E81: All-In Summit: Bill Gurley & Brad Gerstner on markets, downturns & investment cycles

Venture capital is structurally prone to slow booms and sudden crashes because funds have low barriers to entry but 10–15-year commitments that are hard to unwind. Bill Gurley said the 2009–2022 “risk-on” period built gradually, while the 2022 reversal happened within months, forcing an unusually fast reset in valuations and behavior.

The panel argued that the previous generation of startup valuations was gone, not temporarily unavailable. Brad Gerstner estimated every one-point rise in interest rates can cut valuation multiples 15–20%, while public SaaS companies were already being valued around 5.6 times revenue, or roughly 8.5 times for exceptional 50%-plus growers.

The headline hundreds of billions in “dry powder” did not mean venture firms would automatically spend it. Much of that capital was committed but uncalled; Gurley noted funds returned commitments after the dot-com crash, while Gerstner said LPs would resist financing new deals before valuations fully adjusted after a poor 18-month vintage.

For genuinely early-stage founders, the downturn could improve company-building conditions even while later-stage financing deteriorated. Gurley expected cheaper talent, less competition and more rational decision-making, contrasting the post-correction environment with boom years when founders sometimes had only hours to evaluate competing term sheets.

The software boom erased distinctions between extraordinary companies and ordinary ones, and that indiscriminate pricing was reversing. Gerstner counted only 21 public software companies above $2 billion in revenue, while Gurley said investors were again examining retention, margins, cash flow and stock compensation rather than mechanically assigning revenue multiples.

Both investors concluded that venture funds should generally return liquid gains to LPs rather than behave like permanent stock-picking vehicles. Gerstner called holding roughly $120 million of Affirm stock a roughly $100 million mistake and said his firm distributed more than $6 billion the prior year; Gurley described systematic post-lockup distributions over three to six quarters.

Years of abundant capital let companies buy growth by subsidizing customers, sometimes delaying the economics that should determine winners. Gurley said SoftBank-era competition effectively gave Uber’s potential profit margin to consumers for years; he judged negative-unit-economics strategies viable only when companies can later withdraw subsidies, something he estimated most founders attempting would fail to do.

Gurley said his next investing chapter would likely involve smaller angel bets and public stocks rather than another full venture partnership. Still serving on ten boards, he said he had “played that game,” would consider roughly $500,000 checks without taking board seats, and found newly repriced public equities increasingly attractive.