#89 VC Deep Dive: Brad Gurley (Benchmark) + David Sacks (Craft)

Hi Everyone! 👋 Welcome to the new members of @TheFundCFO crew! We recently launched a paid tier and released our VC Fund Playbook + Models @ Streamlined.Fund! Re-linking some top 2023 posts: #67 Top VC CFO Posts & References & #65: WTF is Going On in VC (+ New Fund Model Data).

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VC Deep Dives & Building Generational Firms - Reflections

Last week, we dove deep on some notable VCs & unpacked some insights around building generational firms from said VCs (#87 VC Deep Dives & Building Generational Firms). We wrote that “now more than ever, venture capital firms need to think strategically about their business model.”

There’s a lot of great content from notable VCs, LPs, and CFOs/finance pros on the internet if you look hard enough. The challenge this newsletter tries to overcome is pulling out the insights out that really matter, as well as finding the most current content that overlays historical lessons with current market dynamics, which are changing faster than ever.

Combine Bill Gurley, David Sacks, Brad Gerstner → Unique Insights

It was therefore very timely that notable VC investor Bill Gurley joined the All-In Podcast last week, where he went deep on a number of VC topics w/ David Sacks and Brad Gerstner. I’ve listened to thousands of hours of VC podcasts over the past decade and can say that this one was in the top ten. What made it so great?

Here is the list of key topics discussed, as well more detailed takeaways below (keep scrolling down!). Key topics covered in the pod include the state of series a's, dry powder misconceptions, vc market update, ipo window opens, incentives to go public soon, macro picture, and more.

Repost (Relevant to this Conversation): Why Bill Gurley & Josh Wolfe Think VCs Won't Deploy All Their Dry Powder Anytime Soon

First and foremost, undrawn VC dollars are not on the IRR clock. There is no urgency to draw them down. The money isn't actually at the VC firm, they are still sitting in the coffers at the LPs. No VC firm I have ever been exposed to feels "pressure" to "get dollars to work."

On the back of a market reset, & w/ portfolio valuations being slashed, GPs are mostly sharing bad news w/ LPs. No GP wants to look aggressive/carefree. Imagine being a teenager with two speeding tickets & a fender-bender insisting on taking the new family car out Saturday night.

Additionally, LPs are in a tough spot from a liquidity perspective. New tax laws & mandates insist they pay out ~5% each year to their constituency. Meanwhile, outbound liquidity from VCs (IPOs/M&A) are at a 15 year low (all but stopped). GPs know this.

Top Takeaways from Bill Gurley, David Sacks, Brad Gerstner on All-In

1. VCs have moved up to bigger deals to make more (and easier) money (Gurley). A lot of people realized you can get 2.5% mgmt. fee investing $200m+ per deal. That’s a much easier lifestyle than taking board seats and doing work. Example math: $1b x 2.5% is $25m of revenue. $100m x 2.5% = $2.5m. Obvious yet powerful when you see the numbers

2. The VC market has stabilized (Sacks). The VC market peaked in Q4’21 in terms of valuations and amount of money being deployed. It kept going down all of 2022, bottomed out in Q1’23. Today, the pace of deployment has stabilized at pre-pandemic, 2019 level

3. Mania remains in AI (Sacks). While VC markets have stabilized, there’s still mania in AI. David Sacks is avoiding AI investing at later stage but doing some seed checks. Seed is what makes most sense for AI startups. If you wait for later round, valuations get too crazy

4. Distress for 2020/2021 co.s is coming (Sacks). There will be a 1-2 year period of distress for companies that raised at the peak (2020/2021) and are now running out of money, running out of revenue, not growing fast enough, or burn is too high

5. Stock market drives VC activity (Gerstner). There is a lot of activity in venture capital; investors are reactive to stock market, which has ripped back. Under $500m Series B and C rounds are as hot as he’s ever seen them in AI, data infrastructure, software

6. VC/LP Dynamics (Gurley). Marks are still not in the right place in VC. Everyone quietly knows this but there’s no incentive to get it right. Auditors have crude processes for assessing valuations and it’s hard for private co.’s. Many LPs are bonused on the paper mark (I wish I was one of those as a LP)

7. VC Pacing & Metrics (Sacks). We do have a lot of dry powder and are going really slow – no rush. Metrics haven’t changed: ARR, growth rate, net dollar retention, CAC, capital efficiency. The bar hasn’t changed but companies meeting that bar is way lower. There are a lot of headwinds, companies are buying less software, consolidating, etc.

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