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.”
Gurley predicts many unicorns afraid of public markets will hurt equity value by not achieving profitability and understanding unit economics.
“And if you want to be better, if you wanna succeed, if you wanna play at the next level, you have to step it up and go there.”
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 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 says Stitch Fix created $60 million in free cash flow, raising only $40 million before IPO.
“The company had only raised $40,000,000. Hence, we had created $60,000,000 in free cash flow, something that's extremely rare in Silicon Valley these days.”
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 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 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 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 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 calculates AI companies burning $20M monthly need $500M revenue run rate to reach profitability at 50% margins.
“if you're spending 20,000,000 a month, you're burning $240,000,000 a year. You know, if these companies in AI are 50% gross margin or whatever, you got to get revenue to twice that, you know, you're right at that 500,000,000 run rate before you could think about being profitable.”
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 suggests a healthcare industrial complex has emerged that prioritizes profit over cost-effective preventative care.
“People talk about the military industrial complex. We may have created a health care industrial complex that really can't stop maximizing profitability and not focus necessarily on the lowest cost, best, most preventative process.”