Silicon Valley VC Bill Gurley Says Enjoy the Upside While it Lasts

By LAURA LOREK
Reporter with Silicon Hills News

CAKPP5cUgAEVZU8A few unicorns will die this year, said Bill Gurley, a prominent venture capitalist with Benchmark in Silicon Valley.

Unicorns are giant technology startups, backed by venture capital, that hope to turn into multi-billion dollar companies and are currently valued at $1 billion or more. Gurley didn’t specify which companies he thought might bite the dust.

Gurley made his remarks during a talk with Journalist and Book Author Malcolm Gladwell at South by Southwest Interactive Sunday. During the hour-long discussion, Gladwell quizzed Gurley on a variety of topics from healthcare to ridesharing to hacking. Near the end of the talk, an audience member, via Twitter, asked Gurley if he thought a tech bubble existed.

“I don’t know that we are in a valuation bubble,” Gurley said. “We are taking on, in these startups, especially these so-called unicorns, a level of risk that we haven’t seen since 1999.”

Burn rates, the amount of cash companies are losing every month to operate, are higher than they have ever been, Gurley said. And in Silicon Valley, more people are working for unprofitable companies than ever in the history of the industry, he said.

Despite that, there is no fear in Silicon Valley right now, Gurley said.

The problem is startups can’t choose not to play, Gurley said. They are forced to play the game on the field, he said. If a competitor raises $900 million, then the startup must go and raise money, he said.

Gladwell asked him if he ever thought about just closing up shop.

“The best way to protect yourself against the downside is to enjoy every last bit of the upside,” Gurley said.

A number of entrepreneurs today don’t even remember the Dot Com bust of 2000, Gurley said. They were in 9th grade when that happened and the further they get away from that event, the more risk they are willing to take on, he said.

Gurley and his partners at Benchmark led early investments in GrubHub, Nextdoor, OpenTable, Snapchat, Twitter, Uber and Yelp.

A big part of Gurley’s talk with Gladwell focused on problems in the healthcare industry.

Gurley said he is a skeptic when it comes to solving the healthcare problem.

“The real problem is there is an assumption of market forces when you do a startup,” he said.

But those market forces are completely “mucked up in healthcare,” he said.

Government incentives, in part, are to blame, Gurley said. In 2009, the federal government passed the reinvestment act and put in place a program where a doctor is paid $44,000 to implement Electronic Health Records, Gurley said.

“It’s just shocking to me,” he said.

To date, the payments total $29 billion for doctors to implement software they weren’t actively implementing on their own, Gurley said. The doctors also get another $17,000 to make meaningful use of their Electronic Health Records.

“That’s the exact opposite of what entrepreneurs do,” Gurley said.

As a result of the messed up economics, it’s really tough for startups to compete in the healthcare industry, he said.

The U.S. spends 17 percent of Gross Domestic Product on healthcare, but Singapore spends just 1.7 percent of GDP on healthcare, Gurley said. That’s because everyone in Singapore is a shopper looking for the best healthcare deal, he said. The Singapore government pays a portion of its citizens’ healthcare costs on a sliding scale tied to income, he said.

In the U.S., the healthcare system is ballooning to largess, Gurley said. The costs of healthcare procedures vary widely. An MRI might cost $400 at an independent clinic and $3,200 at Stanford Medical Center, he said.

Obamacare depends, largely, on high deductible insurance plans and that could create shoppers out of everyone except for acute medical cases, Gurley said.

The biggest opportunity for having a massive impact on healthcare is in data aggregation and analysis, Gurley said.

Gladwell asked why does the hospital continue to exist? “Why are you delivering babies in the same place you are treating colon cancer?” Gladwell asked.

“It’s messed up,” Gurley said.

High deductible plans could simplify the whole system and bring back market forces, he said.

Gladwell asked Gurley, an investor and board member in the transportation alternative Uber, about the company’s transformative effect on the transportation industry.

“It is transformational in many, many ways,” Gurley said.

Uber is one of the largest job creators in town. Globally, Uber has created 300,000 jobs so far, he said. For many people, the job allows them to have a flexible lifestyle, he said.

Uber is also having a dramatic impact on reducing DUI cases, Gurley said.

Highway traffic fatalities result in 35,000 deaths a year with 10,000 of those related to driving under the influence, Gladwell said.

“If something like Uber could cut that by a third, that would have a significant impact,” Gladwell said.

Austin, a city known to enjoy its libations, was slow to get in board with ride-sharing, Gurley said. But the impact ride sharing is having on the youth is considerable. They are not drinking and driving as much, he said.

Developers in San Francisco are lobbying the city to remove rules requiring parking spots in San Francisco, Gurley said. People are not dependent on cars like they once were, he said. They don’t need a car and they don’t need a parking spot, he said.

Gurley joked that 30 percent of traffic is just people driving around looking for a parking spot.

But in San Francisco, the city with the highest employment growth rate in the country, traffic congestion is actually down, Gurley said.

For 80 years, the U.S. grossly underestimated the demand for public transportation and limited the supply for public transportation with city, state and federal governments.

The ridesharing industry is five times bigger in San Francisco than the entire black car and limo market and it’s growing at 300 percent a year, he said.

“At first it was an alternative to taxis,” he said.

But now ridesharing is cheaper than taxis and it’s touching the economics of the industry, he said. And it’s affecting the rental car industry. People are renting fewer cars, he said.

Overall, 97 percent of cars are idle, he said. The technology is allowing for greater efficiency in transportation alternatives, he said.

Gladwell pointed out that people of retirement age are now using Uber as an alternative to driving.

“I think you’ll see more in this area,” Gurley said.

And he pointed out that a lot of parents are putting their kids in Uber cars to take them to school activities and events.

The car is no longer a necessity, Gurley said. And, in fact, many young people don’t even want one, he said.

“Millennials don’t give a shit about cars,” Gurley said.

Today, many kids turn 16 and they won’t get a driver’s license, Gurley said.

Gurley also said he’s “more of a skeptic on driverless cars than most people.” The technology hasn’t yet been perfected to allow for driverless cars, he said. A driverless car has to be way better than a human driver, as opposed to just as good, he said.

“I think we are way off from that,” he said.

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Trackbacks

  1. […] “I don’t know that we are in a valuation bubble,” Gurley said. “We are taking on, in these startups, especially these so-called unicorns, a level of risk that we haven’t seen since 1999.” [Siliconhills] […]

  2. […] “I don’t know that we are in a valuation bubble,” Gurley said. “We are taking on, in these startups, especially these so-called unicorns, a level of risk that we haven’t seen since 1999.” [Siliconhills] […]

  3. […] told SiliconHillsNews that “a number of entrepreneurs today don’t even remember the Dot Com bust of 2000.” […]

  4. […] “I don’t know that we are in a valuation bubble,” Gurley said. “We are taking on, in these startups, especially these so-called unicorns, a level of risk that we haven’t seen since 1999.” [Siliconhills] […]

  5. […] “I don’t know that we are in a valuation bubble,” Gurley said. “We are taking on, in these startups, especially these so-called unicorns, a level of risk that we haven’t seen since 1999.” [Siliconhills] […]

  6. […] bad bets. They lose a lot. Most venture-backed companies fail. They raise too much money, and spend too much money in […]

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