This story appears in the April 12, 2015 issue of Forbes. Subscribe
The first topic of conversation at one of Silicon Valley’s most exclusive dinners is usually the table. Made of a deep brown walnut, the table isn’t oval or square but a distinctive asymmetrical rounded triangle inspired by the French designer Jean-Marie Massaud. It’s been custom-built for its hosts, Benchmark Capital, which uses it for partnership lunches and semi-secret weekly dinners with select members of the Valley’s brain trust. The events are exclusive salons that tackle everything from the future of mobile computing to the features that drive Twitter’s success. “The table’s dimensions make it perfect for seven people to all speak together,” says Bill Gurley, the firm’s longest-serving active partner.
Giving everyone not just a voice but an equal voice is Benchmark’s stock-in-trade. Unlike most of its rivals Benchmark is deliberately egalitarian. There are no junior or senior partners, only partners, and no one plays a CEO-like role. The firm’s winnings—2.5% in management fees and 30% of the profits— are divided equally.
Egalitarianism isn’t the only Benchmark trait that bucks the latest VC trends. At a time when buzzy firms like Andreessen Horowitz or Google Ventures lard up their payrolls with marketers, PR handlers, recruiters and in-house designers, Benchmark is decidedly minimalist. There’s only a small staff to support the five partners. Its website is a spartan, static page with exactly one hyperlink, which directs visitors to the Twitter feeds of its portfolio companies. While Benchmark has an office in the Valley, many of the decisions are made at its San Francisco office, in a renovated building above the historic Warfield theater. And the firm has eschewed the temptation to raise ever larger funds, keeping its own below $500 million. “We’re more of a jazz band than a marching band,” says partner Peter Fenton (No. 2 on Midas List). “When you restrict yourself in size, there’s nowhere to hide.”
Benchmark’s approach may be contrarian, but it has worked beautifully. Over the 20 years of its existence the partnership has backed many of the biggest names of the Internet era, such as Dropbox, eBay, Instagram, Yelp and Zillow. The last few years have proven especially lucrative. A $32 million bet on Twitter is now worth $2.2 billion. A $21 million investment in Snapchat, led by Mitch Lasky (No. 70 on the list), is held at $2 billion. Benchmark’s reward for being one of the first VCs to back Uber is an estimated $7 billion stake in the car-hailing behemoth. On a single day in December, Fenton celebrated IPOs for two portfolio companies: New Relic and Hortonworks.
Over the years, Benchmark’s eight funds have paid out $22.6 billion to investors. Its backers received a 1,000% gain—net of fees— over the past decade. That beats out most billion-dollar funds raised by larger firms, who then can charge much more on fees. “They could raise as much money as they want, but they maximize for the opportunity, not their own pocketbooks,” says Christy Richardson, director of private investments at the Hewlett Foundation, a founding limited partner in Benchmark and many other funds. It’s no surprise that some of its most successful rivals say Benchmark is the firm they admire— and fear—the most. “They benefit from being extremely focused,” says Jim Goetz (No. 1 on the Midas List) of Sequoia Capital, which has offices and funds in India, Israel and China. “They’ve taken a different view on the world.”
Its size forced Benchmark to be scrappy, hungry—and fast. A year after bonding with Benchmark partner Matt Cohler (No. 63 on Midas) in Davos in 2010, Domo CEO Josh James pitched him on his new startup idea. Cohler asked him to present to the whole partnership the next morning. James wasn’t just any entrepreneur—he’d sold his last company, Omniture, to Adobe for $1.8 billion. “It felt like a Hollywood movie,” says James. “Cohler said, ‘We don’t want to invest $10 million. That’s monkeying around. We won’t give you $20 million, that’s how big we think this is. You are Josh Effing James and you need $30 million, and we want to do this right now.’ And he reaches over to shake hands, like, we’re done now. And I was like, whoa, whoa, wait!” James offered data—Cohler said it wasn’t necessary. They inked a term sheet within 30 minutes, and 17 days later the cash was in his account.
Benchmark netted one of its biggest fish, Uber, with good-humored antics that carried a not-so-subtle message to CEO Travis Kalanick: We know you’re talking to rivals, but we know the app better. As Cohler and Gurley prepared for a pitch meeting, Cohler spotted an Uber car waiting at a venture firm nearby on Sand Hill Road. As Uber hadn't launched in Silicon Valley yet, they guessed it was Kalanick's ride. “So Matt just called the car away, and Travis had to run the whole way over,” Gurley says. “He comes in 20 minutes later and sweaty. That night we sent him tennis shoes.” The practical joke was quickly forgotten and the choice of Benchmark proved fruitful for Uber. It was Gurley who would warn the company about keeping an eye on potential competition at lower price points, predicting its battle for customers and drivers with rival Lyft. And it was Gurley who helped to close many of Uber’s key senior hires like CTO Thuan Pham, who Gurley says he tried to recruit for Benchmark companies for 10 years before he and Kalanick hit it off.
Over the years, Benchmark has developed something of a rule book. It focuses almost exclusively on a company’s first or second institutional rounds of funding and likes to take the biggest stake of any outside investor plus a board seat, so it can influence the direction of its portfolio companies. It doesn’t do so-called insider rounds, when an investor re-ups with a startup at a higher valuation, and it tries to find opportunities for “preemptive strikes,” leading a financing round with a company that hasn’t started to raise money. Because of its reputation about 60% of Benchmark’s deals come from referrals or repeat founders, says Gurley (No. 9 on Midas). New Relic founder Lew Cirne, for example, worked with Fenton when Fenton had first started investing at his previous employer Accel Partners. Years later after selling Wily Technology for $375 million, Cirne, while attending Fenton’s wedding in France, decided to pursue an idea for an app performance management platform. “There was nobody else in the world I wanted to be my Series A investor,” Cirne says. “When I got the term sheet, Peter just made me promise, ‘If we are going to do this, let’s do something great.’” Cirne would take the unusual step to make Fenton chairman of the company even while he maintained majority control.
A reliable fertile source of Benchmark deals is its own entrepreneur-in-residence program, which counts the likes of Cirne, Nextdoor CEO Nirav Tolia, Quip cofounder and former Facebook CTO Bret Taylor and SurveyMonkey CEO Dave Goldberg as alumni.
For competitive deals, the Benchmark partners often operate as a pack. Every active partner was involved in landing ephemeral messaging app Snapchat in 2013, with Cohler making early inroads and Lasky, a Los Angeles native like the company, eventually joining the board. Each has a different role when they hunt, and each brings his own experience to the partnership. A former college basketball player at the University of Florida and a well-known analyst in the first dotcom bubble, Gurley cuts an imposing figure. He focuses on “marketplaces” like Uber, OpenTable and GrubHub. (Of late, Gurley has been among the loudest voices warning that too much capital is going into still unproven startups with high burn rates.) A wine expert and helicopter pilot, Fenton is an urbane polyglot with a knack for spotting enterprise companies like Docker and consumer startups like Twitter. Lasky, a long-time gaming executive with a quick laugh, has focused on gaming, entertainment and helped to persuade the partnership to back Cyanogen, the startup that’s trying to wrest control of Android from Google. Cohler is a former lieutenant to Reid Hoffman at LinkedIn and Mark Zuckerberg at Facebook, who helped to lead investments in Instagram, Dropbox and Zendesk. And then there’s Eric Vishria, the newest partner, who has deep technical expertise in enterprise software and a bumpy history as CEO of the once-promising but now defunct desktop web browser Rockmelt.
The partners recently had to scramble to back Vishria, when one of his very first deals, Confluent, proved to have lots of competition from other firms. Cofounder Neha Narkhede, Confluent’s engineering chief, says outsiders warned her team of the risk of working with a rookie VC. Eventually, glowing peer referrals and the Benchmark charm-offensive won her over. “With the Benchmark model, if you work with one partner, you get the whole partnership,” Narkhede says. Just days ago, Cohler stepped in to help with a major hiring decision for the startup.
Benchmark wasn’t always true to its credo. During the dot-com bubble, it made a bid to go global, opening offices in London and Tel Aviv. Though the results were solid, the firm dynamics grew increasingly strained. Gurley missed out on Skype by trying to hand the investment off to his European partners, and the different offices struggled not to step on each other's toes. By 2007 they began to scrap the experiment, spinning out the firm's European and Israeli units. “We weren’t doing it for a little more money, we were doing it because we thought the brand had an international appeal,” says Fenton. “But if you have a small equal partnership, you can’t have a leadership figure. And to run an international partnership, you need a CEO.”
Being small can have its downsides: Some major tech companies have slipped through Benchmark’s grasp. The biggest misses include Google, which Benchmark had a chance to pursue but didn’t, and Airbnb, on which Benchmark initially got a bad read, Cohler says. Other recent misses include Houzz, the online home decorating phenom, and Slack, the hot enterprise messaging startup, which the partners tested but never met.
The biggest question facing Benchmark now is how to maintain its winning streak as new partners join and veterans like Gurley and Fenton eventually move on. The firm is seeking the answer with typical intensity. At the weekly partner meeting on Mondays they spend an hour running through a list of candidates. The process is exhaustive: Vishria, the newest recruit, auditioned for ten months. The firm wants to add a couple partners over the next few years. “It’s the omnipresent thing in our minds that the only way to propagate Benchmark as a model is to go through creative destruction of the all the partners,” Fenton says.
Gurley, the longest-serving partner by a wide margin, says Benchmark’s goal is to avoid the generational struggles that have hobbled other Valley firms.“Young people end up the hustlers and the old people sit in place,” Gurley says. So far, the firm has managed to renew itself, as all the founding partners made way for fresh faces. “That’s the biggest secret of Benchmark,” Gurley adds. “When our founders were at the peak of their powers, they handed us the keys.”
