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‘If you’re going to build something from scratch, this might be as good a time as in a decade’

Bill Gurley is one of Silicon Valley’s most respected venture capitalists. As a general partner at Benchmark, Gurley has backed a blessing of unicorns, including Grubhub, Liveops, Nextdoor, OpenTable, and, most famously, Uber.

Gurley has often been a voice of reason amid Silicon Valley overexuberance and has tweeted regularly in 2022 about the need for start-ups to be realistic about the current economic environment. While many venture firms have a lot of money to invest, dealmaking has slowed considerably this year. Average valuations of some fundraising rounds have dropped as investors adjust to an economic slowdown and look warily ahead. But being realistic doesn’t necessarily mean being pessimistic: in some ways, says Gurley, this may be a great time to launch a start-up. Gurley recently joined Quarterly editorial director Rick Tetzeli for a wide-ranging discussion. An edited version of their conversation follows.

Rick Tetzeli: Thanks so much for joining me to talk about start-ups at what seems to be a particularly challenging moment. As if to prove the point, an alert just popped up on my screen: Robinhood is laying off 23 percent of its workforce.

Bill Gurley: Wow. Layoffs happen so infrequently. In ’01 and ’09, you had broadscale layoffs, but only now are we starting to see them this time around. Well, 23 percent is getting into a range that actually makes sense. Is this their second layoff?

Rick Tetzeli: Yes, unfortunately. They did 9 percent earlier.

Bill Gurley: See, that’s the thing. I hate the 5 to 10 percent layoffs. You don’t get any material impact to lowering your expenses. Yet you get all the cultural negatives of having done a layoff. You get 100 percent of the pain and very little gain. And then you’re in retweet land—you end up with two or three of them. Anyway, that wasn’t on your original list of questions.

Rick Tetzeli: No, it’s not. It just happened. But it’s a bracing lead-in to talking about how difficult things might be for start-ups during what seems to be a time of great uncertainty. Many people feel that the externalities affecting so many businesses—whether it’s the war in Ukraine, inflation, geopolitics, changing labor patterns—seem more complicated now than they have been in a long time. Do you agree with that? Do you think we’re entering a period of extended uncertainty?

Bill Gurley: It’s funny. Three or four years ago, I felt, like many others, that the really big problem was the zero-interest-rate thing, this prolonged period of near-zero interest rates. I even paid a massive amount of money to end up at this dinner with Warren Buffett, where we each got to ask him one question. My question was, “You know, if interest rates are zero, (1) your DCF model [which emphasizes discounted cash flow as the basis of valuations] doesn’t work, and (2) it drives all kind of speculation.” And he said, “You betcha!”

I also spent time tracking down Howard Marks and Stanley Druckenmiller because I think there are so few people who have proven that they have a valuable point of view on macro. There are just so many variables with macro. You can fool yourself. I’ve felt that ever since my MBA macro class.

So I’m hesitant to answer your question. That said, clearly you’ve had rates going up, which hasn’t happened in a very long time. That has had consequences on car loans and mortgages and corporate debt. And it should rein in speculation—it probably has already. China decoupling from the West is pretty scary, given that sharing and trading has a positive impact for both societies. If that were to escalate simultaneously with, say, Europe getting worse and maybe something in Taiwan being provoked, that could all be super bad.

Having said all that, I have two things in the back of my mind that relate to start-ups and the start-up ecosystem.

First, Stephen Covey used to talk about your circle of influence, and Buffett talks about your circle of competence. Macro things are not things that start-ups can impact or control. So there’s not much reason for them to affect your thoughts about whether you would start a company or not. They might add anxiety, but I don’t know that they have any real impact.

Rick Tetzeli: Because it’s still about the idea. And the idea is good regardless.

Bill Gurley: Right. Second, the environment for launching a start-up was really crazy the past five years. And the truth is that if you’re going to build something from scratch, this might be as good a time as you’ve had in a decade.

Real estate? You can get all the real estate you want. People used to fret about lease cost, but that’s all gone. And while people get caught up on whether the money’s cheap or not, getting rid of the distraction of all that cheap money may be a good thing. That whole mentality of, oh, your competitor raised $100 million, now you have to raise $100 million. All those things have evaporated—for the better, I’d say.

A huge thing is that your access to talent is way better. It was so hard to get, but now it’s a lot cheaper than it was. There are layoffs happening. And then hybrid has opened up the people you can get. I’ve heard some pretty amazing stories. Jennifer Tejada, who runs PagerDuty, says they went into the pandemic at 85 percent Bay Area employees and came out at 25 percent. If you need an iOS programmer within 20 miles of your Silicon Valley location, that’s way harder than if you can shop globally for that.

Rick Tetzeli: Let’s stick with hybrid for a second. Do you think it will affect the culture of start-ups?

Bill Gurley: Whether hybrid is good or bad is one of the biggest unknowns coming out of the pandemic. There are some pretty hard-core enterprise-type founders who say, “Everyone’s back in the office.” And then there are people whose business is positively impacted by hybrid work. It’s all over the map. I remember asking [Matt Mullenweg,] the CEO of WordPress, which has been 100 percent hybrid its whole life, about this before the pandemic. And he said that you need to be all or nothing, that when you’re in the middle ground you get into these weird cases of cultural confusion, where, for example, cliques can develop if someone’s not there. That’s why some people have a rule: all in person or no one in person. But I don’t know what makes sense.

The number-one thing people at start-ups worry about is missing out on serendipity—just some random conversation between two people who were out visiting a customer and then said, “Oh, wait, what if we did this?” and it becomes critical to the company’s success. That’s far more likely in a start-up than in a big company. But, ultimately, hybrid is really a founder-centric decision.

Rick Tetzeli: The pace of IPOs has slowed enormously this year, and valuations have collapsed. Earlier this year, you tweeted, “An entire generation of entrepreneurs and tech investors built their perspective on valuations during the second half of an amazing bull market run. The ‘unlearning’ process could be painful, surprising, and unsettling to many.”1 Is this a reset like 2001 and 2008–09? How painful might it be? And have you learned things from the past downturns that apply here?

Bill Gurley: This one is different in a couple of ways. In 2001, there were a lot of nascent companies going public with, like, $1 million in revenue. That’s not the case this time around. Here, you’ve had a lot of companies with huge amounts of revenue, some with massive losses. There has been a huge volume of capital, and the scale of the companies is radically different. Some have raised $500 billion, $3 billion—there was no precedent for sums like that. And some of that money might be dead money.

Then there’s the fact that this run went on longer than people thought. That may well make the pain a little bit bigger. It also means that there’s less institutional memory.



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