Benchmark's Sarah Tavel on Are Foundation Models Commoditising

No. Thanks for having me as always, Harry.

So it’s a very serious decision for us when we bring on a new partner because it’s, you know, it’s a very small group. Right now, we’re five general partners. And so it’s a very deep getting to know you process. How it started initially, Peter Fenton reached out to me, and we grabbed a a coffee at SiteGlass. I was at Greylock at the time. He just mentioned that for whatever reason, they wanted to to get to know me and and to kind of talk about what it would be like to partner together.

I said no. I just didn’t like, Greylock was just it’s a great group of people. They’d been nothing but great to me. And I’d been there for, you know, a year and a half or so, and it just didn’t feel right to me at the time. And so we kind of parted ways, and then they smartly had, Rich Barton call me. I had met Rich at a prior event. Rich is the CEO of Zillow. And he called me up, and we talked about it a little bit because he knew the the Benchmark crew very well.

And he basically told me, he’s like, look. What do you have to lose by spending time with the team? If you wanna be great in this business, see how some of the greats practice the business of venture capital. When he said it that way, I just felt like, you know, he was right that what did I have to lose by getting to know the team? And then as I did then start to get to know the team, see what felt so different to me about the way Benchmark practiced partnering with founders in this, like, very small, equal, very committed way of doing things, it was just one of those things that once you saw it, you couldn’t unsee it.

Thankfully, stars aligned and they felt the same way, and so it’s been almost seven years now.

Peter has so many incredible skills. One of the things that you just see for Peter is just a relentless learning mindset. Like, he is always reading something new, listening to a podcast, internalizing all that information. Look, right now I think he’s taking graduate courses in some some subjects that we don’t even that is not even relevant. Like, it’s not like an AI class. It’s kind of further afield. And so he has that incredible orientation, that the curiosity that drives, I think, some of the best to always be learning.

And then he has just many superpowers, you know, the one that you always can’t help but feel. And every time I I’m talking to a candidate for one of my companies and and trying to close them, I feel like I I channel everything I’ve learned from Peter because his EQ around people, what motivates us, what drives us, what holds people back, and how important that is in the the arc of any company that we end up investing in, this watching, helping those founders become the best version of themselves.

I think he’s not one of the best, but the best at doing that.

The thing that comes immediately to mind for me is just the importance of the why now. It’s such a cliche question. Right? There’s always a slide when a founder’s pitch in, is like the why now. But the pointedness of that why now, how real that is, whether it’s a technology catalyst, whether it’s something, you know, some other current crypto coming out. That why now story is really so important because what you just realize is that when you have a strong why now, to me, it’s like this strong current that just pushes the company forward.

We always say that being a founder and going through hyperscale is all about making new mistakes, not not making the same mistake twice. And the resilience that your company has of being able to make mistakes and it almost doesn’t matter, the current pool in the company is so strong, that is just something that once you see it, you you can’t unsee it. The best founders take great currents and maximize that opportunity, but when you don’t have enough of a real why now, it just feels almost like you’re, you know, you’re in a boat and you’re just having to paddle really hard and not make a lot of progress.

I don’t think so. I would love to think so. And just to be clear, why now doesn’t necessarily mean a trend. It can it can be an opportunity that’s catalyzed by a new technology like we’re seeing now with AI. But without that and just a new idea in an existing market, it is a force of will and a very, very difficult to really create big opportunities that surprise.

I think part of you have to contextualize that desire of the authenticity, which I totally agree with, with the countervailing current, which is TikTok being a a black hole for people’s minutes, you know, Instagram, like all the other competitive forces. Like, what what happened with Be Real in my estimation is that they did capture that why now of the authenticity, but they could never earn the right to enough minutes for a consumer because the consumer was then having, you know, the dopamine hits of the most addictive atomic unit we’ve ever had in social, which is the, you know, short form video, you know, powered by an algorithmic global maxima feed.

You’re competing against that. And so if you have that authenticity, why now? You know, that’s a little bit against this, like, avalanche. Pretty difficult. Tidal wave should be a instead of avalanche, but you get the picture.

There’s a lot of truth to this, and I think part of where this meme has come from, you know, everybody talks about AI as something that advantages the incumbents. And when it advantages the incumbents instead of the disruptors, which are startups, then it’s a sustaining technology. And there’s no question that I I have personally never seen in my career a time when it has been more true that it’s been this race. You know, it’s always a race of the incumbent to get innovation before the startup gets distribution.

It it’s just been so easy for incumbents to innovate because it has effectively been for this first wave of AI use cases just implementing, you know, an API from OpenAI. Right? And so if you are Notion, if you are Adobe, instead of having to adopt a new product to do image generation or a new product to do kind of summarization of of content, you can just use Notion or Adobe and get access to that technology. That’s very much a sustaining way of using the technology. The way I divide the world then is that if it’s existing employees and their existing workflows, AI technology is going to be sustaining, and it’s gonna drive tremendous market cap for the incumbents.

But that doesn’t mean that there aren’t disruptive opportunities for startups leveraging AI. I think that the difference is that you have to really change the mental model that you and I have been trained to kind of think about startups for a very long time. And there’s kind of two veins to that. The first is, you know, we’re so used to software, thinking of software and application software in particular as this, like, productivity improvement product. So you and I adopt a new software product. Let’s take Notion again that lets us collaborate with our peers and our company, that makes us, you know, more productive in the work that we have to do.

Then you think about AI and, like, it’s back to increasing my productivity. So now instead of having to write a whole paragraph, I could take my bullet points and expand it and boom. You know? That makes me much more productive. And that has been all of application software for the last twenty five years. But if you realize that what AI enables is actually a very different unit of work that you sell, which is doing the work. And so you’re almost a software company that looks like a services business that is able to sell, like, the full work product, the the outcome, as opposed to selling software that an employee has to learn to use and then gets a productivity boost from.

And this is very disruptive to incumbents because incumbents are used to thinking about selling per seat and pricing per seat based on the cost of the headcount. But if instead you’re selling something that doesn’t require a seat, that is, like, a very disruptive opportunity for startups.

It’s a spectrum. There are certainly use cases that can be automated right now. We see a lot of them. Met a company the other day that is, automating HR ops. You have companies in recruiting and sales, like all different facets where there is specific types of work and it’s kind of I always think of it as like unbundling the employees. So what are the different work products that an employee has to do? Definitely, there are work products that are automatable right now.

That is not to say that, you know, if you’re Sam and your your brain is thinking about the next horizon GPT five to work beyond that, there’s no question that as the foundation models improve, we’re gonna see the ability to take on more and more complex tasks. But even now, there’s still work to do. Then there is like this question of having a human in the loop, and that’s the way that you see some companies bridging the gap right now, either an employee in the loop.

I prefer the model where you have your own employee as, like, the AI software provider in the loop that is doing the QA work that bridges the gap until the models are able to do it on their own.

I actually think about mark marketplaces as lessons to learn there. You have to divide the world between the incumbents and, like, the hungry non incumbents that wanna become the incumbents. Right? New technologies, often than not, are best served for the group of hungry up and comers that wanna become the new incumbents. You’re gonna see a class of companies that realize that if they’re early adopters of this technology, they’re able to come in with a very different pricing structure. They’re able to do things faster than the traditional firms.

And so they’re gonna be the ones that are hungry and having a cost advantage that they pass on to their their customer that lets them grow their market share.

I I just am a huge believer that the application layer is gonna drive most of the value because what you have to imagine is who owns the user over time. If you own the end user, you’re able to provide more and more value to them over time and capture that value. There’s you know, and we could talk about what happens to the underlying models. There’s certainly just incredible intense competition. Is it gonna be an oligopoly? Is it gonna be you know, we can can talk about those those subjects.

But, like, I focus on the application layer because I do think that’s where just a tremendous amount of value gets ends up being captured and created.

Oh, absolutely. I think all the companies that we invest in will only get better as the underlying models get better. They’ll be able to take on more work over time. They’ll be able to, you know, have better and better margins because they won’t have to have a human in the loop if they do. That is part of what’s so exciting about what’s happening right now.

Yeah. I I think this is exactly the challenge the first wave of AI startups have had. Maybe a framework that I think about a a startup and the product that they’re they’re bringing out into the market. And, like, let’s imagine you have a 100% of the value. Like, where does that value come from that provides that underlying service? The first wave of these AI companies, people would talk about them as a like, you know, wrappers around an LLM. But what that essentially meant is that if you have 100% distribution, 90% of the value that the startup was providing with their product was actually provided by OpenAI.

And and in that case, yes, you have 10% where, you know, you get the benefit of focus. You can do you know, you build functionality workflow around the model. But at the end of the day, if you have a notion again to our earlier conversation that can just add that feature and then have it contextualized by all the value that they’re creating with their application, that’s a really, really hard battle to fight for a startup. But what is exciting is that there’s a now the new wave of companies that have really internalized what’s possible with AI that are coming into the market with a very different distribution of value.

They’re owning more of the workflow. They’re doing more of the work to kind of prepare, you know, something to create a new experience that that wouldn’t be possible possible out of the box with any of these APIs. Those are the types of opportunities that that we we get really excited about at Benchmark.

You described this specifically for the enterprise incumbent, and I think it’s too early to know for that enterprise use case. What you’re seeing, like, where most of this adoption is happening is, like, the mid market and down, this kind of digital native company, the SMB, the hungry companies that are hungry for market share and growth. And for that group, there’s, like, two things that you think about, which is, like, number one, is the value proposition something that feels enduring? So let’s take a company like Deep Elle as an example, one of one of our investments.

Deep Elle provides they were kind of very early in providing this API that provide instant human like translation products. It used to be that you’d have to hire translators for so much of the work that you’d you’d wanna do. So you’re a big enterprise or you’re a company, you have all these documents that have to be translated. You literally would hire human translators to do it because because Google Translate or the those other options were not good enough. And so DeepL comes in and they provide like the best translation that feels like a human did the translation and provide it instantly.

Okay. Is that a value proposition that from first principles you think is enduring? Absolutely. And then you also end up getting to look at the early cohorts for these companies, and that’s usually where you see the most evidence of is this an experimental thing or is this something that’s gonna really endure? And the combination of those two things helps to inform those decisions.

Yeah. I I find it’s the depth of usage and then just continued engagement with the product. And and oftentimes we’re investing where the cohorts are so young, you are taking a leap, but there’s still enough evidence in the beginning of, like, something is working, people are using it. I always think of the Sean Ellis Product Market Fit question, how disappointed would you be if this company disappeared tomorrow? There’s a hint of that always in the cohorts that you look at.

I think this is the single hardest question right now. It is true that there’s a land grab, gold rush, whatever the analogy is that you wanna you wanna say. And part of the challenge also of this question, Harry, is that some of the response for a lot of companies is just to raise bigger and bigger rounds so that they have the resources they need to buy the GPUs or whatever it may be. I I think it’s the single hardest question. It is about the founder that you invest in now more than ever.

And I think it’s just you’re you’re backing a founder whom has that competitive energy and high urgency and aggressiveness and ambition that will let them navigate a very competitive ecosystem and emerge the victor. It’s gonna be a very competitive next few years.

It is very rational in a way, which is is the opportunity size bigger? So let’s go back to what we were talking about before, which is selling work. Part of the opportunity with selling work as an AI startup is that the market for that could actually be 10 or 50 x bigger than if you were selling software. Why is that? You’re selling a 95% productivity improvement instead of a 10% productivity improvement. So you’re basically selling against the cost of the headcount as opposed to a productivity improvement for that headcount.

And it, by the way, it also has an easier go to market because you’re not asking an employee to adopt something new, you’re selling a package of work. And so when that happens, you actually open up the aperture of how big a market can be. If you’re opening up that aperture, then it’s actually a rational decision for the valuation or the entry price of an investment to be higher. There are plenty of companies that you could be talking about where they’re not selling work, and they’re selling a productivity improvement, or they’re selling, you know, an underlying technology.

That becomes a little bit more difficult for me to to rationalize.

You know, every strength has a corresponding weakness. Right? So you could tell yourself story and it remains to be seen whether the story is true. Let’s take the cognition round lately. You’re raising a tremendous amount of capital for a company that I don’t know if they have any customers yet, I suspect it’s very, very early. Why would you do that? Well, you have to believe, as an investor I would think, that there’s always a self fulfilling prophecy of giving a very talented team a lot of capital so they can then invest that capital in GPUs, train their own model, and have a competitive advantage over any other company.

And so there’s kind of that upfront dilution that if you if you accept that then and believe it will be invested in a way that creates a moat for the company over time, then you’re going after a tremendously big market that has a a very rare moat because of the capital required to even be on the field fighting that fight. That’s the only way that I can rationalize a little bit what’s happening right now. Otherwise, it just feels like there’s us VCs, we always get into this, which is the FOMO capital deployment mindset, which doesn’t always lead to good things.

We’re goldfish.

What we always try to do is just remember what the end game is here, which is ultimately building a company that can become a independent enduring company. Imagining what that might look like in the future and pulling forward that future into the present to think about the dynamics of the company and are does it have the type of dynamics that lead to those types of outcomes? Usually, I what I think about is that escaping competition idea. If you find those types of companies something with a network effect as a as an example, you should lean in hard as a founder, as an investor in that opportunity because they’re very rare, and when they work, they lead to to very large outcomes.

That’s very much a picking your battle type orientation. Like our way of thinking of things at Benchmark is that each of us makes one or two new commitments a year. It is this kind of stars aligning, sometimes feels like almost an unreasonably high bar to getting to yes, but then when we commit, it is like the full partnership committing behind that company. Somebody who is only taking on one or two new investments a year doesn’t have like a team to whom they’re delegating, you know, any part of the job.

And those are the ones where we pick our battles. Otherwise, it sometimes feels like it’s more a capital deployment game as opposed to, like, really focusing on the investments that you’re making and how to how to make those really big.

B to b software has very rarely had network effects. What it has had instead is more economies of scale. You could think of it that way, where you build a product for a very specific use case. You execute, like, on the go to market to, like, grow that product into the hands of a lot of users. And then you are able to add more and more features over time to that product so that you are able to charge more. That gives you the advantage that as you charge more, you have, you know, positive net revenue retention.

You have a go to market that can afford to scale and have better and better efficiencies. That is, to me, most of what has been the b to b kind of way of building really outstanding value. And I think that’s still the case for AI startups that are doing a b to b use case.

You know, Sam, in the podcast that you guys did together, I think one of the things that Brad said, Sam was so good at was almost keeping the main thing the main thing. Right? Like, knowing the thing to get really right. And it’s very clear that for OpenAI, that is the progression of GPT for them from three to four to five and beyond. And that means that the other types of models, you know, you can imagine audio, the image, video, those are gonna progress, but they’re not gonna progress with the same level of focus and ambition as the core foundation model that OpenAI is working on.

They might progress as beneficiaries of that core work, but it doesn’t have the same level of focus as somebody like Matty and his team at eleven Labs that’s focused very specifically on a very specific use case.

Well, this is back to kind of that thing I said before of, like, what percentage of value comes from the foundation model? And I think, you know, we could talk about Deep Ell. So DeepL, again, it’s a just a tremendous company. So much of what they’ve built is the foundation model, the the their own model around language. But they’ve also built a tremendous amount of workflow to integrate for their customers, you know, to enable a local kind of vocabulary list to to be part of what whatever workflow or product that they that someone’s creating and making sure that it’s a seamless experience.

So even though it started maybe where all it was was actually deepbell.com where you’re going and you’re just just like Google Translate, copying and pasting copy from one one language to another, they have gradually built more and more value on top of that model so that something coming out of, you know, an OpenAI, they’re just not gonna build that same level of workflow, the same level of integration. And so there’s plenty of work to be done that’s beyond the model itself.

You just see the tremendous amount of investment that has to happen right now in order to drive to progress these models. Because at this point, it’s kind of compute constrained. And so that is gonna be the frontier that, you know, you just see the progression where each successive model is gonna be more and more expensive to train. That suggests a world where you’re gonna have an oligopoly.

The belief is that, yes, some of the underlying costs are gonna go down. The the chips shall get cheaper, will get better, the research is gonna improve, but it’s just more and more hungry for more compute. I all you can almost think of it as like a highway where you keep on adding more lanes and it just more more cars want to go through.

I think we just have a situation where it is a race, And part of that race in order to be ahead of everybody else is gonna be this very expensive process of more and more specialized chips, more and more investment in that, more investment on the power side, which is actually becoming a real constraint given how power consumptive this you know, not just the training, but the inference itself is gonna be. To train is gonna just get more expensive. I mean, it’s gonna be a bigger and bigger lift each time we do the new step function.

The cost to the end customer should continue to go down. And that’s what we’re seeing is that it is just getting more and more competitive. The price continues to go down, and so we’re all big beneficiaries of that right now.

You know, it’s funny. This is one of those questions where every month it feels like people are saying something different. Okay. People say that each next step function in these foundation models is like a 10 x cost increase right now to do the actual training. And what happens when you do Open Source? You’re making that tremendous investment, and then you have to believe that if you’re Open Sourcing the product, you’re gonna earn the value for that Open Source. That’s very TBD right now. And so what it feels like, if you want a model that’s on the frontier, that’s gonna be Closed Source.

Now, as I mentioned, every month it feels different with what, Meta’s doing with LLM, that may actually fundamentally change the game. If Meta is willing to make that huge investment in the underlying training and then open source that model in a way that may seem economically not rational in the short term but is right for them in the long term, that changes the game. But right now, feels like if you need a model that’s on the frontier, you’re gonna be closed source.

There may be some some, use cases that people have where they don’t need to be on the frontier, that what is open source is powerful enough, and then the ability to to do what they want with it, you know, makes up for any difference.

I think what you we talked about earlier, which is just competition. There are obvious opportunities, and they’re huge. And it feels like very large companies can be built over time. And at the same time, it also feels like there are more companies than I’ve ever seen pointed at every opportunity. And so what tends to happen back to this food delivery wars discussion that we had earlier is that it ends up requiring a tremendous amount of capital because you are fighting tooth and nail for every percentage of market share.

Someone emerges victorious, and it may be that there’s a lot of companies that end you know, it may not be that there’s not a winner take most opportunity in some of these segments, but those are the ones where they create the most value all shareholders, and I do wonder how that ends up shaking out.

You know, you well, you best served asking the founders that question. What I think about is that we just have a fundamentally different product that we’re offering. The idea of Benchmark for us to make an investment in a company and partner with that founder is that we are not delegating any part of that core work of that partnership to an internal group of consultants. What I experienced when I was at Greylock and saw is that Greylock had, when I was there, the best internal recruiting team.

And I remember one of my companies, Sonder, was doing a CRO search or a head of sales search, and I was like, oh, great. You know, I threw over the search to our head of talent, Jeff Marcowitz. And what I realized is that then Francis, the CEO, is forced to play this game of telephone where he is talking to Jeff about, the recruiter or, you know, some different candidates. Jeff’s talking to me. I’m talking to Francis. And you realize that actually that model of partnership is more about scaling the GP than it is the founder.

Like, in that case, I didn’t have to have the weekly recruiting call. I wasn’t expected. I didn’t think it was my job to have the weekly recruiting call on my calendar to be in sync with Francis on every CRO’s, like, candidate that he was speaking to. And and so it saved me time and let me have meetings with other companies or do whatever I need to do, but it was worse for the CEO.

I think that it’s not something that is, like, you think about in a vacuum. It actually is how well do you know the CEO? How well do you know the execs on the team? How much do you care about getting the right person, the best person possible in that role than just having the seat be filled? How much like do you know through the process so that you can really help close the best candidate? All those things, they’re they’re not possible with a specialist recruiter. Even if they’re the best at their job, they just have so many other clients that they’re responsible for.

Their orientation isn’t like an owner in the way that I feel like an owner of any of the companies I invest in, but it is just a consultant where they wanna get the job done. And so it’s a very, very different mindset. And then I think part of what we do and what I’ve realized is that I have done so many reps of this now. That why does an executive recruiter become so good at what they do? It’s because they do it a lot. And that’s now what I have done.

I have helped recruit and close so many candidates on behalf of the companies that I work with that it has become a superpower for me, and it’s the same thing for all of my partners. What we aspire to is to collectively be the best recruiting firm out of any other place because that is what we do day in and day out for the for the founders that we work with.

Oh, gosh. I I could give two sides of the spectrum. I could talk about the companies where it is just very clear that there isn’t competition, that there’s such a strong connection with the founder, and they feel that, and they feel the the strength of the relationship, and they feel the commitment that it comes with our model. Even though there is competition, you don’t feel the competition. Then there are those cases certainly where it is that benchmark group effort. And that’s part of what’s unique about our model is that we are an equal partnership.

What that means is, you know, if my partner Eric makes an investment and that investment is successful, I benefit at the same level as he does. And same if I make an investment and it’s successful, then my partner Chetan is the same beneficiary of that economic reward. And so we actually really do orient then towards the team. When one person makes an investment, all of us are making an investment in that company. And in the same way then, if we find a company and we all feel like we should invest in it, it can be a group effort sometimes to make that interest felt strongly with the founder and realize that kind of collective effort that will be possible for the founder moving forward.

Well, I’ll I’ll tell cases where we have brought the partnership meeting to the founder, doing a dinner with the founder as a partnership meeting, then the group walks away, and this has happened to me with one of my companies, shake hands on a round after that moment.

It’s a couple things. It’s often the why now that we talked about before. In the same way that you believed in authenticity, sometimes you get into those ideas and you and you believe there’s a why now that may end up being ephemeral, or not quite as acute and real that doesn’t have quite the momentum that you believe it had, and I see that that scenario play out.

Yeah. You know, what I always think about is, like, when we invest in a company, what I feel most strongly is, like, I am there to help you build the best company you possibly can build. The means to that end is helping you as the CEO grow to be the best version of yourself. And if you’re just coming to the board meeting, being a cheerleader saying, go. Go. Go. Not asking critical questions, not being truth seeking, not thinking about how do we, you know, pull that future into the present of, like, well, what are the things not just to hit the quarter this year, but to be able to scale with velocity four quarters from now?

How do we start setting our company up for that success and pulling that future into the present? If if you’re not asking those questions and you’re not you’re not asking, oh, I think I see one of the executives starting to have challenges scaling. Like, how do we support her? How do we make sure that she has mentorship and if that doesn’t work we actually find somebody new? Those are the types of questions that if you’re just a cheerleader you don’t push and each time you do push I hope that it leads to 5% better decision here, a 5% faster decision there, a 5% better candidate there.

And those small differences end up compounding.

I think this is one of those very self fulfilling prophecies, which is that for both the ventures the VC side and the founder side. I meet founders all the time who either had a great seed investor and see how great it can be when they have a great partner, or in a past company they either had a great partner or the opposite. Those founders have the wisdom to know that having a great partner really makes a difference. And when if you believe that having a great partner can make a big difference, you will have that bar high and you will find somebody who will do the things that we just talked about.

If you go into the process and you think they can’t add value, it’s a self fulfilling prophecy. And at the same time, like, for the work that we do at Benchmark, if we believe board members don’t do any work, I mean, they don’t make a difference in the in the outcome of the company, and let’s just be clear, it both 99% of the work is for the founders and the team that they build. But there is that that small difference that does come in at really important moments and can end up compounding.

If we didn’t believe that, then, you know, we would change the benchmark model entirely because our model is built not to scale. It’s built to make a small number of very focused investments, very committed relationships with the founders, and then from there, have an impact on the on the eventual outcome.

What I think about is there are two broad cases when we don’t win. There’s a couple examples that I think about where there’s actually a selection bias that happens, where what we offer is we wanna partner with ambitious founders who are willing to be vulnerable, the things that they don’t know, and and help push them to be the best versions of themselves, build the best company they can build. And there were some founders I remember one company I spoke to at some point, the CEO told me, he’s like, I want to partner with you, but I really think I need the platform.

And that was a great selection bias decision for me because that’s just not our model. The other, you know, example of that selection bias is a founder whom didn’t want a board member at that point in time. That’s fine. Like, that’s that’s a great decision for that founder, and it’s not the the comp that’s not what we offer. There are certainly other cases where we lose. We’re not you know, the valuation just gets ahead of us. The round size gets ahead of us. Maybe a founder feels like there’s not quite the belief in what they do, although I find that very rare.

But by and large, there’s just a selection bias, I think, that happens a lot that ends up meaning the difference between these these outcomes.

It’s certainly the round. It’s in my seven years at Benchmark, I think I’ve seen one example where we broke the model on board, and it was for a small crypto related company. Without question, that is our product. So it’s very hard for us to break the model there. But all the time, we, you know, we do play the game on the field. And if there’s a partner a founder that we wanna partner with, we will figure out a way to make that work.

You know, I can’t actually think of a company where we’ve lost on price. I can think of situations where we haven’t engaged because we knew that the situation was just gonna be not really part of our model. So as an example, these large multi $100,000,000 investments in some of these new models or or companies that require a lot of training. For all those cases, it’s just too early to know.

It comes down to do you believe that this is a company that can’t escape competition? It’s a founder who’s going to navigate through all the competitive dynamics to to escape competition. There’s there are dynamics in the product that they’re building, whether it’s a network effect or some strong mode or economies of scale that let it, again, escape competition. In those cases, someone said this to me once that really hit me. It’s like, if you like everything but the price, you pay the price.

Yeah. I do see that. I I think of it the other way, which is that if you are trying to use price to get you comfortable with a deal, you probably shouldn’t do it.

Yes.

We don’t think about reserves. We’re very oriented towards our initial investment. And in that moment, we are more ownership sensitive than probably most other firms. But then after we invest, we are 100% aligned with whatever objective the founder has. And so more often than not, that has meant that we invest almost nothing after our initial investment. Of course, we’d love to invest more after our initial investment, but I don’t believe in the idea of pro rata.

I I have started to use a term with some of the companies that I work with of, like, earn pro rata, which is that after we invest, like, what I’ve seen happen is that the business model of the venture firm ends up creating a lot of challenges for a founder as they raise subsequent rounds because they’re trying to bring on a new partner. The new partner has ownership, requirements in order to take a board seat. You kind of optimize for that new partner, and then you have all these other people who aren’t involved with the company anymore who are demanding their pro rata.

And the challenge with that is that it just ends up meaning more and more dilution really for the founders who can’t invest in subsequent rounds. I just think that that is not the right level of accountability. If people are creating work, then, yes, I I would hope that the founder would take the dilution for that for that work. But more often than not, it creates conflict that’s unnecessary, and it’s just very different than our our our model, which is like, okay. Now that we’ve invested, we are 100% on the side of your your side of the table, and let’s make every round as successful for you as possible.

Yeah. And I feel for that founder because what is the foundation of the board member to founder relationship? It’s trust. And if you don’t feel like you have that person on your board who’s one of your investors, who you could you have that trusted relationship with and you can be vulnerable with them and how and use them to navigate those types of moments, that sounds extremely lonely and very difficult.

That’s a very unfair question to ask No. Somebody who has multiple boards. What I think about is probably just the the relationship I’ve had the longest because it’s like this cliche that if you aren’t embarrassed by the CEO that you were six months ago, then you’re not growing. I think the same thing as a as a board member. I am growing and learning how to better partner with the founders that I work with every time, every board meeting, every interaction. And so my first investment at Benchmark was this company Chainalysis.

You know, where I was the first board member for the company, we led the Series A, I think, 2017. And it’s just been such an incredible journey because it’s both getting to see the founders grow, like, tremendously over the arc of time. But then I also have benefited so much from as the company has scaled, seeing all of the new challenges that come up and helping kind of navigate and learn from from their growth, I just feel very grateful for that journey.

Without question, Ethereum. You weren’t expecting that. I could see.

I remember I was at Greylock, and the ICO had just happened, I believe, or just closed. And I was reading more about what’s possible with smart contracts, and it just blew my mind how the world was gonna be different in the future. And I didn’t know what the time horizon was, but I it was just this crazy moment of realizing the world was going to be different with this new technology that could have blockchains and smart contracts, and then I didn’t act on it. There are so many times when you just take something that’s ubiquitous for granted and you don’t act on it.

When you have these moments of insight where you realize this is gonna be fundamentally disruptive, you have to find a way to act on it.

Without saying who the founder was, there’s one founder I remember meeting, and I was just like, wow. I have never felt this force more strongly that this founder was gonna run through whatever walls that they had to run through. They were just, like, so deeply and intrinsically motivated that they were gonna do whatever it took to make that company successful.

A remarkable company.

Maybe I’ll go off piece here and say, antisemitism. Honestly, like, a year ago, I just didn’t know how real and present it was. And and there’s so many crosswinds happening right now. There’s so many it’s such a complicated topic, but to see it manifest right now, metastasize, has been really shocking and and surprising to me.

I’m sure. And and look, just if you’re pro Palestine, it doesn’t mean that you’re anti Semitic, but there is definitely a confluence of of these two things happening, which is that there are people and and this is a lot of what people talked about during Trump’s presidency, where suddenly the things that didn’t feel like you could say had cover and and it let the kind of the vocalization of these of these things happen more. And of course when some people feel safe to say something that was once regarded as not the right thing to say, then it makes it impossible for more people to say it and believe it.

And so there’s certainly a lot of that happening right now. But then also, like, we’re all subject to osmosis. And if a lot of things get repeated, then we start to, it starts to change people’s belief systems. And I think that’s part of what’s happening right now too.

Yeah. I am. I am not somebody who follows the polls very closely, but certainly what it feels like is that it’s almost an inevitability. And that’s a very scary thing for me because I care about our democracy. It seems to be the direction that we’re going in.

It doesn’t change at all how I think about investing. The way it changes things is just your opportunity cost. I get so much energy out of meeting with founders. I wish I could spend ten hours a day meeting with founders whether or not there was an investment opportunity for Benchmark. But the reality for me now is that there’s an opportunity cost to my time that changes when you have kids. And so while the actual partnering with founders and then the investing doesn’t change, that kind of marginal opportunity cost does.

don’t remember which one is the most pop the public, but I’ll I’ll say the one that I think you and I are partnering on that isn’t announced. But, man, there’s sometimes, you know, there are meetings where you would feel so lucky to get to partner with a founder, and you just feel in a very deep level, I need to be in business with this person. I feel that, honestly, for all the the founders that I invest in. I I don’t know how to partner with a founder unless you feel that, but it’s very close to me right now just given investment to feel that.

No. It’s so good to see you.