Gurley says Wall Street is the buyer of the product venture capitalists create through M&A or IPO.
“You know, I've always thought of Wall Street as the buyer of the product that venture capitalists create.”
Gurley says the number of US public companies is less than half the peak, calling it a big problem.
“the number of public companies that exist in The US today is less than half what the peak was. And companies just aren't going public. And I think it's a big problem.”
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“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 contrasts dot-com era when companies went public at million monthly revenue versus today's opposite standard.
“In the .com period, if you had 1,000,000 a month a million a month in revenue, you went public. Here, the exact opposite.”
Gurley states winning companies now raise $400-500 million minimum before considering going public.
“Today, every company that is being identified as a winner is ingesting 400 or $500,000,000 minimum before they even think about going public, if they're ever gonna think about that.”
Gurley notes US public companies have fallen to less than half their peak number.
“So the number of public companies in The US is less than half of peak. And so we've really had a fall off in the number of companies that are actually public.”
Gurley argues late stage funds intercept growth years formerly in public markets oligopolistically.
“I would say the late stage funds have come up with a pretty clever premise, which is if they can intercept those growth years that used to be in the public markets and keep it for themselves in an oligopic kind of way.”
Gurley explains liquidation preference means founders in AI rounds raising $500M see no proceeds until that amount is recovered first.
“And so if you've raised in these days of these AI rounds, if you raise 500,000,000, Lake Common doesn't even participate until you get a sale over that, technically.”
Gurley describes how industrialized VC funds now offer money to keep best companies private.
“And one of the things that they've decided to do is to approach the companies, the best in class companies, and offer them money to stay private”
Gurley says Stripe and Databricks were expected to IPO five or six years ago but may never go public.
“And so, you know, companies like Stripe and Databricks, you know, people thought they were going to go public five or six years ago.”
Gurley notes Collison brothers suggest Stripe may never go public as VC funds tell LPs companies stay private.
“And those funds that do that turn around and tell the LPs these are the foundations and the endowments that invest in these type of things. You know, these companies aren't going public anymore.”
Gurley argues IPOs should match supply and demand through bidding, calling current handpicked pricing process ignorant.
“So if you ask any first year comp sci student and first year finance student to write a model of how an IPO should work, you would allow everyone to bid and you would award the shares to the highest bidder. It's just not like, it's not, it should just be tautological.”
Gurley argues IPOs should match supply and demand through bidding rather than bankers handpicking prices.
“if you ask any first year comp sci student and first year finance student to write a model of how an IPO should work, you would allow everyone to bid and you would award the shares to the highest bidder. It's just not like, it's not, it should just be tautological.”
Gurley argues any first-year student would design IPOs to award shares to highest bidder, not handpicked prices.
“It's just not like, it's not, it should just be tautological. Like I don't know why there would be any debate.”
Gurley notes bonds and crypto ICOs already use supply-demand matching that IPOs avoid.
“And by the way, that's how every bond is priced. And that's by the way, how all the initial coin offerings work in the crypto world. It's just what you would do.”
Gurley criticizes bankers handpicking IPO prices and allocating shares only to top clients.
“Why would you have a handpicked price when we know how to match supply and demand? And then they really only offer it to their top clients, which is just nutty.”
Gurley says Nasdaq and NYSE pushed for direct listings but banks were dragged into it reluctantly.
“They were dragged into direct listings. I would I would say because I spent a ton of time with them, both the Nasdaq and the NYSE were pushing to get these things across the line,”
Gurley says the IPO market has consolidated from the four horsemen to an oligopoly of three big banks.
“It's very common to see all three of the big banks on the cover. And so it's really become a oligopoly of sorts.”
Gurley expresses sadness that venture capitalists are completely uninterested in non-AI companies right now.
“There is a reality where a modern venture capitalist does not want to take a meeting, uninterested in anything on AI.”
Gurley describes how most venture rounds now happen proactively with investors forcing money on companies.
“Someone thinks you're doing well and knocked on the door and is force feeding you money. And that is currently the way things happen.”
Gurley argues IPO pricing is fundamentally broken because bankers pick price and allocation instead of markets.
“The way that an IPO's price is so god awful stupid. They pick who gets the stock and they pick the price.”
Gurley argues IPO pricing should match supply and demand anonymously like bonds, not banker allocation and pricing.
“And I've said it over and over again, but a freshman comp size student and a freshman finance student, if you told them to design the IPO, they would just match supply and demand anonymously.”
Gurley argues OpenAI must go public to democratize access to trillion-dollar company returns beyond private market insiders.
“It needs to be a public company. The idea that we're going to have trillion dollar companies and the only people who get to participate are the people sitting around this table, right?”
Gurley estimates roughly a thousand private companies have raised over a billion dollars pre-LLM era.
“So these are a thousand private companies that have raised money over a billion dollars. And Chad GBD told me it was $12.50. NBCA says 900.”
Gurley argues no one in the private market system has incentive to accurately mark valuations to LPs.
“No one has an incentive to get the marks right. For those that don't know this world, private investing, both on the PE side and the VC side is this weird world where the GPs, the people responsible for the investments, report the price to the LPs.”
Gurley notes the unprecedented situation where Nasdaq rose 30% in 2024 yet the IPO window remained closed.
“If you look at last year, 2024, the Nasdaq was up 30% and the window was closed. That seems to be the general belief of everyone out there.”
Gurley argues 2024's 30% Nasdaq gain with closed IPO window defies historical correlation, pointing to bank-forced discounts.
“I believe a part of it I've been very passionate about is the IPO discount that the banks force upon the market, especially the well known high branded ones.”
Gurley cites research showing IPO underpricing plus fees creates 33% cost of capital.
“I had my friend Jay Ritter rerun the data. Is there up 25, 26% underpricing? You add in the 7% fee and you're like a 33% cost of capital.”
Gurley cites data showing IPO underpricing plus fees creates a 33% cost of capital for going public.
“Jay Ritter rerun the data. Is there up 25, 26% underpricing? You add in the 7% fee and you're like a 33% cost of capital.”
Gurley says late-stage investors enable two-year employee liquidity at OpenAI and Stripe, removing IPO pressure.
“one of the things they're doing is they're supporting massive founder liquidity and employee liquidity. And so that's happening at Stripe, that's happening.”
Gurley says private companies with weak metrics aren't better off than public ones; staying private is self-deception.
“If you're private at a 100,000,000 revenue with a 10% growth rate, it's not like you're better off. Like like, you're just fooling yourself.”
Gurley says successful companies now routinely pressured to raise $500M or more, fundamentally changing venture model.
“I think you're gonna, until this change, I think you're gonna have very few companies that are considered to be doing well that aren't asked by the industry to raise $500,000,000 or more.”
Gurley argues trillion-dollar companies developing AGI should be accessible to retail investors, not just private markets.
“I don't like the idea that you could have a company that could theoretically go to a trillion dollars in enterprise value, could theoretically develop AGI, and a retail investor never has a shot to invest in that company. I just don't think that's good for the structure of our markets.”
Gurley notes public company count has shrunk by almost half, changing venture landscape.
“the number of public companies has shrunk dramatically. And Michael's written about this, but we've gone, I think, almost half. Is that right, Michael?”
Gurley says SEC's well-intentioned response to fewer IPOs risks institutionalizing private investing for average investors.
“I personally don't think it's healthy because a minute that happens and everyone realizes that there's less companies going public and companies staying private longer, then the SEC, I think in a well intentioned way goes, oh my god. The average investor's missing out on this asset class.”
Gurley warns SEC's well-intentioned response to fewer IPOs—institutionalizing private company investing—will fail massively.
“But what they wanna do to fix it is then some kinda institutionalized investing in private companies, which I think will fail massively.”
Gurley says billion-dollar revenue threshold for IPOs fundamentally changes venture game and reduces accessibility.
“Anyone can start a company that can go public. If you have to get to a billion in revenue, it's just it's a totally different game.”
Gurley says vast majority of IPOs concentrated in four or five firms, suggests need for banks dedicated to smaller IPOs.
“I found some data which we can put up, like the vast majority of IPOs are being underwritten by like four or five firms.”
Gurley predicts a smaller company with a courageous founder will IPO first, not Stripe or other large names.
“I actually I actually think we'll probably see someone a smaller company with a courageous founder step through the window. Like, I don't think we don't have to wait around for Stripe.”
Gurley says massive multiple contraction happened across the industry, not due to company performance but market repricing.
“Like, it just happened. There was massive multiple contraction writ large across the industry, and the companies have to navigate it.”
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 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 the slow IPO market results from companies struggling to reconcile liquidation preferences after sharp valuation corrections.
“And that's one of the reasons why the IPO market's been slow to get going because people have to get come to terms with all these things.”
Gurley says valuation disparity takes time to accept because stakeholders have been repeatedly told they're worth much more.
“these this valuation disparity that they just talked about is a real issue, and it takes a while for people to come around. Like, they've been told, you're worth this.”
Gurley contrasts Bezos's respectful shareholder communication with other founders who antagonized Wall Street in their S-1 letters.
“All the entrepreneurs that followed Jeff that wrote that letter were kind of like, screw you, Wall Street. I'm going to run it my own way.”
Gurley says profitable companies at IPO dropped from 90% in downturns to 5% by 2020-2021.
“Right? And so in really dark times, the percentage of companies IPOing their profitable is like 90. But by 2020, 2021, that number is 5%.”
Gurley claims legacy IPO process transferred $200 billion over forty years to bank clients, $30 billion last year.
“the legacy IPO process has devolved into this process where a huge one day gains are transferred from the investment banks to their trading clients.”
Gurley states that IPO underpricing has transferred $200 billion over forty years, $30 billion in the last year alone.
“And that number's 200,000,000,000 over the past forty years, 30,000,000,000 just last year. So it's actually gotten worse.”
Gurley argues direct listings use supply and demand pricing like bonds, which is how markets should work.
“You can actually use supply and demand to determine price and allocation. And that's what the direct listing does. That's how every bond is priced.”
Gurley calculates that average IPO underpricing of 50% plus 7% fees equals a 57% cost of capital.
“So last year in 2020, the average IPO was underpriced by 50%. If you add in a 7% fee on the investment bank, that's a 57% cost of capital.”
Gurley calculates 2020 average IPO had 57% cost of capital from 50% underpricing plus 7% bank fee.
“last year in 2020, the average IPO was underpriced by 50%. If you add in a 7% fee on the investment bank, that's a 57% cost of capital.”
Gurley challenges anyone to find a finance professor who would justify a 57% cost of capital.
“Find me any professor, any finance professor. We're a company that's got the possibility of going public, so it's highly legitimate.”
Gurley cites Jay Ritter's data showing direct listing companies wildly outperformed traditional IPO peers.
“Jay Ritter put out some data at the end of August that you guys probably saw where he analyzed all the companies that have chosen the direct listing path and they've wildly outperformed their IPO peers,”
Gurley says Robinhood makes 4x more revenue per options trade than stock trade due to payment for order flow.
“So if you look at the Robinhood filings, they make about 4x the amount of revenue on a option trade than they do a stock trade.”
Gurley says Robinhood makes 4x more revenue on options trades than stock trades despite democratization claims
“they make about 4x the amount of revenue on a option trade than they do a stock trade. Why do I bring this up?”
Gurley cites twelve-year bull run and extreme SaaS multiples as major IPO incentives.
“Add into that a roaring, screaming public market that's been on a bull run for, what, twelve years? And multiples in the public markets, especially in, the SaaS world that are out of this world.”
Gurley says IPO pricing process has worsened over thirty years with inherent conflicts of interest.
“And it's gotten worse, actually, over the past twenty or thirty years. The process itself has gotten more mundane.”
Gurley reports seven of eight direct listings trade above first match, outperforming traditional IPO cohorts.
“Yeah, there've been eight high profile ones. Seven of them interestingly are trading above that first match that they did, which is really astounding.”
Gurley notes Japan's antitrust department recently launched investigation into standard IPO practices and conflicts.
“Interestingly, you know, as a side note, Japan's antitrust department just launched an investigation into standard IPO practices and these types of conflicts.”
Gurley states 2020 average IPO was underpriced by 50 percent, a massive cost of capital.
“In 2020, the average IPO was underpriced by 50%. You go to any finance school, they tell you you should care about the cost of capital. They teach you about weighted average cost of capital.”
Gurley argues SPACs are only viable because broken IPO process makes direct listings look expensive by comparison.
“But, you know, it appears to me that the thing is gonna, is either gonna slow down or they're gonna step in and do those types of changes you're talking about.”
Gurley speculates China blocks US listings to keep capital and tax revenue domestic rather than offshore.
“I wonder I and I don't have any data to back this up, but I wonder if part of what's going on is that the Chinese government wants to make sure that though that wealth is actually kept inside of China, taxed appropriately, and then able to be regenerative in that market.”
Gurley speculates Chinese government wants capital from tech companies kept and taxed domestically.
“I wonder if part of what's going on is that the Chinese government wants to make sure that though that wealth is actually kept inside of China, taxed appropriately, and then able to be regenerative in that market.”
Gurley argues no one would choose traditional IPOs anymore because in 2020 the average IPO was underpriced by 50%.
“I think to the extent that we can effectively integrate raising primary capital with the direct listing, no one would choose a traditional IPO process anymore because it's gotten perversely worse in 2020, the average IPO was underpriced by 50%.”
Gurley claims people who benefited from $30 billion in IPO underpricing are fighting regulatory changes.
“There will be people that will fight it from a regulatory standpoint. And quite frankly, Brad, they're fighting the SPACs from a regulatory standpoint.”
Gurley cites IPO underpricing rising from $2B in 2016 to $30B last year, showing the problem is worsening.
“under first day under pricing in 2,016, 2,000,000,000. 17, 4,000,000,000. 18, 7,000,000,000. 19, 9,000,000,000. Last year, 30,000,000,000. So the problem's getting ginormously worse.”
Gurley provides IPO underpricing data showing escalation from $2B in 2016 to $30B last year.
“under first day under pricing in 2,016, 2,000,000,000. 17, 4,000,000,000. 18, 7,000,000,000. 19, 9,000,000,000. Last year, 30,000,000,000.”
Gurley cites IPO underpricing growing from $2B in 2016 to $30B in 2020, with one deal losing $9B.
“Last year, 30,000,000,000. So the problem's getting ginormously worse. And then yesterday, on the Hong Kong exchange, Kuaishou, $5,000,000,000 deal, $9,000,000,000 underpricing on one deal.”
Gurley cites Kuaishou's $5B IPO with $9B underpricing as extreme example of the problem.
“And then yesterday, on the Hong Kong exchange, Kuaishou, $5,000,000,000 deal, $9,000,000,000 underpricing on one deal.”
Gurley argues banks advise 30x oversubscription, contradicting four hundred years of economic principles on supply and demand.
“And no one, no one in four hundred years of economics would suggest that the best practice would be to have a 30 x supply demand imbalance.”
Gurley says traditional IPOs only provide access to investment banks' biggest customers, not all investors.
“The the the primary issues with the traditional IPO are twofold and the SEC nailed them both in their in their draft today, which is that it doesn't provide access to all investors.”
Gurley says traditional IPOs only provide access to select group who are investment bank's biggest customers.
“It's just a select group of people that that happen to be the biggest customers of the investment bank.”
Gurley argues IPO pricing relies on human guessing rather than modern market mechanisms.
“And the price and allocation are determined by humans just guessing, which makes no sense whatsoever in the modern age.”
Gurley predicts retail investors will access IPOs directly through platforms like Robinhood.
“In the future, you'll be able to go on Robinhood, if you wanna participate in IPO, you can.”
Gurley notes order matching systems existed for twenty years and corporate bonds already use supply-demand pricing.
“Let's let supply and demand matching, which, you know, unfortunately have been available order matching systems for for over twenty years.”
Gurley cites IPO underpricing totaling $6B in 2018, $7B in 2019, and over $34B this year.
“In in in 2018, it was 6,000,000,000. In 2019, it was 7,000,000,000. This year, it's gonna be over $34,000,000,000 in one day giveaways.”
Gurley states 2020 IPO underpricing will exceed $34 billion in one-day giveaways, predicts fiduciary duty lawsuits.
“This year, it's gonna be over $34,000,000,000 in one day giveaways. You know, if you you wanna talk about legal issues, I think people are gonna come after boards, for fiduciary duty violations”
Gurley predicts boards will face fiduciary duty claims for using traditional IPOs that underprice shares.
“I think people are gonna come after boards, for fiduciary duty violations for knowingly entering into a process where you're selling a corporate asset at a massive discount.”
Gurley frames IPO underpricing as knowingly selling corporate assets at massive discount.
“for knowingly entering into a process where you're selling a corporate asset at a massive discount.”
Gurley argues SPAC market emerged because traditional IPO underpricing was worsening.
“I think one of the big reasons the SPAC market opened up was because the underpricing was getting worse and worse and worse.”
Gurley says direct listings with primary offerings are now clearly superior to both IPOs and SPACs.
“Today's a super important day because I think it'll be very hard for anyone to argue whether it's a traditional IPO or a SPAC that that's gonna be better than a direct listing with a primary offering.”
Gurley states venture-backed IPOs left $6 billion on the table in underpricing over two years.
“So last year and the year before, there were about $6,000,000,000 in underpricing across all of venture backed companies. Jay Ritter at the University of Florida aggregates this data.”
Gurley says Snowflake's underpricing alone transferred $4.5 billion to allocated investors overnight.
“Snowflake alone was 4,500,000,000, just one company. And so the day after the IPO, the people that were allocated the stock the night before have 4,500,000,000 in wealth they didn't have before.”
Gurley describes direct listing as simply matching supply and demand unlike traditional IPOs.
“We have a wonderful new age alternative called the direct listing that just matches supply and demand.”
Gurley argues founders who stay private longer are shirking their duty to maximize shareholder value.
“But that's the behavior of some of the founders in Silicon Valley that buy into the state private thing. Like the minute you started giving stock to your employees, you're in the game”
Gurley states IPO underpricing totaled $24 billion in 2020, up from $6-7 billion prior years.
“Ironically, you know, in year to date, 2020, the total underpricing dollars on the traditional IPO is $24,000,000,000 And it was in the 6 to 7 range the past two years up from three the year before.”
Gurley notes the number of public companies has declined by half over time.
“We have a situation where the number of public companies today is half of what it was a while ago.”
Gurley links decline in public companies to $200 million average IPO underpricing tax.
“And you ask, well, why is that? Well, the average IPO this year had to underprice by 200,000,000.”
Gurley characterizes the average IPO underpricing as a $200 million unnecessary tax.
“So you have a $200,000,000 tax to go public through the traditional IPO route, which is completely unnecessary.”
Gurley argues SPAC craze exists because traditional IPO route allocates $200 million to bankers' friends.
“I think is the SPAC craze because you've created this massive pricing umbrella arbitrage to get a company public where the traditional route means someone gets to allocate $200,000,000 to their buddies.”
Gurley argues SPAC sponsors are capturing allocation power from Goldman and Morgan Stanley.
“Well, if someone gets to do that, the SPAC sponsors are saying, Hey Goldman, Hey Morgan, you don't get to allocate that money to your friends. I'm gonna allocate it to mine.”
Gurley explains SPACs emerged as sponsors arbitraging the $200 million allocation that banks give their friends.
“Well, if someone gets to do that, the SPAC sponsors are saying, Hey Goldman, Hey Morgan, you don't get to allocate that money to your friends.”
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.”
Gurley argues it is easier to survive downturns as a public company than as a late-stage private company.
“And so oddly, it's easier as a public company than a late stage private company to go through these types of periods.”
Gurley traces Silicon Valley's dissatisfaction with IPO process back two decades, citing eBay and Hambrick criticisms.
“Silicon Valley's been, unhappy with the way the IPO works for a couple of decades now. I dug up, you know, some conversations Pierro Midiard had at eBay calling it undemocratic.”
Gurley traces Silicon Valley's criticism of IPO unfairness through eBay, Hambrick and Quist, and Google's Dutch auction.
“Pierro Midiard had at eBay calling it undemocratic. You know, Hambrick and Quist, Bill Hambrick, twenty years ago called the IPO an insider's game.”
Gurley says 2019 IPOs transferred $6 billion in first-day wealth despite losses from Uber, Lyft, and Peloton.
“if you look at the first day pop net of the losses of the companies that have broken issue, Uber, Lyft, and and, Peloton, it's 6,000,000,000 to the positive, $6,000,000,000 in first day wealth transfer net gains.”
Gurley argues staying private forever is unhealthy and going public is advantageous for companies.
“But I don't think it's healthy for companies to stay private forever. I think it's super advantageous to companies to pass through and become public.”
Gurley argues staying private indefinitely is unhealthy and going public is advantageous for companies.
“I don't think it's healthy for companies to stay private forever. I think it's super advantageous to companies to pass through and become public.”
Gurley says going public increases pressure and transparency, elevating companies to new performance levels.
“I one of the reasons I encourage companies going public is because I think it ups their game. I think it it presents more pressure. It forces them to be more disclosive, more transparent.”
Gurley cites Zuckerberg saying Facebook went public two years late, with market pressure revealing mobile issues.
“Even Zuckerberg was quoted as saying he waited two years too late to go public.”
Gurley argues traditional IPOs lack market-based price discovery and equal access for all participants.
“In the traditional IPO process, neither of those things are true. You don't have a market based price discovery, and you don't have open and equal access to all.”
Gurley illustrates direct listings allow any retail investor to participate at opening price, unlike IPOs.
“If you put in a bid at $380.01 from a Robinhood account and they open at 38, you're filled. That is absolutely not true in the IPO process.”
Gurley cites $171 billion in first-day wealth transfer over 38 years, $15 billion in the past three years.
“You know, thirty, forty years over the past thirty eight years, 171,000,000,000 in First Day Wealth Transfer. And in the past 50 in the past three years, that's 15,000,000,000.”
Gurley explains direct listings use existing daily stock-opening processes, removing steps rather than adding new technology.
“What Barry McCarthy unlocked and and discovered was that the very same processes that you use at the NYSE and the Nasdaq to open stocks each and every day can actually do the match that that that do a direct listing opening. And so in the direct listing process, you're actually removing steps”
Gurley quantifies Silicon Valley IPO underpricing at $171 billion over thirty-nine years based on day-one price jumps.
“So the first slide is about underpricing, and this is solely looking at the difference between the price that the stocks handed out to the night before and the close the next day.”
Gurley calculates Silicon Valley companies lost $171 billion over 39 years from IPO underpricing between offering and first-day close.
“And so over thirty nine years, that's been a 171,000,000,000 for Silicon Valley companies, and it's been increasing lately.”
Gurley states Silicon Valley lost $171 billion to IPO underpricing over 39 years, $6 billion year-to-date.
“over thirty nine years, that's been a 171,000,000,000 for Silicon Valley companies, and it's been increasing lately. Just year to date, we're at 6,000,000,000 in underpricing.”
Gurley presents data showing top-tier investment banks deliver the worst IPO execution over a decade and 100+ IPOs.
“So this is ten years of data, a decade of data over a 100 IPOs, per underwriter. And what you see is astonishing.”
Gurley analyzed a decade of IPO data showing the top two banks deliver the worst execution.
“this is ten years of data, a decade of data over a 100 IPOs, per underwriter. And what you see is astonishing.”
Gurley argues top investment banks deliver worst IPO execution, unlike any other market where quality correlates with performance.
“So it turns out that if you go with the best investment bank, you get the worst execution. And that is that's remarkably odd.”
Gurley states top investment banks deliver the worst IPO execution for companies.
“it turns out that if you go with the best investment bank, you get the worst execution. And that is that's remarkably odd.”
Gurley reveals IPO underwriters target 20x overallocation, meaning they intentionally ignore 95 percent of stock demand.
“So 20 x over supply is a euphemism for we're about to ignore 95% of the demand for your stock.”
Gurley reveals standard IPO practice targets 20x overallocation, meaning banks intentionally ignore 95% of stock demand.
“So 20 x over supply is a euphemism for we're about to ignore 95% of the demand for your stock. Intentionally ignore 95% of the demand for your stock.”
Gurley argues banks face a multiple agency problem, serving buy-side clients rather than the companies going public.
“There's an area of study in economics called, the agency problem, and and there's a the variant of it called the multiple agency problem.”
Gurley explains top banks deliver worst execution because they serve buy-side clients, not the company going public.
“So you've got an agent who's looking after multiple parties, the company, but guess what? Also the buy side.”
Gurley argues investment banks serve buy-side clients, not startups, explaining worse execution at top banks.
“So you just have to realize the customer is not the startup. The customer is the buy side.”
Gurley explains direct listings guarantee order fills for retail investors while traditional IPOs do not provide such access.
“If you are in a direct listing, any direct listing, and you are at a Schwab account, a Robinhood account, I don't care what, and you put in an order that's a penny higher than the closing price, you get filled. That is not true in a traditional IPO.”
Gurley contrasts direct listings where any retail investor gets filled versus traditional IPOs where retail gets only 5 percent.
“That is not true in a traditional IPO. In fact, retail's often held the 5%,”
Gurley calculated Zoom and CrowdStrike each left $600 million on the table by underpricing their IPOs.
“yet celebrate companies like Zoom and CrowdStrike and where the stock's up or Chewy recently where the stock's up 80% on the first day.”
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”
Gurley calculates Zoom and CrowdStrike each left $600 million on the table by underpricing their IPOs.
“had those companies priced the IPO at the price of first trade, they would have 600,000,000 more dollars each in the bank with no incremental dilution.”
Gurley calculates Zoom and CrowdStrike each left $600 million on the table by underpricing their IPOs.
“And I can make the argument that's malfeasance, but everyone's writing this stories about how wonderful it was.”
Gurley believes being public helps companies run better through enforced discipline from smart investors.
“I believe strongly that I think is less well understood is that being public actually helps the companies run better. It's an enforced discipline.”
Gurley says Stitch Fix reached billion-dollar run rate profitably, generating $60M free cash flow on just $40M raised.
“So we're at a billion dollar run rate. We've been profitable for many quarters. In fact, when the company came public, it is over a $100,000,000 of cash on the balance sheet.”
Gurley notes Stitch Fix is over 80% female employees with 60% female management and board composition.
“Over 80% of the employees are female. Over 60% of the management team's female. Over 60% of the board is female.”
Gurley explains Stitch Fix stayed under unicorn status by avoiding fundraising while maintaining profitability for several years.
“One of the unique things about Stitch Fix relative to all of the unicorns out in Silicon Valley is that they've run very disciplined and profitable approach. They've been profitable for several years.”
Gurley notes Stitch Fix remained profitable for years and never raised above $1B valuation.
“They've been profitable for several years. The reason that you never heard of them as a unicorn was because they never raised money above 1,000,000,000 because they didn't really do raise money.”
Gurley says Stitch Fix was never valued above a billion because they ran profitably and didn't need to raise money.
“The reason that you never heard of them as a unicorn was because they never raised money above 1,000,000,000 because they didn't really do raise money.”
Gurley predicts many unicorns will damage equity value by avoiding public markets and profitability.
“I think you're gonna see a large number of unicorns who were afraid to play on Sunday, afraid to be in the public markets, that didn't get their act together in time, didn't get profitable, didn't understand unit economics, and and hurt the value of the equity as a result.”
Gurley observes maturing unicorns recognizing they must become profitable or go public.
“I do think we are also watching, however, as many of the unicorns mature in age, that many of them are having to come to the recognition that they either need to grow up, get profitable, go public, or do something along those lines.”
Gurley observes aging unicorns recognizing they must become profitable or go public as staying private forever fails.
“And that this this silly notion of we're gonna stay private forever is not playing out in a very positive way.”
Gurley compares late-stage private valuations to a Bernie Madoff dynamic with unaudited markups creating feedback loops.
“And I think what we see right now is a almost Bernie Madoff like dynamic where capital comes in, it gets marked up without any public scrutiny, unaudited financials.”
Gurley says 140-150 companies have valuations that wouldn't sustain in public markets.
“So we have 140 companies, 150 companies that have valuations that I think wouldn't sustain in the public market.”
Gurley warns the gap between capital deployed and liquidity returned has reached record levels without returns available.
“And the gap that's been widening between the money that's been given versus the money that's been returned in liquidity is record levels.”
Gurley states capital burn on headcount is breaking all prior records from 1999-2000 bubble.
“And so the single biggest indicator for us is that the capital being burned in the market so this is usually on headcount, mostly people, not hard assets is breaking all the prior records of 'ninety nine, two thousand.”
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 the venture business has an anti-IPO attitude that prevents companies from hitting home runs.
“in the venture business, we have this problem, this kind of anti IPO attitude that I think prohibits companies from hitting the long ball.”
Gurley says late-stage private market is the frothiest since the late '90s despite down IPOs.
“I would say on a couple of fronts, the late stage private market continues to be the most frothy thing I've seen since the late '90s.”
Gurley says late-stage private funding behavior is very reminiscent of the late 1990s bubble.
“And the behavior that you'll see for the competition in those dollars is very reminiscent of the late 90s.”
Gurley claims late-stage private market investments have less information than pink sheet stocks and may be historically uninformed.
“I mean, you you could have more financial information on a thinly traded pink sheet Canadian public company than you have.”
Gurley calls late-stage private investments the least informed in history, with less disclosure than pink sheet stocks.
“These these might be these might be the least informed investment actions in in our history.”
Gurley argues late-stage private investments may be the least informed in history and shouldn't be equated to public valuations.
“These these might be these might be the least informed investment actions in in our history. And so I don't know that you can pay too much attention to the price because they're very uninformed.”
Gurley says Benchmark will have four IPOs this year, unprecedented for a single venture firm in a long time.
“Earlier today, one of our investments, Ambarella, filed, which will be our fourth IPO this year. And that hasn't happened, you know, for a single venture firm in a very long time.”
Gurley says Benchmark will have four IPOs this year, unprecedented for a single venture firm in a long time.
“Ambarella, filed, which will be our fourth IPO this year. And that hasn't happened, you know, for a single venture firm in a very long time.”
Gurley observes IPO market valuations currently exceed M&A market valuations.
“I think another interesting characteristic of that, in my mind, the IPO market's paying much higher valuations in the m and a market right now.”
Gurley states that only three out of 25-30 IPOs this year were unprofitable at launch.
“I think of the 25 or 30 this year, three were not profitable at the time of going out.”
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“the number of IPOs, as Michael mentioned, have been 30 in the first half of this year versus five in 'eight and twelve in 'nine.”
Gurley predicts staying private will eventually cost more than going public for some companies.
“Well, at some point, I think they're gonna be spending more dollars avoiding public than being public. It's just going be more of a hassle.”
Gurley cites Data Domain and ArcSight as examples of IPO-then-acquisition premium strategy working.
“Another interesting thing is with Data Domain and ArcSight and three part, you've seen companies go public, establish a valuation and then get an M and A premium on top of that.”
Gurley notes public mergers avoid the 10-15% escrow typical of private acquisitions.
“And one last thing most entrepreneurs probably don't know, when you do a public merger, there's no escrow.”
Gurley notes public mergers avoid the 10-15% escrow typical in private deals, adding financial advantage.
“And most private ones have 10 to 15% escrow, so that's even another part of the price that doesn't you know, that's advantageous to the public.”
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