Bill Gurley Interview

Interview with Bill Gurley by Joseph Ansanelli. Bill went into the last round of Twitter at a relatively steep valuation. Will be highly interesting to see how that turns out.

On Venture Capital investing today

1. What are your top investment areas going forward?

We don’t really work that way. All I could tell you is what are the three most common investment themes looking back. We simply don’t sit around planning the future. We try to meet with as many great entrepreneurs as we can and then make a judgment on the quality of their vision versus the state of the market. Recent themes have been cloud computing, open source, user generated content (UGC) Internet plays.

2. What are the most important things you want to learn about a company in a first meeting?

• Quality of the idea – this is from both an economic standpoint and a defensibility standpoint.
• Quality of the founder – smart, motivated, goal oriented.
• Mode of operation – frugal vs. excessive.

3. It seems most VCs keep a list of deals they “missed”. What’s your list?

It’s long and painful.

I met with all of these companies at an early stage before they raised venture capital.
• Overture – Bill Gross was kind enough to show this to me
• Akamai – this was Mark Gorenberg’s deal at HummerWinblad, but I should have been supportive, and I missed it
• Skype
• Baidu
• And of course the big one: Google. I have profound admiration for John Doerr and Mike Moritz for knowing to step up here, especially at a high price. It was far from obvious.

I probably forgot 1 or 2, and I am confident there will be more.

On Entrepreneurs and Startup CEOs

4. On the “qualitative” side of things, what do you look for in a entrepreneur or startup CEO? and what turns you off as well?

On:
• Intellect
• Salesmanship without being overly promotional
• Pragmatism
• Resourcefulness
• Confidence

Off:
• Overly promotional
• Doesn’t listen
• Unwilling to focus
• Lack of appreciation for finance/economics.

5. What are the top 3 do’s and don’ts for an entrepreneur presenting at a Benchmark partners meeting.

I would suspect they are mostly the same (as question 4).

Here are a few tactical things for the partner meeting presentation
• Don’t bring people that don’t have a role in the meeting
• Always include at least one “financials” slide even if its more about costs than revenues — weird to have to ask, and even weirder to reply “we don’t have one with us”.
• Don’t use over 20 slides.
• Control the flow of the meeting.

On the Business of Venture Capital

6. Opentable (Nasdaq: OPEN) is one of the first “silicon valey” initial public offerings (IPO) since the economic downturn. Why do you think the company was able to get public and was received so well?

I actually believe that the buy-side has ample demand for IPOs. The key problem is a supply problem – most companies either don’t want to be public or aren’t willing to make the tough choices it takes to get public (healthy margins, sarbox implementation, etc).

Being public isn’t easy, and for the CEO and the CFO it’s downright brutal. I think that’s why the valley is obsessed with “alternative markets” these days. They want the benefit of liquidity without the headache of being public. I think they will be disappointed.

7. What do you think about the suggestion that today’s venture model of large funds and big investments does not work in a world where companies can get real traction both as a consumer company or a enterprise company by leveraging services such as amazon’s ec2 and all the available open source solutions?

I don’t think the data proves this theory out. With the exception of Salesforce.com and Siebel, I don’t know of any multi-billion dollar public companies that didn’t have venture capital. You might be able to build a feature for $1mm, but its much harder to build a company. All of the $B Internet companies have/had venture backing.

This doesn’t disqualify the accusation that some funds are too large. They are different issues.

8. Clearly, the startup world is much more “flat” with companies existing across borders and getting started around the world. What is your long-term view on Silicon Valley as the “epicenter” for venture capital in the next 10-20 years?

We are tremendously excited about the future of Silicon Valley — it is our unquestionable focus as a venture firm. We want to be the best firm in Silicon Valley.

That’s not a reflection on the opportunities elsewhere. I happen to be very bullish on China, Russia, and Brazil when it comes to venture opportunities. I just think those will be best served by local firms on the ground in those regions.

9. Benchmark has a unique structure in that all partners are equal – equal pay, equal carry, equal votes, etc. Why has that worked and why haven’t more firms adopted that model?

It works for 3 key reasons.

First, our partner’s don’t need to negotiate compensation every time they raise a new fund, so we are incented to all work together versus proving our worth to one another. My partners deliver value-add to the companies I work with all the time.

Second, it keeps a high bar on who comes in. There is no junior team at Benchmark.

Lastly, as an entrepreneur, you are always dealing with a General Partner that has a say in the firm — your deal won’t get trumped by the “Senior partner” back at the shop.

Others don’t adopt it for the same reason other partnerships in legal, investment banking, and real estate haven’t — it’s good to be king (from a financial standpoint).

On Twitter

10. Benchmark recently invested in Twitter at a pretty lofty valuation. What drove the investment and how are they going to make money other than the often-rumored acquisition?

See my answer to question #3 above.