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We read Bill Gurley's big warning about Silicon Valley's big money troubles so you don't have to

Really, you should read it. But until then, here's the summary of the essay freaking out the tech world.

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Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Last night, Benchmark VC Bill Gurley posted a 5,700-word piece sounding the alarm about the state of over-funded Silicon Valley companies and the investors who over-funded them. It’s going to be the talk of the tech world today, so if you haven’t read it yet, you’d better get started ASAP.

What’s that? You have a day job? You don’t have time to read a 5,700-word piece? Even if it’s only 5,681 words?

No worries. Part of my day job involves summarizing 5,681-word pieces. Here you go.

What’s the big picture?

Gurley says too many Silicon Valley companies have raised too much money, and now they’re in trouble. The same goes for the investors who gave them all that money. “Times are changing,” he tweets.

That sounds familiar.

That’s because Gurley has been saying too many Silicon Valley companies have raised too much money, and will be in trouble, for a couple of years now. And every time he says it, it generates a lot of attention.

Okay. So what’s new here?

If you are cynical, you might argue that it’s Gurley’s victory lap. A less cynical take: Many investors have come around to Gurley’s point of view and are less likely to pour money into tech companies at any valuation.

So what does that mean for the tech company I work at or invested in?

This is the most important part of Gurley’s essay: He sketches out a scenario in which companies that have gotten used to easy money but have yet to build a business that makes money, find that they need to raise more money — and that the easy money is gone.

Now, they may have to raise money at valuations below their previous marks — the “down rounds” you’ve heard whispers about for some time. A worse option would be raising money via “dirty term sheets,” which come with all kinds of ugly-sounding mechanisms like “ratchets” and “superior preferences.”

What’s wrong with those mechanisms?

You’ve seen movies where people borrow money from loan sharks, right?

If things are so bad, how come I’ve read about VCs raising a ton of money in the last few months?

This is a big part of Gurley’s essay. He describes a landscape where panicked VCs are loading up on cash before the value of their investments plummets. And since many traditional investors in VC funds are done investing, VCs and their portfolio companies are hitting up anyone with a checkbook. Maybe even you.

Is that why I just got an email offering me the opportunity to invest in a VC’s “friends and family special vehicle”?

Sure could be. Gurley takes special care to denigrate special purpose vehicles, which are basically mini-funds VCs raise to supplement their main funds. He calls them “eerily Madoffian.”

Wait a minute. Gurley is a VC. So he’s invested in lots of companies that have raised lots of money, at very high valuations. Like Uber. Right?


I’d like to hear a more optimistic view of all this. Who should I ask?

A good bet would be rival VC Marc Andreessen, the anti-Gurley. “I can’t stand him. If you’ve seen ‘Seinfeld,’ Bill Gurley is my Newman,” he told the New Yorker last year. Keep an eye on his Twitter account. (Bloomberg’s Eric Newcomer suggests that Gurley may be trolling Andreessen by calling out several of his portfolio companies. Stay tuned!)

Hey! Don’t you work at one those companies that have raised a lot of money recently? Doesn’t this worry you?

Oh look at the time! Gotta go.

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