The Contrarian VC with Jeremy Levine of Bessemer Venture Partners

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April 21, 2022

On this week’s episode I chat with Jeremy Levine, a Partner at Bessemer Venture Partners. Bessemer has been around for over 100 years and was originally founded by a family that partnered with Andrew Carnegie back in the day.

Jeremy has been at the firm for 21 years and has seen a few cycles. He’s a hell of an investor and has quite the track record. He’s been on the Forbes Midas List and his investments include the likes of Yelp, LinkedIn, Pinterest and Shopify.

If you’re interested in how the VC industry works this is a great conversation for you. We cover how Bessemer operates, how to be a good early-stage investor, the impact of macro trends on the VC landscape, Jeremy’s point of view on contrarian investing and much more. Enjoy.

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Transcript (this is an automated transcript):

MPD: Jeremy. Thanks for being here today, man. It's

Jeremy Levine: great to be here. Thanks for having me.

MPD: Very cool. So starting off at the top, can you give us an overview of best.

Jeremy Levine: Sure. So Bessemer, we think of ourselves as a venture capital firm, we've been rafts for the Royal we 110 years. We were started by a guy named Henry Phipps who was part of the Carnegie steel.

Launch and success. And he set out to invest in other high-risk high growth companies back in the early 19 hundreds. And we are essentially a continuation of that over many decades, eventually evolving from manufacturing technologies to information technology. We have offices in the U S and Israel and India and China, Europe.

We invest in everything from twenty-five thousand dollar angel style investments to multi a hundred million. There's equity investments. But most of what we do is series a series B series C venture capital. And we will often do it.

MPD: When you say you think of yourself as a venture. What's the subtext there.

Jeremy Levine: It depends on how you define a venture firm, and so I think of a venture farm as doing series a series B in serious investments. I don't think it would venture is writing, a hundred million dollar checks. I don't think of a venture Tom as writing angel checks. I don't think of a bunch of farmers is doing software buyouts.

Can we do all this? Most of what we do and what we're most well-known for are the classic venture capital investments make a significant million dollar million to $15 million investment to buy 15 to 30% of a promising idea, very early stage company. That's most of what we do, but we do a

MPD: lot of other stuff too.

So when you guys do the other stuff, the non traditional venture investments, is that the same team or who's doing that? Is it.

Jeremy Levine: Yeah, so we take we describe as a crawl walk, run approach, almost everything we do. And years ago we never would've contemplated in a hundred million dollar investment.

And then one of our partners at one point said, wait a minute, instead of letting some great growth oriented firm, come in and write a hundred million dollar check to one of our best companies, why don't we write the check? And and we started, we didn't do it necessarily with a hundred million dollars the first time, maybe the first time it was a twenty-five million dollar check.

And then the next time it was a 50 million check. And so we slowly crawl and walk our way into something new. And so it almost always. Starts with, in fact, not almost, it always starts with one of our existing partners extending what we've just done in a slightly new direction. And sometimes that feels like a 90 degree left turn, and sometimes it feels like a 70 degree, slight and redirection from where we're otherwise heading.

And if it works and we feel good about it and decrease our conviction, we'll do it more and eventually even bring on a whole team of people dedicated to that. But at first it starts with someone on our core team. Comfortable and excited about it.

MPD: We're an interplay we're going through that same evolution right now.

We're raising our first opportunity fund with the concept that, we're handing off, we're handing off some of the deals that we'd like to put some more capital into, but it seems we had on the show a long time ago. And Greg craft has built a pretty robust growth fund at this point where they're doubling down and writing bigger checks.

It seems like once you wet your appetite for larger checks, a lot of people have trouble going back. The smaller checks become, I want to say irrelevant, but less critical, right? To the financial performance of the firm. Have you found that you guys have shifted increasingly towards the larger checks or you've done them as one off, but the passion, the heart is still in the early stage.

Jeremy Levine: Yeah, I think the passion and the heart is still very much early stage venture. I made it's where we've made most of our returns and it's where we've gotten involved with most of the best companies over a long period of time. And so it's also the case that for us, we do have a separate, dedicated funds across investing.

And we've had that a couple of those now, 90% of the gross equity investments we've made. I have come into companies that were already, our portfolios from the early stages and frankly, growth investing is insanely competitive prices are high. It's a really tough way to make a living these days, if you ask me, but if you're already an investor in companies, because you happen to get in at an early stage.

You're not having to compete on a true arms market basis with every other growth equity investor. When those companies are looking for more capital, because they already know you, they already trust you. And frankly, you can get in and even contemplate maybe slightly smaller financing four months before they would have otherwise hit the market.

And that's most of what we've been doing with growth, but you can't do that unless you have a really robust. Practice that feeds those growth opportunities. And so for us, it's always been the tail and the dog as has been the venture business. And letting the tail wag the dog just doesn't work.

MPD: There's a little bit of strategic wisdom in there potentially for LPs.

I don't know if it was intended. The idea that when you're evaluating growth stage investment firms, finding the ones who. Have existing relationships through an earlier stage vehicle might have an unfair advantage. Has that been born out anywhere in data? Any numbers to support.

Jeremy Levine: Yeah, I probably my guess is not because if you look in the rear view mirror and what's happened, if you were any kind of growth investor for the last 10 years and didn't do really well, then you're a fricking moron because the market has gone up so dramatically every year in each of the last 10 years up until 2022.

And to be getting a better than market clearing price as a growth investor, which you've done really well because the market clearing price in 2013, went up by 20%, 2014, and again, in 2016. So even if you paid above market prices in 2017, you still did really well because the market just kept going up.

So I think looking at data to understand the importance of this on a look back basis is irrelevant on a go forward basis. I think it will be different. Interesting.

MPD: Okay. Now, does your firm manage outside capital? I know you guys had like an evergreen thing. If I'm not mistaken in the big.

Jeremy Levine: W what's the contract?

So our largest investor is Bessemer securities corporation, which you could think of as the family office of the chips family. And then we, the folks who work at Bessemer venture partners are also supplying and Lamar to capital. But now for about the past 15 years, we've also had other limited partners who represent a range of charitable foundations, universities, pension plans, and so forth.

And so we have a, what I call a traditional looking set of LPs that compliments the original LP Bessemer securities

MPD: money is the goal though. Expand the outside LP base over time. You guys have is our

Jeremy Levine: trajectory here. We've grown, I've been a pastor man for 21 years and we invested, on the.

A hundred million dollars a year when I first came here and now we're investing in something closer to a billion dollars a year, maybe a bit more. And so we've had to extend our capitalism in order to support that. But our basic, when I first joined Bessemer, we had maybe six active investing partners today we have 22.

And so our basically. Premise is well two-fold. One is to keep growing or will die. Like our request also notable is that we have 22 active investing partners in 17 of the 22 grew up at Bessemer venture partners. So one thing we've learned to do really is we've learned to grow partner. As opposed to just hire partners, most firms aren't industry, hire partners, whereas everyone at our firm for the most part starts as an analyst or an associate.

Typically I call it the puppies right out of college at school I, myself as white. And so I'm a product of this system. I'm really proud of this is I think it works. But not only do we use that system to find our next partners, but I think we also find many of the next partners for other firms in the venture.

And so to put it into perspective I haven't done the math, but I bet you that we've exported more partners to other venture capitalist firms than every other venture capital firm combined. And just off the top of my head, Sarah tablet benchmarks started at Bessemer. Chris Dixon. Christina Shannon started at Bessemer there at Andreessen Horowitz.

Now he's at Excel now. Mitchell, not Mitchell green and Brian died, or they started their own multi-billion dollar ventures. They both started at Bessemer, Larry Chang, if Alicia and he started with Bessemer Lisa LeWitt at Norwich, she started at best. I could probably go on for 15 minutes and just name all these partners at Anaconda CRVs.

You started at Bessemer. And so one thing that's one really knows how to do is develop young people into career venture capitalists. It's a fantastic place to grow up. So that's the core of what we do. As we grow more partners, our goal is as long as we find folks who have the work ethic, intelligence and judgements to be good investors, and we want to make sure we have enough capital to support them in making additional investments that supplement a conflict with the rest of the.

And so if we keep finding more people to be partners at a faster rate than others of us retired, we could go from 22 to 30, two to 52 partners over time. And some folks have criticized that idea and said wait a minute, like, how are you going to scale a venture firm, 52 partners? And in my logic is we don't have in space.

High market share of all the best deals today. We do plenty of them and we have great performance and we're proud of that. But but it's not like we have 85% of the best deals we do. And so if we can keep adding more partners and getting more of the best deals out there we're thrilled to do it.

So that's our general mentality. We'll keep adding capital to support the partners we have.

MPD: But Jeremy, wait a second. How are you going to scale a venture for him by adding more partners? I'm just kidding. That's the question you said people are asking you. Hey, but for real quick, real question with. There is an operational constraint when you add a lot of partners, right?

And you're 22, you're already way past it. Small firms, when their partners are in a room, they can all put eyes on the same deal. They can all evaluate it. You can have a healthy conversation between two, four or five people. How do you operate with 22? What's the decision-making process for investment.

How do you communicate between the partners? Is there silos or sectors or what's the construct that makes us float?

Jeremy Levine: So our system requires and encourages massive independence and autonomy. So we don't have a person or a pair of people who sit in the corner office and make all the decisions.

We've got 22 partners who make decisions independently and autonomous. And then we hold them accountable. And so over time you make a series of really good decisions. You become a full co equal partner in our firm. And if you have a series of decisions with data turned out to be bad decisions, you will you'll find your way to the exit door.

So we don't have to have, because we don't have to have one or two people making all the decisions. We can keep scaling out as long as people continue to exercise good judgment. And of course, when you're a brand new partner, you invest a little bit less capital and have a little bit less freedom than once you're have a proven track record, but that's our system.

And so we encourage people to think really independently to get feedback and criticism from their colleagues so that they can make a really good decision. Asking someone else would a good decision. As in fact, I'll tell you an interesting anecdote. So we had a, an association with John just a couple of years ago, shortly after the pandemic.

And she had come from another investment firm and in about 30 or 60 days, For a time at Bessemer, I did a sort of a half an hour zoom catch up with her just to ask her, Hey, how's it going? What are you finding different or interesting about Bessemer? And she says to me the, this thing that just stuck in my head and she said you can't believe how honest the investment memos are.

And I was taken aback. I said honest, like where you used to be, like they lied in the investment memos and yours. No, it's just that where I used to work really there was a committee, it was a small committee with the people who actually made the decisions. And so when you made an investment memo, you were asking the committee for permission to interview.

And so not surprisingly, the demos were like sales documents and sure. You'd write what you thought were the downsides and the risks, but you would totally sand them down and gloss over them because if you accentuated the downsides too much, you get rejected by the committee. So you're essentially running a sales stock.

Whereas the Bessemer, we really empower individuals to make decisions as part of. And like I said before, we hold them accountable. But as a result of memos are truly intellectually honest and they say, here's on, I want to make this investment, but here's all the great things about this opportunity. And here's the stuff that scares the crap out of me.

But I want to do it. And so what do you think? And then they get feedback from the other partners, which can be super critical. Very rarely does the group ever say, no, you can't do that. But quite often it'll the group will give us critical feedback that the original sponsoring partner will say, wait a minute, maybe I don't want to do this.

And so they'll actually get permission to make the investment, but then they'll turn around and say, you know what? I changed my mind. And I've decided I don't want to be forward here.

MPD: Now. It sounds like you guys are quantitative. Is there some sort of formula for evaluating. Or measuring or determine how much capital a partner can employ deploy.

Jeremy Levine: There's not a formula, but there's a we because we're w we've you know, when I joined Bessemer, we were about to 20 some odd employees. Now that farm has about 150 employees that have started from the bar. And so in order to manage the company, which is Bessemer venture partners, we've had.

Invest in infrastructure and processes and systems and committees. And so we have no CEO. We have no managing partner. It's a group of equals, but we all can't be involved in everything that would break down pretty quickly. It's like having an orchestra with no conductor, but we don't, none of us want to work for somebody else.

And so people very rarely leave voluntarily because it's a great place. You don't really have. But in order to run that kind of an organization, you need processes and systems. And so we do it through committees. So there's a. I'm not on the committee. I actually don't remember who's on the page, which also shows you how flexible and free willing it is to some extent, but there's a committee that ultimately steps the capital budgets per partners is here's the ceiling of how much capital you can invest.

Now you can appeal for more. And if you're doing really well, you'll get more. You can also team up with others to share responsibility on certain investments, but that's basically

MPD: how it works. Interesting. Now you mentioned that you guys are really good at growing and developing talent. Any wisdom insights in there for other VC firms, but also more broadly for anyone listening.

Who's trading.

Jeremy Levine: Yeah, sure. Yeah, I think the main is there's a few things. One is you have to attract really talented people in the first place. If you can get really talented people in the door, it's much easier to grow new partners. And so then the question you ask yourself is what are the preconditions to get the most talented people to want to come work someplace?

And the answer I think is first and foremost, The potential for them to be in charge one day. And so if you've done a work someplace, you've seen, there's a CEO, particularly a CEO whose name's on the door of a company. Like they're always going to be the boss. You are always working for the man or the woman has a baby in venture capital.

These days, it's mostly men, but hopefully over time, it also be the woman. But most really talented, really ambitious people don't want to work for somebody. And so the first thing you have to demonstrate is actually, if you come here and learn and succeeding, bro, you can be the man or the woman.

You, you can be a true coach, equal owner stakeholder at the table. And in order to make that believable, you have to show examples of other people who've done it. And I view myself as example. I joined Bessemer at age 20, something like middle to late twenties in 2001. I had no ownership of the firm.

I had no venture capital experience. I had no carry anything investments that I made or other people made. I wasn't necessarily trying to learn the business. Now, 21 years later, even though I didn't start the firm, I wasn't there. It existed for 80 years. Even before I joined now, the ownership and management group of partners.

Yeah. And I'm not the only one, my colleague Byron Deeter joined in that fashion and grew up my colleague, Brian Feinstein joined in that fashion. He grew up to be one of the partners and on down the list. And so as a prospective analyst or an associate. That the storm, doesn't just say you have a chance to become a true Coby.

Cool. But there are in fact, 17 of the 22 partners all started in the same way you are and grew up in that fashion. You believe it. And they say, okay this is interesting. I don't have to just learn the business there and then find the courage to go start my own thing somewhere else. And that's how we get to this top organization.

I can actually grow all the way through the. That's hugely empowering and motivating to the right kind of person. So that's the one thing we do, I think we do, which I think is really interesting and unique is we allow our young professionals to invest their own money in the investments we make.

And my dad used to tell me growing up that, practice makes perfect. If you want to get good at anything, you have to practice it and practice it. The problem in the venture business or any investment business, really, if you're a young professional, is that you spend a lot of time.

Recommending what you would do, but not actually deciding because you aren't the decision maker who is typically a partner for a committee, that's going to make the decisions. And so if you really want to get good at. If you ultimately want to be good at making a decision recommending is indirect practice.

It's if you want to get good at the three point shooting in basketball, but you took lots of foul shots. You'd probably get better at three point shooting, but you get a lot better, a lot faster if you actually just took three point shots over and over again to my practice makes perfect.

And so at Bessemer by, by allowing each of our individual professionals to invest their own money in each investment we make over the course of the year. If the farm makes 40 investments, those young professionals are making 40 actual decisions. With their own checkbook out of their own bank account on how much money they're going to best and believe you me, we all tend to remember loving the really great deals in hindsight.

And we all tend to remember them not liking the ones that didn't work out that much. But when you have a record that you have to look at yourself of what you wrote in terms of a check to invest in a certain deal, you can't remember incorrectly anymore. It's sorry. I really love that. Why did I raise such a small check for no check at all?

If I really didn't think that was a good deal. Why don't I write a big check? And so we have all these systems to hold ourselves to account to what you really thought as much as you practice doing the job. And even though making a decision, which you know, for a young analysts might be about whether they're going to invest $300 or $500, we'd give a deal.

Whereas the season partner might be making the same decision where it could be $300,000, $10,000. The fact is when you're investing your. You tend to learn lessons much faster than when you're simply making a recommendation about what to do with somebody else's money. It makes a big difference. That's a really

MPD: interesting dynamic you've set up.

Why have why should founders take Bessemer's money? This is the underhand pitch.

Jeremy Levine: Yeah. It depends on there. Isn't really one Bessemer. The other thing that's really fun. And to me is that. At Bessemer, we accommodate almost any style. We have a, no, a no jerks or no assholes policy. But other than that, you can be super extroverted.

You can be super introverted. You can be really intellectually, all of us are intellectually curious, but you can be really. Bottoms up and spot where you want to invest in how we can be very reactive. There's lots of ways of that we accommodate with the styles. And so for an entrepreneur, if you want and are compatible with a given style, you'll probably find that among the various partners at Bessemer, but we don't try to force.

A particular approach. It's not my business anyway. And part of that is because we've been geographically distributed, so such a long period of time. We're not all in one office, drinking the same flavor, coffee, and using the same language over and over again. We do have some common beliefs in Tennessee.

That we and values that we hold really dearly, but we then accommodate a really broad range of self. So one thing is you're going to get something that's truly custom tailored to you as an entrepreneur. And if you find your match, you really enjoy it. If you don't that's okay. The second thing though, is that we tend to be really roadmap for you.

We talked about this a lot internally, and so we tend not to be all that reactive to what's happening in the market, but rather we do what we even think of as a bit of an ivory tower exercise where we'll spend six or nine or even 18. Just researching an area, trying to develop a series of hypotheses.

And then we often will proactively reach out to companies in the areas that we're interested in, as opposed to waiting to get inbound deal flow and people knocking on our door and we'll, and even when we do get referrals and inbound flow, we'll have already articulated all the reasons why we like, or don't like a given area.

And we'll talk about that with an entrepreneur and bring real expertise to this. And when they suddenly realize we know a lot about their business and their industry, because we researched it for weeks or months in advance, they tend to really like that. And so we, and then the last thing I'll say is we're not operators, some of us are, but most of us are career.

And in my mind, particularly when you're pairing up with a venture capital firm, you end up essentially selling a part of your business, typically a minority part of your business for some capital, but you're also selling some engine limits. And so you're bringing on a partner and you're agreeing to work with that partner in partnership.

And oftentimes that manifests itself in the form of a board seat. And and so you're in some sense, selling, it's not really this crass in reality but if you blow it on, you're selling a board seat to somebody. And my argument is if you're going to do that, you want to do that to someone who's going to compliment you not supplement you.

And so I'm never going to sit and tell an entrepreneur, oh, when I was in your shoes and I had to make this decision, I had to deal with this HR issue or deal with the strategy. This is what I, this is what I did and this, therefore, this is what. I don't say that because I don't know that I'd never sat in the entrepreneurs, see world war, his or her shoes.

But what I do say is here's what I've seen other people do. And more importantly, let me connect you to three CEOs that had to make that exact decision. And then you can see the three flavors of how to do it, and you can pick what's right for you. And having somebody who's more neutral or Switzerland give you that advice, as opposed to someone who says this is how I did it.

And therefore, if you, the entrepreneur just had to do it a different way, you're challenging and ignoring the advice that you're getting. Some of you are investors in someone to whom you effectively sold the board seat feels really uncomfortable. And so I think the other thing that I like to tell founders is you want to get operational health, mentors and guide.

But you want to get them on your terms? Not on someone else's terms and by working with folks who are purely investors, who just want what's in the company's best interest, don't have a bee in their bonnet about how to build your company, because it's your company, not theirs, it will serve you well. So those are a few of the examples I can go into too many more, but but that's what makes Bessemer just think that maybe I'll say one last thing, which is, I mentioned this earlier, we really empower the individual partners investment.

You make decisions. So when you're as an entrepreneur, working with a partner at Bessemer, you can talk to them, understand what Bessemer thinks, because it's what that partner thinks. You don't need to wait for them to go back to headquarters and ask the person whose name is on the door of the company to say this is what I think, but is that okay with you?

And then, go back or have to wait until you can go back. And and find out what the real answer is from Bessemer, because you had to wait to get to the, your partner's boss or the Judases maker, and that's refreshing. It makes for really quick, efficient dialogue and real partnership, as opposed to thinking that you're dealing with the service sales agent who has to go back to the CEO and find out what the true answer is.

MPD: Jeremy, you've been in this space for a long time, 21 years alone at Bessemer. How did you get here? What was the path for you from childhood onward? Yeah. Is it a straight line in the rear view mirror? Was it a from childhood again now? I feel like

Jeremy Levine: I have to lie down on a couch to answer this question.

So I guess I was always super into tech and I laugh cause we, we hire analysts out of college every year. And I think in, at many of the top schools where we through something like 350 or 400 students these days and a typical college class for computer science majors when I graduated from duke in 1995, and there were 12 computer science majors in my entire class, 11 of them were men and one was a woman and most of them were really strange present company included.

This just wasn't a thing. And but I ended up after college going to join McKinsey where I was charmed by the extremely articulate people. There's lots of fancy. And then after that I tried my hand for two years doing private equity investing, which was then called leverage buyouts. And that was interesting for two years, I learned a lot about money and finance, but but it was unappealing to me on a few dimensions.

So then I tried my hand at a software startup and to do that for two years and realize how hard it is actually build a company. I wanted to go back and be an investor. And then Bessemer was my fourth job for two years. At which point my father was a doctor thought something was very wrong with me.

Cause I couldn't hold a job down to one, two years, age 19 when he was going to do for the next 60 years of his life. And so I'm now my fourth two year job stuck. I really enjoyed it and I was pretty good at it. I was also in the right place at the right time and I've been there for 21 years. But my advice, anytime anyone asks me, I get lots of 20 somethings reaching out about like, how do I get into venture capital?

Or what should I do? My advice that I give to almost any young person is try the most interesting job that you can get for two years. And if you love it, keep doing it. And if you like it, but don't love it, try something else and then try something else. And when you're early in your career, And the friction costs of moving from one job to the other is pretty low.

And you can find what you really love. There were a lot of things I liked about my first few jobs, but I didn't love any of them. And if I hadn't had the courage to keep trying something new was fire was painful. You have to start over each time. I think in my third job, I was making less money than I've made in my first job.

But but I. The long game, that wouldn't really matter. What matters is finding something you really love. And if you find something you really love to do, chances are you'll be successful at it. And chances are, you'll be richly rewarded for doing it because you're more likely to be good at something that you like doing

MPD: successful.

Indeed. You've been on the Forbes Midas list. You've been involved with Shopify, Pinterest, LinkedIn, and many other incredible companies. When you look back at. Your evolution as an investor. What has been your superpower when it comes to investing? What has served you.

Jeremy Levine: No, there isn't really one big thing.

I think there's lots of little things that matter. I'll give you a few examples of easier if there were sort of one thing one thing is like I don't spend a whole lot of time with other venture capitalists. I think that's mostly a waste of time. Everyone wants to like, what are you working on?

What's interesting. And if you're doing what everyone else is doing, or you're usually on the spot with everyone, else's. You'll never find compelling and contrarian ideas. And that's where all the money's made