Jun 24, 2019 · 34m · 20vc
20VC: Benchmark's Bill Gurley on 5 Traits Benchmark Look For When Adding To The Partnership, Why The Abundance of Capital Is Today's Biggest Challenge in VC & The Right Way To Think About Market Size When Assessing Opportunities
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In this episode of The 20 Minute VC, host Harry Stebbings interviews legendary Benchmark investor Bill Gurley about his career trajectory, venture capital market cycles, investment risk evaluation, and Benchmark's unique partnership structure. Gurley provides deep insights on board governance, partner selection criteria, market size expansion, and maintaining long-term perspective during changing macroeconomic cycles.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 33.2% of the talking time here. How this is scored →
Harry as informed peer 3.1 Guest teaching 4.8 Guest disagreement 1.3 Harry pushing back 1.3
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 25:52 Rejecting the macro-immune thesis
Gurley explicitly dissents from Hemant Taneja's optimistic macro framing, characterizing public statements about uninterrupted tech expansion as promotional rhetoric aimed at founders.
Hardest push from Harry ▶ 25:24 Challenging Gurley with General Catalyst's macro viewStebbings pushes back on Gurley's cautious macro stance by introducing a contrasting argument from Hemant Taneja regarding a 30-year transformational shift.
Biggest teaching moment ▶ 12:00 Deconstructing traditional TAM miscalculationsGurley demonstrates the systemic flaws in traditional market sizing by illustrating how analysts at McKinsey and academia dramatically underestimated market expansion in mobile phones and Uber.
Harry holds his own ▶ 10:22 Testing valuation sensitivity with partner quotesStebbings demonstrates strong preparation by contrasting insights from his partner Fred with Peter Fenton's stance on valuation traps to challenge Gurley on price sensitivity.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Bill Gurley's Journey to Venture Capital | 1 | 1 | 0 | 0 | Stebbings asks a standard biographical opening question about Gurley's entry into venture capital. Gurley responds with a smooth narrative spanning his time at Compaq, Wall Street, Credit Suisse First Boston, Hummer Winblad, and Benchmark. | |
| Navigating Boom-and-Bust Cycles in Venture Capital | 2 | 6 | 1 | 1 | Stebbings frames a question around Josh Koppelman's views on boom-and-bust cycles. Gurley reframes the dynamic by explaining how risk aversion shifts rapidly in downturns and shares a story from Howard Marks on why venture capital cannot escape market cyclicality. | |
| Valuation, Asymmetric Risk, and Rethinking Market Size | 4 | 7 | 2 | 1 | Stebbings cites partner Peter Fenton and Sarah Tavel regarding valuation and market sizing. Gurley details asymmetric risk in venture capital and explains why early-stage TAM analysis is often flawed, citing historical misjudgments with Uber and cell phones. | |
| Governance, Board Seat Dynamics, and Effective Board Leadership | 3 | 5 | 0 | 0 | Stebbings cites data on Gurley's 3,200+ board hours and asks for advice as a first-time director. Gurley offers tactical guidance on preparation and restraint, referencing Pierre Lamond and his own method of writing down thoughts during meetings. | |
| Portfolio Time Allocation and Decision-Making at Benchmark | 4 | 4 | 0 | 1 | Stebbings articulates the dilemma of allocating time between portfolio winners and struggling startups, referencing Josh Koppelman and Annie Duke. Gurley discusses reputation management with failing companies and Benchmark's equal-partnership decision dynamics. | |
| Five Essential Traits for Selecting New Benchmark Partners | 3 | 5 | 1 | 1 | Stebbings introduces a quote comparing partner selection to deal picking. Gurley outlines Benchmark's five key traits for new partners and highlights that venture capital consists heavily of selling. | |
| Challenges of Capital Abundance and Macro Market Realities | 5 | 6 | 5 | 4 | Stebbings directly challenges Gurley with Hemant Taneja's thesis that technology growth renders macro cycles irrelevant. Gurley refutes this framing, arguing that such claims function as marketing to founders rather than sound financial assessment. | |
| Quickfire Round: Books, Lessons, Partnership Pride, and Good Eggs | 3 | 4 | 1 | 2 | In the quickfire segment, Stebbings presses Gurley on stretch valuations and investment regrets. Gurley explains how Benchmark evaluates fund-maker potential against entry price and separates errors of omission from errors of commission. |
Statements from this episode (23)
Gurley: VCs Accumulate Risk Slowly but Become Risk-Averse Overnight
“When markets bust, risk aversion comes on immediately, like overnight, boom, and so you have this very different principle, like we take on more risk slowly, but we recognize risk quite quickly when market busts.”
Gurley: Most Multi-Decade VC Returns Accrue at Cycle Ends
“The vast majority of the average returns over a multi-decade window are right at the end of the cycle.”
Gurley: Startup Burn Rates Are Orders of Magnitude Higher Than 1999
“The burn rates now are probably tours of magnitude higher than they were in the 99, 2000 timeframe for some of these companies.”
Gurley: Entry price is irrelevant for startups with 100x return potential
“I think the real caveat to it is if this company we're talking about has optionality to be a hundred X or be a fund maker kind of company, then certainly entry price does not matter.”
Gurley: Price insensitivity in late-stage venture investing is not smart
“So this isn't, I don't think price insensitivity and high late stage investing is a smart idea, for example.”
Gurley: Over-focusing on TAM analysis causes major early-stage investment mistakes
“And so what Sarah and I have talked about is just that I've come to believe people get into more trouble by over focusing on TAM analysis, especially in these super early stage companies.”
Gurley: Uber in San Francisco was already 10x the local taxi market
“And at the moment he wrote it, the size of Uber in San Francisco was already 10 X the taxi and black car market.”
Gurley: Cheaper, simpler technology often dramatically expands market size
“And so all too often what I've seen is if technology brings about an easier, simpler, cheaper solution, you know, there's a good chance that the thing could expand the market and blow things out of proportion.”
Gurley: Benchmark will not invest in a startup without a board seat
“We won't invest without a board seat. It's a tenant that we have that a lot of other firms don't.”
Gurley: Only a fraction of VCs take board duties seriously
“If you look at all the venture dollars that are out there, I think the numbers that really take that role seriously is actually a small fraction of.”
Gurley: Young board members talk too much in meetings
“When you're young, you speak too much in the boardroom and you learn to change that behavior over time.”
Gurley: Board members should filter ideas and email non-critical points
“Anytime I have an idea that pops into my head during a boardroom, I'll write it down. And then I'll ask myself, does this need to be discussed right now? Is there a benefit of this being discussed with the other board members right now? Or is that something I …”
Gurley: Board members must stay within their circle of competence
“Know your circle of competence, right? And so, if there is a point that is going to be super helpful, and you're the right person to make it, then you certainly should. But if you're relevant, or if it's something that someone else at the table knows a lot mor…”
Gurley: A VC's long-term reputation dictates their future deal flow
“You know, if you're going to be a successful venture capitalist, For two or three decades, you're going to have a reputation, and your reputation is going to be a part of what allows you to win or not win investment opportunities in the future, and so you'd be…”
Gurley: Benchmark Provides Equal Financial Economics to All Investment Partners
“Benchmark's structured in a very unique way where our investment partners all have equal economics, and I think that does an amazing job of speaking to the newer members of our team that their voice matters,”
Gurley: Benchmark Approves New Investments by Majority Partner Vote
“In that way, I thought that was interesting way she had phrased that, and so we simply have a discussion, and if a majority of the partnership wants to move forward, we move forward.”
Gurley: I Am Emotionally Vulnerable to Network Effects and UGC Pitches
“It's a better question for the other four, but I suspect it has something to do with Network effects, or user-generated content, or those types of concepts are, like, emotionally appealing to me. So if anyone walks in and uses those two phrases, I might have a…”
Gurley: Venture capital inherently favors younger investors
“I think venture capital bends towards youth. There's a hustle element. There's a curiosity element. There's a lot of these really big outcomes are started by people that are 19 to 21.”
Gurley: Venture capitalists spend 85% to 90% of their time selling
“I think people on the outside may not realize how much selling goes into venture capital. It's probably the one thing that I didn't realize when I joined that I know innately now. But I could argue you're spending 85 or 90% of your time selling, and so if you …”
Gurley: Public optimism from VCs is targeted founder marketing
“Any time a venture capitalist opens their mouth, they're probably sending a message to the founder they haven't met yet, and saying that it's going to be 30 years of wonderful glory, all roses, and no thorns, is certainly a better message than screaming, the s…”
Gurley: Capture late-cycle market upside rather than playing defensive
“The best way to protect against the downside is to enjoy every last bit of the upside. I've got no incentive to change my operating principles or the way I go about doing the job just because I think one day the cycle might end. And so I'm going to be operatin…”