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Bill Gurley on Entrepreneurs and Technology (Podcast) · Masters in Business

0:02
Speaker 1: This is Mesters in Business with very Renaults on Bluebird
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Speaker 1: Radio this weekend on the podcast, Boy Do I have
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Speaker 1: an extra special guest, venture capitalist Bill Gurley of Benchmark.
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Speaker 1: What a rock star. He's been just right at the
0:19
Speaker 1: forefront of everything that's been going on UH in venture
0:23
Speaker 1: capital over the past twenty years. Grub Hub, Open Tables, Zillo.
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Speaker 1: He was one of the very first investors into Uber,
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Speaker 1: was a board member there. Really just a fascinating career
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Speaker 1: from a design engineer a compact to becoming an Wall
0:39
Speaker 1: Street analyst. Turns out he's the lead analyst on the
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Speaker 1: Amazon I p O to eventually becoming a VC at Benchmark,
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Speaker 1: where really he just has tremendous insight into entrepreneurs and
0:55
Speaker 1: technology and to think about things like the network of
1:00
Speaker 1: fact and what is this technology also UM parallel to
1:05
Speaker 1: and where can we see UH scale and leveraging capital
1:09
Speaker 1: all come together in a way that that is unique.
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Speaker 1: UM just really a fascinating, fascinating person, very forthcoming UM,
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Speaker 1: including about things that were really challenging periods of his
1:23
Speaker 1: career that I would imagine wasn't a whole lot of fun.
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Speaker 1: If you read the book Super Pumped about Uber, UM
1:30
Speaker 1: really he's the only guy that comes through that that
1:33
Speaker 1: whole book with his reputation. Intact, he's really the only
1:36
Speaker 1: good guy in the book. And the book is an amazing,
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Speaker 1: uh amazing story about Uber, which in of itself is
1:43
Speaker 1: is just madness. Um. So, if you are at all
1:47
Speaker 1: remotely interested in venture capital, investing, technology, direct listings replacing
1:54
Speaker 1: I P O S, I think you're going to find
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Speaker 1: this conversation to be absolutely fascinating. So, with no further ado,
2:00
Speaker 1: my conversation with Benchmarks Bill Gurley. This is mesters in
2:07
Speaker 1: Business with very Results on Bloomberg Radio. My extra special
2:13
Speaker 1: guest this week is Bill Gurley. He is a legendary
2:17
Speaker 1: venture capital investor at Benchmark, where he's been since Some
2:22
Speaker 1: of his better known investments have included grub Hub, next Door,
2:27
Speaker 1: Open Table, Zillo, and of course Uber. He is a
2:31
Speaker 1: member of the board of trustees of the Santa Fe Institute,
2:35
Speaker 1: and he is considered one of the most influential dealmakers
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Speaker 1: in technology. In sixteen, he was named Tech Crunches VC
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Speaker 1: of the Year. Bill Gurley, Welcome to Bloomberg. Thanks for
2:47
Speaker 1: having me. Yeah, this is overdue. We were supposed to
2:49
Speaker 1: get together a couple of years ago and then events intervened.
2:54
Speaker 1: Let's start with your early career. You began as a
2:58
Speaker 1: design engineer at Impact. What does the design engineer do
3:02
Speaker 1: and what sort of lessons did you take away from
3:06
Speaker 1: that experience at Compact? You know that the job I
3:09
Speaker 1: fell into a Compact which was super super interesting for
3:13
Speaker 1: a person with a brain like mine. Um, we were
3:17
Speaker 1: a bit of a like a fire squad that came
3:21
Speaker 1: in when they were problems. So when they were bringing
3:24
Speaker 1: new computers to market, they would pass them off to
3:27
Speaker 1: the test group, and the test group would take all
3:30
Speaker 1: the latest and greatest software. And back then it was
3:33
Speaker 1: like banion vines and running three comic conneted actors, a
3:38
Speaker 1: lot of stuff that doesn't existing or today. Um, But
3:42
Speaker 1: inevitably they would break and and someone had to figure
3:46
Speaker 1: out why, and the the people that are doing the
3:50
Speaker 1: hardware design work didn't have enough understanding of how the
3:54
Speaker 1: software worked to kind of reverse engineer the failure, and
3:57
Speaker 1: so we kind of lived in between these two. What
4:01
Speaker 1: was what was fun about it is that you know,
4:04
Speaker 1: oftentimes they were holding up shipping until we could get
4:07
Speaker 1: our job done. So it was this kind of they
4:10
Speaker 1: put us in a room with a bunch of pizzas
4:12
Speaker 1: and expect us to work like eighteen hour days until
4:16
Speaker 1: we found the problem. But it was fun because it
4:19
Speaker 1: was you know, shortened scope would usually be like one
4:22
Speaker 1: day to a week before we figure it out. And
4:25
Speaker 1: it felt important because everyone was kind of waiting on us,
4:29
Speaker 1: um and it was fun and it was super interesting,
4:32
Speaker 1: I think also for me just because of the problem
4:34
Speaker 1: solving nature of the whole thing. I don't even know
4:37
Speaker 1: if a group like that exists anymore. So when you're
4:39
Speaker 1: involved in both hardware and software, we're talking thirty plus
4:44
Speaker 1: years ago, how magical did the software look? Was it
4:48
Speaker 1: still all potential? You're dealing with both hardware and software?
4:53
Speaker 1: What what intrigued you? Well, Client server was starting to
4:57
Speaker 1: happen already, and and and there were different way these
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Speaker 1: you know, I have no idea how they do this
5:02
Speaker 1: today because the clock speeds are so dramatically faster. But
5:06
Speaker 1: there were different types of analysis tools that you could
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Speaker 1: run either virtually in the background or you know, and
5:12
Speaker 1: we plug this thing called an ice, which was a
5:15
Speaker 1: Medusa head like thing on top of the processor where
5:18
Speaker 1: you can measure every pin and you'd watch the signals
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Speaker 1: go by and you try and reverse the software failure
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Speaker 1: all the way down to where something was happening on
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Speaker 1: the on the motherboard that was causing a race condition
5:32
Speaker 1: or this kind of thing. And there were always odd
5:34
Speaker 1: things like you could, you know, make it really cold
5:37
Speaker 1: and the failure would go away and then you knew
5:39
Speaker 1: you had some type of analog rice time problem. But
5:43
Speaker 1: but it was fun. I mean, you really had to
5:47
Speaker 1: understand how the system worked all the way through or
5:51
Speaker 1: you couldn't. You couldn't pull that that down. You know.
5:55
Speaker 1: The funny thing is, you know when we were we
5:58
Speaker 1: were already running into city stations where the equipment that
6:01
Speaker 1: you would put on it, uh to measure it would
6:04
Speaker 1: would mess with it. Um And back then, you know,
6:08
Speaker 1: I think the last thing I worked on was a
6:10
Speaker 1: forty six fifty And I can't imagine how they do
6:15
Speaker 1: it today, Like I just I mean, I know they
6:17
Speaker 1: do it, but I just can't imagine because the clock
6:19
Speaker 1: speeds we would have never imagined back then the clock
6:22
Speaker 1: speeds would be as fast as they are today. Yeah,
6:25
Speaker 1: Moore's law just keeps on compounding. So so you um,
6:29
Speaker 1: you moved to Wall Street as a research channelist in
6:31
Speaker 1: the ninety nineties. What led you to cover tech stocks? Well,
6:36
Speaker 1: Somewhere along the way, while I was had become an
6:41
Speaker 1: engineer and was working at compact Um, I started trading stocks.
6:47
Speaker 1: And I can't remember exactly how I fell into it. UM.
6:51
Speaker 1: I'm sure I have a vivid memory of reading uh
6:56
Speaker 1: Peter Lynch's book, and I also remember Prodigy. You remember
7:01
Speaker 1: a Prodigy, which you're kind of a precursor to a
7:04
Speaker 1: O L with a You could get a trading account
7:09
Speaker 1: on Prodigy. And so I was buying stock and one
7:13
Speaker 1: of the ones I bought. You know, if you read
7:16
Speaker 1: read that Peter Lynch book, was it one up on
7:18
Speaker 1: Wall Street? Was that the name um exactly? You know?
7:22
Speaker 1: He said, by stocks of companies you love well. I
7:25
Speaker 1: was doing a ton of programming in Borland, UH Borland,
7:31
Speaker 1: Turbo Pascale, and I loved the Quadro spreadsheet. Liked it
7:35
Speaker 1: way better than Lotus, and we're using those tools every day,
7:39
Speaker 1: and so I bought I bought the Borland stock on
7:42
Speaker 1: the I t o like the day of the I.
7:45
Speaker 1: I don't think I got allocations be a good conversation
7:48
Speaker 1: for direct listenings. I don't think I got allocation through
7:51
Speaker 1: Prodigy but I bought it today of the offering. UM,
7:55
Speaker 1: so see that kind of thing was already happening in
7:59
Speaker 1: my brain. Um I ended up. I ended up leaving Compact,
8:04
Speaker 1: going to business school before I transitioned into Wall Street.
8:08
Speaker 1: And I think when I got to business school and
8:11
Speaker 1: started really understanding, you know, different companies and reading about
8:16
Speaker 1: companies and and that fun that I was having thinking
8:20
Speaker 1: about stocks and stock prices. I when I when I
8:25
Speaker 1: really started reading you know, magazines, Wall Street Journal, Fortune. Um,
8:31
Speaker 1: I noticed that these analysts were quoted a lot, especially
8:36
Speaker 1: Goldman had this killer team with Dan Benton, rich Sherlin,
8:43
Speaker 1: you know, and uh they they owned it like every
8:47
Speaker 1: like the top five tech Analystic Goldman, We're all all
8:51
Speaker 1: considered to be the opts. And um, their names would
8:54
Speaker 1: just come up and up and up. So, you know,
8:56
Speaker 1: and I was getting a little more spirited, and you'd
8:59
Speaker 1: reached store is about people knocking on doors. So I
9:02
Speaker 1: spent a week in the summer of my in between
9:06
Speaker 1: my two business school just begging for meetings on the
9:10
Speaker 1: Wall Street, including with with Dan and Rick. And you
9:15
Speaker 1: end up at CS First Boston, where it turns out
9:18
Speaker 1: that you end up as the lead analyst for an
9:21
Speaker 1: I p O for a little company called Amazon. Tell
9:25
Speaker 1: us what that experience was like and did anybody have
9:28
Speaker 1: any idea then what Amazon might become? Forget what it is?
9:34
Speaker 1: What was it? Even? The skipped about four years so,
9:39
Speaker 1: which is so it's kind of interesting because it involves
9:43
Speaker 1: someone I know, I know, you think quite highly up.
9:47
Speaker 1: So I um ended up getting a job. I ended
9:51
Speaker 1: up getting turned down by every firm and set for
9:53
Speaker 1: one which was Credit Pas First Boston and the research
9:56
Speaker 1: director there was a guy named Al Jackson who I
9:59
Speaker 1: still talked to the UM and you know, I went
10:03
Speaker 1: to Texas. In my entering class, we went around a
10:06
Speaker 1: room and stay wherever it was from you know, Wharton, Harvard,
10:09
Speaker 1: like there was I was the only one that wasn't
10:12
Speaker 1: like those five schools. And you know, I'll just felt
10:16
Speaker 1: like taking a bet on me. And I don't know
10:18
Speaker 1: where I'd be to day if he hadn't have done that.
10:21
Speaker 1: I show up and um, they were going to assign
10:25
Speaker 1: me passive components with some obscure tech category. UM. And
10:31
Speaker 1: Charlie Wolf I don't know if you've ever heard of him. Oh,
10:34
Speaker 1: Charlie was very well. He covered Apple when nobody liked
10:38
Speaker 1: the apple. Charlie was the PC analyst, and two weeks
10:43
Speaker 1: after I showed up, Charlie said he wanted to retire
10:45
Speaker 1: and teach more Columbia. And I mean to just talk
10:48
Speaker 1: about wild fortune. And so I went into my apartment
10:52
Speaker 1: and spent all weekend writing this kind of assessment of
10:56
Speaker 1: the PC industry and went in it begged alf for
10:59
Speaker 1: for char his job, and he gave it to him.
11:02
Speaker 1: And then Charlie, you know, stayed on the payroll part
11:05
Speaker 1: time and became a mentor and helped me with all
11:09
Speaker 1: my work and kind of was my shepherd and was incredible.
11:12
Speaker 1: And then you know, the other part is just couldn't
11:16
Speaker 1: be more fortunate. You know, my first weekend, I've become
11:20
Speaker 1: friends with the food analysts you're talking about, Michael Mobison.
11:23
Speaker 1: I assume, correct, correct. The sequence of fortunate events is
11:27
Speaker 1: so like mind boggling. So I, um, I get to
11:32
Speaker 1: know Mike. Mike hands me a book called Valuation that
11:37
Speaker 1: Mackenzie had written in another one by Stern Stewart, all
11:40
Speaker 1: about return on invested capital, which he's using in the
11:43
Speaker 1: food space. Um, out of curiosity and because he's pushing me,
11:48
Speaker 1: I run the numbers for all the PC manufacturers, and
11:52
Speaker 1: it turns out Dell is crushing everyone on this metric
11:57
Speaker 1: that no one's using in the in the analysis of
12:01
Speaker 1: that market. And it also turns out that they've got
12:06
Speaker 1: an option scandal problem and a laptop battery problem and
12:10
Speaker 1: the stocks trading at six times earned. And so through
12:15
Speaker 1: through using that methodology that Michael taught me and spending
12:19
Speaker 1: a ton of time with Tom Meredith, who was the
12:21
Speaker 1: CFO deal at the time, UM, you know, we went
12:25
Speaker 1: to a strong by when everyone was was had a
12:28
Speaker 1: cell rating, which was the only strong Bye I ever
12:31
Speaker 1: did in my career. Um and I think the stock
12:34
Speaker 1: went up a hundred acts in the public market from there.
12:37
Speaker 1: So now let's let's fast forward to the Amazon I
12:42
Speaker 1: p O. You're the lead analyst, tell us about that experience. Yeah, So,
12:47
Speaker 1: in my third year as an analyst at CSFP, I
12:51
Speaker 1: was about to I was about to jump shift and
12:53
Speaker 1: go to the Bye side. I've been spending a bunch
12:55
Speaker 1: of time with Capital Group, actually who I think the
12:58
Speaker 1: world of um uh you know, and still still keep
13:02
Speaker 1: in touch with people there all the way until today.
13:05
Speaker 1: And Frank Quatroum called me out of the Blue and
13:08
Speaker 1: he said, I've heard a lot about you. We're leaving
13:10
Speaker 1: Morgan Stanley. We're going to start this boutique in that
13:15
Speaker 1: tech investment bank called d MG Technology Group. And when
13:19
Speaker 1: you really want us to join? And I really wanted
13:22
Speaker 1: you to join, and um I called Roger McNamee UM
13:28
Speaker 1: because I did. I was looking for some advice and
13:31
Speaker 1: Roger was a client of mine at TSFP and he said,
13:34
Speaker 1: you got to meet with Frank. You have to meet
13:35
Speaker 1: with Frank. And so I met with Frank. He he asked,
13:40
Speaker 1: what do you want to do long term? And I
13:41
Speaker 1: said I'd love to be a venture capitalist and he said,
13:44
Speaker 1: I'll tell you what come work for me. I'll move
13:46
Speaker 1: you to Silicon Valley. I'll introduce you to every DC
13:49
Speaker 1: that I know. So that was a pretty good Uh,
13:52
Speaker 1: that's a pretty good offer. Um. When when I got
13:55
Speaker 1: to Frank, well, Frank and I then started. He said
14:00
Speaker 1: he said what else? And I said, well, I don't
14:02
Speaker 1: really want to cover PCs anymore because they're gonna they're
14:05
Speaker 1: gonna merge with the Big Box Group and I'm gonna
14:08
Speaker 1: have to cover HP and DECK and that's boring. He goes, well,
14:12
Speaker 1: what do you want to cover and I said, this
14:14
Speaker 1: Internet things popping up, let's do that. He said, fine, So, UM,
14:20
Speaker 1: this is the priest Fitzer Wall so the bankers in
14:23
Speaker 1: the research and now it's spent a lot more time together.
14:25
Speaker 1: But UM I had already I believe UH reached out,
14:31
Speaker 1: you know, the bezos one way or another, just paying
14:34
Speaker 1: attention to what was happening with the internet. UM and
14:37
Speaker 1: made a couple of trips up to Seattle UH to
14:40
Speaker 1: speak with him. UM got to know him pretty well.
14:44
Speaker 1: We're still close friends today and he's a large investor
14:47
Speaker 1: in Benchmark and UM and you know it, luckily we
14:54
Speaker 1: got to know him before it happened. But they ended
14:56
Speaker 1: up being a bake off, and it was it was
15:00
Speaker 1: you know, I think Morgan Stanley was in before us
15:03
Speaker 1: in Goldman after the meetings were a Decliner building on
15:07
Speaker 1: sand Hill and somehow we won the man do I
15:13
Speaker 1: To this day it's one of my favorite trivia questions.
15:15
Speaker 1: Who was lead left on the Amazon I p O
15:17
Speaker 1: because not many people will be able to say Deutsch
15:21
Speaker 1: to Morgan Gruntsfeld. But but there there is a photo
15:24
Speaker 1: of it on the internet. If you do a search
15:27
Speaker 1: to have a book somewhere right, don't you have a
15:31
Speaker 1: I do. I have the prospectives and and I also
15:34
Speaker 1: my my assistant at the time, JULIETT. Wilson, who was
15:39
Speaker 1: it was really great. She had this idea that we
15:42
Speaker 1: would find the pitch book, and she found a company
15:47
Speaker 1: in San Francisco that was opened all night that would
15:50
Speaker 1: bind a book for you. The bankers thought we were
15:53
Speaker 1: nuts because they loved to put pages in at the
15:55
Speaker 1: last minute, and these like three ring binders, but they
15:59
Speaker 1: agreed to it. So like she drove to the city
16:01
Speaker 1: at like two am and and we we used bound
16:05
Speaker 1: pitch books for them. And I still have a copy
16:08
Speaker 1: of that, which is kind of cool. That's quite amazing.
16:11
Speaker 1: How did you value companies back then when there wasn't
16:16
Speaker 1: a lot of revenue. There certainly wasn't any profit. There
16:20
Speaker 1: were eyeballs, there were clicks. How do you put evaluation
16:23
Speaker 1: on on a a relatively young startup? You know, I
16:28
Speaker 1: um got that opportunity to jump to venture only thirteen
16:33
Speaker 1: months after I joined Frank and I did, and so
16:37
Speaker 1: I was I would I had left the equity research business.
16:42
Speaker 1: By the times stuff started going really crazy um in
16:47
Speaker 1: the in the in UM and so I started thinking
16:52
Speaker 1: about it as a as an investor in less the
16:55
Speaker 1: research analyst. But I didn't, I wasn't forced into that quandary. Um.
17:01
Speaker 1: I wrote a blog post way back then though about
17:05
Speaker 1: proxy valuations, and I noted that people like John Malone,
17:11
Speaker 1: you know, had been able to convince Wall Street to
17:14
Speaker 1: think about homes past instead of you know, a pe
17:18
Speaker 1: multiple and that there's a value for home past if
17:21
Speaker 1: we can grow homes path and there were so there
17:23
Speaker 1: were other people at that time that had been successful
17:27
Speaker 1: at it, kind of changing on how you think about things.
17:32
Speaker 1: But of course in things just went super nutty. They
17:37
Speaker 1: may be super nutty again. Um and uh and it.
17:42
Speaker 1: It can cause a lot of anxiety for someone who
17:46
Speaker 1: was brought up rooted in financial history and you know,
17:51
Speaker 1: someone who's who felt like a study partner of Mike Mowison,
17:55
Speaker 1: like it's it's hard when you see craziness. So you're
18:00
Speaker 1: not a specially big fan of initial public offerings. What's
18:05
Speaker 1: the problem with traditional I p O s. There's a
18:08
Speaker 1: problem that's been inherit for a very long time, and
18:11
Speaker 1: then there's a problem that's gotten way worse than the
18:15
Speaker 1: past five years. The problem that's been around for a
18:17
Speaker 1: very long time. You know. Bill Hamburg was pushing on
18:22
Speaker 1: this over twenty years ago. You know, he said it's
18:25
Speaker 1: an insider's game and it's rigged, and he was one
18:28
Speaker 1: of the inside. You know, Um, and Pierre and Evey
18:33
Speaker 1: got upset about it. Larry Sergey got upset about it.
18:37
Speaker 1: You know. So I think it's and and net sweet
18:42
Speaker 1: you know, Uh got upset about it. Uh, Allison was
18:46
Speaker 1: upset and as a result of the team at that
18:49
Speaker 1: sweet and So I think it's always important when this
18:53
Speaker 1: topic comes up to highlight that there were plenty of
18:56
Speaker 1: other people in Silicon Valley that we're ringing this bell
18:59
Speaker 1: before I was. Um, I'm just the latest person to
19:02
Speaker 1: pick up the baton. Um. There's two real problems, um
19:08
Speaker 1: that have been exacerbated recently. One is they don't let
19:13
Speaker 1: everyone been so you're there's a very restricted set of
19:19
Speaker 1: people who get to decide if they get if they
19:23
Speaker 1: want to buy stock in and office, and it's it's
19:26
Speaker 1: not everybody. There's not even any oversight as to who
19:29
Speaker 1: gets led into that circle. And then the second thing
19:32
Speaker 1: is they don't use price, Uh just they don't use
19:37
Speaker 1: supplying demand to set the price. And determine who gets
19:40
Speaker 1: the shares. They literally have humans saying we think the
19:44
Speaker 1: price should be this, then we're going to give it
19:45
Speaker 1: to this many people. Um, it's no shock that that
19:51
Speaker 1: has resulted in miss prices. And now there's forty years
19:55
Speaker 1: of under pricing data. Professor j ritterd at uh Eurosity
20:00
Speaker 1: of Florida has aggregated all this on his website. He
20:03
Speaker 1: keeps it up to date, so I just get the
20:06
Speaker 1: point of his stuff. Um, those numbers have gotten insane recently.
20:11
Speaker 1: So the previous two years were six and seven billion
20:14
Speaker 1: dollars one day underpricing, and then was thirty five billion.
20:18
Speaker 1: So Bill, some people might say, on at least on
20:21
Speaker 1: Wall Street, that that's not a bug, that's a feature.
20:24
Speaker 1: Oh maybe for that client. You know. I do think
20:29
Speaker 1: that all of it makes sense when you realize that
20:31
Speaker 1: the key customer of the investment bank is the institutional
20:37
Speaker 1: share the firms to the fidelities and t ros and
20:40
Speaker 1: cathital groups. Um, that is the customer that's being served.
20:44
Speaker 1: And I guess that's fine to a certain extent, except
20:49
Speaker 1: the banker UM acts as if they're looking after your
20:53
Speaker 1: best interests. Also, there's no high dollar transaction that you'll
20:59
Speaker 1: do in your life very where you use the same
21:03
Speaker 1: agent as the counterpart. It's the only one there. There
21:08
Speaker 1: literally isn't. You wouldn't do that in M and A transaction,
21:11
Speaker 1: you don't. You don't do it when you sell a house. UM,
21:14
Speaker 1: you always get your own you know, agent to look
21:17
Speaker 1: after your best interests. So it's bizarre how much trust
21:21
Speaker 1: there is UM when people go into that process. And
21:26
Speaker 1: I think that trust gets taken advantage of. When I
21:28
Speaker 1: was on Wall Street, UM, there were these huge sales
21:32
Speaker 1: forces in every region, and when you did an I
21:36
Speaker 1: T O there was variable compensation for people that could
21:40
Speaker 1: play shares, and even between the banks, there was this
21:43
Speaker 1: thing called jump ball economics where your bank was encouraged
21:48
Speaker 1: to outperform the other bank, so that they used to
21:51
Speaker 1: use this word distribution. I'm looking to get this offering
21:54
Speaker 1: out and you got to go sell it, right. The
21:58
Speaker 1: sales force at the two largest investment banks today's one
22:02
Speaker 1: tenth the size it was back then, so they don't
22:04
Speaker 1: even have the people anymore. And what they've done is
22:09
Speaker 1: they now focused the majority of the I P O process,
22:12
Speaker 1: unlike the top twenty accounts UM, so there's no effort
22:16
Speaker 1: anymore to push it out. It's just more of an
22:18
Speaker 1: effort to see what these people want. And they've settled
22:23
Speaker 1: in on an optimization function, which is truly remarkable that
22:29
Speaker 1: they get that this actually passes muster. But they tell
22:34
Speaker 1: each and every CEO and CFO and board that comes
22:38
Speaker 1: to go public that their goal should be being thirty
22:41
Speaker 1: to fifty x over subscripts. Amazing. Supplying demand was understood
22:48
Speaker 1: three or four years ago. How you could sell the
22:51
Speaker 1: most important asset in your firm, which is your stock,
22:55
Speaker 1: um into a process where you're being told that x
23:00
Speaker 1: oversubscribed is optimization. It's shocking. It's literally shocking to me.
23:07
Speaker 1: So let's talk about an alternative like direct listings. How
23:12
Speaker 1: do they work and what are their advantages versus a
23:15
Speaker 1: traditional I P O. Yeah, so, like forty years ago,
23:18
Speaker 1: people built algorithms into exchanges that allows you to match
23:23
Speaker 1: supplying demand to determine price. And every single stock these days,
23:29
Speaker 1: every day when it opens, goes through that process. Right
23:32
Speaker 1: every morning, you know you gotta start trading a stock,
23:35
Speaker 1: how do you determine which price? Where's the first trade happen? Um?
23:40
Speaker 1: And it's all just a simple matter of matching supplying demand.
23:44
Speaker 1: The most u highly used algorithms called priced time, which
23:49
Speaker 1: is if if you put in a bit at the
23:51
Speaker 1: price that they evinced the open apt or if you
23:54
Speaker 1: put a bit of a pity above the price they
23:56
Speaker 1: open at, you automatically get filled. If you're at that
23:58
Speaker 1: price whoever had order in first. So that's the price
24:01
Speaker 1: in the time. UM. That's exactly how every stocks opened
24:05
Speaker 1: every day on both the NAT deck and the n
24:09
Speaker 1: y C. And here's the best part. That same technique
24:14
Speaker 1: is used the day after a hand allocated i p O.
24:17
Speaker 1: So every company that does an i p O does
24:21
Speaker 1: a direct listing that the very next morning, except the
24:24
Speaker 1: only people allowed to sell, and I feel are the
24:27
Speaker 1: ones that you gave the stock to the night before,
24:30
Speaker 1: which is also perverse. Um. But the technique that I
24:34
Speaker 1: think the most elegant thing about the direct listing is
24:38
Speaker 1: it uses the systems that are already in place. And
24:41
Speaker 1: so if you talk to the guys that Citadale that
24:44
Speaker 1: have done all four of the high profile direct listing, um,
24:48
Speaker 1: they they actually, you know, will tell you, yeah, this
24:51
Speaker 1: is just like how we open every other stock, or
24:53
Speaker 1: just like we opened a stock after an i p O.
24:55
Speaker 1: The day before um, and now I had a front
24:58
Speaker 1: row seat on a Sonic because we or an investor there.
25:01
Speaker 1: But um, they just start announcing a range. People tighten
25:05
Speaker 1: up their their bids and their offers and eventually a
25:08
Speaker 1: block trade and then you're often going. But it's completely blind,
25:13
Speaker 1: so no one gets an allocation because of who they
25:15
Speaker 1: are there, their brand, and it's all tied to that
25:18
Speaker 1: algorithm the price and time and so on. Just to prove.
25:23
Speaker 1: And here's another great thing, because it's in the network
25:26
Speaker 1: already because they're using these systems at the exchanges. It's
25:30
Speaker 1: connected to all brokerages. So for a direct listing, you
25:34
Speaker 1: want to go on robin Hood, you want to go
25:36
Speaker 1: on swab put in an order for one share of
25:39
Speaker 1: fourteen buck. If that's above the opening price, you get filled.
25:44
Speaker 1: Like and that's that's the the I said. There are
25:48
Speaker 1: two parts, you know, using algorithms applying demand to set price,
25:52
Speaker 1: but also being available to every shareholder on the exchange,
25:56
Speaker 1: and you get both of those, which is way better.
25:59
Speaker 1: It's just it's like it to me. The the the
26:04
Speaker 1: onus on why we would do something should be on
26:07
Speaker 1: why would we ever have someone sitting there? You know,
26:10
Speaker 1: hand allocating in hand determining price makes no sense. We
26:14
Speaker 1: hope we sell every bond in this country, you know,
26:17
Speaker 1: with this type of system. UM, and and I hope
26:20
Speaker 1: one day that that's how every one of these ideas were. So, Bill,
26:25
Speaker 1: how does a direct listing compare to, say, the way
26:28
Speaker 1: Google went public with that sort of reverse Dutch auction. Well,
26:33
Speaker 1: I take three things about that. So so, first of all, um,
26:37
Speaker 1: because they were trying to do it in a in
26:41
Speaker 1: a innovative manner, it was bespoke and so uh, I
26:46
Speaker 1: think Morgan Stanley hired like two hundred engineers to build
26:49
Speaker 1: the system, and it was a one off. That's different
26:52
Speaker 1: from what I just described with direct listings, where they're
26:55
Speaker 1: using this process and systems that have been in place
26:59
Speaker 1: for twenty or two years at the nassect in the NYC.
27:02
Speaker 1: So obviously one of those is better than the other. Um.
27:06
Speaker 1: For any retail investors that wanted to do Google, they
27:08
Speaker 1: had to go open an account I think at Hamburg
27:11
Speaker 1: con Quest or something like. It wasn't tied to the
27:16
Speaker 1: Open Exchange the way this is, so you didn't have
27:19
Speaker 1: all of that. And then and then lastly, you know
27:23
Speaker 1: you you you because it was the first one, your
27:27
Speaker 1: auction participants just didn't have a lot of experience. And
27:31
Speaker 1: there's this great legendary story, uh that Bill Miller was
27:36
Speaker 1: trying to figure out how much he should put in
27:39
Speaker 1: on the Google auction and he he apparently hired a
27:42
Speaker 1: bunch of auction specialists to come breathe his team on
27:46
Speaker 1: how to think about this, and somewhere like the second day,
27:49
Speaker 1: someone realized that all the auction theorists were starting by saying,
27:53
Speaker 1: assuming you have participants who are experienced, like all the
27:59
Speaker 1: auction theory based on people having experience. And he then realized,
28:04
Speaker 1: everyone's going to be inexperienced here, They're going to be conservative,
28:07
Speaker 1: they're gonna underbid, And he put in a huge order
28:11
Speaker 1: and got failed. A great story he did, so he did,
28:15
Speaker 1: he got failed. So there was no experience and and
28:18
Speaker 1: a and a much a much less less uh efficient
28:22
Speaker 1: tech tack relative to work we have today. So when
28:25
Speaker 1: you do a direct listing, do you still have the
28:29
Speaker 1: rest of the trappings, Is there still a road show?
28:31
Speaker 1: Do you need to sort of show your wears to
28:35
Speaker 1: bankers or do you just you know, listening go public.
28:39
Speaker 1: So there's a misunderstanding on this point. And it was
28:42
Speaker 1: partially driven by there was a there are a group
28:45
Speaker 1: of naysayers. He said, you could only do a direct
28:47
Speaker 1: listing if you're extremely well known brand. UM, which I
28:51
Speaker 1: think was was was quite frankly bs from the beginning.
28:54
Speaker 1: But UM, I think you know, with a Sauna having
28:58
Speaker 1: a successful direct listing, it's not a not a household brand.
29:02
Speaker 1: I think we've kind of blown that up. UM. But
29:05
Speaker 1: the other thing was they thought that the in person
29:08
Speaker 1: road show was was tremendously important and you can only
29:12
Speaker 1: do that with an id O. Well, of course with
29:15
Speaker 1: COVID that's been proven wrong in case every idea now
29:19
Speaker 1: is virtual. But but the bigger point I would make
29:23
Speaker 1: is the amount of information you can share is actually
29:26
Speaker 1: a superset of an I p O so you you
29:28
Speaker 1: have way more opportunity to educate. UM. All four direct
29:33
Speaker 1: listings have used the equivalent of an investor day, so
29:36
Speaker 1: like four to eight hours of information dissemination from different
29:41
Speaker 1: parts of the company, which you would never get on
29:44
Speaker 1: a traditional I p O, UM and and Slack and
29:49
Speaker 1: then decided that in addition to the investor day, they
29:52
Speaker 1: wanted to do the standard road show and that was
29:55
Speaker 1: that was available and so they did vote, so they
29:59
Speaker 1: were able to actually to do even more. Daniel act
30:02
Speaker 1: interestingly at Spotify, felt strongly that he felt in this
30:08
Speaker 1: tide to open access, he wanted every investor to have
30:12
Speaker 1: the exact same information, and so he was uncomfortable doing
30:16
Speaker 1: the road show because he wanted to retail investors to
30:19
Speaker 1: not be at a disadvantage to the institutional investors. That
30:23
Speaker 1: that's really interesting. Are there any legal or regulatory impediments
30:29
Speaker 1: two direct listings becoming more popular or is it just
30:33
Speaker 1: simply there's an entrenched I p O process and it's
30:37
Speaker 1: what so many people are used to. Yeah. I think
30:40
Speaker 1: there's a lot of that entrenched thing, you know, when
30:43
Speaker 1: you take your company public. For many CEOs and founders
30:47
Speaker 1: and CFOs, they may do it once in their lifetime,
30:50
Speaker 1: and so it carries this kind of special uh like important.
30:59
Speaker 1: And I think that weight of importance causes conservatism because
31:03
Speaker 1: people are like, oh my god, I can't screw this up.
31:06
Speaker 1: And I think bankers take advantage of that. I say,
31:10
Speaker 1: often an I p O is like a grand Southern
31:12
Speaker 1: wedding right where they tell you, you know, oh, no
31:16
Speaker 1: cost is too much, right, you gotta have every bell
31:18
Speaker 1: and whist here you want this to be spectacular. Um.
31:22
Speaker 1: And that seduction I think plays a part of the
31:26
Speaker 1: whole thing. Um. It's interesting to me when you look
31:30
Speaker 1: at the thread that goes through the type of entrepreneur
31:33
Speaker 1: who really stands up and says, you know, I need
31:36
Speaker 1: to do this because this is what's right. And Larry
31:39
Speaker 1: and Sergey did that, Daniel Act did that. You know,
31:43
Speaker 1: Toby it's spot up at shopify and said of man,
31:46
Speaker 1: if I ever had another chance, I would definitely do
31:48
Speaker 1: a direct listing, and and and I have to believe
31:53
Speaker 1: I would bet a lot, a lot, a lot of
31:55
Speaker 1: money that Bezos would do a direct listing if we
31:58
Speaker 1: were coming out today. Um. I just think, you know,
32:03
Speaker 1: I think it takes a certain amount of hutspun, a
32:05
Speaker 1: certain amount of conviction um to kind of go against
32:09
Speaker 1: the grain. But the more of these that are under
32:12
Speaker 1: our belt, and we've got roadblocks and coin based coming soon,
32:15
Speaker 1: I think I think the more momentum will be. Obviously
32:18
Speaker 1: there's one piece that that that is missing still today,
32:22
Speaker 1: but there's a lot of progress on is adding primary
32:26
Speaker 1: capital to it. Stacy Cunningham, who runs the n Y
32:29
Speaker 1: sc Um, really really pushed hard on making this happen,
32:34
Speaker 1: and Commissioner Clayton and his last act I think two
32:38
Speaker 1: days before he stepped away as Chairman of the SEC
32:42
Speaker 1: pushed that through and so it's now legal to do it,
32:46
Speaker 1: and they're gonna you know, it'll take a few companies
32:48
Speaker 1: to be the first one through the door. UM, I
32:51
Speaker 1: don't think there's any technical issues with adding primary capital.
32:55
Speaker 1: Quite fascinating. So Bill, let's talk a little bit about Uber.
32:59
Speaker 1: You are one of the earliest investors. You participated in
33:02
Speaker 1: the A rounds. What did you see at that stage
33:06
Speaker 1: that got you so excited? We we had made this
33:09
Speaker 1: investment in Open Table, and the it felt like a
33:15
Speaker 1: flyer at the time, I think it said, I don't
33:17
Speaker 1: think it looks that way now. But we we made
33:20
Speaker 1: this bet that if you could get this flywheel moving,
33:25
Speaker 1: that connecting all of the world's restaurants would create a
33:31
Speaker 1: very special um experience for the consumer. And you know,
33:35
Speaker 1: pribor Open Table, you couldn't say, oh, I need a
33:38
Speaker 1: table for six and would love Chinese in San Francisco
33:42
Speaker 1: on Saturday and then immediately get a response like that
33:46
Speaker 1: was an impossibility. And so my partnership and I started
33:50
Speaker 1: asking what other industries, could you put this network layer
33:55
Speaker 1: on and and have an AHA experience for the consumer.
34:00
Speaker 1: And the one the one that has intrigued me just
34:04
Speaker 1: in terms of like fundamental research and thinking was was cars.
34:09
Speaker 1: I just thought, if you put a network on cars,
34:11
Speaker 1: and there's so much inefficiency, especially around black cards, you know,
34:16
Speaker 1: you would you spend as much on a business trip
34:19
Speaker 1: you played Chicago for a day, You spent as much
34:22
Speaker 1: on the black car that that you rode around in
34:24
Speaker 1: all days you did the flight UM, and most of
34:27
Speaker 1: the time they were just sitting there and then God forbid,
34:30
Speaker 1: you come out and you can't find them, and you're
34:32
Speaker 1: calling them like it's just all this waste and UM.
34:37
Speaker 1: So I just started proactively meeting with companies and I
34:40
Speaker 1: met with probably three or four companies that have built
34:44
Speaker 1: this network layer on top of taxi UM and spent
34:49
Speaker 1: a lot of time with those companies. It struck me
34:52
Speaker 1: the more I learned about it that most taxis were
34:57
Speaker 1: oligopolis and in cities, UM they were highly regulated so
35:03
Speaker 1: you couldn't mess around with price, which isn't optimal for
35:06
Speaker 1: a for a marketplace. UM. There were there was all
35:11
Speaker 1: kind of of ugliness around people that have tried to
35:15
Speaker 1: sell technology to them before they were installing uh devices
35:21
Speaker 1: in the dash and stuff, and so there's just a
35:24
Speaker 1: lot that that kind of didn't look great the more
35:27
Speaker 1: I dug into that, and so I kind of came
35:30
Speaker 1: back to the partnership and just said, Hey, if you
35:32
Speaker 1: ever see anyone doing this around black cars instead of taxis,
35:36
Speaker 1: let's let's talk to them. And and that's what happened.
35:39
Speaker 1: Garrett and Travis and Brian Graves, you know, started doing
35:43
Speaker 1: this thing right in our backyard. That was exactly what
35:46
Speaker 1: we were talking about internally, and so we smothered We
35:51
Speaker 1: actually met with him before the seed round. Um and
35:54
Speaker 1: my partners couldn't quite get there. But six months later
35:57
Speaker 1: we lead the a so and and no regrets to
36:01
Speaker 1: say the least. So, so you are not only a
36:04
Speaker 1: very engaged board member at Uber, you were Travis's Travis Kalis,
36:10
Speaker 1: who's the CEO. You've been described as his consigliari. How
36:15
Speaker 1: difficult of a role does that put you in where
36:18
Speaker 1: you're both an investor into the company, but a cheerleader
36:22
Speaker 1: into one of the founders in the CEO. You know,
36:25
Speaker 1: I think I think that that is a role we
36:29
Speaker 1: play as early stage venture capitalist that we always take
36:35
Speaker 1: a board seat of bench mark. I think that's a
36:37
Speaker 1: role we play in every company UM and I think
36:40
Speaker 1: it is the most nuanced, difficult part of the job
36:45
Speaker 1: to be simultaneously a friend and partner who's trying to
36:49
Speaker 1: help develop a mentor, a founder and and shepherd demil
36:54
Speaker 1: in their in their journey hopefully you know, evolving beyond
36:58
Speaker 1: and past you know, yourself into into the public markets
37:03
Speaker 1: UM and simultaneously have a fiduciary duty job as a
37:08
Speaker 1: board member to look after the interest the shareholders. And
37:11
Speaker 1: it's tough, um I. You know a lot of there's
37:15
Speaker 1: lots of different stories with a lot of different factors,
37:18
Speaker 1: a lot of different investors and that have been through
37:20
Speaker 1: that UM. In this particular case, you know, it's well
37:24
Speaker 1: known that became they got they got increasingly difficult UM
37:29
Speaker 1: and And I would say, you know, that's not optimal,
37:32
Speaker 1: like like in in in the in the perfect scenario,
37:38
Speaker 1: you know, you have something like like Bezos at Amazon
37:41
Speaker 1: where the founder is able to to rise and scale
37:45
Speaker 1: and and do extremely well UM into the public markets
37:49
Speaker 1: and beyond. But it doesn't always work out that way.
37:53
Speaker 1: So I've been a user of Uber for god knows
37:56
Speaker 1: how long. Um, and I've watched the Rise and Fall
37:59
Speaker 1: and Eyes again and that led me to read the book.
38:03
Speaker 1: Super pumped the battle for Uber. You're the only guy
38:06
Speaker 1: in the whole book who comes out with your reputation intact.
38:11
Speaker 1: Everybody else in the book is I don't know any
38:13
Speaker 1: of these people, so I can't say how accurate it is.
38:17
Speaker 1: But everybody comes across, as you know, either a jerk
38:21
Speaker 1: or an egotist or just so sharp elbowed. You seem
38:25
Speaker 1: to be the only mentioned, the only person of character
38:29
Speaker 1: in the book. Have you read it and and if
38:32
Speaker 1: you have, is it remotely accurate? I have not read
38:35
Speaker 1: it very My wife read it and and echoed what
38:38
Speaker 1: you just said. UM. I chose not to read it
38:42
Speaker 1: just because I didn't necessarily want to live it again.
38:46
Speaker 1: But that's probably not fair to the oscar I I
38:48
Speaker 1: just probably showed at some point, So I don't know.
38:51
Speaker 1: I can't speak to that because I haven't read it
38:53
Speaker 1: in detail understandable. So ultimately Travis gets forced out and
39:00
Speaker 1: the next day you resign from the board and you
39:03
Speaker 1: show your support for him stay in. There will be
39:07
Speaker 1: many pages in the history books devoted to at Travis
39:11
Speaker 1: Kay that's his Twitter handle. Very few entrepreneurs have had
39:15
Speaker 1: such a lasting impact on the world. That was a
39:18
Speaker 1: good couple of years ago. With the passage of time,
39:22
Speaker 1: Do you feel uh the same? How is your perspective
39:26
Speaker 1: changed since since you stepped down? Yeah, I mean they're
39:31
Speaker 1: they're Travis heads and probably still does. Has qualities that
39:36
Speaker 1: are particularly unique. He is really really really bright. Um.
39:43
Speaker 1: He is tireless, like like he will outwork you. Um.
39:48
Speaker 1: I think at one point, Tom, you know, I said
39:50
Speaker 1: I'd be afraid of having and money in and in
39:54
Speaker 1: a company that he's competing with, just because I doubt
39:58
Speaker 1: you're going to work as hard as he is a
40:00
Speaker 1: combination of of intelligence and and remarkably hard worker. UM.
40:07
Speaker 1: And I also think because and this is an interesting
40:11
Speaker 1: thing to look out for his venture capitalists, because his
40:14
Speaker 1: first two companies didn't have huge success. When he realized
40:20
Speaker 1: he had product market fit, I think he leaned into
40:24
Speaker 1: it with it, with it with an amount of of
40:29
Speaker 1: recognition of how special that is, you know. I think,
40:34
Speaker 1: you know, so for better for work, some people get
40:36
Speaker 1: started on companies that just started as good as other companies. UM.
40:40
Speaker 1: And you know the famous saying like Buffett, when a
40:44
Speaker 1: bad business meets a good man's and team, it's the
40:46
Speaker 1: business who comes out with its reputation intact um. And
40:50
Speaker 1: I really think Travis knew that this was special, and
40:55
Speaker 1: so he went after it a great recruiter, was able
40:58
Speaker 1: to bring in a lot of great people, UM fearless,
41:03
Speaker 1: like like he launched the business in China when every
41:08
Speaker 1: every single founder in the in the US has been
41:12
Speaker 1: told to give up on China, and was able to
41:14
Speaker 1: parlay it into a you know, a pretty big ownership
41:17
Speaker 1: position indeed, which Uber still has today. So a lot
41:21
Speaker 1: of amazing quality. So the challenging question is where did
41:27
Speaker 1: it go off the tracks? I mean, he clearly built
41:31
Speaker 1: a behemoth um and arguably Uber is gonna be around
41:37
Speaker 1: and going to influence transportation and food delivery and self
41:41
Speaker 1: driving cars and go down the list for a long time.
41:45
Speaker 1: Where did it go off the rails? You know? Like
41:48
Speaker 1: I said earlier, I think I think if if a
41:50
Speaker 1: venture capitalist is doing their best work, you know this
41:53
Speaker 1: doesn't happen, right like you're able to help shepherd and
41:57
Speaker 1: mentor um the founders that they can can rise to
42:01
Speaker 1: the occasion and scale alongside the company. UM, A lot
42:06
Speaker 1: of a lot of these has had a very special
42:09
Speaker 1: weapon over the years. A gentleman named Bill Campbell that
42:13
Speaker 1: you may have heard about from time to time, who
42:16
Speaker 1: was known as the legendary coach of Silicon Valley. You
42:19
Speaker 1: know when he you know, he spent time with Bezos
42:23
Speaker 1: early on, not a lot, but a year or two. UM,
42:26
Speaker 1: he spent an immense amount of time with with Steve Jobs,
42:30
Speaker 1: and he spent an immense amount of time with Larry
42:32
Speaker 1: and Sergey. Most people don't know this, but he was
42:35
Speaker 1: still running the management team meeting at Google ten years
42:39
Speaker 1: after they were public. UM. And so you know, he
42:45
Speaker 1: unfortunately passed. I think I think if he also, you know,
42:48
Speaker 1: I think if we had had the opportunity to introduce
42:51
Speaker 1: him to Travis, he might have been super healthful in
42:54
Speaker 1: that way. I don't know. UM, it's those kind of
42:58
Speaker 1: things I think about in wreck respect. UM, everything got
43:03
Speaker 1: so big so fast, and the money got so big
43:06
Speaker 1: so fast that I think it can impact UM. I
43:12
Speaker 1: think it came ipact perspective that people have UM and UH,
43:18
Speaker 1: and I think it just got away from us. At
43:20
Speaker 1: one point that year, you know, we were losing market
43:24
Speaker 1: share pretty dramatically, and you know, the marketing department had
43:29
Speaker 1: brand surveys, you know that we're in a free fall.
43:32
Speaker 1: We had um five or six investigations that were underway.
43:38
Speaker 1: I was on special committee conference calls you know, every week,
43:43
Speaker 1: and it you know, it looked like the fate of
43:47
Speaker 1: the company was at stake, and and and I you know,
43:50
Speaker 1: and after that, some of some of the most touching moments.
43:55
Speaker 1: You know, I've been out in a restaurant in San
43:57
Speaker 1: Francisco where a random employee had come to me and say, hey,
44:01
Speaker 1: thank you, thank you for what you guys did. You know,
44:03
Speaker 1: you helped save the company. And so while I would
44:08
Speaker 1: simultaneously say I wish I could have done a better
44:12
Speaker 1: job so that we were never in that place, second
44:16
Speaker 1: to that, I think the work that we did was
44:20
Speaker 1: you know, well, in retrospect, I look back on as
44:24
Speaker 1: one of the hardest things I've ever done, but something
44:26
Speaker 1: I'm actually quite proud of because of the number of constituents,
44:31
Speaker 1: you know, shareholders, employees, um drivers that were impacted by
44:37
Speaker 1: by ensuring the company with successful that seems pretty reasonable.
44:41
Speaker 1: Let's talk a little bit about the state of venture
44:44
Speaker 1: investing today. The NASDAC was getting she lacked up until
44:49
Speaker 1: Tuesday last week, where it popped five D points over four.
44:55
Speaker 1: How do you look at the era we're in today
44:59
Speaker 1: relative so when you were coming up in the nineties
45:02
Speaker 1: and that entire dot com enclosion, Yeah, the dot com boom. Um.
45:08
Speaker 1: You know, it's super interesting to have that at the
45:10
Speaker 1: very beginning of my venture career because I saw both
45:15
Speaker 1: the mania and then the correction. You know, really before
45:19
Speaker 1: I ever got off the ground. You know, I was
45:21
Speaker 1: doing early stays investing, so the companies I had backed
45:24
Speaker 1: in that window were pretty small. Um. But I watched
45:27
Speaker 1: it all and you know, as someone who's a student
45:30
Speaker 1: of financial history, I've read all the Tulip books, you know,
45:34
Speaker 1: I've read all about these types of things, and they're
45:37
Speaker 1: known like their known when the world gets more speculative. Um,
45:42
Speaker 1: that happens from time to time. In in the in
45:46
Speaker 1: the dot com boom, we had a lot of companies
45:48
Speaker 1: going public with like a million dollars of quarterly revenue. UM.
45:53
Speaker 1: Show it was different. There was like any company could
45:56
Speaker 1: go public, but they were all these little bitty tiny companies. Today, UM,
46:02
Speaker 1: it's quite different in that Um, this this this market
46:07
Speaker 1: has becomes speculative is has arisen on the back end
46:11
Speaker 1: of what do you want you know, because this goes
46:14
Speaker 1: back including like uber is like and the Vision Fund.
46:18
Speaker 1: It's on the back of like six or years of
46:21
Speaker 1: massive amounts of capital availability. And so it's not uncommon
46:27
Speaker 1: for the amount of capital a company is raised before
46:30
Speaker 1: they go public to be in the five million to
46:33
Speaker 1: a billion range now across a wide variety of companies
46:37
Speaker 1: and so, and the companies are coming public even though
46:40
Speaker 1: they're not profitable, which we could talk about, most of
46:43
Speaker 1: them have pretty significant revenue run rates pre spack Well, Bill,
46:47
Speaker 1: what do you think is more important having a strong
46:51
Speaker 1: revenue ramp for an early company or profitability? Yes, So
46:56
Speaker 1: so look, I'm about to say something that I think
46:58
Speaker 1: is pretty obvious to people that have been around investing
47:02
Speaker 1: for a long time. So the most interesting thing about
47:05
Speaker 1: this past five years has been the near zero interest
47:09
Speaker 1: rate environment. That's probably a result of every country in
47:13
Speaker 1: the around around the globe deciding it's okay to print money, uh,
47:19
Speaker 1: you know, and so there's no where for money that
47:22
Speaker 1: there's no interest rates anywhere. And you know, when you
47:25
Speaker 1: talk to whether it's someone like Buffett or Druck and
47:29
Speaker 1: Miller or or Howard Marks. These people that follow macro
47:33
Speaker 1: way more than any venture capitalist would they know that
47:36
Speaker 1: when interest rates go to near zero, speculation abounds. People
47:41
Speaker 1: are looking for a home for their money. And I
47:43
Speaker 1: even asked the question you just asked me of Mike Molbison.
47:47
Speaker 1: I said, if interest rates go to zero, based on
47:50
Speaker 1: all your valuation work, what matters more growth or profitability?
47:54
Speaker 1: He said, growth unquestioned, just because you're not. Yeah, and
47:59
Speaker 1: that's what we're you know. Um, the these companies that
48:03
Speaker 1: are coming public, almost no one cares whether there their
48:08
Speaker 1: core profitability exists. But if they're growing north they love that. Um.
48:15
Speaker 1: When you combine that with the money that's out there,
48:18
Speaker 1: it leads to pretty manic discussions, you know, within a boardroom,
48:24
Speaker 1: because the right answer, at least in the short run,
48:29
Speaker 1: might be to increase that burn rate to really high levels, UM,
48:33
Speaker 1: certainly unprecedented in the history of American business, and push
48:38
Speaker 1: the gas and uh. It makes for a wild ride,
48:44
Speaker 1: to say the least. So the froth sounds like it's
48:48
Speaker 1: similar to the nineties, but the underlying conditions of zero
48:52
Speaker 1: percent interest rate, lots of capital, but also lots of
48:57
Speaker 1: companies with big revenue and taking market share or just
49:01
Speaker 1: developing brand new markets. That seems a little more advanced,
49:06
Speaker 1: a little more sophisticated than what was being thrown up
49:08
Speaker 1: against the wall in the nineties probably. And then there's
49:12
Speaker 1: this there's this other esoter corner of the whole thing
49:15
Speaker 1: that's super interesting, which is, um, once people get comfortable
49:20
Speaker 1: using capital as a weapon, all of a sudden, the
49:23
Speaker 1: private companies are the ones that are being provocateurs with
49:29
Speaker 1: more money against the public incumbents. And no one would
49:33
Speaker 1: have ever imagined that twenty years ago. But I think
49:37
Speaker 1: Amazon did it to Walmart, and everyone made fun of
49:41
Speaker 1: him the whole way up. You can just you can
49:43
Speaker 1: just imagine yourself being in the Walmart board room for
49:47
Speaker 1: those twenty years, and how much dismissiveness there was probably
49:52
Speaker 1: about Amazon's lack of profitability. Right, And because Bezos won
49:58
Speaker 1: over Wall Street, he is given a green light to
50:02
Speaker 1: spend and lose money while Walmart's being held to ape
50:07
Speaker 1: or Hebdomalt, and that's got to be super frustrated. Um.
50:12
Speaker 1: I think I think, uh, you know, Netflix did it also,
50:17
Speaker 1: right where everyone's sitting there going but you don't make money,
50:20
Speaker 1: but you don't make money and read got Wall Street
50:23
Speaker 1: to believe in what he was doing, which I think
50:26
Speaker 1: is a critical part of this UM and then was
50:29
Speaker 1: allowed to lose way more money than any of the
50:34
Speaker 1: production companies that he was ultimately competing with. UM it
50:38
Speaker 1: took massive share. And so now that that that's Silicon
50:43
Speaker 1: Valley entrepreneurs have been trained that that's a game you
50:46
Speaker 1: can go play. It's being done on a massive scale.
50:50
Speaker 1: I mean you look at something like what's the uh,
50:52
Speaker 1: what's the India based hotel company Ohio? Like they're just
50:57
Speaker 1: building hotels, Like they're literally building hotels adventure dollars um.
51:05
Speaker 1: It's got to be immensely frustrating to someone that's competing
51:08
Speaker 1: with them. Well, you know, when when you look at Amazon,
51:12
Speaker 1: I remember the very first investor letter that Jeff Bezos
51:16
Speaker 1: pens and in it he said, Hey, we're not going
51:19
Speaker 1: to be profitable for twenty years. We're gonna build this
51:21
Speaker 1: out and take market share, and we hope our investors
51:25
Speaker 1: are patient with us. And he was pretty true to
51:29
Speaker 1: his word. I mean, but for Amazon Web Services, he
51:32
Speaker 1: could have gone a full twenty years without showing any profit. Yeah,
51:36
Speaker 1: there's one thing about that letter I'd love to make
51:39
Speaker 1: a point about just in case there's any entrepreneurs that's
51:43
Speaker 1: ever going to write another one of those letters. Bezos
51:47
Speaker 1: came from Wall Street. You know, he understood shareholders, and
51:52
Speaker 1: I think that letter, I don't have an in front
51:55
Speaker 1: of you, but I think he says to our share
51:58
Speaker 1: owners or like, that's the inter u and he talks
52:02
Speaker 1: to the shareholder in an immensely respectful way in their language,
52:08
Speaker 1: and is telling them how they will have a synergistic relationship.
52:13
Speaker 1: Ever since that Bezos letter, a ton of of spirited founders.
52:20
Speaker 1: I think that what he was saying was I'm going
52:23
Speaker 1: to do it my way, and there was an element
52:26
Speaker 1: of that, but it was in this respectful tone of
52:30
Speaker 1: of empathy to the shareholder. Since then, a lot of
52:34
Speaker 1: these guys just right, I'm gonna do whatever I want.
52:36
Speaker 1: If you don't like it, you can shove it, basically,
52:39
Speaker 1: And that's not what he did. So I think that's
52:42
Speaker 1: interesting how that's evolved, to say the very least. So
52:46
Speaker 1: we were talking about on this capital as a weapon thing.
52:49
Speaker 1: I think one really interesting thing to watch in the
52:52
Speaker 1: next five years is going to be the consumer banking
52:55
Speaker 1: industry in the US. So there are probably sick different
53:01
Speaker 1: intensely um capitalized companies that are new age banks, you know,
53:08
Speaker 1: from so Far to Wealth Front to you know, a
53:11
Speaker 1: firm which went out um and coin Base and robin
53:16
Speaker 1: Hood and and they're doing things that I don't think
53:21
Speaker 1: there's one of them called Chime. So chime if you
53:25
Speaker 1: take them your direct deposit with your check, you know,
53:29
Speaker 1: you're earnings check from your work, they give you the
53:32
Speaker 1: cast two days early. Do you think Wells Fargo Board
53:36
Speaker 1: would ever tell their management team, Yeah, we should do
53:39
Speaker 1: that too. I don't think they'll ever consider this hyper
53:43
Speaker 1: you know, using capital as a weapon in a hyper
53:46
Speaker 1: aggressive way is coming to to consumer banking. It's already here,
53:52
Speaker 1: and I think it's gonna be super interesting to watch
53:55
Speaker 1: the incumbents over the next three or four years. So
53:58
Speaker 1: no doubt that finance is going to go through some changes.
54:02
Speaker 1: You've written about the role tech could play in transforming healthcare.
54:09
Speaker 1: Tell us a little bit about that sector and what
54:12
Speaker 1: can technology do you know. I've been thinking about this
54:15
Speaker 1: a lot lately, just because I've been running some numbers
54:19
Speaker 1: on the PCR testing in in the US, which are
54:23
Speaker 1: mind them me. Um, we have a massive problem in
54:28
Speaker 1: the US healthcare system just massive that is almost entirely
54:33
Speaker 1: um tied to regulatory capture. And there's another big, big problem,
54:41
Speaker 1: which is the employer just shouldn't be involved at all. Um.
54:44
Speaker 1: In all of the D twenty were the only country
54:47
Speaker 1: where the employer pays for healthcare, and it it just
54:52
Speaker 1: obviously skates everything. Um. There's also like like the person
54:56
Speaker 1: that's paying isn't present at the time of the trans action.
55:00
Speaker 1: No one knows the price until after the transactions already done, um,
55:06
Speaker 1: and then they fight about it. I mean, it's just
55:08
Speaker 1: it couldn't be more perverse. And I think we're going
55:11
Speaker 1: from like seventeen to eighteen too towards twenty percent of
55:15
Speaker 1: GDP and other countries aren't like that. I mean, there
55:18
Speaker 1: are plenty of countries with very similar health profiles that
55:22
Speaker 1: are half that or even less, and so I'd like
55:27
Speaker 1: to believe technology can be a part of that. I
55:30
Speaker 1: think what doug hersh is done a good our acts
55:32
Speaker 1: is interesting, um, but it may require legislation also. Um.
55:38
Speaker 1: Trump was pushing on some price transparency stuff that I
55:41
Speaker 1: thought was interesting. I think most favorite nations with drug
55:44
Speaker 1: manufacturs like you shouldn't. I think that's an okay, rule right,
55:49
Speaker 1: you can't sell drug for for ten cents in Canada
55:52
Speaker 1: and to fifty year like why not? That sounds realistic
55:56
Speaker 1: to me. But but it's hard because as of the capture,
56:02
Speaker 1: you know, there's so much money involved, and there's all
56:06
Speaker 1: these rules. The rules are written by the incumbent. HIPPA
56:11
Speaker 1: protects the incumbents, not not the consumer. And there and
56:15
Speaker 1: there's there's there's twenty versions of HIPPA. I mean, it's
56:19
Speaker 1: it's very very messy. You know, it's funny you you
56:22
Speaker 1: mentioned why are the employers involved? When you look at
56:27
Speaker 1: the First Cares Act. Rather than sending money directly to
56:32
Speaker 1: small businesses or directly to employees, they put the companies
56:38
Speaker 1: in the middle. They gave companies loans and said, hey,
56:41
Speaker 1: we'll lend you money to cover salaries if these people
56:45
Speaker 1: continue to work. You know, there's a history, there's a
56:48
Speaker 1: long history of not wanting to appear socialists and send
56:52
Speaker 1: checks to people. So we pretend by putting businesses in
56:56
Speaker 1: the middle. But you know, ultimately money from the government
56:59
Speaker 1: and is up being directed to people. And whether you
57:05
Speaker 1: want to put a business in between or not, I
57:07
Speaker 1: totally agree with you. There's just no reason why anybody
57:11
Speaker 1: who's running a business has to also be running a
57:14
Speaker 1: small medical practice on the side. It doesn't make any sense.
57:18
Speaker 1: They hate it. They hated They're no good at it,
57:21
Speaker 1: and they hate it. It's it's ridiculous. But but all
57:27
Speaker 1: the obfuscation makes it easier for the people that are
57:30
Speaker 1: in the system, and so no one, you know, no
57:33
Speaker 1: one's going to complain about it at a carrier or
57:36
Speaker 1: a healthcare provider. Um. I assume this was the motivation
57:41
Speaker 1: that got Amazon and JP Morgan and who I forget
57:45
Speaker 1: who else was in that thing um off the ground.
57:48
Speaker 1: But looks like that. It looks like that lost momentum too, right.
57:52
Speaker 1: It is a you know, it would if you consider
57:56
Speaker 1: me chilting against direct listings for a couple of years
58:01
Speaker 1: had any impact whatsoever. I imagine it's a harder push
58:06
Speaker 1: still tick against this system. And I'm sure plenty of
58:09
Speaker 1: people have but but it's hard, yeah, for sure. So
58:13
Speaker 1: we were talking about the dot com implosion early in
58:17
Speaker 1: your career. Fast forward a few years to the Great
58:20
Speaker 1: Financial Crisis. You end up writing a very prescient letter
58:25
Speaker 1: to the company's benchmark had invested in, basically how to
58:29
Speaker 1: survive the great depression too, without firing everybody, basically saying
58:35
Speaker 1: there are risks, but there are also lots of opportunities.
58:39
Speaker 1: Tell us a little bit about your thinking when you
58:41
Speaker 1: sent that email out to all of your companies. Yeah,
58:45
Speaker 1: and I think at the exact same time Secoya had
58:48
Speaker 1: circulated that deck. What was it? Good times whatever? After
58:55
Speaker 1: your boy? Um, Look, I think because I've studied the
59:02
Speaker 1: history of finance so much, I have a great deal
59:05
Speaker 1: of respect for making hard decisions, for focus on profitability, UM,
59:14
Speaker 1: for being good stewards of capital and emotionally ideal. Way
59:20
Speaker 1: better with scenarios like that than when things are a
59:25
Speaker 1: mania and popping, Because the conversations that you're having with
59:30
Speaker 1: someone are quick. People have to make very smart decisions
59:35
Speaker 1: very fast. Um, really good entrepreneurs, really thriving moments like that,
59:41
Speaker 1: and you see people really rise to the occasion in
59:46
Speaker 1: in a world, in a world that's probably you know,
59:49
Speaker 1: the things that are rewarded are being more speculative, and
59:54
Speaker 1: the very right answer maybe to take on excessive amounts
59:59
Speaker 1: of risk. That is just not as intuitive to me.
1:00:04
Speaker 1: And so UM, I have no trouble kind of delivering
1:00:08
Speaker 1: that message at that moment in time and and I
1:00:12
Speaker 1: take immense pride in seeing uh founders. There are a
1:00:16
Speaker 1: companies survived, you know, a time period like that. Some
1:00:20
Speaker 1: handful of our companies this past March, you know, had
1:00:23
Speaker 1: to live through something like that because you know, if
1:00:26
Speaker 1: you were focused on certain industries, COVID just wiped them out,
1:00:30
Speaker 1: like your revenue went away. And how you scramble, you know,
1:00:34
Speaker 1: is hard, it's but but it's super rewarding. So I
1:00:38
Speaker 1: know you are stepping back a bit from benchmark. You're
1:00:41
Speaker 1: not participating in the next fund they're raising. What are
1:00:46
Speaker 1: you gonna do now? What are the plans looking forward?
1:00:49
Speaker 1: You know, I don't know yet. Very I've been spending
1:00:51
Speaker 1: a lot of time talking to a lot of people
1:00:53
Speaker 1: who have kind of done the two of themselves. Um,
1:00:57
Speaker 1: I'm fifty three, so I feel like I've got a
1:00:59
Speaker 1: lot of energy left. UM. I love entrepreneurism, I love investing.
1:01:04
Speaker 1: I have a great deal of respect for for it. UM.
1:01:09
Speaker 1: I love talking to founders, executives, investors, and I'm trying
1:01:14
Speaker 1: to figure that out. I still sit on tin boards
1:01:16
Speaker 1: and I have a lot of of work to do.
1:01:18
Speaker 1: A benchmark. I'm going to see all of those through.
1:01:21
Speaker 1: But I'm I'm still in the I'm still in the
1:01:23
Speaker 1: learning phase of what's next quite fascinating. If you have
1:01:27
Speaker 1: any good ideas, let me know. Well, if you're looking
1:01:30
Speaker 1: for a side gig in New York, there's always a
1:01:32
Speaker 1: desk in my office for you. I don't know if
1:01:35
Speaker 1: you want to give up the nice weather out there.
1:01:37
Speaker 1: So so let's jump to our our favorite questions that
1:01:41
Speaker 1: we ask all of our guests. Tell us what you're
1:01:44
Speaker 1: streaming these days. Give us your favorite Netflix or Amazon
1:01:47
Speaker 1: Prime or or podcast you're listening to. What's keeping you
1:01:50
Speaker 1: entertained during lockdown? Yeah, you know. I I don't know
1:01:54
Speaker 1: if I have anything particularly unique. I went through Queen's
1:01:57
Speaker 1: Gammut in a couple of days, and The Loop and
1:02:00
Speaker 1: things pretty good. Um, I'd probably if people are thinking
1:02:04
Speaker 1: about this, I'd go back to an old one that
1:02:07
Speaker 1: I just adore in case, because I don't think everyone's
1:02:10
Speaker 1: watched this, but Justified as some of the best writing
1:02:14
Speaker 1: that I've ever seen is just fantastic. Quite interesting. You
1:02:18
Speaker 1: had hinted at some of your mentors, but let's give
1:02:21
Speaker 1: everybody their due who helped shape your career both on
1:02:25
Speaker 1: Wall Street and in Silicon Valley. Yeah, so I think
1:02:29
Speaker 1: I mentioned them all, but Charlie Wolf and Mike Mobson
1:02:32
Speaker 1: at CSFB unquestionably had a huge, massive impact on my
1:02:37
Speaker 1: career direction. And then obviously Frank Quatrone bringing me out
1:02:41
Speaker 1: to the valley and and getting to know Bezos early on.
1:02:45
Speaker 1: I'd say all those things, uh, And then the entire
1:02:48
Speaker 1: the entire founding team at Benchmark that brought me on
1:02:51
Speaker 1: because I wasn't a founder UM and taught me everything
1:02:54
Speaker 1: they knew. So super fortunate to have lots of different mentors.
1:02:58
Speaker 1: Let's talk about books. What are some of your favorites
1:03:01
Speaker 1: and what are you reading right now? My favorite book
1:03:04
Speaker 1: of all time is a book called Complexity, about the
1:03:06
Speaker 1: rise of the Santa Fe Institute, where I'm now fortunate
1:03:09
Speaker 1: enough to serve on the board. UM. It's really an
1:03:13
Speaker 1: analysis of multi variable non linear systems and how they
1:03:17
Speaker 1: behave and that includes things like stock market or weather,
1:03:21
Speaker 1: the pandemics UM, and a lot of the tools that
1:03:26
Speaker 1: we think are scientific, like linear interpolation, actually don't work
1:03:31
Speaker 1: very well in these chaotic systems. And I just it's
1:03:38
Speaker 1: one of the early people there. UM was the first
1:03:42
Speaker 1: Brian actor, was the first to write about network effects,
1:03:44
Speaker 1: you know, back in the early nineties, and that had
1:03:47
Speaker 1: a big impact. So anyway, that's my favorite book, Complexity
1:03:50
Speaker 1: mental waldrope um right now, believe it or not. I
1:03:55
Speaker 1: finally during COVID decided to attempt the Caro book on
1:04:00
Speaker 1: Lyndon Johnson. Um, I am, I am three quarters to
1:04:05
Speaker 1: the first one. But if you know, if you know
1:04:09
Speaker 1: the books, they're like four thousand page books, the giant
1:04:13
Speaker 1: and there's a dozen of them, it seems, and and
1:04:16
Speaker 1: and all the journalists I've met my entire life, you know,
1:04:19
Speaker 1: so you have to read this thread this three So
1:04:22
Speaker 1: I finally I finally took it on. So if I
1:04:26
Speaker 1: haven't read Complexity, but if that floats your boat, I
1:04:31
Speaker 1: thought James Glicks Chaos did a really nice job explaining
1:04:36
Speaker 1: what's behind chaos theory. They came out at about the
1:04:39
Speaker 1: same time they were. Yeah, those two books are almost
1:04:46
Speaker 1: like years of one another. Um. I found the applicability
1:04:51
Speaker 1: of what was disgusting Complexity, you know, more realistic for
1:04:56
Speaker 1: me as an investment. Anyway, that book, you know, something
1:05:00
Speaker 1: that Mobison read at the time, and and and Bill
1:05:03
Speaker 1: Miller read at the time. Bill Miller is like the
1:05:06
Speaker 1: chair emeritus. There now and Mike's the chair at Santa
1:05:09
Speaker 1: FE and so it's been fun to get to know
1:05:12
Speaker 1: them and discuss those topics and then getting deeper at
1:05:16
Speaker 1: the program. Quite interesting. What sort of advice would you
1:05:19
Speaker 1: give to a recent graduate who is interested in the
1:05:22
Speaker 1: career in either entrepreneurship or technology or venture capital investment? Yeah,
1:05:29
Speaker 1: so it turns out, from my point of view, the
1:05:34
Speaker 1: venture capital is achievable for young people, even though most
1:05:41
Speaker 1: people would tell you it's impossible. Um, I think the
1:05:44
Speaker 1: odds are low of breaking in because the supply and
1:05:48
Speaker 1: demand just doesn't doesn't really yield itself. There's not there's
1:05:52
Speaker 1: not spaces, relatives and on people want end um, but
1:05:57
Speaker 1: I think it's an area that binds to youth and
1:05:59
Speaker 1: been to hustle. And so my my advice would be, um,
1:06:07
Speaker 1: take a bet on a very narrow sector. M I
1:06:11
Speaker 1: hope you're right, but then immerse yourself in it. And
1:06:17
Speaker 1: there's no way the generalists, your capitalist is going to
1:06:21
Speaker 1: be able to compete with you because you're going to
1:06:24
Speaker 1: know more about said subject matter. You know something popular
1:06:27
Speaker 1: today like the n f T S or or you
1:06:30
Speaker 1: know VR like you can easily be the smartest you
1:06:34
Speaker 1: could be smarter than every venture capitalist on VR. If
1:06:38
Speaker 1: you immerse yourself for six months, you just would Now
1:06:41
Speaker 1: you gotta get it right. I mean, I guess that's
1:06:44
Speaker 1: the downside, but but it yields to hustle and it
1:06:48
Speaker 1: yields to focus. And so those would be the two
1:06:51
Speaker 1: things I would would recommend. Really interesting. And our final question,
1:06:57
Speaker 1: what do you know about the world of venture capital
1:07:00
Speaker 1: and technology today that you wish you knew when you
1:07:03
Speaker 1: were starting out at benchmark back. This is a really
1:07:09
Speaker 1: hard question, um, And the reason it's really hard is
1:07:12
Speaker 1: because that all of my initial answers that I want
1:07:17
Speaker 1: to give you very really violently the premise of the question,
1:07:21
Speaker 1: because I could say, well, I should have invested in
1:07:23
Speaker 1: Google right or you know, hold Amazon forever. But but
1:07:27
Speaker 1: those things are just hindsight, They're not they're I was
1:07:33
Speaker 1: gonna say, don't don't make me call Mike Mobison on
1:07:35
Speaker 1: you exactly right like that. So I my answer, which
1:07:41
Speaker 1: which I guess will be confirming of probably every guest
1:07:45
Speaker 1: you've had on and and makes it not that original
1:07:48
Speaker 1: because I've heard many other great investors say this. It's
1:07:52
Speaker 1: just the power of compounding. For some of these platforms.
1:07:57
Speaker 1: UM is so so huge that you know, if you
1:08:03
Speaker 1: invest in an Amazon or whatever, like, the hardest thing
1:08:07
Speaker 1: to possibly do is just close your eyes and forget it.
1:08:12
Speaker 1: And the only thing analysis is going to cause you
1:08:17
Speaker 1: to do is sell the stop. You know you're not
1:08:23
Speaker 1: going to run analysis, and you know, for the fourteenth
1:08:25
Speaker 1: time ago I should keep holding like and that is
1:08:30
Speaker 1: so hard, so so hard um to implement. Easy to say,
1:08:36
Speaker 1: very hard to implement. Yeah, that's a fascinating answer. You know.
1:08:40
Speaker 1: The the problem with conceptualizing compounds is that it takes
1:08:45
Speaker 1: place over years and decades, and humans live in seconds
1:08:49
Speaker 1: and minutes, and it's so challenging to conceptualize that exponential leap.
1:08:54
Speaker 1: There's no doubt. Bill. Thank you for being so generous
1:08:58
Speaker 1: with your time. I really appreciate this. We have been
1:09:01
Speaker 1: speaking with Bill Gurley. He is a venture capitalist at Benchmark.
1:09:07
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