’s future was uncertain, and there was also a question of whether Peter would be making the right move by joining them. However, his belief in the refounded Benchmark led him to make the switch, and it proved to be a successful decision.
The Power of Emotional Intelligence in Venture Capitalism
The recruitment of the Fab Four at Benchmark was based on emotional decisions and gut checks, rather than intelligence tests. The members included Peter Fenton, Mitch Lasky, and Matt Cohler, who all had unique strengths and experiences in areas like game investing, understanding consumer social products, and predicting the future. They were able to make successful investments in companies like Twitter, Snap, Discord, and Elastic. The job of venture capitalists in this era was not to see the future, but to see the present clearly due to the advancements in technology, such as AWS and the Facebook platform, that reduced risks. Emotional intelligence played a major role in the success of the Fab Four and their investments.
Matt Cohler's Successful Investments and Benchmark Fund Seven's Perfect Set-up for Execution
Matt Cohler correctly identified the potential of mobile advertising and the dynamics behind Uber long before much of the investing world. He believed that the smartphone would become the remote control for the real world. His investment in Instagram in fund six was a huge success, returning the fund on the investment with the sale to Facebook. Fund six was a transition, and by the end of it, the team knew they had something special going on. Benchmark fund seven in 2011 raised $550 million, and with the perfect size fund and GPs who had expertise in all the things that were going to flourish in the next decade, it was a perfectly set table for execution.
The Winning Strategy of Benchmark Fund Seven
Benchmark Fund Seven was one of the best funds of its size with a 25x return on investment, mainly from successful deals with companies like Uber, Snap, Discord, and WeWork. The success of the fund was due to the team's balance of gut instinct and intellectualism, their expertise in marketplaces, consumer social, games, and mobile industries, and their ability to identify and sell at the right time. Furthermore, Benchmark's philosophy of not hamstringing the next generation and allowing them to make their own decisions based on what worked for them leads to the firm's success. Despite the tough moments, Benchmark managed to keep functioning as a team, ultimately earning their place as one of the best venture capital firms.
Benchmark's Successful Track Record as a Venture Capitalist
Benchmark is an excellent example of a venture capitalist that has a good track record of selling shares of their portfolio companies at the right time. They have a lot of experience in the market and can perfectly time the exit of their investments. Benchmark has not only pushed Snap to go public but also encouraged the sale of nearly half of its stake in Snap, realizing a billion dollars in gains. They are known to know when to sell things as well, evidenced by the successful sale of their WeWork shares to SoftBank. Benchmark invested in Uber when it was still in its early stages and still managed to get a handsome return on their investment by working with the company. They are widely considered as quality partners to startups, and they also help founders recruit executives for their ventures.
Lessons Learned from Uber's Downfall
The downfall of Uber was a result of a combination of factors such as building up ill will, acting with malice, and not changing their stance. The pressure to reach a certain valuation and go public was felt throughout the organization, from investors to employees. The situation showcased the need to consider the impact of paper valuations, and not just focus on achieving high numbers. It also highlighted the importance of adapting to public opinion and avoiding negative public relations. The situation with Uber and its investors suing the founder also showcases how complicated relationships can become in the start-up world, where investors and founders are initially close and then become at odds with each other.
The Impact of Lawsuits on Startups and Venture Capital
In the world of startups and venture capital, lawsuits are not uncommon and do not necessarily ruin a company's reputation. Private equity operates similarly, and ill will can lead to lawsuits in any business relationship. Benchmark's lawsuit against Travis Kalanick may not have had the significant negative impact that some had projected, but it did mark the end of the Fab Four era and the departure of several key GPs. Benchmark adapted by bringing on new GPs, including Eric Vishria, who exemplifies the Benchmark culture of understated class and responsiveness. While lawsuits may cause short-term controversy, ultimately, the success and reputation of a company depends on its ability to adapt to changing circumstances.
Benchmark's Success in Non-Consensus Bets
Benchmark's success as a venture capital firm stems from the ability of their general partners to make correct non-consensus bets. This is exemplified by the success of Sarah Tavel's investment in Chainalysis, which did not fit into her traditional swim lanes but has now become a valuable investment for the firm. While it is important to be non-consensus and right, it is also crucial to not remain non-consensus for too long. Benchmark's new GP hires, Eric Vishria, Sarah Tavel, and Chetan Puttagunta, all bring unique perspectives and experiences to the firm, but share a common ability to make successful non-consensus bets.
Redefining Margin of Safety in the Fast-Paced Business World
Margin of safety in investing has evolved from being solely valuation-based to also taking into account the company's ability to adapt to change. NZS Capital defines margin of safety as management and the company's adaptability. In the fast-paced business world today, adaptability is the most important competitive advantage any company can have. Benchmark's current partnership lineup includes Peter Fenton, Eric Vishria, Sarah Tavel, Chetan Puttagunta, and Miles Grimshaw. NZS Capital is a long-only global public equity fund that manages money for institutional and accredited investors with a core thesis on complexity. Their white paper, 'Redefining Margin of Safety,' reinvents Benjamin Graham's idea by emphasizing adaptability over valuation in investing.
The Power of Long-Term Growth and Valuing Contributions Beyond Money.
The duration of growth is more important than just the growth rate over a short period of time. This is a counterintuitive concept that is discussed in a great white paper by NZS. It is worth reading in full and providing feedback to the authors. The paper delves into the power dynamics of venture capital firms and explores how Benchmark Capital has successfully counter positioned itself in the industry. Benchmark's unique structure is based on having partners with truly equal value, which is not found in other firms. This approach illustrates the importance of valuing contributions beyond just monetary compensation. Additionally, Benchmark's website, or lack thereof, is an example of how the firm aims to be in the background and not take credit for their portfolio companies' success.
Benchmark's All-Star Team Dynamic and High-Level Service Sets the Standard in VC Industry
Benchmark's unique all-star team dynamic and focus on high-level service and branding have set them apart in the VC industry, making it a barrier for entry for other firms to start and copy their model. Entrepreneurs are willing to take lower valuations for Benchmark's American green dollars, which are perceived to be worth more due to their track record of successfully derisking Series B funding rounds for their portfolio companies. Benchmark's reputation as a top-tier VC firm and their ability to attract and retain top talent have become valuable assets, making it easier for them to secure better deals and investments.
Benchmark's Unique Approach to Venture Capital Investing
Benchmark has a unique approach to venture capital investing, distinct from the rest of the industry. They do not raise more money or provide seed rounds to follow-on startups. This approach gives them the leverage to make the best rounds without the conflict of their own money. They have a different motion from other VCs and dedicate 100% of their time to their portfolio companies and the next set of companies they could work with. Benchmark is not a thesis-driven firm, and they just follow the founders and invest in companies that are unbelievably compelling. They embrace the opacity and mystique of Benchmark, but their success proves that they do the grit.
The Success and Future of Benchmark: Breaking Venture Capital Rules and Navigating Consumer Investing
Benchmark is a learning machine that screens for individuals who are experimental and value investing. They have been successful in breaking traditional venture capital rules when it made sense. However, the open question remains about their future in consumer investing, given the current landscape. Benchmark's success lies in their all-star team, which differentiates them from Sequoia's conception of being the Yankees. The swim lanes are not as clear as they were in the Fab Four era, and the next partner will be telling about the direction they take. Grading is a relic of the past for Acquired, just as Benchmark broke traditional venture capital rules.
Explore Diverse Mediums for Personal Growth and Learning.
Podcasts and other mediums outside of the business and tech world can be great sources of inspiration and learning for improving oneself and one's work. Acquired podcast hosts recommend SmartLess podcast, the talk by Bill Gurley called Runnin' Down a Dream, and the Earthsea cycle books by Ursula Le Guin for entertainment, inspiration, and expanding one's horizons. Additionally, Acquired encourages listeners to join their Slack community, check out their job board, and visit their merchandise store. They also mention their sponsors Fundrise, Pilot, and NZS Capital, including an opportunity to talk with NZS Capital in a Zoom call in October, and invite listeners to invest in Fundrise's fund or email firstname.lastname@example.org to raise money from them.