The Exchanges, every show

Q Do you think we're going to end up with like one model that just sort of like dominates, or do you think we're going to end up with niche models and they're effectively going to be commodities in some way?

A I think it's highly dependent on how things play out. There are certain examples in the verticals, especially in the coding one, which is probably the largest vertical right now where people have swapped out models. You know, cursor even lets the, The user picked the model that they're using, and as we move towards optimization and price optimization, which isn't really the objective function right now, but it will be in a few years, um, you may see more people try and do those swaps. I think the thing, you know, that could cut against that, if the regulation gets extremely difficult and mundane and expensive, that could actually lead to more oligopoly. And I think some of the players know that and are begging for regulation.

AI assessment note: “I think it's highly dependent on how things play out.”

Q Wow, you know how I feel about the new partners and the existing partnership. It's been such a pleasure to have them on the show. But the final one that I have to ask Bill, most recently publicly announced investment that you made, and why you got so excited?

A Yeah, it's a little contrarian. We put some money in a company called Good Eggs that's an online grocer, And there's really, I'll mention two fundamental things that got us excited. One, the CEO Bentley Hall is someone, if you spent an hour with, you would know exactly why we were so compelled. He's a perfect fit for the role. He's got great leadership skills, incredible external presenter and communicator. And then the second reason was, you know, having watched a bunch of different industries evolve. And as we're seeing the restructuring of retailing, we believe that if you're going to do Some type of direct to consumer approach. You have to have the perfect supply chain or the optimal supply chain for doing that. And we think that's a purpose built distribution center designed for direct to consumer, perhaps as an alternative to something like an Instacart where you're picking things out of a store, but it's early. Like we, we do things early, so it's early. We'll see.

AI assessment note: “We put some money in a company called Good Eggs that's an online grocer”

Q What does it mean to know the bedrock of the industry? We live in a world where people scam, they want the gist of things, they want, give me the summary, give me the executive summary.

A I'm gonna tell you a story. So, um, my partner at Benchmark, Alex Balkansky, would go to this charity auction that I think Andre Agassi would run. In, in Vegas. And one year he bought a dinner with John Lasseter, the creative genius behind Pixar. And we go to John's house and he serves us in his movie studio. He serves us in his viewing room, a 10 course meal. And each piece of the meal is tied to a classic cartoon that he believed was, was super important to understanding animation. And he would show it and he would talk through it and explain it. And you see that and you're like, holy crap. Like he knows more about the history, you know, and, and then here's another data point that I just love. There's a, you know, world chess tournament and they take a break and run a trivia contest and Magnus Carlson wins the trivia contest. And it's all about the history of chess. We do live in a world where information is really cut up, but we also live in a world where you can have access to more information than you ever could, and that's even more true now with LLMs. I mean, you could just sit there, you could have an hour drive, and you could sit there and talk to OpenAI and learn about anything you want to, and I think more people would benefit by studying the history of whatever field they're in. There, there's another one that we mentioned is, uh, Picasso Was a wildly successful re…

AI assessment note: “more people would benefit by studying the history of whatever field they're in”

Q start, and I want to dive straight in. I don't want to start on, you know, how you made an intervention. I want to start at the meat of the issue today, which is the environment is crazier than it's ever been, seemingly. So, help me out here. How does it compare to 99 and the dot-com bubble? Straight off, how does it compare? Bill, should we start with you?

A Sure. And by the way, people that have followed my work will definitely call me out and recognize that I am Compared where we were to the dot-com bubble five years ago, and I have a little bit of a chicken little reputation issue here, but things are clearly more like 99 today than they were five years ago, so we can continue with the conversation. The things that I think are the same, kind of rapid speculation, you have this kind of unbridled enthusiasm, and in certain sectors you have valuations that are super tough to support using traditional analytical valuation models. And, you know, that was true then. I think that's true today. The things that I think are different is the speculation's much broader. Even though it was pretty broad then, you have a lot of speculation now where entrepreneurs with lots of cash are attacking incumbents in very traditional industries. The scale is way larger, both in terms of the amount of money being raised by each company and the burn rate. And I would say that's by 10 to 20 X. Larger. Then back then a company would go public early. They go public with a million in revenue, but it wouldn't be burning that much. It'd just be pretty nascent. And so there's just way more money in scale at play today. And then lastly, you know, back then, I think you still had this belief in market cycles. I think right now there's a group of people that have …

AI assessment note: “things are clearly more like 99 today than they were five years ago”

Q start, and I want to dive straight in. I don't want to start on, you know, how you made an intervention. I want to start at the meat of the issue today, which is the environment is crazier than it's ever been, seemingly. So, help me out here. How does it compare to 99 and the dot-com bubble? Straight off, how does it compare? Bill, should we start with you?

A Sure. And by the way, people that have followed my work will definitely call me out and recognize that I am Compared where we were to the dot-com bubble five years ago, and I have a little bit of a chicken little reputation issue here, but things are clearly more like 99 today than they were five years ago, so we can continue with the conversation. The things that I think are the same, kind of rapid speculation, you have this kind of unbridled enthusiasm, and in certain sectors you have valuations that are super tough to support using traditional analytical valuation models. And, you know, that was true then. I think that's true today. The things that I think are different is the speculation's much broader. Even though it was pretty broad then, you have a lot of speculation now where entrepreneurs with lots of cash are attacking incumbents in very traditional industries. The scale is way larger, both in terms of the amount of money being raised by each company and the burn rate. And I would say that's by 10 to 20 X. Larger. Then back then a company would go public early. They go public with a million in revenue, but it wouldn't be burning that much. It'd just be pretty nascent. And so there's just way more money in scale at play today. And then lastly, you know, back then, I think you still had this belief in market cycles. I think right now there's a group of people that have …

AI assessment note: “The things that I think are the same... The things that I think are different”

Q And then this is for both of you, an ultimate one. And what's something that really keeps you up at night continuously these days?

A I'll go first. If anything, I'll be consistent more than anything. In the U.S., I really worry about regulatory capture, Harry, on both sides of the aisle. So, you know, I think a lot of people see the corporate stuff, right? You know, Citizens United, and like, and you see it in our healthcare system. You see it in how the healthcare dollars are being distributed around COVID. You know, you see it in the financial world, like the Fed's trying to push through FedNow, which would be an incredible alternative to ACH. We have three days before you can transfer money here. You guys have faster payments, which the government pushed through 15 years ago. But we can't get our shit together because If you're a senator or congressman with a big bank in your region, you're standing up in front of the finance committee trying to block FedNow every single time. And, you know, Howard mentioned George Floyd, you know, or he's not a gentleman, the idiot that did that shouldn't have been on the force, but the police union protected him. You know, the police unions all over the country have fought reform and protected the bad actors that are in the police force. And I think if, you know, if you're a Democrat, you see the corporate Regulatory capture clearly, but you don't see, you know, everything the California teachers unions doing to ruin education in California. And then on the opposite sid…

AI assessment note: “In the U.S., I really worry about regulatory capture, Harry, on both sides”

Q Not at all, but I would love to kick off with you. So tell me, how did you make your way into the world of venture and come to be your GP at one of the world's most successful funds in the form of Benchmark?

A It's actually an unusual story that I think exposes how much luck is involved in some of these things, as well as just random opportunity, but when I was in business school, I started thinking about venture, and I reached out to a few people, and they said, go work for 20 years, you can't just get into venture, and so part of what had drove me towards it, my sister was employee 63 at Compaq in Houston, certainly one of the first, maybe only, huge venture-backed stars out of Houston, and Kleiner was actually in it, And so I got exposed to what it meant to have options and for a company to explode. And then I ended up working at compact for a while. I started trading stocks. I really liked investing. And I started to realize that tech had all these interesting angles and complexities you could watch or predict as they unfolded. So when I ran into a dead end as a VC, the second best thing that looked interesting to me was to become a sell side analyst. The team at Goldman at the time was quoted in every tech article I could read in the journal or Forbes or Fortune, and they were pontificating about valuation and investing around technology evolution. And so I was lucky enough to beg my way onto a job at Credit Suisse First Boston and was handed coverage of the PC hardware and software industry, which was extremely fortunate and allowed me to build a network with a whole bunch of d…

AI assessment note: “It's actually an unusual story that I think exposes how much luck is involved”

Q I I'm so pleased you said about the board there because very transparently I've just gained my first institutional board and it's, A massive learning process, and one that I'm trying to scale as fast as possible. According to my analysis, you spent over 3200 hours on a board bill, so I did have to ask, how have you seen yourself evolve and develop as a board member over time?

A Oh, it's a good question. You know, my firm had this wonderful dinner with Pierre Lamont, who is still practicing venture at the age of 88 years old, famous Sequoia investor, and in the middle of dinner, he said, actually, just in his In a kind of surprising way, he said, I'm the best board member in Silicon Valley. And I was like, wow. And I said, why? He goes, I'm more prepared than anyone else at the table. I was going to mention two things, but Pierre really made me smile when he said that, because I do think showing up, having read everything, being intimately aware of everything you're supposed to be aware of is super important in the boardroom setting. The second thing that I think is interesting is that all board members learn over time. I think, I think it will just Happened to anyone who's getting an early start. When you're young, you speak too much in the boardroom and you learn to change that behavior over time. And I, I'll tell you the best pattern or the best, the best rule set that I've used to do that is 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 could put in a note to the CEO after the board meeting to follow up on? And so I'll make a list of 20 t…

AI assessment note: “When you're young, you speak too much in the boardroom and you learn to change that”

Q Okay, so the favorite book and why, what must we be reading?

A Yeah, my favorite book is that it was actually written a long time ago. It's called Complexity by Mitchell Waldrop, and it's about the rise of the Santa Fe Institute, which I've very recently joined the board of, which I'm Super excited about. It's also a board that Bill Miller and Mike Moveson sit on, who you may know of. The book was about complexity theory, and that's what Santa Fe is about. Another way of saying that is multivariable nonlinear systems, and I read it when I was 25, 26, and it just had such a profound impact on how I see different models and systems and economies and opportunities and investments, um, because Most things in life are multivariable nonlinear systems, and it was so, like, shockingly impactful on my brain, like no other book ever has been, and maybe it's because of youth albums that people listen to in that same time frame tend to stick more, but I have a pile of that book in my office. I have ever since I read it, and I give it out all the time.

AI assessment note: “It's called Complexity by Mitchell Waldrop, and it's about the rise of the Santa Fe Institute”

Q Not at all, but I would love to kick off with you. So tell me, how did you make your way into the world of venture and come to be your GP at one of the world's most successful funds in the form of Benchmark?

A It's actually an unusual story that I think exposes how much luck is involved in some of these things, as well as just random opportunity, but when I was in business school, I started thinking about venture, and I reached out to a few people, and they said, go work for 20 years, you can't just get into venture, and so part of what had drove me towards it, my sister was employee 63 at Compaq in Houston, certainly one of the first, maybe only, huge venture-backed stars out of Houston, and Kleiner was actually in it, And so I got exposed to what it meant to have options and for a company to explode. And then I ended up working at compact for a while. I started trading stocks. I really liked investing. And I started to realize that tech had all these interesting angles and complexities you could watch or predict as they unfolded. So when I ran into a dead end as a VC, the second best thing that looked interesting to me was to become a sell side analyst. The team at Goldman at the time was quoted in every tech article I could read in the journal or Forbes or Fortune, and they were pontificating about valuation and investing around technology evolution. And so I was lucky enough to beg my way onto a job at Credit Suisse First Boston and was handed coverage of the PC hardware and software industry, which was extremely fortunate and allowed me to build a network with a whole bunch of d…

AI assessment note: “when I was in business school, I started thinking about venture”

Q So you've spent your life working with outliers, all these founders, are there, Is that a common trait? And I mean, not just the, the history of the field, but the details as well.

A I don't know if the history is a common trait. I would say that, that a more common trait that's related in the entrepreneurial world is obsessive learning, like constant learning, because the disruptions that allow for the technology waves that allow for companies to be disruptive and take market share from an incumbent Are all tied to something dynamic that's happening on the edge. And every entrepreneur that's exploiting that, it's AI right now, they're, they're going home at night and reading everything they possibly can because the edge is moving and they need to be right there and they need to be a top one percentile person that understands this new thing that's happening. And today it's AI, but that was true of the mobile wave. Yeah. Like when the mobile phone came out, there were no engineers that had written apps for mobile phones. And a few people got on that edge and figured out what that meant. And that requires obsessive learning on the edge.

AI assessment note: “I don't know if the history is a common trait.”

Q If I was to observe you use AI for a week, what would surprise me about the ways that you're using it?

A You often underestimate how much it can do. So you might ask it, um, to identify the top 10 of something, and then you're going to take those 10 and go study them. But you can say, identify the top 10, list their pros and cons, and then rank order them based on this dimension, and then rank order them again based on another dimension. Like stuff you would have done later, you can just build into the prompt. And it can, it can do more of the work earlier for you. Early on, I would often ask it for numbers, and then I would go add them up, and I'm like, oh, shit, you can just tell it to do that part, too.

AI assessment note: “stuff you would have done later, you can just build into the prompt.”

Q What was the process you took to go about learning the craft of investing, and who are the mentors and peers that played a role in that?

A So, because I started on Wall Street, you know, and not in venture directly, I got caught up in all the people you would expect, you know, around Wall Street and stocks. And so, you know, that starts with Peter Lynch, one up on Wall Street, you know, best-selling book, probably the first book I read about investing, a random walk down Wall Street, Burton McKay, all the Buffett letters, you know, uh, Ben Graham. Once you read Buffett, you have to read Ben Graham. And so, and then Howard Marks, uh, who's just incredible. And you were talking about the purpose of your podcast. Those, those people have spent their whole career assembling their thoughts and publishing them. You know, along the way. So, so that, those were the ones that I read everything. I, I think I had a very strong kind of bedrock of financial understanding.

AI assessment note: “starts with Peter Lynch, one up on Wall Street... Burton McKay, all the Buffett letters”

Q How do you think about it from a systems point of view, just from like, China seems they have four open source models now that are really good. Is that?

A By the way, this is a great, a great question just to talk more about systems thinking. So, um, they have like 10 open source models, and so you have a situation where the competitive dynamic in China is more intense. Because it's more intense, everyone's chosen to go open source, and that creates a system that, in my mind, is capable of innovating far faster Then the competitive system we have here. All the models learn from one another. You can actually have a model train another model or test another model. I'll use a simple metaphor, but imagine you have two societies and both agricultural societies and one of them, when all the farmers come to market, they just sell each other goods and then they go back. And the other society, when the farmers come to market, they're forced to share best practices with all the other farmers. Which, which one of those is gonna, gonna evolve faster.

AI assessment note: “Because it's more intense, everyone's chosen to go open source, and that creates a system”

Q In a world awash with capital, what makes a founder choose Benchmark or somebody else? Like what goes into that?

A First of all, at a high level, if you're successful as a venture capitalist, people want to work with you. You know, when I came in, you know, the Mike Moritz, you know, John Doerr, like they've had so much success that, that not only, you know, is it likely that they, Are great at what they do and know people that will help your company succeed, but their stamp of approval of you will carry weight in and of itself. And so there, some people have said it's the only investing category where there are network effects because once you have a reputation, it, it, you have an unfair advantage in deal flow. Underneath that, I would, I would say founders are particularly, um, Motivated To be around people who understand what they're doing and are excited by it and excited about it. And one of the reasons young people can break into venture and be wildly successful is they're much more likely to be the age of the founder. They're much more likely to feel someone that understands what they're doing. With, with many of these technologies that are new, they're much more likely to understand them. You know, I, I've used examples describing this in the past, but let's say you're, uh, really into esports or something, you, you, it would be very easy to know more than the successful generalist venture capitalists in that category.

AI assessment note: “their stamp of approval of you will carry weight in and of itself”

Q Is that a good question to ask? Should somebody ask somebody?

A Probably not. Like, I don't think you should use, it's a very heavy sounding ask, you know. I think, and, and so, um, I'll give you, I'll give, I'll give your listeners a cheek. I still hope they buy the book, but I'll give them, like, my first thing on mentors is, um, take the Take the, people overshoot. They try and go too high. Like, and so take all, I think it's awesome to identify the people in the field you're gonna go after that you hold in highest regard and respect the most. Call those your aspirational mentors. Create a file, you know, in whatever digital folder type thing you like to use, Notion or, or Google Docs or whatever. Create a file for each one of them. And study them relentlessly. Find every podcast they've been on, find every YouTube, any interview you can find, anything they've written, put it in the file. Like, keep, keep it like a, like a little journal of yours for each one of them. One day you may meet them, and the fact that you've done all that work will make you much more likely to be able to engage with them, but you're gonna learn so much along that way. So, so the ones you thought you were gonna cold call, don't do that. Do that, do what I just said. And then For the ones you're going to actually try and meet, just go down a few levels. Like, if you go down a few levels, you're going to be asking someone for advice that's never been asked for ad…

AI assessment note: “Probably not. Like, I don't think you should use, it's a very heavy sounding ask”

Q to lose that, sort of, when we started investing in venture, and I definitely had to lose that when I got on the internet, because it's a, like, I've realized collaboration works a lot more. But I'm curious, you're still a competitive guy. Like, you're a former, you know, basketball player. You're competing in deals. So like, Should you try to crush your competition or should you work with them?

A Well, the, the, the advice in the book, most of it that gets into this topic you're, you're hitting on is in a chapter called embrace your peers. And it's probably my favorite, um, principle in the book. Um, but mainly because I think it's the most unique of all the, of all the points that I, that I make. And, um, I, I've found, I found some amazing stories that, that I share in the book that you can go read, but Like I found that far too often humans, and I'm not talking about companies, like I'm talking about, I'm not saying companies need to have friends, but like they probably do, but, um, humans when they're out trying to climb up the ladder, um, would do themselves a massive advantage if they would embrace a group of peers. So finding five to 10 other people who are climbing the same ladder you are and, um, share, collaborate, Um, and support one another. And the number, you know, the, the, you, you learn faster. Your network is bigger because it's not just your network. It's the group's network. Um, If it's authentic, they will be there for you on the hard days. And that will really matter. Like that will really, really matter. Like in ways it's, it's, if you haven't been through it, it's really hard to say how big a deal that is. Um, and, um, and you'll have fun and you'll sit like one way to know if you're really doing it right. When they win, you're sincerely happy fo…

AI assessment note: “humans... would do themselves a massive advantage if they would embrace a group of peers.”

Q Yeah. No, no, which is going back to the point that we made on open source, but if you know in the back of your mind that there's something that's 90% as good, but it's 90% cheaper, how does that factor in? Because we've also never had that, that factor as we're going through this growth curve.

A I mean, since, almost since we started the pod, you know, I've, I've routinely highlighted that the steepness of that price curve on, you know, As you, as it kind of becomes, you know, less, less cutting edge is something I've never seen before. I've never, ever seen it. And I'm sure that a lot of, um, people sit around and say, well, it's okay if I'm losing money here because, you know, six months from now, I'll just use the older model. And we also talked in the past about how in the internet age, all the startups began with Oracle and Sun. And eventually they all moved to Linux and MySQL. And so there was a, there was a, we got to win it all cost phase. And then there was a phase where you started worrying about cost and optimization. And so one day, one day we'll likely, you know, make that, make that move. And, and, and I, a few of the companies I've talked to that are running inference at scale, they are already starting to think that way. Like they're looking, they're looking at it, you know, from that way. From that lens.

AI assessment note: “it's okay if I'm losing money here because, you know, six months from now”

Q What about, what, what do you think, uh, are other interesting pockets you mentioned in the Middle East and how, um, you know, they, they have been incredibly front footed about this entire wave of technology, you know, Really like pushing hard to be majorly involved in the most interesting companies and technologies and infrastructure. Is there other innovation in capital markets that, that you've seen?

A Well, I mean, I don't know if you'd call it innovation, but the, the Cotu had an announcement recently that was different. And, um, and I, I, I'm just reading, I haven't talked to Philippe about it. I'm just reading, I'm mentioning what I read, but I think they took the minimum So they used to have a five million dollar minimum for a commitment. They're taking it down to like 25,000 or something, and they're going to work with an investment bank to place it. It's a similar reflection of the point I made about how they would pitch their LPs, but, but it's tapping into a capital pool, which people sometimes refer to as dentists and doctors, you know, that, that might not otherwise have access to a manager like code two and. Bringing more capital to bear. The same thing I hear is happening in the PE world. I think one of the big PE firms is, is in Washington begging to let four or one case invest in privates, trying to unlock different sources of capital. And, and, and it's, it's interesting. Someone pushed back on me when I was testing this theories and say, oh, but we, we can find, you know, the U S institutional piece are tapped. We'll find capital elsewhere. Look, we're finding it elsewhere, but. That's just putting more money in the top. And I couldn't quite think of the best metaphor, but you have a pipe that has input and output and the output stuck. I guess the human diges…

AI assessment note: “Cotu had an announcement recently... taking it down to like 25,000”

Q How do you, how do you process the, you know, international, especially China versus U S component of, of this race?

A I think there's a super interesting development in the China situation that, that will be very, very fascinating to watch. And that is when deep seek hit and took off. We were all focused on how the U S reacted, the U S models, Washington, You know, the fact that AWS, you know, hosted deep seek or whatever. What happened in China, however, is Alibaba made when, um, open source, uh, Xiaomi has a model out now. Um, I forget the name of it. Moby, I think maybe it's open source and, um, Robin Lee at Baidu had kept his model proprietary, and he said in June it's going to be open source. And so that level of competition, if it leads to four deep pocketed, all open products, um, is going to be, be ultra powerful. And we've already learned, um, that these models can train each other and help each other get better. So if you have four open ones that can all train on each other and everybody can get ahold of that, I think that's going to lead to a massive amount of Optionality and experimentation that we're not going to have here. Um, so I'm, that's, that's the most fascinating piece of the international AI, um, Narrative that I've seen.

AI assessment note: “I think there's a super interesting development in the China situation”

Q Um, what do you, what do you think the way to do that is in the AI era? Is that mostly a data question that you just want? You just want your product to naturally produce more data that then improves the product.

A Let's say you're serving a vertical or, or an, or a functional, you know, vertical. If the learning of an individual customer becomes a learning for the whole group and everyone benefits, that's, that's pretty powerful, you know. Um, and, and I think that's very doable. I mean, there's some, there's some AI companies in the legal space. I'm not involved in any, but like they're, they're, they're studying all the, they're studying all the intake information that you would put into a lawsuit, but they're also studying all the precedent and legal case history and the AI is going to do X. And if you've got a human in the loop, you're going to notice the failure points and then you're going to improve the model. And those kinds of things could lead to someone that has an early lead, having an even bigger lead. And in the longterm, if, if there's constant improvement of the model, um, that comes from this.

AI assessment note: “If the learning of an individual customer becomes a learning for the whole group”

Q old that we all know, and then I also flip to other people who say, Harry, you've got to move to the new normal, you've got to pay up. The best deals are the most expensive, pay up. How do you think about your own price discipline in a world of capital supply like we have today and competition like we have today? And what would you advise me actually?

A Well, part of why I was smiling so much when I said, okay, boomer Harry is like, we can sit here and complain or be worried about a reset or a bubble. And it has absolutely no impact on what's happening out there day to day. And the problem is it's a highly distributed field of players. There are thousands and thousands of VCs and way more of that of entrepreneurs, and we don't get to decide. The market does that via supply and demand, and so you have to play the game on the field. I think I told you this on a previous call, but I had this amazing meeting with Howard Marks where he asked me to explain the venture industry to him, and he, afterwards, he told me, well, that sucks. I said, what do you mean? What's wrong with it? He goes, you're gonna have resets all the time. There's no way to invest across the And I had seen similar or supporting data out of Horsley Bridge, I believe, who's one of the largest fund of funds, where if you looked at, like, a twenty-year window that included the dot-com boom, if you took out 96 to 99, like, you took out the majority of the return. And so, I think you have to invest as a venture capitalist over the cycle, like, over a 20 or thirty-year period, and the biggest mistake you could possibly make is trying to call the top. And so, unfortunately, I think You know, have a little, I call it the Thelma and Louise attitude, where you just push t…

AI assessment note: “you have to play the game on the field”

Q And then this is for both of you, an ultimate one. And what's something that really keeps you up at night continuously these days?

A I'll go first. If anything, I'll be consistent more than anything. In the U.S., I really worry about regulatory capture, Harry, on both sides of the aisle. So, you know, I think a lot of people see the corporate stuff, right? You know, Citizens United, and like, and you see it in our healthcare system. You see it in how the healthcare dollars are being distributed around COVID. You know, you see it in the financial world, like the Fed's trying to push through FedNow, which would be an incredible alternative to ACH. We have three days before you can transfer money here. You guys have faster payments, which the government pushed through 15 years ago. But we can't get our shit together because If you're a senator or congressman with a big bank in your region, you're standing up in front of the finance committee trying to block FedNow every single time. And, you know, Howard mentioned George Floyd, you know, or he's not a gentleman, the idiot that did that shouldn't have been on the force, but the police union protected him. You know, the police unions all over the country have fought reform and protected the bad actors that are in the police force. And I think if, you know, if you're a Democrat, you see the corporate Regulatory capture clearly, but you don't see, you know, everything the California teachers unions doing to ruin education in California. And then on the opposite sid…

AI assessment note: “In the U.S., I really worry about regulatory capture, Harry, on both sides”

Q the show before last time, one of your biggest challenges was the oversupply of capital. When I look at the interest rate environment today and for the next two to three, four years, I don't see it going anywhere, and so my question to you is, given that interest rate environment and the existing oversupply of capital, how do you think that industry shapes out in terms of capital supply?

A I'll tell you how it affects the tech industry, and then I'd love to hear Howard's thoughts on what would cause rates to move in a different direction, but right now, you have remarkable access to capital, and then you have another thing, which is Wall Street Is telling you they care way more about growth than profitability. And we're seeing, you know, not since oh one, we're seeing unprecedented valuations, you know, these SAS companies, 20, 30, 40 times revenue, which hasn't happened since, since 99, 2000. And so when Wall Street's telling you that and capital's quite available, you're going to see more venture capitalists and late stage investors kind of force companies into spend to win kind of mindset. And I see it in our portfolio. Our best companies will be approached two months after we put money in with people trying to put more money in. The co-investors that we're investing with will try and do preemptive rounds like six months after they invested the time before. There's just, entrepreneurs are being told, take the capital, take the capital, take the capital, um, in a way that's, you know, it's pretty insane. Now, some people have figured out models where they can use Capital grow faster, and so you look at some of the SaaS companies, you look at like Snowflake and massive investment in sales growth, you know, delivering to the street the type of metrics that make t…

AI assessment note: “that'll keep going on until there's a change”

Q founders when they're, I like this term being Foie gras in terms of capital supply. How do you advise founders? Because you have, you know, your Reid Hoffman on the one hand, he says, when money's there, take it. And then you also have many, many cases where the oversupply has caused a huge amount of structural problems. How does one advise founders? I'm often struck and challenged by that.

A Well, unfortunately, you are forced to play the game on the field. So if you act conservatively, and your two competitors act aggressively, you will be left behind. And, you know, it's not Fund necessarily if you're conservatively minded and you want, you know, you've been taught, oh, we need to make every unit profitable and all this kind of stuff. Now, the flip side of it is we've seen companies like Amazon who for 10 years were doubted as if they'd ever be profitable, and now they're spitting off massive cash flow. And the bigger you get, the network effects start to play. They added in advertising, right? That's a hundred percent gross margin business, and all of a sudden cash flow is coming out of their ears, right? There is a rational reason to believe, oh, if I can get to massive scale, then I'm going to be able to turn on the cash flow engines. But certainly when the world is rewarding, aggressive growth, don't care about profitability, you're going to have a mix of end results. You're going to have some of the snowflakes in Amazons, and you're going to end up with a lot of, uh, wrecks on the, you know, massive wrecks. You're going to have some of both.

AI assessment note: “unfortunately, you are forced to play the game on the field.”

Q that I've had many different views on the show that some say you've got to spend time with your winners. They return the fund. Others say, you know what? You can't afford to spend time with the losers because you're recovering cents on the dollars. How do you think about time allocation across the portfolio? And have there been some lessons from the incredible decade that you've had at benchmark?

A Yeah, look, it's a conundrum for the reason you said. I mean, There are companies in any venture portfolio, they're going to be delivering a hundred X more return than another one that you might be working on. And so from a purely selfish point of view, and I would say short-term selfish, you would tell yourself only spend time here. And the other thing I would tell you is that the struggling ones, and I don't know what the exact stats are, but like half of venture-backed startups are zero or something like that. You're going to have some of those. They can be quite taxing from a mental standpoint. You know, seeing that entrepreneur's face, going through things like layoffs, which the Valley hasn't seen much of in the past five years, having to do the rah-rah meeting with the, uh, 60% of the head count that's left. Those things are hard. They are really hard and they're mentally taxing. And so that's even more of, I guess, a selfish short-term perspective to want to hang out on the winners. Here's the challenge. 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 surprised how many founders, when they ask for references, say, hey, let me talk to some of the CEOs that didn'…

AI assessment note: “your reputation might be built on those, both positively and negatively.”

Q the kind of big determinants of that hundred X of fund return is the element of market size. And I chatted to your partner, Sarah Tavel before the episode. And she said, if there's one thing I had to ask Bill, she said it was market sizing. So I am interested. How do you think about an approach market sizing today when assessing new opportunities that come through benchmark store?

A Well, I've developed my own tenant, maybe similar to Peter's on price sensitivity, which is I think venture capital. And once again, both on the price comment and the TAM discussion we're having, keep in mind, benchmark is committed to very early stage investing. So we're frequently meeting with two people on a PowerPoint talking about an industry. So this isn't, I don't think price insensitivity and high late stage investing is a smart idea, for example. 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. And the example that probably most profound at this point that I wrote a long blog post about Was Uber, where this NYU professor had done an analysis and said, this company should only be worth five billion. But his baseline was that it's going to get some percentage of the black car and taxi market, which he went out and analyzed, right? And at the moment he wrote it, the size of Uber in San Francisco was already 10 X the taxi and black car market. And my point is not to dwell on him. And in that post, I also mentioned this very famous story where AT&T hired McKinsey to predict the number of cell phones by the year, 2000 in 1980, and they missed by a hundred X. And so all too often what I've seen is if technology brings about an easier, simp…

AI assessment note: “people get into more trouble by over focusing on TAM analysis”

Q says the whole time, and he says that around pricing today, assets are priced as if risk is non-existent. I'm really interested at Peter Fenton, your wonderful partner said on the show, never turn down a deal based on valuation. It's a mental trap. I guess my question subsequently to you is in potentially frothy times and more capital available environments, how do you think about your own price sensitivity?

A Yeah. Well, look, there's a reality in the venture market that you'll hear people talk about, which is there's asymmetric risk and reward. And so it's just using type one and type two errors, right? If I invest in a company that doesn't work, I lose one times my money. So I made an error, right? I thought this was going to work and it didn't. If I decide not to invest in Google, that error in decision-making costs you 10,000 X or whatever, a thousand X, whatever the number was. And so I think Peter's point of saying that, which I think is partially just to provoke the, our partnership is, as we make decisions is tied to that reality. 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.

AI assessment note: “then certainly entry price does not matter.”

Q have to ask, you mentioned the varying characters and incredible personalities you have within the partnership. In terms of partner selection, one guest on the show said before, I'd rather be known for being a good partner picker An investment picker. So I was very interested by that, but how do you think about the partners you look to add to benchmarking and really what you look for in them?

A I don't know what guest said that to you, but it's a really interesting comment because it implies from my point of view that whoever said it takes very seriously the career of being a venture capitalist at a venture capital firm, as opposed to just the idea of being a investor on boards, because one of the only things that I think that a firm needs to do properly to be able to have very successful over a very long period of time is to have a way to do generational transition and have a way to bring people in and help them develop into being an incredible venture capitalist. And so it's something we spend a ton of time on. Every single week we're talking about it. I'm going to give you a list of five or six criteria, although I don't know that it's not 10. Youth Is something that I've spoken about quite a bit. 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. So there's a, if I'm in the right networks, I'm closer to these people. Some of the things that pop up like a Snapchat, if you're not down in that generational element, you're just going to miss it. And so I think there's a whole bunch of reasons why youth is important. Curiosity is super important. We talk a lot about business judgment. That one's always weird to me because I think we have …

AI assessment note: “I'm going to give you a list of five or six criteria”

Q that I've had many different views on the show that some say you've got to spend time with your winners. They return the fund. Others say, you know what? You can't afford to spend time with the losers because you're recovering cents on the dollars. How do you think about time allocation across the portfolio? And have there been some lessons from the incredible decade that you've had at benchmark?

A Yeah, look, it's a conundrum for the reason you said. I mean, There are companies in any venture portfolio, they're going to be delivering a hundred X more return than another one that you might be working on. And so from a purely selfish point of view, and I would say short-term selfish, you would tell yourself only spend time here. And the other thing I would tell you is that the struggling ones, and I don't know what the exact stats are, but like half of venture-backed startups are zero or something like that. You're going to have some of those. They can be quite taxing from a mental standpoint. You know, seeing that entrepreneur's face, going through things like layoffs, which the Valley hasn't seen much of in the past five years, having to do the rah-rah meeting with the, uh, 60% of the head count that's left. Those things are hard. They are really hard and they're mentally taxing. And so that's even more of, I guess, a selfish short-term perspective to want to hang out on the winners. Here's the challenge. 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 surprised how many founders, when they ask for references, say, hey, let me talk to some of the CEOs that didn'…

AI assessment note: “your reputation is going to be a part of what allows you to win”