Notes on eBoys

VCs are like an itchy sweater on a cold day. Startups need them, but dislike that they need them. Maybe I should make ChatGPT come up with a darker analogy. Because startups also resent the power VCs have over them. Less cute sweater, more hand holding the end of the leash around your neck.

eBoys does it’s best to shake that reputation. From a “writer-in-residence at (top tier firm) Benchmark, it adds color to what the partners were thinking as during the first dot com bubble. It has much less focus on “show me the f***ing money” than a cynical observer might expect. Perhaps because that makes less of a good story, but I‘m inclined to believe these factors were truly present in the day to day.

Evaluation of Risk vs Reward

The crucial factors to weigh for these investments are risk vs reward. On the risk side, their internal models seemed closest to the Personal MBA’s. Not a lot of consultant speak about Porter’s generic competitive strategies, and minimal talk even of Clayton Christiansen.

What is sometimes under the surface but always seems important is understanding the type of risk associated with a particular investment. In my world I think a lot about Market Risk vs Execution Risk. I had expected (mostly from A16Z podcasts) they would focus exclusively on market risk, but they don’t.

• There’s how broad the demand is — that gathers a lot of focus. Both with eBay but also a bunch of other companies they mention, the concern is whether people will want it. They look at market size and margins a lot. Interesting because Margins don’t come up as often at the execution level.
• There’s hiring the “right” CEO — centered around sales and execution. To some degree it’s also connected to the burn rate, which they also worry about.
• There’s will the business model work out — both will the demand be there, but also how the costs will play out. In the Priceline example and with NewWatch they worry about the suppliers (reasonably imo) they don’t spend much time on Porters 4 Other Forces They talk about the costs of inventory, of merchandise availability, basically what it takes toget customers the things they want.
• They don’t spend much time talking about competitive advantages and how they could be durable or not. They talk about it a bit with Scient, but they don’t talk a lot about competitive advantages, or how the importance of durability of businesses. Maybe they didn’t realize it yet — they thought first mover advantage was enough — or at least was enough to get them their money back.
  With their TriStrata there was a concern Atala was full of shit, but they got past that and it became a concern it would be mismanaged. Unfortunately for them, he was full of shit.

As the book progresses and the bubble heats up, Benchmark partners make an explicit decision to focus more on the upside. If there’s nearly unlimited upside, it shouldn’t matter so much what the downside is. Beyond upside potential, they looked for factors like Natural Momentum. This is what drew Benchmark to eBay and NewWatch (both of which turned out well during the book).

Bitter End of the Bubble

Knowing the future of these companies as described in “eBoys” is depressing. It puts into such start reality that most startups, even the winners don’t last. Most of the investments they dove into died a classic death: created in 1996, went public in 1998, and then exploded into oblivion in 2002 when the first dot-com bubble burst. Companies like Scient, Webvan, Viant, @Home, and Excite — once seen as the vanguards of a new era — all faced this brutal fate. The relentless demise of these startups is hard to read, especially as someone a couple of years into the software industry who can’t shake off the desire for their work to matter.

Even Ebay, the golden child of the bubble, feels diminished. To be clear, at time of writing has a market cap of 23 billion, which is nothing to be ashamed of. At the same time, profit margins that were such a source of pride and wonder in the book have steadily decreased. Worse, it’s been dwarfed by Amazon Marketplace. Amazon has far more Prime Subscribers than Ebay even has users. (I explored this more in How did Amazon beat eBay?)

Priceline did well through the dot com bust. They went public after it, and bought similar web sites, giving them power over suppliers through their massive user base. Benchmark missed the boat with them despite being repeatedly interested. Even so, while Priceline’s fundamental insight of “most people care about price of airline tickets, not the other stuff” has completely changed the industry, Priceline’s specific marketing gimmick of “Name Your Own Price” was retired in 2016. Priceline is now like every other travel website, which may be related to that they own a number of them.

General moroseness aside, it was an entertaining read, and I learned a lot. Not on my must read list, but I would recommend it as an easy read an simple lesson about the power of bubbles.