Bill Gurley: Everything I Said In August Is Still True

Gurley’s long, thoughtful essay on the state of venture capital, in which he described an industry that could shrink by half as Limited Partners — hit by a declining stock market and poor returns from their investments in bloated VC funds — pull back, was read and discussed for weeks, at peHUB and elsewhere, after he posted it on his blog last August.

Everything that’s happened since then convinces him he was right, Gurley told me today, and it’s easy to find evidence to support his claims. Endowments are cutting back on their commitments to private equity, for instance, as Alex pointed out yesterday, and Stanford is trying to sell some of its commitments on the secondary market.

But Gurley sees bright spots too. He is not one of those VCs who believes there’s a structural problem in the IPO market — he thinks it’s coming back. Buy side investors are tired of holding the same stocks, he argues, so they want IPOs, and Silicon Valley just needs to flex its atrophied “IPO muscles.”

“(Companies) look at Sarbox and the signatures and the lawsuits and the executive pay articles out there and don’t want to jump into that,” he said.

But even though big companies like Apple and Google and Microsoft are now shopping for acquisitions — because stocks have risen, they’re sitting on massive piles of cash and they’re having to battle strategically with each other — “for a company that’s capable of going public, IPOs will still pay you a higher price than a merger or acquisition.”

Gurley also discussed some of these ideas yesterday on CNBC. Here’s the video if you want to hear more.