Bill Gurley is a General Partner at Benchmark and Michael Mauboussin is the Head of Consilient Research for Counterpoint Global. We cover their thoughts on the development of AI, what the VC industry should be doing differently, and what it's like to work with a genius.
Principles & Lessons:
1) Appreciate AI’s distinctions and avoid overhype. In the transcript, Bill emphasizes, “You have to separate LLMs from AI… a lot of what we've gotten excited about are LLMs.” He cautions that while large language models can seem transformative, they’re not a panacea. He points out, “When people say stuff like, ‘Maybe my computer, when it's idle, will just find a cure for cancer,’ that’s… not going to happen anytime soon.” This underscores the importance of contextualizing AI’s capabilities and not conflating any single technology—like LLMs—with broader AI progress.
2) Increasing returns to scale can be rare yet powerful. Bill cites the ride-sharing market as a classic example: “If you have more drivers, pickup times fall… and so more people want to use it… it’s literally a win for all sides.” Michael similarly highlights that “the value of the good or service increase[s] as more people use that good or service,” which drives potent network effects. Both stress that these loops are not everywhere, and Bill notes that many try but few truly achieve them.
3) Open-source and recombination fuel innovation. Bill calls open source “one of the most compelling innovations for human prosperity… it has zero marginal cost.” Michael references how “ideas having sex” (borrowing Matt Ridley’s phrase) underlies innovation, reinforcing that recombining existing ideas can yield breakthroughs. “When you think about economics… you say, ‘We can build it into the framework… we can come up with solutions faster than we could before,’” Michael explains, stressing that sharing knowledge accelerates progress.
4) Regulation can impede or enable growth. Bill denounces an environment where “regulation is a friend of the incumbent” and cites health care and finance as areas rife with captured rules. He points out that in some industries, “competition goes down, not up, after” new regulations. Michael, invoking George Stigler’s insights, distinguishes between legitimate public-interest rules and “bad regulation,” wherein the regulated entities themselves effectively shape the rules. Their collective view: better-aligned rules can foster innovation rather than restrict it.
5) Persistent “superstar” firms reflect both scale and capabilities. Michael observes that “the Magnificent Seven… generated about 45% of the economic profit for the U.S. stock market,” suggesting that giant firms have successfully leveraged intangible investments and scale advantages. Bill mentions Microsoft’s resurgence as “back in full on threat mode,” showing how major incumbents can respond nimbly. Both tie this dynamic to phenomena like heavy capital expenditures in cloud and software, with Michael adding that large technology firms now outspend top energy companies in capital investment.
6) Capital allocation often defies textbook expectations. Michael notes that “In a low-rate environment… you’d expect companies to invest more,” yet found that, on average, “investments were actually down… cash balances actually up.” Bill points to fierce competition in the “increasing returns” races (like Uber vs. Lyft), where rational players floor the gas on spending to secure market dominance. Such behavior illuminates how real-world priorities—winning a strategic position—can outweigh the classical logic of lower hurdles in cheap-capital periods.
7) Outlier outcomes dominate returns. Michael cites Hendrik Bessembinder’s research that “2% of… companies created $50 trillion of the $55 trillion in aggregate wealth” since 1926. He likens this to venture capital’s skew, where a small fraction of huge winners compensates for numerous losers. Bill, for his part, stresses not missing a big success: “Missing the big one is all of the game… it’s so asymmetric.” Their lesson is to focus on capturing standout successes rather than agonizing over small misses.
8) Teaching, writing, and curiosity sharpen thinking. Bill admits, “I just think better when I write… it causes you to think better.” Michael recounts how research and synthesizing ideas can deepen understanding, exemplified in his approach: “I often think I understand something until I really go to write it down.” Each credits openness, a drive for clarity, and continuous refinement—“‘What could go right?’ rather than nitpicking”—as catalysts for better insights, stronger collaboration, and more durable knowledge in both investing and life.
Transcript