For months now, Gurley has been discussing the possibility of a tech bubble as he observed investors’ strong appetite for risk in the market, the alarming high burn rate, and the excess of free flowing capital around Silicon Valley.
Bill Gurley noticed the absence of fear in Silicon Valley
During the SXSW festival in Austin, Texas, Gurley reiterated his warning regarding a potential tech bubble. He said currently, the tech industry may not be in a bubble, but it is at risk.
Gurley said “There is no fear in Silicon Valley right.” He emphasized that there is a complete absence of fear in the industry. He also noted more people are being employed by money losing companies in Silicon Valley than before. He predicted that more startups would fail this year.
Bill Gurley expects some startups to fail
“I do think you’ll see some dead unicorns this year,” said Gurley. He used “unicorn” to describe startups with a valuation of more than $1 billion. Gurley said that failures of some of the startups will have ramifications across the technology industry.
According to him, once the free flowing capital stops, it would affect not just the money-losing startups, but also the real estate market in San Francisco. It would also affect companies with revenues that are increasingly dependent on the spending of startups backed by venture capital firms.
Gurley mentioned Facebook as an example. According to him, a significant portion of the social network giant’s income comes from venture-backed startups that are spending heavily on its platform to promote their apps.
“As you get more of these dependencies, it increases the likelihood that if anything slows we’ll have [problems],” said Gurley. He added that younger entrepreneurs or startups do not have back-up plans in case the worst scenario happens. Unlike the best entrepreneurs, they can easily change direction and achieve profitability.
Gurley made investments in Uber, the ride-sharing app company with more than $40 billion valuation. He also invested in Snapchat, a photo messaging app developer with $15 billion valuation.
When asked about other startups that he wished he invested in, He said, Airnbnb, which is speculated to reach a $20 billion valuation and Slack, the youngest company to obtain a $1 billion valuation.