The Exchanges

Q very valuable is who you surround yourself with. You've been at so many legendary funds at this point. You've been surrounded by the top investors over and over again, but I'm really curious from your standpoint, like who has been kind of like a mentor to you? Like, who do you keep, like, As a guiding figure for you as you continue to, like, evolve and grow in your career?

A Yeah, I, I mean, I wake up every day and I, like, pinch myself because I, I've just been so unbelievably lucky and fortunate to, um, as you said, work with a lot of the people that have, like, defined the history of, of, you know, venture capital and growth investing, um, and not only have they been extremely good at their job, but a lot, like, basically every single one of them has been a wonderful person. I feel like I, I learned something different from every single one of them, and so, like, if you take, like, a Napoleon Ta Who is a GP at Founders Fund, who runs the growth investing practice at Founders Fund. Um, I mean, I learned a ton about investing with him, but the most important thing that I learned from Napoleon was his focus on family and work. And he had a very simple life. He doesn't, you know, he doesn't do, you know, he doesn't do podcasts. He doesn't, you know, he doesn't network. He doesn't, um, you know, try to spend a bunch of time with other investors. Um, he goes to work, he works really, really hard, and then he spends time with his family. And it's like this beautiful, simple life. And he loves, you know, both spending time with his family and working with the Founders Fund team. And it was something that, that made me realize like, wow, uh, and just like helped me prioritize just my time and how I think about the important things in my life. Um, I think…

AI assessment note: “like if you take, like, a Napoleon Ta Who is a GP at Founders Fund”

Q So are you saying it's disorienting for making net new investments or also understanding current portfolio companies and how they're growing and scaling in different ways marginally and like business model wise?

A Definitely both. I think, um, Thankfully, again, at benchmark, the main thing we do well is partner with entrepreneurs extremely early. Um, and by doing that, um, you don't have to worry quite as much about a lot of these questions. Cause again, a lot of these questions, um, have to do with like, well, what is the multiple that the company is going to be worth when it, you know, IPOs or is sold to a company? Um, you know, how are they going to use capital effectively, um, at scale? Um, but when you're backing an entrepreneur at inception at 50 post, um, You, you like, if you're having to answer those questions, uh, you sort of already done your job. You know, like the, the company has already gotten to a scale and, and like a level of, um, yeah, just a level of like raw scale and maturity that, um, you're probably looking pretty good. And I think that's, um, the case for, for a lot of the companies, um, in, in our portfolio that, that, that are relevant for this conversation. Um, but I think, you know, as they mature, uh, and as we just think about like, well, what categories now going forward, are there going to be, Um, are there going to be really big profit pools to go after? It is something that we, we care about, but, um, I think the benefit that we have is that, like, great founders are always in style. Um, whereas, like, these business models can go in and out of style, …

AI assessment note: “Definitely both. I think, um, Thankfully, again, at benchmark”

Q Anthropic was like last rumored and reported around forty five billion, and now people are speculating around sixty billion. Both are trying to go public, but the same as SpaceX and XAI. What happens once those models become efficient, right? Like what, what do you think is going to happen to the scale? Do you think it's going to continue? Continue. Do you think, what do you think's gonna happen?

A Yeah. Yeah, it's, I mean, it's, it's, um, it's the one trillion dollar question. Or the multi-trillion dollar question, um, if, if you kind of combine SpaceX AI, um, OpenAI and Anthropic onto that equation. Um, and, and I, I think it's, it's left, um, like, like it depends on, it depends on what the next, you know, 12 to many years look like. And what I mean by that is like, you know, do you believe that we're on a path to recursive self-improvement and this, you know, future of a bunch of geniuses in a data center? Um, Whereas if you do have a bunch of geniuses in a data center, um, if, like, if the frontier goes that high, then you legitimately do have probably a lot of pricing power and, and a lot of ability to continue to grow and continue to monetize and probably even re-accelerate growth if you're a frontier lab. On the other hand, if, if, like, at any point it seems like, you know, capabilities are actually hitting an absolute ceiling, um, and distillation continues as it has historically, And the open source actually gets, you know, 95% as good as wherever the ceiling of capabilities tops out. Um, that's a really scary situation for the, for the frontier labs. I don't think it's like a death knell for them because, you know, it's like, again, like most of the users of ChatGPT would use ChatGPT whether or not it was a GPT model in there or not. Like they like the product…

AI assessment note: “if the frontier goes that high, then you legitimately do have probably a lot of pricing power”

Q How do you evaluate that as an investor? We were kind of talking about this beforehand, but you say this is the death of spreadsheet investing, so is, is that kind of what you mean? Is it categorical or what's the premise there?

A Yeah, the, you know, we used to have, um, all of these, like, golden rules or, like, north star metrics in investing, and there's some exceptions to this in, again, like, you know, hard tech's always been different or even Some of the capital intensive, um, you know, consumer internet businesses of the past. But when you think about software, um, there was like sort of five or six things that mattered. It was like, you know, high gross margins are better than low gross margins. So, you know, at least 70%, 80% is good, 90% is amazing. Um, you want to be selling typically pure software, which means you don't have a ton of services load, um, and implementation load on your software because that limits your ability to scale and it also brings down your gross margins. Um, you know, typically these businesses were capital light. There wasn't a lot of capex, and you had a lot of operating leverage on your R&D spend. Um, like R&D was, was relatively efficient over time. Um, you know, you had a really high gross retention, which means that your customers, once they, you know, implemented your product, typically stayed around. And, you know, a lot of these software companies had 90% plus gross retention rates, which means that over a year long period, if you had a hundred customers, less than 10 of them would leave a year. Um, so there's a lot of things like that, that basically when you…

AI assessment note: “we used to have, um, all of these, like, golden rules or, like, north star metrics”

Q Private credit has really taken over where banks left off and different kinds of funding to add into it. So how has venture capital in the grand scheme of the alternative asset class changed and how has the rule changed?

A Yeah, I think, I, I mean, the, I, I think this is where, where, um, where things get tricky when people are having these discussions, is that these firms can completely change what they are, and yet we still just use the term venture capital. And so whenever I, like, you know, write, like, an occasional blog post or something, I always say, like, venture dash growth, um, because I'm like, venture capital is something very particular, and so even when I'm discussing, like, you know, um, something like a Databricks or something, I'm like, like, that's, that should be called something different. And so I'll call it like venture growth. And that's like one way to do it. But I think a lot of these firms, they have just become alternative asset managers. And like, that is what they are. And they have venture products, but they are not venture capital firms. Um, and that's, that, that's not me being like, oh, they're not VC firms because they're bad. I think all of these firms are wonderful. Um, but like General Catalyst and Andreessen Horowitz, those are alternative asset managers, um, because they have so many products. Uh, you know, many of these places have, like, if you think about, like, an Iconic, like, yeah, like, Iconic has, like, a great growth stage venture practice, but they also have, like, they started as, you know, like, a high net worth wealth management, um, practice …

AI assessment note: “a lot of these firms, they have just become alternative asset managers.”

Q conversation, but I'm really curious to get your perspective. The public markets are seeing the largest IPOs of all time, and it's all apparently going to be happening this year. And so, like, how do you, how do you think the markets are going to take that? Will it be absorbed? Will it be kind of like aftershocks? How that will, how will that actually then affect this asset class?

A Yeah. Yeah, it's, um, I think in a few ways. The first is, like, I did this, um, I did this analysis, um, like this very quick analysis, because I was just like, I know that, like, just using a single example with Anthropic, After the three hundred and eighty billion dollar round, I was like, man, I know this is so much bigger of a deal than we've ever seen in a growth round ever. And, um, and I also, um, you know, like, I, I know it's, it's like, uh, and I also know that we're not talking about it enough, like currently just how different it is. And so I did this analysis where I basically, um, charted out over the last 10 years, I took like four of the best pre IPO investments ever. Over the last decade. Uh, in terms of like both just the raw scale, like they were big rounds, and then also the investors did really well in the rounds. And so I think it was Slack, DoorDash, Snowflake, and NewBank. Um, and like typically in those rounds, they were like, you know, the, the total round size for the pre-IPO round was like five hundred million to two billion. Um, and the investors over a four-year period made from like a two to five X. Um, and like everyone went home happy with that. That was like a great outcome for all involved. Um, so I think like The Snowflake pre-IPO round over a four-year period ended up, um, you know, it was like, five hundred million turned into, like, two a…

AI assessment note: “I did this analysis where I basically, um, charted out over the last 10 years”