Peter Fenton (Partner, Benchmark) on VC and Founder Mindsets, Inflation, and the Current Market State

29:45And so I didn't know it until I was in it. And then after that first Monday, I was like, that was probably just a show. Like, next Monday, it's going to be, oh, here we go. Yeah, the CRM is going to come out. And then we have to do, first, we talk about new business, then we talk about follow on financings. And yeah, and no, it wasn't that way. And it was far from perfect. So every system has its trade off. And so So, you know, it became clear to me at the time, we had our European efforts, we had our Israeli efforts, we had other, we were not honoring, I think, in the deepest sense, equality of partnership, because I think there were different versions of hunger, different versions of ambition, of...

30:32Trust, probably, across offices. Yeah, but even inside of the Menlo Park office, trust was high. It was more, people were in different stations in life. And I think the seed that was planted for me in those early years at Benchmark was the potentiality is there for the system to be much better. But I think we have to curate and edit it. And I say this now, not because I'm on some woke mission, but, you know, we were, when I joined, I was the, I think the seventh white male partner. And, you know, you look at these things and say, okay, well, we have to destroy this, creatively destroy it, because that's what entrepreneurial mindset and you just is okay, this is, there are no sacred cows.

31:20and um you know it uh it's evolved towards what i would say is the essential core of what defined the original benchmark which is a small group of people high fluidity in terms of um you know transference of information of trust which is sort of the glue and and mutual admiration um all aligned towards this purpose of like working with extraordinary entrepreneurs and And, you know, that brings us the totality of joy in our life. We're also parents. We also have other identities and roles. But this firm, you know, so destroys the notion of you're better than anybody else. Because the minute you start to think that in a partnership dynamic, it levels you.

32:03It's fantastic. What about just, I mean, now there's actually a book about venture capital, power law that Sebastian Molloy or whatever did. And piecing together all these things was something of an academic exercise. I enjoyed of trying to learn the history of how venture capital came to be. But one of the things, there's an Excel chapter in there, and it talks about the prepared mind ethos, the Louis Pasteur's quote. And I've heard you say that, I don't know who it was when you walked in, said, don't bring any of that prepared mind bullshit here or something. I don't know who to attribute that quote to, but a little bit of stylistic rewiring, not Not just like the structure and the meetings and the trust and all that, but there was definitely, it sounds like there was definitely a, hey, we can, and for people that don't know, like the prepared mind is, hey, we're going to go really deep into these domains.

32:57And we're going to figure out all the different companies in these different sectors. And when Facebook comes across the plate or whatever it is, we will have studied every single social network and know what to look for in that versus looking for when lightning strikes, right? Or when there's something special there. Did you always gravitate a little bit more to the lightning striking element of it? Or was that something you had to learn from your partners to look for rather than, hey, I'm going to go do a thesis deep dive diligence thing? Yeah, it's funny. It's one of those questions that sometimes it's better to ask others about your internal perspectives.

33:39perspectives because you get, when it's your perspective, it's the water you're swimming in. So you don't really know. Um, Eric said something to me the other week that really stuck with me. And he said, if you're investing in a company because of its business model, I'm not so sure I should trust your instincts. If you're investing because of the people, I think we should invest. And there's other partners where he would flip that, you know, where it's, if it's investing because of the people, then probably not that person, that partner. So in a firm dynamic, what you find is there's different, um, You have different, unique, ideally, perspectives and abilities to see things that are very clear and true to you that aren't obvious to others.

34:20I'm not drawn to crystal ball work. You know, I get excited about vision and when people come to me and say, okay, here's the way this goes, you get, oh yeah, you can see it as radical potential. And I respond to it. but I'm also suspicious when, when it becomes this sort of promotional thing. And I think what I actually, I think I share this into a degree with someone like Paul Graham, although I wouldn't compare myself to him when he's doing 42 Y Combinator interviews in one day, he's looking for this aspect of authenticity. And this is a big word that got overused in the sixties as some sort of, you know, ether, but the authentic is to me what you'd find in a great poem.

35:06And even though a great poem may take structural similarities to other great poems, in fact, it does, it's a unique contribution to reality. And you see the world differently after having read a good poem. It's this, the Proust comment about it changes your eyes. And so I think when I think about our role, everyone's different. If I see an entrepreneur that does that to me, and it does seem like a great poem, and it blows you away, that can happen in like three minutes, it could happen an hour but i don't look for great poems by saying poems should be written about the twilight you know with the ocean and have symbolic reference to the fact that we're conscious beings and so we can't imagine the world without consciousness no like you read the poem and think that's a great fucking poem and so i come back to what my own sort of investment style probably evolved from a a truth that i would encourage everyone who listens to this to follow which is there are parts of what activate you uniquely where you completely lose your sense of self, where you fall in and you aren't trying to do something for making money or winning a deal or all that.

36:19You're just swept off your feet and we're all different. And when I get swept off my feet, it's that sensation of a, with a, with a poet of a business and yeah, it tends to be stitched into business models. And if there's a network effect, all the better. But I'm principally relating to a human being. And that's what compels me. And that's what motivates me. And I can't do that with slide decks. I can't do that with abstractions as much as I can do it in the real life. And then how do you modulate that is an interesting question. So when I look at my partners, they help modulate that instinct of mine with, okay, you have to do some due diligence.

36:54I don't really like to, but it helps. Sarah's especially effective, ex-Bescemer, saying, okay, it's great you feel this way. Let's go validate it. Let's check our assumptions here. And by the way, she does it in such a delightful way. I don't have this gift, but when she's checking the assumptions, invariably, the entrepreneur feels better about themselves and their business because she's asked the questions. And you're going in eyes wide open to the opportunity. Yeah, exactly. Exactly. And you have the beginnings of what happens in terms of a great partnership, which is that we should be elevating consciousness for the entrepreneurs we work with around the stuff that really matters.

37:34And we shouldn't be elevating it for the stuff that doesn't matter. And that's one of the arts of venture where you get, I think you get better at that. But I want to confess that to the prepared mind approach, which has a role to play. You know, the prepared mind, in a sense, is reacting to a different aspect of where opportunities come from. Preconditions. If you look at the great things that have happened in venture, there's a set of preconditions, a little bit like adaptation. Like people don't just start with a wing. It wasn't like all of a sudden insects could fly. There were preconditions.

38:07There are little stubs that came off of, you know, amphibians or fish, or of course, we all came from fish. But if they didn't have the little stub, it wouldn't then compound towards a wing. So there's these preconditions. And so having a mobile phone penetration at 20 % with GPS is a precondition for Uber, for Instagram. I think today the blockchain is a precondition for a set of things that will blow us away. so the prepared mind as a let's be vulnerable to areas where there's no incumbent because there's high disruption force um to me is an interesting depending on the fissile material of the the the mind's preparation you know if i prepared my work and i remember trying to do this on storage right you know storage is a big industry and lots of problems and i did my prepared my work and i met these amazing amazing people john callsgrove would then go on to found pure storage um when he was still at Veritas.

39:00And I thought, okay, this is one way to do it. And credit to Mike Spizer, who went and like, didn't just meet him, he worked with him at Veritas, but then had the instinct to sort of see the flash storage opportunity and nucleate that and all that. It's deeply rewarding. And I mean, I've done that in different forms. I've worked with founding entrepreneurs like Rob Bearden at what became Cloud Era. But there is something about lightning strikes. This is a fact which we all sort of try to suppress. And for sure consumer, the big winners took off before they had venture money. And that really weighed on me.

39:41And it's like, okay, well, we didn't... And Amazon, right? Apple, Microsoft. Google. Google. Facebook. Facebook. I mean, I'd like to say we saw it before it was obvious. it was profoundly obvious in the series a investment in 2005 in march of 2005 there were questions about about some aspects of it but you had um you you couldn't have imagined stronger cohorts it was just you know jaw-dropping and so if that's consumer it's really challenging to crystal ball your way into i think social needs something that does something like you're going to want to meet an entrepreneur that, that, that provides poetry and, and, and hope that that, that moves you.

40:26And, um, you know, but, but in, in other segments of venture, I think for sure, in, in, in, in life sciences and you have to have more of a crystal ball. What, so, so it's interesting cause you bring up, I mean, you were in the pitch, the series A for, uh, for Facebook, right at Excel. And then obviously, uh, you know, Evan Spiegel at Snapchat Chad and Travis and Lou with New Relic and then Jake Kreps at Confluent, like all these different types of businesses. Do you think about like the characteristics? What is the unifying characteristic that you've seen founders, successful founders across B2B and consumer have?

41:03And then it sounds like maybe there's some differences that Mark can fall asleep, or maybe barely stay awake in the Facebook series A pitch meeting, and you give them a little bit more latitude versus, you know, Travis at the, at Uber in, in, in consumer versus B2B? Like, what are the differences between the two? Well, I think there's a common feeling of rapture and I don't know what the full preconditions are of creating that feeling or state, but in a firm where you have, um, particularly our model where you have five partners that are literally in rapture and it's a divine experience i don't want to glorify it past it sort of you know okay it's a startup and you're putting money and it's a pitch but you get the sense in these common threads of you're not looking at your device you're at the edge of your seat and what evokes that is an interesting question and i think one of the aspects that evokes that is um seeing a reality that when it's explained to you and expressed is gripping it feels like a secret in a sense like others haven't seen it and it's it's just at the beginning of being manifest um i would say another dimension this is this is more elusive than you would think is a sense of real purpose lou's purpose was surprise and delight and joy for a developer uh okay um evan's purpose i think was more yeah more visceral which is that there had been this loss of freedom of self-expression we something had been taken away from us in the way that the social media world had evolved um and we couldn't um communicate with our friends without fear of like the part of your brain that that learns at about age six or seven you could be rejected and he wanted to give that back to people.

43:07And so that's like, wow. And that's the rapture, but it's also purpose that's activating it. The entrepreneur themselves, and by the way, you felt that in Mark's case, you know, it was, I remember that pitch, not as Mark being sleepy, of just, it's like shivering because you think, oh, wow, like this is such a powerful force of being able to bring people in on a long-line community or whatever at the time, the Facebook, and it, it's like one of those things and you pay at the pump for the first time. Of course, everyone laughs now because they use NFT. But, but these moments like Uber, when you first got your first Uber, that you can't unsee that.

43:48And then your mind starts to race and think, okay, what's possible here? Now, some products you like Kafka for J. Krebs, we can't really relate to maybe for developers, but, but, but the, but the raptures there as is the sense of like, you know, purpose. And the other thing I would say is a common thread is, you know, you can get in your head very quickly in this business, right? You can start to tell yourself, well, this checks this box. It's the right space. It's that. I think it's always useful to say, is there some part of me that would quit what I'm doing right now to go work with this person?

44:23And if the answer is no, you probably shouldn't invest because you're going to be a terrible recruiter. So it doesn't mean that it won't be a successful company. But I think there's a lot of things I haven't done or I didn't do where I would say I didn't feel that way. And I just sort of knew the business would be successful, but it didn't activate that. I mean, so I'm not going to be the best partner. And we have a business that's not a monopoly. You don't have to do everything. You have to do things that you uniquely are passionate about. And I think as an entrepreneur picking an investor, you should feel that electricity, that this person would maybe even quit their job to work with me.

44:58I mean, you know, Sarah did that at Pinterest. That's the bar. And so in those meetings, I think of those great entrepreneurs, again, it's probably hindsight bias. Perhaps a more interesting question is, did I ever not feel that way? And we invested and we look back and, you know, we have some interesting stories. There's WeWork, there's others. And yeah, I mean, that's why you have a partnership. You have different points of view. How do you think about like what can go right versus what can go wrong, right? Right. Inherently, there's this fool by randomness aspect that you don't want to get caught in the hindsight bias, use your term.

45:32And so but you also want to take the right level of risk that these, you know, whatever, if you get an Uber, it can make up for a lot of other other sins. When you're when you're evaluating something, what time horizon are you actually thinking about? Like, are you actually thinking 10 years in the future what it could be like if this actually manifests itself? Are you thinking, hey, in three years, can they actually get this product live? Do you use an infrastructure example or something? Yeah, it's cliche now to say this, that we overestimate what we can do in a year and underestimate what we can do in 10 years.

46:06But, you know, there is this thing you have to teach yourself because it's not instinctive and it's certainly something that we weren't wired up with statistical minds, you know, and so our perception tends to be of the present. and as an investor one of the biggest skills this is the thing you have to develop contentfully is compounding how does compounding work and then there's probability distributions and how you think about that and when i when i come back to that question of and it ultimately resolves the time horizon right which is like how anxious should you be how patient should you be uh in a sense if it doesn't take seven to 10 years to manifest, then, you know, it's a problem because it would then invite a lot of other companies to come in early.

46:59It doesn't allow for that sort of natural expression. And many of the challenges we have ironically are with companies that have childhood actor syndrome where boom, it happened. And there you are. And everyone sort of declared victory before they've really built a company. Came easy early on. We had this at Docker. We had it at Twitter. And these are two, you know, tough experiences for me, because in both cases, I think you have companies that have the genotype of$100 billion economic value, maybe a trillion. That's their genotype. And their phenotype was a fraction of that. so you take that very personally and think okay well what have i done and in some cases there there are bad behaviors that try to prematurely optimize jack revenue quickly um at docker we did that we got too much revenue of the wrong kind too quickly um and at twitter we had other problems but but the point i'm making is that if you can have this hinge and i in a way i actually think it's a little bit like the sympathetic and the parasympathetic nervous systems there needs to be this hinge between the long-term, you know, if we do the right things, it all takes care of itself.

48:08And then the short-term focus, maybe it's left brain, right brain. I don't have to pick any analogy you want. So, so what I get worried about when I hear in companies like we're long-term focused, so our numbers suck. It's like, you don't get that luxury. And you know, we just, you know, juiced our quarter. Isn't it great what we did? I'm like, nobody cares by the way. And I'm, I have a company right now. I'm dealing with this. They had an extraordinary fiscal year. I'm like, congratulations you just raised the bar which is great but it's terrifying because if you want to continue to grow it's 75 so of the balancing act the hinge the dance that you get involved with which is i think is um you know challenging to sustain for 10 years is to bite off enough that you can chew while having in the background the most absurdly radical ambition and you doing those two things together is really hard yeah and i found entrepreneurs that focus on the background ambition at the expense of the short term, lose their teams and oftentimes their investor support.

49:09And the people that are hyper-focused on the short term lose the purpose. And so being able to have a dynamic, and I think you can set this up as a systematic thing, like how do you interact with them? What questions do I ask the entrepreneurs I work with? I think is one way to keep true to that. It's great. We did the fiscal planning, a lot of fiscal planning going on this year. When you look back in three years, what do you wish you would have done this year? oh that's a different frame you know and and it gets you out of the but you you need to be balancing those two systems and if you don't then i think you end up with the common pathologies typically if it's ambition focused you can um or ambition centric uh at times you can lose focus and when it's yeah do you think in probabilities when making investments because ultimately there's only one outcome right and uh i mean theoretically there's an infinite number of potential outcomes but there's going to be one.

50:00And you can build the model, right? I'm sure you've thought about this. But ultimately, there will only be one. I have so much respect and admiration for Jeremy Levine. And I talked to him about an investment we're in together. And he says, well, like you, when we build the models, we wait, here's the wild ass case. It's going to really work. Here's the wildest negative case. And then we look at each. We assign a probability. I'm like, 10 % chance it's 10 billion. That's an amazing way to think about it. It blends out to the cost. that we should pay for$400. For sure. You back solve. And I thought it is amazing.

50:31I think about it and it is completely inconsistent with the way I think. Yeah. So it's comforting in some ways you can, you can look at the inputs and well, you know, I mean, it was only a 10 % chance it worked anyway. It especially comforting when you have partners that are breathing down your neck and saying like, how crazy is this? And you're like, well, I understand, but here's the way of framing it. And I think it can be helpful. I don't think of the world that way. The way I come at it is actually very, in a way, relational, which is we end up running into more problems, believe it or not, when founders lose their energy, their passion, their motivation.

51:11and if if that if i feel like that won't be satiated at the first wave of success that it goes so deep that they're gonna you know because that's when you get to the outer you know realms of probabilistic success there's a human side to it which is the person both didn't sell their company but pushed to expand the possibilities to get there and that's a human question so so so my experience of it comes very much down to that centered human connection to say this is not you could say this cynically and say this is a function of uh is the is the insecurity of the founder something that can grow and become weaponized um i'd like to think of it more as the joy of the founder and it's like is it is it insatiable does it or or does it like end when they can have their private jet their five vacation homes and other things you do with the manifestation of wealth and it's an interesting phenomenon to think about it like psychographically which is how does success shape and contour the individual that's how i think about it and so when i'm asking questions of an entrepreneur in these meetings it's like what is what what is what can i imagine happens to them when it all washes over them take toby as an example of shopify and i had the opportunity regrettably to do the series a the series which now would have been called pre-seed yeah but the first investment the second the third and i i you know i didn't do it 100 like proof that i shouldn't even be in this chair in this business and yet somehow i still i think you have other examples but yeah maybe um it's so humbling because i don't toby said something to me it's like we are us as a partnership because we thought you had a 200 billion dollar market cap it's like yeah but i built the 200 million dollar market cap out of a$2 trillion opportunity.

53:01And I sort of think of it that way, which is like, I've built a little venture career out of something that was most, and I'm lucky to be able to continue to do it. Not knowing at that time that a German, you know, expat in Canada, entrepreneur building white label e-commerce, like what, what would success look like? And it's been our biggest risk out of, out of the Silicon Valley has been the background conditions that people feel. pattern matching yeah what they like here a lot of people want to be bigger than google and maybe they want to be you know their purpose is has no limit and that's a better way of saying yeah where sometimes you go to you know i don't want to pick on uh topeka kansas but it might be like hey you know like that's a hundred million dollars that's great it's like uh um so so i think that question is less the probabilities have to have a human manifestation story that more often than not a great company gets an acquisition offer that's that's irresistibly good evan spiegel is an example yeah right and and what you're betting on not betting but what you what you have to imagine is that in the radical success which is why we do the job and honestly it's sort of the the what we tilt towards that we need to believe that they're going to face that decision and the, the, the pull of, of the joy, the purpose, the things that have them going to work every day will transcend the extrinsic rewards of all the money they could ever possibly imagine.

54:30And how do you know that it's really tricky, but you, but you have to kind of have a point of view. Otherwise you have, there's so many examples of the companies that face that choice and they sold. I've heard you say that everyone gets worse at this job over time. I I think that's probably true. If you look at the iconic people in the industry, all of them had some either step back early, right? Or they had some unfortunate run towards the tail end. We might be thinking of the same people. Why do you think that's the case? Why do you think this is that ultimately does the luck run out or does something change with the people, a lack of adapting?

55:13I think it's a confluence of variables that, you know, the best you can do is be conscious of them because then you have a chance to transcend them. The first is ego. And, you know, the great next company is likely to be started by somebody that's totally unknown. and they don't know that you did these things 10 years ago or that you're this or that maybe they can find you online and have some but the probability that they're going to reach out to you is really low so if you let your ego develop then you start to assume great people will come find you but they don't typically and i think this is the true in the super majority of cases for us, we call them cold.

55:55And it's hard if you think you're successful to do something that you were doing when you were 26, the same cold call. Hey, I'm Logan and I, you know, you don't know who I am, but dot, dot, dot. So ego gives you a set of assumptions about what's going to come your way that are typically wrong. It has a double negative though, because you then get the opportunities of people who want to talk to famous people or well-known people. And, and, and so you, you have a flow of opportunities either from your historical investments that are historical and that, that can be great by the way, but it's on average, you know, you just, you build more of a, um, perturbation in the signals from that fresh question of what's the most interesting new thing right now.

56:41And so the, the trappings of success and ego is a facet of that, the aging of the network. Um, and I think there are other pathologies that people experience. And, and one of them is just the nature of wealth and how that tends to impact. It happens with entrepreneurs to the hours in the day. So, so you look at the map, the 24 hours that you spend when you're at the beginning of your venture career versus the middle versus the end. and there's a pretty profound shift for many people. One of the things I'm struggling with, I always struggle with is, um, making enough time to go find that next great young entrepreneur.

57:22I I'm on 12 boards, so I still do it. And I have to rely more on the instincts now that I have on the person than I do on due diligence or like spending, meeting all 10 companies that are in this area. And so that puts me at risk. I'm more likely to commit quickly and decisively. uh and i'm committing for 10 years and so um that these are all conf uh conflating factors right so one of the dimension i think this is the the one which um you have more control over than you know is mental agility and freshness and if you assume that there's a um requirement of equality of curiosity and you take that as a ground condition of being a benchmark partner and i certainly do then I have to be just as wildly curious as I was when I was 26 or 32 or 42.

58:14And I find that for some people that ages and it fatigues and they get a little bit more, well, let me tell you about my, and you sit in a board meeting, you get to hear about, I've been doing this for X number of years. Like I want to be part of the team that destroys that generation. So in a sense, I want to destroy my prior self through the creative process, the curious process of discovering what's violent and new and interesting. Again, a good example of that. For a long time, AI was not a good place to invest. And in fact, a honeypot for a particularly bad kind of investor that didn't understand that economic value is not created in science per se.

58:56It's created in the construct of a company and a product and value capture and value creation aren't the same thing. And if you want to make money in ML, you needed to build the vertical product. And so, you know, ML was sort of the icing on the cake. And if you just look at the icing, you wouldn't see the cake. That's shifting quickly. And the perturbations, the violence and the pace of movement in ML and AI requires you to come at it fresh as if you'd never been an investor and say, okay, imagine this thing's happening where we're able to look at a whole ecosystem being lit up where historically you would have been killed if you want to invest in it.

59:34Now it may be the thing to be investing in. And so that's hard to let go of. And, and, you know, for a while, I mean, I even go back to the beginning of my venture career, consumer internet was a good way to get out of the venture business. If you had been doing it in 99 and 2000, because most of those companies had failed, but, but then you wouldn't have done Facebook. And yeah, so these aging aspects, if you're conscious of them, you can undermine them. I think it's not specific to venture. And there are some jobs though. And I think particularly you look at someone like Stan Druckenmiller, where 30 years of experience makes you a lot better.

1:00:13And in venture, I think you have to lay out, it makes you a lot better in some ways. It makes you a lot worse in other ways. And if you're conscious of it, you have a chance to overcome that, I think. It sort of goes back to the what can go. If you're looking at an opportunity and thinking about all the ways people have died along that journey before versus what could go right. Right. Seeing all the way, all the way through. Shifting gears a little bit. So the benchmark partnership. So you joined in 2006 and now you're the oldest active investor of the current fund. Is that right? Fair to say.

1:00:48So how has, obviously the compositions evolved. You're no longer all tall white men. And the, but the ethos and all of those things seem to have stayed consistent in terms of like what you guys want to be doing. how have you thought about building the firm to the point it is today and hiring in the right set of partners and making sure you all have the trust and the complementary skills and all of that stuff? Yeah, I think it starts with this very basic question. I ask my partners this question all the time where, I mean all the time, every few months, we're founding a new firm. Who do we go higher.

1:01:35And that's a very different question than who do we want to add to benchmark. And so when you think of it from that primitive state of refounding, and I think benchmark has been founded a few times. I think some companies say this to try and convince people that they're, you don't have to be a founder, you can come be a founder here. I actually think that's true here, because the culture, while it carries that through line of attracting a certain kind of person who wants to be in a non-hierarchical structure, who wants a firm that amplifies their strengths and that buttresses their weaknesses.

1:02:07Like we, we speak to a certain kind of, um, investor, but if you, if we start with that question, and that's how I've thought about it with the people we brought on, which is if I were leaving benchmark to start the next benchmark, would I hire this person? Would I want to convince them to go found with me? Because in a sense, I'm not hiring them. And it's a weird conversation, which is why I think we can recruit some great people is that we're not really hiring them. We're asking them to, to found the next version of whatever this is that we have. It's not like a band, right? Where you say, you know, here he is, Neil Young with a new lineup.

1:02:41And I think that's kind of fun because it is a anti-hierarchical, anti-legacy, anti, you know, permanence theory, which is that everything is ephemeral and every firm is ephemeral in the totality of existence. You know, we're just this little blip and getting us more in touch with that finitude of this benchmark, this benchmark will be gone in three to five years. There'll be a new group. Not entirely, but you know, certain people, myself included, you know, have a, um, we're finite. So, so I come to that question of like, who wants to refound? And then there's other layers on top of that, which is, um, what are we, what's not represented in the group?

1:03:28That's part of, um, the firm we want to found and, and, you know, it could be experience based. It could be personality type. It could be, but it's far less quantitative than it is qualitative. So, so I think one of the things we'd like to add to the firm going forward. Eric, having been a failed CEO, successful CEO actually, because he sold the company and I see he says failed, but he's not exactly right. I think having people who are around the table that have had more recent and relevant direct experience building a startup will be great for the firm. And we're going to add that. And it's not that we can't do our job without it.

1:04:08And we're not defined by having experience, right? We're defined by the quality of people, the questions we ask the, but it's a nice thing to have in the room. And, you know, Eric represents it. Sarah was at Pinterest for a long time, I think saw that, but, but we want to add more of that. So you, so you, you, you tune it, um, against that sort of core note of founder level quality, which means they have to share culturally the sort of sense of, um, you know, they're serving entrepreneurs. They're not, they don't want their name on the website. They don't, you know, seek opportunities for egoic self-expression because of course you can rationalize it well if you're doing that it's because you can draw attention to the companies yeah maybe you know um there's always some way to think about everything and in a light that's kind to yourself um but that's that's that's where we are and i think you know we have an average age right now um in the late 30s uh it's an interesting thing to think about you know if we hadn't done the work of the founders all firing themselves, our average age would be, you know, mid fifties.

1:05:07And actually it's not true. It would be early sixties, even with the current partners. And so the fact that we continue to rejuvenate and keep it in that essential core is I think really, to me, the model propagates that way because it's destroying itself constantly. You just referenced it, but you've also obviated the single biggest tension point at all venture capital firms, which is the firm website. it's perpetually to do a firm website is to hate a firm website is to need to update a firm website is to I hate to let people in on this secret. But if anyone asks you if you work at a VC firm, and you could ask to do the firm website, that is a that's a baton death march.

1:05:46And you guys have gotten gotten by once upon a time, you had a website, right? And it was a Matt Kohler that was forced to figure out what the new version of the I mean, back in the day, it was super interactive, right? And we don't, I don't, maybe I'll share this. It's probably not totally appropriate, but when we launched the new website, which was the new website, there was a dividing line at roughly 40 years old. And I'm overstating this, but it's not exactly wrong. Of the people who called us up and said, your website's broken to the people who called us up and said, it's just awesome. You guys don't have a website because I mean, now we can go to the Twitter, the LinkedIn and really.

1:06:30And so the logic of that is, you know, I think there's a question of we don't want to be non-transparent. So it's not meant to be somewhere we're hiding anything. But it's also, it burdens us in a way to get out there and have our website be the relational reality of benchmark. The entrepreneurs who say, if you're going to talk to a firm, you got to talk to benchmark if you're going to raise money you you always we would hope that they'd say you owe it to yourself to see if they're a fit so it in a sense it sort of challenges us to be more um out there and not rely on some artifact that we created that tried to tell a story and because it's our telling our story to me is not nearly as interesting as allowing that to happen in the natural effervescence of the way life goes down in the networks we work in um you know is it always successful no there's real trade-offs i could imagine parts of the website and we've thought about it oh maybe it's time to go back to be the first firm that relaunches website you know um that is uh it's a particularly unpleasant task in a firm that doesn't have any hierarchy because you know nobody wants that hot potato it's like why we don't have pr yes yeah that uh i found office space and websites are the two things that if you if you get involved in those things at venture firms, you're, yeah, it's a, it's a no win.

1:07:57Now, state of the market today, you, you, you've gone through three different, three different cycles, right, of downturns, there was the 01 that we talked about when you were getting going, then the 08, and now, now this one, what, what elements of it rhyme with some of these past experiences you've had and seen? And what do you feel like we're in right now? That's new and indifferent? Yeah, the part that rhymes, if you want to call it that, is the lived reality of valuation resets. It's been common across these cycle shifts where public markets are wired up to be very nimble and agile in resets.

1:08:42Now they still take six months time, sometimes they take longer. But broadly, we've seen a catastrophic loss of value in the public tech stocks, 80 % loss of value. That's not happening in the private sector. How does it happen in the private sector? Slowly. And, you know, because so much money got put into the balance sheets of the companies that could raise it in the last 18 months, many of them in broadly, you know, in our portfolio and in the ecosystem, they got to higher valuations or buying time. And there's maybe the market will recover by the time we need to get out there again. We'll see.

1:09:19But that reset takes more time in the private market and it can lead to these weird distortions you know of the practical consideration of is my equity grant real um and i think you know it stresses companies to sort of face the music in a sense to say okay let's know that we're not our valuation today you never are it's just a point in time and but and it's what one person or some group of people said you were right it's not a liquid market right either yeah and so you say okay isn't it nice that we're private and we don't have to deal with that problem. It's like, you have to deal with that problem.

1:09:52It's just, it's not liquid. So I think it requires the great, the great companies will come back to that question of where are we in five to seven years if we manifest our strategy? How do we not let the stress of the financial market wreck that opportunity set? And you're going to see a non-trivial number of companies. My instinct is that it's, this is what rhymes with maybe more like 2000 to 2003 is that, you know, some percent, 25, 50 % of the companies are going to severely impair their five to seven year opportunity because of the access to capital problem. They'll be in denial about the need to cut.

1:10:27They'll be in denial about the, you know, hey, if I just do this, this is a common conversation. You know, we can get this valuation if we just do this. It's like, no, you don't understand. If you just do what your plans were, you're still going to have an 80 % lower valuation. And whoa. And I'm struck particularly with younger people who say, we're going to grow into our multiple. The multiple's gone. And so that part rhymes, which is the sense of denial. What doesn't rhyme, and I think this is the part which I will say that I think one of the greatest traits of a good investor is a sense of bewilderment of not just being agnostic, but being really careful about any certainties.

1:11:08and i'm quite bewildered by the nature of inflation this time around the the analogy that people have used which makes sense to me is it's more like cancer than the other flus that we've had and in the venture business i've seen two or three flus one was very acute in 2008 you know uh it was a little more sustained in 2000 to 2004 um no maybe it's 2001 to 2004 this is the cancer in the sense that it tends to compound towards negative and it gets worse and worse and worse until it gets fixed through chemotherapy, which is called high interest rates. We could imagine it's not out of the realm of possibility, interest rates being above CPI to reset the economy.

1:11:52And that means what, eight, nine, 10 % interest rates? Well, they were 20 % in the 1980s. So if we get to that level, I think the question our companies don't really have a point of view about is when the cost of capital goes up three to five X, maybe 10 X is some sub segment of what we're doing, no longer economically viable. And that's probably the case. If you believe that the inflation remedy is 12, 15 % interest rates, we're far away from that. And maybe it can course correct maybe, but, but, so this is where I think it's really different. And, and what does that mean practically day to day um it doesn't really impact the series a business crazy as it is because we still look for the same i say series a i'm also putting a lasser around what people call seed today and pre-seed too yeah and pre-seed and pre-pre-seed um the uh because those companies are not going to be exposed to the stresses of the casa capital at this scale until five to seven years down the road at which point there'll be some new reality among other reasons And from the investor side, if it works, I mean, maybe the pricing changes the difference between a 1 ,000x and a 500x or something.

1:13:04Right, yeah. It'll be good. The terminal value will, yeah, it may be different, but the nature of the alchemy of venture is all intact. I'm in the process right now of working with a former entrepreneur and we're starting a company. He's starting it. And it feels like a great time to be starting a company. I would be careful you're going to get term sheets right now. Oh, no. Just got 3x the markup, 5x the markup. Yeah. I mean, it's, yeah, don't tell him because we're negotiating price. Yeah, yeah, yeah. Yeah, yeah. Anyway. We'll let you get this sign before we release the episode. Indeed. Yeah, so that's the hard part.

1:13:40I think this is the human story that I don't know how you can sever your emotional attenuation to the suffering that real people go through during a period like this. I mean, it's sort of one thing to say, face the music and you guys are all sinners in the hands of an angry God. It's another to say, oh man, that's going to suck for a lot of people. And I think what I've tried to invest more in now with the founders I'm lucky enough to work with is building their emotional capabilities to deal with this. Because it is really vicious and hard. And there was a lot of stress during COVID and the CEO role.

1:14:20It's so lonely. And then a number of the issues that they had to not be silent on the issues that our society has systemically. This is a different, more exhausting phenomenon. I'm more worried about how that may take somebody who's the next Toby and cripple them in some fundamental ways from being their full potential. So being a resource for our founders to not just, you know, shame them into this is, you know, brutal times, but how do we help you get through this so that you're stronger through it? And that's really, I think, a unique role we can play because we're in the sense, like as a founder, we have an unconditional commitment to the business.

1:15:02I mean, in theory, until we sell the stock when it's public. But whereas employees are, you know, and, you know, regrettably in some cases that you make them conditional. But we can be there through this. And I think give them some sense of continuity and ballast. And that's when it's hardest for us to do our job. But we have to do it. That's on the startup side, which I like that you answered that. Very founder-centric. What do you think about on the VC side? We've seen these cycles that corporate capital comes in and crossover funds come in and, you know, whatever. different pockets of big money come in.

1:15:35Um, how do you think that sort of fleshes out? Yeah. I mean, I put jealousy and schadenfreude up there as probably the worst human vices and, and they tend to lead to cruelty, which is the worst human vice, um, from my vantage point. So yeah, you know, it is, um, we're going to be very challenging for anybody that has high exposure for the last three years to get back to even. And it may take a very long time. And what does that mean to those funds and their access to capital? Right now, there's still this weird reality distortion, right? Because the marked values don't reflect the, if everyone had to raise money tomorrow, what's the real value?

1:16:18If you told all of them, guess what? Your portfolio's down, indexed to what the public market's down. I think that the LPs would be quite surprised. Not that they don't know that instinctively and they're all trying to do the right thing and stay true to the, but, but, you know, if that, how does that impact the capital long-term? I think you have the same basic phenomenon, which is that private venture investing doesn't outperform the NASDAQ. And that that is a bitter pill that people have to swallow. Now there's, there's the tautological statement that the top 10 % of the funds out okay you know and if you're 10 this time you have a higher probability being top 10 next time and yeah there's some really good studies on that yeah persistence in the asset class yeah i mean it um yeah i mean it's uh i remember doing references on jeremy levine and people said well you know we're just we're not sure if we should commit to bessemer because of the just he's just new and it's like you don't understand this is the person you want to back you know he's just at the beginning of a 20-year run and the people you're getting assurances from who've had a good 20 year run, they are the people you should take your money away from.

1:17:25And like, oh, no, that's not how it works. I'm like, it's like science, you know, if you're more likely to get a grant, if you have warmed over mediocrity in the bureaucracy of modern science, then if you're the young 22 year old punk who has a radical idea, it is an interesting phenomenon that you raise money in the venture asset class over what you've done, but you make money off of what you will do. And those two things, I mean, they can be congruous, but often are very not Right. For all the reasons we've talked about earlier. They're compounding effects of success in every business. They're also, in this particular line of business, compounding negative effects of success as you accumulate the trappings of success.

1:18:06And so, yeah, I mean, most LPs, I get it. They want to feel safe. Because they're being entrusted to make this decision, either for their family or for their family office or for philanthropy. And they say, well, no, this person seems great. And it's like, it doesn't sound as smart as like, look at this track record. But I didn't find a good time to work in Mark Flurry asking a customer to suck his dick. So I've heard you say Robert Sapolsky has been a mentor, friend, someone that you look up to in your career. Obviously a different, I mean, maybe for people listening that don't know, like what about him do you admire?

1:18:46and how has that actually internalized itself in your job or in your life? Like what elements of that have you internalized? Yeah, by way of background, Robert Sapolsky is a professor at Stanford of neuroscience. He teaches a few classes, some of them you can see online. And I don't know that I would say he's a mentor other than a hugely influential thought impact on our cognitive impact on my life. And I think this in the category of someone like William James, who's in our midst, who's saying things that are going to be remembered in a hundred years and that, um, you know, really can shape your understanding of reality.

1:19:28And it's not a Ted talk kind of thing. It's a volume of work that, um, if you get to know the human being, you, you, you realize he makes you more human. He gets you more in touch with the fragility of what it is to be conscious and to be, um, you know, controlled by our neurology and, you know, the effects of obviously the endocrinology and the, the, the mechanics of our, um, cognitive abilities are something he has deep understanding of. But, but, you know, Roberts more recently really affected my, internalization of the absence of free will. And he's about to have a book called Determined, the life and science of something.

1:20:15I think it's life and science without free will. We can link in the show notes. I'm sure there's a pre-order. It is. And it's a controversial position, which is that free will is a precondition for the modern judicial system. How do you punish someone if they didn't have free will? And if you assume that they didn't have free will, then you get out of this notion of retributive justice. He moved to restorative justice. But why is that relevant in the venture business in my life and all this? Because Roberts has this humanizing effect to recognize a bunch of things that relate to station in life.

1:20:52It's just luck. So I'd say one of these things is when you give up the notion of free will, you give up the notion that you were successful because you don't really exist. And it's not just meant to be some Zen comment, but you start to think about and take an ethical, I think, relationship to systematic phenomenon that preconditions exist that you can infect that will show up in someone's character, someone's, I hope philanthropically, I'm able to have an impact on the world that's outsized relative to my work with my venture portfolio, the thread that's pulling me there. And this is where I think anyone, when it's connected to philanthropy, you can give money, that's one thing, but you should feel the same total loss of self and joy and pursuit that you feel and the things you've done that are your most successful at in a philanthropic effort, because then you might actually do something great.

1:21:48So his assault on the notion that we have a justice system that is attenuated to reality, but in fact, it's just, really, you know, 15th century barbarism that we're brutalizing people. You take this, you know, solitary confinement as a punishment for people in prison. And we know that tachykinin, which is, well, there's three or four versions of it in the brain, right, that get released in social isolation that activate aggression in the worst of human behavior. And we're amplifying that in the people who are the most vulnerable. So I think, Robert, my guess is that if you had this his podcast in 10 years that his influence in my life will have set a trajectory.

1:22:27And I urge people to read his work. You know, his last book, Behave, the best book I've read of his was, you know, Why Zebras Don't Get Ulcers and How We Kill Ourselves with Our Stress Responses. And this is a living giant amongst our time. So, you know, listen to his podcast and I think people get swept off their feet when they hear a person like this talk. That's great. That's a very heightened state for us to end. I had two final questions. One was a portfolio company telling someone to, a customer to suck their dick in that one. And I, there were two choices. We'll have to leave that for the next time we do this.

1:23:01That was a much more elevated way for us to end this discussion. So that was true. I invested after I knew he did that. It worked out for you. Yeah, it, it did. It was a start of a chain of investments. Yeah, your whole open source thesis or whatever investments all trace back to an SMD CEO. Yeah, that's incredible. Yeah. Well, thanks, Peter. Thank you.