Letter #47: Peter Fenton and Logan Bartlett (2022)

Benchmark Partner Peter Fenton with Redpoint MD Logan Bartlett on the Cartoon Avatars podcast

Today’s letter is the transcript of a conversation between Benchmark Partner Peter Fenton and Redpoint MD Logan Bartlett on Logan’s podcast Cartoon Avatars. Peter grew up in Silicon Valley, where his dad was an entrepreneur and Nolan Bushnell spoke to his 7th grade class. Despite his father griping about VCs, Peter joined Accel out of business school and was part of the “Facebook Fund,” where he worked alongside Jim Breyer, Jim Goetz, and Theresia Gouw. However, he decided to leave that behind to join Benchmark and work alongside investors like Kevin Harvey, Bob Kagle, and Bill Gurley. At Benchmark, Peter served on the boards of Twitter and Yelp, and has the distinction of being one of the only investors to ever have two $100mn+ IPO filings in one day. Peter is now the longest-serving Partner at Benchmark.

I hope you enjoy this conversation as much as I did!

(Transcript and all errors are mine.)

Transcript

Logan Bartlett: Peter, thanks for doing this.

Peter Fenton: It's a pleasure to be here.

Logan Bartlett: I'm excited. We're in the... how new is this office?

Peter Fenton: It's about three years old.

Logan Bartlett: Okay, you guys have been here a while. Last time I was here, although Wi Fi auto-connected. But the last time I was here, you were in the old, the Old San Francisco...

Peter Fenton: The Warfield. Controversial Warfield.

Logan Bartlett: Yeah, it seems like a upgrade. Well, I think we're gonna play the hits of a bunch of different things that I've learned about you and ask a bunch of questions about the market and some of this. So hopefully, hopefully, you're comfortable taking this in a lot of different directions.

Peter Fenton: Yeah, it'd be fun.

Logan Bartlett: Cool. Well, the first one, I think it's an interesting... you... So I meet people today, and they ask like, they'll be 15 years old, right, and they'll be like, I want to be a venture capitalist. And I'm like, where are they making these people that even know what VC is at 15 years old? Maybe it's not 15, maybe it's 19. And they all seem to go to Wharton or Stanford. But you, actually, were one of the people that maybe knew early on, I don't know if it was actually 15, but you knew what VC was. It took me to 24 before I actually knew what it was as an industry. But you grew up in the Bay Area, and your dad ultimately became a venture capitalist. So what was your exposure, growing up, to VCs? And why did you want to be one?

Peter Fenton: Yeah, it's a story that I've reflected on because you, at some point in a, if you're lucky, I think, in a life, you find something that has a purpose that is insatiable. It's not extrinsic, it's not if I achieve this, if only that I'm going to have that. And that happened to me in my early 20s for venture, but the seeds were planted through my teenage years, which is interesting, and does make me a bit self conscious about luck. Of course, everything is luck. There's no, there's good and bad luck. But it was luck to have been in this soup of the Silicon Valley as a kid. Nolan Bushnell came to my seventh grade public school class and said "we have a problem of too many ball bearings." And for something it was a long story about how creativity and entrepreneurship and how that led to these insights. And I thought, well, what he's doing is just fun. And it felt, at the time, Silicon Valley, I think, was still, and I hope it still is, avowedly anti-authoritarian. And we had the countercultural elements still percolating in the 70s. And this idea that these companies were coming up to take down the gray, lumbering giants of places like IBM that was in the blood. And my dad had been an entrepreneur, he'd come out and founded a company. I don't know that it was particularly successful, but it was that sense of like, we're not gonna go join the establishment, we're gonna blow it up and do it our own way. And he did talk about venture capitalists. My first memories of venture capitalists were when I was in my teenage years, and he mostly loathed them. They represented, for him, a bit of authority, right. Like, there was a board of directors, and they would come up, and they used to wear suits back then, and they would drive European sports cars. And back then an entrepreneur, you bought used cars, you made much less salary than you would if you'd worked at a big company. And probably some part of my inner psyche was reacting to... I haven't done enough therapy to reveal this, the thing that was terrorizing my dad was interesting. So that was in the water that was in my psyche. And when I went to undergrad, he became a venture capitalist. It's funny, he started at age 50. And I just turned 50. So I had a theory for a while, that that's about the age where you should be thinking about what's next, at 50. But he... if you're in venture, but that's another discussion. And so in the process of going into venture, he started to bring home the business plans. And back then there were videotapes, so I would watch the videotapes of like the flying car. Or, you know, it's not about chicken, it's about rabbits and rabbit farms. There was some crazy shit back in the day, like people were--.

Logan Bartlett: Is this like mid 90s, or when is this?

Peter Fenton: Yeah. This is early 90s--

Logan Bartlett: So pre-internet bubble, like after the Apple and Dell and all those successes.

Peter Fenton: Exactly. It was pre-internet. And biotech had been on the scene. So Genentech had gone public, and I was quite attracted to that idea. And I would see him on the weekends just spend most of the weekend reading business plans. And this idea that you could study something from a distance and form a point of view, it ingrained in me the discipline of the work, which is that we really have to do work to understand the nature of these businesses, but then also, their success stories. Like his firm had invested in Starbucks, and you take a coffee shop idea and then scale it, and what's possible and all those... ah, the lyric nature of success in entrepreneurship captivated me. And so I went to undergrad and studied philosophy, which made me suitably unemployable for anything, except for getting more philosophy degrees. And I think it was that sort of later time in college when I felt, and the internet, of course hit the scene, this is 94 I graduated. And it was a question of not if I was going to participate in the entrepreneurial world, but how would I best orient my psyche to that. And venture, the cynical view is that I was suitably ill equipped to do anything, but do this, this job where you sit around and think and delete emails. The positive view is that it just spoke to me that the idea you could work with these entrepreneurs and be a part of their success, but not in the foreground, not the ego that's claiming anything. And I was exposed at that time to people like John Doerr, who might have been in the foreground, but just this notion of okay, you could work with a constellation of extraordinary people and companies. And I was totally irrational about it but I thought to myself, no matter what it takes, and I was... so much so that I was embarrassed to mention it. So even my dad, I didn't tell him I wanted to be in venture capital, because God, it's the last thing you want to do which is what your dad did. And so it was a secret. And I spent a couple years at Bain and then went to a startup company, because I felt there's no way to actually do this job without actually being in the shoes of an entrepreneur seeing the problems of a 1.0 product, and I went to a company that's sort of forgettable, but it was to launch their first product, where you had to get customers to pay for it. And that experience informed me, even more, than I wanted to be a venture capitalist. Not that it was hard, it was really brutally hard. But to do that as many times as one can in their career. And if you do it in one company, okay, you can launch product two and product three, but imagine having a dozen companies you're working with that are doing that. And then I found my way into a summer internship at Sutter Hill, who had invested in that startup, and the rest is... that's my history.

Logan Bartlett: So Sutter Hill to Accel, right after that?

Peter Fenton: Yeah, I was Sutter Hill during the first year of business school, or the summer before Business School. And then I went to Accel the second year, and stayed there for seven years.

Logan Bartlett: And so that was straight through. So Accel you started in 99?

Peter Fenton: In October 99.

Logan Bartlett: And so that was straight through the bubble. And obviously, you had Jim Breyer, and Jim Goetz, and Facebook and all that stuff kind of happen while you were there. What was the experience coming on, and you've told the story of a performance review that you got from Breyer and Goetz, I think, maybe your first performance review. So obviously, a pretty interesting time to join any firm, right, specifically, that firm as the internet bubble is kind of blowing up. So what was that experience like?

Peter Fenton: I think the gift of that experience, I have so much gratitude, because I was lucky to get the job. I didn't have much background... it's not like I worked at Netscape. I was at a company called Virage, but I knew Teresa who worked with me at Bain, and she advocated for me, and I have eternal gratitude for... you go back to your career, and there's these people that take a leap of faith on you. At the time, you think, They don't really know me. Because if they did, they wouldn't be doing this. At least I thought that way. And then you have a measure of Okay, I want to not prove them wrong. And so I had a lot of insecurity. Arguably, everyone does, but it was mostly a version of like, let's try and not get fired because I so badly want this job. And I worked the 100 hours a week, did everything I could, took too many meetings. And yeah, I mean, the shaping environment of Accel, and from 99 to 2006, when I left, was defined in my memory as mentorship in venture, which is odd, because it isn't really, people say it's an apprenticeship business. But how does that play out? And because if you go in with the mindset that I'm being apprenticed, I'm the young grasshopper, I think you learn bad habits because you learn how to be a mini-me. And Accel was I think good in saying everyone here is sort of, they didn't treat me like a mini this or mini that, they said, okay, Jim, first meeting I had with him in October of 99, I was still in business school, he says if you do two or three investments when you're in school before you graduate in June, that's about the pace we would expect. You don't have to be at full throttle. I left thinking I'm gonna probably be fired before December. Because how do I invest him in school? But Accel had a lot of investment acumen in the sense that the firm was very attenuated to having a thesis. And they like to quote Louis Pasteur, that chance prefers prepared mind. And I got that discipline. I got the sense of okay, so much of what we do in the venture business feels random. And it is. You spend so much time and then all of a sudden lightning strikes, and you think, Oh, my God, I just met a company that I haven't seen something this good in two years. And it may be two more years before it happens again. So what do you do in that space that exists in between? And the idea of like, learning the business through success. And my biggest mentor in those years was two people, it's interesting to think about it now, Arthur Patterson, the founder of Accel, and we served on a board together. And I have so many memories. I went to a Core Metrics, we were on the Core Metrics board together. And the CEO Brett Hurt who's fantastic, he presents his fiscal plan. This is in like 2001, and it was to consume--today, it seems small, but like 20mn of capital. And Arthur looks at him, and Brett says Ok, so it this approved? And Arthur's like, No, this plan is ridiculous. And he got up and he left. And I thought, Well, what happens next? And I learned that it's not a mechanical business, it's not like there's some formal approval. Arthur was expressing something that Brett would have to internalize. And then we'd work on it. And I give that story, mostly because one of the roles as a director, and Arthur taught me this, is truth. And truth seeking isn't always socially... in fact, it's almost never socially rewarded. Because we don't make someone feel good if there's a truth that they don't want to see. And Arthur kept bringing me back to like, the relational side of the business, while important, isn't what expresses greatness. And what expresses greatness is this tilting towards true seek. Now you can do it in a more humanized way. And so Arthur taught me that. The other person who taught me, I think of him as mentor, interestingly, although he would never, he would deny it, probably, is Dave Strohm. And Dave and I, that was the first board I served on, which was Wiley technologies, and Dave showed to me the craft, when you really are deep and strategic and think substantively about the business and do work. that's not just sound bites at a board meeting. But Dave would have any board, two or three comments, that would have tip of the iceberg kind of a phenomenon where you go deeper. And he was seeing that Wiley was totally dependent at the time on IBM for distribution, IBM and BEA, and he could visualize the sockets that were needed to protect that distribution that they had to block. And the actions and the product strategy that would reinforce that business model. And the telemetry that someone could see, and like, this, to me was a form of not just like a science, a sort of an art of how to make that point, but the science of the underlying structure of the software industry. And I would come out of those board meetings, and I would take copious notes, and I would say, Okay, how do I get better next time I go to a board meeting, what could I have done better? And so those years, those first five to seven years, I was sort of accepting the fact that I was lucky to have a job, because it was the post bubble. I didn't really think I deserved it. And I was pretty sure... I remember turning to Teresa and we went to the World Series in 2002, and I had made six investments then. This is in October of 2002. And I said, I just, I'm really ashamed that I think I'm going to have lost every investment. Because there was really no positive feedback at that time. And I just want to let you know, I'll always be grateful. And I hope you don't hate me. And she's like, Ah, you know, we all kind of feel that way right now. Miraculously, none of them died. Not to say they're great investments. But that's not the game, it's not to have none of them die, but it heartened me in a way that I think many of us who were around during that first bubble burst carry forms of trauma where we're particularly triggered now because those patterns we feel in our gut what it takes to renegotiate debt. And having done that at Core Metrics, or what it means not just to do a layoff, but to have the bottom fall out on you, and just assume like all the things that if you do these things, then things are going to be great. Well, no, no, you can do all the things you thought you're going to do and things could be awful. And so you go through that period of time. The trick with with these traumas is to manifest the fears, address them, confront them, and not have them preying on you constantly. You're skittish about risk, but you find a way through, because it turned out it was okay. For the great companies, it was an opportunity. And great entrepreneurs tend to thrive in these more stressed environments. So that was the 2000-2007 era.

Logan Bartlett: The mentorship thing's interesting because I experienced something similar that the people that I viewed as mentors were all much older, had way more gravitas. When they spoke, people listened to them. It was just like they had this wealth of experience to draw on. And I couldn't do that as a 30 something... like, the heft of my words didn't carry a board room. But you end up stealing little aspects from people or learning like that from people. And he'll be embarrassed I give him credit for this, but your partner, Eric, we had Amplitude together, and seeing how he works, you internalize little bits of that. And how he operates with entrepreneurs. And there's been a handful of those people that like, you just kind of steal little stylistic things that they do and then make it true to yourself. So it sounds like getting all that board exposure from great people was was super helpful for all that for you.

Peter Fenton: Yeah, it's an interesting thing which, people coming into the business that... I had this insecurity of Why would anyone want to work with me? And Lou Cerny, he was the first person who took a leap of faith on me. I was... you then question like, Okay, if he's willing to work with me, he must have really low standards.

Logan Bartlett: Rodney Dangerfield, I don't want to be a part of a club that wants me as a member?

Peter Fenton: But what I discovered is that, something we learn over and over again, experience is a weak proxy for character. It's a weak proxy for future manifestations. And it's a weak proxy for the kind of, I would say, non quantifiable commitment that comes with a great partnership, and trust. And so I was going up against some great venture capitalists on some of these investments, and someone gave me advice, this is on JBoss, and I was clearly, I was actually competing, I didn't know at the time, I was competing with Benchmark. And, so I wrote a long letter to the entrepreneur about how all the ways I could help and a dear friend of mine at the time pulled me aside and he said, No one's gonna pick you because you're better at anything, they're gonna pick you for who you are as a human being. And that will allow them to take a leap of faith with you. So the feedback was really simple, which like, just go sit down with the entrepreneur and say, which is the truth, you're going to make a career bet, this is in 2003, on an open source software company without a business model, and that you're making that career bet, you have no choice but for this to be something that occupies the totality of my ambition for his success because that's how I'm going to achieve what I want in my life. And what I found in any situation is that if you tap into what's deeply your expression of your connection and all that and it's truthful, by the way, if it's not, then you probably should move on, that a great entrepreneur is going to respond to that level of depth. And inexperience ends up becoming this, again, weak proxy. We all hire people, there's so many times in companies where it's like, perfect background, got them to the company, and then three months later, you have that pit in your stomach of like, something's off here. And, well, because it was it was right on paper, but not right in reality, and there's so many unknowns, and then you project, you tell yourself stories around Okay, this is the right partner because they have that background. And it's far more subtle, it's sort of like friendship that way. No one picks their friends in that sort of deliberate, explicit way. It's felt. And it's sort of in spite of all the reasons they shouldn't be your friend, that your friends. And that's how it should work, I think, when we partner with entrepreneurs,

Logan Bartlett: So competing with Benchmark at JBoss, and you also, I think, knew the industry well enough to know sort of the ethos of Benchmark as well, and it appealed to you even before, like they wouldn't return your emails or something, or Bruce Dan Levy wouldn't call you back, and then ultimately, they started recruiting you.

Peter Fenton: Yeah, there was just a seven year hiatus there. I knew I wanted to be in venture at age 24, 25. I got into the business at, I mean, explicitly with Accel at 26. And at that time, I had this false dream that Benchmark would break the model and hire a Principle, and just give me a chance. I'll get in there, I'll get in front of Bruce, I'll make the case. And Bruce blew me off a few times. I did sit down with Bruce, who was at like 7pm, he says, like, I'd rather be with my daughters right now, respectfully, but I'm doing this as a favor. And culture is not just the things you write down, it's the things that aren't said. And the feeling of the Benchmark culture at the time particularly resonated with me: anti-authoritarian, there was no hierarchy. And I abhor authority and hierarchy. And I love entrepreneurs, I want to blow it up. It doesn't mean you don't have to have hierarchy in companies, you have to allocate resources, I get that, and there's governance. And this idea at the time, because people forget that Benchmark was viewed as a renegade firm in 1999 of like these young punks, and people would say it's like Lord of the Flies... although there's an interesting story now, Lord of Flies doesn't actually, it's all fantasy, like, you put kids on an island, they end up being really, there's an example out of Tonga, where they did quite well. And then Bruce was like, yeah, good luck. And I thought to myself, well, that's the kind of firm that I would want to be part of and help found. But this isn't for me. And so, many times in your life, you sublimate what you really want, and you then figure out what you actually practically can do. And I didn't dislike Accel. I really, it was a weird thing, because people thought, Well, he left because of compensation. I took a pretty big pay cut when I came over to Benchmark, people don't know that. That's not just because it was the Facebook fund, so it was a huge pay cut, at the time seemed like a pay cut, and then in hindsight, it was probably a very big pay cut, 5,000x later. And that's okay. Because there's some, I don't know. Some people say this is a manifestation of privilege, and I'm sensitive to that, which is that I didn't look at my employment agreement at Accel, and I didn't look at it at Benchmark. I just thought, If I have the platform to do this work, it all figures itself out. And when Kevin called me, I was at Accel, and I was really, I admired my partners, I had a lot of hope for where Accel could go. I was still heartbroken that Jim Goetz left. And I think we all were, because he was just a decent human being. And we all felt like...

Logan Bartlett: What year did Jim leave?

Peter Fenton: He left a year and a half before I left. 

Logan Bartlett: Okay, so middle of 2004 or something, and you left in 2006?

Peter Fenton: Yeah, and it was hard. Jim had gone through a difficult period of the reset in the communications or networking world. So it was just a tough environment. It worked out for him. And I wasn't I wasn't itching to leave. I did think to myself that if I'm lucky enough to earn the ability to start my own fund, I probably would start a firm with Matt Cohler, John Lilly, and Reid Hoffman. And they didn't know this and [they'll] laugh when I say that, right. But that was like my dream. That's because I really loved those people, as human beings, and thought if you could work with people like that--not to say that, I had a ton of admiration for Kevin Efrusy who I worked with, and my partners that Accel. So yeah, when they called, Kevin called me, and my first response was--he's like, Hey, we're looking to add people to the firm. And I just froze. And I thought, Uh oh. I wasn't ready for that. And I said, I can't say yes to having this conversation unless I'm prepared to go through with it. And that's really hard because it makes me have to reconcile my relationships at Accel, and they mean the world to me. So I can't engage until I'm able to really imagine if I can transform Accel into a place that I would want to be at for 20 years. Because this is the question I'm being asked, which is, do I want to do something? You did it once, you do it once. You don't do it three times. And that's one branch in the tree, which is to work to have Accel really connect with who I was as a human being and being anti-hierarchical. The Accel model did have hierarchy. And it's not wrong. It's just is different. And then the other version was like, do I want to not pursue this dream of founding a firm? I thought about it. And you rationalize whatever you do, you tell yourself stories. So I told Kevin I needed about a week to think about it, I called him back maybe 48 hours later.

Logan Bartlett: Rings true, I think. I don't want to draw on on my experiences too much here, but I get that decision. And so, but once you walk through that door, right, and I had it happen with Redpoint, you have this experience that that you built your career around to date. And then you walk in to Benchmark, and there's not the 9am Partner meeting that people are like ticking through and trying to figure out how much to talk versus how little to talk and all the memo presentations and all that stuff that I'm familiar with, but instead, people are kind of, for lack of a better term, just enjoying each other's company or fucking around in the first partner meeting. They're looking at videos and talking about the weekend and ultimately getting to companies along the way, kind of an unstructured... was that an interesting kind of out of body experience going from this more structured world to this very unstructured kind of mindset?

Peter Fenton: Yeah, I was gonna reflect on something, which is, it's not lost on me. People always say like when you when you fire somebody, no one ever says I fired that person too soon. Because they look back, and they think Ahh, obviously I should have done that six months ago. And I'm sensitive again to this being a rationalization because you don't really have the A/B test. But oftentimes, when people are switching jobs, and we spend a lot of time on our job recruiting, one of the things I try and have a sense for is, is the nature of that human being well-suited to the culture that they're going to? Will they flourish in a way that they were not able to flourish? And you don't see that, typically, in an environment, because we get into a company-maybe Gen Xers do this more than a more conscious generation--but you just say, Okay, I got to do my job, and who am I to, okay, at the marginal, challenge the culture and all that, but like, let me first earn the right to do that. And so what I didn't know, in hindsight, by the way, it's funny, because Benchmark said, You were the one taking the risk, not us, because if you didn't work out, we would have fired you. So you were kind of... you'd made yourself who you were at Accel, you were, it was done.

Logan Bartlett: Oh, totally. They hire you for everything you've done to date, then you walk through the door. And it's like, great.

Peter Fenton: And it's like, yeah, new portfolio, new relationships, and good luck. But you don't think about that. I had this instinct that the cultural piece, which is the anti-hierarchical fluidity, the sense of the quality as a ethos was, like, really reflected who I... spoke to me. So I came to the firm, but I was terrified in the sense that Do I know? And you don't know... it's like, so many of these consumer products get launched. You don't know until you actually run the experiment. And so I went in, and I'm thinking, Okay, if it sucks, that's fine. I'll just, if I continue to be passionate about working with great entrepreneurs, and earning their trust and respect, then this won't matter. And I had rationalized a lot of that in my mind about the nature of what does a partnership do versus the individual. But I went in, and I was sort of, I couldn't believe it, like, people are just having a fluid, natural, honest conversation. Now it was around stupid things, interesting things. But it was, you could literally breathe. And from the difference of what, and I'm not saying the other models are wrong, where there's a felt insecurity in the conversation of I am a level below, I'm working my way up, I'm going to earn... or I'm more senior, and I have to justify my existence, was just gone. And you could have taken the same human beings that I was working with and put them into that structure, and I think the same thing would have happened. So then I had a sense for how a system can activate internal states, as much as internal states can sort of construct a system. So I didn't know it until I was in. And then after that first Monday, I was like, that was probably just a show, like, definitely next Monday it's going to be Oh, here we go.

Logan Bartlett: Yeah, the CRM's going to come out, and then...

Peter Fenton: And then it's we have to do: first we talk about new business, then we talk about existing--

Logan Bartlett: Follow on financings, and...

Peter Fenton: Yeah. And no, it wasn't that way. And it was far from perfect. So every system has its trade off, and so, it became clear to me at the time, we had our European efforts, we had our Israeli efforts, we had other... we were not honoring, I think, in the deepest sense, equality of partnership, because I think there were different versions of hunger, different versions of ambition...

Logan Bartlett: Of trust, probably, across offices.

Peter Fenton: Yeah. But even inside of the Menlo Park office, trust was high. It was more people were in different stations in life, and I think the seed that was planted for me in those early years at Benchmark was the potentiality is there for the system to be much better, but I think we have to curate it and edit it. And I say this now not because I'm on some woke mission, but we were, when I joined, I was, I think, the seventh white male partner. And you look at these things and say, Okay, we have to destroy this, creatively destroy it, because that's what entrepreneurial mindset and you just, it's okay, there are no sacred cows. And it's evolved towards what I would say is the essential core of what defined the original Benchmark, which is a small group of people, high fluidity in terms of transference of information, of trust, which is sort of the glue and mutual admiration, all aligned towards this purpose of working with extraordinary entrepreneurs. And that brings us the totality of joy in our life. We're also parents, we also have other identities and roles, but this firm so destroys the notion of you're better than anybody else. Because the minute you start to think that in a partnership dynamic, it levels you. It's fantastic.

Logan Bartlett: What about, just, now there's actually a book about venture capital, Power Law that Sebastian Mallaby did, piecing together all these things was something of an academic exercise I enjoyed of trying to learn the history of how venture capital came to be. But one of the things, there's an Accel chapter in there, and it talks about the prepared mind ethos, the Louis Pasteur quote. And I've heard you say that, I don't know who it was, when you walked in, said, Don't bring any of that prepared mind bullshit here or something. I don't know who to attribute that quote to, but... a little bit of stylistic rewiring, not just like the structure and the meetings and the trust and all that, but there was definitely, it sounds like there was definitely a Hey, we can... and for people that don't know, the prepared mind is, Hey, we're gonna go really deep into these domains, and we're gonna figure out all the different companies in these different sectors, and when Facebook comes across the plate, or whatever it is, we will have studied every single social network and know what to look for in that versus looking for when lightning strikes, or when there's something special there. Did you always gravitate a little bit more to the lightning striking element of it? Or was that something you had to learn from your partners to look for, rather than, Hey, I'm gonna go do a thesis, deep dive, diligence thing?

Peter Fenton: Yeah, it's funny. It's one of those questions that sometimes it's better to ask others about your internal perspectives, because when it's your perspective, it's the water you're swimming in, so you don't really know. Eric said something to me the other week that really stuck with me. And he said, If you're investing in a company because of its business model, I'm not so sure I should trust your instincts. If you're investing because of the people, I think we should invest. And as other partners were, he would flip that, where if it's investing because of the people, then probably not that person, that partner. So in a firm dynamic, what you find is there's different, you have different unique, ideally, perspectives and abilities to see things that are very clear and true to you that aren't obvious to others. I'm not drawn to crystal ball work. I get excited about vision, and when people come to me and say, Okay, here's the way this goes, you get Oh, yeah, you can see it as radical potential. And I respond to it. But I'm also suspicious when it becomes this sort of promotional thing. And I think, what I, actually I think I share this, to a degree with someone like Paul Graham, but I wouldn't compare myself to him. When he's doing 42 YCombinator interviews in one day, he's looking for this aspect of authenticity. And this is a big word that got overused in the 60s as some sort of ether, but the authentic is, to me, what you'd find in a great poem. Even though a great poem may take structural similarities to other great poems, in fact, it does. It's a unique contribution to reality. And you see the world differently after having read a good poem. It's this, the Proust comment about it changes your eyes. And so I think, when I think about our role, everyone's different. If I see an entrepreneur that does that to me, and it does seem like a great poem, and it blows you away--that can happen in like three minutes, it could happen an hour. But I don't look for great poems by saying, Poems should be written about the Twilight, with the ocean, and have symbolic reference to the fact that we're conscious beings and so we can't imagine the world without consciousness. No, like, you read the poem and think, That's a great fucking poem. And so I come back to, my own sort of investment style probably evolved from a truth that I would encourage everyone who listens to this to follow, which is: there are parts of what activate you, uniquely, where you completely lose your sense of self, where you fall in, and you aren't trying to do something for making money or winning a deal or all that, you're just swept off your feet. And we're all different. And when I get swept off my feet, it's that sensation of I'm with a poet of a business. And yeah, it tends to be stitched into business models, and if there's a network effect, all the better. But I'm principally relating to a human being. And that's what compels me. And that's what motivates me. And I can't do that with slide decks. I can't do that with abstractions as much as I can do it in the real life. And then how do you modulate that? is interesting question. So when I look at my partners, they help modulate that instinct of mine with, Okay, you have to do some due diligence. I don't really like to, but it helps. Sarah's especially effective, ex-Bessemer, saying, Okay, well, it's great you feel this way...

Logan Bartlett: Let's go validate it.

Peter Fenton: Let's check our assumptions here. And by the way, she does it in such a delightful way. I don't have this gift, but when she's checking the assumptions, invariably, the entrepreneur feels better about themselves in their business, because she's asked the questions, and...

Logan Bartlett: And you're going in, eyes wide open, to the opportunity.

Peter Fenton: Yeah, exactly. And you have the beginnings of what happens in terms of a great partnership, which is that we should be elevating consciousness for the entrepreneurs we work with around the stuff that really matters. And we shouldn't be elevating it for the stuff that doesn't matter. And that's one of the arts of adventure, where you get, I think you get better at that. But I want to contrast that to the prepared mind approach, which has a role to play. The prepared mind, in a sense, is reacting to a different aspect of where opportunities come from. Preconditions. If you look at the great things that have happened in venture, there's a set of preconditions, a little bit like adaptation. Like people don't just start with a wing. It wasn't like all the sudden, insects could fly. There were preconditions, there little stubs that came off of amphibians, or fish, of course, we all came from fish, but if they didn't have a little stub, it wouldn't then compound towards the wings, so there's these preconditions. And so having a mobile phone penetration at 20% with GPS as a precondition for Uber, for Instagram. I think today the blockchain is a precondition for a set of things that will blow us away. So the prepared mind as a, Let's be vulnerable to areas where there's no incumbent because there's high disruption force, to me, is an interesting, depending on the fissile material of the mind's preparation--from my prepared mind work, and I remember trying to do this on storage, right. Storage is a big industry and lots of problems, and I did my prepared mind work and I met these amazing people, John Colgrove, would then go on to found Pure Storage when he was still at Veritas. And I thought, Okay, this is one way to do it. And credit to Mike Speiser, who went and like, didn't just meet him, he worked with him at Veritas, but then had the instinct to sort of see the flash storage opportunity, and nucleate that, and all that. It's deeply rewarding, and I've done that in different forms. I've worked with founding entrepreneurs like Rob Bearden at what became Cloudera, but there is something about lightning strikes. This is a fact which we all sort of try to suppress, in for sure consumer, the big winners took off before they had venture money. And that really weighed on me, and I was like, Okay, well, and we didn't...

Logan Bartlett: Amazon, Apple, Microsoft, Google... 

Peter Fenton: Google, Facebook. I'd like to say we saw it before it was obvious. It was profoundly obvious in the Series A investment in March of 2005. There were questions about some aspects of it, but you couldn't have imagined stronger cohorts. It was just jaw dropping. And so if that's consumer, it's really challenging to crystal ball your way into. I think social needs something that does something like you're gonna want to meet an entrepreneur that provides poetry and then hope that that moves you, but in other segments of venture, I think for sure in life sciences, you have to have more of a crystal ball

Logan Bartlett: What, so it's interesting, because you bring up, you were in the pitch, the series A for Facebook at Accel, and then obviously, Evan Spiegel at Snapchat, and Travis [at Uber] and Lou with New Relic, and then Jay Kreps at Confluent, like, all these different types of businesses, do you think about, like the characteristics, what is the unifying characteristic that you've seen founders, successful founders, across B2B and consumer have, and then it sounds like maybe there's some differences that Mark can fall asleep, or maybe barely stay awake in the Facebook Series A pitch meeting, and you give him a little bit more latitude versus Travis at Uber in consumer versus B2B, like, what are the differences between the two?

Peter Fenton: Well, I think there's a common feeling of rapture. And I don't know what the full preconditions are of creating that feeling or state, but in a firm where you have, particularly our model, where you have five partners that are literally in rapture, and it's a divine experience, I don't want to glorify a past it's sort of okay, it's a startup and you're putting money in, it's a pitch. But you get the sense and these common threads of you're not looking at your device, you're at the edge of your seat, and what evokes that is an interesting question. And I think one of the aspects that evokes that is seeing a reality that when it's explained to you and expressed, is gripping, it feels like a secret in a sense, like others haven't seen it. And it's just at the beginning of being manifest. I would say another dimension, this is more elusive than you would think, is a sense of real purpose. Lou's purpose was surprise and delight and joy for a developer. Okay, Evans purpose, I think was more visceral, which is that there had been this loss of freedom of self expression, something had been taken away from us in the way that the social media world had evolved, and we couldn't communicate with our friends without fear of like, the part of your brain that learns at about age six or seven, you could be rejected. And he wanted to give that back to people. And so that's like, wow, and that's the rapture, but it's also a purpose that's activating it. The entrepreneur themselves, and by the way, you felt that in Mark's case, it was, I remember that pitch not as Mark being sleepy, of just, it's like shivering, because you think, Oh, wow, like, this is such a powerful force, of being able to bring people in an online community, or whatever, at the time, TheFacebook, and it's like one of those things, and you pay at the pump for the first time. Now, of course, everyone laughs now because they use NFT and... but these moments like Uber, when you first got your first Uber, that you can't unsee that. And then your mind starts to race and think, Okay, what's possible here? Now, some products like Kafka for Jay Kreps, we can't really relate to--maybe if we're developers, but the rapture is there, as is the sense of purpose. And the other thing I'd say is a common thread is, you can you can get in your head very quickly in this business. You can start to tell yourself, Well, this checks this box, it's the right space. I think it's always useful to say, Is there some part of me that would quit what I'm doing right now to go work with this person? If the answer is no, you probably shouldn't invest, because you're gonna be a terrible recruiter. It doesn't mean that it won't be a successful company, but I think, and there's a lot of things I haven't done, or I didn't do, where I would say, I didn't feel that way. And I just sort of knew the business would be successful, but it didn't activate that. So I'm not going to be the best partner. And we have a business that's not a monopoly, you don't have to do everything. You have to do things that you uniquely are passionate about. And I think as an entrepreneur picking an investor, you should feel that electricity that this person would maybe even quit their job to work with me. I mean, Sarah did that at Pinterest. That's the bar. And so those meetings, I think, of those good entrepreneurs, again, it's probably hindsight bias. Perhaps a more interesting question is did I ever not feel that way and we invested? And we look back, we have some interesting stories. There's Wework, there's others. And yeah, that's why you have a partnership, you have different points of view.

Logan Bartlett: How do you think about what can go right Versus what can go wrong? Inherently, there's this Fooled By Randomness aspect that you don't want to get caught in the hindsight bias, to use your term. But you also want to take the right level of risk that these, whatever, if you get an Uber, it can make up for a lot of other sins. When you're evaluating something, what time horizon are you actually thinking about? Like, are you actually thinking 10 years in the future what it could be like if this actually manifests itself? Or are you thinking Hey, in three years, can they actually get this product live? Do you use an infrastructure example or something?

Peter Fenton: Yeah, it's cliche now to say this, that we over we overestimate what we can do in a year and underestimate what we can do in 10 years. But there is this thing you have to teach yourself, because it's not instinctive and it's certainly something that we weren't wired up with statistical minds. And so our perception tends to be at the present. And as an investor, one of the biggest skills--this is the thing you have to develop intentionally, is compounding. How does compounding work? And then there's probability distributions and how you think about that. And when I come back to that question of... it ultimately resolves to time horizon, right, which is like, How anxious should you be? How patient should you be? In a sense, if it doesn't take seven to 10 years to manifest, then it's a problem, because it would then invite a lot of other companies to come in early. It doesn't allow for that sort of natural expression. And many of the challenges we have, ironically, are with companies that have childhood actor syndrome, where Boom, it happened. And there you are. And everyone's sort of declared victory before they've really built a company.

Logan Bartlett: It came easy early on.

Peter Fenton: We had this at Docker, we had it at Twitter. And these are two tough experiences for me, because in both cases, I think you have companies that have the genotype of $100 billion economic value, maybe a trillion. That's their genotype. And their phenotype was a fraction of that. So you take that very personally, and think, Okay, what have I done? In some cases, there are bad behaviors that try to prematurely optimize. Jack revenue quickly. At Docker, we did that. We got too much revenue of the wrong time too quickly. And at Twitter we had other problems, But the point I'm making is that if you can have this hinge, and in a way I actually think it's a little bit like the sympathetic and the parasympathetic nervous systems, there needs to be this hinge between the long term, if we do the right things it all takes care of itself, and then the short term focus. Maybe it's left brain, right brain. So what I get worried about, when I'm hearing companies like, We're long term-focused, so our numbers suck. It's like, you don't get that luxury. And We just get juiced our quarter, isn't it great what we did? I'm like nobody cares. By the way, I have a company right now I'm dealing with this. They had an extraordinary fiscal year. I'm like, Congratulations, you just raised the bar, which is great, but it's terrifying. Because if you want to continue to grow at 75%... So of the balancing act, the hinge, the dance that you get involved with, which is I think, is challenging to sustain for 10 years, is to bite off enough that you can chew, while having in the background, the most absurdly radical ambition. And doing those two things together is really hard. And I've found entrepreneurs that focus on the background ambition at the expense of the short term lose their teams. And oftentimes their investor support. And the people that are hyper focused on the short term, lose the purpose. And so being able to have a dynamic, and I think you can set this up, and as a systematic thing, like how do you interact with, what questions do I ask the entrepreneurs I work with, I think, is one way to keep true to that. It's great. We did the fiscal planning--a lot of fiscal planning going on this year. When you look back in three years, what do you wish you will have done this year? Oh, that's a different frame. And it gets you out of the... but you need to be balancing those two systems. And if you don't, then I think you end up with the common pathologies. Typically, if it's ambition-centric, at times you can lose focus, and when it's... yeah.

Logan Bartlett: Do you think in probabilities when making investments? Because ultimately, there's only one outcome. And, theoretically, there's an infinite number of potential outcomes, but there's going to be one, and you know, you can build the model, right? I'm sure you've thought about this, that, but ultimately, there will only be one...

Peter Fenton: I have so much respect and admiration for Jeremy Levine. And I talked to him about an investment we're in together. And he says, Well, we, like you, when we build the models, we weight the Here's the wild-ass case, it's gonna really work. Here's the wildest negative case. And then we look at each, we assign a probability. I'm like...

Logan Bartlett: 10% chance it's 10 billion, or...

Peter Fenton: That's an amazing way to think about it.

Logan Bartlett: It blends out to the costs that we should pay for $400 for...

Peter Fenton: For sure, you backsolve. And I thought, it is amazing to think about it, and it is completely inconsistent with the way I think.

Logan Bartlett: It's comforting, in some ways. You can look at the inputs, and well, you know, I mean, it was only a 10% chance it worked anyway.

Peter Fenton: It is especially comforting when you have partners that are breathing down your neck and saying like How crazy is this? And you're like, Well I understand, but here's the way of framing it. And I think it can be helpful, I don't think of the world that way. The way I come at it is actually very, in a way, relational, which is, we end up running into more problems, believe it or not, when founders lose their energy, their passion, their motivation. And if I feel like that won't be satiated at the first wave of success, and that it goes so deep that they're gonna... because that's, when you get to the outer realms of probabilistic success, there's a human side to it, which is the person both didn't sell their company, but push to expand the possibilities to get there. And that's a human question. So my experience of it comes very much down to that centered human connection to say, This is not, you can say this cynically and say this is a function of the insecurity of the founder, something that can grow and become weaponized. I'd like to think of it more as the joy of the founder, and it's like, is it insatiable? Or does it end when they can have their private jet, their five vacation homes, and other things you do with the manifestation of wealth? And it's an interesting phenomenon, if you think about it psychographically, which is how does success shape and contour the individual? That's how I think about it. And so when I'm asking questions of an entrepreneur in these meetings, it's like, what can I imagine happens to them when it all washes over them? Take Tobi, as an example, at Shopify. And I had the opportunity, regrettably, to do the series A, which now would have been called pre-seed. But the first investment, the second, the third, and I didn't do it. 100% proof that I shouldn't even be in this chair, in this business. And yet, somehow I still...

Logan Bartlett: I think you have other examples, but yeah.

Peter Fenton: Maybe. It's so humbling, because I don't--Tobi said something to us, as a partnership, because he had a $200 billion market cap. It's like, Yeah, but I built the $200 million market cap out of a $2 trillion opportunity. And I sort of think of it that way, which is like, I've built a little venture career out of something. And I'm lucky to be able to continue to do it. Not knowing at that time, that a German expat in Canada entrepreneur building white-label ecommerce, like what would success look like? But our biggest risk out of the Silicon Valley has been the background conditions that people feel.

Logan Bartlett: Pattern matching.

Peter Fenton: Yeah, but like here, a lot of people want to be bigger than Google. And maybe they want to be... their purpose has no limit. And that's a better way to say it. Where sometimes you go to... I don't want to pick on the Topeka, Kansas, but it might be like, Hey, like, that's $100 million! That's great! It's like uhh. So I think that question is less, the probabilities have to have a human manifestation story that more often than not, a great company gets an acquisition offer. That's irresistibly good.

Logan Bartlett: Evan Spiegel is an example, right?

Peter Fenton: Yeah. And what you're betting on, not betting, but what you what you have to imagine, is that in the radical success, which is why we do the job, and honestly, it's sort of what we tilt towards, that we need to believe that they're going to face that decision and the pull of the joy, the purpose, the things that have them going into work every day will transcend the extrinsic rewards of all the money they could ever possibly imagine. And how do you know that? It's really tricky. But you have to kind of have a point of view, otherwise you have... there's so many examples of the companies that face that choice, and they sold.

Logan Bartlett: I've heard you say that everyone gets worse at this job over time. I think that's probably true if you just look at the iconic people in the industry. All of them had some... either step back early or they had some unfortunate run towards the tail end.

Peter Fenton: We might be thinking of the same people.

Logan Bartlett: Why do you think that's the case? Why do you think that ultimately... Does the luck run out or does something change with the people, a lack of adapting?

Peter Fenton: I think it's a confluence of variables that the best you can do is be conscious of them, because then you have a chance to transcend them. The first is ego. And the great next company is likely to be started by somebody that's totally unknown. And they don't know that you did these things 10 years ago, or that you're this or that, and maybe they can find you online and have some... but the probability that they're going to reach out to you is really low. So if you let your ego develop, then you start to assume great people will come find you. But they don't. Typically, and I think this is the true, and the super majority of cases for us, we call them cold. And it's hard if you think you're successful, to do something that you were doing when you were 26. The same cold call: Hey, I'm Logan, and you don't know who I am but...so ego gives you a set of assumptions about what's going to come your way that are typically wrong. And as a double negative, though, because you then get the opportunities of people who want to talk to famous people, or well known people, and so you have a flow of opportunities, either from your historical investments that are historical--and that that can be great, by the way, but it's on average, you build more of a perturbation in the signals from that fresh question of what's the most interesting new thing right now. And so the trappings of success, and ego is a facet of that, the aging of the network... And I think there are other pathologies that people experience. And one of them is just the nature of wealth, and how that tends to impact--it happens with entrepreneurs too--the hours in the day. So you map the 24 hours that you spend when you're at the beginning of your venture career versus the middle versus the end. And there's a pretty profound shift for many people. One of the things I'm struggling with, I always struggle with, is making enough time to go find that next great young entrepreneur--I'm on 12 boards. So I still do it. And I have to rely more on the instincts now that I have on the person than I do on due diligence or meeting all 10 companies that are in this area. And so that puts me at risk. I'm more likely to commit quickly, and decisively. And I'm committing for 10 years. These are all conflating factors. One of the dimensions I think you have more control over than you know, is mental agility and freshness. If you assume that there's a requirement of equality of curiosity, and you take that as a ground condition of being a Benchmark partner, and I certainly do, then I have to be just as wildly curious as I was when I was 26, or 32, or 42. And I find that for some people that ages, and it fatigues, and they get a little bit more, Well, let me tell you about my... you sit in a board meeting, you get to hear about: I've been doing this for X number of years, and you're like Ugh. Like, I want to be part of the team that destroys that generation. So in a sense, I want to destroy my prior self through the creative process, the curious process of discovering what's violent and new and interesting. I'll give a good example that. For a long time, AI was not a good place to invest. In fact, a honeypot for a particularly bad kind of investor that didn't understand that economic value is not created in science, per se, it is created in the construct of a company and a product, and value capture and value creation aren't the same thing. And if you wanted to make money in ML, you needed to build the vertical product. And so ML was sort of the icing on the cake. And if you just looked at the icing, you wouldn't see the cake. That's shifting quickly. And the perturbations, the violence, and the pace of movement in ML and AI requires you to come at it fresh as if you'd never been an investor and say, Okay, imagine this thing's happening, where we're able to look at a whole ecosystem being lit up, where historically you would have been killed if you wanted to invest in it. Now, it may be THE thing to be investing in. And so that's hard to let go of. And for a while, I even go back to the beginning of my venture career, consumer internet was a good way to get out of the venture business if you had been doing it in 99 and 2000, because most of those companies had failed. But then you wouldn't have done Facebook. So these ageing aspects, if you're conscious of them, you can undermine them. I think it's not specific to venture. There are some jobs though, and I think particularly you look at someone like Stan Druckenmiller, where 30 years of experience makes you a lot better. And in venture, I think you have to lay out, it makes you a lot better in some ways, it makes you a lot worse and other ways, and if you're conscious of it, you have a chance to overcome that, I think.

Logan Bartlett: It sort of goes back to the What can go--if you're looking at an opportunity and thinking about all the ways people have died along that journey before versus what could go right. Seeing all the way through. Shifting gears a little bit. So the Benchmark partnership, so you joined in 2006. And now you're the the oldest active investor of the current fund. Is that fair to say? So how has... obviously, the composition's evolved? You're no longer all tall white men. But the the ethos and all of those things seemed to have stayed consistent in terms of like what you guys want to be doing. How have you thought about building the firm to the point it is today in hiring in the right setup partners and making sure you all have the trust and the complementary skills and all that stuff?

Peter Fenton: Yeah, I think it starts with this very basic question. I ask my partners this question every few months: We're founding a new firm. How do we go higher? And that's a very different question than who do we want to add to Benchmark. And so when you think of it from that primitive state of refounding, and I think Benchmark has been founded a few times, I think some companies say this to try and convince people that they're, You don't have to be a founder, you can come be a founder here. I actually think that's true here, because the culture, while it carries that through line of attracting a certain kind of person who wants to be in a non hierarchical structure, who wants a firm that amplifies their strengths, and that buttresses their weaknesses. Like we speak to a certain kind of investor. But if we start with that question, and that's how I've thought about it with the people we brought on, which is if I were leaving Benchmark to start the next Benchmark, would I hire this person? Would I want to convince them to cofound with me, because in a sense, I'm not hiring them. And it's a weird conversation, which is why I think we can recruit some great people, is that we're not really hiring them. We're asking them to found the next version of whatever this is that we have. It's not like a band, where you say, Here is Neil Young with a new lineup. And I think that's kind of fun, because it is a anti-hierarchical, anti-legacy, anti-permanence theory, which is that everything is ephemeral. And every firm is ephemeral in the totality of existence. We're just this little blip in getting us more in touch with that finitude of this Benchmark, this Benchmark will be gone in three to five years. There'll be a new group. Not entirely, but certain people, myself included, we're finite. So I come to that question of like, who wants to refound? And then there's other layers on top of that, which is, what's not represented in the group that's part of the firm we want to found? And it could be experience base, it could be personality type, it could be... but it's far less quantitative than it is qualitative. So I think one of the things we'd like to add to the firm going forward, Eric, having been a failed CEO--successful CEO, actually, because he sold the company, and he says failed, but he's not exactly right. I think having people who are around the table that have had more recent and relevant direct experience, building a startup will be great for the firm. And we're gonna add that. And it's not that we can't do our job without it, and we're not defined by having experienced, we're defined by the quality of people, the questions we ask. But it's a nice thing to have in the room. Eric represents it, Sarah was at Pinterest for a long time, I think saw that. But we want to add more of that. So you tune it against that sort of core note of founder-level quality, which means they have to share culturally, this sort of sense of they're serving entrepreneurs, they don't want their name on the website. They don't seek opportunities for a go at self expression. Because no question you could rationalize it. Well, if you're doing that, it's because you can draw attention to the companies. Yeah, maybe. There's always some way to think about everything and analyte this kind to yourself. But that's where we are. And I think we have an average age, right now, in the late 30s. It's an interesting thing to think about. If we hadn't done the work of the founders all firing themselves, our average age would be mid 50s--actually it's not true, it would be early 60s, even with the current partners. And so the fact that we continue to rejuvenate and keep it in that essential core is I think, really, to me, the model propagates that way, because it's destroying itself constantly.

Logan Bartlett: You just referenced it. But you've also obviated the single biggest tension point at all venture capital firms, which is the firm website. It's perpetually to do a firm website is to hate a firm website is the need to update a firm website is to... I hate to let people in on the secret, but if anyone asks you if you work at a VC firm, and you could ask to do the firm website, that's a Bataan Death March. And you guys have gotten by. Once upon a time you had a website, right? And it was, was it Matt Cohler that was forced to figure out what the new version of the... I mean, back in the day, it was super interactive, right?

Peter Fenton: We don't... I don't... maybe I'll share this--it's probably not totally appropriate. But when we launched the new website, which is the no website, there was a dividing line at roughly 40 years old. And I'm over stating this, but it's not exactly wrong. Of the people called us up and said your website's broken to the people who called us up and said, It's just awesome you guys don't have a website, because now we can go to the Twitter, the LinkedIn and really... the logic of that is... I think there's a question of, we don't want to be non-transparent. So it's not meant to be something like we're hiding anything. But it's also... it burdens us in a way to get out there and have our website be the relational reality of Benchmark. The entrepreneurs who say, If you're going to talk to a firm, you got to talk to Benchmark. If you're gonna raise money, you owe... we would hope that they'd say you owe it to yourself to see if they're a fit. So in a sense, it sort of challenges us to be more out there, and not rely on some artifact that we created that tried to tell a story. Because our telling our story, to me, is not nearly as interesting as allowing that to happen in the natural effervescence of the way life goes down in the networks we work in. Is it always successful? No, there's real trade offs. I could imagine parts of the website, and we thought about it. Oh, maybe it's time to go back to be the first firm that relaunches a website. That is... it's a particularly unpleasant task in a firm that doesn't have any hierarchy. Because nobody wants that hot potato. It's like why we don't have PR.

Logan Bartlett: Yes. Yeah, I found office space and websites are the two things that if you get involved in those things that venture firms you're... it's a no win. Now, state of the market today. You you've gone through three different cycles of downturns. There was the 01 that we talked about when you were getting going, then the 08, and now this one. What what elements of it rhyme with some of these past experiences you've had and seen? And what do you feel like we're in right now that's new and indifferent?

Peter Fenton: Yeah, the the part that rhymes, if you want to call it that, is the lived reality of valuation resets. It's been common across the cycle shifts, where public markets are wired up to be very nimble and agile and resets. Now, they still take six months time, sometimes they take longer, but broadly we've seen a catastrophic loss of value in the public tech stocks, 80% loss of value. That's not happened in the private sector. How does it happen the private sector? Slowly, and because so much money got put into the balance sheets of the companies that could raise it in the last 18 months, many of them, and broadly, in our portfolio, in the ecosystem, that got to higher valuations, are buying time. And there's a Maybe the market will recover by the time we need to get out there again. We'll see. But that reset takes more time in the private market, and it can lead to these weird distortions of the practical consideration of Is my equity grant real? And I think it stresses companies to sort of face the music in a sense, to say, Okay, let's know that we're not our valuation today. You never are, it's just a point in time...

Logan Bartlett: And it's what one person, or some group of people said you were. It's not a liquid market, either.

Peter Fenton: Yeah. And so you say, Okay, isn't it nice that we're private, and we don't have to deal with that problem? It's like, you have to deal with that problem, it's just that it's not liquid. So I think it requires the great... the great companies will come back to that question of, Where are we in five to seven years if we manifest our strategy? How do we not let the stress of the financial market wreck that opportunity set? And you're gonna see a non-trivial number of companies. My instinct is that this is what rhymes with maybe more like 2000, or 2003, is that some percent, 25%, 50% of the companies are going to severely impair their five to seven year opportunity because of the access to capital problem. They'll be in denial about the need to cut, they'll be in denial about the, Hey, if I just do this--this is a common conversation--we can get this valuation if we just do this. It's like no, you don't understand. If you just do what your plans were, you're still going to have an 80% lower valuation. And Whoa. And I'm struck particularly with younger people who say, We're going to grow into our multiple. The multiples gone! And so that part rhymes, which is the sense of denial. What doesn't rhyme, and I think this is the part which I will say that. I think one of the greatest traits of a good investor is a sense of bewilderment of not just being agnostic, but being really careful about any certainties. And I'm quite bewildered by the nature of inflation this time around. The analogy that people have used, which makes sense to me, is it's more like cancer than the other flus that we've had. And in the venture business, I've seen two or three flus. One was very cute in 2008. It was a little more sustained than 2000 to 2004, maybe it's 2001 to 2004. This is the cancer in the sense that it tends to compound towards negative, and it gets worse and worse and worse until it gets fixed through chemotherapy, which is called high interest rates. We could imagine, it's not out of the realm of possibility, interest rates being above CPI to reset the economy. And that means what, 8, 9, 10% interest rates? Well, they were 20% in the 1980s. So if we get to that level, I think the question our companies don't really have a point of view about is when the cost of capital goes up 3-5x, maybe 10x, is some sub segment of what we're doing no longer economically viable? And that's probably the case, if you believe that the inflation remedy is 12, 15% interest rates. We're far away from that. And maybe it can course correct, maybe, but so this is where I think it's really different. And what does that mean practically, day to day? It doesn't really impact the Series A business, crazy as it is, because we still look for the same... I say Series A, I'm also putting a lass around what people call seed today...

Logan Bartlett: And preseed too.

Peter Fenton: Yeah, and preseed and prepreseed. Because those companies are not going to be exposed to the stresses of the cost of capital at this scale until five to seven years down the road, at which point there'll be some new reality, among other reasons.

Logan Bartlett: And from the investor side, if it works, maybe the pricing changes the difference between an 1,000x and a 500x, or something. But it'll be good.

Peter Fenton: Yeah. The terminal value may be different, but the nature of the alchemy of venture is all intact. I'm in the process right now of working with a former entrepreneur, and we're starting a company, he's starting it in them, and it feels like a great time to be starting a company.

Logan Bartlett: I would be careful, you're gonna get term sheets right now. You just got 3x, the markup 5x?

Peter Fenton: Don't tell him, because we're negotiating price tomorrow.

Logan Bartlett: We'll let you get this signed before we released the episode.

Peter Fenton: Indeed. Yeah, the hard part, and I think this is the human story that--I don't know how you can sever your emotional attenuation to the suffering that real people go through during a period like this. It's sort of one thing to say, Face the music, and You guys are all sinners in the hands of an angry God. It's another to say, Ugh, and it's gonna suck for a lot of people. And I think what I've tried to invest more in now with the founders I'm lucky enough to work with is building their emotional capabilities to deal with this. Because it is really vicious and hard. And there was a lot of stress during COVID, and from a CEO role it's so lonely, and then the number of the issues that they had to not be silent on, the issues that our society has systemically. This is a different, more exhausting phenomenon. I'm more worried about how that may take somebody who's the next Tobi and cripple them in some fundamental ways from being in their full potential. So being a resource for our founders, to not just shame them into this is brutal times, but how do we help you get through this so that you're stronger through it? And that's really, I think, a unique role we can play because we're in the sense, like, as a founder, we have an unconditional commitment to the business... I mean, in theory, until we sell the stock when it's public, whereas employees are... and regrettably in some cases, you make them conditional. But we can be there through this, and I think give them some sense of continuity and ballast and that's when it's hardest for us to do our job. But we have to do it.

Logan Bartlett: That's on the startup side, which I liked that you answered that very founder-centric. What do you think about on the VC side? We've seen these cycles that corporate capital comes in, and crossover funds come in, and different pockets of big money come in. How do you think that sort of flushes out?

Peter Fenton: Yeah, I put jealousy and schaudenfreud up there as probably the worst human vices. And they tend to lead to cruelty, which is THE worst human vice, from my vantage point. So, yeah, it is going to be very challenging for anybody that has high exposure for the last three years to get back to even. It may take a very long time, and what does that mean to those funds and our access to capital? Right now, there's still this weird reality distortion, right? Because the marked values don't reflect the If everyone had to raise money tomorrow, what's the real value? If you told all of them, Guess what, your portfolio's down indexed to what the public market's down, I think that the LPs would be quite surprised. Not that they don't know that instinctively. And they're all trying to do the right thing and stay true to the... But how does that impact the capital long term? I think you have the same basic phenomenon, which is that private venture investing doesn't outperform the NASDAQ. And that that is a bitter pill that people have to swallow. Now, there's the tautological statement that the top 10% of the funds outperform... Okay... And if you're 10% this time, you have a higher probability being top 10% next time, yeah...

Logan Bartlett: There's some really good studies on that. Persistence in the asset class.

Peter Fenton: Yeah. I remember doing references on Jeremy Levine and people said, Well, we're just, we're not sure if we should commit to Bessemer because of the... he's just new. And it's like, you don't understand, this is the person you want to back. He's just at the beginning of a 20 year run. And the people you're getting some assurances from, who've had a good 20 year run, they are the people you should take your money away from! And they're like, Oh no, that's not how it works. It's like science, you're more likely to get a grant if you have warmed over mediocrity in the bureaucracy of modern science, than if you're the young 22 year old punk who has a radical idea.

Logan Bartlett: It is an interesting phenomenon that you raise money in the venture asset class over what you've done, but you make money off of what you will do, and those two things--they can be congruess, but often are very not, for all the reasons we talked about earlier.

Peter Fenton: There are compounding effects of success in every business. There also, in this particular line of business, compounding negative effects of success as you accumulate the trappings of success. And so yeah, most LPs. I get it, they want to feel safe. They want it because they're being entrusted to make this decision, either for their family or for the family office or for philanthropy. And if they say, Well, no, this person seems great, that's like, that doesn't sound as smart as like, Look at this tracker. But...

Logan Bartlett: I didn't find a good time to work in Mark Flurry asking a customer to suck his dick. So I've heard you say Robert Sapolsky has been a mentor, friend, someone that you look up to in your career. Obviously a different, I mean, maybe for people listening that don't know, what about him do you admire? And how has that actually internalized itself in your job? Or in your life? Like what elements of that have you internalized?

Peter Fenton: Yeah, by way of background, Robert Sapolsky is a professor at Stanford of neuroscience. He teaches a few classes, some of them you can see online. And I don't know that I would say as a mentor, other than a hugely influential thought-impact, cognitive impact on my life. And I think this in the category of someone like William James, who is in our midst, who's saying things that are going to be remembered in 100 years, and that really can shape your understanding of reality. And it's not a TED talk kind of thing. It's a volume of work that if you get to know the human being, you realize he makes you more human. He gets you more in touch with the fragility of what it is to be conscious and to be controlled by our neurology, and the effects of, obviously, the endocrinology and the the mechanics of our cognitive abilities are something he has a deep understanding of. But Robert's, more recently, really affected my internalization of the absence of free will. And he's about to have a book called Determined: The Science of Life Without Free Will. And it's a controversial position, which is that free will is a precondition for the modern judicial system. How do you punish someone if they didn't have free will? And if you assume that they didn't have free will, then you get out of this notion of retributive justice, and you move to restorative justice. But why is that relevant in the venture business, in my life, and all this? Because Robert has this humanizing effect to recognize a bunch of things that relate to station in life. It's just luck. So I'd say one of these things, one is you give up the notion of free will, you give up the notion that you were you were successful. Because you don't really exist. It's not just meant to be some Zen comment, but you start to think about and take an ethical relationship to systematic phenomenon that preconditions exist, that you can, in fact, that will show up in someone's character, someone's... I hope philanthropically, I'm able to have an impact on the world that's outsized relative to my work with my venture portfolio. The thread that's pulling me there, and this is where I think anyone who wants to connect with philanthropy--you can give money, that's one thing. But you should you should feel the same total loss of self and joy and pursuit that you feel in the things you've done that you're most successful at in a philanthropic effort, because then you might actually do something great. So his assault on the notion that we have a justice system that is attenuated to reality, but in fact, it's just really 15th century barbarism that were brutalizing people. You take this solitary confinement as a punishment for people in prison. And we know that tachykynin, which is, well, there's three or four versions of them in the brain, right, that get released in social isolation that activate aggression and the worst of human behavior. And we're amplifying that in the people who are the most vulnerable. So I think, Robert, my guess is that if we had this podcast in 10 years, that his influence in my life will have set a trajectory. And I urge people to read his work, his last book Behave... the best book that I've read of his was the Why Zebras Don't Get Ulcers on how we kill ourselves with our stress responses. And this is a living giant amongst our time. So listen to his podcast, and I think people will get swept off their feet when they hear a person like this talk.

Logan Bartlett: That's great. That's a very heightened state for us to end. I had two final questions. One was a portfolio company telling someone, a customer, to suck their dick and that one... and I... there were two choices... we'll have to leave that for the next time we do this. That was a much more elevated way for us to end this discussion. That is true.

Peter Fenton: I invested after I knew he did that.

Logan Bartlett: It worked out for you.

Peter Fenton: Yeah, itdid. It did. It was a start of a chain of investments.

Logan Bartlett: Yeah. Your whole open source thesis there, whatever, investments, all trace back to an SMD CEO saying that.

Peter Fenton: Yeah, that's incredible.

Logan Bartlett: Yeah. Well, thanks, Peter.

Peter Fenton: Thank you.

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Wrap-up

If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kevg1412 or my email at kevin@12mv2.com.

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