Gurley explains VCs can only join about two boards per year, unlike public investors evaluating unlimited positive-IRR opportunities.
“If it's positive IRR and I'll make 14%, I'll do it. Yep. But venture capitalists have a limited number of boards they can go on, probably two a year.”
Gurley explains VCs can only join two boards yearly so must emotionally commit, not just meet hurdle rates.
“But venture capitalists have a limited number of boards they can go on, probably two a year. And and so they don't have limited shot unlimited shots on goal.”
Gurley explains VCs invest in only two boards yearly requiring emotional commitment not just IRR.
“venture capitalists have a limited number of boards they can go on, probably two a year. And and so they don't have limited shot unlimited shots on goal.”
Gurley says venture capital is getting more risk seeking due to belief in power laws.
“the venture capital community as a whole is is getting more risk seeking and taking on more risk because of their knowledge of how things have played out in the past.”
Gurley explains venture capitalists live in fear of missing the one or two asymmetric deals each year.
“Once again, because of this asymmetric outcome thing, live in fear of missing this one or two deals a year. There's like, how could you possibly minimize the chance of not finding that?”
Gurley says aging venture capitalists build mental models that create cynicism, causing them to miss disruptive innovations.
“I think, and this all goes back to the asymmetric optimism thing, as you get older, you build more mental models and you become more cynical.”
Gurley invokes Carlota Perez to argue real disruptive waves attract speculators and charlatans, creating bubbles alongside innovation.
“And what happens is with a wave that's real, people get rich quick. When people get rich quick, fools rush in. Like speculators, charlatans, they come in.”
Gurley says AI wave threatens more broadly than previous tech waves like PC, internet, or mobile.
“And the past week in the financial markets, like a whole bunch of companies, you know, traded down because of fear that this would would disrupt them.”
Gurley says venture funding is now completely preemptive with investors forcing money on companies.
“So the the the the days when the company would run out of money or get close to running out and decide, oh, we're gonna go raise now is over. Like, the the it's preemptive.”
Gurley recalls knowing Benchmark would fund WeWork at Series A despite never doing real estate deals.
“Now keep in mind, Benchmark's never done a real estate transaction in the history of the firm. And we're about thirty minutes into the presentation. This is series a.”
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 argues excessive capital availability forces all-or-nothing strategies, with AI companies burning $100-150M annually versus traditional company building.
“Traditional company building isn't spend a 100 or 150,000,000 a year in cash burn, but all the big AI companies are doing that, maybe more.”
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“He said, the head of the world's largest sovereign wealth fund said the clock is ticking for private equity and join the chorus of investors who've grown worried about the industry's valuation practices.”
Gurley observes venture's loose money trend has persisted beyond the zero interest rate period unexpectedly.
“There's been a trend in venture recently. Recently. I I thought thought it it was was the the zero zero interest interest rate rate thing that caused it, but it's sustaining beyond that.”
Gurley says every VC speaking publicly is performing for entrepreneurs they haven't met yet.
“Every venture capitalist, when they open their mouth in front of a microphone, which I guess I'm doing right now, is talking to the entrepreneur they haven't met yet.”
Gurley says venture capital must be measured over 20-40 years, longer than most employees stay.
“You got to look at it over twenty to forty years, which is really bizarre because most firms don't have employees that long.”
Gurley argues excessive capital availability lets entrepreneurs run without discipline since they never get regraded.
“I guess the thing I would say is that, you know, the excessive amount of capital that's been available to Silicon Valley has allowed a lot of entrepreneurs to run without much discipline because if you if if you're not running out of money, you're not constantly being regraded”
Gurley recounts being told to work twenty years before entering venture capital.
“I went and talked to some of the Austin Ventures partners and I said, I want to get into venture, what should I do?”
Gurley says boardroom strategy is only about 5% of the venture business.
“I often hear people describe venture and they think about sitting around in board rooms thinking up cool strategies. That's probably 5% of the business at best.”
Gurley says most venture capital work involves selling and convincing people.
“You're trying to convince, you know, to close an investment opportunity, you're trying to close an executive, you're trying to close a biz dev deal,”
Gurley recalls predictions from five years ago that venture capital would become obsolete due to cheap startup costs.
“If you go back about five years, a whole bunch of people said, well Venture's dead because there's infinite angel money and you can start a company for cheap and you won't need Venture anymore.”
Gurley argues that while starting is cheap, scaling a company requires both capital and expertise.
“And what I think has come out of it is that you may be able to start a company for nothing but if you want to scale a company you will need capital and you'll need expertise to scale it to the next level.”
Gurley argues scaling requires capital and expertise even if starting a company is cheap.
“I think has come out of it is that you may be able to start a company for nothing but if you want to scale a company you will need capital and you'll need expertise to scale it to the next level. Not every single player, Benioff who got it up without venture”
Gurley explains that the financial crisis caused institutional investors to drastically reduce venture capital allocations.
“When the financial crisis happened, that model kinda came undone, and everyone has drastically reduced the amount of money they allocate to this category.”
Gurley says venture firm count has shrunk dramatically after endowments reduced illiquid asset allocations post-2008.
“And as a result, the number of venture firms has begun to shrunk rather dramatically.”