How Twitter And Uber Backer Benchmark Is Winning At Investing Early And Staying Lean

Benchmark has stayed lean in a new world where Sand Hill Road is clamoring to offer its own value-added services. It seems like every venture capital firm is adding marketing, PR, recruiting, finance or content partners, but Benchmark comprises only investment partners. While some firms haven’t been able to survive in the top-tier, post-Andreessen Horowitz generation, Benchmark has remained consistent in its ability to bet on the right entrepreneurs and founders at an the early stage. In fact, the firm has only four partners, yet has been the lead on investments in some of the most iconic companies of the past decade, including Twitter, Instagram, OpenTable, Uber, Nextdoor, Zendesk, Snapchat, Yelp, ResearchGate, New Relic and many, many others. What makes Benchmark different?

As Benchmark partner and early Facebook and LinkedIn employee Matt Cohler explains, each partner focuses on one thing so it’s easy to do it well. “We work shoulder to shoulder with entrepreneurs we partner with and we have to be pretty selective about which companies we back, and how many investments we make,” he explains. “We try to do one thing and do it well, and that means staying small and focused.” The firm’s partnership includes Cohler, Kevin Harvey, Bruce Dunlevie, Bill Gurley, Peter Fenton and Mitch Lasky.

And were excited to reveal that the partnership will be joining us on stage at Disrupt Europe in late October, in Berlin, with a conversation with TechCrunch founder and CrunchFund partner Michael Arrington.

If you look at some of the data behind Benchmark’s portfolio, it’s clear the firm has proven that its model works. With $3 billion raised and $13 billion in value generated, Benchmark has backed more than 250 companies since its inception in 1995. Since that year, the firm has seen 36 IPOs and 90 M&A exits. And 21 of those exits took place since the beginning of 2011 (seven IPOs and 14 M&As which represented a total market value of more than $9 billion). The IPO number should go up with Twitter’s impending IPO this year, as well as the potential IPOs of Zendesk and New Relic in the coming year. The total market value created by companies that Benchmark is involved with is more than $100 billion, the firm says.

While some large VC firms have started actively seed investing, Benchmark has remained steadfast in not implementing a spray and pray model of seed investing. The firm focuses squarely on Series A and Series B funding and doesn’t dabble in growth-stage financing. Cohler says that the firm focuses mainly on backing startups in San Francisco (there are exceptions, he adds, such as Snapchat, which is based in LA and ResearchGate, which is based in Berlin). And the firm is focused on backing companies in the consumer, mobile, SaaS and infrastructure industries. While other firms have followed the Andreessen Horowitz model in raising massive funds at $1 billion or more, Benchmark has kept its fund size at $425 million for its seventh fund.

As Cohler sees it, Benchmark is a small fund relative to the firm’s peers and colleagues. He maintains that that other models may work for other VCs and operators, but “we see ourselves as craftspeople and artisans. Benchmark as a firm reflects our individual values, mission and strategy.” It’s this strong belief in the Benchmark model that ties the partnership together, he adds.

Nirav Tolia, a former Benchmark EIR and the founder of Benchmark-backed Epinions, Fanbase and most recently, private social network for neighborhoods Nextdoor, says that its the firm’s singular focus on early stage investing that makes Benchmark so unique. “They are not generalists in how they invest–they know and get early stage startups and how to tackle problems like finding product market fit, scaling, finding a business model, and hiring people when you are a startup with no perks,” he says.

Benchmark is extremely selective about its investments because the partners are so hands on with the entrepreneurs they back. It’s just not scalable to be so hands-on with startups at that stage. “We want to be the first phone call, the first text message, the first email for any founder,” says Cohler. That sort of engagement is difficult to do at a larger scale, he says, with a large number of investments across stages. Tolia’s experience with the firm is that it feels like less of an outside investor and more like a member of the team. He says Gurley, who is on the board of Nextdoor, has spent as many late nights working on products, hiring and other issues as Tolia has. Gurley not only closes hires, but sources them for the startups he works with, says Tolia. “He is a true member of the team,” he adds.

Another area where Benchmark has differed from many of its peers in the VC world is its internal partnership structure. The firm was founded in 1995 with a flat non-hierarchical organizational structure, meaning each partner has equal equity as well as an equal voice on all business decisions. There are no junior partners, and no startup is going to have an out-sourced board seat given to a junior partner or other firm employee. As explained by Kevin Harvey in this Quora (a Benchmark-backed company) post, the decision to create this was to avoid the politics and internal competition that comes with the hierarchical model. For example, there could be negative results when the VC partner working on a startup is not the final decision maker.

The other benefit of this equal partnership means that each partner feels a stake in helping out the portfolio’s startups. And that synergy is really where the founders and companies benefit. Cohler says that this structure means that the entrepreneurs the firm works with and the companies the firm engages with have access to everything on the team.

For example, when the firm was courting Snapchat, Cohler actually flew down a number of times to meet with the founders, although Lasky is the board member. In 2011, Fenton was instrumental in recruiting Kenny Van Zant as Asana’s business & operations lead, although Cohler is on Asana’s board. Fenton also started the first Nextdoor neighborhood in Russian Hill, and gave Tolia invaluable feedback on how to approach public vs. private feeds, and the asynchronous vs. synchronous follow model, which Fenton had intimate experience with in advising Twitter (Benchmark backed the company when it only had twenty-plus employees).

Tolia believes that this approach, pioneered by the firms founder, to have incentives in place to make sure that every partner wants every portfolio company to succeed is key to what differentiates Benchmark from every other firm in the Valley. And Tolia’s perspective isn’t just anecdotal–I talked to several other founders in Benchmark;s portfolio who had similar experiences as Tolia had with the Benchmark partnership.

It’s clear that with the ongoing trends in the venture capital industry, Benchmark has doubled down on what they do best — being company builders.

Disrupt Europe will take place from October 26-29 (Hackathon on 26-27; Main Event on 28-29) and lots more info can be found here. And read more about why Cohler thinks Berlin will be the next big startup ecosystem here.

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