Benchmark Capital's Bill Gurley on 2020's IPOs

You've been out there a long time saying that companies need to go public sooner. Now we do see companies charging out of the gate. But when you look at how they're going out of the gate, I wonder if you think they're doing it the right way or not. For example, Snowflake going public, shares doubling on the first day of trading. Is that a victory or a miscalculation?

Well, look, I think any CEO that you talk to on the day of or day after a successful IPO is in a mindset of achievement and is not—and I completely understand this—they're not in a mindset of, "Oh, did I just make a mistake?" But the process that we use to go public, if people spent the time to understand how it actually works, is the equivalent of using a paper map to do a four-hour drive today. Like, there's just a much more elegant, technology-enabled approach. And because of conflicts of interest and because there's a lot of money involved, there's a lot of people who want the broken process to exist and to continue. Unfortunately, it's getting worse. So, last year and the year before, there were about $6 billion in underpricing across all of venture-backed companies.

Jay Ritter at the University of Florida aggregates this data. Snowflake alone was $4.5 billion—just one company. And so the day after the IPO, the people that were allocated the stock the night before have $4.5 billion in wealth they didn't have before. And that money didn't just come out of nowhere. And unfortunately, the process is getting worse. We have a wonderful, new-age alternative called the direct listing that just matches supply and demand. That's how Palantir and Asana just went out on the backs of Spotify and Slack. So now we're getting some momentum around that. But it's really night and day. Like I said, a paper map compared to using Waze.

Now, I know that you are considering alternatives—SPACs, direct listings. Some investors have been disappointed in Palantir's direct listing, for example. How should companies be considering their alternatives?

Well, look, I'm a firm believer that once you get out and are public, how you got there has no lingering effect on the company, right? You know, I'll give you a list of companies that are—pretty surprising list—but Amazon, Square, Proofpoint, Salesforce, Netflix, Peloton, guess what all those companies have in common? They traded below their IPO price, just like Asana did. And in the long run, how you perform as a public company is all about your long-term cash flow generation and how you do in your market. It's not about how you went out. And so I just don't buy that there's any legacy from how you went out the door. Lyft went out with a traditional IPO. It's trading at half of the price it went out.

Is that the fault of the way they went out?

Okay, so does that apply to Airbnb, which arguably waited too long to go public? I mean, no one knew a pandemic would happen, but that has potentially impacted their fortunes in the near term. Now they are getting out of the gate. We've reported it's happening in December, which will be post-election. Do they miss a window if they do it that way? And what about the waiting so long overall?

From what I've heard, and I don't have perfect information, it's just rumor mill, they're going to do a traditional IPO. I think that when they pulled back, you know, when COVID hit them hard at first, they took on a bunch of debt, and I think they want to raise capital. The direct listing does not currently allow you to raise capital, although the NYSE's Stacey Cunningham is working with the SEC to try and make that happen. It's totally doable. And so I think they're going to go the traditional route.

Okay, but how much have they lost by waiting this long overall? I mean, there's an argument to be made it could have been done years ago.

There's a small set of people that happen to be people that I highly respect. In the public side, it's like Rich Barton and Marc Benioff and Reed Hastings and Tobi at Shopify. And if you just do Google searches, you'll see they all say the exact same thing I'm saying, which is companies are too afraid to go public. And there are massive benefits to being first in category, being public, having control of the narrative with the buy side. Spencer Rascoff wrote a long blog post on this subject, which you could also go find and read. But there were voices in Silicon Valley about five or 10 years ago that I think were mostly raising late-stage funds and wanted to kind of— to pick off the investments before they got public that started this stay-private-longer thing.

But I've always equated it to, I always liked the analogy of football, which is if there were some college quarterback that was, you know, in the top 50 list of the draft that held a press conference and said, you know, I don't think I'm going to go into the NFL yet because I'm really afraid of scrutiny. And, you know, they track every single stat and I don't want to be that short-term-oriented. If someone did that, they would fall immediately. But that's the behavior of some of the of the founders in Silicon Valley that buy into this stay-private thing. The minute you started giving stock to your employees, you're in the game. And your job is to maximize shareholder value for all your constituents, your investors, your employees, everything else.

And so if you don't want to keep raising your game, you should sell your company or maybe consider hiring a CEO that is. That's my point of view.

Speaking of CEOs, obviously you were one of the earliest investors in Uber. Dara Khosrowshahi at Uber has been doing a bit of deal-making here and there, buying and selling bits of the business worldwide. What do you think about his vision as a leader? For example, by spinning off self-driving into a subsidiary, it doesn't rely on Uber funding, but isn't necessarily aligned with Uber's bigger goals either.

I think—I mean, there's a lot of—I think there's a lot of positive things happening at Uber. Obviously, their decision to be more diversified, both from a geography standpoint by being global and with the Eats business, puts them in a place where they just have a lot more going for them than anybody that's single category. And I think the buy side is getting excited about that. I think the place they're in right now is there's a lot of investors that have interest. They see the possibility for the stock moving a lot higher, but they want the company to prove that they can get the cash flow positive. And I think that, I think, until the company's talked about that and they've set future goals for it.

But I think when they achieve that is when you're going to see the real value unlock.

Now, I know you got a strong opinion on AB5. Uber is relying on California voters to decide whether drivers should be freelancers or full-time employees. You have a strong opinion about it. If California doesn't vote Uber's way, how much could that hurt the company's future growth prospects?

Well, I mean, it's just one state. And to the extent that Uber and Lyft hold up their commitment that they're not going to operate here, I think that will be felt pretty profoundly across the community. You know, we spent 100 years building this country around car ownership, which is regressive and a whole bunch of other things. The world would be better off if we lived in denser cities and had less car ownership. And this is a path to help get us there. The other point, which I think people really don't think about, actually there's two. One is, five million people committed to being drivers during the lowest unemployment in our lifetime. So the notion that this is just a horrendous job, it flies in the face of 400 years of microeconomic study.

Those people could have gone to McDonald's or Starbucks or Walmart or wherever, but they didn't. They were opting in voluntarily. No one forced them, 'Hey, go be an Uber driver.' And the reason that they wanted it was the second reason, which is you have untold flexibility in when you can go to work. No one is trying to pass a law that says Starbucks and Walmart and McDonald's, 'You have to let people show up for work whenever they want,' you know. And because flexibility is an employment benefit, right? No one's saying that. So there's this benefit in this job type that's super helpful to people, um, that are in different stages of life, trying to pay down debt, trying to put themselves through school, trying to, um, be a work-at-home parent, like, that this is super beneficial to. And so I, you know, the—the bottom line that everyone should understand, because I think this may be unprecedented,

is, the editorial board at almost all of the large California-based newspapers have come out and said that AB5 is BS. And they've all written editorials—I don't think that's probably ever happened in a movement that's targeted against a corporate entity before. And the reason is, is because they all know the lineage of this thing. The SEIU and other unions leaned on the Sacramento legislature to write a law targeting an industry they don't even represent, which I think is also crazy. It'd be like Nevada passing a law that impacts California residents. That's what's been happening here. And the papers have figured it out, and they've written it. It really—as I've said before, like, if you hate Citizens United, if you don't think corporations should write legislation in D.C., you should hate AB5, because it was written by political donors.

Now, there are so many questions about the pandemic, the recession, layoffs, and how that will impact Silicon Valley long-term, real estate, as we're all in this remote work situation. What do you think the most dramatic changes will be in Silicon Valley in a new normal? What is different after this?

I think it's super hard to predict, Emily. Like right now, there's some pretty dynamic things happening. People struggled with building large engineering teams here anyway, because it was just so competitive and expensive. And so just overnight, when you need a marginal hire, every company is going, 'Well, maybe that person could be remote,' because everybody else is already. And so you have this kind of instant leakage in that area. We are now backing startups without offices, which isn't something we had done before, you know, but we do early-stage investing. We back companies with five to 10 employees, and those, they're founding those without an office. And a lot of times, you end up taking on geographic diversity because you're not thinking about there being an office.

And so there are people on the real far end of this argument. So Rich Barton and Zillow, I saw Dropbox's announcement that they're going to try and be virtual first, which is radically different than what's happened in the past. I've also met founders and CEOs like Reed Hastings who say, 'No, we need to be in the office.' So I hate to answer a question with uncertainty, but I don't think we know how this is going to play out.

Now, there's a big question about the future of Big Tech right now. Talking about regulation earlier, Keith Rabois was on the show last week saying he thinks this House report that could pave the way to a Big Tech breakup is one of the dumbest pieces of paper he's ever seen. You covered some of these companies in their infancy when you were on Wall Street. Do you think that Apple, Amazon, Google, and Facebook are monopolies? Should Big Tech be broken up? I've got about two minutes left.

OK, well, the one thing I'd say that I think is provocative on this front that's maybe inconsistent with Keith's point of view is I actually believe in my heart of hearts that the government restricting Microsoft's ability to leverage their way through the browser opened the door for Facebook, Google, Amazon. If they had been able to tie the browser to search the way they did, you know, the way they went after Netscape aggressively, I think they would have succeeded. They're really good at that stuff. And so the irony perhaps is that I think the government doing this in the past created the window for many of these companies. And so I'm torn from that point of view. I will say that that, you know, having had—we back smaller companies and having them interact with these larger companies, boy, you feel the power.

Like they're not—you don't have one-way or two-way negotiations. It's my way or the highway. So if our thinking truly is—so does that mean breakup?

I mean, do you think that's an argument? Is that an argument for breakup?

I don't know. I mean, if you—by the way, you know, the Microsoft or the government going after IBM paved the way for Microsoft, right? And that's written in books like Big Blues. It's very clear. So, you know, and there are people like Jeremy Stoppelman who feel like his content was stolen. And so I do think that there is a point at which the leverage becomes so large, like this 30% thing that they're forcing arbitrarily on certain industries, that you got to ask the question, and maybe the pressure causes the behavior to change and that's good enough. So I don't know if you have to take it to the extreme of breakup, but I do think you have to pay attention.