Gurley argues companies benefit from going public before M&A to let markets establish price and then capture premium.
“I think they were way better off having gone public prior to the sale to let the market establish a price and then get a premium.”
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 argues organic versus bought traffic is a critical distinction for valuing Internet businesses.
“One that one that I think people really should focus on is where, especially for these Internet businesses, is whether traffic is organic or bought.”
Gurley argues marketing-heavy companies rent customers and should trade at lower multiples than organic-growth companies.
“I don't see any reason why a company that's heavy on marketing will get the same kind of multiple as someone with an organic customer base.”
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 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 calculates that owning 80% of a $30 million exit yields $24 million for the entrepreneur.
“And so if you have a killer product that might elicit a $30,000,000 exit and you can bootstrap and hustle your way and own 80% of it, you know, 80% of 30,000,000 is $24,000,000.”
Gurley states most acquisitions are $20-70 million, but venture backing raises expectations to $150 million or more.
“The number one type of acquisition that the big companies like to do is twenty to seventy million dollars and the minute you take venture, they help you raise the B and all of a sudden everyone's expectation is it's got to be 150 or more or we're not saying yes.”
Gurley calls late-stage private market of past two years the most reckless investment behavior since the bubble.
“I think if you look back, could say over the past two years, the most reckless investment behavior we've seen since the bubble was the late stage private market of the past two years.”
Gurley traces late-stage private market boom to Yuri Milner's contrarian Facebook bet below ten billion valuation.
“And a very, very smart man, Yuri Milner makes a bet on Facebook at a price that seems fairly high.”
Gurley says capital available to late stage private companies is unbelievable with behavior reminiscent of the late nineties.
“the amount of dollars available to successful late stage private companies is unbelievable. And the behavior that you'll see for the competition in those dollars is very reminiscent of the late 90s.”
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 the late stage private market is the frothiest he has seen since the late 1990s.
“the late stage private market continues to be the most frothy thing I've seen since the late '90s.”
Gurley cites JPMorgan research showing 15% of companies lose 70% of value annually, now invisible in private markets.
“And that's happening in the private market, just like the public market, but it's invisible.”
Gurley claims only three to five companies per decade sustain market caps of $50 billion or greater.
“And what I think is really interesting, if you think about value creation, in any decade, are really three to five companies that sustain $50,000,000,000 market caps or greater.”
Gurley criticizes Silicon Valley's crude valuation approach, where entrepreneurs expect 10x revenue regardless of business model quality.
“I've always felt Silicon Valley has a very crude understanding of valuation. Most entrepreneurs think they all deserve 10 times revenue and also with zero regard for what the revenue is.”
Gurley criticizes entrepreneurs who seek 10x revenue valuations regardless of business quality, citing his blog post analyzing public tech multiples.
“Most entrepreneurs think they all deserve 10 times revenue and also with zero regard for what the revenue is.”
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 notes Lemonade, Unity, and Palantir are down 60% but still trade at 20 times sales.
“I was looking at some of the stocks that are outliers on price to sales and lemonade, unity and Palantir, which have come in 60% are still at 20 times over sales.”
Gurley notes Lemonade, Unity, and Palantir are still trading at 20 times sales despite falling 60%.
“And yesterday in preparing for this, I was looking at some of the stocks that are outliers on price to sales and lemonade, unity and Palantir, which have come in 60% are still at 20 times over sales.”
“And I said, well, what does Airbnb have to accomplish to earn out this valuation that it has?”
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 the abrupt nature of risk-off cycles requires rapid mental adjustment, creating structural problems for cap tables.
“And the thing that's really tough about that is it requires a mental adjustment very quickly.”
“And so now all of a sudden, the buy side's asking SaaS companies about net dollar retention, about long term operating margin, about whether their free cash flow is greater or less than their net income, about SBC as a percentage of free cash”
“And so what really values companies, you know, it's typically a discounted cash flows. And so now all of a sudden, the buy side's asking SaaS companies about net dollar retention, about long term operating margin, about whether their free cash flow is greater or less than their net income, about SBC as a percentage of free cash”
Gurley tells entrepreneurs the 2020-21 boom was a fantasy, not normal, and current conditions are reality.
“Then I'm not the only one, there's other VC's getting, this is normal dude. Like that was a fantasy you were in and you need to forget it fast, but you can't.”
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 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 states valuation crashes are industry-wide and unrelated to individual company operations, requiring navigation not wishful thinking.
“They can't magically wish for the valuation they want to add because it's not actually related to how they're operating.”
Gurley observes tech valuations rise slowly but crash immediately, and he has now seen this pattern three times.
“it tends to go up slowly, and it tends to crash immediately. And so this is the third time I've seen valuations crash,”
Gurley says Silicon Valley rushes to price-to-revenue multiples because it's the crudest, least intelligent valuation method.
“I've always said that Silicon Valley has the crudest kind of least intelligent view of valuation. They always rush to price to revenue because it's easy and because quite frankly, it's easier to be optimistic.”
“Like like, you're just fooling yourself. Right? In fact, like, because of a a lack of liquidity premium, you're probably worth less than that public company.”
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 private companies with low growth rates are no better off than public ones with same metrics.
“But guess what? If you're private at a 100,000,000 revenue with a 10% growth rate, it's not like you're better off.”
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 states there are approximately a thousand private companies valued over a billion dollars pre-LLM.
“There's somewhere around a thousand. So these are a thousand private companies that have raised money over a billion dollars.”
Gurley argues GPs self-report private investment valuations to LPs with no incentive for accuracy.
“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. They get to pick it.”
Gurley identifies approximately 1,000 private companies valued over $1 billion 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. Let's just say it's near a thousand.”
Gurley notes OpenAI is being funded at $300-500 billion pre-money valuation by proven multi-decade investors.
“They clearly like, you're not funding something at 300,000,000,000 pre, 400, 500,000,000,000 pre if you don't already believe that.”
Gurley cites AI company jumping from $100K seed valuation to $300M Series A with $10M raised.
“I heard just this week about a company that did a seed at a 100 pre and is doing their a for 10,000,000 at 300 pre.”
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 explains tech valuations depend on terminal value, so existential concerns collapse price-to-earnings multiples dramatically.
“for most of these high-tech companies, the next five years cash flow are a fraction of their actual market cap, which means all the values in the terminal value.”
Gurley explains tech stock selloffs occur because terminal value collapses if AI threatens twenty-year survival.
“And for most of these high-tech companies, the next five years cash flow are a fraction of their actual market cap, which means all the values in the terminal value.”
Gurley knew Uber was already 20x bigger than taxi market in San Francisco when professor valued it at $4 billion.
“I already knew in San Francisco that Uber was 20 x bigger than the taxi market. He didn't know that.”
Gurley argues most US endowments and foundations are over-invested in private markets with no incentive to get paper marks right.
“And I think that the way the industry is structured in this would require longer conversation. There's no incentive for the operators inside of the endowments or foundations to get the paper marks right.”
Gurley wrote a post debunking an NYU professor's analysis that Uber would never exceed $4 billion in value.
“He published this piece that said Uber would never be worth more than $4,000,000,000 And I wrote one of my favorite blog posts ever titled How to Miss by a Mile, where I took apart his analysis and tried to well, I had a little I had an unfair advantage.”
Gurley wrote How to Miss by a Mile critiquing NYU professor's claim Uber would never exceed $4 billion valuation.
“He published this piece that said Uber would never be worth more than $4,000,000,000 And I wrote one of my favorite blog posts ever titled How to Miss by a Mile, where I took apart his analysis”
Gurley found Dell trading at six times earnings after laptop fire and option hedging problems.
“It was trading at six times earnings. Their laptop had caught on fire, and they had this option hedging strategy gone awry Uh-huh.”
Gurley reports 98% of VCs focus solely on AI and non-AI company valuations halved in five weeks.
“98% of venture capitalists are only looking at AI and they're AI all day long, they don't wanna see another business and and and in the past five weeks, the valuations on the non AI companies have been cut in half”
Gurley says non-AI company valuations have been cut in half in past five weeks due to VC focus on AI.
“in the past five weeks, the valuations on the non AI companies have been cut in half and so that mentality is gonna be reinforced even more and so there's just no oxygen.”
Gurley claims 98% of VCs focus only on AI and non-AI valuations were cut in half in five weeks.
“98% of venture capitalists are only looking at AI and they're AI all day long, they don't wanna see another business and and and in the past five weeks, the valuations on the non AI companies have been cut in half and so that mentality is gonna be reinforced even more and so there's just no oxygen.”
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 argues circular deals explain why Nvidia's multiple won't go higher despite strong growth.
“People wanna understand why the Nvidia multiple won't go higher. I think it's the circular deals. Like if they're not material, don't do them.”
Gurley explains private cap tables are structured to only go up, unlike public stocks.
“private one last thing. Yeah. Sorry. Private cap tables are not structured very well to go down.”
Gurley warns that higher valuations create higher expectations where slight missteps put companies underwater.
“Valuations represent discounted future expectations. So the higher the valuation you take, the more is expected of you and the slight misstep and you could be way underneath.”
Gurley warns that high valuations represent discounted future expectations, creating risk for founders.
“The other thing that founders should always realize that they unfortunately, especially young ones, don't understand. Valuations represent discounted future expectations.”
Gurley says most VCs are so focused on AI that non-AI companies can't raise money at any valuation.
“So you really have this massive black, white, have, have not situation where the AI companies are raising money at crazy valuations and the non AI companies can't raise money at any valuation.”
Gurley says Uber in San Francisco was 20 times bigger than the taxi market, proving TAM conservatism wrong.
“By the time I wrote that, I already knew that Uber in San Francisco was 20 x bigger than the taxi market in San Francisco.”