Bill Gurley on Entrepreneurs and Technology (Podcast)

was a board member there. Really just a fascinating career from a design engineer a compact to becoming an Wall Street analyst. Turns out he's the lead analyst on the Amazon I p O to eventually becoming a VC at Benchmark, where really he just has tremendous insight into entrepreneurs and technology and to think about things like the network of fact and what is this technology also UM parallel to and where can we see UH scale and leveraging capital all come together in a way that that is unique.

UM just really a fascinating, fascinating person, very forthcoming UM, including about things that were really challenging periods of his career that I would imagine wasn't a whole lot of fun. If you read the book Super Pumped about Uber, UM really he's the only guy that comes through that that whole book with his reputation. Intact, he's really the only good guy in the book. And the book is an amazing, uh amazing story about Uber, which in of itself is

is just madness. Um. So, if you are at all remotely interested in venture capital, investing, technology, direct listings replacing I P O S, I think you're going to find this conversation to be absolutely fascinating. So, with no further ado, my conversation with Benchmarks Bill Gurley. This is mesters in Business with very Results on Bloomberg Radio. My extra special

guest this week is Bill Gurley. He is a legendary venture capital investor at Benchmark, where he's been since Some of his better known investments have included grub Hub, next Door, Open Table, Zillo, and of course Uber. He is a member of the board of trustees of the Santa Fe Institute, and he is considered one of the most influential dealmakers in technology. In sixteen, he was named Tech Crunches VC of the Year. Bill Gurley, Welcome to Bloomberg. Thanks for

having me. Yeah, this is overdue. We were supposed to get together a couple of years ago and then events intervened. Let's start with your early career. You began as a design engineer at Impact. What does the design engineer do and what sort of lessons did you take away from that experience at Compact? You know that the job I fell into a Compact which was super super interesting for a person with a brain like mine. Um, we were a bit of a like a fire squad that came

in when they were problems. So when they were bringing new computers to market, they would pass them off to the test group, and the test group would take all the latest and greatest software. And back then it was like banion vines and running three comic conneted actors, a

lot of stuff that doesn't existing or today. Um, But inevitably they would break and and someone had to figure out why, and the the people that are doing the hardware design work didn't have enough understanding of how the software worked to kind of reverse engineer the failure, and so we kind of lived in between these two. What was what was fun about it is that you know, oftentimes they were holding up shipping until we could get

our job done. So it was this kind of they put us in a room with a bunch of pizzas and expect us to work like eighteen hour days until we found the problem. But it was fun because it was you know, shortened scope would usually be like one day to a week before we figure it out. And it felt important because everyone was kind of waiting on us, um and it was fun and it was super interesting, I think also for me just because of the problem solving nature of the whole thing. I don't even know

if a group like that exists anymore. So when you're involved in both hardware and software, we're talking thirty plus years ago, how magical did the software look? Was it still all potential? You're dealing with both hardware and software? What what intrigued you? Well, Client server was starting to happen already, and and and there were different way these you know, I have no idea how they do this

today because the clock speeds are so dramatically faster. But there were different types of analysis tools that you could run either virtually in the background or you know, and we plug this thing called an ice, which was a Medusa head like thing on top of the processor where you can measure every pin and you'd watch the signals go by and you try and reverse the software failure all the way down to where something was happening on the on the motherboard that was causing a race condition

or this kind of thing. And there were always odd things like you could, you know, make it really cold and the failure would go away and then you knew you had some type of analog rice time problem. But but it was fun. I mean, you really had to understand how the system worked all the way through or you couldn't. You couldn't pull that that down. You know.

The funny thing is, you know when we were we were already running into city stations where the equipment that you would put on it, uh to measure it would would mess with it. Um And back then, you know, I think the last thing I worked on was a forty six fifty And I can't imagine how they do it today, Like I just I mean, I know they do it, but I just can't imagine because the clock speeds we would have never imagined back then the clock speeds would be as fast as they are today. Yeah,

Moore's law just keeps on compounding. So so you um, you moved to Wall Street as a research channelist in the ninety nineties. What led you to cover tech stocks? Well, Somewhere along the way, while I was had become an engineer and was working at compact Um, I started trading stocks. And I can't remember exactly how I fell into it. UM. I'm sure I have a vivid memory of reading uh

Peter Lynch's book, and I also remember Prodigy. You remember a Prodigy, which you're kind of a precursor to a O L with a You could get a trading account on Prodigy. And so I was buying stock and one of the ones I bought. You know, if you read read that Peter Lynch book, was it one up on Wall Street? Was that the name um exactly? You know? He said, by stocks of companies you love well. I was doing a ton of programming in Borland, UH Borland,

Turbo Pascale, and I loved the Quadro spreadsheet. Liked it way better than Lotus, and we're using those tools every day, and so I bought I bought the Borland stock on the I t o like the day of the I. I don't think I got allocations be a good conversation for direct listenings. I don't think I got allocation through Prodigy but I bought it today of the offering. UM, so see that kind of thing was already happening in

my brain. Um I ended up. I ended up leaving Compact, going to business school before I transitioned into Wall Street. And I think when I got to business school and started really understanding, you know, different companies and reading about companies and and that fun that I was having thinking about stocks and stock prices. I when I when I

really started reading you know, magazines, Wall Street Journal, Fortune. Um, I noticed that these analysts were quoted a lot, especially Goldman had this killer team with Dan Benton, rich Sherlin, you know, and uh they they owned it like every like the top five tech Analystic Goldman, We're all all considered to be the opts. And um, their names would just come up and up and up. So, you know, and I was getting a little more spirited, and you'd

reached store is about people knocking on doors. So I spent a week in the summer of my in between my two business school just begging for meetings on the Wall Street, including with with Dan and Rick. And you end up at CS First Boston, where it turns out that you end up as the lead analyst for an I p O for a little company called Amazon. Tell us what that experience was like and did anybody have any idea then what Amazon might become? Forget what it is?

What was it? Even? The skipped about four years so, which is so it's kind of interesting because it involves someone I know, I know, you think quite highly up. So I um ended up getting a job. I ended up getting turned down by every firm and set for one which was Credit Pas First Boston and the research director there was a guy named Al Jackson who I still talked to the UM and you know, I went

to Texas. In my entering class, we went around a room and stay wherever it was from you know, Wharton, Harvard, like there was I was the only one that wasn't like those five schools. And you know, I'll just felt like taking a bet on me. And I don't know where I'd be to day if he hadn't have done that. I show up and um, they were going to assign me passive components with some obscure tech category. UM. And Charlie Wolf I don't know if you've ever heard of him. Oh,

Charlie was very well. He covered Apple when nobody liked the apple. Charlie was the PC analyst, and two weeks after I showed up, Charlie said he wanted to retire and teach more Columbia. And I mean to just talk about wild fortune. And so I went into my apartment and spent all weekend writing this kind of assessment of the PC industry and went in it begged alf for for char his job, and he gave it to him.

And then Charlie, you know, stayed on the payroll part time and became a mentor and helped me with all my work and kind of was my shepherd and was incredible. And then you know, the other part is just couldn't be more fortunate. You know, my first weekend, I've become friends with the food analysts you're talking about, Michael Mobison. I assume, correct, correct. The sequence of fortunate events is so like mind boggling. So I, um, I get to

know Mike. Mike hands me a book called Valuation that Mackenzie had written in another one by Stern Stewart, all about return on invested capital, which he's using in the food space. Um, out of curiosity and because he's pushing me, I run the numbers for all the PC manufacturers, and it turns out Dell is crushing everyone on this metric that no one's using in the in the analysis of that market. And it also turns out that they've got an option scandal problem and a laptop battery problem and

the stocks trading at six times earned. And so through through using that methodology that Michael taught me and spending a ton of time with Tom Meredith, who was the CFO deal at the time, UM, you know, we went to a strong by when everyone was was had a cell rating, which was the only strong Bye I ever did in my career. Um and I think the stock went up a hundred acts in the public market from there. So now let's let's fast forward to the Amazon I

p O. You're the lead analyst, tell us about that experience. Yeah, So, in my third year as an analyst at CSFP, I was about to I was about to jump shift and go to the Bye side. I've been spending a bunch of time with Capital Group, actually who I think the world of um uh you know, and still still keep in touch with people there all the way until today. And Frank Quatroum called me out of the Blue and he said, I've heard a lot about you. We're leaving

Morgan Stanley. We're going to start this boutique in that tech investment bank called d MG Technology Group. And when you really want us to join? And I really wanted you to join, and um I called Roger McNamee UM because I did. I was looking for some advice and Roger was a client of mine at TSFP and he said, you got to meet with Frank. You have to meet with Frank. And so I met with Frank. He he asked, what do you want to do long term? And I said I'd love to be a venture capitalist and he said,

I'll tell you what come work for me. I'll move you to Silicon Valley. I'll introduce you to every DC that I know. So that was a pretty good Uh, that's a pretty good offer. Um. When when I got to Frank, well, Frank and I then started. He said he said what else? And I said, well, I don't really want to cover PCs anymore because they're gonna they're gonna merge with the Big Box Group and I'm gonna

have to cover HP and DECK and that's boring. He goes, well, what do you want to cover and I said, this Internet things popping up, let's do that. He said, fine, So, UM, this is the priest Fitzer Wall so the bankers in the research and now it's spent a lot more time together. But UM I had already I believe UH reached out, you know, the bezos one way or another, just paying attention to what was happening with the internet. UM and made a couple of trips up to Seattle UH to

speak with him. UM got to know him pretty well. We're still close friends today and he's a large investor in Benchmark and UM and you know it, luckily we got to know him before it happened. But they ended up being a bake off, and it was it was you know, I think Morgan Stanley was in before us in Goldman after the meetings were a Decliner building on sand Hill and somehow we won the man do I To this day it's one of my favorite trivia questions.

Who was lead left on the Amazon I p O because not many people will be able to say Deutsch to Morgan Gruntsfeld. But but there there is a photo of it on the internet. If you do a search to have a book somewhere right, don't you have a I do. I have the prospectives and and I also my my assistant at the time, JULIETT. Wilson, who was it was really great. She had this idea that we would find the pitch book, and she found a company in San Francisco that was opened all night that would

bind a book for you. The bankers thought we were nuts because they loved to put pages in at the last minute, and these like three ring binders, but they agreed to it. So like she drove to the city at like two am and and we we used bound pitch books for them. And I still have a copy of that, which is kind of cool. That's quite amazing. How did you value companies back then when there wasn't a lot of revenue. There certainly wasn't any profit. There

were eyeballs, there were clicks. How do you put evaluation on on a a relatively young startup? You know, I um got that opportunity to jump to venture only thirteen months after I joined Frank and I did, and so I was I would I had left the equity research business. By the times stuff started going really crazy um in the in the in UM and so I started thinking about it as a as an investor in less the

research analyst. But I didn't, I wasn't forced into that quandary. Um. I wrote a blog post way back then though about proxy valuations, and I noted that people like John Malone, you know, had been able to convince Wall Street to think about homes past instead of you know, a pe multiple and that there's a value for home past if we can grow homes path and there were so there were other people at that time that had been successful at it, kind of changing on how you think about things.

But of course in things just went super nutty. They may be super nutty again. Um and uh and it. It can cause a lot of anxiety for someone who was brought up rooted in financial history and you know, someone who's who felt like a study partner of Mike Mowison, like it's it's hard when you see craziness. So you're

not a specially big fan of initial public offerings. What's the problem with traditional I p O s. There's a problem that's been inherit for a very long time, and then there's a problem that's gotten way worse than the past five years. The problem that's been around for a very long time. You know. Bill Hamburg was pushing on this over twenty years ago. You know, he said it's an insider's game and it's rigged, and he was one of the inside. You know, Um, and Pierre and Evey

got upset about it. Larry Sergey got upset about it. You know. So I think it's and and net sweet you know, Uh got upset about it. Uh, Allison was upset and as a result of the team at that sweet and So I think it's always important when this topic comes up to highlight that there were plenty of other people in Silicon Valley that we're ringing this bell before I was. Um, I'm just the latest person to pick up the baton. Um. There's two real problems, um

that have been exacerbated recently. One is they don't let everyone been so you're there's a very restricted set of people who get to decide if they get if they want to buy stock in and office, and it's it's not everybody. There's not even any oversight as to who gets led into that circle. And then the second thing is they don't use price, Uh just they don't use supplying demand to set the price. And determine who gets

the shares. They literally have humans saying we think the price should be this, then we're going to give it to this many people. Um, it's no shock that that has resulted in miss prices. And now there's forty years of under pricing data. Professor j ritterd at uh Eurosity of Florida has aggregated all this on his website. He keeps it up to date, so I just get the point of his stuff. Um, those numbers have gotten insane recently.

So the previous two years were six and seven billion dollars one day underpricing, and then was thirty five billion. So Bill, some people might say, on at least on Wall Street, that that's not a bug, that's a feature. Oh maybe for that client. You know. I do think that all of it makes sense when you realize that the key customer of the investment bank is the institutional share the firms to the fidelities and t ros and cathital groups. Um, that is the customer that's being served.

And I guess that's fine to a certain extent, except the banker UM acts as if they're looking after your best interests. Also, there's no high dollar transaction that you'll do in your life very where you use the same agent as the counterpart. It's the only one there. There literally isn't. You wouldn't do that in M and A transaction, you don't. You don't do it when you sell a house. UM, you always get your own you know, agent to look after your best interests. So it's bizarre how much trust

there is UM when people go into that process. And I think that trust gets taken advantage of. When I was on Wall Street, UM, there were these huge sales forces in every region, and when you did an I T O there was variable compensation for people that could play shares, and even between the banks, there was this thing called jump ball economics where your bank was encouraged to outperform the other bank, so that they used to use this word distribution. I'm looking to get this offering

out and you got to go sell it, right. The sales force at the two largest investment banks today's one tenth the size it was back then, so they don't even have the people anymore. And what they've done is they now focused the majority of the I P O process, unlike the top twenty accounts UM, so there's no effort anymore to push it out. It's just more of an effort to see what these people want. And they've settled in on an optimization function, which is truly remarkable that

they get that this actually passes muster. But they tell each and every CEO and CFO and board that comes to go public that their goal should be being thirty to fifty x over subscripts. Amazing. Supplying demand was understood three or four years ago. How you could sell the most important asset in your firm, which is your stock, um into a process where you're being told that x oversubscribed is optimization. It's shocking. It's literally shocking to me.

So let's talk about an alternative like direct listings. How do they work and what are their advantages versus a traditional I P O. Yeah, so, like forty years ago, people built algorithms into exchanges that allows you to match supplying demand to determine price. And every single stock these days, every day when it opens, goes through that process. Right every morning, you know you gotta start trading a stock, how do you determine which price? Where's the first trade happen? Um?

And it's all just a simple matter of matching supplying demand. The most u highly used algorithms called priced time, which is if if you put in a bit at the price that they evinced the open apt or if you put a bit of a pity above the price they open at, you automatically get filled. If you're at that price whoever had order in first. So that's the price in the time. UM. That's exactly how every stocks opened every day on both the NAT deck and the n

y C. And here's the best part. That same technique is used the day after a hand allocated i p O. So every company that does an i p O does a direct listing that the very next morning, except the only people allowed to sell, and I feel are the ones that you gave the stock to the night before, which is also perverse. Um. But the technique that I think the most elegant thing about the direct listing is

it uses the systems that are already in place. And so if you talk to the guys that Citadale that have done all four of the high profile direct listing, um, they they actually, you know, will tell you, yeah, this is just like how we open every other stock, or just like we opened a stock after an i p O. The day before um, and now I had a front row seat on a Sonic because we or an investor there.

But um, they just start announcing a range. People tighten up their their bids and their offers and eventually a block trade and then you're often going. But it's completely blind, so no one gets an allocation because of who they are there, their brand, and it's all tied to that algorithm the price and time and so on. Just to prove. And here's another great thing, because it's in the network already because they're using these systems at the exchanges. It's

connected to all brokerages. So for a direct listing, you want to go on robin Hood, you want to go on swab put in an order for one share of fourteen buck. If that's above the opening price, you get filled. Like and that's that's the the I said. There are two parts, you know, using algorithms applying demand to set price, but also being available to every shareholder on the exchange, and you get both of those, which is way better.

It's just it's like it to me. The the the onus on why we would do something should be on why would we ever have someone sitting there? You know, hand allocating in hand determining price makes no sense. We hope we sell every bond in this country, you know, with this type of system. UM, and and I hope one day that that's how every one of these ideas were. So, Bill, how does a direct listing compare to, say, the way Google went public with that sort of reverse Dutch auction. Well,

I take three things about that. So so, first of all, um, because they were trying to do it in a in a innovative manner, it was bespoke and so uh, I think Morgan Stanley hired like two hundred engineers to build the system, and it was a one off. That's different from what I just described with direct listings, where they're using this process and systems that have been in place for twenty or two years at the nassect in the NYC.

So obviously one of those is better than the other. Um. For any retail investors that wanted to do Google, they had to go open an account I think at Hamburg con Quest or something like. It wasn't tied to the Open Exchange the way this is, so you didn't have all of that. And then and then lastly, you know you you you because it was the first one, your

auction participants just didn't have a lot of experience. And there's this great legendary story, uh that Bill Miller was trying to figure out how much he should put in on the Google auction and he he apparently hired a bunch of auction specialists to come breathe his team on how to think about this, and somewhere like the second day, someone realized that all the auction theorists were starting by saying, assuming you have participants who are experienced, like all the

auction theory based on people having experience. And he then realized, everyone's going to be inexperienced here, They're going to be conservative, they're gonna underbid, And he put in a huge order and got failed. A great story he did, so he did, he got failed. So there was no experience and and a and a much a much less less uh efficient tech tack relative to work we have today. So when you do a direct listing, do you still have the rest of the trappings, Is there still a road show?

Do you need to sort of show your wears to bankers or do you just you know, listening go public. So there's a misunderstanding on this point. And it was partially driven by there was a there are a group of naysayers. He said, you could only do a direct listing if you're extremely well known brand. UM, which I think was was was quite frankly bs from the beginning. But UM, I think you know, with a Sauna having a successful direct listing, it's not a not a household brand.

I think we've kind of blown that up. UM. But the other thing was they thought that the in person road show was was tremendously important and you can only do that with an id O. Well, of course with COVID that's been proven wrong in case every idea now is virtual. But but the bigger point I would make is the amount of information you can share is actually a superset of an I p O so you you

have way more opportunity to educate. UM. All four direct listings have used the equivalent of an investor day, so like four to eight hours of information dissemination from different parts of the company, which you would never get on a traditional I p O, UM and and Slack and then decided that in addition to the investor day, they wanted to do the standard road show and that was that was available and so they did vote, so they

were able to actually to do even more. Daniel act interestingly at Spotify, felt strongly that he felt in this tide to open access, he wanted every investor to have the exact same information, and so he was uncomfortable doing the road show because he wanted to retail investors to not be at a disadvantage to the institutional investors. That

that's really interesting. Are there any legal or regulatory impediments two direct listings becoming more popular or is it just simply there's an entrenched I p O process and it's what so many people are used to. Yeah. I think there's a lot of that entrenched thing, you know, when you take your company public. For many CEOs and founders and CFOs, they may do it once in their lifetime, and so it carries this kind of special uh like important.

And I think that weight of importance causes conservatism because people are like, oh my god, I can't screw this up. And I think bankers take advantage of that. I say, often an I p O is like a grand Southern wedding right where they tell you, you know, oh, no cost is too much, right, you gotta have every bell and whist here you want this to be spectacular. Um. And that seduction I think plays a part of the

whole thing. Um. It's interesting to me when you look at the thread that goes through the type of entrepreneur who really stands up and says, you know, I need to do this because this is what's right. And Larry and Sergey did that, Daniel Act did that. You know, Toby it's spot up at shopify and said of man, if I ever had another chance, I would definitely do a direct listing, and and and I have to believe I would bet a lot, a lot, a lot of money that Bezos would do a direct listing if we

were coming out today. Um. I just think, you know, I think it takes a certain amount of hutspun, a certain amount of conviction um to kind of go against the grain. But the more of these that are under our belt, and we've got roadblocks and coin based coming soon, I think I think the more momentum will be. Obviously there's one piece that that that is missing still today, but there's a lot of progress on is adding primary

capital to it. Stacy Cunningham, who runs the n Y sc Um, really really pushed hard on making this happen, and Commissioner Clayton and his last act I think two days before he stepped away as Chairman of the SEC pushed that through and so it's now legal to do it, and they're gonna you know, it'll take a few companies to be the first one through the door. UM, I don't think there's any technical issues with adding primary capital. Quite fascinating. So Bill, let's talk a little bit about Uber.

You are one of the earliest investors. You participated in the A rounds. What did you see at that stage that got you so excited? We we had made this investment in Open Table, and the it felt like a flyer at the time, I think it said, I don't think it looks that way now. But we we made this bet that if you could get this flywheel moving, that connecting all of the world's restaurants would create a

very special um experience for the consumer. And you know, pribor Open Table, you couldn't say, oh, I need a table for six and would love Chinese in San Francisco on Saturday and then immediately get a response like that was an impossibility. And so my partnership and I started asking what other industries, could you put this network layer on and and have an AHA experience for the consumer.

And the one the one that has intrigued me just in terms of like fundamental research and thinking was was cars.

I just thought, if you put a network on cars, and there's so much inefficiency, especially around black cards, you know, you would you spend as much on a business trip you played Chicago for a day, You spent as much on the black car that that you rode around in all days you did the flight UM, and most of the time they were just sitting there and then God forbid, you come out and you can't find them, and you're calling them like it's just all this waste and UM.

So I just started proactively meeting with companies and I met with probably three or four companies that have built this network layer on top of taxi UM and spent a lot of time with those companies. It struck me the more I learned about it that most taxis were oligopolis and in cities, UM they were highly regulated so you couldn't mess around with price, which isn't optimal for

a for a marketplace. UM. There were there was all kind of of ugliness around people that have tried to sell technology to them before they were installing uh devices in the dash and stuff, and so there's just a lot that that kind of didn't look great the more I dug into that, and so I kind of came back to the partnership and just said, Hey, if you ever see anyone doing this around black cars instead of taxis, let's let's talk to them. And and that's what happened.

Garrett and Travis and Brian Graves, you know, started doing this thing right in our backyard. That was exactly what we were talking about internally, and so we smothered We actually met with him before the seed round. Um and my partners couldn't quite get there. But six months later we lead the a so and and no regrets to say the least. So, so you are not only a very engaged board member at Uber, you were Travis's Travis Kalis,

who's the CEO. You've been described as his consigliari. How difficult of a role does that put you in where you're both an investor into the company, but a cheerleader into one of the founders in the CEO. You know, I think I think that that is a role we play as early stage venture capitalist that we always take

a board seat of bench mark. I think that's a role we play in every company UM and I think it is the most nuanced, difficult part of the job to be simultaneously a friend and partner who's trying to help develop a mentor, a founder and and shepherd demil in their in their journey hopefully you know, evolving beyond and past you know, yourself into into the public markets UM and simultaneously have a fiduciary duty job as a

board member to look after the interest the shareholders. And it's tough, um I. You know a lot of there's lots of different stories with a lot of different factors, a lot of different investors and that have been through

that UM. In this particular case, you know, it's well known that became they got they got increasingly difficult UM and And I would say, you know, that's not optimal, like like in in in the in the perfect scenario, you know, you have something like like Bezos at Amazon where the founder is able to to rise and scale and and do extremely well UM into the public markets and beyond. But it doesn't always work out that way. So I've been a user of Uber for god knows

how long. Um, and I've watched the Rise and Fall and Eyes again and that led me to read the book. Super pumped the battle for Uber. You're the only guy in the whole book who comes out with your reputation intact. Everybody else in the book is I don't know any of these people, so I can't say how accurate it is. But everybody comes across, as you know, either a jerk or an egotist or just so sharp elbowed. You seem to be the only mentioned, the only person of character

in the book. Have you read it and and if you have, is it remotely accurate? I have not read it very My wife read it and and echoed what you just said. UM. I chose not to read it just because I didn't necessarily want to live it again. But that's probably not fair to the oscar I I just probably showed at some point, So I don't know. I can't speak to that because I haven't read it in detail understandable. So ultimately Travis gets forced out and the next day you resign from the board and you

show your support for him stay in. There will be many pages in the history books devoted to at Travis Kay that's his Twitter handle. Very few entrepreneurs have had such a lasting impact on the world. That was a good couple of years ago. With the passage of time, Do you feel uh the same? How is your perspective changed since since you stepped down? Yeah, I mean they're they're Travis heads and probably still does. Has qualities that are particularly unique. He is really really really bright. Um.

He is tireless, like like he will outwork you. Um. I think at one point, Tom, you know, I said I'd be afraid of having and money in and in a company that he's competing with, just because I doubt you're going to work as hard as he is a combination of of intelligence and and remarkably hard worker. UM. And I also think because and this is an interesting thing to look out for his venture capitalists, because his

first two companies didn't have huge success. When he realized he had product market fit, I think he leaned into it with it, with it with an amount of of recognition of how special that is, you know. I think, you know, so for better for work, some people get started on companies that just started as good as other companies. UM. And you know the famous saying like Buffett, when a bad business meets a good man's and team, it's the

business who comes out with its reputation intact um. And I really think Travis knew that this was special, and so he went after it a great recruiter, was able to bring in a lot of great people, UM fearless, like like he launched the business in China when every every single founder in the in the US has been told to give up on China, and was able to parlay it into a you know, a pretty big ownership position indeed, which Uber still has today. So a lot

of amazing quality. So the challenging question is where did it go off the tracks? I mean, he clearly built a behemoth um and arguably Uber is gonna be around and going to influence transportation and food delivery and self driving cars and go down the list for a long time.

Where did it go off the rails? You know? Like I said earlier, I think I think if if a venture capitalist is doing their best work, you know this doesn't happen, right like you're able to help shepherd and mentor um the founders that they can can rise to the occasion and scale alongside the company. UM, A lot of a lot of these has had a very special weapon over the years. A gentleman named Bill Campbell that you may have heard about from time to time, who

was known as the legendary coach of Silicon Valley. You know when he you know, he spent time with Bezos early on, not a lot, but a year or two. UM, he spent an immense amount of time with with Steve Jobs, and he spent an immense amount of time with Larry and Sergey. Most people don't know this, but he was still running the management team meeting at Google ten years after they were public. UM. And so you know, he

unfortunately passed. I think I think if he also, you know, I think if we had had the opportunity to introduce him to Travis, he might have been super healthful in that way. I don't know. UM, it's those kind of things I think about in wreck respect. UM, everything got so big so fast, and the money got so big so fast that I think it can impact UM. I think it came ipact perspective that people have UM and UH,

and I think it just got away from us. At one point that year, you know, we were losing market share pretty dramatically, and you know, the marketing department had brand surveys, you know that we're in a free fall. We had um five or six investigations that were underway. I was on special committee conference calls you know, every week, and it you know, it looked like the fate of the company was at stake, and and and I you know, and after that, some of some of the most touching moments.

You know, I've been out in a restaurant in San Francisco where a random employee had come to me and say, hey, thank you, thank you for what you guys did. You know,

you helped save the company. And so while I would simultaneously say I wish I could have done a better job so that we were never in that place, second to that, I think the work that we did was you know, well, in retrospect, I look back on as one of the hardest things I've ever done, but something I'm actually quite proud of because of the number of constituents, you know, shareholders, employees, um drivers that were impacted by

by ensuring the company with successful that seems pretty reasonable. Let's talk a little bit about the state of venture investing today. The NASDAC was getting she lacked up until Tuesday last week, where it popped five D points over four. How do you look at the era we're in today relative so when you were coming up in the nineties

and that entire dot com enclosion, Yeah, the dot com boom. Um. You know, it's super interesting to have that at the very beginning of my venture career because I saw both the mania and then the correction. You know, really before I ever got off the ground. You know, I was doing early stays investing, so the companies I had backed

in that window were pretty small. Um. But I watched it all and you know, as someone who's a student of financial history, I've read all the Tulip books, you know, I've read all about these types of things, and they're known like their known when the world gets more speculative. Um, that happens from time to time. In in the in the dot com boom, we had a lot of companies going public with like a million dollars of quarterly revenue. UM. Show it was different. There was like any company could

go public, but they were all these little bitty tiny companies. Today, UM, it's quite different in that Um, this this this market has becomes speculative is has arisen on the back end of what do you want you know, because this goes back including like uber is like and the Vision Fund. It's on the back of like six or years of

massive amounts of capital availability. And so it's not uncommon for the amount of capital a company is raised before they go public to be in the five million to a billion range now across a wide variety of companies and so, and the companies are coming public even though they're not profitable, which we could talk about, most of them have pretty significant revenue run rates pre spack Well, Bill, what do you think is more important having a strong

revenue ramp for an early company or profitability? Yes, So so look, I'm about to say something that I think is pretty obvious to people that have been around investing for a long time. So the most interesting thing about this past five years has been the near zero interest rate environment. That's probably a result of every country in the around around the globe deciding it's okay to print money, uh, you know, and so there's no where for money that

there's no interest rates anywhere. And you know, when you talk to whether it's someone like Buffett or Druck and Miller or or Howard Marks. These people that follow macro way more than any venture capitalist would they know that when interest rates go to near zero, speculation abounds. People are looking for a home for their money. And I even asked the question you just asked me of Mike Molbison.

I said, if interest rates go to zero, based on all your valuation work, what matters more growth or profitability? He said, growth unquestioned, just because you're not. Yeah, and that's what we're you know. Um, the these companies that are coming public, almost no one cares whether there their

core profitability exists. But if they're growing north they love that. Um. When you combine that with the money that's out there, it leads to pretty manic discussions, you know, within a boardroom, because the right answer, at least in the short run, might be to increase that burn rate to really high levels, UM, certainly unprecedented in the history of American business, and push the gas and uh. It makes for a wild ride,

to say the least. So the froth sounds like it's similar to the nineties, but the underlying conditions of zero percent interest rate, lots of capital, but also lots of companies with big revenue and taking market share or just developing brand new markets. That seems a little more advanced, a little more sophisticated than what was being thrown up

against the wall in the nineties probably. And then there's this there's this other esoter corner of the whole thing that's super interesting, which is, um, once people get comfortable using capital as a weapon, all of a sudden, the private companies are the ones that are being provocateurs with more money against the public incumbents. And no one would have ever imagined that twenty years ago. But I think Amazon did it to Walmart, and everyone made fun of

him the whole way up. You can just you can just imagine yourself being in the Walmart board room for those twenty years, and how much dismissiveness there was probably about Amazon's lack of profitability. Right, And because Bezos won over Wall Street, he is given a green light to spend and lose money while Walmart's being held to ape

or Hebdomalt, and that's got to be super frustrated. Um. I think I think, uh, you know, Netflix did it also, right where everyone's sitting there going but you don't make money, but you don't make money and read got Wall Street to believe in what he was doing, which I think is a critical part of this UM and then was allowed to lose way more money than any of the production companies that he was ultimately competing with. UM it

took massive share. And so now that that that's Silicon Valley entrepreneurs have been trained that that's a game you can go play. It's being done on a massive scale. I mean you look at something like what's the uh, what's the India based hotel company Ohio? Like they're just building hotels, Like they're literally building hotels adventure dollars um. It's got to be immensely frustrating to someone that's competing

with them. Well, you know, when when you look at Amazon, I remember the very first investor letter that Jeff Bezos pens and in it he said, Hey, we're not going to be profitable for twenty years. We're gonna build this out and take market share, and we hope our investors are patient with us. And he was pretty true to his word. I mean, but for Amazon Web Services, he

could have gone a full twenty years without showing any profit. Yeah, there's one thing about that letter I'd love to make a point about just in case there's any entrepreneurs that's ever going to write another one of those letters. Bezos

came from Wall Street. You know, he understood shareholders, and I think that letter, I don't have an in front of you, but I think he says to our share owners or like, that's the inter u and he talks to the shareholder in an immensely respectful way in their language, and is telling them how they will have a synergistic relationship. Ever since that Bezos letter, a ton of of spirited founders.

I think that what he was saying was I'm going to do it my way, and there was an element of that, but it was in this respectful tone of of empathy to the shareholder. Since then, a lot of these guys just right, I'm gonna do whatever I want. If you don't like it, you can shove it, basically, And that's not what he did. So I think that's interesting how that's evolved, to say the very least. So we were talking about on this capital as a weapon thing.

I think one really interesting thing to watch in the next five years is going to be the consumer banking industry in the US. So there are probably sick different intensely um capitalized companies that are new age banks, you know, from so Far to Wealth Front to you know, a firm which went out um and coin Base and robin Hood and and they're doing things that I don't think

there's one of them called Chime. So chime if you take them your direct deposit with your check, you know, you're earnings check from your work, they give you the cast two days early. Do you think Wells Fargo Board would ever tell their management team, Yeah, we should do that too. I don't think they'll ever consider this hyper you know, using capital as a weapon in a hyper aggressive way is coming to to consumer banking. It's already here, and I think it's gonna be super interesting to watch

the incumbents over the next three or four years. So no doubt that finance is going to go through some changes. You've written about the role tech could play in transforming healthcare. Tell us a little bit about that sector and what can technology do you know. I've been thinking about this a lot lately, just because I've been running some numbers on the PCR testing in in the US, which are

mind them me. Um, we have a massive problem in the US healthcare system just massive that is almost entirely um tied to regulatory capture. And there's another big, big problem, which is the employer just shouldn't be involved at all. Um. In all of the D twenty were the only country where the employer pays for healthcare, and it it just obviously skates everything. Um. There's also like like the person that's paying isn't present at the time of the trans action.

No one knows the price until after the transactions already done, um, and then they fight about it. I mean, it's just it couldn't be more perverse. And I think we're going from like seventeen to eighteen too towards twenty percent of GDP and other countries aren't like that. I mean, there are plenty of countries with very similar health profiles that are half that or even less, and so I'd like to believe technology can be a part of that. I think what doug hersh is done a good our acts

is interesting, um, but it may require legislation also. Um. Trump was pushing on some price transparency stuff that I thought was interesting. I think most favorite nations with drug manufacturs like you shouldn't. I think that's an okay, rule right, you can't sell drug for for ten cents in Canada and to fifty year like why not? That sounds realistic to me. But but it's hard because as of the capture, you know, there's so much money involved, and there's all

these rules. The rules are written by the incumbent. HIPPA protects the incumbents, not not the consumer. And there and there's there's there's twenty versions of HIPPA. I mean, it's it's very very messy. You know, it's funny you you mentioned why are the employers involved? When you look at the First Cares Act. Rather than sending money directly to small businesses or directly to employees, they put the companies

in the middle. They gave companies loans and said, hey, we'll lend you money to cover salaries if these people continue to work. You know, there's a history, there's a long history of not wanting to appear socialists and send checks to people. So we pretend by putting businesses in the middle. But you know, ultimately money from the government and is up being directed to people. And whether you want to put a business in between or not, I

totally agree with you. There's just no reason why anybody who's running a business has to also be running a small medical practice on the side. It doesn't make any sense. They hate it. They hated They're no good at it, and they hate it. It's it's ridiculous. But but all the obfuscation makes it easier for the people that are in the system, and so no one, you know, no one's going to complain about it at a carrier or

a healthcare provider. Um. I assume this was the motivation that got Amazon and JP Morgan and who I forget who else was in that thing um off the ground. But looks like that. It looks like that lost momentum too, right. It is a you know, it would if you consider me chilting against direct listings for a couple of years had any impact whatsoever. I imagine it's a harder push still tick against this system. And I'm sure plenty of

people have but but it's hard, yeah, for sure. So we were talking about the dot com implosion early in your career. Fast forward a few years to the Great Financial Crisis. You end up writing a very prescient letter to the company's benchmark had invested in, basically how to survive the great depression too, without firing everybody, basically saying there are risks, but there are also lots of opportunities. Tell us a little bit about your thinking when you

sent that email out to all of your companies. Yeah, and I think at the exact same time Secoya had circulated that deck. What was it? Good times whatever? After your boy? Um, Look, I think because I've studied the history of finance so much, I have a great deal of respect for making hard decisions, for focus on profitability, UM,

for being good stewards of capital and emotionally ideal. Way better with scenarios like that than when things are a mania and popping, Because the conversations that you're having with someone are quick. People have to make very smart decisions

very fast. Um, really good entrepreneurs, really thriving moments like that, and you see people really rise to the occasion in in a world, in a world that's probably you know, the things that are rewarded are being more speculative, and the very right answer maybe to take on excessive amounts of risk. That is just not as intuitive to me. And so UM, I have no trouble kind of delivering that message at that moment in time and and I take immense pride in seeing uh founders. There are a

companies survived, you know, a time period like that. Some handful of our companies this past March, you know, had to live through something like that because you know, if you were focused on certain industries, COVID just wiped them out, like your revenue went away. And how you scramble, you know, is hard, it's but but it's super rewarding. So I know you are stepping back a bit from benchmark. You're not participating in the next fund they're raising. What are

you gonna do now? What are the plans looking forward? You know, I don't know yet. Very I've been spending a lot of time talking to a lot of people who have kind of done the two of themselves. Um, I'm fifty three, so I feel like I've got a lot of energy left. UM. I love entrepreneurism, I love investing. I have a great deal of respect for for it. UM. I love talking to founders, executives, investors, and I'm trying to figure that out. I still sit on tin boards and I have a lot of of work to do.

A benchmark. I'm going to see all of those through. But I'm I'm still in the I'm still in the learning phase of what's next quite fascinating. If you have any good ideas, let me know. Well, if you're looking for a side gig in New York, there's always a desk in my office for you. I don't know if you want to give up the nice weather out there. So so let's jump to our our favorite questions that we ask all of our guests. Tell us what you're

streaming these days. Give us your favorite Netflix or Amazon Prime or or podcast you're listening to. What's keeping you entertained during lockdown? Yeah, you know. I I don't know if I have anything particularly unique. I went through Queen's Gammut in a couple of days, and The Loop and

things pretty good. Um, I'd probably if people are thinking about this, I'd go back to an old one that I just adore in case, because I don't think everyone's watched this, but Justified as some of the best writing that I've ever seen is just fantastic. Quite interesting. You had hinted at some of your mentors, but let's give everybody their due who helped shape your career both on

Wall Street and in Silicon Valley. Yeah, so I think I mentioned them all, but Charlie Wolf and Mike Mobson at CSFB unquestionably had a huge, massive impact on my career direction. And then obviously Frank Quatrone bringing me out to the valley and and getting to know Bezos early on. I'd say all those things, uh, And then the entire the entire founding team at Benchmark that brought me on because I wasn't a founder UM and taught me everything

they knew. So super fortunate to have lots of different mentors. Let's talk about books. What are some of your favorites and what are you reading right now? My favorite book of all time is a book called Complexity, about the rise of the Santa Fe Institute, where I'm now fortunate

enough to serve on the board. UM. It's really an analysis of multi variable non linear systems and how they behave and that includes things like stock market or weather, the pandemics UM, and a lot of the tools that we think are scientific, like linear interpolation, actually don't work very well in these chaotic systems. And I just it's one of the early people there. UM was the first Brian actor, was the first to write about network effects, you know, back in the early nineties, and that had

a big impact. So anyway, that's my favorite book, Complexity mental waldrope um right now, believe it or not. I finally during COVID decided to attempt the Caro book on Lyndon Johnson. Um, I am, I am three quarters to the first one. But if you know, if you know the books, they're like four thousand page books, the giant and there's a dozen of them, it seems, and and and all the journalists I've met my entire life, you know, so you have to read this thread this three So

I finally I finally took it on. So if I haven't read Complexity, but if that floats your boat, I thought James Glicks Chaos did a really nice job explaining what's behind chaos theory. They came out at about the same time they were. Yeah, those two books are almost like years of one another. Um. I found the applicability of what was disgusting Complexity, you know, more realistic for me as an investment. Anyway, that book, you know, something that Mobison read at the time, and and and Bill

Miller read at the time. Bill Miller is like the chair emeritus. There now and Mike's the chair at Santa FE and so it's been fun to get to know them and discuss those topics and then getting deeper at the program. Quite interesting. What sort of advice would you give to a recent graduate who is interested in the

career in either entrepreneurship or technology or venture capital investment? Yeah, so it turns out, from my point of view, the venture capital is achievable for young people, even though most people would tell you it's impossible. Um, I think the odds are low of breaking in because the supply and demand just doesn't doesn't really yield itself. There's not there's not spaces, relatives and on people want end um, but I think it's an area that binds to youth and

been to hustle. And so my my advice would be, um, take a bet on a very narrow sector. M I hope you're right, but then immerse yourself in it. And there's no way the generalists, your capitalist is going to be able to compete with you because you're going to know more about said subject matter. You know something popular today like the n f T S or or you know VR like you can easily be the smartest you

could be smarter than every venture capitalist on VR. If you immerse yourself for six months, you just would Now you gotta get it right. I mean, I guess that's the downside, but but it yields to hustle and it yields to focus. And so those would be the two things I would would recommend. Really interesting. And our final question, what do you know about the world of venture capital and technology today that you wish you knew when you

were starting out at benchmark back. This is a really hard question, um, And the reason it's really hard is because that all of my initial answers that I want to give you very really violently the premise of the question, because I could say, well, I should have invested in Google right or you know, hold Amazon forever. But but those things are just hindsight, They're not they're I was gonna say, don't don't make me call Mike Mobison on

you exactly right like that. So I my answer, which which I guess will be confirming of probably every guest you've had on and and makes it not that original because I've heard many other great investors say this. It's just the power of compounding. For some of these platforms. UM is so so huge that you know, if you invest in an Amazon or whatever, like, the hardest thing to possibly do is just close your eyes and forget it. And the only thing analysis is going to cause you

to do is sell the stop. You know you're not going to run analysis, and you know, for the fourteenth time ago I should keep holding like and that is so hard, so so hard um to implement. Easy to say, very hard to implement. Yeah, that's a fascinating answer. You know. The the problem with conceptualizing compounds is that it takes place over years and decades, and humans live in seconds and minutes, and it's so challenging to conceptualize that exponential leap.

There's no doubt. Bill. Thank you for being so generous with your time. I really appreciate this. We have been speaking with Bill Gurley. He is a venture capitalist at Benchmark. If you enjoy this conversation, we'll be sure and check out any of our previous four hundred or so we've done over the past seven plus years. You can find those at iTunes, Spotify, wherever you feed your podcast fix. We love your comments, feedback in suggestions right to us at m IB podcast at Bloomberg dot net. Give us

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head of research. I'm dairy. Re Helts Upend Sanatan Master's in Business on Bloomberg Radio