Andy sent me a WSJ piece with Bill Gurley yesterday. I don’t like to link to paid content so here’s a good Business Insider summary of the article that is open for anyone to read.
Regular readers know that I’m a huge fan of Bill’s. He’s as smart as they come and I generally agree with him on things. As I was reading the WSJ piece, I found myself nodding my head and saying “yes”, “yes”, “yes”.
The thing I like so much about Bill’s point of view is that he does not focus on valuations as a measure of risk. He focuses on burn rates instead. That’s very smart and from my experience, very accurate.
Valuations can be fixed. You can do a down round, or three or four flat ones, until you get the price right.
But burn rates are exactly that. Burning cash. Losing money. Emphasis on the losing.
And they are indeed sky high all over the US startup sector right now. And our portfolio is not immune to it. We have multiple portfolio companies burning multiple millions of dollars a month. Thankfully its not our entire portfolio. But it is more than I’d like and more than I’m personally comfortable with.
I’ve been grumpy for months, possibly for longer than that, about this. I’ve pushed back on long term leases that I thought were outrageous, I’ve pushed back on spending plans that I thought were too aggressive and too risky, I’ve made myself a pain in the ass to more than a few CEOs.
I’m really happy that I’m not alone in thinking this way. At some point you have to build a real business, generate real profits, sustain the company without the largess of investor’s capital, and start producing value the old fashioned way. We have a number of companies in our portfolio that do that. And I love them for it. I wish we had more.
