A word of caution: I don’t know anyone inside these organizations. I built my understanding from publicly available info. So, obviously, my perception could well be very poorly accurate.
They are one of the very best firms in the venture capital business.
According to this interview with Andy Rachleff, Benchmark started in early 1995 with three of the five founders coming from two of the top VC firms at the time – Merrill, Pickard, Anderson & Eyre and TVITechnology Venture Investors (TVI) was the sole venture capital investor in Microsoft. David Marquardt sat on Microsoft’s board of directors from 1981 to 2014.
, that were both going through generational transitions where the founding partners wanted to retire. The question was: do we take these franchises forward or do we become free-agents and start something new? Their answer: “if we want to build the best firm in the business, which was our intent, then we had to start with a clean sheet of paper.”
Here’s an excerpt of the same interview in which Andy describes their approach:
The driver was that we needed to do things differently [than the more traditional guys] if we had any chance of trying to build the best firm. [When designing their partnership,] we tried to take the advice that we delivered to our portfolio companies. Position against one competitor, figure out their greatest strength and turn it into their greatest weakness.
The number one firm was Kleiner Perkins Caufield & Byers (KPCB) and we believed their greatest strength was John Doerr, who was world’s greatest venture capitalist at the time.
The challenge for John was that venture capitalists can typically do only about two deals a year and a lot of entrepreneurs were disappointed if they couldn’t get John. Even though John’s partners were great at the time, entrepreneurs were still disappointed if they didn’t get John.
So, we figured out the best way to beat an individual was to with a team.
We thought long and hard about how we put together the best possible team. We realized that an equal partnership would attract talent like no other firm. Think about it. If you’re joining a venture capital firm and you are a highly sought-after individual, would you like to become a junior partner at firm A or an equal partner at Benchmark? It’s sort of an intelligence test. And that way we attracted people like Bill Gurley, Peter Fenton, Matt Cohler, Mitch Lasky, Sarah Tavel, on and on – we keep attracting really good people. They are better than we, the founders, were.
The beauty of our system is that there is no politics and everyone is just focused on making the best investments. Because if I help you, I benefit just as much as if I’ve made the investment myself. I can’t get ahead economically. So, it’s all for one and one for all There’s a book called eBoys (that I haven’t read) about their early days of the firm during the dotcom bubble. The internet says it is ok-ish.
. We call it communist capitalism.
Things have indeed been working quite well for them. Their seventh fund may be the greatest of all time in VC.
Their most recent hire, Sarah Tavel, who left Greylock Partners to join the firm, has reinforced those principles in a recent interview:
I realized that as much as I liked Greylock, the way that Benchmark practiced the art of venture capital was how I wanted to practice venture capital […] I attribute the success we’ve had as a partnership to Benchmark’s structure as a very small, intimate, equal partnership.
She also mentioned their experience (that I didn’t know of) when they kind of walked away from their stay small mantra in the past:
We went through a period very soon after our founding when we did try to scale. We had Benchmark London, Benchmark Israel, we had more GPs in our Silicon Valley office — and our returns suffered. For us, that was a lesson that in order to be the best, we had to focus and stay lean.
At the end of the day, quick thoughts come to my mind:
The venture capital business does seem to be a great fit to this equal partnership model. For instance: new investment opportunities need to be constantly sourced and new funds are raised with some regularity – both providing a good kind of greenfield for new partners to enter and prosper.
But is this replicable outside the investment world? I think haven’t seen anything quite like that anywhere else.
Other notable small teams
Berkshire Hathaway and Apple Industrial Design Group come to mind. I might write about them here someday.
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