BIll Gurley

**SPEAKER_1** (0:02)
Tetragrammaton.

**Bill Gurley** (0:22)
I was a Wall Street analyst first, and I came at Silicon Valley from having studied investing and studied public markets and respecting the elders of Warren Buffett or Howard Marx. And if you read all of that, there's a conservatism that gets built into you that isn't just, hey, let's go win, let's just go take the hill. And so I found through my years of practice that I'm more uncomfortable in bubbles than dark days. In dark days, I'm very calm and the job is easy to practice. And people listen. The rules get turned so upside down in the bubble that the way you win is by being more careless, which reinforces the whole thing. And it gets uncomfortable.

**Rick Rubin** (1:12)
What does an analyst actually do? Technically, what is the job?

**Bill Gurley** (1:16)
On Wall Street? It's changed over the years. But the sell side analysts, they call them that because they work for the bank that's selling stocks versus a hedge fund that's buying stocks. You would follow an industry. So you would go visit companies and write up a report and build out a business model and suggest to your clients that they should buy, sell or hold that company.

**Rick Rubin** (1:39)
Are projections mainly made up or are they rooted in something real?

**Bill Gurley** (1:46)
I think in the most craftsman view of the art of being an analyst, you're trying to use math and models and your understanding of the business and the industry to figure out whether a company is overvalued or undervalued. The way that the business has evolved, most analysts are being hand-fed the prediction from the company itself, and they're just regurgitating it.

**Rick Rubin** (2:15)
That seems not so-

**Bill Gurley** (2:17)
Seems mundane and bizarre in a way. But I'd say that's 80 or 90 percent. There's just not a lot of independent thought.
Coming out of the financial crisis, it's actually the dot-com bubble. Elliott Spitzer created these new rules that separated the analyst from the bankers and it ended up causing there not to be nearly as much investment in analyst. So part of it's that.

**Rick Rubin** (2:43)
Does a VC just provide money or do they provide more than that?

**Bill Gurley** (2:47)
You'd probably get different people to take both sides of that argument, especially if you talk to founders or VCs. I think the founding partners of my firm, Benchmark, and everyone that operates like we do, feel like the majority of the value add is not the money. You'll hear that from most of the venture capitalists that you talk to.

**Rick Rubin** (3:08)
What would the value add be?

**Bill Gurley** (3:10)
Our firm has focused almost exclusively on early-stage investing, so two people on a PowerPoint, like you haven't done anything. I'd say 50 percent of the value add is recruiting. You're helping the founder build a team around him or her to go take the hill.
It often involves just a lot of salesmanship because in addition to that, you're helping them find biz dev deals, you're helping them raise incremental rounds of money. So you're out selling on behalf of what they're doing, and then you bring pattern recognition to the table. I think the number one skill set that I think of all as an adventure capitalist, especially if they're in a good partnership, where you can leverage other people, is this collaborative pattern recognition that you can apply, both on investment decisions, but also on the guidance.

**Rick Rubin** (4:04)
Has there ever been a time when your experience led you to a decision that turned out not to be a good decision, because you were doing it based on the way it has happened in the past?

**Bill Gurley** (4:16)
Sure.

**Rick Rubin** (4:16)
Does that happen often?

**Bill Gurley** (4:18)
Well, it can be extremely consequential. So the biggest error that a venture capitalist can make is to miss an opportunity that's really big, because you can only lose one time. It's asymmetric, but if something goes to the moon, you missed out on that opportunity, and you have to orient yourself that way.

**Rick Rubin** (4:35)
Does that argue for investing in as many things as possible?

**Bill Gurley** (4:38)
There's a limit to that that will become careless and then you'll have crappy returns. But yes, it tilts you in that direction. But the reason I was thinking of that is to your question about has it ever happened. I had both the fortune and now the weight of having brought Larry and Sergey in to present to our partnership when they were 25 employees.
We failed to chase that opportunity. Part of it was the search market had collapsed, excited, gone bankrupt, Yahoo stock had fallen from 82 to 10 There were mental models that were telling you no. Both founders who were PhD students wanted to be co-CEO. That's usually a pattern recognition of a red flag. So there are just a number of those things that caused us not to chase. And that's the worst error you can possibly have. Now, two of the best VCs in the business, Mike Moritz and John Doerr, did the deal. So they found their way out of the box that we got trapped in.