Yesterday, in Helsinki, I conducted interviews with four of the six general partners at Benchmark, the renowned Silicon Valley firm with nearly three decades of experience and notable investments in companies like Uber and Dropbox. Benchmark is known for compensating each general partner equally and maintaining consistent fund sizes over the years, eschewing the trend of expanding fund sizes.
The interviews took place at Slush, a major annual event for the European startup ecosystem. Given the rarity of the Benchmark team gathering in Silicon Valley, I inquired about their significant presence at the event. Victor Lazarte, a recent addition to Benchmark and a gaming company entrepreneur, disclosed that the firm’s motivation for attending was purely driven by a desire to explore extraordinary opportunities, with no specific business agenda apart from this curiosity.
During our conversation, Lazarte openly discussed the challenges of managing soaring valuations. He reflected on his own gaming company, Wildlife Studios, which experienced a rapid increase in valuation after successive funding rounds. Despite acknowledging minimal progress between rounds, Lazarte noted that Benchmark’s initial investment attracted widespread interest from other investors. In hindsight, he considered the swift and substantial capital infusion a mistake, as it led to unnatural growth and strategic misdirection.
The discussion extended to the current paradox of a general economic downturn coexisting with a boom in AI investments. Benchmark’s perspective emphasized skepticism toward closed large language model (LLM) companies, with a belief that their success might not match expectations. The team expressed a preference for open source approaches, anticipating that developers in that space could surpass the capabilities of well-funded closed LLM companies.
Benchmark’s views on the future of AI technology were further elucidated by partner Miles Grimshaw, who predicted a significant transformation in how we use software within a few years. He emphasized the rising expectations of users and the need for imaginative founders to capitalize on evolving possibilities.
The interview also touched upon Benchmark’s historical regrets, including missing out on an investment opportunity in Airbnb due to ownership constraints. The team highlighted their focus on nascent teams, often getting involved at the company’s inception, and expressed the importance of board seats as a fiduciary responsibility.
In closing, Lazarte provided insights into how Benchmark counsels startups on valuations. He shared his personal experience of raising substantial capital, cautioning against the pitfalls of overvaluation that can lead to unnatural business directions and hinder a company’s core purpose.
This detailed discussion covered Benchmark’s unique approach, insights into the AI landscape, reflections on past decisions, and advice for startups navigating the challenges of valuation.
