Peter Fenton on 30 years in venture, betting on open source & the AI supercycle

0:00 I have no doubt in 10 years we'll look back and dream about being here. What I also know for sure in the same breath is that we are going to go off a cliff. The bigger risk I face isn't that you're going to fail and we're going to get rid of you, it's that you get tired and you fall out of love. Any AI company comes in to pitch us, if they say they're not using Clickhouse, we're done.

0:17 I close my book because it's fucking irresponsible to not use Clickhouse. I've seen the Internet cycle come and go and social mobile. We made the Series A investment in the Facebook. The 20 year old entrepreneur Mark Zuckerberg. Then I went to Benchmark and we did the Series A and Instagram Snap. I

0:31 think the winners in open source, it's our view that they can build really substantial competitive advantage that will endure over many years.

0:37 I just sat down with Peter Fenton. We spent an hour Talking about his 30 year career as one of the most successful venture capitalists in Silicon Valley. We covered whether or not we're in an AI super cycle and his approach to backing some of the most storied companies in our industry. Please join me in this episode of Real Time. So Peter has invested in some of the most iconic companies over the last two decades. Companies like Yelp and Twitter and Mercore and Exa and Sierra and most recently Instinct as an early investor eight days before they raised their next round at $10 billion.

1:15 So pretty good one. So maybe just talk a little bit about your journey as a venture capitalist. You know you're the longest standing partner at Benchmark, arguably the most iconic firm in Silicon Valley. How you identify these companies at such an early stage and what you look for.

1:34 So yeah, I've been doing venture capital, working with entrepreneurs for almost 30 years and I was blessed to have been born in the Silicon Valley and my dad was an entrepreneur and he described these villains that would show up and European sports cars and wear fancy clothes and beat him up at the board meeting and, and he was a son, you know, you're. Yeah, either it's an Oedipal thing, I don't know what it was, but I thought who are these people?

2:06 They were venture capitalists. So at about age 12, the seed was planted. He then became a venture capitalist. And I think he said something very humbling to me. He's like, you're ill suited for most everything in life except for that job and you think you could be good at it. And yeah, in the 30 years I've seen the Internet cycle come and go and then social mobile, I was lucky to be at Excel when we were at the, we made the Series A investment in the Facebook was called the Facebook at the time with a 20 year old entrepreneurial Mark, Mark Zuckerberg.

2:45 Then I went to Benchmark and we did the Series A and Instagram, Uber, Snap, Twitter, it was series B. But the, and now here we are at the next sort of major cycle and nothing is really quite like this one. So I think Clickhouse is in a very healthy way indexed to the AI cycle, super cycle and we'll get more into how that can impact the business and what that means for like the boom bust nature of our industry.

3:12 But my role is to very simply just be a part of partner, part psychotherapist, part investor, part recruiter. Many of you I've had some calls with here to help convince and it's, it's a joy. I mean there's nothing quite like the creative destruction of entrepreneurship. And you know, you come to Berlin, there it's a little more porous in Berlin and Amsterdam. You go to places like Paris, it feels more suffocating. But the Silicon Valley is the epicenter.

3:45 It's not the only place, but it's the epicenter for this idea that every 10 to 15 years we create something that's an order of magnitude bigger, more impressive, more compelling and it's entrepreneurs and the people of these teams and everyone in this organization is an entrepreneur at some level and except for Alexey Milevitov who's a technologist. So we can get into that joke later. And so what we try to do is help all of you understand and contextualize that what feels like it's the first time you're doing something.

4:22 No one's done this before. Yes, it's only one Clickhouse. There's only been one company like this and these kinds of opportunities. But you're kind of like every other great successful company in the sense that you will be 10 to 100 times larger. My deep convictions. And I have a partner EV who said, you know, forgive me, you're going to regret me saying this. It's inevitable that Clickhouse is a hundred billion dollar company. And I said, well, how can you be so sure?

4:52 He said, well, you know, any company that's managing data system of record, that's got to half a billion in revenue, which is going to happen for sure this year that is still growing at 75% forward over 100% trailing has gotten to 100 billion every single time that people have done what you've done. So you think 100 billion, well, why not say a trillion? Who knows what the limits are? And so to be able to bring the experiences, the know how, the context of what it's like to go through each phase, we, we try to help ensure that you don't ever lower your standards of what's possible.

5:32 And I do think you're building a company that will survive. All of you and your grandkids will know about Clickhouse and to remind you you're on this adventure of a lifetime. And then our responsibility is to help you avoid the natural pathogens that can occur as you get bigger and try to avoid going off the cliff. And most importantly, just to have the time of your life. And so that job and being able to support entrepreneurs, doing that brings me endless joy.

6:03 So 30 years of doing it, I still feel like I'm at the beginning. And try to forget you ever read old emails, you go back and you think, I can't believe I wrote that. That's the story of my life.

6:19 All right, so we opened with a clip with you talking about open source 21 years ago. And you know, over the course of the two decades that followed, you invested in some of the more successful open source companies. Spring Source that got acquired by VMware Hortonworks, that at the time was a very successful open source company, elasticsearch, where you and I previously met.

6:40 Yeah.

6:41 And then when I called you in 2021 early that year, we had been talking about, you know, the market and some of the companies you were working with. And I said, you know, I think I'm going to start a company with Alexei Milovitov and behind the open source project, Clickhouse. And you'd seen a lot of these open source business models evolve and change, some more successful than others, you know, over the course of the, of the last two decades.

7:04 And a lot of people call Peter and would love to have him participate in their companies and invest and we didn't have a product, obviously we had control of this open source project and we had Alexei and this amazing team from Yandex on board and we had not yet closed Yuri, if you recall, he was still working at Google and I had not yet got him from no to yes. That took a period of time and took Peter's assistance in that sales cycle.

7:36 What was it about Clickhouse five plus years ago when I called you and asked if you would participate, that led down this path?

7:47 Well, it's a combination of variables inherently. We back people and we're not asset investors, we're human investors. And I'd known Aaron at Elastic and I'm really lucky to have met people who, you see them and the ARC and their growth. And I. And it always felt Aaron was, and this was like people in the Silicon Valley talked about Aaron and his inevitable greatness.

8:17 And you know, fortunately there's detractors too, who thinks he's, who think he's going to fill that. We use that as motivation. But when Aaron calls, you say, okay, if he's taking it seriously, we should take it seriously. So that was the trigger and what it provoked was then the curiosity about the surrounding variables. And I'd heard of Clickhouse, but I, but I hadn't really done any work on it. So we made a few phone calls. It was that we'd invested in a company called Uber, which of course the Germans made fun of the name Uber.

8:49 It's like calling your company A1 or AAA is a weird thing. It's the one country where you can't use that name effectively. But Uber was using Clickhouse, Ebay was using Clickhouse Comcast. And it wasn't just like a passive endorsement. It was people who had seen like the perfect math proof or poetry at the level that transformed you. And the, the descriptions were more vivid and more concrete than I had ever heard in open source.

9:25 And I heard a little bit of this elastic, but Clickhouse was another order of magnitude. So then the question, you know, of course is, okay, it's a Russian technology. This is before the war, but, you know, is there? So let me back up a little bit. One of the nice things about open source is that there's no way to fake adoption in open source when you have end users who are touching the code and getting joy from it.

9:50 Much of the industry has fake all over it, right? The dishonesty of pushing software. So this is as real as it gets. So to know that that reality is there and that Aaron was open to doing his next company and really being at the level where I feel like he had earned his capacity to lead a company, the question is, how do you then capture this value? And in that dynamic, I remember thinking we have a lot of lessons learned in the last time my 20 years of open source investing, one of the major lessons is you want your business model and your product model to be in harmony.

10:29 And it turns out that the cloud delivers that because consuming of Clickhouse and making it easy to consume and get value out of IT as opposed to having to deal with all the internal machinations of standing up a Clickhouse cloud internally and then managing it and scaling it, making it secure. You actually had alignment between value creation and value capture in the business model of the cloud. And then I asked a series of questions which didn't have a right or wrong answer, but from my standpoint had a right or wrong answer.

11:05 Would you go monetize the user base with a support contract? And you had been there and done that at Elastic. And I think the general view was why end up with a complicated diffused business model versus concentrating it? And the then question is, well, the core team, Alexei and these brilliant. Which by the way we can get into the capacity of Russian engineers is unlike anything I've ever seen in my life.

11:38 So you have this thermonuclear reactor of excellence of technology, but the packaging and delivering a large volume of enterprise customers required kind of a third leg to the stool. So Aaron and his team, best in the world at building the business of open source. Then there's the technology, which is why we are all here. And Alexei and his team, best in the world. So there's this third leg of how do you actually capture that value and have the equivalent excellence on product?

12:14 And so but Tanya and Yuri brought, they were there at the beginning, completed the picture and you know, it's sort of many versions of open source. We got some parts right, some parts wrong. One company I was involved with got very good at monetizing, very bad at product. Another one was very good at product, very bad at monetizing. So, you know, the broken clock was right twice a day. This time this company got at the start the foundations were clean and I think that allowed us to say, please, please let us invest.

12:44 Then there was the wild card of the parent company that took heroic effort on your part really to many things you do in life. What's easy today is hard tomorrow. And what I've admired about Clickhouse really in almost everything the company has done, it's chosen a arguably a harder path in the short term. Letting the open source community percolate, proving the technology before monetizing it. Getting a corporate structure that can endure and could support a large public company.

13:16 There's but there were so many off ramps the easy road that would long time, long term, like, you know, limit the company's potential. And at no point has the company done that that I've seen. And so we look back and say, okay, yeah, half a billion in revenue. It seems inevitable, but my God, There were so many scary choices and the courage of the company to think about where do we want to be in five to 10 years?

13:41 That is rare. And the companies that don't do that, it's not that they're failures, but they tend to be the acquisitions and something wrong with being acquired. But for anyone who was a founder who's come to this company, you're seeing it, you're seeing what excellence looks like firsthand that you carry with you forever. And I can just say from having been involved with too many companies, it is like 1 in 10,000 of the venture backed companies that do this.

14:07 It really is literally from a scale standpoint to get to half a billion in revenue, it's one in ten thousand, you're going to get to ten billion in revenue. Now you're like one in a hundred on your way to eventually being whatever, pick your number. But it is so rare. But it comes from those hard decisions that the company has made over and over again to do something that's long term, right? Short term hard.

14:29 So you mentioned Uber and I've got to ask, so Benchmark, the firm, as many of you know, is a near flawless reputation and has for my entire career over the last 25 years, with the exception of one anecdote that many of you have heard, which is the decision to replace a founder CEO to the degree that you're comfortable doing so. Can you talk about that decision, how the team arrived at that conclusion, how it was carried out and then looking back on that decision, was it the right decision at the time and was it the right decision in retrospect?

15:09 I mean, there's something deeply humbling about being in the venture business, which is that we are, we have no real control. And I think it's good that way. Like our board structures now, it's, it's nearly impossible to forcibly remove a founder. I think that's net good because we don't exist without founders. And so it's the, in a heliocentric universe, it's the founders and the founding teams that are the, the epicenter.

15:40 Occasionally and unfortunately you get to a place where the mission, the purpose, the integrity of the company is compromised. And you know, when I look at the situation with Travis, it literally is both trauma and pain to know that there could have been another way. And I have to always hold out the possibility that there is a way for that relationship with Benchmark and with Travis and his investors to have endured. But it got to a place where it was massively dysfunctional and you know, we have an equal partnership.

16:14 There's five equal benchmark partners. And when you watch your partner suffering and trying to do their best work and, and, and Bill came to the conclusion, it's interesting, it wasn't to fire Travis. That wasn't the, that's what people read about. But, but the Bill's conclusion was that we would not be able to manifest the potential of Uber with the leadership structure in place and that that meant addressing Travis in the role. I, I did play a role in that.

16:45 I, with my partner Matt Kohler, met Travis and asked him to consider stepping down. We didn't have the authority to fire him. He had the board, broadly board control, but there was no vote, there was no. And Travis chose to resign. Why did he do that? Well, 60 plus percent of the investor base had signed a letter saying they wanted to do that.

17:15 And so you think about what are all the steps. So the biggest lesson I take out of Uber was we failed, you know, and that that's a dynamic, a relational dynamic between Travis and Bill Travis and his board to develop Travis at the pace of the company. 200 billion dollar market cap company. There are many worldviews where you could say that would be a trillion dollar market cap company if Travis was running it. I don't disagree with that.

17:43 And honestly, I would love to see Travis and his new entity spread his wings and reach the full potential. We do have a Silicon Valley that's I think, colored by the great person, great man theory. And you know, Elon Musk is the current version of this, the ascendancy of an individual and the, and there's something heroic about one person doing all these impossible things, but that annihilates the reality that it's the teams that are doing the work.

18:10 And you can't isolate the individual without understanding the organization that makes them possible and successful. And, and so I think a lot of what gets lost in these dynamics is you have multiple executives at a company banging on the door of a venture capitalist saying, this is awful, you have to take action. And our ethic and part of what we do at Clickhouse isn't to serve an individual. As much as we love you and we love Yuri, it's to serve the purpose of the company.

18:41 And the purpose of the company is unbounded. And when we see self interest get in the way of the purpose of the country, we have to say something. And if we don't, we're just doormats. So anyway, none of this is meant to be a rationalization of what happened. It's tragic yet the outcome is a successful business. And I'll just say one last thing on this is when I joined the venture business in 1998, 1999, it was pretty common for a venture capitalist to say to a product founder, CEO, when are you going to get a real CEO?

19:14 You could never say that today, thank God. We used to have control and power when I joined the venture business and we could take action to say remove a CEO. We have that. No more. I just joined the board of Instinct. Instinct has a 20 now 24 year old founder. There's nothing I could do. I'm literally armless and legless when it comes to taking action. So. So I think that's fine. And my responsibility is I want the founders to look back at benchmark and the relationship and say this is the single biggest unlock of all the people that weren't co founders at the company reaching its potential.

19:56 We tend to outlive most executives. We serve on boards for an average of 10 to 15 years. Most people have four year vesting schedules. Some of you will stay at this company for 30 years and that's awesome. But the, the 99% likelihood is that we're there for the duration and we want to do that. My ambition is to do that with the founding team and, and my bigger risk by the way. And I say this is one last topic.

20:20 The bigger risk I face isn't that you're going to fail and we're going to get rid of you. It's that you get tired and you fall out of love and, and one of the things I built some awareness of is when I see a team start to get cranky, unhappy, subconsciously they start to act in ways that make them, they're manifesting their disconnect from the business. And so much of what I try to do is have you love your Mondays.

20:49 Like you're coming to work and you're saying there's no place I'd rather be. I'm more energized by the challenges, the opportunities and it's when those atrophy that what I think is the bigger risk is that you lower your standards, you show up. We've all been in relationships and many of us have been in relationships that didn't lead to marriage and kids and forever they were maybe on the way to get there. And you can look at when it's flourishing and what is true peak performance.

21:21 If we maintain that standard as your partners, then we don't ever have to have the conversation about prematurely selling the business. Or whatever, getting to a place where you've fallen out of love. There'll be seasons, there'll be months, sometimes many months, where you question the commitment. And my hope is that there's enough faith in the purpose that it gets you through those valleys, because the peaks that you're going after in this company are as high as any company that's ever existed.

21:52 You know, people ask me to describe Peter in a single word, which is very difficult to do for anybody. And the only description I've been able to come up with is extreme. And it really doesn't really do Peter justice. But I'll give you a few anecdotes and give Peter a little bit of breathing room to support this, both in terms of his personal life, but also in terms of his. Of his investing decisions. Because, you know, he invested in companies when it was just a concept.

22:22 I mean, Twitter, I think many of us just dismissed when it was first launched. And look at what it's become. Instinct, hopefully, will be another huge success. And there's a lot of companies that are now entering into this personal assistant category. And so a few examples of my interactions with Peter. You know, a few years ago, I was invited to an investor conference down in Big Survey, which is on the coast of California. It's about an hour and a half south of San Francisco.

22:51 And Peter said, I'll give you a ride down there. Just meet me at the San Carlos Airport, you know, at 2pm on a Tuesday or whatever it was. And I thought to myself, you know, I grew up in the Bay Area. You know, I know there's no airstrip in Big Sur. It's like this jagged, rocky, coastal extreme landscape. And lo and behold, I'm at the San Carlos airport. I see a helicopter approaching. It looks like a military helicopter.

23:18 And I could clearly see Peter's the pilot, and there's no other pilot. And I didn't tell my wife this because I could only I was kind of like, reading the headlines. And so he lands. I get in the helicopter with the. The CEO of Airwallocks, and, you know, I don't say a word. We. We lift off. We go down the coast and he. And he lands where? And I don't see a helipad. I'm like, where are we going to land?

23:44 It's like literally this steep, jagged, rocky hillside. And he literally lands on a roof of a house. And I remember thinking to myself, this is like out of a Silicon Valley episode, is one example. And I got an Uber home is how I got home from that off site. And the second is we have a, we have a board meeting in Jackson Hole, Wyoming, twice a year. Peter says, what do you. Are you interested in going backcountry skiing?

24:16 And I've been back country skiing a dozen times. And I said, yeah, I would love to. That sounds great. It was actually my 48th birthday. And he said, all right, we'll be ready to go. We're leaving like seven in the morning and this is the equipment you're going to need. I said, all right, I should be good. So I meet Peter and a guide, and eight hours later, we emerge from the backcountry of Wyoming. I think we ascended 5,000ft.

24:40 I, you know, I try to gut my way through a lot of things and as Peter said, like, a lot of the most rewarding things come with a lot of suffering and hard work. And that was one experience where I almost thought I wasn't going to make it out and would be. Would be calling Yuri and Alexei or you would be calling Yuri and Alexei and say you.

25:01 But by the way, testament to Aaron didn't complain at all. He just started going a little slower and then a lot slower and big smile on his face. This is awesome. So if you're having like a tough quarter and he's smiling, then you put the grit. You did it. And then went back. We did it the next year and he went faster than me.

25:22 I don't know about that. We did bring another investor who claimed to be able to keep up and struggled. All right, so I think you've been on record talking about the importance of San Francisco in some of the companies that you've invested in and just the broader technology industry. And I think there's a quote, something about 90% of your returns came from companies founded in San Francisco. I guess technically we were founded in the Bay Area, not in the city itself, but in Silicon Valley.

25:53 But obviously you know the history of the company. Alexei and I never met in person until we started the company. In fact, we didn't meet for over a year after we started the company, building shared merge tree. And so for the rest of us, myself, Mike Arno, we actually were out there trying to talk to open source users to understand these different use cases and think about once we launch this cloud product, which had to be highly differentiated, this is a very different type of company.

26:20 While technically we are headquartered in the Bay Area, we've got a big hub in Amsterdam. We have the Russian origins of the software. Over half of our employees are outside of the US that shows up in terms of our revenue distribution of our customer mix. So has this kind of supported this thesis where you could say Aaron this is a Silicon Valley venture backed startup. You're no different than any other company like databricks and you've stayed in the heart of Silicon Valley.

26:51 And most of your companies that I referenced, Exa, Sierra, Merkur, Instinct are San Francisco founder led startups. How do you think about our company by comparison?

27:04 Yeah, I mean what I would say is descriptive, not judgmental. Meaning the probability that the next trillion dollar market cap company comes out of the Bay area is over 90% just given historical. No, you could say the history is not a good indicator for the future. A more interesting way of coming at that is why. And you go to places like Berlin or Paris and the government's like we want to have a. I was on a run yesterday on a spree and it's a high tech innovation center.

27:34 I'm like good luck with that. You know the background of the culture not picking on the average German but the culture and the systems of an ecosystem are hugely influential in this shape and scale. The outcomes that are created in that ecosystem. Let me fold this back to Clickhouse. So the unique aspects of the Bay Area are evolutionary adaptivity. Meaning the Bay Area is the most likely to glom on to the next big disruptive creative destruction trend and create a giant company out of it.

28:13 This has been true for 30 plus years, maybe longer. Probably more like going back to the Fairchild era of semiconductors and Terman and in the 50s. Why is that? This is meant to be like evolutionary explanation for everything but it's environments that adapt have variance, selection and inheritance and the Silicon Valley eats its young. Like every one of these great companies is being plucking from the past generation successes.

28:46 Aaron brings a lineage of excellence out of Salesforce out of elastic. They're not fresh starts. So in a way the Bay Area concentrates this sort of adaptive massive capacity to learn and do something fresh with the benefit of know how with, you know the idea of if it's not working you move on to the next thing. So failure is not only kind of like healthy, it's the fertilizer for all the things that we do in the next generation.

29:12 And in the case of Clickhouse I think it does in my, in my rationalization maybe map to the logic which is the Barry is many aspects of how it makes success grander. One of the biggest is ambition success for Clickhouse. And I would say that we didn't know for the first few years. And I don't want to jinx you guys, but success is, it's way over 100 billion of value. Like the density of the gravity of probabilities is that if you're in a different geography, if you say that they think you're crazy.

29:49 Yeah, that's reckless. It's, it's arrogant, it's whatever you want to say. But I think in this case, being in the Silicon Valley ecosystem with, with your founding CEO, with Yuri, with your investors and saying like, that's the art of the possible. And we don't just believe that, we know that's going to happen. So you have that combined with what I think is most interesting in the case of Clickhouse, which is a global pool of extraordinary, extraordinary engineering talent and product leadership, not to mention the sales resources that go out across the region.

30:24 So you know what I would say, particularly on the engineering front, there's no monopoly in the Silicon Valley for great engineering. That's not what we've been known for. The Silicon Valley is great at pragmatism, taking great ideas, packaging them, scaling them. And so I think in a way Clickhouse has the best. This sounds like an advertisement, but I really believe this, the best of both worlds, which is deep roots in the Silicon Valley. So you are a Silicon Valley company in that regard.

30:54 Your cap table reflects that, your resources of people supporting the company reflect that. But you have this lineage and the chromosomes of the company. Forgive me for saying it, I mean, I should say Amsterdam Engineering, but the work of the Russian engineering teams, and now the global engineering teams are plugged into what they could never get in the local region. When Arkady came to us in these conversations early, he said, I want the world to see what we're doing, but because we're in a isolated system, we're being blocked.

31:29 It's like having a seed that doesn't have the right fertilizer to grow to the full potential. And the founding team took it out and placed it in an environment that has the heterogeneity of both global but also best in region. There's no better company to work at as an engineer than Clickhouse. In Europe, like, nothing comes close. And I'd like to believe the smartest students, I guess they're not at Moscow State University anymore, they're at the economic school that they should.

31:55 This is the company because they can be in Europe, they can be a first class citizen in Europe because this is a product first company. It's transparent. You can be anywhere and be plugged into the epicenter of the Silicon Valley. And if I didn't feel that way, if you said we're going to start the company, we're going to run it out of Amsterdam, I wouldn't have said no. I just said it's a missed opportunity to do something that integrates the best of these different parts into something that's a transcendent whole.

32:21 It's a unique superpower to have a global resource base of engineers and then have the ambitions and the DNA of a Silicon Valley company.

32:33 So another anecdote, and I'm going to kind of transfer over to talk about the Benchmark strategy in the shift recently, is that when we were starting the company, there were two investors who I wanted to work with. Peter was one of those two. The other was Mike Volpe at Index Ventures. And I typically, the way it works, as many of you know, is when an investor like Peter leads a round, there's an expectation that he's going to lead the round and that there's going to be certain ownership levels that as an investor you receive for taking that early stage risk.

33:11 And there are certain thresholds that most tier 1 firms in Silicon Valley will not fall below. It's just this unwritten rule. And when I called Peter and asked him to lead our Series A, I said there's one catch. You got to split the economics with Index and with Mike, 50 50. So you're both on equal footing and you both have to join the board. And I will not accept a substitute partner for either of you.

33:43 And if you don't want to accept those terms, that's totally fine because I'm sure you've got a hundred other companies that would love to have you. And Peter didn't hesitate. He, he immediately said, I'd be happy to work with Index and Mike on this opportunity and if this is a structure that you want, then I will more than happily support it. And I don't know what sort of selling occurred in the background at Benchmark for him to get his partnership on board with that structure, but it is a testament in terms of his kind of founder led mindset.

34:17 So where I'm going with this is Benchmark historically has been known as an early stage investor and they've again backed some of the most iconic companies in technology over the last 30 years. As a result of that, they have not typically followed on with their initial investment. Typically what you see with an investor is they want to preserve some ownership level. And so in subsequent rounds they participate in what's commonly referred to as their Pro rata to preserve their ownership level by investing more capital out of a different fund or out of the original fund that they invested in.

34:54 That's not historically been Benchmark's approach until recently when they announced the formation of their growth fund, which is a $1.25 billion growth fund. So help us understand, you've been at the firm throughout this entire period. Why the change in strategy now?

35:12 Yeah, we resisted it for many reasons that were, that became orthodoxy, sacred cows. They didn't really have first principles beneath them. If I had to articulate the first principles that we run the firm by, it's close partnership with a very small number of entrepreneurs and a flat small equal partnership. There's five of us now, we break at six, we break at seven, but at six we, you know, we start to get cranky.

35:47 And if we had to pursue a strategy that required scaling the internals of the company and getting into the nature of growth investing, it felt like it would destroy what makes Benchmark distinct in the ecosystem, which is this idea that when we invest in a company, there's a bright signal we would hope in that and we'll give our heart and soul. But again, that doesn't scale. So I'd sat in meetings over the last five years where we were looking at investments that we could not do given our structure.

36:24 We had a $500 million fund. The idea is you buy 20% on average. Of course not Clickhouse. Aaron's a good negotiator, but I actually think it was exactly the right thing to do for everybody. But we had Anthropic come in at $60 billion round and we had dinner with Dario and the door was wide open and we're like, well, how do we do this with the $500 million fund? And we want to serve on the board all these other things.

36:50 So, you know, that was repeated about a half a dozen times. Of course, we're in a super cycle, so those look like great investments today, who knows? And we can certainly talk about what's going to happen in AI. The conclusion, though, eventually came to we've earned the right as a firm to evolve our model not to create a growth fund, but to make a small number of commitments, call it 4 to 6. We write much bigger checks.

37:18 When the following conditions are met. There's a founder driven company and a truly iconic generational founder. We say that, but it's empirically visible. Second, you have runaway growth and triple digit growth at scale. And then thirdly, I think this is sort of eye of the Beholder, a really defensible position. A lot of companies have high revenue growth, great founders that are like, there's 10 that look like them, particularly in AI.

37:50 And when those things are in place and we have the sense that the company's like literally 1% down the path, we can tell ourselves that's a decade commitment we'll make. And we can do that four to six times over a period of three to four years. The first company, literally the first company that came up when we started this fund was this company. And I told you this and it was like, what about other. I'm like, it's so clear to us that you are building a company that is on track to be worth $100 billion on its way to a lot more than that.

38:22 And there's so much hard work between here and there. I don't want to again, jinx you, but. So then we reached out to Jimmy and to Aaron, and he's like, just wait. So I feel I have to earn that right. And I think historically we would have not done the Series B, Cs and Ds because it felt like just diluting our Series A investment. Right? Because you're putting money in at a higher price, you're guaranteeing a lower return on the total investment.

38:52 But occasionally you see things that come along and it happens, like again once or twice a year maybe, where we have a relationship, we've earned the right to. We have permission to make an offer. That conviction is deep at Clickhouse. And I'm not trying to. We have 60 portfolio companies now. I've got 59. They're going to say, what about us? But those criteria are in place, the founders here. And by the way, a lot of this comes back to the pace of innovation from Alexei and the team is vital to our belief in the business.

39:21 And the idea that Bashkev and the team of engineers that every day get up and they don't accept where you are as being enough. And I'm watching your peers, who shall remain nameless, grow fat, wealthy, complacent, entitled, and they're counting their money. They have none of this. And yes, they could fill 50 rooms this size with their employees, but they don't have the edge, the sharp knife that you guys bring to the market.

39:51 So we see that and think, okay, you're 1, you're 1% down the path. Just because, like, our first principles are small team, deep commitments, all that, none of them get violated. And our fund lets us do that. And if this, this is. It's a now $1.5 billion fund. We you know believe that there's 100x return in that category. There has been for the last five years and the ones that we could have done and so now the opportunity is to yeah just is to make it real.

40:21 And by the way if we fail, okay, so then we fall back to our core early stage business. But I think it's, it's just the nature of the way the venture business has changed. It's so radically different today than it was when I joined 30 years ago. Our peers have raised tens of billions of dollars and their desire to put money to work, my view weighs on their conscience. No one would say that but I think you get the sense of like well we got to put a certain capital to make the.

40:48 And where I think benchmark wants to avoid. We never want to feel that pressure instead be responsive to these once in a every few year opportunities and Clickhouse is one of them.

40:59 You mentioned are we in a hype cycle? Are we in a super cycle?

41:03 I have no doubt in 10 years we'll look back and dream about being here. Meaning at the beginning of the absorption of this economic powerhouse of AI and if you look at like broad numbers, $110 trillion economy, 50 trillion of that is knowledge work. We've created models that could probably impact 30 trillion of economic value and then come up with your sense of is it 10%, 50%, 100% better?

41:38 It is so much larger than we can fathom and so we're still at the beginning. What I also know for sure in the same breath is that we are going to go off a cliff. This is the nature of an industry that becomes supply constrained is that you start to create these bullwhip effects. So the chill and this is the only way to describe it that went through the financial communities yesterday was anthropic. Puts an S1 out there that's pristine.

42:06 These numbers are beautiful. It is a business that's working and it's working at scale and it's getting better. And their biggest providers, SpaceX, they didn't go up, they just so. So what is that? You know, why isn't. When we see the facts on the ground, doesn't the market respond well the markets has already anticipated that. So you have a sense of a really weird is the only way to describe it financial sentiment at the moment where the major indexes for things like memory and semiconductors, they're down like 30, 40, 50% in video which is just crushing it like no other company is crushing it it's up 15% this year.

42:47 So what gives? We're just at the beginning. Why aren't these things going 10 to 100x? I think there are a number of variables, none of which is like describing the systems behind weather. You have credit spreads that are expanding. So you have a number of neo clouds or inference providers. There's one in Europe that couldn't go public. There's one in Singapore going to go public. So yeah, I don't want this to sound like an advertisement, but the best place to be in a manic boom bust cycle is 1 degree removed, which Clickhouse is because these companies are all pulling your technology through.

43:24 But you're not in the token economy. Your business isn't the spread you're getting off of Amazon in your inference bill. You're consuming the technology, which is great and then you're going to get pulled through more and more by which I want to share some thoughts on which I think is is which should be relevant for your growth. But there will be a period where all these people who you know, feel like they've made billions of dollars say this as an aside.

43:51 I'm on the board of two companies with 24 year old or younger founders that are worth much more than $5 billion. And I'm not like doing this for the money. Thank God. 30 years of the that happens when you're in a super cycle. Young founders can get going. They can create extraordinary, unfathomable wealth and then history at least has suggested they're going to lose 80% of it and then they might be even greater than where they are right now in 10 years or five years.

44:24 That was the story with Amazon. It was the story obviously with companies like Netflix. My sense is that you have to believe and operate with the understanding that this is the biggest thing that's going to happen in your lifetime. The the and technology at least AI absorption into the broader economy. Clickhouse should be maximally exposed to it. We, we were talking earlier during the presentation. I think the level of abstraction has is moving across all industries.

44:54 So so everyone who programs has felt the level of abstraction go up to the terminal and probably goes up above that with technologies like Devon for observability. The level of abstraction I think may be going up to things like evals and benchmarks and reinventing an ecosystem through this process of creative destruction is the most exhilarating time in one's career that's going to play out for the next three to five years. If you study evolution and biology, I think There's a fact that is relevant to you.

45:25 When there's a speciation event, a new species emerges. 90% of the change of that species happens in the first 10% of its existence. So that's where we are right now. And you look at. I don't. We have an iPhone is a good example. Like the first iPhone versus like the fourth iPhone look different now. They all look the same. Okay, you have Duo, which is just a, whatever gimmicky phone. So if people like to watch certain forms of video, you reveal something about yourself.

45:55 So. But if I come back to the point of time you're in it like rewards maximum curiosity right now. Risk taking to try and see what works. But you have to make failure cheap. And one of the harder facts for many of our young founders is they're growing their revenue. And they're most of the people who grew the revenue really fast. Jev is a good type. Safe. It's the company. A good recent example. 100 million in revenue in 14 days.

46:26 All API revenue. And if you're a little older like me, you're like, what goes up that fast? And it's terrifying. And the beauty of the business you're in, people commit to put their data in Clickhouse. That's different than buying a token. If you put your data in, history suggests there's really hard to not put more in. In fact, all the inertial flow is to get more in, which means your accounts will grow and it will take years for people to get off of Clickhouse.

46:58 What I love about this business is unlike some of your competitors, you don't view that as a roach motel where you bring them in and then they, they're trapped. But you view it as a way to plug them into unbounded excellence in engineering. And, and I think if you do that in the backdrop of AI, so technology will grow. And you're indexed to technology to be a higher and higher percentage every day of the human planet.

47:24 And that benefits companies that are in your position. The forms that it takes are volatile, but they will all need a system of record and it will need to be fast. And all the attributes of what you're building into, the things that go on top of it, observability, the security, the obviously the analytics that fuel these applications. One other thing I'll say, and this is just sort of a running joke now, whenever any AI company comes in to pitch us, we, we ask the question, okay, you know, like, what are you using for your.

47:57 And before I can even finish the sentence, like, of course we're using Clickhouse and like it would. And as I said to some folks here, if they say they're not using Clickhouse, we're done. I close my book, I'm like, you know, because it's fucking irresponsible to not use Clickhouse. And now I got the problem with, with the Datadog customers and I go into these boards, I'm like, what are we spending on Datadog? And invariably I'll guess like, company's doing 100 million in revenue.

48:21 I said, I bet you're spending at least half a million. Like, no, we wouldn't be spending that much. They come back, usually sheepishly, we're spending $800,000. I'm like, you could be spending $80,000 on Clickhouse or better yet, you could be spending 800,000 on Clickhouse and have a much better business because you're going to be having all these new revenue streams that open up. The legacy competitors that you're up against are so juicy.

48:47 All right, well, I've got time for one more question. So we do a founder AMA tomorrow and every time I get the same question that gets upvoted to the top, which is when are we going to go public? And what's the considerations for going public and what's the economic profile of the company? And what's the trade offs between staying private forever versus building a public company like Amazon and Facebook that were built as public companies, they didn't stay private as long as companies do today.

49:16 How are you thinking about that in the context of maybe the, the market more broadly, the companies you work with, but a company with our profile.

49:24 Yeah, it's a very loaded topic in our industry because the incentive systems have created the value system. So if you have a large fund and you're taking management fees on it and getting carried interest on it, in some ways it's better for you if these companies stay private because you can pump money in and show compounding returns because there's not day to day volatility. And that's very attractive for many of the participants in the ecosystem. I think you have to ask the question of at what cost?

49:56 And Mark Zuckerberg told many of our CEOs who are on the precipice, we used to have them talk to him about this. What were the benefits of being public? And you know, he went public and mobile was not realized as a strategy. Their stock fell, I think 30, 40, maybe even 60%. He would tell you that that catalyzed him in a way that he couldn't have done it intrinsically. He needed the extrinsic signal of the public market to hold him accountable.

50:23 Okay, that's a punitive reason. I think the aspirational reason is over the long term, this I'm certain of. The lowest cost of capital is the public investor. You get put into index funds, you become part of the bedrock of the economy. Private financings are done with funds that are taking big fees and in a way curating your existence. And I almost want to say kind of farm raised because you're being fed by the high fructose corn syrup of people like us.

50:57 And at some point you want to be free range and have the sort of global access to capital and then hold yourself accountable to being in the trillion dollar market. Cap camp, okay, Anthropic is going to go public. There's probably in the next year or two we'll see a number of companies go public at over, over 50 billion. And I think that is the professional sport of the industry in the sense that you're now in the public eye, your numbers are public.

51:28 And the counter to that, and this is where I think it's relevant to the team, is before you get there, I think it's important that you all have access to liquidity and that you don't get penalized for being private by just having stock that you just sit there and think, okay, I don't know what it's going to be worth one day. The transition, once you go through it, it's obviously a one way door. The worst thing to be is we all know companies that are public that just sort of go flatline in the public market because they don't have growth or they don't have.

51:58 Yeah, it's just not fun because every day you got to look at your stock price and the employees sentiment goes up and down with that. So you know, if I have one point of view on this is when it's time. You know, in your gut it's like when you propose to Joe. You know, you just, there's a point where you say it's time and usually you feel that and I don't think you're that far off. I don't think it's healthy to pick a date yet.

52:25 And there are a lot of companies who don't hold themselves accountable to that. But so then what do you do? You start to do quarterly earnings calls because you practice that. And so when you're out there, you're like a first round draft pick going into a professional league where you, it's not the first time you've played and so you prepare for that. We, we obviously have a lot of experience. I've been on the board of, gosh, seven or eight public companies, and I'd say, you know, half of those, we probably shouldn't have gone Twitter being on that list.

52:56 So sometimes when someone wants to, like, you know, run into the burning building, like, oh, hold on, let's wait. But what I believe, and I think this company has demonstrated that at each step of your evolution, you've thought about it systemically. And so I think Our valuation carries 10 to 100x today for investors coming in. I think if you're public at a meaningful step up today's valuation, you'd still have the ability to say that. So if you wait too long and then your growth rate flattens, you look like going to Oracle.

53:29 How exciting is that? And, yeah, so for investors coming in for employees and all that, it's the warmed over mediocrity of midlife, it's the pathogens of age, all those things, and you're still so young that you have a bright future ahead.

53:44 All right, well, on that note, folks, please help me in thanking Peter Fenton.

53:50 Thank you. Thank you.

54:01 All right, well, I know people are standing up. I mean, it's Peter. I don't know if you can kind of recognize this sentiment that is in the room, but it's pretty palpable. And just looking at people's facial expressions during that, I think you can all appreciate how lucky we are as a company to be able to work with an investor and a board member like Peter is so hands on and has met with so many people in the room and has been so instrumental in helping shape and grow our company and hopefully will be for many years to come.

54:34 So again, please help me, help me thank Peter for his time. Hey, it's Aaron, co founder and CEO of Clickhouse. If you enjoyed this conversation,

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