Jun 22, 2024 · 1h 1m · bg2-pod
Ep11. Coatue Conference Recap, Tesla & ISS Controversy | BG2 with Bill Gurley & Brad Gerstner · Bg2 Pod
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In this live episode of BG² recorded at Coatue's East Meets West 2024 conference, hosts Bill Gurley and Brad Gerstner analyze public and private tech market dynamics, evaluating AI infrastructure capex returns, the $10 billion IPO threshold for private unicorns, and mounting corporate governance controversies surrounding ISS and Delaware law.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Brad and Bill hold 96.6% of the talking time here. How this is scored →
Brad and Bill as informed peer 6.9 Guest teaching 0.3 Guest disagreement 0.5 Brad and Bill pushing back 1.1
speaking balance: gold is Brad and Bill, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 37:24 Philippe insists public markets reject high cash burn
Philippe Lafont directly challenges the hosts' optimistic push for smaller IPOs by arguing public markets will reject unprofitable unicorns regardless of their growth.
Hardest push from Brad and Bill ▶ 38:20 Bill pushes back against the $1B IPO revenue standardBill Gurley forcefully pushes back against Philippe's high IPO bar, asking what will happen to the entire venture business if companies are forced to reach $1B in revenue to achieve an exit.
Biggest teaching moment ▶ 37:24 Philippe outlines public market exit criteriaPhilippe Lafont educates the hosts on the dual criteria needed for successful public offerings—scale and demonstrable path to break-even—tempering their IPO optimism.
Brad and Bill hold their own ▶ 32:00 Bill brings proprietary credit card churn data on OpenAIBill Gurley demonstrates deep domain expertise by citing specific credit card data revealing OpenAI's 65% consumer churn rate and revenue composition.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Brad and Bill as informed peer | Guest teaching | Guest disagreement | Brad and Bill pushing back | Why |
|---|---|---|---|---|---|---|
| Welcome Live from Coatue's East Meets West 2024 | 3 | 0 | 0 | 0 | Co-hosts Brad and Bill introduce the destination podcast live at Coatue's East Meets West 2024 conference. Bill explains the historical background of the event and its unique format bringing tech leaders together. | |
| Positive-Sum Collaboration & Conference Overview | 5 | 0 | 0 | 0 | Brad reflects on the positive-sum nature of tech investing and the broader macroeconomic role of technology growing from 5% to 15% of GDP. Both hosts establish a collaborative and analytical tone. | |
| Public Market Trends, Nvidia Valuation, and AI Bubble Debates | 7 | 1 | 1 | 1 | Brad and Bill dissect Coatue's presentation regarding public market concentration, Nvidia's valuation multiple compared to Cisco in 1999, and the ongoing debate over an AI bubble. Bill notes how Nvidia's blowout earnings make it reasonable on an earnings basis. | |
| Evaluating AI Capex ROI: Labor Savings vs. GDP Growth | 7 | 0 | 0 | 2 | The hosts debate how the industry will earn a return on $200B of annual AI capex. Bill pushes back on Philippe's labor-cost-savings thesis using the Red Queen effect and favors Satya Nadella's global GDP growth thesis. | |
| Supply-Driven AI Capex, Software Lag, and AI Winter Risks | 7 | 0 | 0 | 1 | Bill highlights that the current AI wave is supply-driven with heavy capex in cloud infrastructure, contrasting it with the 1990s internet buildout. Brad warns that founders and investors must prepare for a possible AI winter during non-linear adoption cycles. | |
| The $10B IPO Threshold and the 1,400 Private Unicorn Dilemma | 8 | 0 | 1 | 2 | The hosts react to the assertion that companies now need a $10B market cap to go public, examining the 1,400 private unicorns facing severe deceleration. Bill calls out the delusion of private boards celebrating avoiding the public market while sitting on stalled growth. | |
| Reopening the IPO Market and Challenging the Stay-Private Mindset | 8 | 0 | 1 | 2 | Brad explains why staying private indefinitely harms companies by removing market discipline, citing Meta's rapid operational turnaround as proof. Bill agrees and calls for investment bankers willing to take companies public at $100M revenue. | |
| Can OpenAI Go Public? Examining Revenue, Churn, and Governance | 8 | 0 | 1 | 2 | Bill cites credit card data showing OpenAI's revenue split and ~65% annual consumer churn, questioning their retention dynamics. Brad strongly advocates for an OpenAI IPO and converting the corporate structure to let retail investors participate in AGI upside. | |
| Special Guest Philippe Lafont on Exit Realities & Market Structure | 7 | 4 | 3 | 3 | Coatue founder Philippe Lafont joins live and defends his stance that IPOs require $1B in revenue and path to breakeven, noting public markets punish massive cash burn. Bill counters by asking how many venture-backed companies can ever reach that scale if regulatory blocks stifle M&A. | |
| Board Governance, Power Law Capital, and Avoiding ZERP Mistakes in AI | 7 | 0 | 0 | 1 | Bill observes the irony that AI venture funding is repeating the zero-interest-rate bubble mistakes with 5-6x higher valuations. Brad explains how widespread awareness of power-law dynamics accelerates massive capital chasing early leaders. | |
| Agentic AI Software, Cognition's Devin, and the Future of Work | 6 | 0 | 0 | 0 | Brad shares an anecdote from Cognition AI utilizing autonomous agentic engineers ('Devins') with a tiny 18-person core team. Bill advises developers not to fear automation but to master the new tooling. | |
| Tesla Shareholder Vote & The Controversy Over ISS and Glass-Lewis | 8 | 0 | 0 | 1 | The hosts discuss Tesla's shareholder vote ratifying Elon Musk's pay package despite negative proxy recommendations from ISS and Glass-Lewis. Brad criticizes ISS for pushing ideological mandates rather than maximizing shareholder return. | |
| ISS Duopoly and CEO Compensation Alignment | 8 | 0 | 0 | 1 | Bill reveals conversations with ISS confirming they rely on backward-looking surveys rather than first-principles compensation alignment. He praises Musk's incentive structure as deeply aligned and defends Netflix against ISS governance interference. | |
| Delaware Corporate Law Crisis and Company Reincorporation | 8 | 0 | 0 | 1 | Bill and Brad sharply criticize Delaware chancery court rulings, warning that voiding shareholder votes over a 9-share derivative plaintiff invites legal shakedowns. They predict companies will increasingly reincorporate in Texas and Nevada. | |
| Future Economic Outlook: Globalization, AI, and Skilled Immigration | 6 | 0 | 0 | 0 | Bill expresses deep skepticism of political deglobalization rhetoric, highlighting Ricardo's comparative advantage. Brad discusses skilled immigration and the need to retain foreign talent educated in the United States. |
Statements from this episode (30)
Gerstner: Technology Has Grown From 5% to 15% of Global GDP
“When you really telescope out over the last 20 years that you and I have been doing this, technology's gone from five percent to 15% of global GDP, right?”
Gerstner: Nvidia and Magnificent Six drove 10% of S&P's 14% return
“So far this year, NVIDIA is responsible for five percent of the S&P 500 returns. The other MAG six are responsible for five percent, and then the other 493 companies in the S&P 500 are responsible for four percent of the 14% year to date returns.”
Gerstner: Nvidia's earnings multiple remained flat despite 10x stock surge
“In the case of Cisco, the earnings multiple more than tripled during that period of time. But in this case, because of the earnings growth of Nvidia, the earnings multiple has been flat despite the fact that the stock is up nearly 10 X.”
Gurley: Companies consistently blowing out estimates signal real secular shifts
“He pointed out that if you go to the past and start to notice one to three companies just materially blowing out numbers above everyone's estimates over several quarters. There may be something happening that you should pay attention to.”
Gurley: AI tools act as competitive weapons without creating net income
“The problem I have with the first one is simply that, you know, my entire time in, in technology, like, these tools are competitive weapons. But if I get armed with them and my competitor gets armed with them, it doesn't necessarily increase. It doesn't create…”
Gerstner: Investors and founders must assume an AI winter will happen
“I think from an investment perspective, whether you're a venture capitalist, or whether you're a public market investor, or whether you're a founder, one of the founders in the audience, you have to assume that there is going to be an AI winter at some point i…”
Gurley: The AI boom is supply-driven and building ahead of demand
“And Satya very quickly said, this is a supply driven wave. And I think up to date that is true. We're building ahead of demand.”
Gerstner: AI productivity gains will match or exceed the PC era
“The productivity gains to come out of that are undeniable, and I think there's reason to believe that the productivity gains we're gonna see here are at least as big.”
Gerstner: 2021–2024 IPO Volumes Are Lower Than During 2008 Financial Crisis
“And shockingly, IPOs in two, in twenty-twenty-four, twenty-twenty-one through twenty-twenty-four are fewer than during the great financial crisis in 2008.”
Gerstner: Venture Secondary Market Sales Are Down 50% to 75% From Peak
“The secondary sales in the venture market are 50 to 75% off the highs, just like the public markets retrace.”
Gurley: Slow-Growth Private Companies Avoiding IPOs Are Acting Like Ostriches
“I often hear people on a board say something like, well, good thing we didn't go public, a good thing we aren't public. But they're sitting on the board of a private company that's at a hundred and fifty million in revenue and growing 10%. Like, you're, you ju…”
Gerstner: Public market pressure forces companies to cut costs faster than staying private
“When the public markets gives you a sign, right, like it did Meta or Facebook in the fall of twenty-twenty-two when the stock goes to 90 dollars a share, right, there's nowhere to hide. You confront the brutal truth. You confront the reality. Public market inv…”
Gerstner: The 'stay private forever' strategy fails for most unicorns
“I really don't like the stay private forever idea. It works for some companies where you have an Elon Musk running SpaceX, and you know, the intrinsic motivation and experience will lead to a good outcome. It doesn't work well for 3050, bless you, of the other…”
Gerstner: Public market investors will always find high-growth, high-margin companies
“Greedy investors will find you if your company is growing really fast in his great margins. Look at Samsara, ok? Samsara went public, and everybody said, too small, not enough coverage, stock's not working. That, that company has been a grand slam home run in …”
Gerstner: Altimeter Recently Sold Tabular to Databricks for $1B to $2B
“We've recently sold two companies in our portfolio. One was reported by the Wall Street Journal for a billion to two billion dollars to Databricks called Tabular.”
Gerstner: 60% to 70% of Unicorns Will Never Go Public
“Out of that 1400, I suspect that 60 to 70% of those companies are never going to go public, ok?”
Gurley: Credit Card Data Implies $2.1B of OpenAI Revenue Is Consumer
“I went into one of these credit card survey things, and I looked at OpenAI, and assuming that people don't pay for the API with a credit card, so the credit card pool just represents, and I compared it to a company where I knew the revenue it would imply that …”
Gurley: OpenAI Consumer Subscription Cohorts Suffer ~65% Annual Churn
“At least for the cohorts that are old enough, the churn's about 65% annually, so they're only 35% retaining, which Sachs had hinted at on All In, and maybe the reason that I think Sam at one point said he didn't really see the twenty-dollar thing as his future…”
Lafont: Large unicorn IPOs require $1B in revenue and breakeven path
“There's two criteria as one is, can you get to a billion of revenue? Open AI would be check, check, check the box. But the second one is, do you have a sort of a break even or a path to break even?”
Lafont: VC will face fewer but bigger exits, increasing risk
“There's gonna be less exits and bigger exits. So it's gonna make the business that much more risky.”
Lafont: Government tech M&A blocks backfire and harm small companies
“What's weird to me is that the government By trying to protect small companies and not allowing big companies to buy small companies. So big companies get bigger. I think it's got the reverse effect where now small companies have one less chance of winning. An…”
Gerstner: The IPO drought stems from ZERP-era overfunding and 'stay private' board culture
“I think we're going to look at this period. It's going to be a byproduct of the age of excess. This is going to be like all these companies raised too much money at too high evaluation during the Zerp period. And therefore they couldn't go public. And frankly,…”
Gurley: AI venture investing is repeating the exact same overfunding mistakes as ZERP
“If the 1400 number of private unicorns that are the result of the age of access is a problem, it's not clear to me that we're doing anything different in AI. Aren't we doing the exact same thing? So couldn't we end up with the exact same result? We just said f…”
Gerstner: Cognition operates with 18 employees and 100 Devin AI agents
“And I asked Scott, I said, how many employees do you have? Because I think he has tens of thousands of enterprise customers already. And he said, 18. I said, how do you do all this work with only 18 people? He said, we have a hundred Devons. We have a hundred …”
Gerstner: AI is headed toward human replacement, not just augmentation
“Put me in the camp. Again, I don't know the time series, but I do think that we're on a path toward human replacement, not just augmentation. Now, I think those folks in this period of dislocation will get consumed in other tasks, so I don't think this is a ne…”
Gerstner: ISS coerces corporate boards toward societal rather than corporate interests
“Many of us have argued over the years that ISS veered off course, right? And this started becoming kind of this cudgel to, you know, to coerce board behavior into ways that they deemed, right in maybe societal best interest or in their perceived best interest …”
Gurley: Elon Musk's Pay Package Is the Most Shareholder-Aligned Ever
“The Elon package is the most shareholder aligned CEO compensation package I've ever seen. I would be thrilled if all of my hired CEOs had a very similar package.”
Gurley: Netflix Executive Pay Should Never Receive a Shareholder No Vote
“I think that it's ridiculous that Netflix would ever get a no vote on anything because they've had incredible stock performance and industry leading low dilution. With their very innovative approach to compensation.”