Bill Gurley: Exposure of traditional open market investors to private markets poses risks

Absrtact: Following last year's technology bubble that put start-ups under too much risk warning, Benchmark's partner Bill Gurley again at a technical meeting held last week at Goldman Sachs, saying that the influx of investors from the traditional open market poses a risk to the so-called

Following last year's technology bubble that put start-ups under too much risk, Bill Gurley, a benchmark partner, again at a technical meeting last week at Goldman Sachs, said that the influx of traditional open market investors into the private market would pose risks, distorting the so-called "private equity IPO" of the Unicorn.

Last year, Bill Gurley the theory of bubbles based on the growing financing of start-ups, the faster and faster burning of money, and the soaring prices of surrounding industries. Now his focus is more specifically on two characters: the new rivals of the Unicorn and the traditional VC-mutual funds, hedge funds and investment banking in start-ups.

Traditionally, mutual funds are often open market investors, but in the context of weak technology stocks, these funds are starting to enter the private equity market. And the fear of missed opportunities to make more money into the influx, others are cast, you do not vote? Do you just stand idly by?

This feeling of fear of missed opportunities is understandable because of the emotions that led to the birth of many unicorns. Members of the Unicorn Club in 2014 reached a record 68 (The Wall Street Journal data is 73), including 19 Chinese companies. In 2013 the figure was 38 (The Wall Street Journal data was 41) and nearly doubled in the 1-year period.

Gurley said many investors had treated the Super Unicorn as a listed company and even invested in the money normally reserved for the purchase of IPO shares. Hedge funds, mutual funds, banks are starting to become the new investment force, according to the Wall Street Journal data, only half of the 29 investors who have invested more than 5 unicorn companies are traditional VC, and the rest are institutional investors such as TGM (who invested in 12 unicorn companies) or Intel, Strategic investors like Google. For institutional investors in the traditional open market, access to the market is earlier than before the IPO, and the traditional VC is more involved in these more advanced stage of investment, resulting in a so-called "private IPO" market.

Gurley, who questioned the industry's irrational behaviour, was worried that many investors had been squeezed into the "private-equity IPO" market, fearing that new entrants such as mutual funds were unfamiliar with the market, could not weigh the risks of these unicorns correctly, and failed to realise that unicorns could not guarantee success. According to the statistics of Cowboy Ventures, it takes an average of more than 7 years for unicorns to happen, and 1/3 of the companies analysed are still not listed. Success is a marathon rather than a sprint-a long way to be.

Benchmark's strategy is to look for opportunities earlier and gradually reduce the scale. This is through their own practice to make a judgment-benchmark 900 million of dollars raised in 1999 spent about 10 years to get positive returns. In the 2006, the VC decided to limit investment to the early stages of A and B rounds in the future. Then the fund was gradually cut, and last year's financing had dropped to 425 million dollars.

Of course, Gurley know, in the current market atmosphere, their views belong to the minority. Is the truth held in the hands of a few? Maybe it was only when the bubble burst that we knew.