Mental Models That Change How You Think | Bill Gurley

16:18Bill Gurley:Well, there's an irony that a lot of the startups are forking those models. And this would be a question of how regulation plays out and whether someone tries to stop those out or not. I would say it's kind of a quiet secret just because I haven't read it on the front page of the journal that, you know, especially from a breadth standpoint, like a volume, companies are using these models all over Silicon Valley.

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17:56Shane Parrish:I even use it when I'm listening to podcasts. Once you try it on a first meeting, it's hard to go without. Head to granola.ai slash Shane and get three months free with the code Shane. That's granola.ai slash Shane. If AI is really going to change everything or, you know, have such a big impact, how does it change how you invest? When you look at a company, are you looking like this is a wrapper on ai you're effectively like a calculator app on the iphone or like how do you think i i i

18:27Bill Gurley:think that question is up for grabs and it's a hot discussion between everyone so you know if if you believe that these models become near sentient then that there will be no need for a vertical model because this one model will just do everything i probably come down on the other side of that. I think that there are workflows and data moats that if you get in and also just understanding like there's three or four legal startups in the AI space. They're just spending so much more time making sure they ingest all the case law and really understand, you know, the processes and principles there. And then you implement with them and they're writing stuff on your behalf and you're building new databases out of there.

19:17Bill Gurley:I just don't know that you then switch that to chat GPT as they climb up the stack. But, and I'll take, I'll flip back to the other side, you know, they have talked about in their product groups, you know, going after verticals. So it's, I think it's a TBD. People point to Microsoft, you know, starting with the OS and And then, you know, there were, there was Lotus 1, 2, 3, and there was, I forget, I can't even remember. Oh, there was a WordPerfect. Like, I can't remember the specific apps, but, you know, they eventually moved up the stack. That could happen.

19:51Shane Parrish:We're going to see how it goes. Do you think there's limitations to how we're training the models now, which is sort of they're trained on all the data from the internet, including like, you know, Elon has the opposite approach where he's like, we're going to take all the data and then we're going to filter out clear untruths. We're going to use that as the starting point versus the other.

20:10Bill Gurley:I do think that there is a valid argument that we might be running out of data. You know, that we're, I call it painting in the corners. Like, you know, just we've filled in everything. Right now, one of the most powerful solutions to improving the models is hiring experts, literally hiring experts for thousands of dollars an hour to sit in and fine tune and ask various hard questions and then tune them to be able to solve those. There's got to be a limit to that. Like, where's the edge of human knowledge? So it's a big question. Like, do we run into asymptotes or not? And part of it goes back to, do you believe these things can become super intelligent?

20:56At which point they start solving things that we've never imagined.

21:01Bill Gurley:There's a lot of debate about that.

21:03Shane Parrish:I mean, I guess the theory, correct me if I'm wrong, is like the minute that they are super intelligent, they can effectively make themselves a little bit better. And at that point, you just you enter a nonlinear curve.

21:15Bill Gurley:That's an argument that some people have made. I don't know that I believe it.

21:19Shane Parrish:Give me the other side of it.

21:21Bill Gurley:Rather than me stand on that hill, like, you know, Jan LeCoum, you know, makes that point. Like, he says that the next version of AI is not LLMs. It's outside of LLMs. It's broader than LLMs. And that we're going to run into an asymptote with these because they're language-based. And there's just a limit to what language, what you can capture with language. which is part of why they're not specifically great with math and numbers, right? There are much better people to talk about this than me, but people point to this famous game that Google AlphaGo, where Google implemented and the bot eventually came up with a move that was shocking to all humans.

22:07Bill Gurley:And that, I forget the number, it's like a famous move number, whatever. And that is proof that they can innovate beyond what they're taught. The people that take the other side say that's a very constrained game and environment. And the computers can search a field of possibilities that's impossible for a human to search because there's just too many. And that gives it the ability to find that move that we didn't know about before. But in the real world, it's not constrained enough where you can tell it to walk all the possible paths. There's an infinite number of paths in a complex, in a big complex system.

22:50Bill Gurley:And by the way, those AI models aren't LLM-based. Like AlphaGo is not LLM-based. It's an AI model trained to a very specific constraint system.

22:59Shane Parrish:And that was trained just by playing. Is that true?

23:02Bill Gurley:Yeah. Yeah, exactly. Exactly. But even FSD at Tesla is a constrained environment. The inputs are the brake and the steering wheel and the gas pedal. Those are the outputs, actually. The inputs are all the visual data.

23:19Shane Parrish:It's scary good. I mean, I was telling someone the other day, I was like, I would be comfortable sitting in the back seat at this point with full self-driving. I don't feel a need to drive anymore. What's your take on that? The corner cases. Would you sit in the back seat with your Tesla driving?

23:36Bill Gurley:The corner cases are impossible to fathom at this, you know, right now. Yeah, maybe at some point. I mean, I certainly think if it were in a world that didn't have the randomness of the real world. So if you were in a geographic area where all of the cars were that, it'd be easier to go into that mindset. We got humans that think it's fun to test. People are jumping in front of these cars. That's not good.

24:05Shane Parrish:I was talking to Rory Sutherland. He's like, you can just have fun with this. They're going to stop. You know they're going to stop. And so you don't even have to look both ways now. What are the consequences of that? Yeah, yeah, that's not good. What opinions do you have today that are sort of non-consensus that you think are correct?

24:20Bill Gurley:Having spent a ton of time in China over the past 20 years, it's hard for me to adopt this mindset of vilification that's heavy amongst many in Washington and now many in Silicon Valley. The U.S. is like 3, 4, 5 % of the global population. American exceptionalism. When people utter that word, I always wonder, like, imagine the other 95 % of the planet thinks when they hear someone say that, you know. That's probably a non-consensus. viewpoint.

24:52Shane Parrish:Do you think we're overfunding this build-out? How do you think about that? I saw that smile on your face.

24:59Bill Gurley:I mean, it's such a hard question to note. If you told me five years ago that these MAG-7 would become worth$3 trillion and then turn around and take their free cash flow from$50 to$100 billion a year down near zero because they're going to spend it all on CapEx, I'd have been like, no way. Like I wouldn't have believed it. So from a certain standpoint, I'm shocked that the money's this big. I will tell you that the venture capital community, you know, I mean, we talked earlier about increasing returns and that concept and other people call it power laws, like when startups have become important in an ecosystem and then they've been able to prove that they can grow and that that growth might be a function of their size already or their footprint or their users.

25:52Bill Gurley:And that would include everyone from Google to Amazon to Meta, that they end up being worth way more than anyone thought. And I think the investor community writ large has slowly become aware of and believes strongly in increasing returns and power loss. And so over time, if they all believe that, they're going to be more willing to invest on the come and take risks. Right. That makes sense. That follows. And so, you know, someone forwarded me a chart this morning of the losses of the leading company in the field prior to going cash flow positive. And you look at, you know, what for for for Amazon, it was like two or three billion for Uber.

26:41Bill Gurley:It was like, you know,$15 billion. And now for these companies, it's going to be way bigger than that. And so the venture capital community as a whole is getting more risk-seeking and taking on more risk because of their knowledge of how things have played out in the past.

27:00Shane Parrish:What do you think are, assuming we are overfunding, we haven't had a correction. Not really. Not like a mini one kind of like, and usually that, that weeds out sort of the weak competitors and the strong ones survive. And it depends.

27:14Bill Gurley:Yes. But, but it can be, you know, if you look at what happened with the dot-com crash, you know, there was a four year, three or four year lull before the Amazons of the world started climbing out again. You know, it was, it was like a nuclear winter. Like right now there's so much optimism and belief in AI. do you get to the place where there's very little, you know? I don't know. Some of these, quote, circular deals that people are talking about enhance the probability that we'll have a correction, but also extend the time before we have one. Wait, how so? Yesterday at the deal book conference, Dario was asked about circular deals, and he goes, well, maybe people just don't understand.

28:01Bill Gurley:Let me explain how this works. You know, imagine you're a cloud service. I'm echoing what he said. Imagine you're a cloud service provider and you notice that this company, Anthropic, wants to develop this model. It's going to cost maybe$5 billion, but they don't have that money. So you give them that money so that they can spend it. And I'm like, well, if you didn't give it to them, they wouldn't spend it. And so like the growth of everything is enhanced by the fact that you're giving money to companies to spend back on your service that they wouldn't have otherwise. And so if you were in a more constrained environment where you didn't do that, things wouldn't be growing as fast.

28:46Bill Gurley:You inflate, you inflate what's happening.

28:48Shane Parrish:So you push further ahead faster. Yes. but there still is likely to be sort of a culling of the weaker competitors.

28:56Bill Gurley:Look, first of all, if a company is successful, someone will knock on your door and try and give you more money. So like almost every round is preemptive for successful companies. And when you take that much money,$300 million, the only way to spend it is to take your burn rate up. And I always thought of burn rate as a measure of risk. Ten years ago, like it was super risky to burn a million a month. You know, today these companies are burning$5 billion a year. Like, you know, you're burning$100 million a month or more. Like, it's really hard, and this may go back to financial bedrock and whatnot, it's really hard to know what your unit economics are when you're being that aggressive financially.

29:39Shane Parrish:Do you think things will change? Like, I wonder about the role of retail investors in this. Like, if you tokenize some of these assets, like they might be competing with VCs in some way to fund some of these startups. How do you think about all of that playing out?

29:53Bill Gurley:Well, first of all, there is zero lack of fund availability right now. That's not the bottleneck.

30:00Shane Parrish:Yeah. But the pricing would change, right? There's no constraint. If you have more supply, it's going to—

30:04Bill Gurley:This has kind of played out in the public markets. I mean, I think you look at, obviously, stocks like GameStop. But I think most people believe Palantir is a stock that retail investors really love and take it to a valuation that it's very hard for institutional investors to get their head around. So some of that has played out. Yeah, there's a risk with tokenization, especially if it happens on assets that don't have regulation around financial disclosures, that you get a ton of speculation and even worse manipulation.

30:40Shane Parrish:Do you think that that would affect private companies? If there was, like if somebody figured out a way legally to tokenize Stripe, for example, and the price of the Stripe share that's tokenized effectively fluctuates wildly. Yeah. Do you think that has an impact on Stripe or its employees?

30:56Bill Gurley:Well, it would. One of the reasons they're staying private is so you don't have that dynamic. Because they have more control over sort of like the market cap pricing? When they do liquidity events for their employees, they sit down with a handful of investors they trust and they negotiate a price. And so it's done on a one-off basis. And I think we're going back to the financial bedrock. The underlying asset probably does move around a lot. It's just it never gets recorded so you don't see it. Right. And that's, I think, from the operator standpoint, that's a benefit. it. Like if you've heard any public company CEO, if their stock moves around a lot, it creates a lot of chaos for the employees who are owners who are wondering what it means.

31:40Bill Gurley:This has already started to play out, right? Robinhood announced they were going to do what you just said. And the companies threw a strong argument that that would be illegal, like you don't have a right to do that.

31:53Shane Parrish:So we'll see how that plays out. Yeah. It's fascinating how all that plays out. Or you tokenized real estate and what effect that would have on it.

32:00Bill Gurley:Look, I think that, and I've been outspoken on this, particularly around the IPO process, I think it is insanely unfair to the companies the way they're forced to go through this process where the bankers pick the price and pick the shareholders. There's just no need to do that. If you took a freshman computer science student and a freshman finance student and said, you know, imagine how a company should go public, they would match supply and demand anonymously like you would in any auction and exactly the way a ICO works with tokenization. No one would invent this thing where you cherry pick your best customers and give them this sweetheart price.

32:44Bill Gurley:No one would do that. So I do think that Wall Street, because they just can't get out of there, they can't let go of this greedy power grab they have around the IPO. You know, we pushed direct listings for a while, which uses this auction mechanism. And they could have embraced that, but they didn't. They've gone back to this kind of controlled oligopoly. I think that is an area where tokenization, like just merely getting to the first base of how the share should be allocated, could be very disruptive. Stable coins could be very disruptive, too, to credit cards. Well, good job on that. Most of the rest of the developed world, the government's established an ability to do instant transfer from bank account to bank account and from bank account to a partner or retailer or whatever.

33:39Bill Gurley:UK Faster Payments did this 20 years ago. Recently, Argentina did it with PICS in the past six years. and it quickly became 60, 70 % of transactions. And precisely because of regulatory capture, the banks have kept our government from doing that. The government wanted to, they have something called FedNow, but there's massive pushback in the finance committee in Washington. So it never happens. And as a result, we have credit cards that charge two, two and a half percent and the whole ecosystem of companies that live underneath that umbrella. If you have a Coinbase account, You can put your money in a USDC stablecoin and earn 4 % and within seconds immediately transfer money to someone else for pennies.

34:26Bill Gurley:What is a stablecoin? Like I'm totally naive here. It's a cryptocurrency that if the company's following the regulation, I believe that USDC is in fact doing that, where they have created a dollar-for-dollar holding in treasuries, U.S. treasuries, for each stable coin that's represented.

34:50Shane Parrish:So that's kind of like the gold standard bound to the dollar almost.

34:54Bill Gurley:Yes, but because it's on the crypto rails, which are now quite proven and quite fast and global and immediate, it gives you the ability for me to give you or for a company to give a company or anyone a dollar, you

35:09Shane Parrish:know, immediately. Who holds the dollars in this case? Like if a bank transfers a dollar to another bank, I just in my head, I'm like, you know, it's it's an electronic transfer. But in reality, it's probably like there's a dollar actually transferring at some point. Well, no one's taking a physical cash dollar, right?

35:28Bill Gurley:Like that's all, it's all digital anyway, right? In America, if I want to send you 50 bucks digitally, I've got to go through ACH, which is three-day settlement, which is part of this regulatory capture bullshit. And in Argentina now, it's immediate because of PICS.

35:44Shane Parrish:So we don't actually need the three days. We do, like the regulatory makes that happen.

35:49Bill Gurley:No, I can wire it to you same day, but it costs me$25 and I have to fill out a page of forms and I might have to do a verbal commit with my bank.

35:58Shane Parrish:So the way around that is stable coins because you're really just working around the regulation. Same, same.

36:03Bill Gurley:Yes. And credit cards which cost two and a half percent but this there's no reason that it should and once again these other countries which include UK, Australia, India, China, Argentina they've all done this but we never did it and probably won't like I at this point I think stable coins will get there faster than the government will be able to do it.

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38:01Bill Gurley:I think they will be heavily threatened by this. And historically what they've done, and by the way, those two companies have two of the highest operating margins in the history of business. They have like 60 % operating margins and they're duopolies and they were created by the banks and the banks have a stake in it. So it's like the whole industry is kind of stuck in this world where they make a lot of money because it is this way. But there's zero reason why it should cost two or 3%, just zero. And it will change. In China, because they had this digital immediate transfer. Alibaba and Tencent were able to very quickly build digital wallets that people carry around.

38:50Bill Gurley:And so if you walk around China, if you want to buy a hat from a street vendor or a car in a Huawei store, you use WeChat Pay and Alipay for everything. You scan a QR code, like at a checkout of a restaurant, like you can just pay at your table. There's a QR code on the table. You just take your WeChat pay or Alipay and scan it and you're done like one click. So they've innovated their entire payment system way further than we have because of this, the decision by the government to make money transfer easy.

39:29Shane Parrish:And that means like no three-day settlement. Yes, exactly. And it doesn't necessarily mean stablecoin. It just means - That's true.

39:37Bill Gurley:I just think because they waited so long in the US, this FedNow project has been just out there forever, that the threat becomes this new thing. And especially with the momentum, the crypto momentum in Washington, that could change with a new administration.

39:55Shane Parrish:As you were talking about that, I was also thinking about Moody's and AI. And I was like, oh, Moody's, you know, basically they sold analysis on debt. How do you think AI changes their competitive position? Because like, in theory, AI would be able to do that better than or equal to Moody's, which also makes great margins. Yeah, I think Moody's power comes from the fact that it's a standard and everybody trusts it as a standard. Right. So even if they used AI on the back end, they're still the.

40:26Bill Gurley:Yeah, the watermark. watermark someone could pop up i mean there's been a lot of talk about these companies like iss that that tell shareholders how to vote that came up yesterday um at the deal book conference and whether or not ai could solve that problem as well it's possible yeah i mean i think everything's

40:46Shane Parrish:up for grabs what do you think about independent sort of like services like that that that proffer advice on how to vote your shares?

40:54Bill Gurley:Oh, I think in the U.S. it's gotten to a really bad place because of the rise of the index funds. The index funds, and this is why they're asking Larry Fink about it at BlackRock, like they don't, the index funds don't have the time to truly evaluate the, what the vote should be in these situations. And so the, they rely on these services, but these services have been built. They play this game that's not particularly settling, but they score you, but they score you with a black box. They don't tell you how they score you. And guess how you can learn more? You hire them. So they get paid on both sides.

41:38Bill Gurley:And it's more of a heist, I think, than anything else. And I've spent some time talking to them. I don't know that they got focused on issues that weren't shareholders' interest. Like what should they really care about is what's best for shareholders. Right. And they got away from that. The Tesla case is a great example. That package, that type of package that they did for Elon, I've said this publicly, I would agree to that type of package for every company I've ever worked with. And most CEOs wouldn't take it. It basically says you don't make money unless the stock goes way up. And if your stock goes way up, you make an obscene amount of money.

42:27Bill Gurley:And I would do that deal over and over and over and over again. None of these ISS evaluators agree with that. In fact, they take the opposite. They say, oh, no, that's a negative. We should vote against it.

42:42Shane Parrish:Is it just because they're looking at the headline number and they're like, that's egregious? Not what's required to make that happen.

42:48Bill Gurley:Yeah. And they started from a place of corporate governance where they were looking out for fraud. And so risk mitigation rather than shareholder interest. And so when you come at it from that perspective, you're like, there should be rules and people should adhere to the rules. And when people get outside of the rules, that's bad. I think that's their legacy.

43:11Shane Parrish:What do you think are sort of the second order of facts of the rise of passive, like we've been indexing, which is mostly post the GFC? How do you think it plays?

43:23Bill Gurley:Well, this is one of those things. Like this, this wouldn't be a problem were it not for, because it's the large number of shares held by the passive. One thing that would be really great is if they just wouldn't vote, because then the people that our active shareholders would have more of a say in what happens with these companies. But there's, they own such a large percentage.

43:46Shane Parrish:There's also an argument that they should have to vote in the same proportion that direct holders vote. Yeah.

43:52Bill Gurley:Well, if they didn't vote, that would happen just by natural because the vote would just be, it'd be more like how, unfortunately, how voting works in America, where you only have like a 20 % turnout. But

44:04Shane Parrish:The second order of fact with that, like I could have control of the company with a very small share. Yeah.

44:09Bill Gurley:At first, I think the public investors got really scared because they were marked to the index and they ended up doing what people call closet indexing to make sure that they didn't lose out. And like when the MAG-7 took off, if you didn't own those, like you had a bad year as an example. And so you're forced to kind of closet index. But they were they kind of reached a point where they think the number of active investors is so few that the ability to get an edge is maybe increased as a result of the of the massive indexing. Do you believe that? I don't know. I mean, the buy side, it's a very hard job to beat the S &P.

44:57Bill Gurley:Some people have even highlighted the fact that QQQ has probably outperformed 80 or 90 % of venture funds.

45:04Shane Parrish:One of the surprising things that I learned about you through reading your book was that you love the craft of storytelling and writing. Talk to me about what you've learned about storytelling storytelling over the years? Because that's really important to founders. It's really important to anybody trying to get a message out in today's world.

45:22Bill Gurley:Someone asked me like the top three traits of founders that are successful, and I put storytelling in there. There's another thing that happened. Prior to going to business school, I didn't read much, but some bit flipped when I was in business school. I started reading, and I started with business books that most people know. So I got into personal development books, which I find a lot of successful people have this moment in their life where they roll through, you know, Dale Carnegie and like Seven Habits and stuff like that. And then biographies. But after that, I kind of fell in love with long form nonfiction journalism that reads in an exciting way.

46:09Bill Gurley:and part of it was the wave that was Malcolm Gladwell and Michael Lewis and John Krakauer and those books that read like fiction you know even though they're non-fiction and there's actually multiple books written on that art it's called The New Journalism and The New New Journalism and I've read those books about that writing and I just find it super powerful that someone can maybe put together 20 pages that like really impacts you in a certain way. And so I started studying the craft, studying Buffett and Howard Marks and seeing these investors that were successful, like putting their stuff out there.

46:49Bill Gurley:If I was thinking through a problem about a new, most of my most successful investments fall in this category, people call marketplaces. And before there was a first marketplace, like there wasn't a knowledge base. And, you know, we crafted that along the way and codified it and wrote it down. And that in addition to helping you think through all the corner cases and exactly why Bezos has his six page letter concept at Amazon, He believes that if you have to write it out and make it standalone and be cogent, that you'll think through more of the problems and it'll be more cohesive and you'll figure out the loose ends and you'll tie them up.

47:40Bill Gurley:But in addition to that, in the venture world, for the founder that doesn't know you, when they see your knowledge on a subject or they see what you're talking about in their own business, they reach out to you. So it becomes a calling card. It's like a magnet. Yes. Yeah. And I'm not the only one that's done it. A lot of people have done it. And some people don't use that technique. There's other ways to get deal flow, but it's powerful if you do it right.

48:07Shane Parrish:You mentioned storytelling. What are the other, you know, chosen unfair advantages that founders have? You said there's three. Oh, right. And I thought of a forked one.

48:17Bill Gurley:I hope I can remember it. I think product instincts is another one that comes partially from understanding the new edge, which we already talked about. But like it probably took my whole career for me to fully understand how hard it is to hire someone who's not a product first individual and then get them to be good at it. I'm sure there are examples, but it's got to be 5 % or less of the use case. It's super hard. Um, um, so, uh, storytelling is so important because in the founder case, you're recruiting employees, you're, you're, you're recruiting executives, you're raising money, you're closing customers, you're closing partnerships, you're selling all the damn time.

49:08Bill Gurley:And the best ones are just super effective at it. Um, and you can see it with Bezos. You can see it with like Toby at Shopify. I mean, God, like listen to any Toby podcast you possibly can. Like, of course, the world's going to follow this guy, Daniel Ek. Like they're just so gifted at describing what they're trying to do, you know, and that's, that's just, just, you know, super, super valuable. I once asked Jeff Bezos, have you had such a successful angel portfolio? You don't have any free time. And he says, oh, when I meet an entrepreneur, there's only one thing I ask myself is this person going to do this no matter what come hell or high water they're doing this like they're just already convinced that this is so important they're not going to stop and i think that level of determination is present in all the great founders like they're just going at it you You know, full blast.

50:10Study and play.

50:12Bill Gurley:Come together on a Windows 11 PC.

50:14Shane Parrish:And for a limited time, college students get the best of both worlds. Get the Unreal College Deal. Everything you need to study and play with select Windows 11 PCs. Eligible students get a year of Microsoft 365 Premium and a year of Xbox Game Pass Ultimate with a custom color Xbox wireless controller. Learn more at windows.com slash student offer. While supplies last. Ends June 30th. terms at aka.ms slash college pc what are the what are some of the real world lessons you learned while working with uber that you wouldn't find in like an hbs case study well that that's that's an

50:51Bill Gurley:easy answer to get too quickly although now uh because i had it i had a moment in my brain where where that exact phrase you just said popped into my brain we were you know in a situation where I think most people that were investing in the category knew it had winner-take-all dynamics and network effects. And as a result, there was this determination that they were just going to have to fund it kind of ad nauseum. And you had a situation where the burn rates, you know, where, okay, well, someone hands lift a billion dollars. Well, then we get handed three billion. And so, and once again, the only way to compete in that world is to spend that money.

51:40Bill Gurley:And so you have these burn rates that are bigger than any public company would ever spend going after a new category and so aggressive. And I thought to myself at the moment, there is no HBA case study. You could take the board members from Walmart and Costco and GM and General Electric or whatever you consider the top 10 best companies, and they would have never been in this situation before. So there was no one to call. There was no mentor to go find, which was harrowing a bit to recognize you're in that situation. But now all the AI companies are in that situation. So I feel for them. Uber was kind of the first in the mega burn.

52:29Bill Gurley:Yeah. I mean, why Amazon was, you know, they had a big burn rate, but then Uber took it to a new level. But now they've added a zero.

52:40Shane Parrish:I'm curious from the, like, how Benchmark was structured on the inside and how that structure contributed to its success.

52:49Bill Gurley:I've talked about this a lot. I was very fortunate to get invited into Benchmark. I joined on the third fund, so I wasn't there early. They had left, the founders of Benchmark had been at hierarchical firms where they felt like the senior patriarchs were maybe taking too much of the money and too much of the credit and not doing the work that was imperative for the firm's success. most partnerships you know you think law partnerships or accounting firm partnerships work in a way where the the senior people have more power and take more of the economics and the junior people have to work their way up over a long period of time the founders decided at benchmark that they were just going to make it equal an equal partnership and there's no there's no lead partner.

53:45Bill Gurley:There's no king. There's no president. There's just five equal partners. So what are the second and third order consequences? There's a bunch of them. And I think most of them are positive. The first thing is it makes it very easy to recruit exceptional talent from other firms because they're not in that situation and you immediately. And I was at a firm that was hierarchical. And, you know, even if you went back and said, well, I'm going to leave to go to the SQL partnership and they said, oh, we'll make you equal. Well, you did it because I was leaving, not because it works that way. That's one.

54:20Bill Gurley:The second one is it really encourages development of the new people that come in because I'm going to take an equal part of their success when they start delivering. And so I'm not, I want them to be super successful and I'm going to spend time. And I, boy, on my weigh in, I felt that. I just felt like, and the type of support, if you're in a up or out firm, I bet it feels kind of lonely. I bet you know you're competing against that person over there. Are you going to share ideas with them? Maybe, maybe not. And in this equal partnership, if one of my companies needs a new CFO and they know of one, they'll probably just give it to me right away.

55:07Bill Gurley:My company succeeding is no different than their company succeeding. So you just create a different dynamic. And you don't spend any time annually on comp review and recutting the pie. You don't, like it's all, it's always equal. It's always going to be equal. Like that amount of political overhead just goes away. There is, there's one huge negative. So I don't want to just say it's all, um, the, it's almost impossible to have, uh, because you don't have a CEO, it's hard to scale out and it's hard to have new initiatives. Like, because there's no, like, Oh, maybe we should, you know, the website was always a funny one.

55:50Bill Gurley:Like who's going to own the website? Well, are we going to hire, you know, someone to do that? And well, who owns that responsibility? And when Matt Kohler came in, he had, he's like, Oh man, I'll take it on. I know exactly what we need. He created this super complicated website, and it had all the founders on it and now they're connected to all the partners. And people started complaining because stuff wasn't right. And one day, Matt came in, and he said, you know what? I'm taking it all down, and I'm putting up a splash page. And he did that, like, I don't know, 15 years ago. And still today, Benchmark has a single page.

56:29Bill Gurley:And that's a result of this issue that I'm describing.

56:32Shane Parrish:Well, you know, it's interesting you say that because I find a lot of websites have such a high cognitive load to use. A splash page with like four or five sentences on Berkshire Hathaway's website, I totally get it. There's not a lot of cognitive – like if I – you know, I heard this example from a guy a couple weeks ago. He's like, if I'm going to buy a sweater, I don't want to know your mission statement. Like I just want to buy a sweater.

56:56Bill Gurley:There's a little bit of bespoke confidence in just having a splash page. I would just add that there are plenty of highly successful venture firms that aren't structured that way. And so I don't, it's not, I'm not saying it's the only way to do it. It's clearly, there are clearly many ways to do it.

57:12Shane Parrish:In a world awash with capital, what makes a founder choose Benchmark or somebody else? Like what goes into that?

57:21Bill Gurley:First of all, at a high level, if you're successful as a venture capitalist, people want to work with you. When I came in, the Mike Moritz, John Doerr, they've had so much success that not only is it likely that they are great at what they do and know people that will help your company succeed, but their stamp of approval of you will carry weight in and of itself. And so some people have said it's the only investing category where there are network effects because once you have a reputation, you have an unfair advantage in deal flow. Underneath that, I would say founders are particularly motivated to be around people who understand what they're doing and are excited by it and excited about it.

58:19Bill Gurley:And one of the reasons young people can break into venture and be wildly successful is they're much more likely to be the age of the founder. They're much more likely to feel someone that understands what they're doing. With many of these technologies that are new, they're much more likely to understand them. and you know i i've used examples describing this in the past but let's say you're a really into esports or something you you it would be very easy to know more than the successful generalist venture capitalist in that category yeah like you could very quickly know more and that could be true of YouTube video creations.

59:07Bill Gurley:Like, it'd be very easy for a young venture capitalist to know more about what it takes to be successful on YouTube than John Doerr or Mike Moritz or me or whoever. Like, because you could just go spend 100 % of your time on that.

59:23Shane Parrish:So in that way, is it sort of like athletics, where you age out in a way and you're competing against younger people who know or understand a niche better?

59:31Bill Gurley:I think the whole industry bends towards youth for that reason and because it's a hustle business. There's always a rock you haven't looked under. And age brings children and homes and other requirements you get tied to and responsibilities, and you're just not able to go spend 80 hours a week studying YouTube. You just can't. so I think it bends towards youth which is great like like it's a it's a highly competitive industry it's hard to get a job but if you get one there are reasons why you can break in we

1:00:12Shane Parrish:always end with the same question Bill which is what is success for you I mean I think it's

1:00:18Bill Gurley:changed over time I would say when I look back on my venture capital career I made a decision a very specific decision to say, okay, I'm done. And I don't think I would have done that if I felt there was work left to do. I think I reached a point where I felt there wasn't any work left to do. So in that case, that was my dream job. I was thrilled to do it. I loved every minute of it. I often said that if we lived in a socialist society and everyone had to work for free, I would still take that job or the same salary or whatever.

1:00:56Shane Parrish:You might not be eating, but you'd be working.

1:00:58Bill Gurley:Yeah, but that's now done. And so as I look forward, you know, I was very moved by this book Arthur Brooks wrote called Strength to Strength, where he talks about this next chapter in your life. I would like to take some of the techniques that I use to be successful as a venture capitalist, mostly around the blog and understanding problems and synthesizing and see if I can apply those techniques to bigger, broader problems in society and see if I can dent the universe a little bit that way.

1:01:35Shane Parrish:I love it. I wish you luck. Yeah, me too.

1:01:38Bill Gurley:Me too.

1:01:38Shane Parrish:Thank you so much for taking the thanks for doing this.

1:01:41Bill Gurley:It's great.