VC Bill Gurley
Tries to Bust the
A prominent Silicon Valley venture
capitalist argues that tech startups are
overvalued, profits are underrated, and a
bust is coming.
● Since last year, Bill Gurley—a partner
at the venture capital firm Benchmark,
known for early investments in Uber,
OpenTable, and Zillow—has stood out
from his VC counterparts for his insistence
that there’s a bubble in tech startup valuations. In particular, he says “unicorns”—
startups valued at $1 billion or more—are
the most visible sign of an explosion in
valuations that he thinks will end in a bust
just as surely as previous bubbles did.
Nonetheless, Gurley told contributing
editor Robert Hof he remains optimistic that entrepreneurs will keep innovating even in a downturn. He highlighted
innovations in his own field, such as
Internet-driven crowdfunding and early-stage startup incubators, that are opening
entrepreneurship to more people.
You’ve complained for more than a year
that we’re in a tech-startup investment
bubble. Why does that concern you so
Great entrepreneurs are relatively disadvantaged in these markets where so much
capital is available. In a market where
capital is hard to come by, they can still
raise money. In this market, they can raise
a ton of money, but so can a lot of [less
capable] competitors that wouldn’t be in
Many investors say seemingly excessive
valuations of startups are actually
justified because they have real
revenues and growth prospects.
Imagine two companies. One is told, “I
want you to get to $100 million in rev-
enue and you have to be profitable when
you get there.” The other is told, “I want
you to get to $100 million in revenue and
I don’t care if you lose $40 million get-
ting there.” Which of those two exercises is
harder, and by how much? I would argue
it’s at least 10 times harder to do the first.
Until you can prove that you can generate cash flow, you don’t have a sustainable business. No matter which of these
unicorn boardrooms you walk into, everybody thinks it’s perfectly okay to burn tons
Amazon was losing lots of money years
ago but managed to create a huge,
Look what they had to go through. The
stock went from $106 [in December
1999] to $6 [in October 2001], a 94 percent reduction in market value. They had
to lay off 1,300 people, 15 percent of the
head count. I don’t think there’s a single
unicorn out there that’s thought in their
mind, “Wow, what if my market cap goes
down by 94 percent?”
But if you don’t join the race, you can’t
win it, right?
Once your competitor raises $400 million, you don’t get to choose whether
you’re in that game or not. But I’ve lived
through crashes and it sucks. When these
markets correct, they correct hard. There’s
no soft landing in Silicon Valley.
Despite your warnings, startups continue
to get big funding. Do you wonder if
you’re still right?
No. There have been some signs very
recently of a shift in the winds. You’ve got
the stock market down dramatically for
the year. You’ve got contraction of mul-
tiples [valuations that are a smaller mul-
tiple of annual sales than they were a few
months ago] in most of the tech startups.
I’ve seen venture companies that normally
would keep all the deals for themselves
start soliciting other people’s money to
help fill up new rounds.
Would a bust cool spending on
Good companies are started in all parts
of the cycle. Capital is cyclical, but I don’t
think innovation has ever not happened
in Silicon Valley.
How has venture capital changed in the
face of alternatives such as incubators,
super-angel investors that put small
amounts of money into early-stage
startups, and crowdfunding?
Six or seven years ago all of our limited
partners got scared because there was this
notion that the super-angel was going to
get rid of the venture capitalist. It didn’t
play out that way. Only a handful have
If you’re an inventor, the crowdfunding thing is cool because you probably
couldn’t have gotten an [initial round
of venture capital] and you might succeed [with crowdfunding]. I think that’s
great. Y Combinator is also an innovation.
Venture is a business that is not really
prone to systemization. [Benchmark co-founder] Bob Kagle used to call it a shoe-leather business. So anyone who builds a
new type of system is interesting. But we
do have a fundamental belief that company building is an art, not a science.
Where would you like to see more
Health care. The tools like the smart-
phone that have disrupted other indus-
tries should be so useful in solving the
health-care problem. But most of the
startups we find have basically discov-
ered some opportunity to help one of the
incumbents maximize their value extrac-
tion in the system. They use the technol-
ogy to make the system worse as a whole
rather than better. R O