E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner
All-In with Chamath, Jason, Sacks & Friedberg Podcast Recap
Published:
Guests: Bill Gurley, Brad Gerstner
What Happened
Bill Gurley, a prominent venture capitalist from Benchmark, is currently serving on nine boards and is in the process of writing a book on how to pursue and succeed in one's dream job. This project is an extension of a speech he delivered at the University of Texas Business School and emphasizes the importance of studying history and networking as critical components of his career. Gurley also made a comparison between angel investing and venture capital, noting that his own pace of angel deals is about 1/100th that of Jason Calacanis.
The episode provides a detailed analysis of the current state of Series A funding, revealing a 26% year-over-year decrease in the median round size to $7 million, with pre-money valuations at $40 million, down 17%. Despite these decreases, Gurley notes that the Series A market remains competitive, while late-stage rounds have experienced a notable decline in available capital. The discussion highlights how early-stage companies continue to secure funding based on potential rather than performance, though there is a temporary period of distress predicted for companies that raised money during the 2020-2021 peak.
David Sacks reflects on the venture capital market's peak in Q4 2021 and its subsequent bottoming out in Q1 2023. He observes a stabilization in venture capital markets for new companies, while noting a resurgence in interest for AI-related startups, drawing parallels to the market frenzy of 2021. Seed rounds for AI companies are preferred, as later rounds suffer from inflated valuations not grounded in market fundamentals.
The IPO market is cautiously reopening, with companies like Arm, Instacart, and Stripe considering public offerings. This resurgence in IPO activity is seen as a potential solution to clean up complex cap tables prevalent in many private companies. High-quality IPOs are expected to return as the market normalizes, with predictions of 5-7 significant IPOs in Q4 and about 10 in Q1 of the next year. Gurley advocates for companies with $100-200 million in revenue to go public to harness the discipline of public markets.
The episode touches on the impact of the Federal Reserve's monetary policies, which previously inflated public markets and venture capital, leading to substantial returns for endowments. The drying up of LP commitments due to the Denominator effect is also discussed, as the value of portfolios declined while VC commitments remained high. The software industry is experiencing a significant downturn, likened to the dot-com crash, with layoffs and a shrinking market size.
The hosts discuss various influential books that have shaped their thinking and strategies. Bill Gurley cites 'Setting the Table' by Danny Meyer as a key influence, while David Friedberg mentions Walter Isaacson's biography of Steve Jobs as transformative for his management style. Jason Calacanis recommends 'Born Standing Up' by Steve Martin and 'On Writing' by Stephen King, highlighting their insights into honing one's craft and the writing process.
Key Insights
- Bill Gurley is focusing on a book about achieving dream jobs, expanding on a speech he gave at the University of Texas Business School. He emphasizes the importance of understanding history and building networks in one's career.
- Series A funding rounds have seen a decrease, with median round sizes dropping by 26% to $7 million and pre-money valuations falling by 17% to $40 million. Despite the decrease, Series A rounds remain competitive compared to later-stage rounds, which face a significant drop in capital availability.
- The IPO market is reopening, offering a chance to resolve complex cap tables in private companies. Companies like Arm, Instacart, and Stripe are considering public offerings, with expectations of several significant IPOs in the coming quarters.
- Venture capital markets have stabilized post-2021 peak and 2023 bottoming out. The AI sector is experiencing a resurgence similar to 2021's frenzy, with seed rounds favored due to later rounds' inflated valuations.
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