In this episode of "20 minutes VC," host Harry Stebbings interviews Sarah Tavill, a general partner at Benchmark, discussing her journey from an analyst at Bessemer Venture Partners to becoming a pivotal figure at Pinterest and later a partner at Greylock. Tavill shares insights on marketplace dynamics, emphasizing the importance of focusing on a constrained problem to achieve dominance rather than chasing Gross Merchandise Volume (GMV) at all costs. She advises founders to prioritize customer satisfaction and retention over rapid expansion and to utilize 'tipping loops' for growth. Tavill also addresses the challenges of time management and the pitfalls of rapid fundraising rounds, suggesting that building strong founder-investor relationships is essential for successful board dynamics. She concludes by stressing the strategic advantage of staying underestimated in a competitive venture landscape.
This is the 20 minutes VC with me, Harry Stebbings, and wow, I'm so excited for the show today, joined by a master of marketplaces, one of my favorite writers in the venture space also. And so with that, I'm thrilled to welcome Sarah Tavill, general partner of Benchmark.
Harry Stebbings expresses enthusiasm for having Sarah Tavel on the podcast, emphasizing her expertise in marketplaces and her reputation in the venture space.
But before we move into the show today, I want to take a moment to mention hello sign, a great example of a company that found success in building a product focused on user experience.
This quote highlights the importance of user experience in product success, using Hello Sign as an example.
So there's an early class of us who got into venture pretty early on in our careers. For me, it was a year out of college.
Sarah Tavel discusses how she and others entered the venture capital industry early in their careers.
And I loved the company so much that I ended up deciding or really calling Ben the CEO and asking for a job one day because I realized that I would always regret it if I didn't throw my hat into the ring and work there.
Sarah Tavel explains her passion for Pinterest and her proactive approach to joining the company, highlighting the importance of seizing opportunities.
I mean, it's an incredible partnership and it's actually inspired so many other partnerships.
Harry Stebbings acknowledges the influence of Benchmark's partnership model on the venture capital industry.
There are bumps in the road that happen all the time. But you have to just maintain focus on the things that really matter, because if you get those things right, nothing else matters.
Sarah Tavel emphasizes the need to concentrate on the fundamental factors that determine a startup's success.
The existential means if we don't figure these things out, then we're over. Let's close shop.
Sarah Tavel explains the gravity of existential threats to a startup and the board member's responsibility in addressing them.
"I'm there to help you as the founder, be the best version of yourself, so that you can build the best company that you can build."
The quote highlights the supportive role of a board member in guiding founders towards personal and company growth.
"The challenge with chasing GMV is that it actually points you away from that place of dominance."
The quote emphasizes that pursuing GMV growth can be counterproductive to achieving a dominant market position.
"You can't get to dominant number one position unless you've tipped the market."
This quote explains the importance of creating a marketplace so compelling that it becomes the default choice for users.
"Everybody wants to win the ocean, but again, I don't believe you can win the ocean by going after the ocean right away."
The quote suggests that winning a large market starts with dominating a smaller, focused segment first.
"So hip camp, which is one of the first investments I made at benchmark, Alyssa, the CEO, started off going after really just land for campers."
This quote provides an example of a marketplace that began with a focused niche and expanded successfully.
"Ultimately, the best measure of whether you're making your buyers and sellers happy is, do they stick with you?"
The quote underlines retention as the key indicator of a marketplace's success in pleasing its customers.
"Essentially, I always think like you have to be long term greedy, not short term greedy."
The quote advises on the importance of making decisions that prioritize long-term success over immediate gains.
"You had 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."
The quote illustrates how an abundance of capital can give certain companies a competitive edge, allowing them to prioritize growth over unit economics.
"It almost feels like a game of chicken sometimes, of who can spend the most money and care the least about the unit economics in order to get to that market leadership point."
This quote highlights the competitive environment where startups are pressured to spend heavily to achieve market leadership, often neglecting unit economics until a dominant position is reached.
"The second that there are multiple competitors going after your opportunity, the unit economics just degrade, because you have this inevitability of people being able to raise a lot of cash and then using that cash to subsidize their unit economics and try to gain market share, which just leads to this incineration of capital on all sides."
This quote explains the negative impact of competition on unit economics, as startups raise and spend large amounts of capital to gain market share, resulting in a significant burn rate.
"I'm on six boards, and I've announced two of them. I am a big believer in not announcing again."
Sarah Tavel shares her personal strategy of limited announcements, emphasizing the advantage of being underestimated.
"And there's no single right or wrong answer here, but I really do think that announcing it's putting a rocket on your back and it can be really powerful, but it also does let people know about a market or an opportunity that you're going after."
Sarah Tavel acknowledges the trade-offs of announcing funding rounds, noting the potential for both positive and negative outcomes.
"And so those are kind of the classic growth loops you should be thinking about. But then I also think that there's a second type of tipping loop that I call a happiness loop."
Sarah Tavel differentiates between growth-focused loops and happiness loops, both crucial for marketplace success.
"I always think that you want to have kind of a combination of two things, which is one, I am a big believer in the human signals that you get and how that creates a texture and a richness to the experience that can't be replicated just with an algorithm as an example."
Sarah Tavel emphasizes the importance of human feedback in creating a nuanced user experience and reputation system.
"And TikTok's magic was how effectively they match buyers to sellers in a way, and also give sellers this way of actually activating."
Sarah Tavel compares TikTok's content matching to marketplace dynamics, highlighting the importance of effective buyer-seller connections.
"It remains to be seen. It's just so early that no one has been able to say they already have one and they're going to be able to expand."
Sarah Tavel expresses uncertainty about the future of audio community platforms and whether specialization or expansion will dominate.
"The valuation on the early side, it kind of just doesn't matter. And so it's like you pay 50 or you pay 200. If it's going to be a $25 billion company, logically it doesn't matter and you should just pay the 200 and win the deal."
This quote emphasizes that in consumer investments, early-stage valuation may be less significant if the company is expected to reach a very high valuation in the future.
"A cat and a mountain lion look the same as little baby cats. And so figuring out the one that's going to become the cheetah versus the house cat, that's a very, very difficult thing to do."
This quote illustrates the challenge investors face in identifying which startups will grow to be significant players in the market, akin to distinguishing between a house cat and a cheetah when they are both kittens.
"Like the classic earliest stage consumer that I'm seeing right now is a ten to $15 million round for literally single digit, like, thousands of users. And so you can't do a lot of those."
This quote indicates the current trend of significant investment rounds for consumer startups with relatively small user bases, necessitating careful selection by investors.
"I just read Pachinko by Minji Lee, which is this epic family story of a korean family that migrates to Japan over, I think it was, three or four generations."
The quote suggests that "Pachinko" is a recommended read for its depth and storytelling, providing a break from business-focused literature.
"At benchmark, our model is that we don't delegate any part of our job."
This quote explains the hands-on approach at Benchmark where partners are involved in all aspects of their job, which can be time-consuming.
"I think a lot of founders think that raising venture is about convincing the investor."
The quote highlights a common misconception among founders that the primary goal of fundraising is to persuade investors, rather than focusing on building a business that serves customers.
"And rounds are just happening so quickly right now."
This quote points out the current fast pace of investment rounds, which may not allow for the proper development of relationships between founders and investors.
"Before I had a kid, I didn't realize it, but I was a time millionaire."
This quote reflects on the significant impact that having a child has on a person's available time and the need to be more selective with commitments.
"I have the pleasure of working with such wonderful people, and I feel like I get to learn something from everyone."
The quote conveys Tavel's positive experiences on different boards and her appreciation for the diverse learning opportunities they present.
"I'm always, always looking for companies that can and will escape competition because I think ultimately those are the companies that most endure and build significant equity value for everyone."
This quote explains Tavel's investment philosophy, which focuses on companies with the potential to stand out in the market and create lasting value.
"I just so love having Sarah on the show and could talk to her for days about everything marketplace oriented."
Harry Stebbings expresses his enthusiasm for having in-depth conversations with Sarah Tavel on topics related to marketplaces and venture capital.