Gurley cites LP analysis showing top 10 VC funds all fell out when removing their single best performer.
“And then they took the top performer out of those funds and they all fell out of the top 10 or maybe one of them stayed.”
Gurley says top ten venture funds all fell out when their single best performer was removed.
“And then they took the top performer out of those funds and they all fell out of the top 10 or maybe one of them stayed.”
Gurley argues that funding businesses because capital is cheap is equivalent to funding low-return businesses.
“The exact flip way of saying that is, I'm excited about funding low return businesses and I'm gonna go do it.”
Gurley says firms that exited in the late 1990s bubble missed the vast majority of returns.
“But the vast majority of the returns are in these periods at the top of these bubbles.”
Gurley says venture capital's outperformance comes from tiny windows of frothy markets according to longtime LPs.
“I went and talked to some LPs that have been in the business for a very long period of time and a vast majority of the reason Venture outperforms other asset classes has to do with these tiny windows when you have a super frothing market.”
Gurley argues venture capital becomes uninteresting when peak years are stripped from forty-year assessments.
“And if you don't, if you aren't around for that part, you know, you strip those years out a forty year assessment, it's actually not that interesting an asset class, which highlights the need for venture funds to get liquidity at the peak.”
Gurley recounts PE firm making billion dollars on DoubleClick exit but struggling because it was in $4 billion fund.
“I said to him, I want to say, congratulations, man, that's incredible. He goes, well, it's in a $4,000,000,000 fund. Wow. Wow. You know? Yeah. So, That's you have an incredible outcome.”
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 that delaying exits from year ten to fifteen requires 2.5x higher returns to meet expectations.
“If you just take that 10% compounding, it now needs to be worth a $160 in year fifteen.”