Episode Summary
Executive Summary: In this roundtable discussion, venture capitalists Brad Gerstner, Bill Gurley, and Jason Calacanis analyze the current state of public and private markets as 2024 begins. They dissect the cyclical nature of the venture industry, noting that the high valuations of the ZIRP era are adjusting, leading to startup deaths and a shift toward discipline. The conversation covers the lagging effects of overcapitalization, the three doors for troubled companies (shutdown, sale, or growth), and a strong push for more IPOs as a path to clarity. A major theme is the exceptional case of AI, which continues to attract speculative capital akin to mania, contrasted with a generally sobering market. The panel also debates the strategies of Big Tech, the commoditization of LLMs, and the potential for voice-activated assistants to disrupt search and commerce. Practical advice for founders includes leveraging abundant talent and AI for efficiency, while remaining cautious of valuation delusion.
Main Topics: Market Reset and Startup Death (Priority: 5/5): The panel discusses the delayed but significant impact of the ZIRP end, with roughly 1,500 startups dying in 2023. They expect a continued shakeout in 2024 as companies exhaust reserves and must face new profitability standards. The Three Doors for Troubled Companies (Priority: 5/5): Founders and boards have three options: shut down, sell (M&A or aqua-hire), or grow into inflated valuations. The last is hardest, and the panel stresses the need for honest conversations about valuation. Case for IPOs and Public Markets (Priority: 4/5): Gerstner and Gurley argue that staying private too long is a mistake. Going public provides discipline and cleans up cap tables. They cite Amazon, Google, and Salesforce as examples of successful early IPOs. AI as a Mania and Commodity (Priority: 5/5): AI is seen as a bubble similar to the internet era, with huge bets on LLMs (OpenAI, Anthropic) but doubts about durability. Gurley suggests LLMs may become commoditized, and startups should not overpay for hype. Availability of Talent and Efficiency (Priority: 4/5): Calacanis highlights how AI and remote work let founders build lean teams at lower costs. Companies now reach $1M revenue with 10 people, and the market is a 'great time to start a company' despite the overall downturn. Big Tech Dynamics and Prediction (Priority: 3/5): The panel predicts which of the 'Magnificent Seven' will outperform or underperform. Brad Gerstner picks NVIDIA as a long and Google as a short; Gurley is long Uber; Calacanis is short Apple and long Google.
Key Arguments: The venture industry is inherently cyclical, with risk taken slowly and crashes happening overnight; the ZIRP era amplified this cycle with government stimulus and negative rates. Startup deaths are lagging because many companies had 2-3 years of cash, but that buffer is now running out, leading to a day of reckoning in 2024-2025. Founders and boards must accept that valuations from 2021 are unreachable; the only healthy path is to reset expectations and take action (shutdown, sale, or IPO). Going public early, even at a discount, provides discipline and allows companies to focus on growth without conflicting investor agendas. AI is a 'mania' similar to the dot-com bubble: real potential but massive mispricing. LLMs may become commoditized, and the true value lies in applications and voice-recognition-enabled assistants. The talent market has flipped: Big Tech is shedding headcount, and startups can hire skilled international workers cheaply, reducing burn and reducing dependence on follow-on funding. The panel argues that for Big Tech, the key risk is not just competition but also internal culture that squeezes partners (e.g., Facebook/Zynga), making it hard to build the win-win relationships needed for the next wave of AI-driven services. Voice recognition combined with LLMs is a breakthrough UI that could upend search and transactional commerce, but execution challenges remain (e.g., dealing with aggregators).
Data Points: Number of ZIRP-funded startups that died in 2023: ~1,500 - Carta data representing ~50% of the market; highest death toll since dot-com crash. Projected startups exhausting reserves by end of 2024: ~1,200 - Estimate from John Redman of Discovery, a $2.5B hedge fund. Software forward revenue multiples (10-year average): 6.5-7x - Spiked massively during ZIRP, now below the 10-year average, with interest rates ~4% vs 2.7% during the average period. Series B and C software deals in 2023 vs 2021 peak: Down ~90% - Pitchbook data; back to 2017 levels, mirrored by interest rate conditions. Altimeter deal count (Q3+Q4 2023): 9 deals (4 Series A, 2 Series B, 3 pre-IPO) - Pricing back to 2013-2014 levels; competitive with Sequoia, A16Z, etc. AI VC funding in 2023: $87 billion - Top 3 (OpenAI, Anthropic, Inflection AI) comprised >20% of all AI VC funding. NVIDIA PE multiple: Low 20s - Brad Gerstner's estimate; sees demand outstripping supply for a long time. Startup employee cost (example): $4K/month per person for 12 employees (total $50K/month) - Jason Calacanis notes lean teams using AI, remote international hires, and cloud credits.
Pivotal Quotes: "The idea that you can't innovate in the public markets is total nonsense. This idea, you know, it's a cheap source of capital. It keeps the business efficient and honest." — Brad Gerstner: Arguing against the trend of staying private for too long, citing Amazon, Google, and Salesforce as counterexamples. "If you have $200 million in revenue and you're growing, right? Get the company public. Don't stay private forever. There's a discipline that is good that occurs in the public markets." — Brad Gerstner: In a discussion about the three doors for startups; emphasizing that IPOs clean up cap charts and focus management. "The worst performing [stock] on a relative basis... I would pick Google. I think it's very challenging for their multiple to expand in a world where 10 blue links are clearly dying." — Brad Gerstner: Predicting Google's underperformance in 2024 due to disruption from AI and voice interfaces. "I would say that the leading LLM lets the consumer choose which of these services companies they want to work with, and then they have open connections to each of them." — Bill Gurley: Discussing a potential solution to the challenge of friction in transactional AI assistants, avoiding the 'win-lose' partnerships of Big Tech. "It's an incredible time to start a company. Just reach out to whoever you need to reach out to. But like, it's a fabulous time. And history has shown that these windows of pessimism are a really good time to get going." — Bill Gurley: Encouraging founders to take advantage of abundant talent, lower costs, and rational valuations in the post-ZIRP environment.
Implications: Founders should expect a tough 2024-2025 with many startups failing; embrace realistic valuations, prepare for down-rounds or IPOs at lower prices. The AI hype cycle offers opportunity but remains risky—focus on applications with clear value, not underlying LLMs. The talent market is favorable, and lean, capital-efficient companies will thrive. For investors, patience is key; the best deals come in down cycles. Big Tech faces disruption, and the next big UI (voice+LLM) could reshape search and commerce—early movers may win big.
About This Week in Startups
Jason Calacanis covers startups, tech, markets, media, and all the hottest topics in business and technology. He also interviews the world’s greatest founders, operators, investors, and innovators.