Uncapped #18 | Peter Fenton from Benchmark

[00:00] Six minutes in, you're like, okay, there's 40 coding companies and this and that, but there's one person who has this clarity. Totally. And you just don't even have to finish like the five minutes in the meeting, you're done. But then it's clumsy because you're like, it's a relationship. So you want to have a two-way, you don't want to just say, oh my gosh, yes, you had me five minutes in. Peter, really excited to have this conversation with you. Thank you for making time for this. Thrilled to be here. What a joy. So I asked you what ideas you've been thinking about lately. Yeah. And you shared... [00:29] that the idea of Darwinism you think is still underappreciated and how evolution applies to areas outside of biology. Can you just share a little bit about that idea? [00:39] Well, I think that in the last... [00:41] 50 plus years, the biggest intellectual progression that maybe we'll look back and see in hindsight has been generalizing Darwinism. What does that mean? You know, we're in these complex systems. We're sitting at the center of the Silicon Valley, which is an interesting, complex ecosystem that – [01:03] is undergoing the same mechanisms of Darwinism that I think you can see visible in evolution by natural selection, but also in cultural evolution, in technology evolution, in evolution. [01:15] it comes down to these sort of [01:17] Very base mechanics that I think generalize and give us insight into the systems that we work in, be they cities or companies or industries. And the three mechanics of evolution we all know to be random mutation, but I call that planned and unplanned variants.

[01:36] Interestingly, Unplanned being more... [01:39] important than I think we all have appreciated and take that for like even [01:44] the unplanned mutation of ChatGPT. Secondly, you have selection, which is some... [01:50] force that determines the reproductive or fitness or whatever is usually just what's the likelihood that that thing is going to be around in evolution by natural selection. It's a it's reproduction. [02:02] and survive and reproduce. In an ecosystem in a company, it's of course, you know, surviving and then creating more profits, more revenue, whatever, more customers. And then the third variable in evolution is, of course, inheritance. And so there's this idea that things are all in a continuum and evolving through these three mechanics. And so why is that relevant to the world of the Silicon Valley? You know, I spent a fair amount of time in France and... [02:28] 10 years ago. [02:31] And I really got to think, why hasn't the Silicon Valley been created somewhere else? And then you ask another question, why is it most likely in probabilistic thinking that the next trillion dollar company will come out of the Silicon Valley? Why is the Silicon Valley the most likely ecosystem? [02:48] T-t-t. [02:49] identify, adopt, and scale the next disruptive technology. I mean, you look at the internet, [02:55] It didn't have to happen here, but it did. Of course, obviously, there's Amazon up in Seattle, but I think if you look at the supermajority of market cap, the gravity is here. [03:04] you know, social and mobile here.

[03:06] Crypto was interesting because it sort of was not of a place, even though Coinbase got started here and you'd still say that it's rooted in the Silicon Valley. But then AI, of course, is this is home. And I think one of those examples, any one of them sort of reveals the whole picture of like we have the most adaptive ecosystem in the Silicon Valley because it's evolved. [03:36] It's like capital, teams, entrepreneurs. And then the inheritance is that each company is taking with it the past experience of entrepreneurial success. So these things compound in the health of the ecosystem in Silicon Valley. We were in a malaise in 2021, 22. It's like, you know, we've sort of lost the epicenter. It's now like a Zoom world. Everything's distributed. And what's come back rocketing back, and I think you feel it every day when you walk in the streets, [04:06] This ecosystem is so vital and so adaptive that we will, I think, in 50, 100 years still be the epicenter. And, okay, there's what about, you know, New York, Austin, I'm not taking anything away from those ecosystems, but there's, I think, real health and understanding what's behind the epicenter. [04:25] evolutionary power, the adaptive landscape. [04:29] I think the same model, I've spent a lot of time in board meetings on, on [04:33] 15 boards, and I'm challenging my companies to think about this idea of you have an evolving organism.

[04:40] And there are... [04:41] mechanisms of natural selection or selection that are there at work and either they're implicit or [04:48] and you're not tracking them or they're explicit and you can, you can guide them. And, um, [04:53] When you learn about evolution, you think about it, there's maladaptive things like cancers that emerge, and there's adaptive things that increase the fitness of the organism. [05:01] So. [05:02] One of the really healthy things, I think, in looking at generalizing Darwinism is to ask in a company, in a venture fund, which we can talk about, you know, are you – [05:12] in a adaptive pursuit of maximum fitness and maximum flourishing, or are you doing things that are maladapted? And this whole field, I think, of what's now broadly called pro-social systems have sort of internalized this mechanism of Darwinism so that it's actually applicable and useful. And you can actually apply it to say, okay, how do you think about constructing a company and a culture that is maximally fit? To ask you about a couple of these applications, [05:42] malaise moment was, do you think that the Bay Area was actually hanging in the balance? Or do you think it just seemed like that? In other words, like, are you pretty sure that the next two revolutions will also happen here? Or is there potential even for it to be somewhere else? Yeah. [05:58] Her partnership went to China. [06:00] about a month and a half ago. And [06:03] It's for sure happening there. [06:05] But what's different in China is that it's less of a place... [06:08] It's more distributed.

[06:10] So Hangzhou, Shanghai, Beijing, whereas I think in this market, [06:16] U.S., Europe, the Silicon Valley still is the epicenter. [06:21] And so I'm comparing the two because I think what's interesting is that – [06:24] The Chinese model, as I have understood it, is – [06:28] far more between group competition. So one of the things about evolution that you learn is that to increase the adaptive fitness of an ecosystem, it's important to have multiple groups competing. And then you identify which one was most successful and then they become, you know, they win. [06:48] You inherit their adaptations, then you start all over again. The Chinese have a dozen plus driverless car companies. [06:56] They have in their model development, which blew us away when we were there, is that ByteDance and Tencent, they all have multiple teams pursuing varying strategies towards the same objective for video models, for audio models and technology. [07:11] I think that's a mindset in China that is something we can learn from relative to Silicon Valley. You know, you think about the pressures of multiple group, you know, competition. So entropic and open AI, while they're not competing for the same prize, there's a really good pressure that gets put when the proximity of those companies, they're here. They inspire each other. And so the. [07:33] density of startups in the ecosystem, I think, is a major variable. And if you look at the, what's the backdrop of the Silicon Valley? It's this, it's our world. It's when you go to the restaurants, that's what people are talking about. When you go bump into people on the street or in the underlying fabric is so rooted in entrepreneurship, that's not the case in other cities. And so could a city emerge that sort of evolves in that direction? It's possible.

[08:03] plus years of embedded know-how, of highly efficient capital markets, information that we were talking before we started about how in the 1970s, the way information was exchanged was over a steakhouse dinner between, you know, corduroy pant wearing old white men. And that's shifted to this point now where it's just this high velocity of transparent information sharing, reputation, all that. [08:33] we are dislocated, except if there was some new basis of innovation. So for example, if it's like, um, [08:41] There's... [08:43] This history of like the Silicon Valley is that's the land of the quick and the dead. Like we have, um, [08:48] Benchmark used to have a belief that, like, [08:51] Nine months from inception to shipping product was a high correlative. [08:56] nine months or less to success. So there's this narrative that we're in the high technology business when it turns out entrepreneurship is more about leverage, about pace, about clarity and focus than it is about deep R&D. That may have shifted a bit. [09:12] If you look at the nature of the recent successes, large capital, research labs. Yeah. Well, outside the research labs, what you said there might be completely true outside of those research labs right now. Yeah. Most application layer companies, I would say, probably do fit what you're saying. Yeah. Well, and I think that velocity has... [09:31] been part of this system here, which is that we, part of adaptive landscapes being healthy is that you planned an unplanned variation so that there's high variance. So lots of experiments. I'm just saying that we don't know a priori until we get into the market and we ship something. I mean, YC, of course, has really been a great, like, just build it and stop, get out of your head and into the world. I think that that culture here is,

[10:00] requires you to then have a tolerance for the failure that comes with unplanned and planned variants, which is that you accept it as like, okay, I learned something, is tuition. And I think that... [10:11] The fabric, I don't know. So in 2021, 22, when there was the San Francisco socks and like we have so many problems in the civil society here and there was a, you know, an exodus at some level to places like Miami and Texas. And I think it misses something. [10:29] which is Jeffrey West wrote these great books on them. [10:33] the [10:34] cities outlive [10:37] Pretty much everything. They're probably the best idea that we've had as humanity, other than maybe language and fire. Cities endure far longer than the average Fortune 500 company, which is usually dead in about 50 years. But cities can go for hundreds, if not thousands of years. And part of that and the logic of a city, I think, is embedded in the Silicon Valley ecosystem, which is the highly adaptive ecosystem. [10:59] responsive to outside forces, not planned. Like the idea of a top-down model, but it's also not chaos. It's not total laissez-faire, you know, anything goes. And so... [11:09] There's a they're an evolving organism and we're just part of it. What's interesting is I'm listening to you talk about this is I also think that Silicon Valley slash tech, the way that it competes with itself is in a much more communal way than other cities and industries. Like I feel like in New York finance, people would never. [11:29] share all their best ideas on a podcast or people wouldn't go out to dinner with their competitors and like talk about what they're thinking and learn from each other. Whereas here, I think there is what you touched on. There's simultaneously somehow like a

[11:41] respect [11:43] and competition at the same time, which almost seems like the healthiest possible. [11:47] By the way, it's not to say that our ecosystem doesn't go off a cliff at times, and I think we're – [11:53] we're struggling with, of course, in AI, understanding where... [11:57] Where might it go wrong? [11:59] I think there's a real sensitivity to that and obviously a debate. [12:02] Thank you. [12:03] between optimists, of which I put myself in that camp, and doomers, if you want to call them that. But one of the big insights in the last... [12:12] you know, few decades just in systems thinking has been this idea of, [12:16] What explains the success of certain ecosystems and the failure of others? And Lynn Ostrom got the Nobel Prize in 2009 on this. What she described as the core design principles of highly adaptive functioning ecosystems. So she looked at things like fisheries and forestries, things where the tragedy of the commons – [12:37] could destroy the resource. Common shared resource wiped out by self-interest, the individual actor at the expense of the group. But some of these ecosystems are flourishing. And so she came up with these eight principles, core design principles that to me are like, they're somewhat obvious, but they're directly applicable to our startups. And so as we serve on a board, part of what I'm trying to reveal is that like the Silicon Valley actually embodies the core design principles. So the first one is, you know, common shared identity and purpose. I think that here... [13:07] Like, okay, is it to get rich? Maybe. But I think that [13:11] the underlying tone

[13:14] that I sort of find in most of the Silicon Valley, which is not necessarily a great thing, is a dissatisfaction with the way the world is today and a purpose, a desire to have a meaningful impact by organizing against some objective that's not a net worth target. It's not a fixed object. It's the true infinite game, right? So this idea of like when you hear that what gets us excited when Brian Chesky talks about founder mode is that activation of purpose to sort of fully manifest [13:44] That is like at the center of the Silicon Valley. That's why we all go down to places like Big Sur or Esalen. It's like, yeah, it's the same energy. It's the sense of human possibilities manifest. The other design principles are pretty straightforward, like fast and fair conflict resolution, monitoring agreed behavior. So transparency, other aspects of this are equitable distribution of gain and effort. [14:14] like rooted in the Silicon Valley. And I don't think it's like a meritocracy, which I think is ultimately a fallacy because there's no, how do you really think about that systemically? It's much more of a adaptive organism where we know how to cooperate with others. And when it starts to go off the rails, there is an immune system in the Silicon Valley where we self-correct. And I, you know, part of evolution, this is the thing which also gets the root of the Silicon Valley is that, um, [14:41] There needs to be extinction. [14:43] There needs to be a

[14:46] Over time, as large organisms build, they develop internal pathologies, and some of those are cancerous. [14:55] We, as an industry, benefit from the creative destruction that's at the heart of everything. Every big company here... [15:04] is a target. [15:05] for the next generation coming up. And while we can celebrate the success of Meta and Google and Apple, like we all know that in 50 years, [15:14] They get eclipsed. [15:16] But it's the people here that believe that, that are doing it. And [15:20] I think in other industries, there's something nice about the, well, you know, it's been around for 400 years. If you're at LVMH, that's an attribute. I don't know. Like, I'm in the business of, like… [15:32] Those are juicy targets. And, you know, great that they had their day in the sun. They rode their wave to... [15:38] But we want that next generation to come up. And part of the evolving landscape is that you have extinction events and that there's some branches on the tree. We can say the common antithesis, but we evolved past that. And I don't know. I mean, I think it's sort of the ethos here. You also sort of need the like meta big ideas like AI to... [16:00] be able to suck the talent from other ideas that were [16:04] good but not as good yes and so you kind of also need like the talent to get released back into the pool to push broad things like ai forward without question i think that um [16:13] And this does the impact – if you take a biologist's perspective, there's punctuated equilibrium. There's points in time where you have dislocations that many companies – take Google as a good example. There's long conversations about debates. Are they going to get left behind? They have all these assets, right?

[16:34] YouTube. [16:34] not to mention like [16:35] the whole G suite, all the, all the information they have on users. And yet, [16:40] the dislocation of AI, which came from many of the researchers inside of Google. And I think what happens is that, [16:47] companies [16:48] business models, [16:49] are also in an adaptive landscape. And they find their way through sort of an invisible hand to a peak, to a maximum optimization, the internal logic, the invisible hand, as I say, of like, you know, we're doing this thing every day a little bit better. And then you're on top of that peak. And then one of the things you learn in these punctuated eclipse, you have a shock to the system that requires you to climb down that adaptive peak, which sucks. And that's like [17:19] Yeah, but it is an innovators dilemma, but it's a little different so far as it's not. Yes, you deny the new thing. Innovators dilemma is partly like to serve the high end of the customer base, which then leaves you vulnerable for something that disrupted below. Versions of this to me are like climbing down to go back up. [17:36] is an out-of-body experience. And so I think we have a ton of respect for companies that have been able to-- - Who comes to mind who has done that kind of thing? - Historically, it's done by founders who have the courage [17:49] Start climbing a new adaptive peak. I think the best example of that we look over time, the iPhone, AWS, where there was a new peak that was not the core business model, maybe in the core culture. [18:02] of integrated products or the case of Amazon operational excellence applied to a new adaptive peak. But I can't think of a great example, perhaps Netflix is one where we're going to go down, we're going to rack our margins, we're going to go into the valley in the shadow of death and try and come out the other side because the culture you build, the internal systems, the resistance is so giant. So part of what's required, and I think what we're living in the last 15 plus years is an incumbents world. The super majority of returns, the fact that our incumbents are network

[18:32] fact businesses growing at 30 plus percent not slowing down [18:36] is scary. In an adaptive world where you want to have lots of variants, lots of experiments, lots of heterogeneity, you start to get to these monoliths. And, you know, the AI... [18:48] Dislocation is the first real structural shift in business model that I've seen in over a decade, maybe over 20 years. I mean, SaaS is arguably a different business model because it's subscription-based. But when you have a business model dislocation, then you get giant new companies. I don't know if you'd agree with this way of looking at it, but sometimes I think about like… [19:07] QQQ index versus like aggregate VC returns is just like a way to think about like who's winning right now incumbents or startups. And my guess is over the last over the last decade, probably like QQQ is probably one I would guess. I haven't actually looked, but for sure from a if you if you take paper marks as some. [19:27] Fiction, which I think you have to. In terms of liquidity, no question. It's been an incumbents world for years. [19:34] probably 10 plus years. That changed dramatically. [19:39] starting in 2022. Dude, now you feel like startups are more equipped. Like, if you think about who gets the value from AI, obviously, like incumbents and startups are [19:48] both going to get some. But do you think startups are better equipped now to get more of the value when you look at them versus Fang? [19:54] Well, I have a strong belief that [19:57] We will see. [19:58] three to five trillion dollar market cap companies come out of this that didn't exist before 2022. OpenAI is one of them, so they did.

[20:06] But the idea being, [20:07] Did business model dislocation [20:10] opens up this field. Again, a completely new adoptive landscape. So, [20:14] One of the things that's fun to watch is that a lot of it's unplanned. [20:17] You know, our companies, we went to China, one of the [20:22] big insights that we took out of it was [20:25] Product management as we know it actually doesn't apply right now in AI. In the sense of like we're going to go talk to customers, find out what their needs are, develop a priority stack for the roadmap, get the engineers to build it. Instead, what's happening is that this world of discovery. [20:40] Put it out there. [20:41] See what they like. [20:42] respond to it in terms of being maximally responsive in product transformation. Manus is one of our investments is a great example of this. They laugh at the idea of a product roadmap because we go in and say, what's the roadmap? And they're like, [20:54] for today. Yeah. Because we're shipping every day. So, so the reason I'm sharing this with you is that, um, [21:01] the volatility [21:03] in what a technology this disruptive can do with this much potential, with this much human scale impact, requires the kind of work that the startups are doing, meaning fresh eyes with, you know, [21:16] deeply committed cultures where people are trying lots of stuff. No one's afraid. And, and some of it takes one of the interesting facts in evolution. I keep coming back to this point is that if you look at speciation, [21:28] And I think there's a good debate that we might have actually had a speciation event. With AI. Yeah. Yeah. I think there's an argument which... The negative of that argument is that speciation events tend to create a new... In cladistics, you know...

[21:40] a new leaf on the tree. This is like a new root. Yeah. And, but, but they tend to have a common ancestor who's not around anymore. So if you go too far down the path of we've created organic, inorganic life for the first time, um, [21:54] It's possible that that looks back on us as the common ancestor, but ancestor is the afterword, but it won't go there. So the point I'm making, though, about... [22:03] If you get to... [22:05] a speciation of hen. [22:07] 90% of the phenotype change occurs in the first 10% of the species lives. [22:12] life. Why is that interesting? Well, you look at the iPhone. Okay. So for the first 10% of the iPhone's life, 90% of the change, of course, like that's when the camera gets added on the front. That's when you have video. And then it sort of goes to an asymptote. So, so we're in a zone now in, in this, I think maybe it's a three to five year, [22:30] period, could be seven, who am I to say, where we're having radical variance. And what will happen is we'll look back, I think, in 2040, [22:40] And you blur your eyes and say, it all kind of looks the same like it did in 2030. But from 2025 to 2030, it's going to look so different every six months. So this is all along the way of saying, I think startups are optimally suited to go pursue that. Do you take the view that if... [22:58] that rate of change stops tomorrow in AI, that we would already just be able to kind of harvest insane gains from what's available today? Yes, but I think we... [23:09] will have

[23:10] taken [23:12] 10% of the path up the hill to the adaptive peak, meaning I think there's so much more that we yet to even... [23:19] even imagine. What's more likely, if you take my worldview of unplanned variants, [23:25] it's more likely that we trip over it. [23:27] It's more likely that we look back and say, oh, isn't that obvious? You know, we're looking at all these fields from... [23:32] I'm [23:33] extraordinarily interested in the application of AI to the language of life through biology. And where will that go? It's one thing to look at protein folding. It's another look at the whole [23:44] cell itself as being a digital, you know, artifact that can then be experimented with. And then you look at an organism. Of course, we talked about coding and, you know, there's the core application sphere today, customer support, all these things. They're all undergoing a very different. [24:02] almost systemic now, sustained innovation. But I think there will also be whole fields that we don't fully appreciate. [24:09] The other thing I was blown away in China is that because they're so proximate to robotics and manufacturing, they're – [24:18] on an adaptive [24:19] you know, path with embodied AI, the [24:23] hasn't really taken off here. [24:26] Yeah, that, um, [24:28] likely means that there's [24:30] again, unimaginable applications in our life from like, you know, [24:33] you have somebody that does your laundry all the way through to, you know, the whole spectrum of human needs being met. Yeah, an embodied robot seems like that would be sci-fi in an amazing way. But it does seem to me like,

[24:46] It seems like it ought to be inevitable. I just have no idea what the timescale should be on that. Yeah, and then timescale is linked to... [24:53] ultimately consumer price points. Is it going to come in at 60K? I know Tesla has their version of this, but then – [25:01] Is there a PC moment there that we're going to go through? But I think you could say, Toby said this to us, and I tend to agree from Shopify, that if you stop today. [25:10] you'd have like $20 trillion of economic value created to go be harvested. [25:16] We're not stopping today, but is the incumbent world – [25:21] going to be extinct or eliminated? It seems unlikely. I think my sense is that we had $3 to $5 trillion market cap companies. They're likely to eclipse inflation. [25:32] just as the past generation did the current. And it seems unbelievable today, given the scale network effect businesses, all this free cashflow. The one sort of counter to this, which I think is real is that, you know, it's, it's a, such a capital intensive, you know, game at the foundation layer that how does that then, you know, occlude the startup opportunity. And I think we're, [25:55] We're in every new investment asking that question, which is if you took the models and you projected them getting an order of magnitude better, does your startup opportunity get better or worse? Yeah. And unfortunately, I think for like over 80 percent of them, it's like. [26:08] It's over. Yeah. Like they swallow your invention. And so for some, you want to ride that wave and you stay in front of it and say, no, that's going to be a point of force multiplier for our success and enable more. But I think that's a good point.

[26:21] How about Darwinism as it applies to venture? And so like, you know, I'm thinking about over the last 15 years, you know, in 2010, there were like a lot more firms that looked like Benchmark does today, where it's, you know, small partnership, medium sized funds. You don't have all the frills, the platform stuff. [26:51] you taking benchmark out of it, how you've observed... [26:54] the evolution of venture as sort of an industry. Yeah. I'm happy to talk about it with benchmark as being an example. Yeah. My belief is that... [27:03] were in an ecosystem [27:06] that's nutrient rich [27:08] Thank you. [27:10] in nutrient-rich environments, [27:12] the [27:13] are [27:15] faced with low selection pressure. And I think venture has had relatively low selection pressure in the last decade, um, [27:24] Not sure why, you know, [27:26] I think it's broadly from a liquidity standpoint, struggled to outperform the NASDAQ. But it got institutionalized as an asset class. The LPs were sort of like sanctioned through Cambridge Associates to have this allocation to it, to these funds. And so nutrient-rich, relatively low selection pressure. And I think there's been an incentive, which maybe is the selection pressure, to... [27:48] to raise more capital. That's very real and sometimes irresistible. And,

[27:54] I think the outcome of that is... [27:57] inevitable that you scale and some of that scaling will have been cancerous. Some of it will have been highly adaptive. So what we don't yet have is the culling effect of going back through and saying, okay, what is the, who gets, who survives? What's, what is the inheritance? And, um, I have a [28:19] like Indries and Horowitz and like Sequoia, among others, that have scaled the capital base and tried to do it with a – [28:26] really intentional... [28:28] What does this mean to the entrepreneurs so that they have more? [28:32] More capital, more resources, more. But obviously, we have a very different philosophy inside of Benchmark. Yeah. And my view has been – [28:44] we have at Benchmark. [28:46] the most adaptive organism is, [28:49] in the venture ecosystem. [28:51] What's interesting about Benchmark is it started in the mid-90s and it was the top performing fund of that era. Got lucky, obviously, eBay. It's all luck anyway at the end of the day. [29:02] then [29:03] with a completely different lineup, [29:05] Benchmark had the top performing fun of social mobile. We were lucky enough to be early at Uber, Instagram, Snap. [29:13] Twitter. Crypto was not our thing. That was the next wave that created trillion-dollar market caps. [29:21] And I think the question for us now is that do we have, with a whole new lineup, me being the last, you know, we said last piece of wood on the ship of Theseus, that the continuity, the common ancestry to prior benchmark, to be a top-performing fund. And for me, top-performing is not, you know,

[29:43] State Venture. We don't need to win [29:46] Because it's not a game where there's a winner and a loser. It's a, you know, are we... [29:51] able to [29:52] get close to and be deep partners to the best entrepreneurs of this generation. Arguably, the [29:58] best entrepreneurs so far have come out of foundation models. Look at your brother, the whole team at OpenAI or Dario and the team at Anthropic. It's our belief that the next three to five years, we will create... [30:11] multiple trillion dollar companies in our industry. And that's how we wake up every day and think about, okay, can we serve those people, those entrepreneurs to their success? Will the other big funds do that too? I expect so, but different models. Our idea is that we serve as close partners to companies. [30:29] An entrepreneur for a decade plus individually close partners, meaning serve on the board, build a close relationship. [30:37] be there with them in good times and bad. And, and, [30:40] I think that five... [30:42] Plus or minus. So four to six equal partners at the peak of their ambition, of their relevance, of their capacity to serve, which which means young. [30:54] I mean, honestly, I think it means late 30s to mid 40s. If you go back over the history of entry, [31:00] That's when John Doerr is doing his investment in Google or Mike Maritz is at his peak. And so our adaptive model has been different than the large funds, which is that we've [31:09] accepted the fact that [31:11] benchmark is completely ephemeral.

[31:14] like the lineup is completely ephemeral, no names on the door. Um, [31:19] It is designed to be [31:22] Destroyed from within? [31:23] and reborn, but the mechanism is the same. [31:27] The adaptive technology [31:28] mechanism is all those things we talk about core design principles shared identity there's clarity across all the partners in exactly what we're doing fast and inclusive decision making you know the um idea that each of us is an owner gives us a sense of autonomy another core design principle and there's not quality control and overhead and processes and there's no there's no memos there's there's no you know if someone shows us a data room we tend to laugh and like oh god i have an example this may come back and haunt us but um [31:56] We invested in a company called HeyGen. [31:59] said at the end of the process, he's like, well, you know, we're talking to a lot of other firms and they've all gone into the data room and we want to cross the threshold with you. We feel this is the full potential partnership for us, but you haven't gone to our data room yet. [32:13] And [32:14] you know, our LPs may not like me saying this, but I said, there's nothing good that can come from that. It's like, cause I'm going to go in there and ask a bunch of, [32:21] questions that undermine [32:25] the commitment you're getting from us, which is to say that you, Joshua, at HeyGen, with Wayne and your team, [32:31] are building a generational company, and that I've seen what I've seen from how you've talked about the product roadmap, how we brainstorm about where you're going to go with the next set of releases and – [32:41] the and [32:43] Whether or not you're retaining a learning and distance training, you know, user that that isn't the long term goal for business doesn't help me. And I think so that that value proposition is different to entrepreneurs and it's somewhat it's a.

[32:55] Not a rejection of these other models, but I do think the nutrient-rich environment that Venture's been in has created – [33:02] cancerous growth. Where and how? I think that [33:06] One of the things that cancers need to thrive [33:10] is they need to hide from the immune system. My sister's facing a rare cancer, which she's been fighting and is today free of it. But it gave me a window into just how Darwinism and evolution and natural selection actually apply as much to our pathologies as they do to our well-adapted things. And so... [33:28] One of the challenges, and this is a question for limited partners, is that they should be the immune system, but they've been very patient. [33:38] And I think at some point there's a question of like, [33:42] In the same way that venture is sanctioned as an asset class because it has all these spectacular possibilities. A semester return, you know, a dollar can become $10,000. There's nothing like it in the investment world, truly nothing. [33:53] But it also has been underperforming the NASDAQ. Yeah. Well, and I guess part of what's going on there is just like we're all fallible humans. The LPs are also fallible humans that have their own incentives that are not. [34:04] perfectly rational on a broader scale too. So there's probably a lot at play there that... [34:09] through the whole pipeline that makes the whole system hard to change. And I've been struck by... [34:16] humans have an ability to turn incentive systems into value systems. [34:20] And I've struggled and I've gone through this myself in my own life, which is sometimes –

[34:27] you look at the incentive of the startup and, [34:30] One of the common themes of the really great entrepreneurs is that they play infinite games, not finite games. This is the James Carr's book, who's – [34:38] I remember that Patrick Carlson and Toby both recommended I read it. That's okay. Let's fucking read that book. And their attraction to that, [34:47] One of the things I guess we sort of see in the great entrepreneur is that [34:51] their value system is, [34:52] is first, and the incentives that sort of flow from that sort of support it, but they're not the motivating factor. It's not maximizing net worth. And I think this ecosystem we're in has had... [35:03] Um, [35:04] we've slipped a bit in that we've taken incentives. It could be incentives of, you know, the fees that come from a larger fund, the, [35:11] And then try to create values based on those incentives. And the values then sort of are rationalized as a way of supporting those incentives. I don't know that that's conscious. Like, I don't think people are calculating that way. But one of the challenges of the venture business is the incentives for a limited partner, allocation to brand name funds, having good marks. You know, benchmark historically, we keep our valuations that we report to limited partners at a fraction of the last round price. And it's an interesting conversation with the limited. So, like... [35:40] Because they're being evaluated based on [35:44] the private marks. So I think our view has been that... [35:49] We want to always surprise and delight to the upside in that, you know, we have some sobriety, perhaps. And, you know, if you look over the course of Benchmark's Funds now, 30 years, is that we've been grossly undervaluing our private companies. We don't publicize any of this, but part of it is the value of surprise and delight. Don't count your chickens until they've hatched. But I don't know. I think we're in a different kind of ecosystem. But ultimately, there's this long duration of selection pressure put in venture.

[36:19] You know, [36:20] maybe they're going to get lucky. And, you know, as one of my former partners said, there's high barriers to exit. [36:26] No barriers to entry. I mean, you start a fund, which is going to kick ass and it's going to be, I mean, know this because you have value system that I can see of caring to serve entrepreneurs, of having a long game in mind and all that. But the barriers to exit are important. [36:42] also now sort of stuffed into multiple funds with multiple commitments. And so I don't know what the selection pressure looks like. AI may hopefully make that irrelevant because we create so much wealth out of this that nobody actually asked that question. Yeah. Who knows? I have a question that is going to sound a little ridiculous, but you said that [36:59] the thing you're optimizing for is cash-on-cash returns, which I think is probably how the game was always supposed to be played. I feel silly for even asking it, but because in recent years people have... [37:11] felt no longer embarrassed to admit that there's other games to play. Yeah. I guess I want to just ask directly, like, why is that the metric that you care about? You know, it's a fair question. It's honestly not... [37:22] the [37:23] motivating force in what we do. [37:26] it turns out it's the outcome that it should create, the motivating force. The motivating force is [37:32] to be early, [37:34] and really close with an entrepreneur, [37:37] on an average of 10 to 15 years of commitment, [37:41] where [37:43] We... [37:44] in a way represent the most unconditional support for that founder. I have too many companies in my

[37:50] career where the founders moved on, but I didn't. And I'm on the board of Docker, which has been around now for 10 plus years. And, um, Solomon, who's an amazing inventor running another company, [38:04] phenomenal human being just, you know, [38:06] Fatigue, moved on. Um... [38:09] But I have other examples where it's not the goal, believe me, but it's the idea that we're not conditioned on is it working or not because if it's not working, we're going to move on means that we're – [38:22] better off early, better off with enough commitment that [38:25] in success, you know, we're... [38:28] Um, [38:29] able to, because of that longstanding commitment, have achieved the compounding effects of a long investment. So if you're getting in early and it's growing and it's, and, and, and that's different than saying buying a stock or, or having a position. And we've deviated from that occasionally and it doesn't feel great. Meaning we've made investments that have been low, relatively low stakes and not on the board, low commitment, but you made a lot of money from it and it feels wrong. Mm-hmm. [38:55] Why do you think that is? Or maybe ask differently. That value that you're now, you know, it's kind of like the highest ideal of serving founders, being their partners through thick and thin. Why is that the center of all of this for you? [39:09] enough time to [39:11] have been able to reflect on what brings joy. [39:14] You know, we get into a career, you're in this now, and you figure out, okay, this feels good. But sometimes the feels good stuff wears off. [39:20] And

[39:21] And then in [39:23] you know, kind of looking back. [39:25] almost like the obituary ethics mindset. [39:29] What was doable? What was deep? What was profound and sort of moved my soul and spirit? For me, it always is the relationship of the founder. [39:36] But that is it. If I'm one of many... [39:39] In the sense of like there's 40 people helping me and more money and like this is great, we get together once every six months. That's different than... [39:46] a close, deep relationship. So the motivational factor for me, which is what I'll be doing for as long as I'm a conscious being, is to seek out the most creative, dynamic people where I can be an amplifier to what they want to do. Where the relationship, they come away and they say, I have more energy after I spend time with that person. We both do. And that's what I orient to. And what I found also is the depth is... [40:10] A constraint. [40:12] It's a constraint, which is that [40:15] In the same way I think about our personal lives, like why do we stay married and why do we build these deeper relationships? Well, they're iterative games. And there's something about like the next year of learning and experience, you make new mistakes in a relationship, you discover new vistas, new trains. There's this like infinite possibility that gets manifested in a few deep relationships that I have found I can't achieve in broad scale superficiality. So it comes back to how do you build a firm that orients against that? My partners share that value. [40:45] That strong desire to have deep personal relationships and – [40:49] We can ask the question, I'll ask it for you, which is like, to what end? You know, like, what do we really do at the end of the day? Like, was Amazon going to be Amazon with or without venture capital?

[41:00] I'm close to Toby at Shopify. We got very close to working together. And I'd have to look at that and say, you know... [41:07] He was going to be just fine without me. So I'm humble enough to say and vulnerable enough to say, I don't measure it as like, does the scorecard of a relationship justifies existence in the same way I don't think of my friends that way or my friends. [41:23] wife that way. [41:25] Unbalanced, because I don't view myself as being... There's this great insight that I think we've come to recently, which is that intelligence... [41:33] isn't in your head. [41:34] in your head, [41:35] is a... [41:37] you know, [41:39] 80 billion neurons that have been wired into 107 billion humans who've ever lived that have created a collective intelligence that, [41:50] through language and other things that are not you, but that are us, makes you bright, intelligent, creative, and all that. Now you have endorphins and hormones, all these things, but the idea that we've localized intelligence in our head. So a lot of this may sound like an abstraction, but it's in a company, while it is an individual heroic move and courageous to go down that path, it's always the network. It's the system. It's the entity that is created as the organism. It's not the individual. And so I feel the same way in terms of how I work with [42:20] a company. It's like, I represent a part of the system that should elevate, amplify, inspire, and it doesn't scale, which is the big sort of fissure between our strategy at Benchmark and every other venture firm, which is that we've,

[42:36] reconcile, but actually embrace the fact that it doesn't scale. And that card constraint [42:42] means that [42:43] The value system we have of depth of relationship is really at odds. Yeah. And specifically what you're saying is that this relationship doesn't scale. Like fundamentally, it's the amount of time that needs to go into the relationship to get what you're talking about. Yeah. That doesn't scale. Like obviously a venture business can scale. [43:01] empirically scaled, but those... [43:04] those deep relationships from a board member at the early stages. There's just not enough hours in the day, basically. There's a fixed constant. And then I think two other things which I point to that don't scale. If you can, you could say a very logical response to that is like scale the capital, [43:17] And then scale the people in a way that's, and I think if I were running a large venture firm, I would think about it as a between group competition game. Like scale, have 20 partners or something. Yeah, but I would do it as a, we all know that like five to seven people is the optimal size. So I would do like multiple groups and I have them compete with each other. [43:34] And that's how I would scale a firm. And it'd be totally coherent because it would be consistent with what we know about multi-level selection, which is one of the big ideas out of – there was a book that was very popular. Actually, real quick on that. Would you have them all be generalist or would you have them be verticalized? I would have them do whatever they thought would allow them to generate better returns and then compete. Got it. So super-driven. Yeah. Yeah. That's completely coherent. That's right. Arguably – [43:57] That's what LPs were doing. [43:59] And then they stopped doing that, and they started putting it into a few large megafunds. We can talk about that. So the logic of that Darwinian model, multilevel selection is a really disruptive idea that people don't actually understand. So right now, if you look at most people in biology, they're subscribing to the idea of the selfish gene. It's all about genetic replication. So Dawkins wrote a book called The Selfish Gene. It's very popular. Why is that relevant to this?

[44:29] replicate and that that's where selection occurs, you completely bulldoze over the fact of how organisms evolve, how species evolve. And you can't explain things like altruism. Like why would anyone ever... So there's these like, in the world we live in, there's these two competing narratives that we're seeing today. There's on the one hand, laissez-faire. [44:47] you know, [44:48] individual first homo economicus and that's probably what you learn when you study economics at princeton right yeah it's like you know milton friedman maximize your individual utility at the other end of the spectrum you have like you know top down planned communities it's all like you know systemic you know it feels like communism it's a very extreme on the other side and and i think what we learned is that there's a third way which is you could actually have um selection occur [45:18] part of a group and the group is in competition with other groups, which cluster together to form Silicon Valley or so. So if I were running a fund, [45:27] I would... [45:28] not have one large [45:31] because then you have [45:33] Then what makes sense is within that group to compete and win, you get individual selection, not group selection. And you get cancer. You get people who sort of – the best example is if you think about Monopoly, like if they make it real, multilevel selection. So let's say like we're playing Monopoly with four people at the table. The game is to win. So you try and maximize the amount of money you have in Monopoly. [45:56] five other tables here, and each table has four people. Now there's a new game. The game is, your table needs to have the most wealth after the four hours of Monopoly play, which people lose the will to live at the end of a Monopoly game. And if the game is no longer to beat your competitors, but to have your table create the most wealth. Yeah.

[46:13] That's benchmark. Yeah. And if you think about it, the nature of a five person partnership who wants the table to be most full means that you have Park Place. I'm going to give you some of my stuff here so you can give me some of your stuff there. And then the table gets larger and larger. And a group that big just can't operate that way. Yeah. If you have 40 people playing, good luck coordinating. Yeah. So what we do know about Hope Human Societies is there's break points. And I've learned it at Benchmark. We got to eight, nine partners. [46:38] it stopped being fun. And something happened because there was this bifurcation of the dynamic. There were different subgroups. There was cultural fissure. So I think the only way to scale fun, by view, is – [46:50] that you still have the fixed gun. So why don't I do that? Why doesn't Benford do that? [46:55] I want to be one of the players in the game. I want to be one of the sub-funds because to me the substance of the work – [47:02] isn't scaling... [47:03] The entity, and there's a critique, which is like, are we less competitive as benchmarks? We don't have all these other entities and all these other resources and all this. My answer to that is very simple, which is that you do references. If you find somebody who says that we're anything less than... [47:19] the most powerful, deep [47:22] transformative relationship [47:24] If you find that in our ecosystem, people we work with, we've fallen short of our ethic. What would happen if you said, I'm going to take everything I just said, but instead of leaving A's, I'm going to leave series C's? [47:35] And now I'm going to just write four times bigger checks. I'll have four times bigger fund. I'm still going to take a board seat. I'm still going to make that promise. I'm just going to do it later.

[47:45] I don't believe that works. [47:47] For one reason. I've trained my entire... [47:50] neural net, cosmology, etc., [47:53] For... [47:55] That early formative stage. [47:57] And what you'll find in companies is that what you've done with 15 employees or less, you probably found this at Lattice, endures for eternity. [48:05] And. [48:06] The impact you have at the beginning, at that embryonic stage, in being in the dialectic, in... [48:13] Getting close to the sources of energy that led to that person to do the irrational thing called starting a company. If I'm there at that beginning inception stage, my capacities to be there for the duration are infinitely greater. And yeah, I've committed. Airtable had 25 people when I invested. Twitter had 27 people. They were a little later. Yeah. [48:34] And what I find myself is wishing. [48:37] wishing that I had been there earlier so that the systems that got started that became pathological, I can't take credit for it. I mean, that I would have stopped them from happening, but I would have at least felt, you know, connected to them. And so it's sort of like... [48:50] Why am I not a public stock? I could take that to the extreme of why not invest in public stocks? Why not invest in... [48:56] And there's something, as you know, that's so at that liminal state at the beginning when we don't know. The other thing which I found is really good about being there at the beginning. Olam is my most recent example of this, but there are many examples in the history of technology, Twitter, Instagram, Discord, where if we're there at the beginning, we've really made that personal commitment.

[49:17] We're in a position to let the entrepreneur go and be free of what they were trying to do that didn't work, to do the thing that might work. [49:25] be much more successful. And Olama was originally called infra.hq. They didn't love that. It was security for Kubernetes, my God, I mean, sorry. And then AI happens and public open source LLMs. And I don't know, by not being 30 people locked into a strategy, series C, okay, we have a financial plan. [49:45] We have so much more freedom. I don't know. Maybe that's an incomplete answer, but it's certainly how I live it. One of the other things you said earlier is that you really see... [49:55] the game you're playing and the way you play it as like a younger person's activity. Yeah. Um, not incredibly young, but you know, why, why do you see it that way? And like, what have you learned as you've observed sort of, you know, 20 years of benchmark? [50:08] You know, I found... [50:10] that [50:11] Aging. [50:13] occurs [50:15] in all parts of your life. [50:17] And sometimes aging makes you better because you have wisdom and perspective, and [50:22] Other times, [50:23] it leads to [50:25] ossification. [50:27] to sort of like, well, don't do that because back then we did that and that was a mistake. And so you start to harden yourself. And I think one of the greatest challenges of being in the venture business is to continually blow up. [50:40] ossification, sort of to let go, to be less certain. [50:47] to be more naive.

[50:49] And why is it you look at other venture compared to, say, hedge funds or Stan Druckenmiller? We talk about it being all of this giant. But the absent the node. [50:59] which is, I think, a completely different species. It is. And he would probably not ever want to be called a VC, to his credit. There are very few exceptions. Venture capitalists tend to get worse. [51:11] after the age of 50. [51:13] And why? And so you say, OK, well, is it because their networks have atrophied? Yes. Is it because they've become too rigid in their thinking and too rooted in past generational technologies? Yes. These are all causal factors. [51:31] I actually think the biggest one is ego. [51:34] because entrepreneurs that are at the beginning – [51:38] that are [51:39] by definition, uh, [51:41] operating in uncharted terrain. [51:44] where past success and old people and all their... [51:48] stories, they're not why they're in the game. They're there to create the new future. And so our egos tend to give us the sense of like, we know better. We've seen there, been there, done that. And believe me, I have all those experiences, many of them that I could tell stories about, but in a way that blocks you from the fresh eyes. [52:06] and the sense of possibility and wonder and, you know, [52:10] You know, it's why I'm in my last chapter at Benchmark, because I don't think that our firm is the best firm on earth unless we average our age closer to 40 and have really committed.

[52:22] meaning some 30-year-olds, some late 20-year-olds, and maybe some mid-40-year-olds, because our center of gravity at that point is maximally attuned to the entrepreneurial wave coming up. What I'd love to do is support those people, my future partners, well, as a limited partner. But there'll be others, and I'm sure if you talk to my peers in their 50s, they'll give you a different story. But I find that it sort of runs afoul of the history of the industry, [52:52] young people [52:53] partner [52:55] Just enough experience to be helpful in really where you are right now. [52:59] Because you're meeting the entrepreneur where they are in their life. And you have a shared fabric. You probably have playlists that aren't that different. You have tastes that have been shaped in the same forces. And I think that that matters. It matters for the depth of relationship. It matters for the duration. All those things that mean this is an industry, and I come back to this, that wants to go through creative destruction. [53:22] But, you know, John Doerr, Mike Moritz, these giants. [53:26] my former partners, Bob Cagle, Bruce Dunleavy, don't run our industry. Mm-hmm. [53:31] And I love that. And they moved on with grace in... [53:35] They still play a vital role in different ways. Do you, as you're reflecting and saying this stuff out loud, do you experience it as like, I wish... [53:43] that I could do another 20 years, but I think it's best for me not to for the firm and its longevity and just the ecosystem? Or have you also had your own evolution where you're like, I've done this for a lot of years and I'm also going to have new chapters? Do you have an evolution of your own that matches it to what feels natural?

[54:05] pushing yourself away from holding on. I was given two big gifts. I was given two big gifts. [54:09] come to Pinchmark. One is [54:12] The brand. [54:14] Um, [54:15] They represented... [54:17] This sort of mysterious possibility, all those energies, positive stuff that I loved about Benchmark when I was at Benchmark. [54:24] at Excel or before I even got into the venture business. And I was given... [54:29] the [54:30] ethic of the equal partnership where no one lays any claim, [54:36] No one has any purchase or right or ownership. Every one of my partners, founding partners, Bob Cagle, Bruce Dunleavy, Kevin Harvey, [54:44] Raise their hand. [54:46] and said, [54:47] Serious. No residual claim on economics, no piece of the management company. [54:53] And I share this with other people in the investment world who are like, [54:56] that's crazy to the point of being stupid. And I'm like, no, no, no, it's genius. Because what [55:02] what they've enabled is that I honor the same thing. So to answer your question completely, I think that Bill Gurley who left most recently and Matt Kohler [55:10] They raised their hand and said, it's time. [55:13] And what a beautiful thing to have none of the [55:17] drama, none of the, like, where's my this or where's my that, and [55:21] Um, [55:22] So my answer to this question is that I'm at a point in my career, I love the job, I'll make a few more investments that'll get my heart and soul, but then I got to add 10 years to every new commitment I make and say, okay, then I'll be in my 60s. And there's a point at which like...

[55:37] And more importantly, I think more vitally, I want the energy of Benchmark to be centered just as it did for Benchmark 1 and then – [55:44] Benchmark 7, which was the social mobile fund with Uber and Instagram. I guess you being handed the keys in a certain way makes you, I'm sure that [55:53] imbued a certain duty to do it the same way. It also sets an example for your younger partners that they're going to watch you do it a certain way. It's the gift I was given. And I really feel it as a gift to be able to say, man, it's so hard to create that gift. It must be so rare for the first group to make that gift because I can see how if you're handed it, you're like, I need to hand this on. Yeah. [56:15] wow, it's got to be rare for the first group to not just say, I'm going to hold these economics. Well, you know, Andy Ratcliffe and Bob Cagle, and I remember when Bob told us things like, [56:25] I now feel like I can do this. Because he wanted to feel the firm was at a point where he could move on and not have a... [56:33] Yeah, and he was roughly where I am in my life. What a beautiful thing. [56:38] That's consistent with creative destruction. The ephemeral lineup of Benchmark is juxtaposed to the [56:48] Non-ephemeral value system, the non-ephemeral structure of like great partners to. And I actually believe, again, in an adaptive landscape. We inherit, we evolve. But it's not to say we won't like benchmark will experiment. We've experimented in the past. We had a European fund. We had a Israel fund. [57:04] But it's usually against the backdrop of a very constrained core ethic of what the firm is. Yeah. One of the things I want to ask you about is Mark Andreessen, when he was on the pod, talked about this analogy of like the sushi boat back in the day. And when he started Andreessen, that he experienced a lot of Sandhill VCs as just like waiting for the sushi to come down the line, which was waiting for the startup to come pitch them. And they would just like swing at the fat pitch. They didn't have to work that hard.

[57:34] over time and he saw that opportunity and everything. You've been doing the business for a long time, both at Benchmark and Prior. I'm curious if you've experienced... [57:44] truth in that, what has been different [57:47] In your experience from that, how much more competitive does it all feel over the 20 years of your time here? My experience has been... [57:54] known. [57:55] at the beginning ever called me. There was no sushi boat. [57:59] There's no picking of... [58:01] you know, [58:02] Warmed over. [58:03] typically not good sushi on sushi boats. It was always... [58:07] And still to this day is for me, [58:09] a [58:10] Are you nurturing your sense of curiosity? Are you really... [58:14] activated and identifying not just like trends, but like, [58:18] Who in this ecosystem is, you know, many standards of deviation more exceptional based on how they're showing up every day? And that to me is a constant like, you know, so you read a lot, you meet a lot of people, but then you're in a meeting and your meeting's not going so well because there's a lot of those in the venture business. And instead of sort of like tuning out and thinking about like, oh, what am I going to do tonight for dinner? Fold that back into what can I do to make this an interesting meeting for me and this entrepreneur? [58:48] say like, you know, okay, well, you, oh, I noticed you were at strike. Oh, that's great. You know, who impressed you there? And like, you know, if you think about like people you most want to work with, so you're constantly sort of populating your, your, your awareness with the extraordinary opportunity potential and to me, as opposed to the sushi boat. And then, you know, 99% of the time,

[59:09] you're reaching out. You're not maybe cold calling pretty poorly, but you're going through your networks to get in. Yeah, actually, this is really good because I'm doing this without experienced partners teaching how to do stuff. So what does sourcing done really well look like? I mean, you just gave a really good example of it. You're meeting with somebody who you worked with that impressed you. But what's the body of work in your mind of really good sourcing at its prime? Well, I've seen younger partners come up. We talked about Victor today and is a great example. [59:39] They're competing strategies for sourcing. [59:42] Ultimately, it has to manifest you. So I'll give you one strategy, being the expert. [59:47] Not my strategy. [59:48] But I did play that game for a while in open source where you say, OK, here's an area. [59:53] that I know will create great opportunities. And I'm going to get in front of it [59:57] and be a thought leader. And that strategy [1:00:01] in certain cycles and certain subsectors can be the right strategy, but it has one major risk, which is that great entrepreneurs – [1:00:10] are going to be more expert than you'll ever be. So you get me. And so who's a good example of that? Fred Wilson was a great example of being an expert on social. [1:00:19] And he was blogging. He lived it. He was authentic. And he sourced in a way that Tumblr, Twitter and Fred was there. That's a great sourcing. And he's in New York. So like he's not like so. The second strategy, which these are overlapping, granted, is to be a version of what I would describe I've done. [1:00:38] Yeah. [1:00:39] To have an ability to

[1:00:42] see and cultivate your capacity to see extraordinary human beings. And I think we're all extraordinary. Yes, every snowflake is unique. PG said this once to me. He's like, you know, how do you do your interviews? [1:00:54] So I do 41, 42 interviews. I see when I was doing those interviews and more than that, it's not so fun. But I know pretty quickly, I'm like, well, what is it? [1:01:04] And. [1:01:05] He's like, yeah, you know, you feel it. There's an authenticity. There's the idea this person's not taking someone else's concepts and mashing them up. They're manifesting. And it may not be the right thing they're saying, but you see it in the clarity from which they come up there. And they're fearsome. And so you feel like you can't control them and all these other attributes. [1:01:24] The second model, which I think is highly recommended for someone like yourself, is to put yourself in a position – [1:01:30] So that when somebody you meet firsthand, secondhand, or pitches you, that you can see in an instant. [1:01:38] Like, that's different. How do you do that? So I think about my time when I met Evan Spiegel, when I met Toby, and I didn't invest in Toby, but I felt it. I mean, I fucking knew. It sounds really... [1:01:50] hard to put to words, but it's not just taste. It's not like when you hear a musician play [1:01:56] You think, wow, [1:01:58] There's something there. But my experience of this is I become... [1:02:03] And I really think this is a common theme that goes throughout. Even when I met Jack Dorsey, I felt this way. It's an oceanic feeling. [1:02:09] As crazy as that sounds. But you say...

[1:02:12] When Evan said, I am motivated to do this because of what... [1:02:16] has happened with social media, has taken away [1:02:19] people's capacity [1:02:22] to share without self-awareness. [1:02:24] And when you share with self-awareness, it constrains what you do because you feel like all those mechanisms that you get at age six, seven, and eight of shame and ostracism. It's like, I want to give that back to people and [1:02:36] There was like... [1:02:37] Again, oceanic feeling like this person, once he starts to do this, it's going to compound and grow. And by the way, it's so real because I can look back over that last prior year. I don't remember a single meeting. And it's going to happen, dude. Maybe it's hindsight bias. People say, that meeting stood out. I mean, for us, it was Alex from Scale who came and presented. And Eric brought a bunch of companies in that year. But when Alex presented, it was like. And the one that stands out, you should always do it. [1:03:07] But that's the asymmetry of the business. Yes, that's the basket you want. And I tell you, the other side is equally – [1:03:14] damning, which is the... [1:03:16] It kind of makes sense [1:03:18] It checks the boxes. I like the numbers. So, [1:03:22] By the way, so this is the second model. - Don't do that. - Well, if you pursue that, my model of venture investing has been that, which is, I met Howie Lou, and I knew five minutes in, there's something here that is oceanic that I wanna be there, and we build an energy together, 'cause it's self-selection too. You're not gonna respond to everybody who's great, and I wish I had spent time with Parker. Honestly, I didn't, you know, Norga guy. The third strategy,

[1:03:48] which I think is... [1:03:50] One that works quite well as a compliment to the other two is to be a business model investor. And I think there are people who have been extraordinary at that. My partner, Bill Gurley, stands out over the course of the industry as saying he understood marketplaces and the systemic marketplaces. [1:04:06] network effect that gets activated. And to me, that's different than being an expert because he was never an expert in like, you know, marketplaces for take your random topic restaurants, which is OpenTable. He was a business model investor. Among other things, he did all the other aspects. And there's certain people who can say, so today, what would that look like? [1:04:24] A business model investor today would say, we're going to disrupt. [1:04:28] Two-thirds of the economy is going to be completely upended by AI. [1:04:33] Let's pick the top 10% that are vulnerable to margin expansion to the use of AI. So we're going to start with accounting firms, real estate, even on the list. And to me, that's a different model. And how do you source in that model? Well, you're kind of systemically looking through that category. [1:04:49] You could do all three. The biggest gift I had in venture was... [1:04:54] I took, not gift, whatever, but I... [1:04:57] I responded to open source investment, J-Boss, Mark Flurry, because the person was sort of, yeah, thermonuclear. [1:05:07] And... [1:05:07] That then landed me on the shores of open source in 2003, and then I did... [1:05:12] 20 plus years of open source investing. So it turns out like once you build a little practice area, it gets a lot easier. You see things that aren't visible to other people when you're in the, but, but.

[1:05:21] it all comes back to that same personal thing. You mentioned like, you know, [1:05:25] In their Jack Dorsey, Toby, Evan Spiegel... [1:05:29] which [1:05:31] I guess. [1:05:31] as I'm listening to that, is the rarer, harder, more valuable thing to do to notice greatness when you meet those people or simply to have met those people, period? In other words, are there fewer people who could see greatness if they met? [1:05:46] that cast of characters or are there fewer people who could get into the room with that cast of characters at the right time? It's a good question. It gets back to the sushi boat. [1:05:55] The sushi boat isn't full of Michael Terrell. [1:05:58] The sushi boats, if there are sushi boats, are filled with people who aren't on that, typically. So what I found is that... [1:06:04] People who have that [1:06:06] density. [1:06:07] of excellence, of like... [1:06:10] They're none. Yeah. Like... [1:06:12] People don't meet Sam Altman and walk away and say, I just meant nothing. No. [1:06:15] And so you have to have a nerve, enervate your network, for lack of a better term, enervate your network. [1:06:24] life, [1:06:26] with people who are likely to bump into those folks. [1:06:29] And if you do innervate your life and then... [1:06:32] Encourage them to tell you about them. So the... [1:06:37] The fact is you're likely going to have to reach out to that individual. I remember meeting Michael Truel in [1:06:43] Like, ditz is pretty fucking obvious. Mm-hmm. [1:06:46] Six minutes in, you're like, okay, there's 40 coding companies and this and that, but there's one.

[1:06:52] person who has this clarity and you just don't even have to finish the five minutes in the meeting, you're done. But then it's clumsy because you want to [1:07:00] It's a relationship. So you want to have a two way. You want to have it. You don't want to just say, oh, my gosh, yes, you had me five minutes in. Because I think the next thing is it's one thing to be extraordinary. It's the other is can you be an amplifier for them? And do they come out of the meeting saying like, oh, I want more of that? Yeah. And or Brett Taylor, who obviously are very close to you speak to him for 30 minutes. You know, you're not talking to a regular person. I met Brett five minutes in 2007. John Lilly, who's [1:07:24] is an awesome human. Introduce me and [1:07:27] He's like, you got to meet Brett. That's a good example of like, I innovated my network. I mean, John knew that I was responsive to those kinds of people. At the time he was at Mozilla. So John said to me, I met Brett. I'm like, [1:07:40] Yes. Like, what do we do? Is he became an entrepreneur in residence? And this is before Google had built an immune system to stop good people from leaving. So I think. Okay. So then you meet these people. [1:07:52] Somehow. Then you're like, wow, this person's special. You met, you know, young Patrick Collison and like the rest of the world, you realize it's a special person or whatever. Now what? Like, how do you what what have you learned about convincing those people to do? [1:08:06] work with you. I mean, obviously, listening to you talk, I can hear a lot on sort of the way you talk about partnership with you. And I'm sure that's like a big piece of it. But like, are there any generalizable learnings you've had? Yes, one very simple thing. And I made a lot of mistakes early in my venture career

[1:08:23] when I was insecure, I still am, we all are, it was understanding, deeply understanding how could I [1:08:30] be an enabler. [1:08:32] An amplifier. [1:08:33] Um, [1:08:34] a positive force that's deep and real. And the mistakes I made early on was I thought that was through expertise. [1:08:42] Let me tell you about this thing I learned about in the... [1:08:46] And I've learned that that wasn't [1:08:49] something that you have the right to do until you've earned it over many years of seeing things and calibrating the way they see the world, the way you see the world. [1:08:57] So the single most important thing, which I... [1:09:00] focus on early on is deeply understanding what this person is trying to do. [1:09:05] And if I really understand, not at some superficial level because it's a hot deal and we're all tempted to have this momentum, go do it. [1:09:12] But understand that [1:09:14] the purpose, really, for lack of a better term, not the objectives, the purpose, [1:09:18] And to meet the entrepreneur, [1:09:20] At that point, [1:09:21] And then go further with them. And to say, like, that's interesting, but do you realize that there's another... [1:09:28] Vista on the horizon. [1:09:30] And so if in a way, [1:09:32] they feel real and deep understanding of what they're doing, then there's trust. I love the answer because it's like the best sales people I've ever worked with at Lattice and software sales in general. If you ask them, how do they do it? The first thing they'll say is, well, you have to be a really good listener. Yeah. And you have to see what your customer really wants and what they care about and what drives them and what are they afraid of? And, you know, what do they need to accomplish? And it sounds like the fact that you started with listening is...

[1:09:59] That seems like that's pointing at the right direction. Yes. And then I think in a good relationship, there's tension. [1:10:07] It can't just be... Saying yes to whatever they think they want. Yes, and so I think you have to... [1:10:12] after you achieve understanding, you know, through the dialectic, [1:10:18] substantively expand their thinking. [1:10:21] And I mean, it could be around something as simple as when do I hire the VP of engineering or how do I think about building a pro social organization where it's high functioning at scale versus pathological like most big companies. But you meet them at the edge of their understanding and then advance it in a way that they feel like, oh, my gosh, I'm a better entrepreneur. I'm more likely to achieve progress. [1:10:42] um, success, but even at a higher level through this relationship. And it doesn't always work. There are cases where you try to do that and it falls short. And you know what? I'm really okay with one of the beautiful things about venture is, um, it's never going to be a winner takes all game. We have a heterogeneous ecosystem of models of people and, and, and to recognize if you're forcing it. [1:11:05] It's not for me. There are certain people who I know, I'm not going to name names, but I'm like, they're great investments, but that would not have been a good relationship for me. And then there's others where it breaks my heart because I think that's the kind of person that... My haunted... You know, if anyone ventures been as long as I have, you have a list of like, "Oh my God, I shouldn't be allowed to practice because I didn't say yes to Toby." And as an example...

[1:11:30] And that haunts me. There are others that... [1:11:34] for whatever reason, it's like [1:11:36] they wouldn't have activated me. Well, I feel like that one from the way you've been talking about it, it sounds like it haunts you. Cause you feel like you would have really enjoyed the relationship too. It would have meant the world to me. And still, we have the relationship. We talk, we hang out and, and, um, [1:11:47] visit him in Toronto as much as I can. Yeah. No, but I know what you mean where it's like, there's certain companies, even, you know, I'm so early into this, but that I'll meet and I'm like, that's a great company. Yeah. And I have no way to help that company. And so I shouldn't really force this. Yeah. Or I'll see, you know, a different lens on the same thing is there's investors like, you know, when I spoke with, [1:12:08] the node who I'm like, [1:12:10] this is a brilliant person and he is able to see things that I'm not going to be able to see. And so that's just a different type of thing where you can like respect that. Even when I was hearing you talk about the thing that drives you of the relationship, Vinod would say something that I think is sort of like equally aspirational, but totally different, which is like the technology. And that's cool. It's just different. And I think he has built a system that, [1:12:35] totally aligned with what motivates him. I've tried to do the same. And I think benchmark embodies that, but then I'm also faced with the reality that, um, [1:12:45] There's this beautiful... [1:12:48] Buddhist self-immolation sacrifice that I'm about to go through, that we go through in the venture business. It's sublimating that and then finding a new form. But [1:12:57] But knowing the benchmark contains that value. And then there's this thing in the venture business, FOMO. And it's an awful thing.

[1:13:05] It's productive because, oh, my God, that's happening. I didn't see it and all that. And it's an anxiety. And I would tell you that's the one thing that I'm looking forward to letting go of. [1:13:14] that etches you in the sense that it's constantly changing [1:13:18] your responsibility when you wake up to say, [1:13:21] If the next Michael Terrell gets going, what's not acceptable is that you didn't spend time with him. [1:13:25] If you're not a value system fed, if it doesn't – okay. Okay. [1:13:28] Like, you know, and I don't even think like getting the investment wrong. Who cares? Like it's, it's, it's missing that opportunity for a deep partnership. Maybe it's like a closing question. Cause we kind of talked about how to see great companies. [1:13:39] Me winning. [1:13:41] sort of the last part of the job and you know i think this is probably very sort of central to you and benchmark is the sort of north star of being a great board member and what should that relationship look like when it's done at like peak performance yeah and maybe if you can give like sort of like the north star of what that relationship is like when things are going really well and then like what's the north star when things aren't going well being a great board member starts with this [1:14:07] beginning commitment. And we talked about it, just really understanding the purpose and motivation of the founder. And if you're rooted in that, you're grounded in that, [1:14:18] You serve that. [1:14:19] And the organism that gets built that the board sort of, you know, [1:14:23] is interfacing with carries the ambition of the then team, right? And the purpose and the motivations and all that. And so often as you get going, that runs into trouble. You know, boards have these different roles. There's governance, there's advice, there's being a source of accountability. But ultimately, what motivates me on a board is...

[1:14:45] Um, [1:14:46] When I see companies get oxidized, [1:14:48] with the stresses of being in the market, of scaling, of growing, of dealing with customer pains and product issues and team issues. The first ethic I have is to... [1:14:57] to deoxidize them, to stay close to and proximate to the source of joy. Why do they do this in the first place? Because as we were talking about, it's not a rational thing to go start a company. It's eating glass. It's suffering. It's many days, weeks, months of feeling like you're in a groundless existence because there's no certainties in startups. By definition, that's what makes them so dynamic. So first thing ethic I have is to stay close and proximate to the purpose of the business because that is the sorting function. [1:15:27] Then the role I think as a director you play [1:15:30] Um, [1:15:31] and I'm about to go to a board meeting, is to really have done the work. [1:15:35] You do the pre-reads. One of the things I insist, and this is a bit of a [1:15:40] crotchety old venture capitalists hate slides. [1:15:43] I think it's really healthy for the companies to do pre-reads. For them, more than it is maybe even for the board, to lay out their thinking in a crisp way, [1:15:51] because I find that is a vehicle to make everyone better. So do the work as a director means you do the pre-read, you really understand as best you can, that gives you context. And then in the meeting itself, in the board dynamic, [1:16:05] Um, [1:16:06] you're sort of looking at three layers. And for lack of a better way of saying this, it's simplistically [1:16:13] the strategy,

[1:16:15] To me, that's the purpose. Why are we doing this? What's the point of it? What are we doing here? You can lose sight of that pretty quickly. You probably don't want to change that every board meeting. That's one that gets updated, but it's broadly strategic. There's structure, which is what's the organism that you're building to manifest that strategy, and then there's staff, which are the people that then inhabit that organism. [1:16:37] Oftentimes you flip the order and you're talking about people and not talking about structure or strategy. So as a director, I think the best we do is we sort of. [1:16:47] get clarity. So it feels like, okay, we're aligned with our purpose. And so when there's dissonance in the system, which is what a board member I think should hopefully identify, you can illuminate the awareness of the team and the leadership, the CEO to navigate around that. But a big part of that starts by listening and saying, okay, what's keeping you up at night? What are the things that haunt you? And so as a director, the North Star is, they come out of a board meeting, [1:17:13] And we've done our job. [1:17:15] They feel more energy. [1:17:16] more aware [1:17:18] more conscious, and if I did anything at the end of the day, more curious. [1:17:22] I love it. [1:17:22] Well, I got to let you go to your board meeting. This was amazing. Could have gone another hour. Thank you so much for this.