From: acquiredfm
The history of venture capital in Silicon Valley is marked by evolving firm structures, investment philosophies, and the personal journeys of its key players. A New York Times article from 1995 provides insight into the internal politics and dynamics of early Silicon Valley venture firms [00:00:02].
Founding Principles and Early Dissatisfaction
Around the mid-1990s, “resentment [was] in the air among the younger partners of venerated Silicon Valley Venture farms” [00:00:44]. This dissatisfaction often stemmed from the distribution of rewards, with younger partners feeling that senior partners were “holding on to the keys to the farm and all the economics” [00:03:09].
Robert Cagle’s Vision
Robert Cagle, a partner at Technology Venture Investors (TVI), was a prominent voice advocating for a more equitable structure [00:00:27], [00:05:07]. Cagle believed that “anything other than an equal partnership was just like morally wrong for a venture capital firm” [00:03:17]. His background, growing up in Flint, Michigan, as the first in his family to attend college (General Motors University, then Stanford Business School), likely fueled his sense of fairness and economic equity [00:01:06].
Technology Venture Investors (TVI)
TVI, known for its successful Microsoft investment [00:03:39], eventually faced internal strife over partnership economics [00:05:17]. Despite Bob Cagle’s agitation for an equal partnership, a resolution within the firm was not reached [00:08:06], [00:05:20]. The senior partners ultimately decided to “declare victory” and end the firm, managing out existing funds and board seats [00:05:29].
Dave Marquardt’s Investment Philosophy
Dave Marquardt, a key figure at TVI and an early mentor to Robert Cagle [00:02:29], articulated an investment philosophy that foreshadowed future trends. He believed the “venture business is an intensely personal relationship business and it’s not an industry that scales well” [00:07:21]. Marquardt emphasized that companies should handle “value-added services” themselves and that “the CEO ultimately is responsible and accountable for everything,” with VCs serving to support and be steady [00:07:29]. This approach was akin to the future ethos of Benchmark Capital [00:07:53]. After TVI’s dissolution, Marquardt went on to found August Capital [00:06:22].
The Formation of Benchmark Capital
The idea for a new firm based on an equal partnership model began to solidify in early 1994 [00:08:33].
Key Players and Their Journeys
- Robert Cagle: Driven by an “almost religious fervor” for equal partnership and a deep sense of fairness [00:03:14], [00:11:47], Cagle initiated the discussions to form a new firm.
- Bruce Dunleavy: A few years younger than Cagle, Dunleavy, who had interned for Cagle at Boston Consulting Group, was approached by Cagle in early 1994 [00:08:47], [00:09:56]. Dunleavy came from a different background, having studied English literature at Rice University before working in the PC industry and at Goldman Sachs [00:09:02]. He was a rising young partner at Merrill Pickard, known for his investment in Palm Pilot [00:09:45].
- Andy Ratcliffe: Bruce Dunleavy’s fellow young partner at Merrill Pickard, Andy Ratcliffe, also advocated for the equal economics idea within their firm [00:10:59], and later joined Cagle and Dunleavy [00:15:37].
- Kevin Harvey: Recognizing the need for entrepreneurial DNA, Bruce suggested recruiting Kevin Harvey, a former entrepreneur who had founded two companies, one acquired by Apple and another, Approach Software, which Bruce had invested in [00:16:04]. Harvey found the idea of joining a firm easier than starting another company [00:16:48].
- Val Vaden: The fifth founding member was Val Vaden, who had experience in venture capital but had moved into software company buyouts [00:17:12].
The “Equal Partnership” Model
The founding partners committed to an “equal partnership” model, meaning each partner in a given fund would have equal carry, and all current General Partners (GPs) would own the management company without having to pay for it [00:04:27]. This model was a significant departure from the traditional structures seen at firms like Kleiner Perkins [00:04:51].
Audacious Beginnings
The initial efforts to recruit additional partners were met with skepticism; many established GPs in Silicon Valley considered the idea “nuts” [00:14:00], preferring the established path of rising within existing firms like Kleiner Perkins [00:14:26]. With their “back against the wall,” the core group (Cagle, Dunleavy, Ratcliffe) had to make their venture work [00:15:00].
By the end of 1994, the five founders — Bob Cagle, Bruce Dunleavy, Andy Ratcliffe, Kevin Harvey, and Val Vaden — were ready to raise their first fund [00:17:41]. They chose the audacious name “Benchmark Capital,” signaling their aspiration “to set a new Benchmark for performance in this industry and how venture capital is done” [00:18:03].