Podcast, Interview, Fireside Chat, Roundtable, Panel, Other
E141: State of Series A's, VC dry powder, IPO window opens + more with Bill Gurley & Brad Gerstner
All-In PodcastBill Gurley, Brad Gerstner, Calacanis, Friedberg, Chamath Palihapitiya, David Sacks, J. Cal
- J-Cal plans to soon compile and write a book based on his blog regarding the creation and scaling of software companies and intends to resume his regular writing pace shortly.
- Brad Gerstner anticipates that a shorter version of his presentation will generate positive feedback, expects the Walter Isaacson biography of Elon Musk to cover the first month of the Twitter takeover and rocket launches, and identifies several films including "Seven Samurai," "Throne of Blood," "Ran," "Hidden Fortress," and "Ikiru" as influential for understanding character, teamwork, and potential inspiration for major media properties.
- Sax projects the venture capital market peaked regarding valuations and deployment in Q4 2021, fell throughout 2022, and is expected to have bottomed out by Q1 2023 with deployment stabilizing at pre-pandemic levels.
- The venture capital outlook predicts Series A rounds will remain competitive while late-stage rounds have dried up, with narrative-based companies finding it easier to raise capital than those selling on performance data, alongside a one-to-two-year distress period for companies raised during the 2020-2021 peak.
- Sax expects an AI mania with round sizes and valuations approaching 2021 levels, prompting seed checks calibrated to risk, while noting that waiting for later rounds in AI is inappropriate due to the lack of fundamental pricing.
- Brad Gerstner forecasts Series B and C rounds under $500 million or $600 million in data infrastructure, AI, and software to be exceptionally hot, expects activity in quasi-public deals with valuations exceeding $1 billion, and predicts 100% of the 1,000 unicorns from end-2021 will face down rounds as public and private marks normalize.
- Bill Gurley expects venture capital firms to deploy $100 million third funds over a 36-to-40-month period rather than 18 to 24 months, anticipates five to six drawdowns in a 10-year fund lifecycle, and notes that LPs are incentivized by paper marks rather than realized returns.
- Bill Gurley highlights a shift in the LP base toward traditional endowments, family offices, and sovereign wealth funds that require steady deployment, predicts five to six large IPOs in Q4 and nearly ten in Q1, and asserts that boards will view down-round IPOs as a healthy mechanism to clean up capital structures.
- Sax expects the total number of companies capable of 100x upside in venture history to be only 10 to 15, advises selling assets like Coinbase or SpaceX upon public listing rather than holding indefinitely, and views the current environment as the worst software recession since the dot-com crash.
- Brad Gerstner notes that US IPOs totaled 480 in 2020 and 1,035 in 2021 but fell to 181 in 2022 and 123 so far in 2023, with the M&A market stifled by regulatory concerns, while Instacart is expected to go public around $10 billion, representing a significant reset from its prior valuation.
- Sax anticipates continued distress due to the "denominator effect" causing domestic LPs to slow venture allocations, believes the industry was overvalued in 2021 and overshot in 2022 public corrections, and expects to generate alpha by picking individual winners in the public markets.
- Brad Gerstner projects the venture capital industry deployment peaked at $350 billion in 2021, dropped to $250 billion in 2022, and has returned to the 2019 steady state of approximately $150 billion a year.
- Brad Gerstner argues that comparing venture returns to the S&P is naive, suggesting a 25-30% premium is required over a QQQ benchmark, and expects the 1,000 unicorns to struggle transitioning from "growth at all costs" to principle-based execution.
- Bill Gurley expects the stock market to be near all-time highs while venture markets remain reflexive, noting that larger fund sizes create principal-agent problems where younger partners require winners to support high cost bases, and that some sovereign wealth funds may discourage rapid deployment.
- Sax expects enterprise buyers to be in austerity measures, consolidating vendors and impacting companies selling to startups, while Brad Gerstner anticipates fewer new funds and a higher fundraising bar over the next couple of years.
- Brad Gerstner asserts that public market information access differs from private markets where investors must be vetted for legal risk, expects major slowdowns in China, and cites specific global events like the Maui wildfires and high temperatures in southern Iran.