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 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 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 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 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.”