Gurley says it took a twelve-year gap before startups like Groupon could burn $150-200M annually.
“I think you look at Groupon, right? I mean, you, it had to take a twelve year gap before someone would say it's okay for a startup to burn $150 $200,000,000 in year.”
Gurley argues ten percent layoffs are too small to meaningfully reduce burn rate.
“I read about someone doing a 10% layoff and you should never do 10 because it's not consequential enough to really affect your burn rate.”
Gurley recalls OpenTable was doing $100K monthly revenue while burning $1.1M monthly when 2000 crash hit.
“When the wave crashed, we were doing 100 ks a month in revenue and burning 1,100,000 a month. And all of a sudden capital availability looks like non existent.”
Gurley warns that unlimited capital leads to poor execution and burn rates are now higher than ever before.
“Being able to just do everything leads to poor business execution. And so now we have numbers of companies, I think, making poor decisions. Burn rates are higher than they've ever been.”
Gurley argues raising $400M forces high burn rates and staying private longer becomes self-reinforcing.
“Like, there's no point in it, like, unless you just like interest income. The the staying private longer thing becomes both the dog and the tail.”
Gurley questions whether overfeeding startups with cash leads to poor execution, citing companies burning $20M monthly.
“does overfeeding these companies with cash lead to non optimal execution? And you and I were deeply involved in the Uber situation, but you know, when you start losing a billion dollars a year, or even I would say $20,000,000 a month, you're very far away from profitability. And we talk a lot about focus and constraints”
Gurley explains traditional venture model was to grow burn then converge to profitability.
“I used to always think about venture capital as, you know, you invest in a company and you grow that burn up until a point.”
Gurley notes OpenAI will burn $7 billion annually, calling it radically different from traditional venture.
“I think OpenAI said they're gonna be 7,000,000,000 in a year. That's not your grandfather's startup business or your grandfather's venture capital. That's a radically different world.”
Gurley says AI companies have bigger burn rates than Amazon or any company in venture capital history.
“Oh, more than Amazon ever lost. And so the the burn rates are bigger than they've ever been in the history of venture capital. And eventually, they're gonna wanna bring those in.”
Gurley says OpenAI's burn rate is five times Amazon's or Uber's, unprecedented in venture capital.
“And when we did at Uber, we had the same kind of burn rate, but Open the Eyes got a burn rate that's five times that size.”
Gurley says competing in top AI categories now requires willingness to lose a billion dollars per year.
“So every one of the most interesting AI categories, you may have to be willing to lose 1,000,000,000 a year just to compete”
Gurley says AI companies now burn more than Uber's $2 billion annual losses that he found anxiety-inducing.
“I thought losing 2,000,000,000 a year was nuts and very anxiety inducing, And these companies are doing more than that.”
Gurley recalls Uber's mega-burn era had no precedent, leaving board with no mentors or case studies.
“You could take the board members from Walmart and Costco and GM and and General Electric or whatever you consider the top 10 best company, and they would have never been in this situation before.”
Gurley notes AI company burn rates increased from risky million monthly ten years ago to billions yearly today.
“Ten years ago, like, it was super risky to burn 1,000,000 a month. You know, today, these companies are burning 5,000,000,000 a year.”
Gurley says being conservative isn't realistic as seven companies each raised over $200 million in coding and legal AI.
“Because then we'll just throw out two examples, the coding space and the legal AI space. There's seven companies that have raised over $200,000,000”
Gurley cites Uber burning $2B yearly, now generating over $10B in annual free cash flow.
“Uber's a case where we were burning 2,000,000,000 a year and Dara, you know, has it now generating over 10,000,000,000 a year in free cash flow.”
“Because then we'll just throw out two examples, the coding space and the legal AI space. There's seven companies that have raised over $200,000,000 and they're all gonna mount customer acquisition strategies with those dollars.”