No agenda, no rush, no leaving San Francisco: Benchmark’s partners on investing in a frenzied market

Randall: Macro is always a fool’s errand to predict with precision. What has changed most since I started investing is the information environment. Character.AI was the leftover corpse of a company whose founder and team were acqui-hired into Google a year and a half ago, and it was already sold for $2.3 billion; its Chapter 11 being read as an AI chill effect shows that the info environment for public equities in tech has been drawn so much into this, like, hyperactive X echo chamber.

If you look at the market today and you see where CoreWeave and Nebius and all these things are trading, those numbers are are due to the ARR figures of two private companies that will probably be public in the next 12 months . . .There’s so much capex and there’s so much investment that runs through the estimated and projected health of OpenAI and Anthropic.

Our companies see so much demand that they can’t get enough compute to serve customers who are willing to pay them at good gross margins. There’s nothing inherently unhealthy about the AI ecosystem. What’s unhealthy is the volatility from data points that are often untrue or exaggerated for clicks. I do think OpenAI and Anthropic going public would be healthy, so the market stops swinging 5% to 10% every time an anonymous account updates an estimate.

Those two companies have also really pulled the center of gravity back to San Francisco. Do you have to be in San Francisco to be a founder now? Are you interested in companies outside of California?

Altman: I don’t know that you have to be here as a founder, but I think it is right now by far the easiest place to get talent, capital, and customers. Probably everyone works with companies that are not in San Francisco, but we’re also here in San Francisco every day, so I wouldn’t say you have to, but I’d say: strong bias for our particular setup.

Fenton: Historically, 90%-plus percent of the capital returns have come from companies founded here. There are beautiful stories outside that dense probability distribution — Shopify is a great example, Ramp — but the ecosystem effect that occurs when you have a successful company and that leads to a background of great executives ambitious people, the bar of success gets raised. I don’t think it has systemically happened anywhere quite like here.

Randall: I’m trying to think of a non-SF based company that I’ve met with in the last 18 months that wasn’t actively saying that they were spending time in San Francisco. They’ve either opening an office in San Francisco, they’re spending half of their time in San Francisco, or they’re planning to move out to San Francisco. Iron sharpens iron. If you want to be around peers who are going to make you the best version of yourself, and it’s hard to think of a city that does that better than San Francisco in the current era that we’re in now with AI here.