BONUS: Bill Gurley on Investing Early in Tech Disruptors & 'Runnin' Down a Dream'

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This week on the podcast, what can I say? Another banger, Bill Gurley of Benchmark Capital, legendary VC, early investor in Uber, Zillow, OpenTable, Grubhub, Nextdoor—the list... Instagram, Twitter—the list just goes on and on and on. What a fascinating career filled with insights, not only about venture investing, but about building a career that you love. I thought this conversation was fascinating and I think you will also. With no further ado, my conversation with Benchmark's Bill Gurley. Before we get into the book, which I found very interesting, and your whole career, let's start with your background. You get a bachelor's in computer science from the University of Florida and then an MBA from UT Austin.

What was the original career plan?

So I fell in love with computers at a young age, and many people that get to Silicon Valley, you hear that common refrain. I had a Commodore VIC-20 that would plug into your television, and it didn't have solid state memory, so you'd type programs in, but when you turned it off, they were done. You had to start over. Anyway, I fell in love with programming, as many people do, and just amazed that you could create things, you know? And so that was my undergrad degree. I worked for two years and change at Compaq Computer Corporation using those skills and discovered that that wasn't going to be my long-term path.

You said you were exceedingly bored at what looked like, on paper, a dream job. Yeah. Explain.

Well, back then, Compaq was a leader in the personal computer business, and we would release one PC, and then usually around an Intel generation, you would release the next PC.

See, kids today don't remember 386, 486, Pentium. It was like a big deal.

Yeah, and so... We started on the third project that was a lot like the second and a lot like the first. And I asked myself a question. I don't know if I realized I was doing it as much then as I do now. I asked myself the question, is this what I want to be doing 30 years from now? And in any organization, there's someone... that's a lifer that you can ask yourself, is that what I want? And it's with no judgment towards people that do that. But it became very clear that that wasn't for me. And this will be particularly interesting for your audience because it's an investment crowd. At home at night, I had read One Up on Wall Street by Peter Lynch. Peter Lynch, yeah. And I had opened a Prodigy account, which was this precursor to AOL.

And I was starting to get really interested in stocks. I had bought the Value Line. You remember this thing? Oh, sure. The big notebook with the one-pagers? You'd get these updates. Updates and the three-ring binders and like a whole shelf of them alphabetical. And one thing I'd really encourage people to think about is, what are you doing in your free time? And maybe is there a clue that that should actually be what you do full-time? And so this thing was itching at me.

So first gig in finance, was that Deutsche Bank?

No, it was Credit Suisse First Boston. So while I was at... University of Texas MBA program. I thought about venture, but it seemed very hard to get into. I like technology. I like disruption. I like programming. And it seemed hard to get at. But at that time, when you get to business school, some young adults like to pretend they're financiers. And so they read Fortune, Forbes, the Wall Street Journal, and the atrium, you know, as if... And I would read the tech articles, and there was a team at Goldman Sachs on the sell-side. And the sell-side, I think, was more kind of held in higher regard back in those days. Back then, for sure, yeah. And this team with Dan Benton and Rick Sherlund at Goldman got quoted all the time.

And I said to myself, you know, I really love my corporate strategy class. I love technology. These people get to opine on it and are treated as experts. So I went to—I came here to New York, and I knocked on doors cold. I asked those particular—that particular team for a meeting. They let me in. I'm a freshman—or first-year—at the university. They let me in, and I told all the other research directors I'll be in town meeting with those guys. And I got like 10 meetings doing that. And one of those individuals was Al Jackson, and he gave me a shot. And I can remember the first day of orientation, there were like 40 new people from MBA programs, and we had to go around and say our name and school.

And it was what you'd expect: all Ivy League.

Columbia, Wharton, Harvard. I was University of Texas. I was the outlier.

You were the odd man out, for sure. But I'm so grateful to Al for giving me that shot. The sell-side analyst job has one trait that is remarkable, which is you immediately get to start talking to CEOs and CFOs. And I don't know of any other job where that just happens right away. Right out of school. Yeah, so the access was amazing. I ended up getting to cover the industry. I worked in the computer industry. I got to know the team at Dell. This story involves our mutual friend, Mike Mauboussin. Sure. But because of something Mike taught me, I got very bullish on Dell, and it was trading at six times earnings because they had had some issues.

I recall the big—I think they had a CFO that was doing some dumb currency swap.

They had an options currency thing that went wrong, and their laptop caught on fire. And both those things happened at the same time. So Mr. Mauboussin had really gotten into ROIC analysis at that time, one of the first people to really get behind it. And he had me read this book, Valuation from McKinsey and the Stern Stewart book. And when I ran those ROIC calculations on all the players, Dell was like, it stood out. Way above everybody. Way above everybody because they were building to individual order. They weren't building to inventory. The balance sheet was not tied up at all. They had a positive cash conversion cycle. It was awesome.

You just had to weather the storm and, on the other side...

But that means you're buying something. Well, we went strong buy because of this ROIC differential that no one was talking about. Michael kindly tweeted about his book the other day and said he taught us some things we didn't know ourselves about our business. And it was a great run. I mean, that really launched my career because that stock went up 100x today.

Yeah, that's a home run. That's a venture-like return from a public company. How did you end up at Deutsche Bank from CSFB?

I had the same thing happen one night. I was at Park Avenue Plaza on the 36th floor, and I was there at like 10 p.m. as the young people do, and I walked around, and the lifers were in the corner offices. And I stopped in front of each of their offices, and I said, 'Is this what I want to do?' That night when I walked home, I knew it wasn't the sell side. But I loved the sell side. I had a great run. Getting access to all those people. Being here in New York, working on Wall Street as a young person, it gave me so much energy and excitement. It's a different deal. If you're in it, it's just a different deal. But I knew it was time. And I started looking around. I almost took a job with Capital Group in L.A., who I still hold in immense regard as an investment organization.

And Frank Quattrone called me out of the blue. And Frank was leaving Morgan Stanley. He's the most notable high-tech investment banker of all time. And he sat down with me and we had a very candid conversation. He asked me what I wanted to do long term. And I told him, I said, 'I've come to this conclusion. I don't want to be a sell-side analyst anymore.' He said, 'What do you want to do?' And I said, 'I think I want to be a venture capitalist.' And he said, 'This almost sounds too good to be true.' He says, 'Come to work for me for a while. Be a sell-side analyst a little bit longer. I will move you to Silicon Valley, I'll put you in the epicenter, and I'll introduce you to every venture capitalist that I know.'

And he knew them all. Wow.

Yeah, he was probably the axe on tech IPOs, certainly one of the top three.

Yeah, and so I took that trade. He did everything he said. I only worked for him for 13 months. And in that window, we secured the mandate for the lead-left position on the Amazon IPO.

Which turned out to work out pretty okay.

And that's such a great piece of kind of... IPO tech history. No one could name who's lead-left on the Amazon IPO. And you can go find, I do this frequently, go look at the S-1, and it's Deutsche Morgan Grenfell lead-left. Wow.

So how did you transition from working with Quattrone at Deutsche Bank to Benchmark, if you're right in the heart of Silicon Valley? He did what he said. He introduced me to every VC. I was taking— So out of that list—

Yeah, I'm taking quarterly meetings with Benchmark. They're inviting me into their Monday meeting, and we're just chatting about where the industry's going. Yeah, he really did what he said.

But why Benchmark as opposed to Sequoia, Kleiner Perkins? There are dozens.

Actually, my first offer into venture came from Ann Winblad, and I was so eager to get into venture. When the offer came at Hummer Winblad, I said yes. Uh-huh. I didn't know what I didn't know. I got involved in the organization. It was structured like a very traditional firm where the founders made more equity than the young people. And there was also a bit of a power differential where the person that got to dictate how things went were the elder statesmen.

Old-school lawyer-accountant type of structure.

They're all set up that way, yeah. And the Benchmark guys had lived within those frameworks and had decided to do something crazy, which was to create an equal partnership where everyone makes the exact same amount of money and everyone has the exact same power within the organization for decision-making and there's no leader. And I can't tell you what it's like to have someone from an organization like that reach out to a young person and say, 'Come on and be a part of this,' versus the traditional one.

Be a partner, although I would imagine the whole eat-what-you-kill ethos could be a little intimidating.

Well, but here's the thing. I think at those hierarchical firms, there's an up-or-out mentality. So the people at the bottom live in constant fear of what you're talking about, and they also get sharp-elbowed to the side. At Benchmark, these founders were going to split equally whatever I did. And so what I found was the cultural zeitgeist that came out of that structure is one of immense help and support. And so I immediately had four mentors who had been doing this a lot longer than I did who were in my corner every single day. And then I got to live through bringing other people in. It's a wonderful recruiting tool to tell someone you're going to be equal. But then you win when they win.

And, you know, those original Benchmark founders who did very well with their eBay and Ariba investment in Fund I, they all participated in the Uber investment that I brought to the table. And today, you know, Eric Vishria has got Cerebras and I'm going to benefit from that. And it is a culture that I think is really great for generational change. And when I talk to LPs, I mean, the LP doesn't have much they can control, right? They're trying to decide. And the window for how successful a fund is moving from seven years to 15. Like, you're getting past, I mean, like the time you're going to turn around and analyze whether an investor's any good or not, you're going to be retiring.

And so what you can study is do you think the organization has elements that will cause it to be able to succeed with generational change? And I think one of the proudest things of just me serving as part of it is that we were able to move from a place where the founders were the ones behind all the winners to where the next generation was.

So when you joined Benchmark, I think you were relatively, I don't want to say a unicorn, but there weren't a whole lot of public market research folks there in the VC world then. Now it seems that it's a little more common. But were you a little bit of a one-off when you joined?

I know a piece of history that's probably not well known, but Ben Rosen of Sevin Rosen, who's not a brand you hear much of anymore, and were involved in Compaq. He was actually the chairman of Compaq. He was a semiconductor analyst in the '70s. So he was the first one. And then after me, it was kind of at the same time. Danny Rimer was a sell-side analyst. Mary Meeker was a sell-side. So there were... The weird thing about venture is if you like polled people on their background prior to venture, there's real diversity. There's like a whole bunch of different pathways. Mike Moritz was a writer. That's right. I recall that.

There's a handful of us that came that path. Really interesting. Coming up, we continue our conversation with Benchmark's Bill Gurley, discussing his new book, Running Down a Dream: How to Thrive in a Career You Actually Love. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. This message is brought to you by Apple Card. Sometimes life's journeys take you on the roads less traveled. That's why Apple created the titanium Apple Card to use anywhere in the world where Mastercard is accepted. Plus, with Apple Card, you can earn unlimited daily cash back on every purchase every day, whether you're in Paris or Palau. And no matter where you are with Apple Card, you won't pay annual fees or foreign transaction fees.

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I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Bill Gurley of Benchmark Capital. He has a new book, Running Down a Dream: How to Thrive in a Career You Actually Love. I love the Tom Petty title. What led you to start with that?

I put together—back when I was super active writing blog posts, I would keep these notes in digital form. But I would start—I'd probably start three or four times as many blog posts as I finished. And so if an idea popped in my head, I'd just write notes down and see if I went back to it. Mm-hmm. And that was a note? Yeah, I had read these three biographies of people that were from very different fields that all started on the bottom rung and became remarkably successful in their field. And I noticed a through line between them, and I just wrote it down the same way I would figure out how an internet marketplace company might thrive. Like, 'Oh, do this, this, and this.' And I got invited one day back to my alma mater to do a speech at Texas Business School, and I asked if I could do this one.

And so then I developed it a little more, and I put it out there. They put it on YouTube, and a few people noticed. And one of those was James Clear, who wrote Atomic Habits. Sure. And... I don't want to make this sound too mushy, but at some point I decided that it was time to declare victory and hang up my boots in venture. And it was a decision. It wasn't like the other decisions. I spent 25 years in venture capital. I loved every minute of it. It was my dream job. But I wanted to start doing other things. And there's a great book by Arthur Brooks, Strength to Strength, that talks about people that reach that stage in life, and it really spoke to me. And I decided to push this book out, and two people had really gotten behind me and pushed me to do that. One was Tony Fadell, who invented the iPod and was head of engineering on the iPhone.

I know, I recognize that name. He has a book called Build. He also started Nest.

And he told me that it was the best thing that he'd ever done. And that's kind of hard to believe. And then I was talking to Danny Meyer last night, the famous New York restaurateur and founder of Shake Shack. And he said the same thing. He said the book, Setting the Table, was more rewarding for him than anything he had done. And I asked him, 'Why is that?' And he told a story—this is a very long answer, I'm sorry—he told a story about being in Africa at a hotel and dining. One of the local workers in this restaurant we were in, he was in, told him, 'Look at how I'm doing the eggs.' And it was a technique out of his book, Setting the Table. Oh, really? And the reach, his argument was, the reach that he could get in sharing what he knew via a book was exponential compared to what he could do just opening another restaurant.

And that was powerful. Anyway, once again, it sounds maybe a little too mushy or sappy. Not at all. But if I'd have written a book about being a VC or an investor, there's only a handful of people it might have touched. And I felt very compelled to share this because I thought it could have a much bigger reach because it's not just about—it could be applied to a career in investing, but it's a much broader book about doing what you love.

So let's talk about some of the items from the book, starting with—there's a stat, I think it's in the introduction, it's not even in the first chapter: six in 10 people say they'd do something differently if they could start over. That's a horrifying statistic.

Well, we were studying this Gallup poll that said like 53% of people are quiet quitting at work. They're not engaged or don't consider themselves engaged at work. And I think other people have echoed those types of thoughts. And, um, we, we, on a whim, we—I was working with a co-writer and researcher—we did a SurveyMonkey survey and asked this question: 'If you could start over again, would you do something different?' That one came out seven in 10. We hired, we hired Wharton to do an official academic review. And that one came out six in 10. There's a book by Daniel Pink about regrets called The Power of Regret. And he says that the regrets of inaction, the stone unturned, the path not taken, weigh on our brain.

We ruminate far more on those than regrets of action. So we let ourselves off the hook for making mistakes. We're pretty good at getting past them and moving on. But the thing we never tried, it really eats at us.

I forget the name of the book. They interviewed a bunch of 90-year-old people talking about their life regrets. And it's never the commissions or omissions. It's always the things they never did. Because in your mind, you imagine an entire different pathway.

And that's the regret. And one of the catchphrases we use in the book, which came from my partner, Kevin Harvey, is, 'Life is a use-it-or-lose-it proposition.' Yeah.

For sure. Absolutely for sure. So the idea of career regret, you lay out a variety of principles to avoid it, starting with obsessive curiosity. Dive into that. Tell us about obsessive curiosity.

All of the people that we studied—and we expanded it from the presentation I gave at the school and probably read 100 biographies—but every single one of these people are obsessive learners in their field. And you and I are both, I already mentioned, but you and I are both friends and a fan of Michael Mauboussin. And I don't think there's a human that reads more books on finance than Michael.

It's a race between him and Warren Buffett.

Yes. And he fully synthesizes them. One cheat code if you want to chase a dream job in investing is you could just start by reading Michael's books because he's read all the other books. And it'd be a great place to start.

I literally have a couple of chapters in here based on his work.

Yes. Because he's just so seminal in so many ways. And in the book, you'll see examples of Danny Meyer, the restaurateur, Bob Dylan, the folk singer. There's this part we uncovered. I'm sorry that the new movie missed this, but you get more of it if you go back to the Scorsese documentary. Some people called him a music expeditionary. So he studied music at a level—no one would know this if they just listened to Dylan, but he is obsessive about learning about the art. And early on they called him a mimic because he was able to kind of parrot every other artist that he studied. And even today, you know, he did a podcast for a while where he went through like histories of music. His, his, his newer book goes through 50 songs that he thinks changed the world. Like, this, this, this study element, um, is just inherent in so many of these people. And what I love about—first of all, I think it, it is a defining factor of success. Are you—does, does continuous learning in your field come easy to you?

And it's a great test of whether you're pointing in the right direction or not. Because if it feels grindy to do that, you're not in the right place. You need to try some other things.

You're going to laugh. Every morning I take a quick look at a bunch of headlines and run through. And I saw something this morning that said there's a high correlation between people who read books and longevity. So all these folks chasing down blood treatments and all these longevity things, it turns out, just read a couple of books a month, you'll extend your lifespan.

How about that?

Yeah, really, really interesting. So you mentioned Danny Meyer, you mentioned Bob Dylan, Sam Hinkie, the coach is another one. When I first got the book, I'm always a little nervous when I get a book and I'm like, oh, this is going to be preachy and tedious. But but it wasn't. It's interesting and narrative-driven. What led you to the storytelling format of all these people's life experiences as opposed to the more traditional...

Your listeners can't tell because we're not on video, but I'm smiling, grinning ear to ear, and I'm so glad you noticed that.

Oh, very. It leaps off the page.

So there was quite a bit of intention in that. So, just as when I was a computer scientist, I was at home trading stocks, as an investor, I developed on the side somehow, I guess through this act of reading, just a super appreciation for really well-written nonfiction. Back of the book, you have chapters on it, on all your favorite books. There's a book called The New Journalism and a follow-up called The New New Journalism. And Tom Wolfe put together the first one. The second one is writers people would know more today that studied the craft of great nonfiction writing. Like, that's what that book's about. And it covers Lewis and Krakauer and Gladwell and all the books that have done extremely well.

And there is a through line in there that storytelling is something that people really love to read. Morgan Housel was on this podcast called Why We Write, and he went on and on about that technique, and I had discovered it as well. My co-writer actually does most of his work for The Atlantic. And so the book's divided into two halves. There's profiles and there's principles. And if you look at the table of contents, we interleave them, which was—I borrowed, actually, from Michael Dell's book where he interleaved two stories in the same book. And the idea, there was two things behind that. One, I thought the book would be more readable if it did that. A lot of the books that are the cornerstones of the career category, like Designing Your Life and What Color Is Your Parachute?, are structured more like a textbook.

And I just felt that, if it were more readable, it would be more approachable and more consumable for more people. And then I also—and this goes back to what Morgan Housel was pushing—reading the stories, I think, puts it in your memory a little bit better than just reading a principle alone.

Oh, we are geared to remember narratives as opposed to data or dry principles. And the intentionality behind telling stories makes it very readable as opposed to, let's be honest, What Color Is Your Parachute? It's been in print for, I don't know, 50 years. 57 years. Yeah, forever.

Still in the top 10 in the category.

But it's kind of a slog to plow through. It's like reading a textbook. Yes. And when is the test? So, I have a couple more questions about the book I got to... to bring up. The book seems to be very much a bit of a pushback to modern hustle culture. Was that on purpose, or was it really, 'Hey, you know, it's not a grind if you're really enjoying it, and you should listen to your own body's signals that, "I'm really hating this, but I'm grinding it out"'? Well, one...

fortunate thing in putting this book together is—and I think this is really just easier in the modern world—we were able to connect with some, like, true, amazing leaders in this field. So we ended up talking to Adam Grant and Daniel Pink and Angela Duckworth, and people that have really made a name for themselves in this field. We stumbled across a podcast Angela Duckworth had done recently where she was looking back 10 years after on Grit, the book. And the original thesis of Grit was you need passion and perseverance. And she said if she were going to rewrite it, she would maybe, instead of 50/50, say two-thirds, one-third passion. And her fear was that we've taught young adults how to grind. And I feel that the evolution of the college matriculation conveyor belt has been negative.

I feel like it's... it's become an arms race that to get these kids into the hardest schools, the schools aren't expanding capacity, so they just keep getting harder and harder to get into, and the kids get taught to fill their schedule with, with, with programming so that that resume can be perfect, and they're not given the time to really explore and find. And many people don't really know what their dream job is, and some of them might not find it till they're 30 or 40, and that's okay too, but we've pushed and pushed and pushed, and many of them have risen to the occasion of doing all that work, but they graduate from college exhausted.

You describe this whole section, step off the conveyor belt. I was just watching something about Norway as this tiny little country, yet it dominates the Winter Olympics despite lots of other cold-weather countries. And their secret is all these kids are encouraged to join sports as kids. But unlike here... there's no trophies. There's no competition. It's do what you want, do it for as long as you want, as long as it's interesting. And every one of their medalists say, 'Yeah, I was a slalom skier until I was 14, and then I switched to whatever. But I had the background, and it was great. There was no pressure. You could do what you want.' It turns out letting kids play is a great strategy.

And I'm not the first one to make that point. There's a chapter in Coddling of the American Mind titled 'The Decline of Play.' And I do wonder if it's harder to find your obsession and find this thing that you're totally fascinated with if you're stuck in this game that's not one of your own making.

You know, it's funny. The phone, which is always within reach, means that you're never bored, but boredom is what leads to creative output. And I'm wondering what this generation is going to look like down the road.

Well, hopefully some of them will be able to get ahold of this book and find their way to a better place.

Coming up, we continue our conversation with Benchmark's Bill Gurley, talking about the state of venture capital today. I'm Barry Ritholtz. You're listening to Masters in Business.

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I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Bill Gurley. His new book, Running Down a Dream: How to Thrive in a Career You Actually Love, is out today. He's also a member of Benchmark Capital, a legendary venture firm. Let's talk a little bit about some of my favorite Benchmark investments that I seem to use constantly. I think it's ironic. We're recording this the day after this giant blizzard hit New York. The trains aren't running. The buses aren't running. I took an Uber here, so kind of full circle. You're the guy who brought Uber to the public attention, funded it, and walked it through the IPO. Zillow, I use all the time.

OpenTable, I have to use a few times a week. So tell us about these giant consumer-facing companies that became wildly successful.

So I stumbled upon, and this actually will involve Mike Mauboussin again. Him and I were working together in the research department at CSFB, and we became enamored. We became book shares, and that's great. been true for 30 years but we became enamored with this book complexity by mitchell waldrop about the rise of the santa fe institute uh-huh which i know he's involved yeah i am as well so we're both on the board um and bill miller of leg masons a long time involvement the more uh carl kawaja from capital group just joined the board so There's a handful of investors that get a lot out of it. But the original book highlighted this guy named Brian Arthur. And Brian had done work on what he called increasing returns.

And they published one of his pieces in Harvard Business Review. It was ironically co-written by Cormac McCarthy, but no one knew it at the time. And that's come out since then. Anyway, increasing returns was this argument that if you have the right pieces in place, your company will accelerate towards winner-take-all. And when I read that and I started looking at what was capable with the Internet and possible, this notion really was prominent in my mind. And I can remember, I think the first one of those that we invested in was OpenTable. And I remember my partners pushing back and saying, selling computer hardware to a restaurant is a crappy business. And SMBs, how will you ever scale it?

And the idea was, well, if you've got more—if you got all the restaurants on, the consumers would only want to go there. And if you got all the consumers on, the restaurants would feel obligated to be in that place. So, you know, there's no reason to have multiple of these things. And so, that was the thesis when we made the original bet. It wasn't straight up. We lived through the dot-com bust and had to grow after that. But it did play out that way, and the network effects were present. And then from there, I started thinking about what other industries would that apply to, and that's what led to all these other things.

So OpenTable leads to Uber, leads to Zillow. Is that the progression?

Yes, absolutely.

Because, you know, it's hard to argue that—those three are pretty indispensable. What about others that stand out? Nextdoor, Grubhub, what else is in that group?

Yeah, and Stitch Fix did really well. And then also the firm, while I was there, invested in Twitter and Snapchat and so many different companies in the social space, Instagram. I don't know how we did them all. Well, you didn't do them all.

First of all, VCs in general do something that I'm very much enthralled with. They're kind of proud of their failures, which the rest of finance is sort of terrified of. The idea that, 'Hey, we invested in this, it went to zero. We skipped this, we missed this.' A lot of VCs on their websites have, 'Hey, here's what we blew. Here's what didn't work out.' And you very famously missed Google. What were the lessons from that experience?

Well, I think the biggest takeaway, which leads to what you just described, Barry, is that when you miss a big winner, it's very asymmetric to the counterfactual, right? If we invest $12 million and it goes to zero, you lose one times your money. If you fail to invest $12 million in Google, you miss out on— "A thousand X." "A thousand X." Over the years at Benchmark, I would tell you that I don't recall very many discussions at all about, 'Oh, that one went to zero. Let's study why that happened.' My partner Bruce came up with this phrase, 'What could go right?' You orient yourself towards the failure being missing out on a huge winner. And so we changed the kind of things that we studied as failure that you want to correct.

How different is that experience and a process from making investments in existing legacy public companies?

Well, I don't think you have the potential for the 1,000x's often. And so you're not going to—and the 1,000x can—can make up for eight losses that you never heard of. And so it just forces you, if you're in that big-game hunting mindset, to really, really focus on 'could this work' as opposed to 'could it fail' and only be obsessed about that part. And I think it's different because we are oriented to absorb failure at a level that you can't do in the public market.

So you mentioned it's 1 in 10. Is it that much or is it closer to 1 or 2 in 100?

I mean, for the big, big outliers, of course, it's what you're saying. But one in a hundred could return the fund. But you've got to find that one. I mean, think about that. That's a really weird dynamic to be out there doing.

So I'm legally obligated to ask you about AI and artificial intelligence. How do you look at this sector? What do you think is going to happen? By the way, one last thing before you go to AI.

I think that the venture industry is constantly evolving. And today's venture industry looks nothing like what I practice, which looks nothing like what the generation before me saw. They're it's gotten in way more competitive and the best investors have become aware of power law where these big winners go on forever and they become these these trillion dollar companies and as a result they're very comfortable now betting it forward and so we have you know firms like thrive and Coatue and altimeter are willing to put big, big checks into private companies in a way they never would have in the past, making the bet that that compounding law is going to keep playing out. So everything's changed.

So that raises a really interesting issue. Benchmark has stayed kind of small, early, nimble, while a lot of other VCs really—

beefed up. What, what is it about avoiding becoming a mega-fund chasing late-stage growth that was so appealing to you guys? So, so one, I, I do think we've, we've reached the point of kind of the industrialization of the venture capital world, and these funds are, and these assets under management are starting to parallel, uh, large PE firms. And I think, one, it's very hard to stay focused on the artisan craft of identifying early opportunities if you're running this thing that has to look after... It's hard to get excited about a $7 million investment if you're managing billions and writing $500 million checks. And you're earning, by the way, a management fee and a venture carry on the 500. Why would you?

You just get oriented differently. Right. And second, I think it'll be very difficult for those firms that get that big to have IRR that is anything other than industry at best.

So you've been pretty loud about valuation discipline and the risk of having a high burn rate. Is that a function of looking at earlier-stage companies or is it just simply an analyst discipline of looking at companies? I think it's the latter.

I think it's reading all those books, like studying Buffett, Graham and Dodd. I brought to the venture capital industry a study of... investing history that most VCs never have. And I think it was differentiating for me. Some people call me like the VC cynic, but that's okay.

So I think of you as an elder statesman in the VC community, but you're hinting at something. I'm—what rules have too many venture capitalists not learned that you think would behoove them and their firm to go back to some basics and focus in on that'll help both their returns, their LPs, and their funded companies?

The thing I would say to answer that, Barry, is that it's always going to—Howard Marks wrote this great piece a long time ago who highlighted that the way you make really good money is to have contrarian, non-consensus predictions that are right versus wrong. And right now—and AI, you know, these big waves create so much wealth that I think—for a moment when the waves happen, you have to move past that and realize that the wave could be so big that you can just plow in. But eventually, Howard's going to be right. And eventually, the market is going to become oversaturated. There's this great book by Carlotta Perez where she said that bubbles... always follow real waves because you attract speculators and charlatans and all that, right? And people would want you to say, if you're, if you're, if you use the word "bubble," you don't believe in AI, but it's the opposite. I believe that it's real, and that's why it's attracting the charlatans, and eventually we'll go over the top. We always do.

Every new technology comes with this void of people that are deeply enmeshed in it, knowledgeable and articulate. And so there's just a rush to fill that space.

They get rich quick. And when people are getting rich quick, fools rush in.

I love the Bill Bernstein quote: "We use the word 'guru' because it's too difficult to spell 'charlatan'." And it's really very much true. So let's stick with the concept of variant perception, another phrase I really like, and part of the job of being both contrarian and right. What do you think is a non-consensus view you're willing to articulate today that's going to look obvious 10 years from now, but right now, very non-consensus? Um...

I would... The thing that pops in my head, just because people have been talking about it the past few days, I think this paper that came out yesterday is just completely over the top. And the notion that every tech company in the world needs to have their terminal value set to zero is probably not true.

I love the barbell. Either AI is a bubble that is not going to do anything for us or it's going to be so effective everybody's going to lose their job. Isn't there anything in the middle? Hey, maybe this is a useful technology.

Buffett's the one that said, "Be fearful when others are greedy and greedy when others are fearful." So if, if AI fear is the topic of the day, the contrarian thing to do would be to try and figure out what price points you believe represent true value. And I'm not saying we're there yet, but hey, stocks, since the ZERP period, high-tech stocks have been rather expensive from a P/E standpoint for what, seven years now? They're on sale all of a sudden. Buffett says you want to be a net buyer, so we should all be excited.

I heard last year that the Magnificent Seven, all this market concentration is going to kill us. And yet last year, only two of the seven beat the S&P 500. So this sale process started a year ago. And then so far this year, it's pretty clear the rally is broadening out. It's going to other stocks. We continue to see sort of a rotating sell-off as these AI fears hit different companies. It's going to be really interesting to see what's going to get cheap and attractive and fear-driven going forward.

Yes, I agree. That's where you should be looking.

Before I get to my favorite questions, I have one other sort of non-consensus question to ask you. What do you think people are either not talking about or thinking about that they really should be? What topic is getting overlooked but should really be much more front and center than it is?

Everything but AI. I mean, I've never been in a scenario where everyone's so all in on this one thing. And it is important. I think the best way to protect yourself against AI disruption is to run at it and be the person in your field that knows the most about it. But boy, everything else is just not being discussed. Everything else.

So let's jump to our speed round, our favorite questions. Let's do it. We'll plow through this. Tell us about your early mentors who helped shape your career.

Well, I already mentioned Mauboussin. He was kind of more of a peer, but still, I was so lucky. Al Jackson gave me that first job on Wall Street. When I showed up there, there was a gentleman named Charlie Wolf. I don't know if you ever met him. Of course.

Charlie Wolf was one of the few guys bullish on Apple when the first iMacs came out and the iPod. And the Street did not understand Apple, and he's the only guy who did.

And Charlie was a force of nature. People loved him. He was a simultaneous professor at Columbia and sell-side analyst on the Street. Great. And I got to hang out with him.

You mentioned a lot of books. There's a whole chapter at the back about various books you and other people recommend. What are you reading currently? What's interesting?

I'm reading an early unreleased copy of David Epstein's new book called Inside the Box. He did Range, right? He did Range, which I adored. I adored Range. Anyway, Inside the Box, where he's talking about how constraints drive creativity. And it's really been—what I love is when a book makes me think differently and about other things. And I've already—he and I have already started to have a text thread about taking it even further beyond what his intention was, which is awesome.

That description immediately makes me think of the scene from North by Northwest. I don't know if he mentions this in the book, having not seen it. The Hollywood MPAA code did not allow movies to show a man and a woman getting into bed. So it's Cary Grant, and I forgot which leading lady is the woman, and they're on a train, and they're not allowed to both be seen in bed, and then... cut to the image of the long train driving into a tunnel, all the subtlety of a sledgehammer, that was fine. But the two of them sitting on—that's the constraint that forced Hitchcock to say, 'Oh, you're not going to let me do this?'

Hold my beer. And I had mentioned earlier, Tony Fadell, he would tell me that Steve Jobs for the iPhone, he didn't come in and dictate every little thing, but he would say, 'I want it this thin.' And by just saying that rather than 'How thin can you make it?', it forces people to think creatively. And you come up with more ideation and innovation than without the constraint. Really interesting. What are you streaming these days? What's keeping you entertained? I just watched... My wife just started it without me. How'd you like it? I loved it. Really? I really did. That's on the queue. She was so good on Better Call Saul. But this is her shining. She already won the Emmy for it. But there's some implications for AI that are really clever.

Well, it's definitely on my list to check out. So my next two questions are kind of answered in the book that I ask everybody. So essentially, it'll be a summation. What sort of advice would you give to a recent college grad interested in a career in either venture capital or finance?

Well, in finance, this is going to be so redundant. I apologize. I would tell him to go read Michael Mauboussin's five books because Mike has read every single... Mike's the most read financial mind that I know of. And he synthesized everything he read in those books. And so it would be like starting on first base. I mean, on second base. I talk about in the book that you should study the history of your field. And if studying the history of your field's uninteresting, once again, I think you're not in the right place. And so that, that would be it. Like, start with the masters, Graham and Dodd, and read the Buffett letters. Like, like, it's all out there. It's so wonderful. There's never been a better time to learn in the history of the world because it's all available.

I'm so surprised more people don't talk about The Success Equation, because the idea of the impact of luck—and he talks about investing, business, and sports—we underestimate luck tremendously, and it's such a great book.

But you can improve your luck.

"Increase the surface area of luck" is the phrase that always sticks out.

And there's a principle in the book called "Go to the Epicenter," where we recommend, if you can at all, go practice where everyone else is practicing precisely to impact that equation.

And our final question: What do you know about the world of venture investing today? Might have been useful 25 years ago when you were first starting.

It probably goes into the thing we already drilled into. Had I been more open-minded to the question, 'What could go right?' and pursued the Google investment, maybe I'd retire earlier. Maybe we're not talking about the book.

I have a feeling you would not have retired early. You would have kept going because you seem to really love what you do.

I did, no doubt.

So, Bill, thank you so much for doing this. Can I leave you with one last thing?

Yeah, absolutely. The book was written for the hero that would make this journey, but there are people in every hero's life that act as advisors and counselors. There's parents, and there's a whole bunch of people that shape your career process. I think they're going to get a lot out of this book, even though it's not written to them, because I think there is this overwhelming, well-intentioned instinct to put the economic stability of a child's life at the front. Sure. And I'm not sure it's the right answer.

Coming up, we continue our conversation with Benchmark's Bill Gurley. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Bill Gurley of Benchmark Capital. So Benchmark has really put together an extraordinary track record. Uber, OpenTable, Zillow, Stitch Fix, eBay. Go down the list. What is it about Benchmark's model that was so unique and really produced better outcomes than so many VCs have over the years?

Yeah, I really have to give the credit to the founders because they're the ones that put this structure together. But this equal partnership structure has a cultural dynamic that... It encourages immense amount of support from the partnership without—I certainly didn't have a fear of failure or anything like that. And also an element of peer pressure. So the pressure is not a pressure of, 'Do this or you're out.' It's a pressure of my partners putting up these wins and I'm sharing equally. I need to do that myself. And so it's more the way maybe someone on a sports team might do well and encourage other people on the team to do well as well. And for me, and I won't say that this is necessarily true for everybody else.

For me, that culture was a perfect fit. I enjoy having the camaraderie and the support of other people. I wouldn't enjoy being a solo GP and making decisions on my own. There's some great work that's been done on group dynamics and group analysis. And one of the really clever things is the group tends to know the weaknesses of the individual better than the individual themselves. And if you're aware of that, you can use that to help your group decision-making. So I just adored every bit of it. I love that the firm is tilted towards thinking about the work as a craft or an artisan. And I find that to be true of almost everyone I profile in the book. If you care about nuance and detail, it's typically because you're treating the art of what you do in a craft-like fashion.

Really, really interesting. Yeah, and I think that that's what Benchmark does.

Venture capital as a team sport—do you want to draw any parallels to playing ball? Anything that comes into that?

Well, I think it could go beyond playing ball, but do you create a team culture where greatness is going to be expected in an output?

I bring that up because you mention Sam Hinkie in the book. I think that's—the best coaches try and foster that it's not just about your individual performance. Yeah, and it's hard.

And people, I think, should be more fascinated with what Bezos did at Amazon and Elon has done across multiple companies because the individual, everyone knows that Bezos and Elon are innovative and independent thinkers and contrarians. But how do they scale a company to hundreds of thousands of people? How do you take that mindset and put systems in place where it's propagated all the way down? And I don't think enough work is going into figuring out what they do. I'll give you another interesting example. Satya Nadella probably led either the first, probably from a market cap creation standpoint, the best turnaround of all time. No doubt about that.

Absolutely true. I mean, maybe Steve Jobs 20 years earlier.

Yeah, okay, those two. But, yes—that one almost went down to the studs, if you will, on the remodel.

If Gates didn't save Apple, that would have been it.

That would have been done. So Steve was starting with more bare metal. Satya had to turn this bigger ship. Yes. And he claims what he did is he told everyone, "We're going to go from being a know-it-all to a learn-it-all culture." And, man, if that one heuristic is what was the key to this, like kudos to him. I mean, what a miraculously simple insight. And then, you know, kudos to him on making it effective, like pushing it through the org. I bet they had to push a lot of people out, too.

Well, if you look at the culture between him and Bill Gates, and then Ballmer, very different personality, very different approach. You can make the case that Nadella was the anti-Ballmer, and during Steve's reign, it wasn't great returns, although a lot of people didn't have great returns in the 2000s. So it's a little bit of both. I have another question. I kind of suspect I know the answer. So you've spent decades not only picking business models, but founders, boards, addressable markets. What's the single hardest question you wrestle with, aside from what could go right?

I'd say the thing that pops in my mind, Barry, is this notion of TAM, total addressable market. And I think the investor community gets really stuck on that one and are not open-minded enough about what's possible, especially if the technology becomes disruptive. There's a famous interplay between me and this professor at NYU around Uber. He published this piece that said Uber would never be worth more than $4 billion. And I wrote one of my favorite blog posts ever titled, "How to Miss by a Mile," where I took apart his analysis and tried to—well, I had an unfair advantage. He said that the market Uber was attacking was the taxi market, and he used that as the thesis for his analysis. I already knew in San Francisco that Uber was 20x bigger than the taxi market.

He didn't know that. So once you have that piece of knowledge, it's kind of an unfair game. But it gets at, like, the product became so much better than what the taxi market offered you. And it immediately became, you know, and I think in the long run will be a replacement for car ownership, which could allow for many, many years of growth.

Especially if self-driving taxis become a thing. But by the way, huge disadvantage analyzing Uber in New York City in the early 2010s because it was a monopoly.

Taxis were a monopoly. Not only that, in the report of his, which a summary version got public, but I found the background version, he admits that he had never ridden Uber and only taken taxis. So I think being in New York gave you the exact wrong mindset.

The first time you get into an Uber, you're like, "Damn it, I wish I was an early investor." I remember being a beta tester of Google and sending an email and saying, "Hey, can I invest in this company?" They're like, "We are good." And then the first time I got into an Uber, it's like, "Oh, this makes perfect sense." On your phone, it's mobile. It knows where you are. It knows where you are. It was so obvious after the fact.

And credit to Dara for taking it from $40 billion to, it touched 200.

$200 billion versus four. That's what a closed-minded TAM analysis would get you. You're way off.

So I'm legally obligated to ask you about artificial intelligence. How are you looking at the opportunities in this space? I kind of think we addressed that. Do I really need to ask that? I can.

You want me to? Yeah. Okay. Yeah. So look, I think there are people in the venture community that would tell you this is the biggest disruption wave they've ever seen. And there's no doubt that venture does extremely well around these dislocations. And there's great books like The Innovator's Dilemma that talk about why. But the mobile wave, the PC wave, the client-server wave, all these things birthed really big companies, some of them doing the exact same thing. So there were four companies in the CRM space before Salesforce came along, but the SaaS wave allowed them to steal all that market cap that was in those companies.

Is that a case of second mouse gets the cheese?

No, I just think that these waves, it's very hard for an incumbent to be at the front of the wave. It's kind of different here with AI because there's certainly an obsession within the Mag 7 about AI and what it might do to them. But anyway, VCs tend to do extremely well when these waves come, and so everyone's all in. And look, it's very disruptive. It's very different than anything we've seen before. I would encourage people, once again, to really dive in and ask yourself, no matter what field you're in, what is AI capable of here? And to be that person in your organization that has the answer to that question.

You know, it's fascinating that all of the big hyperscalers are spending tens of billions, hundreds of billions building out these systems. Apple's writing a check to Google to put Gemini into Siri, which was early and terrible. Now it's late and terrible. I'm hoping Gemini, which has been really good, turns Siri into something useful. How do you think of that sort of approach of saying it's cheaper to buy than build?

I will tell you, I have a couple different answers to this, which I think are quite interesting. First of all, the MAG-7 formerly were creating, I don't know, $300 billion, $400 billion in cash flow.

$2 trillion in revenue, almost $400 billion in profits.

Yeah, but now almost all of that has been exhausted into CapEx. And Mike Mauboussin and I would have long arguments about what that meant from a valuation perspective. He sloughs it off and says they can stop tomorrow and then the cash flow will come back. Fair. I argue if you're trying to build a DCF, now all of a sudden you have to make a decision about whether that would happen or not and whether there's a return on this CapEx investment. But the second thing I wanted to say is I have found over the years, maybe this is another contrarian thing, that big companies think there's some kind of safety net in making an investment in a new disruptor. And so here we have Microsoft and Google doing, and Amazon making investments in these foundational model companies.

And it's not clear to me that that is actually a good hedge because I think both of those companies, OpenAI and Anthropic, now have escape velocity. I don't think they're dependent on the partner anymore. And it harkens back in my brain to IBM letting Microsoft put the OS inside your PC.

And we sell hardware. What good is software going to be? All right, one last quote. You said there's a mess coming from zombie unicorns that all have stale marks in private portfolios. I'm a huge fan of Cliff Asness's volatility laundering or the private ownership that doesn't get updated or marked to market. What does that reckoning look like when these marks finally show up in the real economy?

So this is probably a three-hour conversation that I will try and do in a very short form. There is a very famous investor, I'd call him an endowment manager named David Swensen. Of course, Yale model. That is the Yale model. And David said that everyone should be more invested in private and famously had returns that were spectacular.

But as someone who's a historian in my space, that was 40 years ago when—no one was doing it. No one was doing it. It was a white space.

So I think—absolutely great valuations, great opportunities. I think the Swensen mimic effect has now played out, and I think personally that most of the endowments and foundations in the U.S. are over-invested in private, both PE and venture, um, and I think that the way the industry's structured—and this would require a longer conversation—there's no incentive for the operators inside of the endowments or foundations to get the paper marks right, and there's no incentive for the GPs to get the paper marks right. And based on talking to people that do this for a living every day, I suspect both the venture paper marks and the PE paper marks and the real estate paper marks are all too high. Nonsense, yeah.

And if we had had a liquidity run, like if an endowment tax had happened, you might get to that sooner. I think it's going to take forever to unwind. You ask, kind of like, 'When's the day of reckoning?' I don't even know.

So I read over the past few months Harvard and Yale are both trying to sell. They did some secondary. Right. So they're doing some selling. That's a sign. Right. And now you see the whole issue with Blue Owl with some marks and Boaz Weinstein making an offer to buy assets at a substantially discounted price.

Are these one-offs or is this perhaps— No, I think that's maybe the first signs of this correcting. But once again, the only thing that could really lead to a faster correction, if there was a liquidity crisis within the endowment.

And we briefly saw a threat of that when the president threatened to start taxing endowments and—

—and other things. There's other articles you can find about debt products inside of foundations which hint at the fact that you're not getting liquidity from your privates and you don't want to get over-allocated in them, so you have to borrow money.

So, yeah, well, all crises, financial crises, at the underlying is leverage and debt. The other thing that to me was a big warning sign—I'm curious as to your thoughts—the whole democratization and, 'Hey, we're going to move private credit and private equity to people's 401(k)s,' that to me smells like someone rang a bell.

I'm so with you on that, Barry, and I think you're going to watch the same thing happen with venture because, what I talked about earlier, where they're trying to keep these companies private forever, they're going to have the same liquidity problem, and I think they're going to run out of money because they've gotten these things so big. So watch for someone to lobby to put their 401(k) into a—it's already started—venture firm. Has already begun, and, um, you know, it's going to be an issue. I fear the Swensen thing is going to have this—like you said, when he did it, he was the only one doing it, and it was contrarian, back to the Howard Marks thing, right? The fact that everyone followed him, and the time it's going to take for that to play out and get fixed is forever.

Thank you, Bill, for being so generous with your time. I've been speaking with Bill Gurley of Benchmark Capital and author of the book Running Down a Dream: How to Thrive in a Career You Actually Love. If you enjoy this conversation, well, be sure and check out any of the 600-and-change we've done over the past 12 years. You can find those at iTunes, Spotify, Twitter, Bloomberg, YouTube, wherever you get your favorite podcasts. I would be remiss if I didn't thank the crack staff that helps me produce these conversations each week. Alexis Noriega is my audio producer. Anna Luke is my podcast producer.

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