Benchmark Capital's Bill Gurley on Prop. 22, direct listings and work from home (Full Interview)

Bill, thank you so much for joining us. So great to have you back on the show. Look, a judge has ruled Prop 22 unconstitutional and unenforceable. Obviously, you're not happy about this, but how big a setback is it?

know i think just if you look at the stock price since that announcement there's there's some data you know answer to your question there it's actually up from when the announcement came out so it you know it was a county judge they say it's a superior court but guess how many superior courts there are in california 58 um there's one for every county so it sounds like more weighty than it is. It's a county judge that has to have been reprimanded frequently recently. And so I think the market is telling you that it's going to be overturned. I personally think the bigger issue that needs to be understood in this fight going back to AB5 and Prop 22 and even this recent decision is that this is basically a fight between the SEIU, which is the most prolific special interest group in America.

They're the largest spender in lobbying of any entity in the U.S. against these companies that are trying to bring new job opportunities to people. And it's really a locked battle between those two forces. The drivers have been polled over and over again. They're not interested in this help that the SEIU is bringing them. The citizens of California voted clearly where they stood on this. It's really a locked battle between a very large special interest group, SEIU, and the high-tech companies that are trying to bring these new models to market.

So I guess I wonder, the SEIU, interestingly, which, as you mentioned, is behind this lawsuit, in addition to a few drivers, actually staged a protest in front of your home.

There's 1.2 million drivers in California, and three of them have joined the SEIU in the lawsuit. So look, this is a group.

This is a group that staged a protest in front of your home a couple of years ago. And I guess I wonder, is there any way to find a happier middle ground between wages, driver treatment, the concerns that they're raising, and the needs of the company?

Well, this is why I think the framing is important because it's not about that. It's not about the drivers. Prop 22 did that. Prop 22 brought more benefits to these freelance workers, which is unprecedented for freelance flexible work. But that's not what they want. They want their minimum member benefits. um fee is 420 dollars a year that they charge their two million members who by the way aren't in the ride-sharing industry they're in hospitality and government and health care so they're using the dollars from those people to fight lawsuits in another industry to try and expand their empire but but i think this is the why i want to highlight that it really is a battle between the union and these new job types because it's not a not just

the union, one particular, SEIU. Um, and it's, it's not about the, the benefits. Like, the, the drivers don't want it; they love flexible work. If, if these rideshare drivers wanted shift work, there's unbelievable opportunity out there right now. Amazon's paying $3,000 for you to become a shift worker. McDonald's will pay you $500. There's 50,000 job opportunities at Taco Bell. They don't want shift work because you can't put yourself through school with shift work. You can't be a stay-at-home parent with shift work. You can't try and be an artist and need supplemental income. You can't pay that. I met this nurse driver once in New Orleans, which I think really frames this well. She was a single mom nurse, and every Friday and Saturday night she'd drive until she got $100.

And so she brought home $200 extra a weekend, so like $900 a month. There was supplemental that helped her get by. You can't do that with shift work. You just can't. So it's a new job type. It's a new flexible job type. They love it. The SEIU is not arguing that Starbucks should go to flexible hours where people can work wherever they want, because you can't. So there's this wonderful benefit that all these people love. And I think it'd be a shame for California if those were just destroyed.

So look, Uber has said they'll appeal. They expect to win. But this is a fight going on in various states. And there's also a chance there could be a crackdown at the federal level if the federal government decides that Uber and Lyft are actually employers of these drivers. Then there's the National Labor Relations Board. There is the Labor Department. Are you at all concerned about a federal crackdown and this continuing and dragging out around the world?

I would be concerned about it from a societal standpoint, less about one particular company. I mean, when you say Uber and Lyft, you leave out DoorDash and Gopuff and Instacart. And guess what? There's 100 more behind them. Look at all the creator opportunities that are coming out. Freelance work is going to explode because the Internet is allowing people with any passion, any special interest to be able to monetize that on their own time, on their own will. We get super excited when we talk about Zoom and the ability of white-collar workers to live wherever they want and be able to have a lifestyle that they love. This is the entry-level position equivalent of that. So yeah, if our government decides to kill that, I think it's horrific.

I think it'll drive inequality. Like, it'd be horrible.

So let's talk about a hypothetical. Let's say if, if Uber, Lyft, DoorDash, Instacart, all the companies you mentioned have to make everyone a full-time employee, W-2s and all, would they still have a viable business? I mean, some of these companies are still not profitable, even with this model.

That gets into it. It gets into another really great issue, which is, um, you're going to dramatically drive up the cost of ridesharing if you do something like that, especially because, remember, we're not only talking about incremental benefits, but if the SEIU has their way, these drivers need 420 extra dollars to pay their, their membership dues for the union, right? So, it's, it's adding on layer after layer of cost, and which will drive up the cost of ridesharing, which will then benefit car ownership relative to this, which then, you know, impacts climate change, all these other things. Like, we, it, it's a silly—look at all the problems we have in California right now, you know, real serious problems, from wildfires to homelessness to, you know,

Uh, drug use, all this stuff. Why is this the issue? Like, and, and, and I think the, the thing that, that is really important to note, because I think we're seeing this play out in other ways, um, this will not happen nationally, um, because other states are going to stand their ground. And so, what you're essentially, what you're basically going to do is have certain states where, where these things happen, and other states where they don't. And we're going to see how it plays out. I don't think California citizens are particularly happy right now with how the special interests are getting their way in Sacramento and what that is doing to their lives. Look at, ask the average California citizen how they feel about the teachers' union right now.

Look at the, look at the governor recall. I, I think there's a lot of change happening.

So what about the profitability question? Prop 22, Prop 22, and the driver model aside, Dara has said Uber will be profitable this year. Lyft has already done it. Are you at all concerned that Uber hasn't hit that milestone yet and they're struggling to get drivers?

I would love to see. I would love to see Uber get to profitability. No doubt. I think you have to keep in mind that the ride-sharing business was hit by the pandemic. And, you know, most of the businesses that were hit head-on were like 90% of your revenue goes away are not profitable right now. And so, you know, I do, I do look forward to that day. Dara assures everyone it's coming. And I would like to see it happen.

Okay, on a lighter note, Kyle Chandler, the actor, has been tapped to play you in the Showtime series, Super Pumped. And I have to know if you think that's good casting or not. Does he rise above the crowd?

You know, I haven't thought about it from that perspective. My wife and myself are quite big fans of the Friday Night Lights series, so I guess it could be worse.

Okay, good to know you approve. I do wanna talk about what's happening in direct listings. You're a big fan of direct listings. Warby Parker just decided to do one. However, these still seem to be one-off events, one-off choices. Do you see the pendulum actually swinging where a significantly greater number of companies will choose a direct listing or a SPAC over an IPO? And if so, when does that happen?

Well, look, every time I see one of these, I'm super proud of the founders that are pushing forward because it is just a smarter, more elegant way to take your shares public. And to not do it is actually just to be subjecting yourself to a cashectomy from a bureaucratic process on Wall Street.

The people that are choosing to do it are some of the best and brightest founders out there, and I think singularly independent and confident, and I think the Street's starting to see that. So Robinhood did go the IPO route, and it didn't pop on opening day. I know you were expecting perhaps they might underprice it. So is that an example of a well-executed, well-priced IPO? I don't know all the details of what happened.

Obviously, it's way higher today than it was on that day. I think it's an odd example to think about from a comparison standpoint, precisely because they did so many things different, including adding the retail investors. But every time I have a discussion about this topic, I highlight that the data sets that I pull from, most of which were provided by Jay Ritter at the University of Florida, they look at all IPOs over a 40-year period. And so the underpricing for venture capital IPOs over a 40-year period is like 29%. And so using single companies, there's always an IPO that went way up, and there's always an IPO that went down. And it's not the right way to contrast what's going on. It's when you look at the wholesale data across very long periods of time.

So meantime, just looking at your tweets, I've noticed you tweeting more about crypto, looking at crypto adoption up more than 880% according to Chainalysis. Where do you stand in this debate? Are you a Bitcoin or Ethereum or something else? Are you a maximalist or not?

You know, I have to admit that I've kind of come late to this. I was busy focusing on direct listings and marketplaces and didn't spend a ton of time on crypto. In the April timeframe, I did dedicate quite a bit of time to listening and reading. And I have to say, I was swayed by the arguments of the Ethereum crowd. And so if I, and I've taken, I think, a personal position, not, not something at Benchmark. We are in Chainalysis, which you referenced, um, and, uh, I'm swayed by the Ethereum crowd. The, the, the parties that are involved there seem to be way more pragmatic. Um, they seem to be open to change and, and, and, and, and are basically making several changes, which I think will bring down fees and will be very beneficial. The developer community is clearly in the Ethereum camp.

I think there's an ESG benefit once they move to proof of stake versus Bitcoin. And so I just—it seems to me to be the smarter way to play it if you're, if you're going to have crypto exposure. And please, I'm not a maximalist, and I'm not arguing that people necessarily should have a crypto exposure.

Well, speaking of a crypto exposure, I'm curious if, you know, looking at Robinhood, I was surprised 62%, Doge accounted for 62% of their crypto revenue, which was more than half of their transaction revenue. Does that seem like a sound model to you?

No, no. And, and, and, you know, even prior to that, the majority of their profitability and revenue comes from options because it turns out that, that this payment for order flow, which I am 100% against—I think it's a, it's a bastardization of our markets, and I hope the SEC makes it go away—um, but payment for order flow in options, because there's more obscurity and less price transparency, is even higher. So if you look at the Robinhood filings, they make about 4x the amount of revenue on an option trade than they do a stock trade. Why do I bring this up? You know, Dogecoin and options trading, like they talk, the company talks about democratizing investing, but there's no, you know, if you study books on how people make money investing, no one will say, you know, doing short-term option speculation is a path to success.

I actually think it's a path to going broke. And so I would anticipate that they're gonna have nasty churn just as a result of the fact that the people aren't, they're speculating, they aren't doing investing. You could highlight that a casino has mostly losers and people keep coming back. I think that's a fair argument, but it does highlight that it is more of a casino and less of an investor platform.

Meantime, the pandemic is dragging on. You've got Apple, Amazon, huge companies pushing back the return to work until January. You've got investors still doing deals remotely. Having been in this business in Silicon Valley for so long, how do you see the pandemic fundamentally changing the way work is done here? Is this a real inflection point and is it a good or bad one?

Yeah, you know, it's a great question and it's one that I don't think people have solid answers to. I think it's a work in progress. There was a notion that we were going to kind of come out of the pandemic and it's going to go from a binary, you know, off to on to off. And I think the problem with Delta is that it's caused people to realize that that may not happen. Like we may not just be in the clear on a certain day and then we get to go back to the way things were. And so the longer this plays out, I think the higher likelihood is that it does represent fundamental change. And I'm aware of entrepreneurs that tried to rush back to the market or back to the office. And they got a lot of pushback.

And there's a competitive notion going on. The other thing that happens as time goes on, you're looking for that iOS developer. You can't find them. And you go, well, shoot, maybe I'll just open it up nationwide. And all of a sudden, you find somebody. The ability to match, as I was talking about earlier, the ability to match skill type with need, goes up two orders of magnitude when you just open it up to everyone on the planet, which is a really good thing, actually. But what it means is more and more companies are definitely going to be hybrid. Or maybe we'll see a whole swath of companies in virtual-only. There's a whole bunch of stuff we don't know about what that means. I think Matt at Automattic and WordPress is the only one that's been running that way.

Elastic's engineering team has always been distributed. There are a few examples, but there aren't a ton. We're going to learn what this is all about. I think certain people, I know Rich Barton at Zillow is really leaning into this. He believes that it is the future. And so we'll see. I think the competitive pressure to not go back amongst engineering is huge. And so I don't think anyone's going to be able to mandate it other than a very small company. And I think there's very significant implications for commercial real estate, which is not an area I invest in, but I think something pretty significant is going to happen there.