Gurley argues owning 100% of a $20M company beats owning diluted equity in $500M sale.
“If you own a 100% of a $20,000,000 company, that's lifetime wealth. Like, trying to make $20,000,000 selling a company for 500,000,000, that's hard because it's hard to sell if”
Forbes
“And the world wants to do more M and A in the 20,000,000 to $100,000,000 tuck in range than they want to do billion dollar exits.”
Gurley cites AI company going from $100M seed to $300M Series A valuation, diluting investor ownership.
“So that venture investor that's doing 10 at 300 pre is getting, you know, you know, a tiny percent of this company relative to what people used to get.”
Gurley calculates that delaying exits five years requires 2.5x higher returns due to compounding and dilution.
“If you make the argument that these people invested in venture to get a big return, then your cost of capital is not five.”
Gurley calculates five-year delay requires $160 return versus $100 due to 15% cost plus 5% dilution.
“That's the risk free rate. It's 15. And then it's 20% a year. 15 plus the five from the equity dilution.”
Gurley explains a large investor pushed for zero-based RSUs believing one RSU equals 2.5-3 options to reduce dilution.
“This particular investor in this very large public Internet company felt that if they move to zero based RSUs from options, and this gets into a technical detail around Black Shoals, that, you know, there's an argument from Black Shoals that a single RSU is worth about two and a half or three options.”
Gurley notes Instacart's stock-based compensation is a fraction of other tech companies, calling high SBC very dilutive.
“Their stock based comp is a fraction of all the other companies in the space and all the other tech companies.”
Gurley calculates that Zoom and CrowdStrike each left $600 million on the table by underpricing their IPOs.
“And this is something that I think it's odd to me that more people don't understand how ridiculous this is because had and I ran the math in the Zoom and CrowdStrike example, had those companies priced the IPO at the price of first trade, they would have 600,000,000 more dollars each in the bank”