The Ledger
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Tavel: Benchmark barely reserves capital for follow-on investments
“We don't think about reserves. Period. Barely. We're very oriented towards our initial investment, and in that moment, you know, we are more ownership sensitive than probably most other firms. But then after we invest, we are 100% aligned with whatever objecti…”
Sarah Tavel: AI enables software startups to sell completed work outcomes
“What AI enables is actually a very different unit of work that you sell, which is doing the work. And so you're almost a software company that looks like a services business. That is able to sell like the full work product that the outcome, as opposed to selli…”
Sarah Tavel: Non-seat-based AI models will disrupt traditional SaaS incumbents
“And this is very disruptive to incumbents because incumbents are used to thinking about selling per seat and pricing per seat based on the cost of the headcount. But if instead you're selling something that doesn't require a seat, that is like a very disruptiv…”
Tavel: AI application layer will capture tremendous long-term value
“I focus on the application layer because I do think that's where a tremendous amount of value ends up being captured and created.”
Tavel: Escalating training costs will produce foundation model oligopoly
“Each successive model is going to be more and more expensive. That suggests a world where you're going to have an oligopoly.”
Tavel: BeReal failed because it couldn't compete with short-form video dopamine
“What happened with Be Real in my estimation is that they did capture that why now of the authenticity But they could never earn the right to enough minutes for a consumer because the consumer was then having, you know, the dopamine hits of, you know, the most …”
Tavel: AI for existing workflows will drive tremendous market cap for incumbents
“If it's existing employees and their existing workflows that, you know, AI technology is going to be sustaining and it's going to drive tremendous market cap for the incumbents.”
Tavel: AI enables startups to sell completed work rather than software seats
“What AI enables is actually a very different unit of work that you sell, which is doing the work. And so you're almost a software company that looks like a services business that is able to sell like the full work product that the outcome, as opposed to sellin…”
Tavel: Selling AI work expands target markets by 10x-50x over software
“Part of the opportunity with selling work as an AI startup is that the market for that could actually be 10 or 50 X bigger than if you were selling software. Why is that? You're selling a 95% productivity improvement instead of a 10% productivity improvement. …”
Tavel: OpenAI will not match specialized audio and video startups' focus
“Those are going to progress, but they're not going to progress with the same level of focus and ambition as the core foundation model that OpenAI is working on. They might progress as beneficiaries of that core work, but it doesn't have the same level of focus…”
Tavel: OpenAI will not build deep enterprise workflow integrations
“So that something coming out, you know, an open AI, they're just not going to build that same level of workflow, the same level of integration. And so it's going to be, there's, there are, there's plenty of work to be done. That's beyond the model itself.”
Tavel: Frontier AI models will remain closed source unless Meta shifts market
“If you want a model that's on the frontier, that's going to be closed source. Now, look, every, as I mentioned, every month it feels different with what Meta's doing with Llama, that may actually fundamentally change the game. If Meta is willing to make that h…”
Tavel: Pay high startup prices if you like everything else
“In those cases, someone said this to me once, and it really hit me, is like, if you like everything but the price, you pay the price.”
Facebook cutting Pinterest off its newsfeed shifted growth from exponential to linear
“I remember early on at Pinterest, there was a time when Facebook acquired Instagram. We were both growing exponentially. Pinterest and Instagram were growing exponentially at the time. They acquired Instagram, and then they shut Pinterest off the newsfeed. So …”
Chasing early GMV prevents marketplaces from achieving true market dominance
“The challenge with chasing GMV is that it actually points you away from that place of dominance. Like it points you in the wrong direction because oftentimes, or actually not even oftentimes, almost always, the fastest short-term path to maximizing GMV is to g…”
DoorDash outmaneuvered Grubhub and Uber Eats by subsidizing economics for market dominance
“DoorDash in particular that was able to raise an incredible amount of capital, and they were competing against Grubhub and Uber Eats, both of whom were at that point public companies, and then were being evaluated by a completely different rule book in a way. …”
Tavel: Being underestimated is a startup's best defense against capital incineration
“This is one of the reasons why I think it's actually a competitive weapon for a startup right now to be underestimated from the outside, because the second that there are multiple competitors going after your opportunity, the unit economics just degrade becaus…”
Tavel: Benchmark does not delegate operational work to platform teams
“At Benchmark, our model is that we don't delegate any part of our job. We've tried not to scale our business and just be focused on scaling the founders with whom we work. And so that means that there isn't a talent partner that is doing recruiting calls for m…”
Tavel: Compressed venture timelines will cause suboptimal board relationships
“Rounds are just happening so quickly right now, and to use the analogy I used before of speed dating, it just feels like It used to be that a round would happen over the course of a couple weeks, but now I just see things happening in a few days, and it is the…”
Easy venture capital diffuses focus and makes pivoting to profitability dangerous
“When companies are able to raise a lot of capital easily, they naturally take on more of a growth orientation. Yeah, I kind of think of it as you can turn the wheel towards growth, and you, or you can turn the wheel towards profitability, and all these compani…”
Private startup valuations are seeing massive step-ups across all funding stages
“I would say the same feedback that your seed investors gave you on the step up from the C to the A, we're seeing the A to the B. And I've got to imagine it's the same for every subsequent round. It's just, if you have something that's working, I just continue …”
Investors should pay premium valuations for startups demonstrating clear network effects
“Kind of the way I think about it is that when there is a company that has the potential for a clear network effect and something's really working so much so that you feel like that company can really get away from you in terms of growth, then paying what does …”
2018 crypto startups secured nine-figure valuations based solely on white papers
“And then what's different though, from ad tech is that, and it makes it even harder is that you're often investing in a white paper or a deck. There's no code or traction that you get to invest behind. The company often has, you know, over a hundred million do…”
Crypto investing will increasingly mirror Open Source 2.0 corporate governance models
“The trajectory right now is that increasingly investing in crypto is looking more and more like technology investing that we've always had. It reminds me very much of kind of the open source one point O era. And I just think this is going to look a lot more li…”
Multi-Billion Dollar Consumer Businesses Must Be Free or Better and Cheaper
“If you want to build a truly mid-market, kind of, you know, I'm focused on businesses that will become large, enduring, multi-billion dollar businesses, and I think in order to build one of those, You either have to figure out how to give something away for fr…”
Tavel: Frontier AI models currently require closed-source architectures
“Right now it feels like if you need a model that's on the frontier, you're going to be closed source.”
Tavel: Early-adopting AI startups will take market share from traditional service firms
“New technologies, more often than not, are best served for the group of hungry up-and-comers that want to become the new incumbents. And so, you're going to see a class of companies that realize that if they're early adopters of this technology, they're able t…”
Tavel: B2B software relies on economies of scale, not network effects
“B to B software has very rarely had network effects, right? What it has had instead is more economies of scale.”
Sarah Tavel names passing on Ethereum as her biggest investment miss
“Without question, Ethereum. I, you weren't expecting that. I can see, you know, what, well, Ethereum, I mean, I remember I was at Greylock. And the ICO had just happened, I believe, or just closed. And I was reading more about what's possible with smart contra…”
Tavel: Traditional 5-star rating systems like Yelp have lost their signal
“The cliche is that everything on Yelp is three and a half to four stars. And so the signal has kind of gone away.”
Tavel: Staying under the radar is optimal in hyper-competitive markets
“It's just in a world of hyper-competition, I think staying under the radar as long as possible is the way to go.”
Operating experience improves board governance but not deal picking, says Sarah Tavel
“But I think that most operating experience you know, the experience that you get as an executive, as a founder, as a product leader in a company, I think that experience is really timeless. You know, because what you're learning is how to hire great leaders, h…”
Board members who think they can out-execute the CEO create dysfunction
“The danger when you're the CEO of a company is that you have someone on your board who basically thinks that they can do the job better than you can, and that's an incredibly dysfunctional relationship to enter into.”
Market physics ultimately dictate startup outcomes over founder quality, says Tavel
“I absolutely agree with Andy. You know, it's so frustrating when you meet a fantastic founder. Like I'm very much someone who my first link reaction to a company is first the founders. Like that is what gets me leaning in on a potential investment. And the har…”
Startups raising massive capital struggle to yield positive returns, warns Tavel
“And I worry about what the effect is going to be on returns for our asset class. And also for, you know, the eventual outcomes of these companies that are raising a lot of capital. And it's not clear to me when you raise As much capital as many of these compan…”
Measuring early metrics builds operational discipline despite lacking statistical significance
“And those things don't really mean anything at one million of ARR, but it's the practice of starting to measure those things that helps you create the discipline to really understand how to run your business, In a way that will become long-term profitable.”
Crypto investing in 2018 closely parallels the early days of ad tech
“So I think that crypto investing right now is in a tricky place, because it reminds me a lot, actually, of ad tech investing in the early days.”
Founders Need VCs to Be Truth-Seekers, Not Just Founder Friendly
“Oftime, what a founder really needs, I believe is for someone else to be a truth seeker and ask the hard questions or show a blind spot that they might have or push them in some way. And, Sometimes when I hear founder friendly, I hear, I think of like, oh, jus…”
Operating Experience Is Not Required to Be a Great VC
“I think to be a great investor, you don't need operating experience. I think if you look at many of the best investors, they actually don't have operating experience.”
Tavel: Peter Fenton is the single best VC at developing founders
“I've learned from Peter because his, EQ around people, what motivates us, what drives us what the, what holds people back, and how important that is in the, you know, the arc of any company that we end up investing in, this watching, helping those founders bec…”
Tavel: A strong 'why now' allows startups to survive mistakes
“When you have a strong why now, to me, it's like this strong current that just pushes the company forward. And it means that there are so many things that as a founder, There's, you can, you know, we always say that being a founder and going through hyperscale…”
Sarah Tavel: AI application startups will improve and expand margins as models advance
“I think all the companies that we invest in, they will only get better as the underlying models get better. And they'll be able to take on more work over time. They'll be able to, you know, take, you know, have better and better margins, better because they wo…”
Sarah Tavel: First-wave AI wrappers derived 90% of product value from OpenAI
“The first wave of these AI companies, you could, they, people would talk about them As a, like, you know, wrappers around an LLM. But what that essentially meant is that if you have like this hundred percent distribution, 90% of the value that the startup was …”
Tavel: AI Adoption Is Currently Driven by SMBs and Mid-Market
“Right now we're just not, it's too early to know for that enterprise use case. What you're seeing, like where most of this adoption is happening is like the mid-market and down, this kind of digital native company, the SMB, the, these, like the hungry companie…”
Tavel: Benchmark partners make only 1-2 new investments annually
“Our way of thinking of things that benchmark is that each of us makes one or two new commitments a year.”
Tavel: End-customer AI model costs will continue falling due to competition
“The cost to the end customer, I think that should continue to go down. And that's what we're seeing is that it is just getting more and more competitive. The price continues to go down.”
Tavel: Benchmark waived board seats only once in seven years
“There, in my seven years at Benchmark, I think I've seen one example where we broke the model on, on board, and it was for a small crypto related company.”
Tavel: Benchmark's model ensures 100% post-investment alignment with founders
“But more often than not, it creates conflict that's unnecessary, and it's just very different than our model, which is like, okay, now that we've invested, we are 100% on the side of your side of the table, and let's make every round as successful for you as p…”