Uber. Pinterest. Snapchat. We’re seeing a huge number of nine-figure funding rounds happening lately, driving valuations in tech companies up into the billions. Why’s there so much interest among investors in making big bets over recent months?
Backstage at TechCrunch Disrupt Europe, I got the chance to sit down with Benchmark’s Bill Gurley to talk about his recent investments, Uber’s amazing user growth, and why we are seeing so many huge, high-valuation funding rounds happening. It’s that last part that’s interesting, especially in light of all the big financing news we’re seeing.
Here’s what he had to say:
“I think there’s two things are going on: One, there’s quite a bit of capital availability out there, and if you look at how low-interest rates are, and what are the alternatives to invest capital and get return, that causes asset prices to rise. The stock market’s up, as well.
You know, this is a cyclical industry, and when times get good, they get really good. Last time we saw that was 1999 and many of the people at this conference might not have been paying attention, because they were in high school. But money is definitely freer flowing today than it was three or four years ago.
The other thing that I think has become a global reality is that some of these companies have systems, they have networks in them, that cause early leads to always play out with really huge platforms.
A lot of people laugh or write silly articles about the notion of a pre-revenue company having a very high valuation. If you talk to some of the smartest investors on Wall Street, or go talk to guys like Lee Fixel or Scott Shleifer at Tiger, they’re looking for these types of things. They’re looking for things that can become really, really big.
I think over and over again you’re seeing these companies that have these systematic effects go from being really little to massive. If you look at the size of the outcome… Look, every investment has two variables: the probability of success and the magnitude of success.
What people are saying is, having watched history, companies that get this type of leadership or advantage early on — typically that second variable is really, really, really big. So they’re willing to bet with higher prices.”
(You should watch the whole thing, but the relevant portion starts about 5:00 in.)