All-In PodcastE81: All-In Summit: Bill Gurley & Brad Gerstner on markets, downturns & investment cycles
CHAPTERS
- 0:00 – 4:52
Why this downturn feels different: venture’s “sawtooth” cycles and abrupt risk-off
Bill Gurley frames venture capital as structurally prone to boom-bust cycles, describing the shift from risk-on to risk-off as a sawtooth rather than a smooth sine wave. He compares the long risk-on period since 2009 with the rapid repricing over just a few months, and explains why the mental and operational adjustment is so hard.
- •Howard Marks’ critique: VC has low barriers to entry and high barriers to exit, enabling cyclical collapse
- •Risk-on builds slowly through reflexivity; risk-off happens abruptly
- •Rapid shifts create cap table problems (e.g., liquidation preferences) and reset cost of capital
- •Easy-money behavior (e.g., flashy sponsorships) becomes painful when markets reprice
- •Dot-com vs GFC context: 2001 was a long desert; 2009 rebounded faster
- 4:52 – 10:52
Macro reset 101: rates drive multiples, and CPI components are starting to roll over
Brad Gerstner anchors the 2022 multiple compression to the rapid change in inflation and rate expectations. He argues core CPI is backward-looking, then walks through forward indicators (used cars, housing affordability, airline tickets, consumer confidence, and bond break-evens) to make the case that inflation pressure is likely to decelerate.
- •“Iron law”: a 1% change in rates can mean ~15–20% change in valuation multiples
- •Comparing today’s rate levels to 2000 highlights how different the cost of capital backdrop is
- •Core CPI is lagging; look at sequential changes and leading indicators
- •Used car prices, housing affordability, and travel prices show demand destruction effects
- •Bond market break-evens (“follow the TIPS”) suggest inflation expectations rolling over
- 10:52 – 12:27
From mirage assets to fundamentals: how the easy-money era distorted risk-taking
The panel riffs on how low cost of capital inflated assets with weak or unclear intrinsic value and made the cycle ‘less fun’ when it turned. Brad tees up Bill’s long-standing skepticism about valuations disconnecting from business reality, especially as speculative behavior spilled across markets.
- •Speculative assets with limited fundamentals rose alongside real-economy price spikes
- •Liquidity conditions amplified ‘mirage’ pricing across categories (including crypto/NFTs jokes)
- •Bill’s earlier warnings about valuation disconnects resurface as markets reset
- •Founders and early-stage teams can benefit from downturns via talent availability
- •The Fed’s 2020 playbook isn’t available the same way in the current inflation regime
- 12:27 – 16:11
VC dry powder isn’t automatic: capital calls, LP constraints, and the ‘burnt waffle’ reset
Jason asks what happens to massive unallocated commitments in a prolonged risk-off environment. Bill and Brad argue committed capital isn’t the same as deployable capital—funds must call it, LPs are feeling pain across portfolios, and some managers may effectively pause or even return commitments like in 2001.
- •Committed but undrawn capital requires GPs to make capital calls at the worst time
- •LPs face broad markdowns; partnership dynamics reduce appetite for aggressive calls
- •2001 precedent: some funds returned commitments to escape the overhang (“burnt waffle theory”)
- •Next vintage could be attractive—but last 18 months’ capital is likely a poor vintage
- •Key discipline: re-underwrite to long-term averages, not last year’s peak prices
- 16:11 – 20:45
Underwriting in the new reality: public comps as the ‘buyer of last resort’ and SaaS multiple reset
The group emphasizes that public market repricing sets the terminal valuation anchor for private markets. Jason argues organized capital can’t responsibly ‘rip money in’ without a clear endpoint, and the panel discusses how even elite growth rates now command far lower revenue multiples than the peak era.
- •Public markets provide the valuation endpoint: the ‘buyer of last resort’ has said “no mas”
- •High growth is rare; even 50% growers are now valued at modest revenue multiples
- •The practical band of valuation outcomes compresses when rates rise
- •Private valuations can’t remain detached when comps reprice across the board
- •Investor behavior shifts from narrative-driven to constraint-driven underwriting
- 20:45 – 22:16
Price-to-revenue is dead (again): back to DCF, cash flow quality, and real SaaS metrics
Bill critiques price-to-revenue as an overly crude tool that masks business quality differences. He describes the market’s return to fundamental diligence—net dollar retention, operating leverage, free cash flow vs net income, and stock-based comp—highlighting how scrutiny increases when liquidity tightens.
- •Price-to-revenue multiples hide huge dispersion in business fundamentals
- •Buy-side focus returns to DCF logic and cash-flow durability
- •Key metrics: NDR, long-term operating margins, FCF vs net income, SBC burden
- •Entrepreneurs must adapt to microscope-level diligence after a fast-and-loose period
- •Valuation frameworks become more discriminating as capital gets more expensive
- 22:16 – 24:14
Dispersion returns: why “all software is equal” was a dangerous bull-market myth
Brad argues the past two years created a formulaic investing mentality that ignored how few software companies reach durable scale. He backs this with a count of large public software companies, warning that paying extreme ARR multiples at small scale often guarantees poor returns due to growth deceleration and dilution.
- •Bull-market behavior treated software investing as term-sheet automation
- •Only a small number of public software firms exceed $2B revenue; even fewer exceed $25B market cap
- •100x ARR at $50M revenue is rarely defensible over time due to deceleration
- •Dispersion is normal: a few great outcomes, many below-mean outcomes
- •Great businesses will separate via profitability, retention, and true market leadership
- 24:14 – 26:59
Why VCs rarely “underwrite down”: founder leverage, deal-flow competition, and governance trade-offs
Jason asks why valuations tend to ratchet up rather than adjust down, even when reality shifts. Bill explains there’s no coordinated behavior—rather, long-term power drift toward founders and intense competition for access made investors reluctant to push tougher terms, while governance norms weakened in the rush to win deals.
- •No ‘VC club’ coordination—market dynamics and incentives drive behavior
- •Founder power increased over time; investors became friendlier to preserve access
- •Bull-market deal terms: secondary for founders, minimal governance, no board seats
- •Governance trade-offs depend on founder track record and alignment (e.g., super-voting)
- •Free-market logic: willing buyers and sellers choose the rights/controls they accept
- 26:59 – 33:54
When to take chips off the table: distributions, evergreen funds, and keeping promises to LPs
The panel debates whether funds should distribute liquid public shares or hold them indefinitely via permanent-capital structures. Brad stresses aligning with LP expectations and sticking to a defined framework, while Bill explains Benchmark’s typical post-lockup distribution cadence with rare exceptions for compounding network-effect winners.
- •Holding forever vs distributing: the core issue is LP mandate and promised liquidity profile
- •Brad’s framework: hold when venture-like returns are present; otherwise distribute
- •Altimeter distributed substantial gains to match partner expectations and fund structure
- •Benchmark practice: distribute over 3–6 quarters post-lockup, with rare hold exceptions
- •Secondary sales are uncommon at venture scale; WeWork/Masa was a special case
- 33:54 – 35:59
WeCrashed, Super Pumped, and founder myth-making: what the shows get right and wrong
Bill reacts to dramatized portrayals of Uber and WeWork, noting inaccuracies from fabricated scenes while praising Jared Leto’s depiction of Adam Neumann. He adds nuance about Travis Kalanick as a complex, gritty operator, contrasting media narratives with firsthand experience.
- •Super Pumped criticized for invented scenes and distorted character emphasis
- •WeCrashed praised for capturing Adam Neumann’s personality more convincingly
- •Travis Kalanick described as nuanced: gritty, hardworking, intelligent, and charming
- •Media narratives can flatten real governance and operating complexities
- •Charismatic founders can compel investment even when the category (e.g., real estate) is unattractive
- 35:59 – 44:19
Gaslighting and herd behavior: why sophisticated investors overpaid and how to avoid repeating it
Brad explains that risk perception collapses in crowds, leading to herd behavior and confirmation bias even among elite firms. He argues some late-stage players were running a different portfolio construction game, and emphasizes that investors must underwrite to normalized conditions rather than chase someone else’s momentum.
- •Research-backed dynamic: perceived risk falls when many others do the same thing
- •Herd mentality and confirmation bias drove extreme pricing (e.g., 75x ARR examples)
- •Different games: concentrated portfolios can’t mimic hyper-diversified late-stage machines
- •Signals were flashing (insider selling, macro shifts), but momentum overrode caution
- •Peak uncertainty makes markets freeze—creating opportunity for disciplined underwriters
- 44:19 – 46:08
Subsidies and ‘consumer surplus’ businesses: negative unit economics as strategy (and trap)
The discussion turns to blitzscaling via negative unit economics—subsidizing customers to win markets—then attempting to ‘turn on’ profits later. Bill says it can work only if a company can rein subsidies back in; most can’t, but a small set (e.g., Amazon’s early playbook, standout operators) manage the transition.
- •Consumer surplus businesses benefit customers while shareholders/employees lose during subsidy wars
- •Negative unit economics can be rational if it leads to durable network effects and pricing power
- •Critical test: can the company actually rein spending back in once it has the market?
- •Most attempts fail (49 out of 50) due to competition, habit formation, and inability to raise prices
- •Examples discussed: Uber/Lyft dynamics and continued subsidy signals from competitors
- 46:08 – 47:45
Case study: Instacart’s valuation reset and the challenge of judging private businesses from the outside
Jason raises Instacart as an example of a pandemic-era valuation that may need a major reset as IPO markets reopen selectively. Bill notes the company likely benefited from the era’s capital dynamics, but cautions that outsiders lack financial transparency; the key question is whether intrinsic asset value can meet what public investors will pay.
- •Instacart’s confidential IPO filing highlights the timing and pricing tension in 2022+
- •Pandemic-era capital availability enabled aggressive growth and potentially thin unit economics
- •External observers can’t assess full financials; product quality may still imply asset value
- •Public-market affordability sets the ceiling for private-to-public transitions
- •Reset valuations become the bridge between private marks and public reality
- 47:45 – 51:31
Closing forecasts and what’s next for Gurley: market outlook, angels, and public-stock opportunity
Brad predicts growth stocks will likely be higher a year out, though the path may include further downside until inflation data resolves uncertainty. Bill jokes on precision, then shares he may do selective angel checks but is done with heavy board-seat duty—and he’s increasingly intrigued by public equities as valuations improve.
- •Brad: likely return toward five-year average multiples, but uncertainty could mean lower first
- •Markets need 4–5 months of data to resolve the inflation counterfactual
- •Bill: open to angel-style investing, less interested in taking more board seats
- •Bill: excited about public stocks as valuations ‘get super interesting’
- •Panel wraps with banter and the BG Squared send-off
