In Conversation with Bill Gurley | Players Tech Summit

So I'll start out by saying this is the first time—I've known this gentleman for about four or five years now, and you finally joined us here, so thank you. Glad I was able to do it. Four years ago we met. You came to one of our, actually my first event that I threw in City Hall, and after the event you stopped me and you said, 'What are you doing?' You said, 'What are you doing? What are you doing with all these athletes?' And I told you, 'I want to get more athletes involved in tech.' And you said, 'No.' You said, 'Just let them save their money.' Remember that? Yeah. Tell me what you meant.

So there's a lot to unpack in that question. And some of the stuff I'll mention, I think a lot of people know. But I was really moved, first of all, by the 30 for 30 ESPN did called Broke, which I'm sure most of the people in here have seen. And they had a number, I don't know if it's true, but it said 78% of NFL players that reach retirement are bankrupt. And that's atrocious. That's horrible. You know, the second thing that I think I know is like the average tenure in the NBA. Last time I looked it up was like two point two years. Right. Which is a super short window for the average person. Not not. And, you know, you go from a seven figure salary. And it's a just steep drop for a lot of people.

And I know multiple people that used to be in the league that are running an AAU program. And that's a tough, tough way to make money. It's horrible. And I also know, because athletes unfortunately have their salaries published, there's a huge diversity of wealth. So if you've been playing 10 years and you're making eight figures a year, then sure, get into venture investing. That's not usually the case, though. It's not usually the case. And the other thing I would say is the people that invest in us are professional asset allocators. So they're called limited partners. And if you study any LPs, these are people that invest on behalf of universities and endowments, and you say, 'What percentage of your assets would you allocate to venture?'

It's usually 2% to 5%. So it's a small part of what a professional would recommend you allocate your wealth to if you're managing your wealth. And it's really a tiny portion of the investment industry overall. And so I keep that in mind. There's a great book about personal asset allocation called "A Random Walk Down Wall Street" by Burton Malkiel. And everyone that's ever asked me, 'Should I buy this stock or this company?' I say, 'Read that book and then come back and talk to me.' Right. And so anyway, the last point I would make is the industry has historically been remarkably cyclical. And we're sitting today at, I think, I guess it's been like 12, 11 years since the '08 crisis, and it's the longest window that I know of without a massive reset. And '01—I worked through '01 and '08, and especially in the '01 scenario, like 90% of the investments go to zero, right, in those windows. And so—

You think we've forgotten about '01 already? No. Oh, we've definitely forgotten about it. But I think it'll happen again one day. And so just knowing that there's that amount of risk. And the people that invest in us are diversified across multiple venture firms, which gives them access to more optionality. And like I said, they're at 2% to 5%. So they like the fact that it's a high-return category, but they have the ability to flexibly withstand the periods that are cyclical. Anyway, very, very long answer. But the punchline is I just think people should be pragmatic.

about it. So, well, you've seen the evolution. Again, you've been nice enough to, to support us and everything that we've done, and invite you to, um... So there has been an evolution. So it's actually happening, right? So, so given that, do you think that athletes can be, you know, VCs, or, or, again, you've seen the evolution, so tell me, tell me... Well, the truth of the matter is, anyone can be a VC, right? Because handing out money is one of the lowest-barrier-to-entry jobs.

And so anyone can enter. The real question is, I guess, can you be successful? Yeah, 100%. Now, one thing, I don't know if you know this, but prior to Benchmark, my first venture job was with a firm called Hummer Winblad. And one of the co-founders, John Hummer, played in the league for six years. He was drafted number 15 in 1970. So yes, an athlete can become a capitalist, because it already happened.

And he had a very successful career. What do you see about the landscape? Obviously, it's changing. A lot of these guys here are actually investing now. So tell me exactly, evolution. You see the landscape changing, and you see a lot of things happening now. You see what we're doing as well, too. We've had exits as well, too. And a lot of the companies that you're investing in, athletes are investing in as well, too, now. So it's changed.

Absolutely. And not just athletes. Like Jared Leto has done extremely well. Yeah, so look, information and access and networking has gotten easier and easier and easier, is one. Two, there are technologies and themes that entrepreneurs and venture capitalists are investing in that touch the industry in different ways, where, where an athlete would have a competitive advantage, either from an ability to promote or ability to understand. And that type of area where you have a strong circle of competence, I think it makes a lot of sense.

For the people in the audience that don't know, you're regarded as one of, if not the top, top five venture capitalists in the world from your investments in Uber, Stitch Fix, Grubhub, Nextdoor, et cetera. You sent me an email this week that actually focused on your attention to detail. I don't think I've ever gotten an email like that in my life before. It was crazy. But obviously, you have a certain level of attention to detail. What are the things or four or five things that you do in reference to how you look at investments and what you're looking for before making one? Sure.

You know, the first one that I think is obvious and on everyone's list when you hear, and an area where I think some of the people here could have a really strong point of view, is just on the quality of the individual. Draymond was nice enough to come give a talk at Nextdoor. And he spoke for like an hour, but it was all about team interaction. That's something that matters in a company also. And so if you know how to judge the qualities of a good leader or someone who's a team player, that could have a very strong impact. There are many times when we make an investment solely because of the individual. There's no way we're not investing in this person. And one thing that's become really interesting lately... Is that more important, the earlier stage?

Yeah, I mean, you have less to go on in the earlier stage.

So yeah, there have been four companies, three in our portfolio and Slack. So Discord, Nextdoor, Docker, and Slack are all full pivots, which means the company stopped doing what they were doing and started doing something different. That shows you the power of the person, of the founder. So that'd be one. Two, I think unit economics eventually matter. I'm going to get into that later. People are forgetting that recently, so that's something I pay attention to. I think the quality or the characteristic that's probably most important that a lot of people miss is go-to-market. I think ideas are kind of a dime a dozen, and if you look at the companies that have been the most successful, they weren't always the first, but they were the one that figured out how to get to market fastest, um.

I can send these to you written down if you want to. Furthermore, I'd mention five books that I would read if you're going to be investing. The first one is just Michael Porter's Competitive Strategy, which just lays out, it's like a mini-MBA, but I think it's a super great bedrock from which to think about investing. If you're doing any enterprise companies, I'd read Crossing the Chasm. I'd read Innovator's Dilemma. And then two books written by entrepreneurs. One you've maybe already read, Shoe Dog, which is just an incredible story about him grinding. And then one about failure called Startup by Jerry Kaplan. So he had all the best venture capitalists, all the executives that worked for Jerry at Go Corporation.

It's a little bit outdated, but went on to become very successful. But they lost all the money. And it's just a good grounding to know that's possible.

Right. It's always possible. As of late, I think that you've gotten most of your notoriety and press being one of the biggest, if not largest, investor in Uber. And if I'm correct, you invested in Uber before it launched.

It wasn't pre-launch. It was super early. Super early, right? Yeah.

So tell me, in the instance of Travis, what you saw in him and seeing that company so early, way before, obviously, its hypergrowth.

Yeah, and it's always hard. Someone asked me earlier this morning what Jeff Bezos was like in '97. It's hard to erase your current memory and think back so it's easy to be biased. We had made money on OpenTable and had a belief that there were going to be multiple industries where you could put an ordering network on top of. And we were particularly intrigued with black cars. And we had met with a bunch of taxi startups that were putting it on taxis. In talking about go-to-market, taxis are usually an oligopoly, one or two players in each market. They're regulated, so you can't move price. And it felt really like that would not work well. So we were looking for someone doing this on black cars.

So when they announced they were launching, we immediately cold-called and spent time with them. Oddly, on Travis, I actually reference-checked him with Mark Cuban, who had invested in one of his previous. Travis had two startups, one that failed completely and one that was like an eight-year grind to a very mediocre outcome. You could see the determination to get it right and win this time. For us, that was a powerful thing to want to get behind because the product-market fit was obvious. He was just not going to let it fail.

With the advent of venture and all the exits that we've seen over the last couple years, it's an industry that's grown tremendously. So now I feel like there's 100 times more VCs running on the street than before. There's a lot of individuals now that are looking to get into it. Give me some tidbits as to, they don't have the—the discernment that you have and/or investors have, what kind of advice would you give these gentlemen as to who to trust or who to listen to and/or how to make these investments?

Yeah, so I'm reminded of one of my favorite Warren Buffett quotes. He says, 'There's a fool in every market, and if you don't know who it is, it's probably you.' And he also talks about this notion of circle of competence, which we talk about a lot internally at Benchmark. So if we see something pop or somebody makes billions of dollars, but it was in a category we don't understand, we try not to have anxiety about that because we want to invest where we believe we have a competitive advantage. And I would encourage people to think that way.

How should they be looking at it, then, in terms of having a competitive advantage? Is it sector-based?

Well, so I'll give you two things. One, I think, is sector-based, so areas where you have a perspective that's likely better than other people. The other thing I would say is that athletes have remarkable access. And if I think about watching, as the example I used before, Jared Leto, if you use that and then have good judgment on who you're connecting with, then you can get proxy investment judgment from those people. So I would think that would be the primary way you'd want to execute what you're doing. And you just got to build high confidence in those trust links that are out there.

Yeah, I think that the biggest thing that we try to do is focus on the education standpoint of it, right? So it's so sexy now. You only read about the best returns and the exits. Not too many people understand the other side, the flip side, much nowadays. So that's more important than anything.

Well, you know, it's not a new concept. I think if you go read about Muhammad Ali, for example, he did a ton of business stuff and wiped out most of his net worth. Yeah, that happens more than that.

Let's talk a little bit about Benchmark. Again, you guys are regarded as top three venture firm in the world. You guys aren't as big as everybody, right? So your structure's a tad bit different. Can you talk about having a couple partners and how you guys stay so lean and still stay so successful?

Yeah, and I always want to preface the answer to this question by saying there are a lot of great venture firms. And many of them are structured very differently. And they're still successful. So this isn't the way to run a venture firm. It's our way to run a venture firm. So the founding partners realized that at a lot of professional firms, the senior people take all the economics and the junior people do all the work. And they wanted to find a way where that wouldn't be true. So they created a concept of an equal partnership where we're very lean, very small, but all the investing professionals make the exact same compensation. And we believe that it generates a phenomenal amount of teamwork because the other firms that have differential pay, every time they raise a new fund, they have to sit down and say who's adding value, who's not, and then you're at each other's throats.

You're competing. And I think... I think it was brilliant what they did. And it also allows us to recruit the very best young people we possibly want to recruit, because we're offering someone an equal seat at the table, whereas everybody else says, oh, you got to come in and work your way up. We try to minim— we only do early stage, so we're not— I think if you wanted to write $100 million checks to mature companies, you need a huge— set of analysts to pore through all the due diligence and stuff. But as you said, if it's two people on a PowerPoint, it's a lot more about the individual than anything else. And so we're also very lean. And part of that is to be able to spend as much of our time out in the field working with entrepreneurs as we possibly can.

And if we try and grow or get bigger or do a bunch of stages in countries, then we have to have upper management. And we have all this stuff we don't want.

It doesn't take all that as well, too. You taught me this, focusing on unit economics, right? And understanding that it's important to invest in companies where companies have a pathway to profitability. You also stressed that a lot of these companies nowadays with so much money on the street, their valuations are too high and they're getting free cash, right? So they're not as focused on making, you know, being profitable companies, but your two biggest investments nowadays aren't profitable companies as well, too. You have Uber, and you have WeWork. Can you talk about that contradiction a little bit? Sure.

So, you know...

First of all, I have been suggesting kind of the end of good times for four or five years now and been proven wrong, and I'm tired of it, so I gave it up as a concept. We are in a remarkably unique time in the history of business where interest rates have been low for decades—five, six, seven years—and it's never happened before. And some of the best investors in the world, Buffett and Howard Marks, they're complaining about this because if you set interest rates super low, it increases the amount of speculation people are willing to do because there's no yield anywhere else. Stan Druckenmiller was quoted as saying, 'I got nothing against Texans, but if you let them drill holes with other people's money, they'll drill lots of holes.'

And so that's been happening. And, you know, I think the kind of quintessential contribution to this getting even more profound was when SoftBank raised the Vision Fund and starts writing checks in the billion-dollar sizes into these private companies. And it creates a dilemma, because if you have a competitor that's going to do something that ambitious and you don't, you're just going to see them take the market. And I think it has created what is unquestionably the hardest strategic, you know, thinking you could possibly do in a boardroom. I think it's one of the hardest problems of all time. And making that decision.

Yeah. Yeah.

Because it's, it's, it's risk in either direction. The real prisoner's dilemma. And so, you know, people are figuring out how to, how to play the game on the field. And now that Uber's public, the Street is asking lots of questions about unit economics, to your point. And Amazon, when it first came public, was losing money and eventually had to get profitable, and the Street had to be convinced because a lot of people questioned their unit economics back in the day. So it will be an evolution as you move into being public and being more scrubbed by Wall Street.

Some people know this and some people don't, that you played basketball.

I'd like to say I practiced basketball.

You practiced basketball at Florida and also were an analyst before being a venture capitalist. Tell me, what did you learn from playing the game and also just as an analyst that you actually use today, whether it be skills or characteristics that you still employ?

Let me start with the analyst thing, and then I'll try and go back to the basketball thing. So as an analyst, I'm of the belief that the eventual purchaser of our most successful companies is Wall Street, like through the IPO process. So having an understanding of what that customer wants to buy is critically important in terms of... And so I like to think, even if it's two people in a PowerPoint, about how a company will be received by Wall Street, even when we make the first investment. And I think it's a unique mindset. There's Danny Rimer, Mary Meeker. There's a handful of us that came from that world, but not all of us. But I think that is the extra skill that we have as a result of that.

You know, I don't know if anyone's asked me how basketball has impacted me. I know they hadn't. You know, the team stuff's obviously remarkably important. I would say also just because it turns out I'm a much better venture capitalist than a basketball player. I think there was a lot of what one would perceive as failure And maybe it's similar to what I said about Travis, that when I got in a lane where I had more of a competitive advantage, I went after it really, really hard. And so, I mean, the people in this room are the lucky ones, but it's so steep, right? It's like 1,001 to get to D1, and then 1,000 to 1 to get to D. It's no different on your side as well, too.

Yeah. Yeah, absolutely no different. I think that we have some time for a couple questions in the audience. Is this the first time that no one's wanted to ask you a question? He's got one.

Where?

Oh, maybe there's two.

There was a panel earlier today that talked about seed investing. And there's a perception that in Silicon Valley, firms like yours have the ability to make winners, right? So there are certain VC firms that can get behind startups and make them successful by providing them with capital and resources that no one else can. Do you think that's a fair perspective? And when you think about this audience, would you advise them to skew towards big venture capital over seed? Or do you think it's all equally risky?

Well, I think... I think that there's a paradox that's probably true, which is: it may be that in seed investing, the networking piece is most differentiated. It is certainly the most risky as well. And there are people like First Round's Josh Koppelman, Calacanis. There's people you guys could have up that could talk about how to do that from a risk management perspective. The other flip side is the later the round, the higher the price. And so you may find yourself buying in at a price that doesn't offer any return. In terms of whether we can make or break a company, there's two things going on there. We're making a judgment, and then we're getting involved in helping along the way. And we take a very active role in what we do.

And so it could be either of those things that actually happen. We have developed a pretty synergistic relationship with the seed firms because I think they understand the value of our stewardship and being involved in something. And so we do see a lot of things from them. And we have a wonderful relationship with people like the ones that I just mentioned.

If the next downturn happens, how do you foresee the relationship between LPs and VCs evolving? Also, how do the VCs manage their past investments in the next downturn?

It's interesting. One of the reasons the business is so cyclical is because the way the firm structure works, you're getting a commitment of capital that may take 10 to 15 years to use. You've got low barriers to entry, but high barriers to exit. when oh one happened you would think that uh... there would have been all these venture firms going out of business but the only way that can happen is if the lps kind of organize and force you to stop investing and that very rarely happens uh... because lps are very worried you know if you fight forever to get in a fund and you get out you're never getting back in and so they're typically don't behave that way it really wasn't till oh eight the LPs made the decision to abandon a bunch of funds because of 01.

It's just so slow. And so, the power dynamic between the GP and the LP favors the GP at this point in time. If you're a new fund, that can be more problematic, because if you haven't proven anything yet, you can't raise your next fund. You might have to string out your current one, that kind of thing.

Can you guys hear me? Okay, there we go. You have a unique ability to see the future. You've done it over and over again. Maybe not the distant future, but the near future. So you're sitting on a gray couch in front of a lot of people who want to know what you're most excited about tomorrow instead of Uber from the past.

Yeah. One of my partners has a saying, like, "We're not paid to see the future. We're paid to see the present very clearly"—maybe to your point, right?—"and be able to predict where things are going to go." I mean, I'll tell you some of the things that I think about. You know, it's very obvious to me that data is going to be ever more present all the time. I was just at a conference and someone had an app on a phone where they take your picture and it would say your name. And they're just stitching together a different database. That's pretty freaky, but like... And I was thinking today as I was driving down the road and I saw someone flip someone off, I was thinking, you know, every license plate could be categorized and probably will.

And not already. Yeah. And so, I—this is a very specific answer. But I wonder, I often say to myself, you know, how much more information is going to be available five years than today? And in what ways can we expect that? And then what business opportunities will that create? The mobile phone has created so much opportunity to do crazy things, and we're just getting started. The geofencing, geolocation tool inside of apps—every week I see an entrepreneur doing something new with that that is really interesting. And that enabled Uber, right, 10 years ago, but there's still, still a lot of greenfield space there. Um, so that's another area. I mean, the—the enterprise stuff is just blowing up. So open source is blowing up, uh, SaaS is blowing up, security spending's blowing up. Those seem, uh, like never-ending veins right now. So there's some answers. So we're all set. Thank you very much, man. Thanks for having me, man.