Benchmark Part II The Dinner

In this episode of "Acquired," hosts Ben Gilbert and David Rosenthal, along with their guests, delve into the unique culture and investment philosophy of Benchmark, a venture capital firm renowned for its equal partnership structure and focus on early-stage investments. The conversation unpacks the firm's commitment to equality, the value of deep partnerships with entrepreneurs, and the avoidance of growth funds to maintain high fund multiples. Benchmark's strategy of staying small and agile is contrasted with other firms' approaches to scaling and lifecycle capital provision. The episode also explores the firm's openness to exceptional individuals, as evidenced by their flexible approach to roles like EIRs and Principals, and the firm's genotype of being generalists driven by curiosity and change rather than specific market theses. The discussion highlights the importance of founder relationships, the firm's adaptability to market disruptions, and their ability to provide meaningful support to portfolio companies beyond just capital investment.

• European dinners are lengthy, spanning 3 hours or more, to foster social connections without a transactional nature.
• The focus is on fluidity, fun, and playfulness, with people leaving dinners beaming and smiling.
• Unlike typical dinners with an agenda, these gatherings are agenda-free, emphasizing the intrinsic value of social interaction.

"I've spent a lot of time in Europe, and the dinners are about 3 hours, maybe three and a half hours long. That's unlike an acquired episode, and that's the whole point, is that social connection is not something that's transaction. It's fluid, it's fun, it's playful."

This quote highlights the contrast between European dinners and more structured, agenda-driven gatherings. It underscores the value placed on the quality of social interaction and the absence of a formal agenda in fostering genuine connections.

• Introduction of hosts Ben Gilbert and David Rosenthal, and the focus of their podcast on technology companies and their stories.
• Discussion of the previous episode about Benchmark Capital and their unique partner meeting structure, including dinners with open-ended discussions.
• Announcement of the special episode where the podcast hosts were invited to record a Benchmark dinner, discussing venture capital and investment strategies.

"Welcome to season eleven, episode five of acquired, the podcast about great technology companies and the stories and playbooks behind them."

This quote serves as an introduction to the episode, setting the stage for the discussion about Benchmark Capital and its distinctive approach to venture capital and partner meetings.

• The tradition began with the idea of nurturing curiosity through habitual dinners, inspired by Ben Franklin's practice of thematic dinners.
• The dinners aimed to foster deep discussions and collective effervescence among partners and guests, often leading to electric and memorable experiences.
• The goal was to create a habit that would support continuous learning and curiosity, essential to the venture firm's purpose.

"When I joined benchmark, there was great optimism between Bill and me about injecting new practices, new habits, new ideas into the firm."

This quote explains the origin of Benchmark's dinner tradition, emphasizing the desire to innovate within the firm and introduce new, curiosity-driven practices.

• The table's design deconstructs power centers and promotes non-hierarchical interactions.
• The organic shape of the table, designed by Ole Lundberg, allows for expansion, contraction, and intimacy among participants.
• The table serves as a physical embodiment of Benchmark's ethos, fostering unity and preventing sidebar conversations.

"The dynamic range of a dinner with an open-ended, no agenda, wild explorations of the most bizarre things your partners might be curious about."

This quote captures the essence of the dinner tradition, highlighting the value of open-ended discussions and the exploration of diverse topics in a group setting.

• Guests often include individuals who are not part of the firm's investments, providing fresh perspectives and insights.
• The dinners serve as a platform for giving attention to others, which is considered a significant gift.
• Notable guests have included industry leaders like Jeff Bezos, emphasizing the dinners' importance and influence.

"It's the spotlight of attention, which is the biggest gift you can give to another human being on an individual."

The quote underscores the significance of giving undivided attention to guests, recognizing it as a valuable form of interaction and respect.

• Benchmark's culture is characterized by a lack of structured memos, allowing for direct and unbiased communication.
• The firm values truth-seeking and open discussions, focusing on the potential of companies to become extraordinary.
• Partners engage in candid conversations without preconceived biases, leading to more authentic and effective decision-making.

"Sarah uses this phrase, which is truth seeking, which I think is a really good one, which is, it's like, is the company incredible? And does that company have a chance to be one of these few extraordinary companies every decade?"

This quote reflects Benchmark's investment philosophy, centered on identifying and supporting companies with the potential for significant impact.

• The firm operates without a rigid agenda, allowing for natural and substantive conversations to emerge.
• The structure of Benchmark's meetings and the physical setup of the office reflect its commitment to collective decision-making and teamwork.
• The absence of pre-meeting deal discussions emphasizes the firm's focus on collective assessment and support for entrepreneurs.

"You can't have a sidebar conversation in this table because everybody else can hear it. And so it's all one conversation."

This quote illustrates the firm's approach to inclusivity and transparency, ensuring that all discussions are shared among partners without exclusivity.

• Past partners are likened to supportive uncles and aunts rather than authoritative figures.
• They serve as limited partners and advisors, offering insights and assistance while respecting the current partners' autonomy.
• The ongoing relationship with past partners is based on a shared desire for the firm's continued success.

"They feel more like uncles and aunts than they do. Like parents or grandparents are great."

The quote conveys the familial and supportive dynamic between current and past Benchmark partners, highlighting a sense of mutual respect and mentorship.

• Benchmark partners are deeply committed to supporting their portfolio companies, often going above and beyond to assist during critical decisions.
• The firm's culture encourages partners to provide guidance while respecting entrepreneurs' autonomy and decisions.
• Partners maintain a service-oriented attitude, focusing on the success and well-being of the entrepreneurs they work with.

"We're in the service of entrepreneurs. We only recommend and guide entrepreneurs. It's ultimately their company, it's their decision."

This quote emphasizes Benchmark's philosophy of serving entrepreneurs, respecting their leadership, and providing support without overstepping boundaries.

• The importance of in-person conversations and commitment was emphasized.
• Demonstrating support and commitment can positively change the dynamics of a partnership.
• Commitment is seen as an active engagement with founders, contrasting with a passive investment approach.
• The act of physically showing up can be a powerful signal of support to founders.

"Peter said, this is not a conversation that should happen on the phone or on Zoom. It needs to happen in person." "Just showing that level of support and commitment changed, sort of like, all the dynamics."

The quotes underline the value placed on direct, personal interaction over remote communication. They suggest that being physically present can significantly impact business relationships, signaling a deeper level of engagement and support.

• Benchmark's investment philosophy is characterized by active commitment rather than passive betting.
• The firm prioritizes a deep, supportive relationship with founders, reflecting a partnership approach.
• They avoid a transactional mindset and focus on collective feedback and support to influence outcomes.
• The firm's orientation to investing is about being on the field and actively participating in the company's journey.

"We want to make a commitment. And that commitment manifests, like, as a group, to be vulnerable and honest here and collectively get that feedback." "When we think about partnering with a founder, it's not, oh, we want to make a good bet."

These quotes capture the core ethos of Benchmark's investment strategy, which is centered on commitment and active engagement rather than passive investment. The firm seeks to build a relationship based on honesty, vulnerability, and collective support.

• General partners in venture capital have dual fiduciary responsibilities to their LPs and to the companies they join.
• Balancing interests between LPs and founders can be challenging.
• The firm values vulnerability and trust in relationships with founders.
• Immediate action is necessary when dysfunctions arise to maintain alignment and trust.
• The firm's partners are encouraged to be accountable and to focus on the collective purpose of the company.

"If there's ever caution or pause of, I can't share this information with my, then we've degradated the relationship, and we have to fix that." "It's not that hard. You just look up and say, what's the purpose of the company? Let's resolve around that and that'll sort the rest of this stuff out."

These quotes highlight the importance of open communication and shared purpose in the relationship between general partners and founders. They emphasize the need to maintain alignment and to act swiftly to address any issues that may threaten the partnership's integrity.

• Benchmark has remained focused on early-stage investing without expanding into growth funds.
• The firm believes that their success scales with the success of the companies they invest in.
• They prioritize maintaining a simple, focused model that avoids conflicts of interest and aligns with founders' interests.
• The firm's approach is to be fully present and supportive without being influenced by potential gains from later-stage investments.

"We're not deciding what a fair price is anymore. We're not trying to decide how to maybe make a strategic call with a company that optimizes for a moment for us to get more capital in." "We want to remove any chance of doubts or alternative incentives or questions in that relationship."

These quotes reflect Benchmark's philosophy of staying true to early-stage investing and avoiding the complexities that come with growth funds. They aim to keep their relationships with founders free from doubts and conflicts, focusing solely on support and partnership.

• Benchmark's small size allows for a focused and intimate approach to venture capital.
• The firm's partners prefer working directly with founders over managing a larger staff or engaging in marketing efforts.
• They believe that maintaining a small, dedicated team allows them to stay true to their passion and to navigate through various market cycles effectively.

"And I think that's the biggest thing, which is if you love working with founders, then you want to spend your time working with founders." "We don't want to spend your time managing a staff that's scaling."

The quotes convey the firm's preference for direct engagement with founders and their deliberate choice to keep the team small. This approach ensures that the partners' time and energy are devoted to what they value most: building relationships with entrepreneurs.

• Benchmark's model requires the firm to be highly selective and focused due to its small team size.
• There is a potential risk of missing out on opportunities due to limited outreach capabilities.
• The firm relies on its reputation and proactive efforts to ensure they meet with the most promising founders.

"We're doing everything we can to make sure that we are in the mix. But at the same time, we are limited." "There's always the risk that one of those founders who kind of mistake basically our lack of outreach for a lack of interest, when it's really just a constraint."

These quotes acknowledge the limitations of Benchmark's small team and the challenges in ensuring visibility among founders. They also highlight the firm's commitment to overcoming these challenges through active engagement and maintaining a strong reputation.

• The importance of choosing a venture partner who aligns with the founder's vision and journey.
• The potential risk for venture firms being perceived as too prestigious or intimidating for early-stage founders.
• The shift in the investment landscape, with more investments occurring before firms like Benchmark get involved.
• The misconception that Benchmark does not engage in early-stage investing.

"You guys at this point have such a for better or worse mystique. I think for a lot of, especially first time founders that are younger, that are earlier stage, they're probably like, oh, I'm not going to call." "The investments that are occurring before we get engaged have gone up by about, I don't know, 100 x, at least 30 x."

The quotes reflect the challenges faced by venture firms in maintaining approachability for new founders and adapting to the changing dynamics of investment stages. They highlight the importance of venture firms being accessible and engaged with early-stage investments.

• Benchmark's commitment to being available and responsive to potential investments.
• The firm's strategy of being an emphatic "yes" to meeting with founders and providing valuable feedback.
• The contrast between Benchmark's approach and that of competitors who build vertical systems from inception to IPO.
• The firm's focus on serving the founder's purpose and being decisive quickly in investment decisions.

"And what I would love to know is the people who send it to us say, this is the biggest favor I can do to this entrepreneur, is to open this door." "Our biggest risk is that people tell stories, and I think sometimes those stories are propagating their agendas."

These quotes highlight Benchmark's philosophy of openness to opportunities and quick decision-making. They also touch on the vulnerability of the firm's model in the face of industry narratives and competitors' strategies.

• Writing as a tool for learning and attracting founders working in areas of interest.
• The ground game versus the air game in venture capital, with the former being more focused and the latter having a wider funnel.
• The importance of sourcing investments through various strategies, including referrals from entrepreneurs who have interacted with the firm.

"I always talk about having an air game and a ground game, and for me it helps me learn to write."

The quote emphasizes the dual approach of combining broad exploration (air game) with focused tactics (ground game) in venture capital, and how writing serves as an effective tool for learning and engagement.

• The significance of introductions from entrepreneurs who have had positive experiences with the firm.
• The lack of a rigid process at Benchmark, allowing for a more organic and exploratory approach to due diligence.

"That's the most meaningful introduction we can get." "We're going to explore this together and we'll do a track together."

These quotes illustrate the value Benchmark places on entrepreneurial referrals and the flexible, collaborative approach the firm takes in exploring potential investments.

• The importance of both the firm and the founder gaining conviction in each other during the investment process.
• The expectation for venture capital partners to contribute meaningfully to the companies they invest in, beyond just attending board meetings.

"Our process is as long as it is for us to get conviction. But actually, I think it's really important that it's a process of getting conviction on each other." "We try to have that level of commitment that ends up manifesting in all different ways for the company."

The quotes convey the mutual process of building conviction and the high standards of commitment and contribution expected from venture capital partners.

• The idea that good venture investments are often those that are willing to take risks that may seem foolish in the short term.
• The value of failures in the venture capital industry as a measure of a firm's willingness to take bold risks.

"I guess one measure of quality for the firm will be how good our failures are." "You have to be okay looking crazy, maybe even stupid in the short term on the outside."

These quotes reflect the acceptance of risk and the potential for failure as inherent aspects of the venture capital investment philosophy. They underscore the need for deep conviction and the willingness to make contrarian bets.

• The evolution of the venture capital industry and Benchmark's analytical approach to investments.
• The reliance on gut feeling and instinct over analytical data in making investment decisions.
• The challenge of predicting the ultimate direction and success of early-stage companies.

"We're not particularly analytical, so it's still a courage more than a brain." "There's just very little data to analyze, period."

These quotes express Benchmark's perspective on the balance between analytical rigor and instinct in venture capital decision-making, highlighting the importance of intuition and commitment over data analysis in the early stages of investment.

• The debate over the ideal fund size for venture capital firms and the trade-offs between raising more money and maintaining focus.
• The potential benefits of a smaller, more concentrated fund in terms of investment quality and partner focus.

"I'm the person that the last discussion of, like, we were going to do it the same size fund. I'm like, why don't we cut it in half?" "I bet if you raised 400 million in your next fund and you have five fewer companies, your scoreboard number, that multiple could go up."

These quotes discuss the considerations around fund size and the implications for the firm's investment strategy and focus. They suggest that a smaller fund could lead to more concentrated and potentially higher-quality investments.

• The process of selecting new partners at Benchmark, which often involves a lengthy period of collaboration and observation.
• The importance of serving on boards with existing Benchmark partners as a way to demonstrate capabilities and build relationships.

"You have to serve on the board with one of us. We have to watch you grow. And then we say, that person." "It's a ten year long process."

These quotes outline the rigorous and relationship-based approach Benchmark takes in considering new partners, emphasizing the need for proven collaboration and mutual growth over an extended period.

• Building a successful venture capital team is akin to a marriage, requiring deep understanding and shared experiences.
• Repeated interactions and shared professional history are strong signals for potential team cohesion.
• Examples include Peter Fenton showing up consistently for investments and Chetan Puttagunta working with Peter on the board, indicating a pre-existing professional rapport.

"I think the story with Peter is he was repeatedly showing up competing for investments. That benchmark before he was here was working on."

The quote highlights Peter Fenton's consistent presence in the investment scene, which was a positive signal for his potential fit within the venture capital team.

"Like, okay, Chaitan had worked with Peter on the board."

This quote underlines the importance of pre-existing working relationships in assessing team dynamics and compatibility within a venture capital firm.

• Passion for the craft of venture capital is a common trait among recruits.
• Personal anecdotes, such as Peter Fenton's pursuit of a position at Benchmark, illustrate the drive and determination required.
• Rejection and perseverance are part of the journey towards success in venture capital.

"The only firm they could imagine being at would be benchmark. It's the last job you're going to take."

This quote captures the sentiment that Benchmark is viewed as a pinnacle career opportunity for those truly passionate about venture capital.

"I left Stanford business school embarrassed that I went there, maybe at some level. And I dreamed about getting a job at benchmark."

Peter Fenton's quote reflects a deep-rooted aspiration to join Benchmark, suggesting that personal ambition and a love for the industry are critical factors in the recruitment process.

• The essence of venture capital is seen as a craft, where personal commitment and a sense of dedication are paramount.
• The ability to partner with, earn trust, and guide industry giants is a key measure of a venture capitalist's success.
• The journey of venture capital is not solely about financial compensation but also about the fulfillment derived from the work itself.

"That sense of all in this is a craft, and I so am oriented towards that."

Peter Fenton emphasizes the craft-like nature of venture capital, suggesting that it requires a deep, intrinsic motivation beyond monetary gain.

"The single most important thing we have to do in our job is to partner with, earn the trust and respect, earn the ability to be a partner and a guide."

This quote explains that the crux of venture capital work is building trusted partnerships and providing guidance to entrepreneurs, which is a cornerstone of the profession.

• Benchmark's investment strategy is guided by extraordinary entrepreneurs and the trust they command.
• The firm seeks to build rapport and relationships with leading entrepreneurs as a key investment strategy.
• Secondary selling clarifies investors' interest in pricing and can influence investment decisions.

"The single best thing that we can see is that you've earned that trust and respect."

This quote indicates that the most valuable asset for a venture capitalist is the trust and respect earned from entrepreneurs, which is pivotal for successful partnerships.

"When there's secondary selling, it does tend to clarify buy people's interest in price."

Peter Fenton discusses how secondary selling can bring clarity to an investor's pricing interest, highlighting a practical aspect of investment strategy.

• The composition of a venture capital team can evolve naturally over time, following market trends.
• Benchmark has shifted from a predominantly consumer investment focus to a more enterprise-heavy portfolio, aligning with market movements.
• The firm's approach is to remain generalists, adaptable to areas of high disruption, rather than being driven by specific expertise.

"I think the firm evolves. And if you go back even further, obviously the firm had semiconductor expertise."

Eric Vishria reflects on the natural evolution of the firm's expertise, indicating that venture capital teams adapt to changing market landscapes.

"We are total generalists, so I can say very explicitly, I think that somewhere between AI crypto and not Ar VR."

Peter Fenton's quote emphasizes Benchmark's generalist approach, which allows them to navigate and invest in disruptive sectors without being confined to specific expertise.

• Venture capital success often hinges on the unique insights of founders who identify untapped or dismissed markets.
• A founder's ability to articulate a novel perspective or solution is the "magic" that can lead to a successful investment.
• Benchmark values change awareness and curiosity over specific experience or thesis-driven approaches.

"That insight is. That's the magic."

The quote captures the essence of what venture capitalists look for in entrepreneurs: unique insights that can transform into successful companies.

"We're very change aware. And there's the question of that pulling the curiosity and sort of roving into it."

This statement underscores Benchmark's preference for a change-oriented and curious approach to investment opportunities, rather than a rigid, thesis-driven model.

• The Principal Program at Benchmark is a flexible concept, allowing the firm to work with talented individuals in various capacities.
• The program's existence challenges the notion of forced consistency, embracing adaptability and special circumstances.
• Firm culture is influenced by foundational members and remains resilient to change unless a significant event necessitates transformation.

"To honor the statement that forced consistency is the hobgoblin of little minds."

Peter Fenton cites a famous quote to explain the Principal Program's flexibility, suggesting that rigid adherence to rules can be counterproductive.

"We're constantly oriented to special people, and sometimes there's a special person like Blake."

This quote reflects Benchmark's focus on attracting and working with exceptional individuals, which can lead to the creation of unique roles or programs within the firm.

• Benchmark prioritizes maintaining an authentic approach to venture capital and values teamwork.
• The firm's culture is grounded in equality, humility, and a commitment to being accessible and down-to-earth.
• Experimentation and adaptation are encouraged, provided they align with the firm's core values and team dynamics.

"None of that should violate the authenticity of what we do and how we interact with people."

Eric Vishria emphasizes the importance of preserving the authenticity of Benchmark's operations and interactions, which is central to the firm's identity.

"It's that we're available. We're flat. There's no arrogance."

Peter Fenton's quote encapsulates Benchmark's ethos of being approachable, egalitarian, and devoid of pretentiousness, which is a hallmark of their firm culture.