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Letter #119: Bob Kagle (2012)
Benchmark Cofounder and General Partner | Kettering University Commencement Speech
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Today’s letter is the transcript of the commencement speech Benchmark Cofounder Bob Kagle gave in 2012 at Kettering University (fka General Motors Institute). In this speech, Bob shares stories about his upbringing that illustrate the values he cares about, his first job, the value of graduate school and great mentors, his path to venture capital, his philosophy on venture capital, familial struggles and how they affected him, lessons from eBay and from Pierre, founding Benchmark and Benchmark’s founding philosophy and attitude, Silicon Valley as a state of mind, the best time to start a business, what makes a great entrepreneur, the greatest entrepreneur of his time, and advice for entrepreneurs and non-entrepreneurs alike.
Bob Kagle was one of the five original founders of Benchmark Capital, where he is best known for leading the firm’s investment into eBay, which “holds the record for the best performing Silicon Valley investment ever.” Benchmark invested $6.7mn into eBay in 1997 for 21.5% of the company. Two years later, that stake was worth ~$5bn. Other investments included: Ariba, Friendster, Jamba Juice, Art.com, E-Loan, PeopleSupport, and more. Prior to founding Benchmark, Bob spent 12 years at Technology Venture Investors (TVI), the firm best known for being the only venture money Microsoft ever took, as well as their investments in Sun Microsystems and Compaq. Prior to TVI, Bob worked at Boston Consulting Group, where he focused on issues of corporate strategy in industries ranging from retail distribution to high technology manufacturing.
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Thank you for those kind words, Bob, and thank you for that very warm introduction and welcome. I really appreciate it very much. President McMahon, Kettering trustees, friends and family, and most importantly, the graduating students of 2012: It's a great honor and privilege, but also a special homecoming for me to address you here today. Because even though I've lived in Silicon Valley for almost 35 years now, Flint is still my home and still feels like my home. I'm happy here. I'm not really sure why exactly, because most of my vivid memories of early childhood here are not particularly happy ones.
I was five years old when my father left the family with gambling debts and delinquent mortgages. I can recall my mom taking a job and fumbling to try to explain why her shiny new Cadillac and our big brick home in Genesee was really not ours anymore, and that the bank was taking them. Well, that pretty much eliminated banking as a career option for me.
We moved to a tiny one bath house in the north end of Flint, which was a pretty tough place even back then. I remember having three bikes stolen and never once making it home with my Halloween candy. Life was more tricks than treats for me then. And as I look back at my school photos, I always see that there's this funny little crooked half smile on my face.
When I was in fifth grade, my mom's plant went on strike and money was a little tight. That summer, we ate mostly tomato sandwiches or onion sandwiches from our backyard garden. My mom actually refused the processed cheese offered to the strikers because as she would say, You couldn't melt that stuff with a blowtorch! Which I actually tried one time, and she was right. It just sort of turned black and bubbled up. That stuff could have easily doubled as fire retardant. But to this day, a good Michigan beefsteak tomato sandwich is one of my very favorite foods--hold the cheese.
Pride and self determination were real gifts from my mom. I always tell people though, that my biggest break was getting into Kettering. And it clearly was. I graduated from a small high school, second in my class across town. But sponsorships were required back then, and getting one was tough duty. I was turned down first by Buick. Then by Fisher Body. And finally be what I considered was my ace in the hole AC Sparkplug. AC was where my mom worked. When AC rejected me, I was devastated. And I needed to work my way through school so Co-Op was an absolute godsend for me. I had only applied to Kettering actually. And so in my mind, I had no options. Mom was upset. She piled all my report cards, merit badges, and dog-eared science fair certificates into a shoebox and marched into that factory unprepared to take no for an answer.
And thankfully she didn't. As one of my dear friends Murray Wykle, who surprised me and joined me today says, When you come to a door, open it. Doors can be portals as well as barriers. And if you don't twist the knob, you'll never know which they really are. My mom broke the door down. Kettering was perfect for me. I was blown away by the caliber of academics and the breadth of activities. I was busy nonstop and able to learn a lot about myself, in particular, through the trials and tribulations of the work sections.
One especially stands out in my mind. It was my first assignment as a supervisor and I had a department of 27 mostly middle aged women who were soldering wires on to cruise levers. After a couple of days of work, I was struck by how each and every woman produced exactly 325 pieces per shift. What an amazing coincidence. Well, that produced 87% efficiency rating for the department and 87% felt like a B plus. I wanted the A. My supervisor told me there was nothing I could do to provide any pay incentives. So... I chatted up the ladies, told them how cute the photos of each of their daughters were... And I asked them if there's any way we might shoot for that A. Well, they looked at me the way any 45 year old would look at a 19 year old supervisor: with a knowing smile, tight lips, and a look that said: in your dreams, Romeo. Doris, one of my favorites, finally offered something: Well, we could have a potluck and play cards on Friday afternoon. Brilliant, I thought. Done. That week, production rose to almost 400 pieces and we had one of the nicest Friday afternoons that plant had ever seen.
Unfortunately, on Monday, I was called in and told we could never do that again. That it was simply against policy and that was that. I think it was exactly then that I began thinking about a career with fewer policies. When I was admitted to Stanford, the folks at AC tried to persuade me to stay in Flint, get my MBA locally at night, and get a jumpstart on my career. Sounded good. I was lucky though, because like 1000s of students, many of whom are likely to be right here with us in the room today, I just happened to be the very favorite student of Professor Bell. [Laughs and applause].
I was always taught in life not to have favorites, but I learned from Reg that if everyone feels like your favorite, you can have as many as you like. Well, Reg would not hear of it. He told me that I must go to Stanford, and he helped me find a way to do it. He introduced me to Bill Peters, who paved the way for a sponsorship for me, and I'm very grateful for that. Thank you, Reg.
Kettering had prepared me well for graduate school, and Stanford was a wonderful time for me filled with fresh perspectives and new possibilities. And I loved it. Besides, I could play basketball outside. In February. With my shirt off. Without a blowtorch.
When it came time to return, I was conflicted, because GM had paid my way and I felt deeply obligated. But Silicon Valley had opened my eyes and was winning my heart. That's when I was given a true gift. I was in my final interview at Packard Electric with the president Jim Reinhart, when he asked about my experience in California. After hearing my enthusiasm, Jim said, Why don't you just try California for a while. You can always come back. It was a genuine act of kindness. At that critical time, choosing opportunity over obligation and getting Jim's blessing were pivotal for me. I'm very grateful for that.
I'm often asked about my own path to venture capital. And I always need to sheepishly admit that I just kind of stumbled into it actually. I was leaving consulting and looking for a marketing job when a friend asked if I'd ever considered venture capital. I didn't even know what it was, but I think I said something like, at the time, I think I need a real job now, before it's too late. Fortunately for me, he convinced me to give it a try. And you might say I've just been trying ever since.
Venture capital sounds glamorous, but it's a very tough business. I recall meeting with my partner and mentor Burt McMurtry three years into my career. Burt is a tremendously wise and gracious man.
At the time, I was just turning 30, had made around seven or eight investments already--four of which which were already stumbling badly. I was questioning my judgment and feeling pretty confident that it was lousy. Burt told me to relax. He said, In venture capital as in life, mostly, the lemons ripen early, but the pearls take a while to cultivate. He said that good judgment comes from experience. But unfortunately, experience comes from bad judgment. The fact that I was learning so much, so soon, by making so many mistakes, was actually encouraging to him. Talk about positive spin.
A good mentor like Burt is priceless. He said, Just keep finding good people, bringing them together, and staying out of their way. It sounded simple and easy. And it calmed me down for a while. And it's a good thing that it does. Because even in a successful venture capital career, you lose all of your money over half the time. Let me say that again. You lose all of your money over half the time. It's like you're the mayor of Loserville.
In fact, 10% of your investments actually return 90% of your returns. Failure is the norm in venture capital. If you're not striking out, you're not swinging for the fences. And in venture investing, the home runs need to go out of the park and roll down the street aways. Imagine for a moment a major league baseball player, leading the league in errors, being struck out the most, and hitting into the most double plays, and still being voted the most valuable player. In 1942, Jim Gordon did that for the Yankees--maybe he should have been a venture capitalist.
About 15 years ago, my sister called me to say that my father had finally contacted her and was in failing health--she said she was taking him in. A month or so later, she encouraged me to visit him. I was reluctant, but I was touched by the generosity of her spirit. I took my father on a drive one afternoon to the small nearby town of Owosso where he grew up. He showed me his favorite fishing hole and the farm where he milked the cows before school every morning. And finally, after several hours, I summoned the courage to ask him. Why? Why he left us. Why he left me with that crooked little smile on my face.
He explained that a business that he had started was failing badly, and that he turned to gambling as a way out, but it had gotten the better of him. He said he was deeply ashamed of having lost everything and just sort of lost his way after that. Moving from town to town, taking odd jobs, sleeping in rescue missions or even under bridges. It was a sad life.
What a contrast to my life in Silicon Valley, where failure is viewed as a stepping stone along the path to success. I wondered how different his life would have been had he picked himself up and dusted himself off like so many serial entrepreneurs I've come to know and respect. Anyone who ever accomplished anything significant in his life has had multiple failures to face along the way. You must view failure fundamentally as an invitation to try again, only this time armed with more experience and better judgment. My father apologized that day for his inability to cope with his own failure. I forgave him, and I'm grateful that I did. I learned a lot that afternoon. Forgiveness is a very powerful thing.
Another powerful lesson that I learned came from my eBay experience. It was 1997 and Pierre Omidyar was pitching it to Benchmark. It was a simple black and white site design, which called itself Auction Web on one page, and eBay on the next. It was also painfully slow, and it literally crashed every other page load. So it had all that going for it. Also, Pierre was super excited about this broken laser pointer that he had sold on the site. He explained that someone bought it because he was so forthcoming and honest about its poor condition. He said, That was really cool, because one man's trash is another man's treasure. Well, at this point in time, I'm thinking, Jesus, it's that late already? But I did do a quick search for something that I collect: antique fish decoys from Michigan. I was surprised to see several appear, including one by Bud Stewart, a master carver from none other than Flint, Michigan. And I was hooked.
I decided to visit the company and upon arriving, I literally could not get through the door because there were several bags of mail that had just been delivered. Pierre explained how this was a tiny, tiny fraction of the transactions that were taking place and that there were 50 times this much that were being sent back and forth in cash and checks between strangers based on trust.
People are basically good, Pierre explained. If you trust them, they will be trustworthy. It was profound, and captured the essence of the early eBay community. eBay literally would have never gotten off the ground without that basic leap of faith and confidence in humanity. It was a lesson in the power of trust.
Now many people my age agree that true satisfaction and happiness in life can only really come through the service that we give to others. The determination of my mom, the open door, Professor Bell, the compassion of Jim Reinhart, the wisdom of Burt McMurtry, and the humanity of Pierre Omidyar. These were all gifts of service to me. And for all those and many more, and particularly for my partner support, and the love of my family, many of whom are with me here today, I am blessed and truly grateful.
Working with entrepreneurs has been one of the most exciting and rewarding careers that I could have ever imagined, mostly because entrepreneurs really believe they can change the world and make it a better place. And some of them actually do. It's as exhilarating as it is exasperating, and as heady as it is humbling. But it's never been boring--or easy. And I'm grateful for that.
But as satisfying as early stage investing is, the joys of actually being an entrepreneur are even greater. When we founded Benchmark in 1995, it was finally our turn to start a company. There must have been 200 venture capital firms on Sand Hill Road alone back then, and everyone we talked to told us there was plenty of venture capital around. Yet we felt we had something different to offer. Most VCs at the time saw themselves at the top of the food chain. They had the money. They were the movers and shakers. They were the gurus and the visionaries. Many even felt that the entrepreneurs actually worked for them.
Instead, we felt that it should be considered a privilege to invest in someone else's dream. To us, it wasn't about the money at all, but rather about what we could do to help. In our minds, we could make more of a difference if we actually worked for them. We would be the stagehands, and they would be the stars. It sounds pretty simple, and it was. There's no doubt in my mind that the reputation that we've built and the success we've enjoyed a Benchmark are mostly due to that attitude--along with little luck too.
New businesses are vital to our economy and our nation. Virtually all the net jobs created in this country the past two decades have been by companies with fewer than 25 employees. And the world needs people, just like you, to start them. And since you are graduating, and may need a job, you might just consider creating your own--and maybe a few more along the way. That's part of the joy and satisfaction of building a business.
You don't need to be in Silicon Valley. I currently serve on seven boards, four of which are outside the state of California. Places like New York City, Austin, Texas, even Chicago have been producing great companies over the past few years. It's actually fascinating to me that a century ago, Flint was Silicon Valley. There were nearly 100 carriage companies at one point within a few miles of where we stand today.
Kettering himself was a very successful entrepreneur. So it's in our DNA around here. There's no good reason that it can't be re-expressed. And it's encouraging to see new initiatives like TechWorks at Kettering. And I even hear that there's a social media startup called Lava in the works here--that's exciting!
The fact is: there has never been a better time to start a business. With the Internet today, many companies are started with thimbles of capital and bootstrapped to success. Facebook, which now has a value over 50 billion, at least as of yesterday, was started with only $18,000. And, by someone I might point out, with fewer qualifications than each and every one of you who are graduating today have.
Now, I'm often asked what makes a successful entrepreneur, and I've come to appreciate they're in all shapes, sizes and flavors. But I do see a few common characteristics. First, a big heart. Entrepreneurs care deeply and passionately about the cause, about the customers, and about the company. They endure and they persevere. Second, big ears. Successful entrepreneurs listen to the marketplace--they adapt, and refine. Most companies change their spots several times along the way to success. They balance focus with flexibility. And third: a big tent. Entrepreneurs understand that it takes a team to build something important. They share the credit and nurture a strong culture. They lead, and delegate. They inspire, and they serve.
Perhaps the greatest entrepreneur of our time, Steve Jobs once said, I want to put a ding in the universe. Now his competitors might argue it's been a little more like a nine car pile up, but along the way, Steve changed the world for the better, in a profound way that's touched many of our lives here today.
And whether or not any of you choose to be an entrepreneur, and I hope many of you do, my advice to you all here is the same: To be who you are, and chart your own course in life. To face challenge and failure with courage and grace. To surround yourself with the very best people. Trust them, and forgive them easily. And finally, to serve others with humility. If you do these things, the rest will come easily. And someday, you'll look back and realize you made your own ding in the universe. And you'll have much, much to be grateful for.
Thank you and congratulations.
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