Invest Like the Best: Andy Rachleff


About Andy: Partner at Benchmark Capital and CEO of Wealthfront

Benchmark Capital started in 1995 by 5 equal partners (including Bill Gurley)


  • Turn your opponents biggest strengths to weaknesses
    • The biggest competitor at the time was Kleiner Perkins and ‘the best venture capitalist that ever lived’ John Doerr. Benchmark would woo portfolio companies using a team approach since not all Kleiner Perkins companies had access to Doerr.
    • The second strength of KP they flipped was the promise of doing business with other portfolio companies. Benchmark painted this advantage as an obligation they were free from if they joined Benchmark. Benchmark took a backseat to the portfolio companies management and did not demand to be the chairman of the board.
  • The other interesting thing they did was not allow the partners to ‘suck up the economics’ in the room. As soon as partner’s felt it was time to relax they needed to step aside for the younger team to be able to step up.
  • “Putting the gun in the other person’s hand”
    • Partner Bruce Dunlevie philosophy of trustfully dealing with people and if the person took advantage of him he would not work with them. This technique would usually engender trust and good faith in others

Product Market Fit

  • Products that are ‘bought not sold’. Delighted customers demand the product.
  • Running a business with such a product leaves lots of room for operational error and explains how a “25 year old can run a billion-dollar business”
  • The first book on the topic was Steve Case’s “The Four Steps to the Epiphany” which his eventual student Eric Ries would update and improve with “The Lean Startup” These books used the scientific method to approach business
    • A ‘value’ hypothesis needs to be proven
    • A ‘growth’ hypothesis is validated if growth is exponential and organic (ie word of mouth).
      • Growth hacking via experiments and A/B testing.
    • Typical businesses focus on the who, where and what and iterate on the what. Great technology companies ramp a new technology by finding the ‘who’. This is often not obvious and leads to non-consensus outcomes. This is now commonly understood (Me: reminds me of ‘theory of demand aggregation’)

His role as operator vs investor

  • Now as Wealthfront of CEO vs an investor a few points:
    • The skills aren’t necessarily transferrable
    • He speaks less on boards realizing how little perspective he has compared to management
  • “Crossing the Chasm” by Geoffrey Moore first book that discussed product adoption cycle and diffusion of innovation

Wealthfront features that grabbed my attention

  • Peer reviewed rules based strategies
    • Tax loss harvesting (added 1.8% pa). Automating it in software allows more consistent application of decades-old strategy (Me: Twitter discussions suggest this is highly overstated)
    • Tax loss harvesting within an index adds 25-50 bps pa. This includes selling index components that had losses and buy correlated names to maintain exposure
    • Portfolio line of credit leveraging risk-based margining. For accounts >100k this provides access to cheap loans
    • No hedge funds or expensive alts bc of the Grouch Marx “I don’t want to be a member of any club that will have me”. The best institutional investors are long term, not performance chasing (ie endowments and charitable foundations). The worst of the funds can’t access them so they would be the only ones open to listing on retail platforms. Classic adverse selection.

Business strategy not always best self strategy

  • In business, amplifying what you excel at has a better payoff than improving weaknesses. He asserts that this is also professionally true at the career level since differentiating expertise is a large determinant of a person’s value-add. He mentions that this is not the same strategy one should employ in their personal life, where boosting your weaknesses as a person is very valuable. In professional life, learning from success can certainly be more important than learning from failure. “I’m not hiring you because of what you can’t do. [I’m hiring you] because you have learned some tricks!”
  • Well-rounded people are interesting to talk to but not necessarily the best teammates in a business.

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