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

**Bill Gurley** (0:00)
BG Squared.

**Chamath Palihapitiya** (0:01)
This is our BG Squared panel. Everybody knows Friends of the Pod.
Brad Gerstner and Bill Gurley give it up for our.

**David Sacks** (0:36)
A broken clock is still right twice a day.

**Chamath Palihapitiya** (0:38)
I mean, here we are again. You've sounded the alarm bell, and of course, you're right.
You've seen this movie before for all of us younger capital allocators who are experiencing it for the second or third time, but you've experienced it a couple more times.

**Jason Calacanis** (0:56)
I mean, it's pretty old.

**Chamath Palihapitiya** (0:59)
How does this one measure up to Great recession, .com.

**Bill Gurley** (1:13)
I'll try and tell this quick. I had a meeting once with Howard Marks, who I'd wanted to meet for a long period of time. He's a famous bond investor that does a lot of writing.
And for 15 minutes, he asked me questions about the venture industry, a lot of structural questions.
And I told him my answer as best I could. And he said, man, that's a really shitty industry. And I said, well, why do you say that? What do you mean? He says, you know, cyclical collapse is built into the structure. And so we have funds that, you know, are taken, you know, committed to that have 10 to 15 year lives. So you have low barriers to entry, but you have very high barriers to exit. And so he felt that it was just systematically set up to rise and crash, rise and crash.
And one thing that I realized coming out of that is that it doesn't happen like a sign curve, which is what we all imagine when we think of a cyclical business. It's more like a sawtooth. It risks on is a very slow process and it's reflexive. So it grows and grows and grows and grows. And then risk off tends to be very abrupt.
And we've seen that here, right? This cycle, risk on was from 2009 to five months ago. That's really well said. And risk off is five months. And the thing that's really tough about that is it requires mental adjustment very quickly, like because it didn't gradually change, it abruptly changed. And so, you know, cap charts might have, you know, systematic issues that are stuck because too much Lick-Pref relative to the new reality. Valuations have shifted. Cost of capital is radically different. You may have, you know, on the way up as risk got, people took more risk. You tried crazier things. You're willing to make investments in businesses you might not if the cost of capital is a lot lower.

**Chamath Palihapitiya** (3:17)
You name a stadium for five years as a crypto company.

**Bill Gurley** (3:19)
You might do that. And then, but then all of a sudden it's gone.

**Chamath Palihapitiya** (3:23)
And now the commitment to naming the stadium is greater than the market cap.

**Bill Gurley** (3:31)
Well, I assume you're referring to so far.

**David Sacks** (3:33)
That may not be true for FTX, but...

**Chamath Palihapitiya** (3:35)
Well, I mean, just as an example, it might be a disproportionate value of your market cap.

**Bill Gurley** (3:40)
Yeah, so anyway, it's tough. And in this particular case, because that's what you asked, so it turns out 9 wasn't that bad. If we have an 09, that would be pretty good. Things got turned around pretty quickly.
1 was very abrupt, and we didn't really start to see liquidity again until, with a few exceptions, Elon mentioned PayPal, but like 05, 6

**Jason Calacanis** (4:03)
It was a long walk in the desert.

**Chamath Palihapitiya** (4:05)
I mean, a lot of great companies were started, but a lot of founders gave up at that time, right?

**Bill Gurley** (4:08)
Yeah, and look, I mean, I think if you're an early stage investor or if you're an early stage founder that's just getting going or even an early stage company, because if you haven't scaled out yet, this probably hasn't affected you. It could be wonderful. Like your access to talent is going to be a lot easier. People are going to be more pragmatic and rational, but it's usually a long window on the other side. The other challenge you have here is in 2020 I mean, we basically had a mini pullback in March of 2020, but then the Fed hit so hard that things just blasted off again.
Now, you guys have talked about this, but that tool is not in toolbox anymore.

**Brad Gerstner** (4:53)
One of the things, I was talking to somebody last night and this audience is amazing. I was talking to somebody last night and they said, so how does it work? You just get together and talk. I said, what I love about this group is there are hundreds of hours of data and research that we're constantly challenged with. We all know where we are. We know what just happened.