Benchmark's Victor Lazarte on Why Portfolio Construction is BS

It’s great to be here. Thank you for having me.

Yeah, sure. So, I bootstrapped a mobile gaming business and it makes for a good story, but the reality is we tried really hard to raise money. We didn’t bootstrap by choice. Why don’t you think you could raise? What did you do

I wasn’t very business sophisticated. I mean, this was 2011 in Brazil. So the venture capital scene there wasn’t as developed, right? But the idea was like, I loved mobile games and I thought it was going to be a good business, but there wasn’t a very strong, well thought out thesis. And I guess that’s why, like, the best term sheet that we got is someone offered us like $50,000 for half the company, right? Which obviously we couldn’t take.

Yeah. There’s so many horror stories from investors in Brazil at that time. So I wasn’t very sophisticated, but there were people that were even less sophisticated. So I had friends that raised money in Brazil and they agreed to like a 20 times liquidation preference, which seems like, oh, yeah, there’s this clause in the contract, but I don’t really know what it is. And again, like people do that and they end up losing their own company, their whole company, right?

So I think that the core, like in college we loved video games and initially we say, Hey, like let’s build a company’s computer with Nintendo. But that sounded like a really bad business idea. But then we looked at our own and said, Hey, what’s working in the world? We saw that app downloads, this was 2010, we’re starting the market and app downloads had grown 42 times. From 2008 to 2009, mobile app downloads had grown like 42 times. And it’s like, wow, this growth is insane. So we should make mobile apps and we love games.

Let’s make mobile games, right? So I think that was a great insight. And so we started the company and the first few games we did everything ourselves. We didn’t have any employees. Does that shape your thinking on market

100%. 100%. I think when people want to start companies, a lot of times they’re trying to predict the future, but it turns out it’s very hard to predict the future. It’s much easier to understand the present. A good heuristic is like, Hey, what’s working? What’s working right now? And there’s the famous story that Jeff Bezos, he was at D. Shaw and he saw the internet was growing 23 times a year and said, Hey, I need to make a business on the internet. That was the initial insight.

And then what’s the insight right now? And it’s quite clear. LLM usage has grown 100x in the last two years. So if you like in the number of flops, it went from like one exaflop to 100xaflops now. And like, of course, this data is not very precise, but it’s directionally correct. I think the first thing is understanding what’s happening today, what’s working, and then how can you build on top of that? So in the year of 2000, building an internet company was an amazing thing. In 2010, building a mobile gaming company, building like any app company was a great thing.

And that’s why you have some mobile gaming companies that were successful and other companies that were even more successful like Uber and Instagram and all that, they were all started around the same time. And now, LLM companies. It’s quite clear, it’s the best time in over a decade to start a company because we have this insane phenomenon of adoption, like adoption of LLM inference. We started like, what’s the thing in LLM that is working? I I think a year and a half ago, there was basically like two things that were working.

I think there was like ChatGPT and Character AI. I would say Character AI was one of the things that was really working. And now I think you can argue that there’s like Character AI, ChatGPT and Cursor. Okay, what are the things that are working that people love? There’s a lot of usage, like tens of millions of users, right? And what do things have in common? And a lot of times, the great opportunities, they’re adjacent to things that are working today. So I think a great place to start is just having a very profound understanding of what’s working.

And then build adjacencies to it. Yeah, or do things that are inspired by it, right? When you look at the history of the best companies, the most impactful companies Facebook was not the first social network. When Zac built Facebook, there was Myspace and Friendster before it. But you could see that there were things in that direction that were working. And so the thing that I’m most excited right now, like the thing that frankly, the company that I’d most love to work on is an AI companion.

In a few years, we’re gonna look back and we’re going to say that Character AI was Friendster. And what I mean by that is there’s going to be a company that’s going be very important, and we’ll look back and we’ll say Character AI was the precursor of that. And the reason I believe that is, before the internet, the way businesses interacted with people was through physical branches. And then you have the internet and business interactive websites. And then in 2010, had mobile apps and then business interacts with mobile apps.

And now the really cool thing that we have is agents. And this is just starting, but the smartest businesses, they realize that the way customers will interact with the businesses, it’s as if they were able to talk to the business owner. They talk to this thing that feels like a person that knows everything about the business and is able to solve anything you want and sell you anything you want. So these agents, right? I think some of the incumbents will reinvent themselves to have an agent interface, but whenever you have a shift, like a UI shift of this magnitude, a lot of the businesses, they don’t adapt.

And so I think there’s an opportunity to recreate a lot of the successful business of today in an agent format. So I think there’s three categories. There’s the category of incumbents that will adapt, there’s the category of incumbents that will not adapt, and then startups will just recreate those businesses, but on an agent first framework. And then there’s a third category, which is businesses that weren’t possible before, but now are possible because the agent interface is the right one. But on that topic, I think like social networking, and like we now have software that makes us more efficient at connecting with our friends, you know, like you have WhatsApp and you have like Facebook and Instagram.

What does an agent for that look like? What’s an agent for your social life?

I think that’s a really powerful idea.

I would even make a larger claim. And the claim is what do people want? And like, in the end, people just wanna be happy. And there’s a lot of study on like, what makes someone happy, right? And turns out that wealth makes people happier. Like the more material wealth you have, the happier you are. But it’s actually not like a linear relationship, it’s like log linear. So if you get to like $75,000 a year for a US household, like it starts to taper off. And so making people wealthier actually does not affect their happiness that much.

And then what does technology do? Technology helps us be more productive, which is like, hey, it makes us wealthier and it makes us achieve the goals that we want better, right? So it makes us more productive. But research shows that the biggest predictor of your happiness is like the quality and depth of your relationships, right? And technology has not attacked that. The really cool thing now is we’re able to have a digital friend. And I think that’ll be fantastic. I think you look at the studies and religious people on average are happier than non religious people.

A lot of the difference is explained because like religious people, like they have the stronger ties with the community, but also religious people, they have a relationship with God. So God is this friend that you never see, like you talk to God, but God doesn’t talk back. And so to me, that’s an existence that proves that you can have this entity that you never see, that is an important relationship to you, that makes you that much happier.

I think social is definitely positive. And like I first started interacting with my wife. I met my wife like three years ago and I first interacted with her like through Instagram. We had like friends in common. I So started following her and commenting on her stories. Maybe our relationship wouldn’t have happened because of Instagram and she’s the biggest source of joy in my life. So incredibly grateful that these things exist. But I think this thing just scratches the surface. I think the way Instagram is set up, it does not help you connect nowhere near the way it would be able to, right?

When you think about why is it adaptive to have friends? And a lot of it is like, okay, we need to have a story that helps us understand what’s happening with us, right? Like we create our own internal narrative. And when you have a friend, you explain your narrative to your friends and your friends comments on your narrative and helps you shape it. And that makes you better able to understand yourself and where you’re going, right? So humans, they have this intense need to feel seen and understood, and this is very adaptive.

We’re at a point where AI is able to do that for you. Like AI is able to help you shape like, okay, what is your personal narrative? Like, I have this very strong belief that five years from now for the majority of people, the person that will understand you the most is going to be an AI.

I think that’s where I disagree with a lot of people. I think we’re always very afraid of technology. Like humans are always very afraid of what’s coming next. I actually think it’s gonna be wonderful. People feel isolated and being isolated is bad for a bunch of reasons. Because you feel like you don’t understand yourself, you a hard time thinking about this challenge. Imagine you have this hyper capable friend that helps you understand yourself, like knows everything about you, and whatever situation you have, he helps you figure that out, so you feel supported.

You feel like you’re never alone. Even more than that, I think a lot of people say Oh, this is very dystopic because once you have these AI friends, you won’t have regular friends. I think this is very untrue because in the end, we still want to see people in person and your AI friend not only will help you understand yourself, it will help you connect with great people.

It will help you find out like, Hey, I know you really well and turns out that there’s a 100,000,000 people that I know really well, and I’m gonna connect you guys, but it’s gonna function like very much in the way that a person introducing you to someone else’s functions, which is like, you get this intro, but you have a common friend, so you know you have to behave well. Because if you don’t behave well, it’s like, hey, I’m gonna tell your AI friends that you’re an asshole, and your AI friend is never gonna introduce you to anyone anymore.

Yeah. So the way I met Pedro is, so I was building my company in Brazil, We bootstrapped the business, we eventually grew it to over a billion users, and there were very few people building technology companies in Brazil at the time. And then Pedro, he had a problem with an investor. When he was 16, he created his first payments company in Brazil. Turns out that he signed a deal that he shouldn’t have and he lost control of the company and the investors made it impossible for him to capture any value.

So I spent a ton of time with him and like with lawyers and say, Hey, how do we get out of this? And I had no shares. I was just like, man, was just, Hey, this kid is so smart. This kid is so good. He deserves to succeed. So I really wanted him to succeed. And then after a while, I was like, Hey man, I’m selling my mobile gaming company. We sell things in The and The US is a much better market. You should just like let go of the company that you have and should go build something similar in The US.

And so eventually he agreed to it and so he moved to The US and he started Brex. And then when he started Brex, he’s like, Hey, can you invest on my seed round? And can you be my first board member? And I was like, Yeah, of course, I’d love to do that. So I think our relationship came in from this shared distrust of investors and this idea that, Hey, we’re gonna have each other’s back. And the other part that I really enjoyed is like, to me, was so fun spending time with this young kid that just loved business so much.

And frankly, I don’t think I would have invested in Mercor if I hadn’t invested in Brex. Because when I met the Mercor guys, you know, at first glance the businesses are so different, but I met the Mercor guys and the company was doing $1,000,000 in annual revenue. But Brandon reminded me so much of the Brex founders. Because, you know, there’s these two traits that I look for in entrepreneurs that they both have. And these two traits, they rarely come together. So I like to invest in founders that they’re very open minded, but they’re very disagreeable.

Normally, if someone is very open minded, okay, you say something and he wants to learn more and he’s very curious about what you’re saying, you make a whole argument, and then you start feeling, oh, okay, I convinced this person because it’s just so interesting in what I have to say. But then by the end of the day, the person says, No, I actually think that the opposite is true. So this idea that I’m interested in what you have to say, but I have no problem disagreeing with you to the point that it’s gonna upset you.

And both Pedro and Brandon had that to like a very high degree. And the other thing is like, I think a great way to understand founders is like, ask them like how they spend their free time. I think if you understand like how founders spend their free time, you get a very deep window into who they are.

And to be honest, this is a trick that I stole from Yuri Milner. So I was having breakfast with Yuri and I asked him, Hey, what makes you a good investor? And he was telling me like, Oh, you know, when I meet a founder, I asked him like, Hey, what’s your day like? But it’s not like, Oh, tell me two, three things. Said, No, no, no. What time you wake up? What is the first thing you do, and then walk through the entire day and they’re like, time you go to bed and what you do in bed.

The choices that people make on their free time are the ones that really tell you who they are. And for Pedro, it’s like, hey, on my free time, I love sitting in front of my computer, tracking the packages that iOS, that the iPhones send to servers, because I really don’t understand how that architecture is done. If I pay enough attention, I get a chance to hack it. That’s how he found one of the jailbreaks that back in the day, he was the first person to find one of the jailbreaks for the iPhone, right?

But he did that for no reason. He didn’t make money out of it. It’s just like, okay, I like going very deep on this technical thing. And then with Brandon, our first conversation, the guy’s 21 years old, but you’re talking with him about business and it feels like you’re talking to your peer about business. He was telling me, you know, what is it like to work with Bill Gurley? I’ve read all the blog posts. Man, why would you read all of Bill Gurley’s blog posts from years and years and years ago?

And yeah, I heard all the podcasts and there wasn’t a specific reason for the person to do that, but it’s like Hey, I just love studying businesses and how does businesses work? When you have very young people that they spend a ton of time on something that just has an intrinsic passion for them, like this thing compounds really well over time, right? So to me it’s like, Hey, really smart kid in a very promising space, but it’s a kid that is not just smart, it’s like very, very special because of this almost obsessiveness of understanding businesses, right?

And then little did I know that Mercor and Brendan would have something else in common, which is Brex went from like 0 to $100,000,000 in revenue in like in eighteen months after launch, and Mercor went from like $1,000,000 in revenue when I invested to like over 100,000,000,

Yes. Like I think 100%. And you know, I think a lot about what’s the role of a board member. I think it’s related to like what’s special about Silicon Valley. And you know, I was trying to come up with a number, but if you start a company in the West Coast Of The United States, you are a thousand times more likely to build a tech giant in the West Coast Of The United States than you are anywhere else in the world, right? The raw math is 70% of like all companies in the world were starting the West Coast Of The United States, Bay Area, Seattle, I think 0.1% of people live there.

It’s like, you do the math, it’s like roughly like a thousand times more likely, right? So why is that? Because people are just as smart in Silicon Valley that they are in Europe or in Brazil. But the big difference here is there’s so much knowledge about how companies are built. And when someone starts a company, he’s able to access all that knowledge, right? So when Zoc did Facebook, he hired a bunch of people from Google and he had board members that had been at other places.

A lot of the role of a board member is, how do you catalyze that? How do you help a founder access all the knowledge of what has worked before? I think the way a board member adds value is like, it’s a function of two things. One is like, how exposed have you been to hyper growth in the past? And then how much time do you put in to actually understand the context of the company that you’re able to draw from the right lessons? Do you like being a board member?

I

Like people emailing me?

Yeah.

one inbound, nine outbound. Is that good? Do you do active outbound? Like where you’re like, one So the majority, like the majority of what I do is like outbound. Like the majority Really? Of is

there’s a lot of things that come to you, but the question is, are the deals that you want to do, are they coming to you or not? And I think as you build your network, like I’m not from Silicon Valley and frankly, I’ve been a founder for thirteen years and I’ve been an investor for like a year and a half. So a lot of people don’t think of me as an investor. So very little of what I wanna do just comes in bound and sounds like, Hey, go meet this company.

Most of the time, you’re talking to really high quality people and you ask them like, Hey, what has impressed you mostly? Or you get super interested in a sector and then you say, okay, like what are all the We go to someone and say, hey, what are all the companies in the sector? And you do a little bit of homework. And then it’s like, oh, okay, this is an interesting company. I think I’ve done four companies since I started at Benchmark. Three have been this way.

And then the fourth I actually, I’m a co founder, so I started the company with someone that I knew for a long time. You

Yeah, we’re still in stealth, so we’re not talking too much about it. But maybe a year from now, I’ll come back and tell you all about it.

I think SaaS was a moment in time where rule based investing works really well. It gets to $10,000,000 in revenue, like you’re a category winner. I think this is no longer true. Why? I think it’s because of the nature of the revenue. I think a lot of the AI revenue is experimental. And the reality is, it’s now incredibly easy to take ChatGPT and say, Okay, what are companies using ChatGPT for? Let’s say their lawyers are using ChatGPT to write demand letters. So, Okay, I’m gonna make this very thin workflow around ChatGPT, and then I’m gonna go after every law firm that writes demand letters and say, Hey, buy my tool.

And you are going to get revenue. You’re going to get millions of dollars. But if that’s all you’re doing, there’s just no enterprise value. The reality is, as the models get better, the workflow you’re building becomes less valuable. So one test that we always do is, when a company comes in and pitches, first, you have revenue growth, like it’s still worth something. It’s not worth what it was worth before. But it’s like, hey, you have revenue growth, okay, we should pay attention. But then the first question that we ask is, if models get a lot better, is your company worse or is your company better?

And if your company is worse, then it’s gonna be very hard to touch it. But if your company is like, Hey, as the models get better, my company gets better, then it’s like, Oh, that’s a great place to be in. So for example, on Mercor, what got me excited is So first thing, one thing that I think is super exciting right now is just replacing people. It sounds really bad when you say it this way, but it’s the most exciting opportunity and venture right now. And it’s actually gonna be fantastic for humanity.

So it’s like, okay, figure out what’s a profile of a person that does knowledge work that you can replace with a model. And Mercor was replacing a human, replacing a recruiter. I was like, Oh, that’s pretty cool. I think models are gonna be better at interviewing than people. And the recruiting process now is just so inefficient that if you have a model interviewing, that’s gonna make it a lot better. But then there’s a few things that make it super interesting, which is interviewing someone is a very hard problem.

You talk to the best founders in the world, Elon Musk, like Bezos, they all spend a ton of time interviewing. Because figuring out who’s the right person, you continue to have gains to quality. So okay, this is a problem where we already have value now, but it continues, like as you get better, it continues to be valuable. And so investing a lot of money solving that specific problem is valuable. And then if you get specific data, it’s like you hire people, you see how they perform, you adjust your model, like having that model is just incredibly valuable.

And the other thing is you have this network effect with like, okay, there’s a platform, everyone’s coming into the platform, so you have this marketplace of people. So to me, it’s like, okay, the time they didn’t have a lot of revenue, they had a million dollars. But I like, this is a place where AI is going to do a much better job than humans, and you have a lot of defensibility.

It’s revenue for sure. Is it error? You don’t have like an annual contract that people are signing this annual contract. It’s a run rate. So some people criticize, and the criticism that I hear is you have this recruiter and you’re building this platform and a the lot growth is coming from labs. And the labs, they need Before, there were three stages of language models. I think the first stage of language models is you just take text from the internet, you train your model, and you have GPT-three, which was very cool, but people didn’t like to use it.

And then first, again, RLHF, which is models produced. So you take your base model, you produce a bunch of answers, and then you have humans pick what they like best. And then you build a model that give answers that humans like a lot more. And then you have ChatGPT. That was the big ChatGPT innovation, was RLHF. And now we’re getting to this third moment in models, which is pure RL. I think this is the most interesting thing happening right now in AI, which is models, if you’re gonna get a model to be better in something, what you do is you find a deep expert in that subject and the expert will create a question that the model is not able to answer.

And then instead of like giving the model the answer, it will create a rubric to tell the models like, Hey, for any answer to that question, here’s how you’re gonna rate it. And then once that’s done, the model produces like a very large number of answers, and then you have this very large number of pairs of question and answers that are graded and use that to train your model, right? So this is the most interesting thing happening in AI.

This is a big deal because what this means is we’re getting to a point where if you’re able to create a benchmark for any task, then through reinforcement learning and just throwing a lot of compute at it, you’re able to create a model that surpasses that benchmark. Where does Mercor come in? It turns out that to create questions that the models are not able to answer and to find people that are able to create these rubrics, these evaluation criteria, it’s very hard. You gotta be an amazing interviewer to find these people.

That’s interviewing that the Mercor does. So Mercor helps all the labs get a lot of the really best people. And then, so the person is like, Hey, is this recurring? It’s not an annual contract. But the reality is, for as long as humans are better than computers at any knowledge task, you’re going to need people to create these evals so that you create these RL environments that will make better models, right?

It’s very much on a case by case. Like HeyGen and Mercor, I think they were very cheap rounds. And I feel so lucky that I was able to Do you think 2,000,000,000 was cheap? I was talking about the round that I did.

Yeah. But then just a framework to talk about the rounds in general, right? I think as an asset class, is there a bubble? Are people getting paid for the risk they’re taking, right? So think about like, I don’t know, Anthropic at 60 or think about Perplexity at 15, right? I think the reality is AI is a big shift. I think AI is much bigger than mobile, maybe like the automotive of the internet. And then if you take a basket of the winners, it’s going to work out.

What I’m telling you is, in the next three years, I’m sure someone will start a company that is gonna be worth a trillion dollars. How do you make sure you are in this company? It’s like, okay, where’s the best place to find these companies? It’s like, what are the interesting spaces that have great teams and it’s working? So, okay, there’s this trillion dollar companies out there and this space, okay, the early winners, there’s not that many, right? So I think smart investors are saying, Hey, if software spend in The US is like a trillion dollars, but labor spend is like $10,000,000,000,000 and now the AI companies are going after the labor spends, so the outcomes are going to be insanely larger than they were before.

So, okay, there’s going be huge winners, so we’ve to make sure that we’re there. We’ve to make sure that we are in this company. I think on average, buying the winners today will work out. Are there some winners that are overpriced? In retrospect, the answer would be yes.

100%. What percentage of knowledge work as we know today will exist in ten years? Like if you define knowledge work as work you do behind a computer, I think it’s probably like 1%. And the thing that I worry most about is if you’re someone coming out of college, what are the things that you can do, like if you’re coming out of law school, like what are things that you can do that a model won’t be able to do like in three years? There’s not going be that many things.

And at the same time, like companies will be more valuable because they’re going to reduce costs so much. So people that own companies, people that own shares will get richer, founders will get way richer. You’re to have this trillion dollar companies being done by very small teams. So that’s a very destabilizing force and that’s something to worry about. I think all these things are controversial. You see these big leaders talking, like the big companies talking about, Oh no, AI is not replacing people. AI is actually augmenting people’s abilities.

This is bullshit. It’s fully replacing people.

Yeah. Net net, I think this would be tremendous for society because companies are humanity’s best invention. And if we need less people to create companies, we’re gonna have more companies, right? So I grew up in Brazil and Brazil is not a great place to grow up in. And then I moved to The US and the Bay Area turns out it’s a fantastic place to live. And the principal difference between Brazil and the Bay Area is the quality of the companies. So overall, it’s going to be fantastic for society, but then there’s a huge problem of, okay, how do you distribute that wealth?

Yeah. Well, I think we either have UBI or it’s the end of democracy. Talk to me about that. Like imagine this society where there’s a lot of abundance, a lot of wealth, but the majority of the people are not accessing that wealth. Like that wealth is very concentrated, but it’s a democracy. And it turns out that Is that not what we have today? It’s going to get way more extreme. And the other thing is, it’s going to be much harder for politicians to not do what’s best for the entire population, because the entire population will have a very powerful AI system on their pockets.

So they will know, they’ll just ask the assistants like, Hey, this politician, the stuff that he voted on, is that good for the general population or not? And then someone will come in and will have an agenda that is like, Hey, redistribution of wealth. It’s a very populous agenda. And then I think if people very selfishly ask their AIs like, hey, is this politician better for me or not? Is this politician gonna get me more material wealth or not? Think people that wanna redistribute a lot, they’ll get votes.

So I think that’s very destabilizing for democracy. And then a lot of people that are in control, they’re gonna say, Hey, right now you have people that are in control, are they gonna just seed control? Are they gonna be less powerful? Are they really gonna let go of all the influence that they have? But I think there’s like one So I think AI is a destabilizing force because it makes the entire population way more informed and knowing what’s best for them. And at the same time, it concentrates wealth, which makes the scenario more propensity to like, Hey, the population wanted to get more.

I think China is actually a very stabilizing force because I think The US right now has this external threat and The US cannot spend a lot of time with internal conflict. We’re at a very important moment in time where someone will get you to a powerful AI very soon and it needs to be The US because we want to live in a world where powerful AI is controlled by The US. And if we spend too much time in internal conflict, China will do it. So I think China is actually a very stabilizing force for The US.

Yeah.

Yeah, I think China has better work ethic and they have more people. So they have more people working harder, but I’m still so bullish in The US because there’s so much knowledge here. I think our advantage is The true network effect is a city. So we have Silicon Valley and you say, Hey, I think China’s winning. I think by all measures, The US is winning. If you look at all the AI products, ChateaPT is the most used AI assistant in the world. And sure, you can talk about, how about deep sea and this and that?

But the reality is like, like, ChechiPT still is the best product out there. Yeah.

have that. What’s better than ChechiPT?

No. I agree. It’s like a very serious competitor. Like, I 100% agree with you. I think we’re still in the lead, but we cannot afford to waste time on anything else. We cannot afford to waste time into internal disagreements and stuff like that.

I think there’s a lot of wisdom in saying like, Hey, we overestimate what we can do in a year and underestimate what we can do in ten. I think there’s a lot of truth to that. I still think in AI, you look at three years ago, we didn’t have ChatGPT and now there’s close to a billion people that use it every month and they have a meaningful different experience, right? In the next, not in the next year, but in the next five years, lives will be meaningfully changed.

So I think AI is going to happen way faster than people believe.

think this thing that will happen quite soon is, like, we’re going to have an app, and you’re going to wake up, you’re and going to look at your app and you’re to read what it says and you’re just going do it. The app will tell you, go do this. You’re not going to understand, but you’re just going to do it. And you’re going to do it and it turns out that you’re going to be happier after you do this thing. And over time, you just learn to trust the app.

It’s going be a complete reversal. You’re not going to apps to make it easier to do the things you want to do. For example, like, oh, I go on Instacart to get my groceries. You know what you want to do, you go there, and it just makes it easier for that to happen. It’s like, you go to the app for the app to tell you what to do, and you just blindly trust and does whatever the app says. How far away do you think that is?

We see glimpses of this, right? So there’s this companion apps, there’s a, I don’t know if it’s like Finch or this self care pets, it’s like, oh, I’m gonna be your accountability buddy. I’m gonna help you exercise every day. And I’m gonna help you make sure you’re drinking water and taking your meds. So I think it starts with these simple things. You open up your app. So for example, I try to work out every morning for twenty minutes, but a lot of times I wake up and I just don’t have the energy.

But imagine you wake up and it’s like, Hey, it’s your twenty minutes. Remember, if you do that for x days, you’re going be better. And then you’re just getting to these routines. These apps, they’re helping you form routines. I think that’s the beginning, these apps that are helping you form routines, they’re telling you what to do. And it’ll get to a point where AIs are going be smarter than us. AI is going be smarter than us on most things, and they’re just going to learn how to trust their judgment.

They have context on you, they know what your long term goals is, and so you wake up and say, Hey, go spend an hour reading this book. And I could just do it. Now go meet with that person and just do it.

I have the opposite view. Think go study computer science. Really? Yes.

They say, Hey, go on computer science. To me, feel very strongly about that. Before it had calculators, machines, we had human calculators. If you saw the Apollo movie and they’re typically women and they’re calculating these tables, there are people that are just doing math. And then calculators were invented. Then And when calculators were invented, it’s not like, oh, people shouldn’t study math. No, people should study math. And if you study math, the reality is you’re studying math in high school and you’re studying math in college.

The first few years of college, you’re doing stuff that computers can do, but it doesn’t matter. Because first, you’re understanding the technology, and two, there’s so much transfer learning. When we train models to code, they get better at a lot of other stuff. Why I advise people like, Hey, go on computer science is the transformation right now. It’s technology transformation, it’s an AI transformation. So go study computer science because even if you’re not going to be a developer, and you’re probably not going to be a developer, but just having the basis to understand how that’s done, is going to be extremely helpful.

And then the transfer learning of, hey, just being very logical and be able to take a big task and break down into small tasks and be very rigorous, I think that will continue to be very valuable.

Yeah. So we participated in one round of Cursor, but I think the coding space is very interesting.

I think rigidity is nonsense. Frankly, what defines Benchmark, we want to be a partner to the most important companies being created, which is similar to most venture firms out there. And I think the difference is we want to be the first call. We want to be the first call to every entrepreneur that we work with. And in order to do that, the easiest Can way to do

Yeah.

Yeah. All else being equal, I think everyone wants to be the closest partner. But I think the part that changes is like the all else being equal. Right? I think it’s like, hey, we’re willing to take a lot of trade offs in order to be to be a very close partner. Right? So why does Benchmark make very few investments? It’s because we spend more time with our companies. And you’re saying like, all investors want to be their first call. I don’t think it’s true because the reality is, if you’re a financial investor, you don’t want to be the call.

You want to okay, you made your investments, you want to find the next company. And there’s a lot of investors that are really smart investors that say, hey, you know what? I hate the board work. I want to write the check. And there’s some investors that say, hey, that’s not a product that I have. I put my check-in and that’s it.

Yeah. If you call the people that I work with, and you should call them. And it’s like, I did. I think you can. Right? And like, so one thing that made me very happy is a few months back, Peter came to me and said, Hey, man, I’m so grateful that you’ve been a partner on this and that you’re the closest thing that I have to a co founder outside of the company. Can you make a difference? I think it’s actually very hard to make a significant difference from the outside.

But the way you do it is, founders need a thought partner and founders need a way to access all the knowledge in the ecosystem and you can catalyze that. But I think the good founders, they have access to a bunch of people. The good founders, they don’t work in isolation, they have access to a bunch of people. But the difference, the thing that you can do as a board member that is very hard for other people to do is I’ve been at the Brex board for, I don’t seven years.

And for every important hire that he did, I discussed that with him. And I’ve done so many close calls with candidates that once he has a problem, he calls me just because I have way more context than other people do. So I think like, how do you add value? Like, what’s the way to add value? It’s like, hey, you have a lot of context. But the thing is, it’s just very costly to have context. And like, that’s why we The reason we do very few deals is because getting context on the companies takes a bunch of time.

Not in all. When we’re participating, we don’t have that ability. That’s why we don’t do it, normally. And the reason we do it sometimes is like, Hey, maybe this is a way to start building a relationship with the founder, and over time, we’ll grow our position and we’ll build a relationship. But the reality is, if you write a small check and you’re one of many, then you don’t make any difference. It doesn’t matter how smart you are.

You know, the thing that I love about Benchmark is, so I came in and the partner said, Hey, you’re coming here to co found the firm. Like there’s a lot of tradition, but a venture firm that is like sticking to its tradition is soon gonna be very relevant. So we believe a lot in like creative destruction. And like you feel like, Oh, okay, you almost feel like, Really? And then I met with the founding partners at Benchmark and they’re like, Hey, yeah, the way we continue to be a great firm is if we have no attachment to just how the way things were done.

And I actually think that this is a big advantage for Benchmark because we don’t have any process and we have a small team, it’s easier for us to change things. And I think venture is changing a lot. How do you think venture is changing? So I think a big difference is, when you think about a couple of decades ago, the role of a board member was governance. Capital was so scarce, was like, Hey, once you put capital into a company, a lot of your job is just managing the downsides.

Hey, make sure that this guy is not going to lose all your money. And that’s understandable because there had been less big outcomes in tech. So people that invested, they’re kind of afraid. You know, fast forward to today, everyone knows investing in technology, it’s a great thing. People should do that. And it turns out that it’s more important to maximize the upside than it is to manage your losses, right? And the way this changes the role of a board member is, you’re not that concerned, like Oh, some of your investments are going to lose money.

Your role is not governance. Your role is not there to say Hey, founder, you can do this or you can do this. No. Your role is to maximize what the founder wants to do. So it goes from oversight to catalyzing, to amplifying the founder’s ambition. Really?

So I think if you’re taking a lot of decisions in isolation, oh, okay, in this case, I believe that if we do this, it’s gonna be better for the shareholders. But if you look at it in aggregate, that your policy is, I’m gonna choose the best founders and I’m gonna trust them. And my fiduciary duty comes in at the moment where I write the check. It’s like, I’m underwriting that person. It’s like, Hey, do I think this guy will be a good CEO? And once you’re there, it’s like, I’m here to enable this guy.

And even when I disagree with him, I’m just gonna help him do what he wants to do. Have you ever lost faith in a founder? Describe what lost faith means.

Yeah, so the reality is, I haven’t done a ton of investments, right? But I’ve done of a angel investments where it didn’t go well. One of the things that I learned after joining Benchmark, and I work a lot with Peter, and Peter sits on two of my boards and I sit on two of his boards. And you know, you see these companies go through these ups and downs. And like the thing that I learned is like, we don’t give up. It’s like, hey, as long as the founder wants to do it and it’s completely uneconomical, completely uneconomical.

So I was talking to Peter, there was a company that wasn’t doing well, and it’s like, I know what we have to do. A lot of venture capitalists would say, hey, just cut it loose, forget about this thing. We should double the frequency of the board meetings. I said, oh, okay. And it’s because we’re here for as long as the founder wants to try it. So it’s like you made the commitment to the founder and from that point on, you try to be true to this, like, unconditional belief in the founder.

It’s a very lightweight process, which is very good. So the way we work is, you know, you find a company, if you like it, you need to, like, get your partner your partner’s opinion, but you don’t need to get your partner’s approval.

It’s all optional. It’s like all optional. The one thing that is not optional is like you have to present the idea to the other partners. And everything else is optional, but the way it typically works is you meet a founder, do a second meeting where you bring another partner in so you guys can have that discussion. But then if you know you want to do it and you like it, typically you bring the company in, everyone talks to the company, and then people vote. But it doesn’t matter what the vote is.

If you really want to do it, you can do it.

So the vote is to disambiguate what people actually think. It’s like you got a clear signal because you’re gonna bring a company in, it doesn’t matter what the company is, there’s always a ton of reasons to do it and a ton of reasons not to do it. And then people will argue both sides, so you force them to put a number to it. That number carries a lot of information. We vote from one to 10, and you can’t vote five.

I don’t know if prevents the extinction is the function we’re trying to maximize. I think the function we’re trying to maximize is like, there’s going to be $10,000,000,000,000 companies created in the next decade. How do we make it so that we’re in a large number of them and we have a deep relationship with those founders? I think that’s a maximizing function. And to me, it’s just like, it works backwards from how are you obviously the right choice for the founders that have a ton of choices?

And right now, Benchmark, when we want to do something, we typically do it. We have the chance to partner with the companies that we want to partner with. But the problem is, because we’re a small firm, there’s a lot of stuff that we don’t even see. And then sometimes people are raising a round that doesn’t look like a benchmark round. And I think that is the thing that is most important for us to change. It’s like a lot of times people think, Oh, this is a benchmark round.

This is not a benchmark round. What it means, it needs to be clear to everyone, Hey, what’s a benchmark round? And a benchmark round is when there’s a founder that is very capable of going after a very big market. As long as you have that, that’s a benchmark founder. It doesn’t matter if you’re raising like 5,000,000 or if you’re raising like 200,000,000.

My first check at Benchmark was a $55,000,000 check into HeyGen, right? So this was my inaugural

this was my first check, a $55,000,000 check. And yeah, they’re like, hey, we gotta be true to

It’s actually a $600,000,000 fund.

Yeah. I think a lot of funds think about portfolio construction and this and that. But the reality is, RLPs, they’re the same LPs in all funds. So if you want to do one $3,000,000,000 fund or if you want to do five $600,000,000 funds, for RLPs, it’s actually the same. So I think the fund size has never been a constraint. I think the constraint is where we can make a difference is in the beginning. So it’s early, and we work best with founders that want to have a relationship.

Some founders are like, Hey, I do think it’s valuable to have a sounding partner that is going to have a lot of context on the business. And if you believe in that, then it’s like, yeah, Benchmark is a good fit. And most early rounds are less than 50,000,000. But you know, we’ve done things that are later, like we’ve done larger checks and sometimes if we’re going do a larger check, we do an SPV, but the check size, it’s never been a constraint.

I think on Brad’s case, think I had dinner with the partners. It was more like a conversation than a pitch. I think Brad Taylor’s case, I think it’s a good example. Was like, Hey, the guy is so accomplished, he could praise from anyone, could do whatever he wanted. But I think he valued the relationship with Peter and said, Hey, I think it’s gonna be valuable to have you along this way, right? And because it’s an equal partnership, like, Hey, these people, they’re gonna be my partners in this company.

So it’s like, to know you much more than it’s like, Hey, I’m pitching you, right?

And I think it’s a smart choice. And I think the best people, what they’re going to maximize for is like, Hey, how do I get my conditions, my initial conditions right? How do I get the smartest people around the table? Because in the end, the initial conditions, they affect so much what it can actually do.

I believe that pretty soon we’re gonna have an app and we’re just gonna wake up and do whatever the app tells us to do. In a way, we’re gonna be obedient to machines and we’re gonna love it.

I think the thing that Peter does better than anyone I’ve met is he understands people and he can get people to open up. So lots of times before we decide to work with a founder, Peter takes people to dinner. And a lot of times, I would introduce people to Peter and I take Peter to dinner with someone. So for example, I took the Brex COO to have dinner with Peter, and it’s someone that I’ve known for many, many years. At the end of that two and half hour dinner, I felt like I knew the person a lot better than I did before.

Peter does this thing where he’s able to make people open up in a way and the effect that it has is like people leave the dinner and they said, Wow, I just had a really special dinner. So I think it’s a superpower. And I think it’s kind of known that this thing happens. So a lot of times, if you wanna spend time with someone and like, it’s kind of hard, a lot of times I invite, Hey, you wanna go have dinner with Peter and I? And most times people say yes.

People say yes, they have a fantastic experience. And then they’ll tell more people like, if you’re getting it right, like would

I’m sure it’ll happen at some point, but that hasn’t happened yet.

Man, AI is going to change people’s lives in really important ways. One really important thing is the way we’re gonna learn is gonna be through AI teachers and Duolingo, I think it’s very sneaky. It’s sneaky in a good way. They’re starting with this language app, but they’re making your AI friend that teaches languages and then they’re gonna teach more stuff. And and and Luis, the founder, like, he’s a total genius. So I think I think he’s going to make a free AI tutor for everyone that’s gonna be incredibly important to humanity, and it’s gonna be a very valuable company.

There’s an objective answer to that. It’s like, I’m an investor in Green Oaks. I think they’re pretty good. Neil Mason

Yeah, he’s amazing. I really like him. And then I’ll go, like, I’ll go with conviction because I think Sarah is great.

I want to be an important part to the most important companies created. And that can be a early board member and that can be a co founder. But I want to look back and say, Hey, AI is going to solve so many of humanity’s biggest problems. You know, like from education to security. These companies are being created now to companionship, and I wanna be an important part of their story.

Thank you, man.

was a lot of fun.