Tags: Gurley | venture | capital | risk

Venture Capitalist Gurley: Silicon Valley Has 'Abundance of Capital'

By    |   Thursday, 23 October 2014 12:54 PM

Startups in Silicon Valley have access to too much capital, says venture capital star Bill Gurley, general partner at Benchmark.

"I don't see radically insane valuations," he told CNBC. "What I do see out here is an abundance of capital, and as you cram almost unnecessary levels of capital into these private companies, it creates kind of perverse behavior."

In the first three quarters of the year, $37.28 billion of venture capital was invested, more than the $35.33 billion invested in U.S. venture-backed companies in all of 2013. This year is on track to be the highest investment period since $94.17 billion was raised in 2000, according to Dow Jones VentureSource data cited by The Wall Street Journal.

The new companies don't have a need for capital expenditures, so they end up blowing the cash, Gurley said. "The problem is, this growth-at-all-costs mentality causes almost a subsidization of survival. It's much easier to execute unprofitably than profitably," he said.

"I think we end up with more companies at higher revenue rates where their business models may still be at question and that's what leads to risk."

Another venture capital luminary, Marc Andreessen, co-founder of Andreessen Horowitz, also sees trouble in the Valley. He took to Twitter to criticize young firms for burning through their cash.

"When the market turns, and it will turn, we will find out who has been swimming without trunks on: many high burn rate co's will VAPORIZE," Andreessen tweeted.

"Lots of people, big shiny office, high expense base = Fake 'we've made it!' feeling. Removes pressure to deliver real results. More people multiplies communication overhead exponentially, slows everything down. Company bogs down, becomes bad place to work."

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Startups in Silicon Valley have access to too much capital, says venture capital star Bill Gurley, general partner at Benchmark.
Gurley, venture, capital, risk
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2014-54-23
Thursday, 23 October 2014 12:54 PM
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