Gurley argues current risk bubble differs from 1999 because investors now put hundreds of millions into four-year-old private companies.
“But you didn't have a situation where people were putting $102,103 $104,109 $1,001,000,000,000 dollars into a private company who might only be four years old. These companies just haven't had the time to mature.”
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 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 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 explains unicorns from 2019-2021 have complex cap tables with different liquidation preferences making new rounds difficult.
“But those because those companies grew up in the ninety nine, twenty twenty one timeframe where you could raise money at excessive valuation, their cap charts are very complex and rigid.”
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 asks what percentage of 1,400 pre-LLM private unicorns could raise up rounds today.
“What percentage of those could raise an up round right now? Yeah. What is the number?”
Gurley says late-stage investors force-feed capital to companies based on power law beliefs in unprecedented ways.
“It's it's it's just worse as it's ever been, where because you have these monolithic late stage players who believe in power laws, believe in network effects,”
Gurley states over a thousand private unicorns have average growth rates below 10 percent.
“There's over a thousand private unicorns. Some people estimate that the average growth rate, which we should talk about because it ties into unit economics and pragmatism, is below 10%.”