JP: Krishna, why launch a company now?
Krishna Subramanian: There’s tremendous talent around. There are always people looking to leave some of these larger companies that are really talented, and they have been almost like in a cave, just waiting to explode.
I mean, if you’re going to do it, you might as well do it now.
Dave Goldberg: [Until] probably a year, year and a half ago, capital was cheap. It made sense to take that money. But the capital being cheap made everything else expensive. And so talent, real estate, advertising, and anything you needed to do to build your business was really expensive. Everyone had access to cheap capital. And now we just flip that around. What these guys are saying is that everything else now is cheap. You probably can negotiate to get free rent if you really need it.
JP: You’re not going to raise capital?
DG: I’m not going to raise venture capital for this business [developing an online music-licensing system], because this business doesn’t really need that expensive level of capital for the scope of business that we’re trying to build.
A year and a half ago, would I have taken it if it were cheap? Probably. You have to be able to be flexible about these things. But I’m happier this way, because everything else I’m doing got cheaper, so I didn’t need the capital.
JP: So every single one of these people–including Leah, who has gone to work for a larger company–isn’t raising capital. No one wants your money, Steve.
SL: That’s not true!
JP: Well, Sol wants your money.
Leah Culver: If this is a scary time for VCs when it comes to the consumer Internet, right now is the best time ever for developers. Open-source software has got to the point where you can build highly scalable systems. Cloud computing is cheap. Everyone from Amazon to Microsoft is now providing cloud computing, and it’s awesome. So for the consumer Internet, it’s really been like this great, great thing. Everything is so cheap. And how are the VCs feeling about that?
SJ: We’re finding that we’re writing a lot of smaller checks for the Internet companies, and that’s great. We actually like that.
JP: One of the most striking things about this market is that liquidity events, the exit strategies for which VCs look–initial public offerings and acquisitions–are very uncertain. How do VCs manage their investments when they don’t know how they will get their money out?
SJ: There are two layers of difficulty. It’s the worst time to be forcing a sale of a startup, which you couldn’t do if you tried. You shouldn’t be seeking liquidity just for its own sake. And then, within the venture firm there could be a separate problem. … You’ve drawn down all the capital that was available and yet you’re still waiting for those IPOs. There’s a triage exercise some firms are going through.
DG: This is the more fundamental problem in the venture business, and it affects the investment strategy. It’s not just at Benchmark. A lot of firms at any other time would already be public–great firms, profitable, growing nicely. But there’s no public market for these firms. And so you’re left with an M&A [mergers and acquisitions] decision which may not be there. … This might be the time we lose a lot more of the weaker [venture] firms.
JP: [Looking at the entrepreneurs] Do you think about exit strategies at all?
SL: We think about the exit strategy all the time. You need to have a goal in mind, you need to visualize and think about it every single day. However, the value creation happens on a day-to-day basis. We really actually focus on doing our job day to day.