E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner

Podcast Context & Guest Introductions

• Brad Gerstner (Altimeter Capital) and Bill Gurley (Benchmark) join hosts J.C. (Jason Calacanis) and David Sacks for a special "All-Star Summer" episode.
• Chamath Palihapitiya is absent, humorously noted as "missing somewhere in the Mediterranean" despite search crews being deployed.
• The hosts discuss a personal anecdote where J.C. received a $10 haircut from a "stoned" stylist at a teaching salon, contrasting the low cost with the poor service.

Bill Gurley's Current Activities & Book

• Gurley remains active on nine Benchmark board seats but has ceased involvement in Benchmark's next fund.
• He is angel investing at a reduced frequency ("1/100th" of his usual pace) and is co-writing a book on career success.
• The book's thesis focuses on chasing and succeeding in one's dream job, drawing from a speech given at the University of Texas Business School.
• Gurley cites "studying history" (specifically industry patriarchs) and aggressive networking as key career strategies.
• Recommended biographies for the audience include Shake Shack founder Danny Meyer's journey, Steve Jobs by Walter Isaacson, Elon Musk by Walter Isaacson (forthcoming), and Alexander Hamilton.

J.C. Calacanis's Book Strategy

• Calacanis plans to write a book on operating and scaling software companies, extending his blog content.
• Brad Gerstner advises Calacanis to write the book independently first, focusing on "war stories" and narrative rather than generic how-to advice.
• Gerstner suggests bringing in an agent and publishers only after the first five chapters and treatment are complete.
• Calacanis references Good to Great as a business book that was too theoretical, preferring biographies that show specific situational application of principles.

Biographical & Cultural Recommendations

• Akira Kurosawa: Sacks and Calacanis recommend his autobiography and films, noting Seven Samurai as essential viewing for founders to understand teamwork and persistence.
• Stephen King: On Writing is highly recommended for its narrative on the craft of writing and the importance of persistence (e.g., the Carrie manuscript story).
• Steve Martin: Born Standing Up is cited as a fantastic example of following passion and honing a craft.
• Malcolm X: Recommended as a biography of someone following their passion with extreme effort.
• Film Connections: Seven Samurai influenced The Magnificent Seven and Star Wars (via The Hidden Fortress). Ikiru inspired Breaking Bad. Throne of Blood and Ran are Kurosawa's Shakespeare adaptations.
• Cold Plunges: Sacks and Calacanis advocate for cold plunges and ice showers, noting physiological benefits (endorphin rush), while Bill Gurley remains skeptical of medical claims.
• Climate Change: Sacks expresses deep concern regarding global warming, citing specific data points: 155°F in Iran, 90°F ocean temperatures off Florida, and highest North Atlantic sea surface temperatures in history.

Venture Capital Market Data (Series A)

• Carta data reveals Series A rounds in H1 2023 saw a median raise of $7 million (down 26% YoY) and a pre-money valuation of $40 million (down 17% YoY).
• The median raise in H1 2022 was $11 million; the data suggests a return to pre-pandemic funding levels (circa 2019) rather than the 2021 bubble.
• Bill Gurley views the current environment as a "return to normalcy" with competition remaining fierce at the Series A level, though late-stage rounds have seen more significant capital drying up.
• David Sacks notes that early-stage fundraising is often based on "selling promise" (narrative), whereas later-stage rounds require "selling performance" (metrics like churn and retention).

Investment Strategy & AI Mania

• AI Sector: Sacks describes the current AI landscape as a "mania" with valuations resembling 2021 levels; Altimeter is avoiding the "craziness" and sticking to smaller seed checks ($500k–$1M) to maintain pricing discipline.
• Late Stage vs. Early Stage: Brad Gerstner observes that Series B/C rounds (under $600M) in data infrastructure and AI are "hot," with deals happening at zero to $3M revenue.
• Distress Cycle: Sacks predicts a 1–2 year period of distress for companies that raised at peak valuations (2020–2021), likely resulting in down rounds, restructurings, or mark-to-market losses.
• IPO Outlook: Gerstner forecasts 5–7 large IPOs in Q4 2023 and up to 10 in Q1 2024, noting that complex cap tables and liquidation preferences are pushing companies toward public markets to "clean up" their structures.

Venture Capital Ecosystem Dynamics

• Dry Powder Misconception: Bill Gurley clarifies that "dry powder" is not cash sitting in VC bank accounts; it is committed capital held by LPs (endowments, pension funds) and drawn down over 10 years.
• Valuation Marks: Private company valuations are often not marked down accurately due to conflicts of interest between GPs and LPs, and the lack of market-based pricing.
• LP Constraints: LPs face liquidity pressures due to the "denominator effect" (public market downturns inflating the percentage of VC in their portfolios) and mandatory annual distribution requirements (5%).
• Fund Deployment: Many VC firms are slowing deployment to 36–48 months to preserve liquidity and avoid running out of capital before raising new funds.

Market Sentiment & Macroeconomics

• Stock Market Recovery: The tech stock market has recovered significantly, with software stocks near all-time highs, making venture-backed companies more reflexively valued.
• IPO Windows: Bill Gurley argues that founders should go public sooner rather than later (e.g., at $100M–$200M revenue) to benefit from public market discipline and currency, though valuations will be reset lower than 2021 peaks.
• M&A Environment: Antitrust concerns (Lina Khan, EU) and complex cap tables are stifling M&A activity, further pressuring companies to IPO.
• Inflation & Rates: The market is betting on a "soft landing" or recession, with the "effective federal funds proxy rate" (including quantitative tightening) hitting levels unseen since May 2000.
• Global Debt: Record levels of household debt ($17.1T), mortgage debt, and credit card debt (25% interest rates) pose significant risks for consumer spending in 2024.

Historical Venture Capital Performance

• A chart shared by Gokul Rajaram shows that rebalancing into the top 10 tech stocks annually (QQQ) yields a 24x return over 20 years and 5.2x over 10 years.
• VCs must outperform this benchmark by a significant premium (25–30%) to justify the illiquidity and risk, a feat the current overfunded VC asset class struggles to demonstrate consistently.
• Bill Gurley notes that the "Dave Swenson" playbook of heavy illiquid asset allocation has become ubiquitous but may lead to volatile returns during market resets.

Global & Environmental Events

• Maui Wildfires: The hosts express deep sorrow over the destruction of Lahaina, Hawaii, linking it to broader climate change trends.
• China Economy: China recently reported actual deflation (CPI down 0.3% month-over-month), raising concerns about global demand and the effectiveness of monetary tightening.
• Extreme Weather: Sacks highlights record-breaking temperatures in the Middle East and rising sea surface temperatures as evidence of accelerating climate danger.

Closing Anecdotes

• Bill Gurley shares a story of being recognized in Austin by a fan who called him "the guy they talk about on All In," jokingly noting his tombstone should read "the guy they talk about."
• The group ends the episode with humorous banter, reinforcing their "Besties" branding and looking forward to future episodes.