Mar 18, 2016 · 49m · mad
A Fireside Chat with Benchmark General Partner Peter Fenton (Data Driven NYC / FirstMark)
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this fireside chat hosted by Matt Turck at Data Driven NYC, Benchmark General Partner Peter Fenton discusses his venture capital philosophy, founder evaluation criteria, the evolution of open source business models, and strategies for navigating market cycles and high burn rates.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Matt holds 11.7% of the talking time here. How this is scored →
Matt as informed peer 3.1 Guest teaching 5.2 Guest disagreement 2.2 Matt pushing back 1.4
speaking balance: gold is Matt, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 22:48 Fenton rejects Peter Levine's categorical open source rule
Fenton directly pushes back on Peter Levine's published declaration that Red Hat models can't happen again, stating he learned never to be so rule-driven because rigid rules stop VCs from investing in exceptions.
Hardest push from Matt ▶ 22:07 Turck confronts Fenton with A16Z's thesis against support-based open sourceTurck directly cites a prominent blog post by Andreessen Horowitz GP Peter Levine claiming support models are obsolete and forcing Fenton to justify Benchmark's opposing investment strategy.
Biggest teaching moment ▶ 34:00 Fenton breaks down the mathematical shift in tech valuation metricsFenton delivers a masterclass on venture macroeconomics, illustrating how public markets overnight abandoned pure revenue growth correlations in favor of a formula combining free cash flow and growth.
Matt holds his own ▶ 22:07 Turck cites competitor GP's published open source monetization thesisTurck demonstrates deep domain knowledge by accurately framing Peter Levine's argument regarding hosted versus packaged open source monetization models.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Matt as informed peer | Guest teaching | Guest disagreement | Matt pushing back | Why |
|---|---|---|---|---|---|---|
| Data Driven NYC Event Opening and Speaker Overview | 3 | 1 | 1 | 0 | Matt Turck introduces Peter Fenton with a detailed list of his investment accolades, including top Forbes Midas and CB Insights rankings and dual IPO/acquisition days. Fenton humorously deflects the praise, keeping the tone light and agreeable. | |
| Evaluating Founders: Authenticity and Fearsomeness | 1 | 5 | 1 | 0 | Fenton delivers an extended monologue detailing what he looks for in founders, citing conversations with Paul Graham about authenticity and fearsomeness over rigid business plans. Turck listens passively as Fenton breaks down founder assessment and company biology. | |
| Benchmark's Equal Partnership vs. Scaled Venture Models | 4 | 5 | 2 | 2 | Turck prompts Fenton on how Benchmark's small equal-partnership model contrasts with Andreessen Horowitz's scaled firm. Fenton explains the 'jazz band versus marching band' philosophy while maintaining respect for alternative venture strategies. | |
| Venture Strategy in Big Data and Open Source Infrastructure | 4 | 6 | 3 | 2 | Turck asks if big data is a strategic thesis for Fenton, but Fenton pushes back on top-down thesis investing, recalling his Benchmark partners telling him to throw away the crystal ball and focus on lightning strikes. | |
| Case Study: CockroachDB and Open Source Momentum | 4 | 5 | 2 | 3 | Turck challenges Fenton on whether he truly lacked a thesis when backing CockroachDB. Fenton humorously acknowledges the founder in the room before explaining how character assessment and customer validation drove the investment decision. | |
| Evolution of Open Source Business Models | 3 | 6 | 2 | 1 | Turck asks why open source is attractive to VCs, prompting Fenton to explain historical lessons from the dot-com crash, distribution efficiency, and the differences between packaging and open-core monetization. | |
| Cloud Dominance and the Threat of AWS to Open Source | 6 | 6 | 4 | 4 | Turck challenges Fenton with Peter Levine's thesis that support-based open source models like Red Hat are dead. Fenton explicitly rejects Levine's categorical claim and reframes the real existential threat to open source as AWS. | |
| Machine Learning, Data Moats, and Scale Advantages | 5 | 6 | 2 | 2 | Turck asks about application-layer data investments and ML moats. Fenton explains why machine learning is a 'game of kings' where incumbents hold data scale advantages, illustrating his point with a Houston Rockets analytics story. | |
| Evaluating the Macro Venture Market and Burn Rates | 4 | 6 | 3 | 2 | Turck asks Fenton to evaluate the macro environment and burn rate concerns. Fenton details how public and private markets shifted abruptly from valuing pure growth rate to demanding free cash flow plus growth. | |
| Audience Q&A: Blockchain and Bitcoin Adoption Cycles | 0 | 5 | 2 | 0 | In an audience Q&A segment where Turck does not participate, Fenton answers a question on blockchain and Bitcoin, framing tech adoption cycles around gestation periods like mobile camera and GPS enablement. | |
| Audience Q&A: Managing Startup Runway Amid Competitor Capital | 0 | 6 | 2 | 0 | In another audience Q&A question, Fenton discusses board conversations during burn rate bubbles, explaining how unlimited capital in competitor hands forces strategic dilemmas and recounting a story with Max Levchin about Slide vs Yelp. |
Statements from this episode (26)
Fenton invested in Twitter when it had only 25 employees
“You invested when the company was only 25 people strong.”
Solomon Hykes' initial DotCloud idea was catastrophically bad
“And turns out, by the way, his idea was catastrophically bad. Dot cloud, which we don't talk about.”
Safe and calm entrepreneurs rarely profoundly change the world
“Because if you're in that meeting, and the entrepreneur makes you feel safe and calm, and, ah, you know, kind of, ah, very much in the linear mindset, ah, they're not likely to, you know, profoundly change the world.”
'Product market fit' is an overused tautology
“Product market fit. Which, I mean, if I hear that again, that's where, big data, whatever big data went to, or Synergy I mean, it's such a tautology, you know, it's like, yeah, ok, people want what you've built a product that people want to buy, it's so insigh…”
Benchmark partners are paid equally with no associates or principals
“Each of us are equal partners. We pay each other exactly the same. There's no associates, there's no principals,”
Great entrepreneurs prefer dealing directly with senior VC partners
“The premise of Benchmark was that the great entrepreneurs don't want to talk to that junior associate. They want to talk to the decision-making senior partner.”
Investors should follow top founders rather than set sector theses
“We had to actually follow, in many ways, follow the instincts of the best people of their generation, because they're chasing the things that have the highest rate of change, that are at the intersection of a collision of different sectors and segments”
Benchmark prefers backing founders on their second or third venture
“I love backing company two and three, and some, and number one, you get lucky sometimes, but, ah, I really love, ah, number two, if the first one was, you know, done with integrity”
Former Facebook CTO Jeff Rothschild called CockroachDB 'the one'
“Jeff had helped me turn down pretty much every database company that ever existed, and he said, this is the one. And, you know, if we were at Facebook, we could do it all over again. This is the product we wish we could use”
60% of traditional enterprise software investment goes to sales
“When we make an investment, it's still somewhat the case that if we put a, for every dollar we put in, something like 60% of that goes into selling the technology.”
OpenCore monetization fails on developer tools
“Doing open core on a developer tool is not going to get you very far.”
Premature open source monetization invites competition
“If you try and monetize and constrain adoption, you're just gonna open the door for another company to come in and compete with you”
Achieving ubiquity is step one for open source software success
“The step one in any open source success story is ubiquity.”
Competing with Amazon is the biggest challenge for open source
“The issue, the single biggest issue facing open source business models is not I don't think hosted versus packaged like Red Hat. It's how do you deal with Amazon?”
AWS is nearly certain to reach $100B in annual revenue
“And I think it's a near certainty Amazon's gonna do a hundred billion in revenue in AWS.”
Amazon Web Services holds about 90% market share
“You have a company that's gonna, ah, it's on its path to be, and it is, about a 90% market share player.”
Machine learning is a 'game of kings' favoring big tech
“And machine learning is the game of kings.”
Tech startups are experiencing a massive burn rate bubble
“We have a burn rate bubble, meaning companies have lost, they've numbed themselves to the fact that you have to eventually replace the capital that you're burning with operating income”
Historically 15% of IT companies suffer catastrophic value loss yearly
“You know, in any given year, about 15% of the companies in the IT world have a catastrophic loss of value, which is 70% of your value evaporates, and it never comes back. So for the last five years, that's been five percent.”
Startup valuation correction will be a long tail, not a crash
“This is not like, 99 to 2001, where it went like that. I think it's much more of a long tail”
Wins from top unicorns will overwhelm broader ecosystem losses
“The overwhelming positives of a few of the companies in this unicorn ecosystem will overwhelm the losses”
Bitcoin has the strongest network effect among blockchain applications
“What has the strongest form network effect around it? It's Bitcoin.”
Stronger startups become stronger when capital is scarce
“Because I actually think the stronger companies are gonna get stronger when capital is scarce.”
Open source licenses cannot protect startups from Amazon's cloud competition
“Unless there's something proprietary in the open source, which by definition it's sort of already out there and open I think it's very difficult for a license to protect you from Amazon coming up with good enough in a competing service.”
The tech ecosystem is entering a cycle with less promotional BS
“I think we're moving into a cycle where it's gonna be refreshingly you know, I don't wanna say the promoters are gone, it's sort of the nature of industry, but it'll be a lot, there'll be a lot less of that kind of BS, and I think it'll make the whole ecosyste…”