In an opaque market that has the world unsettled, Benchmark Capital’s Bill Gurley has been doing his part to be more transparent. In early October, representing his firm, he sent an email to Benchmark’s portfolio company CEOs, letting them know that while Benchmark remains supportive, it predicts a long and bumpy road.
Gurley, a top-ranked research analyst at Credit Suisse First Boston in the mid-1990s, was at Hummer Winblad Venture Partners in San Francisco before joining Benchmark in 1999. Senior Editor Constance Loizos asked him six quick questions.
Q: How long will this recession last?A: Years. That would be my best guess. I don’t have a crystal ball, but certainly public stock investors think so.
Q: How is the financial slowdown affecting Benchmark?A: We’re certainly cognizant that valuations having fallen, so we’re talking to public companies about whether they need funding. We haven’t done a PIPE, but we’re open to it. It’s like Warren Buffet has famously said: ‘You want to be greedy when other people are fearful, and fearful when other people are greedy.’ People are very fearful right now.
Q: Will you continue to do early stage?A: Now is a great time to do Series A type stuff. One of the things that happens when you have peak-and-trough venture cycles is that peaks attract a lot of people who aren’t hard-core entrepreneurs. In troughs, you see tried-and-true entrepreneurs, and that’s where we are at this moment. Besides, if you’re funding a true Series A deal that’s two or three years from first revenue, you aren’t subject to what’s going on right now.
Q: As a former analyst, do you buy into the argument that regulations are hamstringing the IPO market?A: Great companies will always have the ability to go public. But, yes, I agree with that argument, totally. If you go back to 1993 and ask any top executive at a startup what they want to achieve one day, a ton would say, ‘I want to take a company public.’ It was a badge of honor, like aspiring to enter the pro leagues. That aspiration is gone. Regulations have made it much less fun and much more difficult.
Q: As consumer spending crashes to a halt, what does that mean for Benchmark’s consumer-focused portfolio?A: The portfolio balance at Benchmark has always been misunderstood. Consumer has never been more than 20% to 25% of our deals. Are consumer companies more apt to be hit than enterprise companies? I don’t know that there’s safety in either. Consumers are certainly less immediately able to spend, but as soon as they pull back, other companies contract. So I don’t know that one sector is better off than any others right now.
How are LPs being affected?A: For the past 10 or 15 years, the venture industry has certainly been over funded. So I think the potential exists in this scenario where you actually, for the first time in a long time, see a reduction in new commitments.