Benchmark Capital: Setting the Standard

Benchmark Capital is often recognized as the hallmark of Internet
venture capital. The numbers speak for themselves; in 1999, 15 of
the firm’s partner companies debuted in the public marketplace. Among
the IPO stand-outs were Ariba (ARBA),
Juniper Networks (JNPR),
Kana Communications (KANA),
and Red Hat Software (RHAT).
The combined market capitalization of those four companies’ alone equals
almost $100 billion. Seven of Benchmark’s partner companies were sold
during the same year including, acquired by (AMZN).

It’s clear that Benchmark is attracting the best entrepreneurs with the
best Internet models and market opportunities. So it’s safe to say that
public market investors should be watching the firm’s moves closely for
clues on markets, models, and companies to invest in.

[email protected] had the opportunity to sit down for an exclusive
interview with Bill Gurley, a General Partner at Benchmark Capital.
Like Softbank’s Bill Burnham, Gurley worked as an analyst on Wall Street
before entering the venture capital business. In fact, he was the lead
analyst on the IPO.

[email protected]: Let’s talk about traditional venture capital firms
vs. the new-age incubators of today’s Internet economy.

Gurley: A lot of people are out there talking about the
incubators. The problem with incubators is the following: name an Internet Capital Group (ICGE)
partner company CEO…you probably can’t. But you can name a bunch of the
ICGE guys.

We don’t see the world that way. We’re not at the top of the pyramid
with everybody underneath us with puppet strings moving them around. We
see ourselves as service providers to entrepreneurs. We want Keith
Krach to be a hero as the CEO of Ariba. We want Meg Whitman to be a
hero as the CEO of eBay. I think that if someone has a killer idea,
they want to have our company building expertise, the brand building,
and the network of contacts we provide in order to make them the best
possible company they can be.

[email protected]: Benchmark seems to have developed a specific
business-to-business (B2B) e-commerce investment strategy.

Gurley: We’ve played B2B pragmatically. We’ve chosen to focus on
horizontals with products and services that cross verticals as opposed
to independent vertical exchanges (i.e., SQST). In a lot
of ways I see the independent vertical exchanges like some of these more
narrow-niche business-to-consumer (B2C) categories (i.e. CDNow, CDNW).
The more narrow a vertical, the less of a market opportunity.

[email protected]: So where is Benchmark in B2B?

Gurley: We’ve done three enormous B2B deals. One of them is
Ariba, already public. Two others are Impresse and TradeOut (both now
in registration for IPO). Impresse is an online printing exchange which
obviously crosses multiple industries. TradeOut is an online
marketplace for businesses buying and selling excess inventory and idle

[email protected]: One investment of Benchmark’s that is quite
interesting — and you’re a board member of the company is A little clicks-and-bricks strategy here?


Yeah, I’m extremely excited about’s
potential and glad that I’m able to be a part of it. It might sound
funny, but I don’t think at Benchmark we have a profoundly positive view
of working with large companies. Those things may not sound the same,
but the Nordstrom management team is extremely open minded, really wants
to see this thing succeed, they’ve put their total weight behind it and have
allowed it to be independent. Under the leadership of Dan Nordstrom,
we’re doing some very innovative things. We’re not just another
e-commerce company, and we’re not just the Nordstrom brand with a dot
com added on. One of the initiatives is to convert catalogue shoppers
to Web shoppers, which gives us more leverage across sales costs and
customer service costs. We’re doing several hundred million dollars a
year in revenue.

[email protected]: What about another partner company you also have
a seat on the board of,

Gurley: is a killer, killer company. We aim to be
the #1 destination on the Web where people go to make decisions about
buying products and services. I sat down a little over a year ago with
Naval Ravikant, who is the founder and CEO of the company. I was trying
to talk him into joining another company. He said to me: “Let’s play a
game, let’s come up with the most interesting business model on the
Internet–what would it look like?” We came up with the following: 1) it
would have to be a content company because you don’t want high variable
costs, 2) it would be “viral,” 3) something where the site gets better
every time someone visits it, and 4) something where the community does
all of the work for you. He went out and designed a business around
that skeleton. This company is now made up of the best and brightest of
the valley.

[email protected]: Can you give us an example of why this model is
so attractive to users and potential advertisers/e-commerce partners?

Gurley: Definitely. We believe that the best people to do
reviews are the people out there buying and using all of the products
and services. Now, let’s think about the thought process that Lexus
goes through when they run an advertisement in Wired Magazine. They’re
making two bets. The first bet is that the demographic or readership of
Wired fits with the demographic of people that buy Lexus cars. Well, a
lot of young people that can’t afford a new Lexus read Wired. Perhaps
20 percent of this population can afford to buy a Lexus. The next bet,
of those 20 percent of Wired readers that fit the demographic, how many
are in the market to buy a new car? Well, let’s say you buy a new car
every five years. So Lexus is buying an advertisement in Wired and
hoping that four out of every 100 people that read the magazine see
their advertisement. By aggregating content that helps consumers make a
purchasing decision, can go to Lexus and say “we have a
section on our site where every user is making a decision on purchasing
a luxury car.” There are no wasted eyeballs whatsoever. We do this
across every consumer category.

[email protected]: OK, and the next company I was going to ask
about,, certainly has similarities to in terms
of its approach and model. Is there a trend here?

Gurley: Yeah, I’ve got a very, very strong minded view of where
this thing is going (deep breath). The Web is not about fulfillment.
The Web is about merchandising and grabbing customers. Amazon is now
doing these button deals (link on Amazon’s site) like they did with where they get $100 million in pure-profit revenue. They
get that because they’ve aggregated buyers. They don’t get that because
they’ve built a country full of distribution centers. Buyer aggregation
is the name of the game. It’s the exact area where successful Web
companies want to or should be.

I think Vstore is to e-commerce what Infospace is to content. Infospace
stands behind all of these portals and destinations and gives them
applications/services that they can’t aggregate on their own. At
Vstore, we let any one have a store, anyone can incent demand.
( provides anyone who has an internet marketing idea the full
infrastructure needed to succeed in e-commerce. offers over one
million products to sell, full customer support, order fulfillment, high
speed hosting and transaction processing.) Just last week eToys cut
their affiliate fees. That model isn’t working. You know why? In the
circumstance where an affiliate is generating the demand for a product,
the etailer adds absolutely zero value. At Vstore, we can pass our
orders directly to the distributor that can ship the products to the
customer. We can provide an “affiliate” that was able to aggregate that
demand, with their own user environment, where the customer never leaves
the site, and they can keep getting paid as people continue coming back
to make transactions (“Vtailers,” it could be you or I, get a cut of
every transaction that occurs in our store).

We’re also the e-commerce provider behind’s stores and
MyFamily stores.

[email protected]: Sounds like more channels for revenue. Thanks a
lot for your time Bill.

Gurley: Thank you Luke. Take care.

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