Gerstner argues large investors must be in private markets to capture value; notes inability to sell as advantage.
“If you want if you're Fidelity, if you're TRO, if you're one of these companies that wants to participate in all of that value creation, you can't not be in the private markets.”
Gerstner refuses late-stage investment now due to lack of price discovery, expects real pricing this fall.
“This fall is when we'll start to see real price discovery. You couldn't pry a late stage dollar out of my hand right now because I don't think we have real price discovery going on.”
“What I would tell you is under 500,000,000, maybe under 600,000,000. Right? Series b and c rounds are as hot as I've ever seen them in data infrastructure and AI and software, etcetera.”
Gerstner argues pensions and sovereign wealth funds now dominate venture LP base, creating deployment pressure.
“And so, again, I'm not saying this for certain, and, certainly, there are more discerning sovereign wealth funds”
Gerstner argues Google 2004 IPO investors captured 90 percent of internet search profits, illustrating patience in venture.
“You could have waited to invest in Google in 2004 and their IPO and you would have captured 90 plus percent of all the profits ever generated in internet search.”
Gerstner argues high valuations force you to double that number, so $100B becomes $200B, distorting strategy.
“it forces the business strategy to fit that outcome. And worse yet, Dara, not only do you have to get to that number, you have to double that number.”
Gerstner describes recent AI startup fast failures including Inflection, noting venture returns are now off the table.
“So, we've had what I call these fast failures. You might maybe the inflection team will get their money back, but that's not what Venture is about.”
Gerstner argues closed AI models will struggle to get funding as large CapEx spending clears the market of competitors.
“So I think to your point, by throwing down on the CapEx that you're going to spend, you are clearing the market of potential competitors.”
Gerstner argues excess capital distorts company behavior and makes it difficult to stay efficient when all options can be funded.
“It's not impossible, but it's very difficult to stay fit and efficient when you have a buffet of all options sitting in front of you and you can fund all of them.”
Gerstner notes AI funding in 2023 was $28 billion over 700 deals, with 65% going to five or six companies.
“I think AI funding in twenty twenty three, four x, you know, 28,000,000,000 and over 700 deals.”
Gerstner notes four coding AI companies each raised over $400 million, questioning sustainability of further funding rounds.
“There's four companies in the coding AI space that raised over 400,000,000 each. You you think there'll be another round behind that?”
Gerstner argues taxing unrealized gains would require forced liquidity and create situations where people pay taxes then lose everything.
“And then the third point, which you just mentioned, there would be numerous situations where you'd have people pay a tax and then the valuations would collapse.”
Gerstner says venture capital grew from $100 billion to $300 billion over ten years, now back to pre-COVID levels.
“There's no doubt that VC has grown from 100,000,000,000 ten years ago to 300,000,000,000 over the last ten years. Right?”
Gerstner argues venture capital remains at $300 billion pre-COVID levels, claiming the market hasn't actually grown much.
“And so while we call all of this venture, Bill, one of the big differences I have here, and I've said many times, is that the venture market really hasn't grown that much.”
Gerstner calculates that raising $5 billion every two years generates $1 billion annually in management fees alone.
“if you're on a run rate where you're raising $5,000,000,000 every two years. Okay? So give or take, that's, you know, $50,000,000,000 over a ten year period of time.”
Gerstner notes OpenAI reached $4.5 billion revenue faster than Google or Meta, justifying larger fund sizes.
“OpenAI got to, you know, $4,500,000,000 of revenue in a fraction of the time it took Google and Meta.”
Gerstner says OpenAI and Anthropic deals are bigger private IPOs than any public tech IPO in five years.
“I think these are bigger private IPOs than any public IPO done in the last five years in the tech market.”
Gerstner says over a thousand billion-dollar-plus companies in Silicon Valley are trying to raise capital and will face significant washout.
“There are over a thousand of those in Silicon Valley, over a billion dollars that are trying to raise capital right now.”