Bill Gurley | Legendary Investor on Missing Google, Backing Uber, and What Makes Billion-Dollar Founders

James (0:00)

One of the most renowned and greatest venture capitalists in the entire world, Bill Gurley, talking about companies like Uber, like Zillow, the companies that people use on a regular basis, man.

Jack (0:09)

You had the idea to get involved in that industry before Uber even touched your desk.

James (0:13)

What did you see in that moment that all of your peers did not necessarily see and believe in?

Bill Gurley (0:18)

This is a punchline. You've been waiting patiently for this long answer, but there's this phrase that Josh Wolf of Luxe Capital has. He says, chips on shoulders put chips in pockets.

Jack (0:29)

You had an opportunity to invest in Google when they had about 25 employees. When it came across your desk, why did you make the decision to not invest into Google at that time?

Bill Gurley (0:39)

By the way, this concept of chips on shoulders, had I done that, like my venture career might have ended a lot.

Josh (0:44)

So, wow. Ideas are cool, but execution is everything. You're evaluating thousands, if not tens of thousands of deals that come across your desk. What are the traits that you look at that makes you want to lean in versus like, this guy doesn't have it?

Bill Gurley (0:58)

I'll give you a few. And the first one I borrowed from Jeff Bezos.

James (1:01)

If me and you died tomorrow and you had one more message to leave with the younger generation, what would that be? What's going on, everyone? Welcome back to the School of Hard Knocks Podcast. I'm James. I'm here with Jack and Josh. And we are out in Austin, Texas with a phenomenal guest for you all today. One of the most renowned and greatest venture capitalists in the entire world, Bill Gurley. Bill, you took bets on some of the biggest companies in the world early on, right? We're talking about companies like Uber, like Zillow, like the companies that people use on a regular basis, man. So I first want to say thank you so much for being with us today, my friend.

Bill Gurley (1:35)

I'm glad to be here.

James (1:36)

Absolutely. So you went from Wall Street to then going into venture capital, right? Going to different parts of the world where I want to get things started. And we'll touch on a whole bunch of things today. Take us back to 2011, right? You're in the boardroom. You're sitting across the table from, at the time, from a scrappy startup, right? What was like a niche black car service that a lot of people believed. But you were willing to put your reputation on the line as an investor. And you backed Uber in 2011, which went on to become one of the greatest bets in venture capital history. What did you see in that moment that all of your peers did not necessarily see and believe in?

Bill Gurley (2:16)

The main thing is that I had been fortunate enough to be involved with a different company a short time before that called Open Table, where you make reservations for restaurants. And the bet that we made when we backed Open Table was there'd be a network effect, that if you got more people on the system, the rest, you'd get more restaurants on the system. You got more restaurants on the system, be more compelling to get people on the system, and that you'd basically build a, have a very high likelihood of a network effect where it would tilt towards there being a single player. And when we made that better, a couple of my partners pushed back and said, you know, no one's made money selling tech to restaurants because SMB sale, you know, the economics are tough.

And our push back to them was, but if the network effect works, the sales will get easier. And I could tell you a story that was a proof point on that. That's really cool if you want, but I'm gonna get to your question next. I then started thinking to myself, if you could put a digital infrastructure on top of other industries, in what ways would that unlock power? And in the restaurant case, with OpenTable, you can say, I have eight people and we want to eat Mexican on Thursday night at 8 p.m. and do a parametric search. Before OpenTable, you could not do that. You would have to call each one of them. And so it unlocked a consumer value proposition that didn't exist. And the more I thought about that problem, and at the time I was traveling as a venture capitalist and visited a city. And I had traveled as a cell site analyst on Wall Street. And I don't know if you got, well, you don't know because you only have lived in Uber. But before Uber, you would go to Chicago and you would, you couldn't really get a rental car because the parking is too hard. So you'd have to hire a black car service and you'd get back to the office and be going through your T&Es and you would have spent as much on the black car that day as the plane flight back and forth. And 90 percent of the time, the driver is just sitting there waiting for you to come out of your meeting. And so it dawned on me that if you could have a fabric on top of that, that you would have this hyper level of efficiency unlock that you would, and I went and met with, this is a very long answer to your question. I went and met with all of the start-ups at the time that were thinking about that, and the vast majority were in the taxi space. And so they were trying to put a layer on top of taxis. And the more I looked at those, there was a couple of problems that were really big, which is one, in most markets, taxis are either a monopoly or a duopoly. So there's these people that have a lot of power that aren't going to listen to you. It's regulated, so you couldn't move the price up and down. And I knew that if you wanted to create a digital marketplace, you want to use price to cause liquidity, to get current drivers to come out at the right time. Like, you'd hate to give up price in a digital marketplace or auction. Like, you never would. And then, they're a crappy user experience. Like, and putting a network on top of it wasn't going to get rid of that. And I think they're a crappy user experience because it's a duopoly or a monopoly. Like, you don't have true competition, regulatory lock-in. So, this is a punchline. You've been waiting patiently for this long answer. But I said to my partners, if we ever see a company that's putting a layer on top of the black cars, we should run at it. We sought the investment pretty hard and that's what happened.