The Benchmark Way: Running of an Iconic firm with Victor Lazarte

0:09Welcome back to another episode of Venture Unlocked, the podcast that unlocks the business of venture capital. I'm your host, Samir Khadji, and on today's show, I sat down with Victor Lazardi, one of the six equal partners of iconic firm Benchmark. Before joining Benchmark in 2023, Victor bootstrapped a company called Wildlife Studios in the gaming market to become a multi-billion dollar mobile gaming company. He ultimately did take capital late in the company's life from Benchmark, where he met Benchmark partner Peter Fenton. As one of the most unique and legendary firms in the venture capital market, it was fun to go deeper on how they operate when it comes down to decision making, building culture, and working with entrepreneurs.

0:46It was a nice peek behind the curtain of such a great firm, and I really hope you enjoy the show. Samir Khadji is the CEO and co-founder of Allocate. Allocate and Venture Unlocked are independent of each other. Any statements or references made by Samir or his guests regarding third-party investments or securities are solely their views and opinions, and are not intended as investment advice or an endorsement of such parties or securities by Samir, his guests, or Allocate. Allocate or its clients may maintain relationships with or investment positions in guests, third parties, or securities mentioned in this podcast.

1:22This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Victor, it's so great to see you. It's great to be here, Samir. So you work at one of the most iconic firms of all time. And we'll get your journey in terms of getting from a founder to becoming a VC, picking Benchmark, how Benchmark works. But let's go back to the beginning. In fact, I was looking at your bio and you actually started off in banking, working at J.P. Morgan, which is funny because I was in the banking sector, but ultimately did that for a very short amount of time before being a founder.

1:56But let's go back to your history and maybe talk about your journey into technology. Sure. Yeah, therefore, my banking year, I tried to hide that, but you're too good in finding my secrets. So joke aside, I went into, so I started engineering in college, but being from Brazil, I wasn't really exposed to startups. And even before college and high school, I built websites, a couple of them became popular. So I had this dream of like, I'd love to create digital products and I'd love to create a company. but the whole idea of starting a company was foreign to me and i think that's the power of like silicon valley i think people here they grow up like with amazing examples and they get to know entrepreneurs right and unfortunately i didn't have that so when i graduated i i liked video games and i thought one day i'd love to make a video game company but the reality is like i just didn't have the conviction at that time and i didn't know i was like hey i'm gonna start a video game company why am i gonna make games that are better than nintendo or electronic arts and i didn't have a good enough answer for that right so but it was only when the app stores started to like get traction that's when to me it's like okay games or phones like that that makes sense right but before that i was okay all the smart people that i know like what do they do and it turns out that like banks, they do a really good job at recruiting talented students, right?

3:28So a lot of the smart people that I knew back in Brazil, they went into banking. So I did that. I was in banking for 22 years, and I never thought I'd be a banker that long. And then I got in, but I was working with a lot of technology companies. But talk a little bit about maybe wildlife in terms of the business itself, and how that informed on the folks that you had on the board. You had a benchmark that was on the board that was supportive. How did that inform your decision to go into venture and what type of venture capitalist you are? Yeah. So for wildlife, I think the most important thing to start a company is understand what's happening in the world.

4:08And I don't believe that people meaningfully change the future. I don't think any one person, I don't subscribe to the great man theory and it's like, hey, we have this special individuals that like change history. I actually think that if you're lucky, like what you do, you just bring the future a little bit forward, right? Like you just make the future happen a little bit faster. So the best entrepreneurs that I know, they try to understand, okay, what is the change? What is happening in the world? And like, how can I help this change happen faster, right? And that was definitely the case for me.

4:41In 2011, when I started the company, it was clear people were talking about mobile like the same way that people were talking about AI like I think AI would be like actually considerably bigger than mobile but it was super clear it's like hey you want to do something you've got to do something in mobile because now people have computers in their pockets and they want software for these computers right so that was the wave and it felt quite obvious to me that people will want to play games on their phones and it was obvious back then but very few people were making mobile games right and there were these stories, to me, it's so interesting.

5:15The parallels between AI and mobile are striking. I would hear these stories about these teenagers or these young people that created an app and the app got traction and they were making money. So for example, if you remember, there was the beer app, which was this incredibly simple app that is just like, hey, it was a picture of like a beer cup and you'd tilt your iPhone and like the level of the beer would stay leveled, right? And it was incredibly simple, but the novelty was so interesting. That app was being sold for a dollar and the person that created it made like thousands and thousands of dollars, right?

5:54And I think in the same way, like you're hearing these stories in AI right now. So there's one story that I find particularly interesting from like a year ago. There's this influencer that just created a like a thin wrapper around like chat chp t that allowed people to talk to her so like hey you want to talk to me like there's an ai that is actually me and there's like a very so thin it was like there's a prompt there's like hey respond as if you're me and like i'm an influencer and blah blah blah and i think she was charging a dollar a minute or something like that and she was making like fifty thousand dollars a month right so so you hear this crazy story and of course I was like, this is not durable, but this helps you understand, okay, like what is the big wave?

6:38What's happening right now? For wildlife, that was mobile. And so I decided to go for it and try to raise money, got turned down by everyone. And so I bootstrapped the business. I convinced my brother to start the company with me. And the two of us, like we did everything. Like we coded, we did the graphic design, we did the game design. We didn't have any employees, but we're so lucky to start at a moment in time where people really wanted to play mobile games and people really wanted to play free games, right? I think when you think about the mobile gaming revolution, I think it's actually way more about it being free than it is about the format.

7:14So in-app purchases, like the advent of in-app purchases, like that is the thing that really allows that revolution. And the first game didn't work, but the second one did. And like within months of starting the company, we had like hundreds of thousands of users. and during a nine year period like we just bootstrapped the business and created games that collectively were played by over a billion people and collectively also generated like over a billion dollars in revenue so that was like a very fun journey like being bootstrapped like that from Brazil which is a country that doesn't have a tradition in technology right but then after like after nine years doing that we were thinking like what else like what else can this company be and I was always like fascinated about Silicon Valley.

8:05And it's still like puzzling to me why when you think about the planet, like there's like 8 billion humans and like there's actually very few people in the Bay Area. But if you look like over the past 20 years, like over half of all the interesting companies created in the world have been created in the West Coast of the United States and the majority being in the Bay Area, right? So to me, it was always like, it's insane why so many of the companies got created here. So I was just very curious, very attracted by the place. And I'm a student of the technology industry. And I think there are firms and there's a model that seems to catalyze how technology companies are created.

8:48So I think if you look at, I think the world, the planet is like a big AD test. And there are companies that raise venture capital and there are companies that do not raise venture capital. And it turns out that the companies that raise venture capital they're way more likely to become very successful, right? And I think there are companies that take on board members that are very invested in the company that really want the company to succeed. And there are companies that do not do that. And it turns out that the ones that take a board member that is very involved, they succeed at a higher rate, right?

9:20So I was just super interested by that. And as we were rethinking the model of the company, I decided to move to Silicon Valley and I met with a lot of the great venture capitalists in the Bay Area. And I felt very lucky to have met Peter Fenton, who's now my partner. And talking with him, I was like, listen, the company is doing well. We're very profitable. But we want to do more. We want to be more. And we want to tap into all the knowledge that exists here in Silicon Valley. And I'd love to understand, how do you work with entrepreneurs? What is it that you do? And I think in college, I was an engineering major, but I took a couple classes in finance or something like that.

10:00And I was like, there's this theory like the efficient market hypothesis and you learn how to think about the market like in its very statistic terms and you learn that, okay, there's a bunch of people starting companies. One of them is going to be very successful and it's going to be very valuable. A lot of them will not and like you cannot predict a priori. So you come to Silicon Valley like everything in this place defies that theory. right it's like okay how can one investor like finds like several companies at the earliest stage when there's actually like two people and have these companies go on to be multi-billion dollar companies right like that that just like by itself destroys that this theory and and then so i just though i i was just so interested in learning more about that and and i think to me what attracted me to Benchmark is like, okay, how can you increase the probability of success both in like selecting the right entrepreneurs but also like in supporting them, right?

11:08So I think that was the initial thing that made me very attracted. And one of our partners, like he says, in venture, a lot of people think about making good decisions, but at Benchmark, just as importantly, we think about how to make decisions good. And what this means is like, make good decisions like, hey, choose the right company. Sure, you have to do that. But the other part is like, once you chose a company, make that company good. That part is as important, right? And that was something that was very attractive to me. So you ran this company for effectively nine years before raising a single dollar of outside capital.

11:48You met with a number of investors, obviously had tons of traction at that point. And there are so many firms that I see decks of, and it says, we want to be the next benchmark. We want to be the next USV. And yet a lot of people don't know what it actually means to be the next benchmark. So talk a little bit about what did you see in benchmark? And then I guess from a board standpoint, when you had folks like Peter around the room, what was so different about them versus the other VCs that you worked with? So I think there's a number of good firms out there. And there's a lot of like really smart investors.

12:24So when we're talking, like when I think about, hey, like what makes benchmark difference? Like, hey, like it's not all like they're smarter or like it's not like that. I think it's just a different model. And the model is better in some ways and it's actually worse in many ways. Right. And I think what makes the key thing that makes the model different is a benchmark. The most important thing is how you support the entrepreneur. and the idea is not only we'll partner with the best companies, but once we partner with them, we're going to be the deepest partner to the entrepreneur. So for example, like I invested in the seed round of Brax and I'm their first board member.

13:04And I take a lot of like, so in a few months back, like Pedro, the CEO came to me and he said something that really touched me, which is like, Victor, you've been helping me for like eight years and you're the closest thing that I have to a co-founder outside of the company, right? And to me, that was like, I love that. And the reason I was able to do that is because I just devote way more time to the company than other people. But there's a flip side of that. And the flip side is, if you're going to devote more time to the entrepreneur, that means you're going to make way less deals. So when you look at like venture firms, I think Benchmark is one of the great firms.

13:44and the entire firm, like we make 10 deals a year and we don't even call them deals. Like we call them like commitments, like calling it a deal. Like it just, it doesn't honor like the work that we do. It's like, hey, we make 10 commitments in that year. It's like one or two per partner. Like that's the idea. And also there's a bunch of things that a firm can do that will help the firm be successful. Like there's a bunch of programs, but we choose to not do any of that because if you do that, for example, like if you run an accelerator, like all these things take time. Or like if you have a team, like so a benchmark, we don't have associates, we don't have principals.

14:20And if all these things are helpful, but if you do that, like that's taking the GP's time and like that's time that you're not spending with the entrepreneur. So the idea is you do one or two deals a year, you don't run programs. So your entire time is devoted to the entrepreneur. And the core idea behind it is there's all these things that are helpful and useful to the entrepreneur. Like, hey, I'm going to help you do PR. I'm going to help you. Like, I'm going to have recruiters on staff. I'm going to do like government relationship. All that stuff is helpful. But there's a lot of like service providers out there that can offer that.

14:54And the one thing that you cannot outsource is the relationship with the entrepreneur. Because the best founders, like they don't want to talk to like the service providers. Like they want to talk to the GP. And the interesting thing is it's actually very hard for someone from the outside to add value to a company because the entrepreneur, if you're doing your job right, like your entrepreneur is like smarter than you are and is spending way more time on the problem than you are. So you're not going to come in and like just have this crazy insight. So the way we add value is like every week you're doing, like frankly, like part of it is this boring work that other people could do.

15:33Like you're getting to, like you're doing, you're closing candidates. Like, hey, like we're trying to hire this guy. So hey, like you're having like conversations with this candidate, explaining to them why the vision is amazing, why the entrepreneur is great. And you're doing all this work that frankly, a lot of people could do. But through that, you're getting a lot of context. You're getting a lot of context in the company. And then two or three times a year, the entrepreneur is going to make a very important decision and he will need a thought partner. And he's going to call you because you're the only one that has context.

16:11Like you're the only like outside person that has context on the company, right? So in a way, like all this work that you do, like we can wake out, it's kind of like a tax that you pay for when the really important decision comes along, you're in this position that like, hey, like you're able to help the entrepreneur. Like you're able to be the thought partner that this entrepreneur needs when making that decision. And this compounds very strongly over time. It's like two or three times a year, you make that decision marginally better, over the 10-year journey that it takes to build a company, your company is going to be a lot better.

16:44And your relationship with the entrepreneur will also compound in this way. It's like five years in, it's like, hey, when there's a problem, the entrepreneur has two choices. He's either going to call you and what's going on, or he'll have to call someone else and spend a couple hours explaining all the context that the person needs to be able to help make the decision. What's really interesting, and I'm always fascinated about how business models at firms, the cultural, the ethos supports kind of a true north. And the true north of Benchmark has been doing very few deals, keeping fund sizes fairly small, having an equal partnership, and then ultimately all leading to supporting the entrepreneur in a way that's much deeper than what we often see.

17:29A lot of the brand name firms over the last 10 years have grown bigger. They've added platform teams. And often the entrepreneur is meeting with a platform person or a junior associate or principal, obviously a very different experience. I want to pull the thread on each one of those things. But the first thing that I wanted to kind of pull the thread on a little bit is just decision making. And you mentioned one to two deals that are done per partner per year, which is not a lot, which means you have to have high level of conviction in not only the idea, the TAM, but really the entrepreneur's ability to execute, which at the end of the day, that is everything.

18:03So given your background and your partner's background, you've worked with a lot of operators, you've been operators in some cases. The age-old question is, how do you identify those unique traits and what are those unique traits that you're looking for at the benchmark side? Yeah, so a lot of what we do is better than entrepreneur because many times when you invest, like there's no company. It's so, I ended a couple months ago, like I invested in this company and there was literally no company. Like two people that came together and like, hey, we're thinking about doing this. What do you think?

18:36And you have a conversation. And I personally, that's the type of work that I enjoy most because like you're in, you're talking a lot of the entrepreneur before they start the company and like you help shape the idea, right? So in those cases, like so much of it is, okay, who's the entrepreneur that can build a company? And there's a part of it that's just like pattern recognition. Like you've been around like amazing entrepreneurs for long enough And then when you see a new person, it kind of, oh, this guy kind of looks like all these people that build businesses. And I think that's where having built a business.

19:10So I ran wildlife for like 12, over 12 years, almost 13 years. And then like, I know, like, I know what it takes to like build a company and scale a company. And then it's just trying to like recognize these things in entrepreneurs, right? And then I guess you stop and like you try to just steal, okay, what are these things that we're looking for? There's no like formula. but there are things and i think there's traits that everyone knows and like everyone's looking for so for example like you want someone that is very intense like that that has like amazing work ethic or you want someone that is extremely ambitious and you want to we want someone that that is like obviously intelligent and the way this comes across is someone that has an ability to simplify like takes problems that are very complex and like he's able to like tell you in a way that is like, oh, okay, you took something that was very complex, very hard, and you made it very simple.

20:00So those are all like traits that, sure, you're looking for all of that, but that's kind of like table stakes and like everyone's looking for all of that. But by spending time with a partnership, and I've been at Benchmark for like a year and a half now, you start refining these things and you start looking for things that are less obvious. And there are like two things that I look for that I think are way less obvious and actually very rare, which are the best entrepreneurs, they're very open-minded, but also very disagreeable. And these two things, they very rarely come together because open-minded people, they're typically very nice to spend time with because when you say something and the person is so curious and you want to know, and he wants to understand, oh, why do you think that?

20:47And you're explaining it and like, oh, I'll tell you more. So for example, I invested in this company called Mercor. And very quickly, I knew this is an exceptional entrepreneur. I really want to work with him. And part of what made me think that is he would tell me something. And then I'll tell him, no, I disagree. I think this is actually the opposite of what you said. And so I'll tell you more, Victor. I'll go very deeply and explain in all these different ways. And he was just so curious. And in my head, I said, okay, this guy finally got it. He understood that what I'm saying is right. And then at the end of it, it's like, yeah, no, I think that's all wrong.

21:21And so you're having this thing, it's like, hey, he really wants to understand what you think, but he has no problem disagreeing with you. And as a matter of fact, he actually likes it. He likes the tension that gets created when you think the opposite of what someone else is saying. So I think this coupling of really curious about what someone else thinks, but also enjoying the tension that comes with the disagreements, that rarely comes together, but it's a trait that is common in the best entrepreneurs. It's such an interesting thing because that is a tough balance to have for people. And people often stray away from confrontation and attention, which is often necessary.

22:05And in the VC world, during the time you were running Wildlife, there's this concept of founder friendly. And it was mostly acquiescing with whatever the entrepreneur wanted versus actually having these tough conversations, which are actually necessary to build great companies. And as you kind of think about those traits, I mean, a lot of this is subjective. It's based on your own pattern of recognition. It's your teams and Peter or whoever else is on the team kind of assessing that on the founder during maybe the first meeting, the second meeting, things like that. But how do you then make decisions?

22:38Because there's this concept of Benchmark being the SQL partnership. There are people at the firm that have been there a very long time, people like Peter Fenton, who have invested in amazing companies. And oftentimes what you have is you may have equality when it comes to things like economics. Yeah. But within the voting room, oftentimes there is the appearance of an alpha or two that really starts to make the decisions. And where people around the room, even though they're granted the ability to make decisions, are often looking to appease that alpha. How do you avoid that from happening here?

23:15Yeah. So I think what Benchmark does is our sweet spot is leading Series A. So 90 % of what we do is leading Series A. Of course, there are exceptions. And if there's an amazing company, we'll do whatever wrong. But specifically on the Series A, the sins of omission are much greater than the sins of commission. So if you invest in a company and it doesn't work out, it's not a huge deal. But if you see Google, like if Google comes and pitches and you don't do it, that is a huge deal. And that actually happened at Benchmark. So Google came in and we failed to pursue. Like we failed to see like, hey, this is the company and like we're going to go after it and we're going to do whatever it takes to win it.

24:02And because missing the great one is way worse than doing something that ended up not working. If someone, at Benchmark, if someone really wants to do something, it just does it. So we have this concept. At Benchmark, we have this concept where you have to be interested in what your partner has to say. So you have to listen to him, but you don't have to follow what he says. So if you're very interested, the company has to come in and meet the other partners. But it doesn't matter if the other partners don't like it. You can still pursue the deal and you can still do it. And as a matter of fact, in the last 12 months, there was one company that every single partner except for one thought this is probably not the right investment for us.

24:50But there was one partner that wanted to do it. And it's like, okay, so you go ahead and do it. How does the dynamic go in those situations? It's very funny. It's very interesting. I'd love to maybe act as if we're flying the wall. you're bringing in a deal that may not be universally liked in terms of the entire partnership. You're still doing it. How much do the partners push each other to get to the right answer? And then ultimately, how do you have the conviction to still make the deal, especially as a new partner joining such an iconic group of people? Yeah. So I think that's part of what makes benchmark different.

25:29So you have to have partners that also enjoy some level of disagreement and discomfort, right? So if you have people that are conflicts avoidance, like it wouldn't work at a partnership like Benchmark. Because I think if you have like in other firms, you can have people that are incredibly smart, but are somewhat like conflict averse, but their job is like, hey, I'm going to source something. I'm going to write a beautiful memo. I'm going to surface this. And then there's other people that are going to come in and I'm going to make the decision. And the benchmark, it's, okay, you do the entire work.

26:04You source, you develop your own thesis, and you bring it to the partnership. And sometimes if other people don't want to do it and you want to do it, it's like, okay, you've got to have that conviction. So in a way, you've got to have part of what the thing that we talked about with founders, it's like, hey, you've got to be fine disagreeing with people. And because we're five equal partners, when someone comes and joins Benchmark, we talk about a refounding moment. It's like, hey, we're refounding the firm. Because every single person there, it's an equal partner. And in a way, it's like, hey, it's like a co-founder of the firm.

26:42Because it has not only the rights, but it's expected of them. Like, hey, you're here to shape and to change the firm. So only last week I was spending time with the original founders of Benchmark, who were such iconic figures. And the interesting thing is they were telling us, hey, Victor, we created this firm. And then once we felt that our time here was done, we passed it on. And now this is your firm. And we have no remaining interest in the firm. We have no influence. So like, hey, you're here to re-found the firm. And you're here to like, okay, this is what worked for us. But now you go ahead and you do what works for you.