Note: While reading a book whenever I come across something interesting, I highlight it on my Kindle. Later I turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!

  • As Harvey’s car headed over the San Mateo Bridge, Beirne stared out the side window, into the haze that obscured the southern half of the San Francisco Bay. On the golf course the other day, he said, a friend had floated a theory that leaders, in business or anything else, are driven by demons. The best guys have them-implacable, subterranean demons that are the source of greatness. Harvey, the house critic when at the office, usually could be counted on to take issue with whatever stood as the conventional wisdom du jour, but on this point he peacefully agreed. What about their own demons, Harvey asked. “Oh, yes,” Beirne granted. But it was midmorning on a workday, not the time for a personal inventory.

  • The Entrepreneur is easy to recognize when encountered. This is the person who is afflicted by a monomaniacal fever, who cannot not be an entrepreneur.

  • There are others, though, who do not fit the template, such as Louis Borders, who had left the game, or thought he had, until he was hit with a singular inspiration and could not not test the Big Idea.

  • When Paul Wahl headed for his new home, TriStrata may have looked no different from any other venture-backed start-up in the Valley that occupied leased offices in the land of cubicles. But up close, it sat apart from the others, at the bottom of the “trough.” The term comes from the shape of a graph that venture guys draw. Think of the life-cycle stages of a company: raw start-up; developing the product; revenue-producing; almost public. Theoretically, if markets operated efficiently, the risIJreward ratio for an investment made at any one of those stages should be about the same. Investing in a raw start-up would entail high risks with potentially high rewards to match. At the other end, companies that are about to go public are low risk because they have customers and revenues; the rewards for investments at that stage are commensurately low, too. An investor pays an expensive price to enter a deal with a company that is about to go public, so it is not possible to get a huge payoff in the difference between that price and the post-IPO price. But even if the reward is small in an absolute sense, the relative reward theoretically is always matched to relative risk in the same ratio as it is in start-ups. In practice, this is not the case for companies at the intermediate stage of still developing a product. Here an investor has to pay up, usually at a valuation for the company that is at least three times that of the raw start-up stage, but the risks have not been reduced proportionately. Think of a U-shaped graph showing the rewards divided by risks. The left top of the U is represented by the high reward/risk ratio of a seed-stage company, and the right top is where one finds the high reward/risk ratio of an about-to-go-public company. And in the middle, the trough, are the companies in the development stage where history shows a pattern of comparatively low prospective reward married to high risk. When Benchmark raised its first fund in 1995, it explained to its institutional investors that it was going to specialize in first-round funding of the early-stage companies, one of the two places where the high reward/risk ratio was found. It would avoid, the partners said, “feeding in the trough.” TriStrata was at the very bottom of the trough.

  • “Anytime anything good happens to me? I wear my Opus T-shirt,” said Dunlevie. When he and Rachleff had been junior venture guys at Merrill Pickard, Opus Systems, a manufacturer of Sparc workstation clones and one of Dunlevie’s companies, was doing extremely well and preparing for its IPO when, out of the blue, Sun Microsysterns decided to curtail its licensing program and kill off Sparc clones. It meant the end for Opus, but the company lingered in terminal pain for two long years before it finally died. Dunlevie had refused to issue do-not-resuscitate orders, and his Opus T-shirt was his memento of the experience.

  • There is no single form of charisma, that ineffable quality that draws in others. One variant, which Dave Beirne possessed, involves projection of physical power. Another, Danny Shader’s, was based on being the nicest extremely smart person you can remember meeting, someone who inside of thirty seconds effortlessly gets strangers to open up and talk, while he nods with an expression of interest on his face that says, This is fascinating! He also had experience and business sense that was not expected of entrepreneurs in residence. When Shader walked by an office doorway, a Benchmark partner would wave him in, show him a deal that was being mulled over, and get Shader’s thoughts; he could tote up pluses and minuses in a business plan quickly and acutely. The partners enjoyed having him around; so did the administrative assistants. Everyone loved Danny. One day, out of Shader’s hearing, Bob Kagle told Kevin Harvey, “This may be because I’ve got weird data points or something, but Danny seems to be an incredibly clearer thinker about other businesses than he does about the ones he’s looking at prosecuting. It’s the weirdest thing to me. Whenever he’s looking at some other deal, I’m getting tons of insights out of him.”

  • You kind of have to be that way to get something goin’,” Harvey said, thinking back to his own experiences as a software entrepreneur. “That’s why guys who are too-critical thinkers have a tough time getting the business started, ‘cause ‘it was never possible.’ “

  • “I do, but the reason I do is because he’s a rare combination of highly intellectually curious and humble. I think he really is open to questioning his own thought process and what’s really working, what’s not working.” “It’s like being around an academic,” said Dunlevie. “He’s got so many ideas spouting forth, I really enjoy talking to him. My fear is that he’ll outthink it.” “Yeah, that’s a possibility.” “This is more a balls than brains business, as we’ve said many times. I think having too many brains can hurt you at some level.”

  • All Internet stocks had a tough summer, however. By August 4, the Dow Jones Internet index had dropped to 44 percent below its record close of April 13. Amazon was down 60 percent; Schwab, 52 percent; AOL, 50 percent; Yahoo, 50 percent. The NASDAQ composite index officially met the definition of “market correction,” as it was off more than 10 percent from its high. Bob Kagle remained certain that Internet stocks had much farther to fall; reality could only be kept at bay for so long. He gave each of his partners a copy of Edward Chancellor’s history of financial manias, Devil Take the Hindmost, urging them to read it. Chancellor’s account of England’s railway mania of 1845 had made an especially deep impression on Kagle, who saw all of the similarities between the railroad, then hailed as a revolutionary advance without historical parallel, and the Internet. In both cases the technological change was as fundamental as its champions claimed, but investors’ enthusiasm about imminent opportunities to reap fortunes moved beyond the reasonable. All businesses must earn a profit in order to be viable; Kagle refused to relinquish this simple truth. When Internet stocks bounced back for two days in August, Kagle shrugged; it was, he said, a “dead-cat bounce”: Dropped from sufficient height, even a dead cat will bounce. None of his partners owned up to completing their assigned reading, but Kevin Harvey, who had been one of the most stalwart bulls in the group, now said he had the same foreboding as Kagle. “Companies are buying companies with Confederate money,” he said at one partners’ meeting, referring to the inflated currency of high-priced stocks. ‘‘I’m not a flat-earther, but companies are sold for two hundred million today that would have been twenty before.” “You’ve gone to the dark side,” said Bruce Dunlevie, horrified. The bubble would eventually pop, Harvey maintained. Bob Kagle reminded the optimists that in the venture capital downturn of 1983-84, annual returns had been in the single digits. “Didn’t have the ecosystem then,” Dave Beirne asserted as rejoinder. “The whole Valley is built around entrepreneurship. It’ll be hard to kill.” The present moment’s worship of the entrepreneur might be a bad portent, Kagle suggested. “You guys believe when somebody is on the cover of a magazine, they’ve reached the peak? Tends to be midnight at the party.” Two years previously, Beirne recalled, everyone he knew had said to him, “You’re at the top of your game; why be a venture guy? It’s already crested-there’s no more upside.” Obviously, that would have been bad advice for him to heed. Kagle did not agree. “It’s like the 1840s railroads. What I’m seeing right now is an environment where every company you fund will have a dozen well-capitalized competitors.’That’s why I think the Internet thing is going to eventually crash,” concurred Harvey. What all of the Benchmark partners could agree upon was that the ability of a company to produce profits remained the touchstone for a true built-to-Iast company, even if investors seemed less than concerned. EBay was the company that all were most proud of, as it was that rarity, a profitable Internet company. Even when investors treated eBay’s shares no differently from money-losing Amazon’sand on August 4 eBay’s stock was off 68 percent from its fifty-twoweek high–eBay remained the brightest star among the many Benchmark successes for that reason.

  • Amazon’s Jeff Bezos defiantly told the world that Amazon would be “unprofitable for a long time” ; his bravado in pursuing growth above all else served to reassure investors that Amazon was on course. Webvan’s Louis Borders, however, did not subscribe to the Bezos line. Borders publicly stated, “I don’t see any reason why an Internet company should take five to ten years to be profitable,” and in this way Webvan was philosophically linked to eBay. He predicted that Webvan’s first distribution center in Oakland would be profitable within six to twelve months. The only way that Borders could achieve profitability and at the same time pursue the grand vision of a national rollout was by enlisting the assistance of business partners. It was this task that Dave Beirne energetically addressed when Louis Borders was on the verge of resorting to scaled-down expedients in order to claim national distribution.