20VC: Bill Gurley and Michael Eisenberg on The First Signs of an Impending Bust, What Happens with a Market Crash, How Do Public Markets Impact Private Valuations & The Biggest Lessons from 20 Years Investing in Venture

Welcome back, this is 20VC with me, Harry Stebbings, and you might remember last month we did a show with Arthur Patterson and Jim Swartz at Accel, where they analyzed how today compared to the booms and busts of the '80s. Post that episode, we were inundated with requests to compare how today compares to '99 and dot-com periods, and today we could not have two more perfect people for this. I'm so excited for this episode. First, we have Bill Gurley. Bill needs no introduction, but as general partner at Benchmark, he's widely recognized as one of the greats in venture, having worked with Grubhub, Nextdoor, Uber, OpenTable, Stitch Fix, and Zillow, to name a few. And joining Bill in the hot seat is his former partner

at Benchmark, Michael Eisenberg. Michael spent 15 years as part of the Benchmark Partnership before co-founding Aleph, one of Israel's leading early-stage funds, with a portfolio including Lemonade, Melio, and HoneyBook, just to name a couple of their unicorns. But before we dive into the show, say you employ or pay workers in other countries. Yes, well, you need Remote. Remote makes it easy for companies of all sizes to employ global teams. They take care of international payroll, benefits, taxes, and local compliance. Remote helps you onboard full-time employees or contractors in countries all over the world in minutes on its simple, easy-to-use platform. They own full local legal entities in all their covered countries, guaranteeing you never have to deal with a third party ever. And to save you money, Remote never charges any fees or salary percentages. You get access to

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But that is quite enough from me, so now I'm very, very excited to hand over to the one and only Bill Gurley and Michael Eisenberg. Three, two, one, zero.

You have now arrived at your destination.

Michael and Bill, my word, I've so wanted to do this for a long time. So first off, thank you so much for joining me today. Thanks for having us. Yeah, great to be here. I do want to start, and I want to dive straight in. I don't want to start on, you know, how you met in venture. 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?

Sure. And by the way, people that have followed my work will definitely call me out and recognize that I 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 that was true then. I think that's true today. The things that I think are different is the speculation is much broader.

Even though it was pretty broad then, you have a lot of speculation now where entrepreneurs with lots of—or 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 20x larger than 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 and scale at play today. And then lastly, back then, I think you still had this belief in market cycles. Right now there's a group of people that have doubt about that because of some of the Fed's actions in 2009 and more recently in March of 2020.

Wonder if we'll ever have a reset again. And so that part feels different to me also.

Michael, how do you feel hearing that? Broadly the same as Bill, but for a little context, I was like you in the first one, which is I was young, early in my venture career. I had had my first couple of exits in one very small public company. And so it surprised me pretty meaningfully when it happened. It felt at the time, candidly, even though I knew it was irrational, like it could go on forever. And I think when you're young, you kind of feel that. And then it didn't. And what I think is another feature or bug of these exuberant markets is you see all sorts of investors in this area that you never saw before. And perhaps one of those is when Bill felt, I think, analytically and perhaps correctly four or five years ago that we were high up.

And today, he didn't see the flood of new investors, what we used to call at the time tourists, who've kind of come into venture capital investing. And everybody's investing in venture capital today. I think the other big difference, though, is it's gone international. So venture capital was decidedly a Silicon Valley and Israel, candidly, investment theme in the late '90s. You almost didn't see it anywhere else at the time. New York wasn't a thing. London certainly wasn't a thing. And there wasn't China yet, or the very early innings. And so it was all about Silicon Valley. Now you're in hundreds of spots around the world with venture capital as an accepted financing model globally.

And so it's hard to know how it pulls back when so many markets are in their early phases, to Bill's point earlier, because these tech companies are disrupting traditional businesses. So many, many markets around the world are in early phases. Many industries are in early phases. I mean, it's just much more diffuse. And, you know, it could go both ways. It could collapse kind of globally at the same time.

Or, you know, you can get different outcomes in different places. That's the kind of element that I struggle with, which is like often I take the more negative view and I state my concerns and worries. And the optimists say two things. One, market size is so much bigger than we ever anticipated. We have trillion-dollar companies now. And then two, as Howard Marks said in his latest report, there's kind of five new fundamentally game-changing industries to invest in. Whereas before we had the web and then the mobile. And it's been very kind of singular in terms of its shifts. And now we have five at once. How do you think about that? And is it just supply meeting demand or is there an imbalance?

Maybe I'll make two different comments about that. One, you know, Bill talked about the quantum of capital that's just there. You know, until you get public, you got preferences on top of it. And so today you don't have kind of senior preferences in the venture business. Everything, one kind of goes pari passu, but it's still a preference. And if there's a market reset, kind of peeling off all that preference can be expensive to those holding common stock and those who don't have enough money in reserves because their funds aren't giant like Tiger or Altimeter, et cetera. And we haven't seen that in a very, very, very long time. The other thing I'll mention is, you know, you called this the dot-com crash and then said that Howard Marks said we only had the Internet back.

People forget that there were two phases to the bubble coming undone. There was the dot-com, which has become famous because of the Pets.com commercial, right? So that's what you all think, dot-com, dot-com. But there was a second one in fiber-optic communications, which was all the rage, and it happened after. That was the second crash afterwards. And if we have time later, I'll read through some data on that that I think people have missed. And so it's hard to know. There may be more areas of technology and certainly new industries that are real with business models. That doesn't mean that when it happens, there isn't a first-, second-, and third-order effect where many of these businesses kind of come undone.

I haven't seen this before. What happens when a crash happens? What are the first signs? Like you said there about the prefs. Is it a trickle-down from publics to privates? What happens and how does it literally unravel? Because I haven't seen this in my working career.

Yeah, I don't think you feel the first part of it. I mean, I'll give you a data point. Right now, you know, people were forwarding around some charts on Twitter that showed a lot of the non-SaaS, non-FAANG, mid-cap public companies—they're already, average, cut in half right now in the past six months. No one's really paying attention to it because the SaaS stocks are still super high, and like, you don't hear much discussion of it. But we could have already started sliding. I mean, that's how it would feel, right? Like Michael said, like one sector falls out of favor. People dismiss that it's a correction. They say, 'Oh, well, those companies just weren't as good,' which is exactly what happened when, Michael, I can remember all the investors that invested in telecom infrastructure.

When the dot-com burst busted, they said, 'Oh, well, you guys were just stupid doing those stupid internet companies. Our stuff's real.' And then, voilà, boom, their bust was actually bigger from a financial impact standpoint. But there's one thing that we just don't know how it would ever happen again, which is capital scarcity. So in '01 and then in '09, capital became scarce. People didn't know how they would raise their next round. And people thought about virtually putting cash under their mattress. They were worried. In 2009, Morgan Stanley was going to go out of business, and you had just availability of cash shrink excessively. That time period in March of 2020 was about two weeks. And then the Fed came in heavy and brought all this money, and everyone was a contrarian and bought on the dip.

And so it didn't happen. And so the real question that I would have about a near-term correction is, you know, would the Fed, if things started to fall off the rails, would the Fed try and just overfund and get across the board, the gap again? Or have we run out? Like, have we just exhausted the supply of what's possible on that front? And I don't think the greatest minds on the macro side know the answer to this question right now.

You know, Harry, people forget that economies are complex systems. And so you don't know when you poke on one side, you put money on the other side, you know, how they react. And so, you know, to Bill's point, it's really tough to do. I want to follow what Bill said, by the way, about the market correction that no one's talking about. You know, Gavin Baker tweeted about it. Morgan Stanley, Nomura wrote something about it. You know, it follows right on Fred Wilson's blog post about kind of the average outcomes for the businesses started 10, 11 years ago. You know, the math is the math at the end of the day. And sizes are bigger. But the absolute quantum of companies to get to these high, stratospheric valuations is just not that high.

And there's a lot of capital. There's no capital scarcity, by the way. But there could be, and this will take longer to play out, a scarcity of returns because of all that capital that's come in. It's not clear. Again, to the other point, which is because there are such large parts of the economy being disrupted, financial services in particular, that's a whole area that wasn't really available other than PayPal to these people. So you have kind of countervailing forces here. Just one side point, but I think relevant. Bill used to talk about way back, the price of rent in San Francisco is a good leading indicator of when this market's overheated. Office rent in San Francisco. Well, now with the pandemic, we can't actually track that because everyone's working from home and rents are down.

But I can tell you in Tel Aviv that office rents are up like 50% because everyone's working from the office in the last 12 months.

It's nuts. And we're a small market. It makes you wonder. I mean, it totally does. And yeah, I need to come and party with you in Tel Aviv, Michael. We're still partying here. You mentioned the haircuts in terms of, you know, public companies. And then we see the multiple unicorn, decacorn companies raising today. And my question is, have we had this permanent inversion in public versus private valuations? And do you think that's a fair summary to come to now?

Oh, can I read you something? Yeah, go for it. I'm looking at the list of Cisco's acquisitions. This is important to remember. So Cisco, prior to 1999, to the best of my knowledge, never bought a company for above, call it $250 million. Till April 13th, 1999, they purchased GeoTel for about $2 billion. A few more hundreds of millions, but a couple punched through $400. TransMedia and Stratum above $400. Then Monterey, $500. Then Cerent, the big one, I'm sure Bill remembers it well, $6.9 billion. At the same time, for what it's worth, Alcatel, I think, or Lucent buys Chromatis, an Israeli company, for over $6 billion. And $800 million, $400 million, $2.15 billion. I'm still in 1999, by the way.

You get to $800 million at the end of March 2000, where Cisco buys SightPath. We then see $6 billion on May 5th, right? This is after the market goes down. $6 billion buying ArrowPoint. And then we never see the billion-dollar number again, except for one in 2002 on Andiamo Systems, $2.5 billion. That's the only exception for another five years or so, maybe more, until... November 18th, 2005, when they bought Scientific Atlanta. That should tell you a lot. From 1999 to 2000, you see the first punch-throughs of $250 million to $400 million, then multiple billion-dollar acquisitions over a one-and-a-half-year period, and then none more for five years. And so, again, a bunch of those were after the dot-com crash.

So I'm not sure what you take away from that, but I think it's interesting history.

There's one thing idiosyncratic. Specifically to your question, Harry, about these Decacorn rounds and what there appears to be a rather competitive environment going on between the different top players in the late stage private round. Provoked, you know, mostly by Tiger, which everyone's talked about, who's taking a very bold. Some people have called it, you know, SoftBank 2.0, you know, having talked to Scott and understand what they're doing. It's very meticulous, top-down, tons of research. They have a plan they're executing on, but that's provoking other people to lay chase. And there's a lot of money. Most of that money is in traditional venture firm formats, which is interesting because a lot of these hedge funds used to run a two and 20 book that marked every year.

And they've all switched to this venture model where they raise capital, invest it, and then return it. It's a very different model because you're not as worried about those marks, the daily marks. And your management fees aren't tied to the marks. You're pushing money through the system. And there's ample money available, and they're raising rounds faster and faster. It's easy to become valuation-agnostic to a certain extent because you've seen if you hit a winner, if you hit a Snowflake, if you hit an Uber or whatever, it ends up being 100x more than where you are today. So you become indifferent. So you have ample supply of money. You're not as worried about the daily mark. And every one of these things is a lottery ticket from your

your standpoint and the way your economics work. And so I think that shift where the late-stage money moved from a traditional kind of evergreen 2-and-20 model to a 1-and-20 or whatever it was to a venture structure, I think has implications for what's happening.

You know, Harry, maybe let's add on to what Bill said one second. I think he's 100% right. And he's talked often about the weaponization of capital. What we often don't pay attention to is if you've got the largest war chest at the table, you've got a shot to overwhelm the cap table in a down market. Meaning if I'm Tiger and, you know, taking a large round from Tiger at a company, then the company needs capital at some point. They are, you know, kind of the winner in the capital sweepstakes in that case because they just have less price sensitivity and ability to overwhelm the cap table. And I think that's pretty meaningful. And at the same time, I think interestingly, one of the things that's different between now and 20-plus years ago in particular is there's a lot more secondary going on.

Which means the founders are taking capital off the table in a lot of these rounds. And it's hard to know how they react, you know, if the going gets tough, if the cap table starts to get compressed from the top, just really hard to know. People made a lot of money in secondary transactions in a way that wasn't true 10 or 12 years ago, and certainly not 20.

Well, we're going to discuss secondaries. I do just have to ask. My biggest concern, honestly, is I'm totally with you on the later-stage financing and the massive capital injection. My challenge and my concern is that that's actually been moved further and further down the stack towards the A and the B, where they've all been compressed sooner and sooner. And I say it's like for growing startups. And it's fundamentally distorting the execution plans of the companies that we back, where suddenly they're building 20-person sales teams without having a playbook. They're hiring customer success without having any revenues. And I'm worried that good companies are being turned bad by oversupply of capital.

How do you feel about that?

I'm having to resist saying, "OK, Boomer," to you, Harry, despite you being half my age. You sound like you're 50.

This is a really good face for him, Bill.

Yeah, I mean, there's been a shift. I think there are some investors that are intentionally executing knowing that capital is a weapon and they're taking on opportunities where capital can gain advantage, which are very different types of businesses from what the venture industry has favored historically. And that's not wrong—right versus wrong or anything else. I think a good example I'd say is Keith Raboy with things like Opendoor, his current roll-up of Amazon stores or Shopify stores. Those types of plays are knowingly capital-intensive. They're very different from a software company. And so you do have some people that have adjusted. I even think, I'm guessing this, but I think some of Tiger's, when they're looking at a new opportunity, I think they might be

asking, "Could capital be put to work to advantage the company that we're backing in this case?" In enterprise software, that's typically done by just blowing up the sales force. I mean that by increasing the size of the sales force dramatically. Those businesses appear, first blush, to kind of yield to this capital advantage. If you're doing a UGC social network play, it's not clear dumping money on it does anything because you got to get that price

Product, right? But today, I think a lot of people are looking for those types of opportunities. How do you feel, Michael? You've had companies raise a lot of money quickly. Do you share my concern? Am I a boomer? You know, when I was at Benchmark, they used to say that more companies die of indigestion than die of starvation. I actually think that's still true. You know, like Bill, I think there's a dichotomy of companies here, and so where you've seen us raise large rounds is where I think there's financial services opportunity and balance sheet matters. And it's not just a typical software business. I'm really concerned about a lot of these software businesses and some of the consumer ones raising tons of money because it's not clear what you do with it.

And you get sloppy and it doesn't cause you to perfect. You know, Darwin was right in this way. When you stress the system, it gets stronger. I think a lot of the great companies were built out of a stressing of the system. And we're losing that a little bit. And it's not doesn't feel right. But there are other people prosecuting the model. Bill's right about Keith Raboy. He's prosecuting a very different model in some of these cases and doing extraordinarily successfully and well. And I think it really depends what you're after. One thing I will say, by the way, is these big industries, if you're trying to disrupt them, in order to get the customers on board, they want to see a large balance sheet.

So for argument's sake, if you're tackling freight, banking, payments in some case, like we've had with Melio, people want to see a large balance sheet to make sure you're going to be around when you're handling things like money and payments for them. And that's, I think, driving people to collect large investment rounds.

I totally get it in those cases. The thing that I love about what I do is I get to leverage my position with the show to learn from amazing people like you. And so I need help with two things. One is price discipline. I flip between, you know what, look for great-value assets that have real moats, that have traction, the same 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?

Well, part of why I was smiling so much when I said, 'OK, 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 them, 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 afterwards, he told me, 'Well, that sucks.' I said, 'What do you mean?'

What's wrong with it? He goes, "You're going to have resets all the time. There's no way to invest through the cycle." And I had seen similar supporting data out of Horsley Bridge, I believe, who's one of the largest fund of funds, where if you looked at a 20-year window that included the dot-com boom, if you took out '96 to '99, 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 30-year period. And the biggest mistake you could possibly make is trying to call the top. And so, unfortunately, I think, call it the Thelma and Louise attitude where you just push the gas pedal and run it to the end. Despite that, I fundamentally believe in conservatism and capital cost and all the things that you're talking about.

I just don't know, as a venture capitalist, that you have an alternative. There were several firms in Silicon Valley that, in the '96 timeframe, said, 'This is all crazy. This is too expensive.' And they pulled out, and they missed the best three years in a 20-year window of returning.

It was interesting, Keith Rabois actually said on a different podcast that the only firm to have retained price discipline, the only firm, was Benchmark. How do you feel about that?

I think he's misinterpreting price discipline for stage discipline. So we have notably stayed focused on early-stage investing, whereas most people have moved to multi-stage. I think that makes the impression look like you're price-disciplined because you're not doing the billion-dollar rounds that are in the Series C and D. But when we're competing for a great Series A deal with a great founder, we're paying market for sure.

Michael, how do you feel? Similar to Bill, but I'll put a couple other notes on it. You know, innovation is constant. And so that's why you got to invest across the cycles. And because the outliers matter so much, if you decide that you're just going to have outsized price discipline or make that kind of core, you'll miss the special ones. And so you need to kind of look at the people. And if you need to kind of stretch on the entry price, you do it. And that doesn't mean you're going to have a lot of outcomes. I mean, you could have a bunch of mediocre stuff. Again, going back to Fred Wilson's blog post where you have mediocre returns just because there aren't that many, you know, that hit escape velocity and you get to become the big ones.

And, you know, what might have been three to four X's end up being one to two X's because you paid too much going in. But ultimately, it's that one that you hit or two that really go through the roof, you know, Uber or Snap or whatever it is that matter or Wix. I want to add two other things. Bill mentioned the early stage point. The thing at Aleph that guides us, one of the things I learned at Benchmark is that ownership still matters a lot. One of the things I hear a lot of people talking about, which is mixed up with price discipline, is how much you own. And I still think because there are so few buyers, the ownership really matters. So what we're doing is even if we have to pay more, we're optimizing for ownership and we'll continue to do that.

And then the second way I think about is if I need to be the highest-priced bidder on the company, on the founder, the CEO, I'm doing something wrong. And I think in the public markets, when you invest, capital is a commodity. You have insight. But I still believe—and I know there are people who don't think this—but I still deeply believe that relationships matter more than anything in this business and networks matter more than anything in order to accelerate those entrepreneurs. And so if I'm forced to pay the highest price, it means I'm not doing my job well. I'm not building a good enough relationship with the founder. I'm not adding enough value prior to him taking my capital. And I'm certainly not accelerating the business into the next round.

Whether, by the way, it's reputation, so the next-round funders will pay a higher price, or just follow-on and make sure there's capital there, or business development partners. And one thing I've been saying a lot recently—I feel like a broken record—is I prefer to optimize long-term on reputation rather than optimizing on dollars now. One of my lessons, again, takeaway from my time at Benchmark and working with Bill and Bruce and the team there and Peter, and I think that matters.

It goes to a question that I have, which is like, more and more so with the extension of kind of private markets and more players coming in, we have the opportunity to exit pre-going public and selling our positions to the big players. How do you think about when to take chips off the table, and how would you advise me? One of my big mentors was like, "Harry, crazy times. Take cash off the table now when it's there. It's crazy." How do you feel?

I personally think it's very different if you're running an angel strategy where your ownership positions aren't as large because the liquidity opportunities are much better. If you own 20% of a company and they're raising a private round and you try and take half of that off the table, you're going to affect the price pretty dramatically. So I don't think those type situations are realistic liquidity events for large shareholders. You know, you've seen a couple of very savvy moves. I remember when USV sold Zynga privately at like 21 or 26, and I don't think it ever saw that price again. Those are hard to do. Those are really, really hard to do. Most of the money in venture, as we all know, is made on the home run plays.

You'd have to have really strong conviction that the price was super wacky or that there was some reason you didn't think the company could go really, really, really far to take a large stake off, just because the math in venture is all about the big winners.

I'll add one more thing to what Bill said, which is founders talk to each other. And unless it's really obvious you're taking money off with the founder and it's probably a small amount if you're a large stakeholder, I think that's reputation-negative over the long term and not consistent with playing the long game alongside founders. And so I agree with everything Bill said. And you want to be around for the win. And, you know, people look back on it. Sometimes it's bad. By the way, I often think about that Zynga thing also, Bill, that, you know, they must have had an unbelievable insight into what Zynga really was to have done that at the time.

It's amazing. It's funny, Bill, you said play the game on the field. Michael, I've called you before to ask for advice on deployment pace. And I said, you know, a lot of people tell me when it comes to the compression of fundraising deployment cycles, play the game on the field. 12 months is the new normal. A lot of my LPs call me and go, "Harry, you're a boomer," to Bill's point. "You're deploying in the same two-and-a-half-year fund cycles we've had for years. It's 12 months now." So the question that I have for both of you is when it comes to deployment pace on the fund cycle, you know, bluntly, should you play the game on the field or should you stick to your knitting and do what you said, two-and-a-half, three-year deployment cycles?

I think the question is the game you're describing. I think the game you're describing is the game, for argument's sake, set by Tiger on rapidness and capital deployment. In my view, the venture game is around relationships and networks and being able to help accelerate those portfolio companies and the CEOs and bring management to them, which is, I think, an underappreciated feature. And I don't think it's outsourceable in the ways that many people think. And so in my view, the game on the field is finding an amazing founder, getting large ownership stakes, and then helping those companies accelerate out to the next bunch of rounds and staying alongside until it goes public or gets bought. And those are time-limiting factors.

And so this is not capital deployment. That's not the game on the field. And so if you want to optimize for the long term, for the relationships, for the reputation, take your bloody time. It makes sense. Take the time and be the best partner you can be for those founders. That creates longevity in this business.

I agree with what Michael said. I also think there's massive benefit to time diversity in a portfolio. Having lived through cycles before, you spend a fund in nine months, you've got no time diversity on that. And time diversity can affect entry prices. It can affect sector bets. It can affect a whole bunch of things. Just as someone that hopes to raise from LPs for a very long period of time. If you have a real stinker fund, it can impede your next one.

Totally can. I hope that day doesn't come for a long time. I do have to ask, you mentioned different forms of liquidity, whether secondaries, going public. Bill, you've spoken very publicly before about SPACs. And, you know, they've had a challenging last 18 months. I guess my question is, like, will they recover? When? How do you analyze it?

Yeah, so I think that's a bit of a misnomer. I've been very outspoken as a huge proponent of direct listings because I just think it's the only way you should price a public security, by matching supply and demand. And I've been very negative on the traditional IPO process, which has devolved into something that's very, very disingenuous to Silicon Valley founders and startups. The process is broken and the outcomes are broken. And it's really sad. SPACs came along and I think offered something not nearly as good as a DL, but a little better than an IPO in that it gave the founder and the CEO more control. And SPACs would have only had this moment in the sun because of the significant underpricing in the traditional IPO market.

Everyone says SPACs are expensive, but when your stock pops 50% to 70% in the IPO, that's way more expensive than a SPAC. And so it created this window. I think there have been some very significant transactions. We just did one with Nextdoor. I think SoFi has done extremely well. I would expect Grab to do well. So there have been some people that have been able to use it as an IPO alternative, as has happened historically. A lot of people have also used it as a way to take companies public that are pre-revenue, which you would call highly speculative. Being public with no revenue is a crazy, wild ride. If everyone's doing it in your industry, back to the game on the field thing, you may have to play that game.

But you should expect massive volatility, and that's what we've seen.

I'll add one thing to what Bill said. Part of the question around SPACs is from whose perspective. You contrast it to an IPO or direct listing. That part of that talks about from the bank perspective. But some of these companies would either have taken longer to get public through an IPO or direct listing or wouldn't get public at all. Some of the lack of revenue companies that Bill's talking about. And they may be carrying giant liquidation preferences like Ginkgo or others like that. And so if you're the entrepreneurs or the common shareholders under that and you're going public in a SPAC, boy, you know, removed a monkey up from your back or an anvil on top of you, which is a liquidation preference.

And the counterfactual, by the way, which is hard to say to the SPAC is liquidation. What would have happened to those shareholders had they not been public and all in common stock at that point? And the answer is maybe nothing that good. And so you have to ask from whose perspective.

Totally get you there. I have to ask, you know, we've spoken about many different things from price discipline to cadence of deployment. It's a broad one. So apologies for it. What's your single biggest challenge today? Other than sleep. What would it be? Biggest challenge? Yeah.

I'll jump in. There's a question I think you wanted to ask later, but maybe I'll throw it in now, which is some of the biggest lessons from way back when. One of them is who you invest with around your table matters a lot. And one of the things I learned in '99-2000 and sitting with Bill around a board right after that when we merged two companies, Shopping.com and Epinions, was who's around your board table and who your co-investors are matters a huge, huge amount when times get rocky and you need steady hands around the table that help the founders raise the valleys and lower the hills because things get rocky. And unfortunately, I think people's fears and sometimes their true colors come out in harder times.

And so what concerns me sometimes, you know, when I look around our broader portfolio and other things going on out there, is you've got a lot of people around these tables who may or may not be steady hands when you need them most. People haven't seen through downturns or stock market cuts of 50%, you know, in the mid-caps. And what are they telling entrepreneurs in that time? Entrepreneurs have a tendency to listen to the people around their board table. They really do. If you're an aggressive venture capital investor who's not a steady hand and is afraid to go back to his partner meeting on a Monday and give some bad news, or you can get spun up at a partner meeting. Not you, Harry, because you're all alone.

You're like a solo capitalist, but the rest of us, mere mortals, who go back to partner meetings, you know, you come back and the partners say, well, 'How'd you let that happen?' or 'What's really going on over there?' And you come back and you drive the entrepreneur nuts and the rest of the board and board management becomes a big issue. We don't have fully steady hands around the table.

And that's something I'm thinking about a lot. Sorry, I agree with you. I've seen this where there's like real insecurity on behalf of the VC because they have to go back and say a company is not doing well. But should the partnership not be a place of safety? Where, Michael, you come to me and Bill in this hypothetical partnership and we say, 'You know what? That's fine. We're going to work on it together. We agreed together.' And the partnership's a place of safety, not of fear or threat.

One thing I'll say is I think I've been very lucky in that the last couple of places I've been, three places I've been, have been equal partnerships. I think one of the things about the equal partnership is you're not worried about your economics or even negotiating them subconsciously on the way. And that makes the partnership more of a safe space and more of a collaborative space. And I think it's one of the really powerful things about the Benchmark model that we've adopted at Aleph as well. And as far as I'm concerned, it's religion at Aleph. And I think it works in these times. But look, inevitably, you have information disparity between the person sitting on the board and the people sitting in the partnership room.

It's inevitable. You also have different perspectives. And by the way, sometimes people on a partnership table have better perspective because they're at 10,000 feet rather than in the weeds. But it's tough because you're also the one as the partner on the board seeing the entrepreneur and living the emotional up and down of what's going on and having to kind of bounce back and forth to the partner meeting and the boardroom. And so my experience is that in many cases, particularly with people who haven't seen these things, it is not a safe space. And when you have junior people also deploying capital, it becomes even less of a safe space. And it really can affect board dynamics and good decision-making and calm decision-making when things get rattled.

I was going to go in a different direction. I agree with everything you're saying. I thought up an answer to Harry's question about challenge, if you want me to. I do.

So it relates to where you started this conversation, which is if you have a traditional investor mindset and you study finance and financial history and you've read all the Buffett stuff and you have a conservative analytical approach to the process of venture investing, I think some of these moves by some of these companies, some of the types of companies that have worked are outside of your mental model. And so if this continues, like for 10 more years... My mindset is probably not optimized for execution in that world because I would say you might need to modify yours because the world's playing at a different pace with a different game on the field. And there's all these great stories over the years on

Wall Street where the value investor, you know, is getting his head handed to him through a boom cycle and then switches to be a growth investor right as everything goes down and then they lose in both directions, which is always the risk of that. But I'm constantly trying, you know, that great phrase, "strong opinions, loosely held." I'm constantly asking myself, you know, "Why did you miss this? Why did that happen? You know, what is your mental model that's preventing you from..." And that, for me, the biggest challenge when you have a boom that lasts this long is precisely that.

Can I be really bold and ask, when you look at deals that you've lost, which I know are very, very rare in the case of Benchmark, but in the last few deals that you've lost, were there commonalities of why you lost them?

So, yeah, I think so. You know, and we probably discussed this before, but Bruce Dunlevie, one of the founders of Benchmark, walked into the partner meeting one day and he had just read The Rational Optimist by Matt Ridley, a fellow Brit there, Harry. And having read both The Rational Optimist and How Innovation Works, you know, I think everybody that studies entrepreneurism should read both of them because I really fundamentally believe that what we do with these startups is the best way to possibly improve the standard of living for every human around the planet. And I think it does do that. And so he came in and he had just read this book, The Rational Optimist, and he uttered this phrase, "What could go right?"

And in talking about that, we had a long discussion about the fact that you have asymmetric risk. If you lose $10 million on a deal, you lost $10 million. But my biggest mistake was clear because I brought Larry and Sergey in to present when there were 25 employees and we didn't give chase. I don't want to say we passed because I don't remember ever calling them and saying we're not moving forward. It was highly competitive, but we didn't give chase. And two of the most respected investors of our industry decided to make that call simultaneously—John Doerr and Mike Moritz. And when I think back on that or any of the other misses, there's just this failure to imagine how high is up and to recognize that the risk is really missing it rather than losing $10 million.

Another one that's very similar, and it wasn't me, it was a different partner, but I don't think I was helpful, was Jack brought Square to us on the A. And there was a lot going on at the time, a lot of reasons not to be imaginative about what was possible. But you really have to resist the feeling—like, calling it a bad investment is not that valuable of an insight.

You know, you do feel great.

There's also all this schadenfreude and whatever in venture where you make the decision not to invest and then that deal doesn't work. And you're like, 'Oh, I was smart.' But there's not that much value in that compared to the other thing, which is being imaginative about what's possible. You know, we can all handle more boards that don't work if the trade-off for that is more home run outcome.

Michael, how do you feel? I have a hard time keeping things straight in my head around so many of these things. And so oftentimes, for example, a bunch of these enterprise software businesses walk in and I got to say, it feels like what I saw before. They all sound kind of the same and it's hard to figure out what's unique about them in many cases. And I find myself scratching my head as to what's unique. And that causes me to miss a bunch along the way. I also don't find that it excites me as much as some of these newer industries do. And I prefer to kind of be way out on what I call the uncertainty curve. Perhaps it's my lack of education, but I like the uncertainty curve, which I think creates a more asymmetric bet.

And so things that I think are—I wouldn't call them, they're not obvious, but they're more in the center of the fairway, but they're great businesses that can hit escape velocity quickly—I have a hard time closing in on and chasing. And I'm not sure why that is, but that's why we have partners.

I think the one thing that I would just love to touch on first is—well, last, sorry—is like, are there any good things that come from such a seemingly troubling event being a bust?

Yeah, I mean, other people have talked about this, but, you know, if you look back at the 2000 timeframe, a lot of the money that was busted went into telecom infrastructure. And people argue that we are better off having that stuff built out, even if the companies and the employees and the founders get washed out, that like the physical infrastructure and plant is better. And then, you know, if going back to some of Ridley's work with both of his books, you know, more shots on goal. And so even if you have a washout, like it's really about optionality. So if you have more people trying more things in more places, the end result of that, you know, should be positive.

Surely, Bill, then you should have a massively diversified portfolio. I had this talk the other day with an angel. He's got 500 companies in the portfolio, says, 'Harry, it's all about diversity. 500, because if you're in the up, that's all that matters.'

I mean, there are great investors that use the phrase diworsification. So, you know, you can probably get an argument for any point of view.

What do you go through with Michael on the public? You know, I think in Howard Marks, you have this notion that busts reallocate talent to where it needs to be, and money. And I think one of the things we haven't talked about today is, with all the money coming into this business, the other thing that's really scarce right now is talent. If office space was scarce maybe in 2000, now what's scarce is talent. I think there's a few things going on there in parallel. Number one, salaries or option grants or RSUs—compensation for engineers in general, and great engineers and product people—is going way up and continues to go way up, and battling with the FAANGs is doing battle in that way, and so there's a big scarcity of that talent. A bust in the past, and maybe now, would reallocate some of that talent around. I actually don't think it would reduce the cost of it, for what it's worth, given how scarce the talent is, but I think it could reallocate it to better places.

I think the second thing around that talent issue is having so much money come into this has made—and having salaries or compensation go up has—more attractive for more people to try to become engineers and product people. So it's bringing people that otherwise would have gone to McKinsey or banking or whatever it is into the tech industry. For what it's worth, I had a meeting with a very senior banker probably three weeks ago. He told me they can't recruit anyone. They're in line behind all these tech companies recruiting people out of the best schools right now. And that never used to be the case. In 2000, that was not the case. And so I continue to think that'll be a very large issue facing our industry going forward.

And the boom helps that and the bust may help reallocate that. And by the way, to that point I was making earlier about the FAANG companies, the other thing that's really different this time is because of the growth of passive investing and index investing—and Bill's probably better placed to talk about this than I am—a giant percentage of the S&P and of these buy-side assets are in these FAANG Plus companies, a giant percentage. When you have a 50% drop in mid-cap tech, which is what I think has happened over the last six months, where does that money go if there's no yield-bearing instruments of note out there because the Fed has reduced interest rates? Well, they go to the FAANG stocks, which have held up pretty well.

And so the question in my mind becomes, if whenever a correction happens, where does it come from in this kind of bizarrely top-heavy pyramid that's got all this money in these big stocks because of indexing? I don't really answer that question. Like I said, Bill's probably better placed to talk about that than I am.

Final one before the grapevine. Sorry, I just have to. Is now a good time to be investing in venture as an LP? I speak to a lot of LPs who are entering venture for the first time investing in funds. Is now a good time?

I think most of the endowments that have radically outperformed have larger venture portfolios. And I think the asset class in the past 18 to 24 months, as we all know, has done much, much, much better than anything else they could be in. And it creates a quandary. You know, they're sitting there looking at an asset allocation table, and the thing that's worked is now twice as big than their model wants it to be. And there's plenty of demand for more—I'll call it Tiger-chase. And so I've seen some signs that would suggest they're full, actually, partially because of the returns and partially because of, you know, how far do you want to take the risk on morphing your asset allocation model?

I still think, you know, maybe I'm biased because I've been at this for all these years, but I still think the venture business is a lopsided business at the end of the day. And even if there are more funds today than there were back in 2000 that make money, I still think over time, the index will lose money as it did for a while, you know, and kind of the bottom half or three quarters won't beat the market return going forward. And at the same time, you know, like the point I was making earlier about talent, I think there are more entrepreneurs in the ecosystem than there ever were before and coming in from all parts of the universe right now. And so there is, again, demand and supply, right?

The demand for capital on the side of entrepreneurs is growing because there's just simply more of them. And so I think it will continue to be a larger part of these endowments' or pension funds' portfolios. But by the same token, somehow I still think that when we play this out in 20 years, the top quartile will do significantly better than the rest who are in this business.

I do want to move into the quick-fire though. I know we're at time. So I want to make the quick-fire happen.

I can talk to Bill forever and to you for even longer.

Are you guys okay for the quickfire? I can talk to Bill forever and you also. But let's start with Bill. What would you most like to change about the world of venture today?

You know, it's funny. I have a very quick response to that, which is if it ain't broke, don't fix it. I think it's an incredible model. I've loved being a part of it for the majority of my career. As I mentioned earlier, you know, referencing the Ridley books, growth, I think it unlocks innovation. I think it's just fantastic. And so one of my theories is that one of the reasons Silicon Valley's been so successful is because it's so far away from Washington, D.C. And my biggest concern has always for the venture industry been government gets overly involved and tries to regulate things.

things, because then I think you will slow the optionality, slow the diversity, slow the shots on goal, all those types of things. So I wouldn't touch it, Harry. That's my— Sorry, I'm changing. Most people say it is broken. They say it's archaic, it hasn't changed. We're seeing the rise of operator funds, AngelList, Naval obviously with his unbundling venture with, you know, corporate governance, financing, advice.

Right. I think that's great. I mean, in other words, I think there are different strokes for different folks and everybody can have—that doesn't make the other stuff go away. I think this whole notion that you're going to disrupt and fundamentally take over the business has just been proven false over and over again. AngelList is awesome, but it's not 20 percent of the industry. You know, Andreessen said, "We're going to completely, you know, turn the venture industry upside down," and Sequoia and Benchmark have their best 10-year run in a long while. It's a silly notion. As I mentioned earlier, when I said you have to play the game on the field, you're not going to affect the industry by doing something new and disruptive.

You're just going to add to it.

By the way, I think Bill's last point is really important to dwell on for a second, which is Benchmark hasn't changed its model, right? We copied it at Aleph, right? So they're still playing the game on the field with their model and delivering unbelievable returns. And so it should beg the question of, if everything's changed, why does that still work? And the answer is because great people want to be a part of that, and the brand matters, the relationship matters, and the people are just great. Michael, what are the enduring lessons from WeWork? Be careful of headline valuations. OK Boomer. Yeah, I'm going to name them. OK Boomer, there's a few. One is big markets actually matter, it turns out, in the end of the day.

And this one is a big market with a big sucking sound on it and a business that was changing. The commercial real estate hadn't been touched, and God bless the teams that went after it. And at the same time, kind of don't fall in love with your own momentum, and board oversight remains critical. And I think that was true at a lot of companies that reached a lot of these valuations. It's certainly true at WeWork as well. And this is to both of you: Have you learned more from success or from failure?

I saw something recently, like within the past week, that is super interesting on this topic, which is I think humans tend to overanalyze failure more than success. There's a great book I'll recommend called The Storytelling Animal, which suggests that as humans rewrite history every night before we go to bed, casting ourselves as the hero. It's a bit of a Darwinistic tool to keep anxiety low. And as a result, you just study the failures. The winners, you're like, "Hey, I was right." You don't study them as much. I'm not sure it's the right thing based on what I said, but I do think we tend to really, really focus on the misses. I personally, in our firm, we study the great breakouts that we miss the most.

So that's not failure in our portfolio. That's failure of us to chase the deal that ends up outside of our portfolio. That's the thing we sweat the most.

I'd say neither in this regard. I learn most from the people around me. And, you know, getting to sit around the table with Bill and Bruce and Peter and everyone there for all that time was, you know, the best lessons ever. Then, and my current partners, you know, Ed and Aaron and Tomer and the entrepreneurs. One of the great things about this job is I think you can learn from people every day. And that's what I keep finding. I learn most by talking to people and sitting around the table with people who have been smarter than me, who are smarter than me, and continue to kind of press hard in this business to try to make it better. And, you know, that's been...

Place I learned the most. Now, it's a cheesy final question, but I liked it, so I thought I'd go with it. The question is, what investing lesson learned over the last 25 years do you wish you'd known when you started? I could be quick. I'll be a broken record because I've already talked about it multiple times. It relates to this asymmetric risk thing, and I've heard other investors say the same thing. I would, you know, urge myself to be more optimistic, more, kind of, risk-seeking as we evaluate each and every deal, and not get overly obsessed with downside protection.

Since I'm a hopeless optimist, that one won't work for me. But I'll also repeat something I said. It's just who you invest with actually really matters. I've seen so many companies undone by their boards and shareholders over time that I think who you invest with really, really matters. I didn't have enough appreciation for that early. You know, Bill and I had this board together at Shopping.com. I think, you know, being together on that board informed me a lot. And I think the people, you know, the great coach Bill Campbell came around that board and Laurie Norrington went on to great things. And Anne Mather went on from Shopping.com to be, I think, the head of the audit committee at Google.

You know, having great people around mattered. And I think it still does.

And I think it's underappreciated. Tim, listen, honestly, it's so joyous for me to do this with you. I can't thank you enough for what you've done to make it happen. And I really appreciate the time today. All right. Thanks, Bill. I mean, I could talk to both Michael and Bill all day. I want to say a huge thank you to them for taking the time. I really did so appreciate it. It's episodes like that which really made me feel so lucky to do what I do. But before we leave you today, do you employ or pay workers in other countries? Yes? Well, you need Remote. Remote makes it easy for companies of all sizes to employ global teams. They take care of international payroll, benefits, taxes, and local compliance.

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