Gurley calls the stay-private-longer strategy a fraud because private company cap tables are designed only to go up, not down.
“It's times like this where that strategy, I think, gets exposed as the fraud that it was precisely because private company capitalization charts don't go down very well. They're designed to really only go up.”
Gurley calls stay-private-longer strategy a fraud, saying private cap tables handle down rounds worse than public markets.
“It's times like this where that strategy, I think, gets exposed as the fraud that it was precisely because private company capitalization charts don't go down very well.”
Gurley argues that surviving downturns is easier as a public company because IPOs convert complex structures to common stock.
“And it turns out that surviving down periods is a lot easier as a public company than a private company because you've converted all that away.”
Gurley explains unicorns from 2019-2021 have complex cap tables with different liquidation preferences making new rounds difficult.
“But those because those companies grew up in the ninety nine, twenty twenty one timeframe where you could raise money at excessive valuation, their cap charts are very complex and rigid.”
Gurley says complex cap tables with multiple constituencies cause investors to opt out of unicorn financings entirely.
“a lot of people just say they opt out and say no this is too hard, I'm not going to go in there and negotiate with five different constituencies on how to do this.”
Gurley explains stacks of liquidation preferences make transitions very hard during acute market corrections.
“these private company capitalization charts have stacks and stacks of liquidation preference, and it's when you have that acute of a correction, it's very hard to make this transition.”
Gurley explains stacked liquidation preferences on cap tables make navigating acute valuation corrections very difficult for private companies.
“it's very difficult because these private company capitalization charts have stacks and stacks of liquidation preference, and it's when you have that acute of a correction, it's very hard to make this transition.”
Gurley explains private cap tables are structured to only go up, unlike public stocks.
“private one last thing. Yeah. Sorry. Private cap tables are not structured very well to go down.”
Gurley explains private cap tables are structurally built to only go up unlike public stocks.
“Private cap tables are not structured very well to go down. It would take forever to explain exactly why that is with lick preference stacks and whatnot and ratchets, but they're built to kind of only go up and public companies stocks can go up and down.”