Benchmark Capital's Bill Gurley on Start-Ups, Uber, and Bitcoin (Full) | CNBC

I'm here back at the Nasdaq with Bill Gurley of Benchmark. Thanks for being here. You're here with Stitch Fix. What's your take on this IPO?

Well, look, this is one of the most enjoyable experiences I've had as a venture capitalist, getting to work with Katrina. You just had her on. I think this company is so well-positioned in the apparel retailing business in terms of how deeply they understand both the customer set and the product set. And they're using artificial intelligence and machine learning at a level that I think is unprecedented before in their sector.

Well, dig into that because, you know, we have all sorts of terms: big data, machine learning, artificial intelligence, algorithms. I mean, when you have algorithms that get smarter on their own, I think everybody accepts that that's artificial intelligence. Exactly how deep is the play here? And can you compare it to other companies in Benchmark's portfolio that are disrupting other industries?

Look, I agree with you. I think those words are overused, and in many cases, they're overstated in terms of what they're doing. In order to be successful and powerful in these types of areas, you need huge datasets, and you need them on both sides so that you can do the matching. You and I were talking earlier about how well Spotify does this with some of their Daily Mix products. In Stitch Fix's case, you have millions of customers, and these customers come in and fill out a very deep profile. Before we ever engage with a customer, they've already given us way more information than any other apparel retailer has. And then on the product side, I think we measure something like 60 to 70 different features and characteristics of those products.

And these all are fed into a huge model. Every time someone gets a Fix, whether they keep it or don't, whether they like it or not, item-level information on both sides. And it's a rich, rich data repository. And it is getting better over time.

Somebody like, or a company like, an Amazon, on balance, is it more of an accelerator or, you know, a dangerous competitor to a business like this? Because now Amazon wants to send you a box of stuff, and you keep what you like and you send back.

Maybe we should view that as flattering. I have deep respect. It's definitely flattering.

But, you know, for some businesses, how much flattery can you take?

I mean, we really come at it from a completely different angle, right? So Amazon was always about Earth's biggest selection. And so they have so many SKUs that are out there, and you can go through there and do all kind of parametric...

But they don't know anything about how I dress.

Understood. But we take it from a completely different place, right? Which is we profile you. We have deep understanding of our entire inventory set. We have a predicted keep score for every item in our inventory specifically for you. And then with the help of a stylist, we send you a curated box. Our head of algorithms, Eric Colson, says it's the ultimate recommendation engine because we never let you see the choices, right? And it just—it's a very different approach.

You surprised at what Snap's stock has done since the IPO?

You're going to switch that fast. Just that fast. Look, one of the unique things about Stitch Fix relative to all of the unicorns out in Silicon Valley is that they've run a very disciplined and profitable approach. They've been profitable for several years. The reason that you never heard of them as a unicorn, it was because they never raised money above a billion, because they didn't really raise money. We came public with over 100 million on the balance sheet. And for all of these other companies, whether they test the public markets or not, eventually they're going to have to prove to the world that they can make it to profitability. And I think Snap still has work to do there.

So are you critical then of the way they promoted their importance in the marketplace before investors got a chance to weigh in?

Well, I asked you about Snap and you started talking about Stitch Fix and how they didn't tout the unicorn thing. They were profitable for a long time before they took this step. Is that in contrast to Snap? I don't think so. Are there lessons learned there when you go to your other portfolio companies that are looking at having a moment like today and you say, 'Do it more like this'?

If you can. I mean, we're in a broad environment where capital availability is remarkably high. And if you are in a competitive situation, you see this a lot in the enterprise SaaS companies, where you're loaded up, your competitor's loaded up with capital, and you're loaded up with capital, and you're forced to compete, and then profitability rates go down for everyone in the sector. And that's a problem that doesn't have an easy answer. I do think there's a lesson in general for entrepreneurs that capital has a cost, that you eventually need to have solid unit economics and to move to profitability. You know, and this happens to be a company that did that very early on.

Yeah, fascinating discussion, guys. Bill, I'm just curious because it seemed like a couple of years ago when we would talk to you at Code, the whole conversation, all anybody wanted to talk about was how great it was to stay private for longer. Is the lesson of Snap and some of these other names suggesting that they went to public markets too soon?

I don't think so, Carl. I think about it this way. I really think about being public as playing at the next level. I like to use the sports analogy of maybe moving from college athletics to pro athletics. And if you want to be better, if you want to succeed, if you want to play at the next level, you have to step it up and go there. I think the opposite is true. I think you're going to see a large number of unicorns who were afraid to play on Sunday, afraid to be in the public markets,

...that didn't get their act together in time, didn't get profitable, didn't understand unit economics, and hurt the value of the equity as a result. A couple of the companies that people are really looking to go public out of Silicon Valley: Uber and Airbnb. Benchmark has been in Uber for a long time. Dara Khosrowshahi now in the CEO seat there, what's your assessment on how he's doing?

I'm super excited. It's early on. He's brought a very different approach to international relations. He's already had some significant impact on the company in London, also in Brazil.

What's the impact in London that you see?

I think just bringing a completely different attitude to the engagement with regulators. And Dara is a super mature and sophisticated executive. I think he comes forward ear-first, listening. And it's just a contrast to how we've played things in the past. And I think it's going to have a positive impact.

You guys at Benchmark have butted heads with Travis Kalanick, co-founder over at Uber. SoftBank is now coming in and making an investment at a lower valuation. Are you happy with how that whole piece of it is working out?

Well, look, I would tell you, and one of the reasons I haven't been on CNBC in a long time is 2017 has been a very difficult year. And it's been one where we've been working quite diligently behind the scenes to try and help move things forward for the company. And some of the things that we did along the way are data points that you just mentioned. At this point in time, I think we've had significant impact on the company in terms of what's going to move forward from a governance standpoint, from a board standpoint, from a shareholder voting control standpoint. And we've received immense positive feedback from the shareholders. It's a very broad shareholder base. It's almost as if it were public about those steps.

And so just in the past week, as you've read in the press, we've come to an agreement with SoftBank about those terms, and they hope to move forward with the tender very soon. And I hope that will be successful.

As Benchmark, have you sat down yet, looked at that whole process and situation, and taken away lessons learned, how you're going to do things differently in the future, or things that you absolutely would do exactly the same way if this type of situation comes up again?

Everything that happened this summer was a very difficult decision for us. And the two questions we get most often are, how could you have possibly done this? And why didn't you do it sooner? And obviously, those two are in stark contrast with one another. We reached a point where we felt like, you know, the entire company, you know, and all of its constituencies—drivers, riders, employees, shareholders—were at risk if the company continued to move in the direction it was. And, working with a large group of other shareholders, took action that was not easy to take. And we've suffered certainly some brand hits as a result. But we felt like we were on the right side of history. And I think today, if you ask anyone involved, are we better off because of Dara's leadership and where we're going, I think they'd all say yes.

Carl's jumping in. Carl? Hey, Bill, I hope you won't mind one more from me, this time on social media. We know some of these big social media names are under pressure politically. Some of the ad models appear inconsistent, right? Engagement is spotty. You've got—their policies regarding abuse are often vague. Are we entering some sort of different chapter, a darker chapter on these names?

I get most of my information on this from watching you guys every day talk about this topic. So, look, I think there's quite a bit of new awareness on what's possible. And all of these technologies, whether it's what Google can do with their search or Facebook can do with their feed, when they want to make changes, they know how. They have very smart people. And so as the political pressure ramps on these guys, I suspect that they will respond and make changes appropriately.

I want to dig into that because a lot of times these startups come to seasoned investors like you for advice, and you've got in your portfolio a number of things, including Nextdoor, that have really important and sometimes sensitive data about where people are, what they're concerned about, how information gets spread to a community. Are you linking up with different expertise to provide to companies like this in light of things like the Russian meddling in the election process that we've heard about, the types of hacks that we've seen seeking personal information? How does that change the way you advise, the way you do?

Right. Well, look, there's only a few platforms that have reached the point where the number of participants on those platforms that can do so in an anonymous way, self-serve, if you will, is so broad that you have things happening that even the platform doesn't know about. And so I don't think we have any subscale players that are at that level. And Nextdoor, which you bring up, we've built a mechanism in from the very beginning where the senior members of each community are known as Nextdoor Leads, and we've given them editorial control. And so we've created a distributed force, if you will, not unlike how Wikipedia is structured, where they can go in and make changes. And so we have what we believe to be a scalable approach to deal with situations like that.

Hey, Bill, it's Sarah back here at the New York Stock Exchange. You've made some headlines before when it comes to valuations. Looking across right now the private markets and the public markets, just wondering if you can give us an update on your thinking about bubbles and where you see signs of excessive risk-taking. We've seen quite a stunning rally in tech stocks in the market this week.

That's true, especially the FANGs. Well, look, there continues to be a historic level of capital availability that I relate to the extremely low interest rates that have been out there. And as long as those interest rates stay as low as they are, I think you'll continue to see some form of speculative behavior. And tech is a great place for speculation. Look at what's going on in the ICO market and cryptocurrencies, and you see that no one's afraid to speculate in this market. I do think we are also watching, however, as many of the unicorns mature in age, that many of them are having to come to the recognition that they either need to grow up, get profitable, go public, or do something along those lines.

And that this silly notion of "we're going to stay private forever" is not playing out in a very positive way.

I'm actually shocked that Sarah Eisen didn't ask you directly about Bitcoin, so I'm going to. Is this a speculative bubble in Bitcoin? Do you have any money in Bitcoin? Are you more focused on blockchain? Tell us.

I have money in Bitcoin. And I don't think it's irrational. I look at the global—not that I'm a macroeconomist, but I look at the global macro world—and you look at how so many governments are over-inflating and interest rates are on the floor and there is nowhere to put money. And so if you live in one of those countries where you don't trust the currency of your own government, you know, how do you want to get paid? We work with a company called HackerOne that pays white hat hackers to find vulnerabilities in large websites. And many of the people that live in those types of countries want to be paid in Bitcoin, and we pay them in Bitcoin.

So that's why you have money in Bitcoin?

I think of it as an incredible store of value for the rest of the world. And look, it deflates.

It doesn't inflate. In terms of percentage of portfolio, what are you doing?

Oh, it's small. It's like another bet, you know, another company. But that's not our business.

Sarah Eisen.

What do you think it's worth, Bill? Do you think you can put a price or any kind of valuation on Bitcoin?

No.

And not a fraud?

I don't think it's a fraud.

Okay. Thanks for clearing that up.

An important perspective. What do you think is the primary driver of the next stage of growth in Silicon Valley? If we take the things that have already been hyped off the table—artificial intelligence, big data, machine learning, we've talked about that; this connecting reality to the digital world through AR, things like that, we've talked about that, it's built into the new iPhone—what's the next thing?

Well, look, the one that has a remarkable... monumental momentum to it is the machine learning stuff. You guys talk about NVIDIA and the servers, and you look at what TSMC says about machine learning, and we have a company called Cerebras that's early in that market, and the demand from companies to kind of crunch data in a way that they haven't done before seems like it's going to go on for a very long time.

You know, I've been spending a lot of time looking at health care, and it's extremely dangerous. It's extremely dangerous because the laws of most marketplaces doesn't exist. You know, there's not a simple gravity. There's forces in five different directions. The people that are consuming aren't paying, and there's all this, you know, it's crazy. But I'd like to believe that when you look at the marketplaces that have been built, like an Uber or Zillow, and you look at this smartphone that you're carrying with you all the time, and you look at the ramp to 18% of GDP, that there are solutions that can be had. And I've got two new investments. I'm optimistic that there's something there.

A culture question about Silicon Valley. One of the stories that have really dominated the news this year, from venture capital to established big players like Google to startups, is questions about the bro culture. Is any of that getting fixed? What's the problem in Silicon Valley? Why can't women get promoted faster, paid more, and become more—have more leadership roles? We focus today on Stitch Fix, one of the only IPOs of the year actually led by a female.

Yeah, look, I think that the continued awareness—and Katrina talked about this—but the more people are talking about it, which is definitely happening, the bigger impact you're going to have. Three of the last six investments that I've made have female founders. Katrina's obviously, as Jon pointed out, an amazing role model in terms of not only being a founder, but being a founder that made the transition to CEO, and then being a founder that made the transition from private CEO to public CEO. And she's fantastic. She's one of the best that I've ever worked with. And so, you know, Benchmark just added our first female partner. So there are some positive data points, but I would encourage everybody to keep the messaging going, keep the discussion going, because it is moving things forward.

You say Benchmark just added its first female partner. A lot of people would say, "First? Yeah, I get it. And when is the second?"

We add about one partner every two years. So if that were to happen, it would probably be in about 18 months.

Do you have a sense of why it took until now to do that? And if there are mechanisms in place that make two years from now that next partner more likely or less likely to be female?

Yeah, well, one of the things that needs to happen is you need to have people that are drawn to the category. And so if you go back 15 years, everybody wanted to be a venture capitalist. Today, it's less so. I guess it's not as glamorous. But every time, you know, those people develop from banking. You know, I came from banking. They developed from MBA programs. They developed from entrepreneurs. They developed from executive ranks. And so as those numbers keep going up, I don't know if Katrina mentioned this, but her management team is over 60% female. And that board is over 60% female. And so each of these data points is like a rock hold where we keep making more progress.

Carl? Jon, thank you very much. Bill, it's great to have you back. I hope it won't be too long before the next time. Bill Gurley with our Jon Fortt over at the NASDAQ.

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