Ben Gilbert: observation

Transcript context

…Let's unpack those incentives, because I think there are several layers to this. There's the obvious economic incentive. David Beirne made as much money on eBay as Bob Kagle made on eBay, as Bruce Dunlevie, as Kevin Harvey, as Andy Rachleff, made on eBay. They all made the same. If one of them could help give a boost that would add an incremental couple of billion to that market cap, it was well worth it to all of them. That's the most baseline obvious one, but I actually think that's the less salient one on a day-to-day basis. Having lived myself as part of firms, we all have too, obviously, the money is the scoreboard. Your job is to provide outsized returns for your limited partners and it matters to you. But on a day-to-day basis, that is not part of your mind every day. What is much more salient to most people who are working as investors within a venture capital firm, is the impact of what they are doing on their own career trajectories. In any other structure, that is either the foremost thing on your mind or the foremost thing at the back of your mind. You may profess otherwise, but it is there. It is there every day in what you're doing. Just one small example that the older generation and some of the current generation Benchmark partners like to talk about. The older folks are thinking back to their previous firms. Say a senior partner has a portfolio company that they're on the board of, that they're responsible for that investment, and there's an executive hire that would really help. You know a candidate who could be the perfect candidate for that firm. Is it in your best interest to send that candidate to that firm or to wait until one of your portfolio companies has a spot open for that candidate? There's economics. But even more than that, making that senior partner’s track record better not only does you no good, it does you net negative good because it widens the gap between them and you. Once you introduce a secondary incentive, which you have when there is anything junior-senior, and the incentive is to become senior, then there's a misalignment. Whether someone chooses to act on that, they're not good for not doing it. They're not evil for doing it. It's just worth acknowledging that a new incentive exists, so it will change the behavior. This isn't to say, every fund should all be equal. The only way this works is if everyone truly brings the same amount of value to the partnership. Because otherwise, over time, you will have a situation where even if you're equal economically, you become unequal in everybody realizing, hey, that person is not bringing it the way that we're bringing it. That creates just as big of a problem. You've brought up the absolute crux of this. We've now read, watched, and listened to probably just about, I won't say 100%, but probably 95% of all the content out there about Benchmark. I don't think this is talked about anywhere else. I think this is hopefully the biggest piece of context we can bring to the understanding of Benchmark and venture capital in our industry with this episode. There is a very obvious question when you look at Benchmark, you look at their success, and you look at their success over generations, which is, if this obviously works so well, why doesn't everybody do it? Why doesn't it work everywhere else? The Benchmark firm model is very, very much in the minority. There may not even really be any other firms that are structured the same way as them. I think what you just brought up to me is the crux of the answer. There are two ways that this partnership model in the Benchmark style can play out, depending on the personalities involved. For most groups of people, I think it actually trends towards mediocrity. This was some of the criticism of LPs and some of the other GPs in the early days thinking they were crazy. They called it a communist capital. This looks like communism. If everybody's responsible, nobody's responsible. You trend towards the squishy middle. I think for a lot of groups of people, that's what the natural outcome of this would be.…

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