Jan 25, 2024 · 1h 9m · bg2-pod
BG2 with Bill Gurley & Brad Gerstner | MANG VC Gone Wild, Can You Trust AI Valuations? & More | E01 · Bg2 Pod
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In the inaugural episode of the BG² podcast, venture capitalists Brad Gerstner and Bill Gurley analyze artificial intelligence valuation distortions, mega-cap cloud computing dynamics, the delayed private venture market correction, and the macroeconomic impact of free-market capitalism.
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 100% of the talking time here. How this is scored →
Brad and Bill as informed peer 8.2 Guest teaching 3.7 Guest disagreement 1.7 Brad and Bill pushing back 2.0
speaking balance: gold is Brad and Bill, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:40 Disgust at closed AI labs attacking open source
Bill expresses visceral disgust at large LLM developers lobbying governments to hamstring open source AI models after benefiting from open academic research.
Hardest push from Brad and Bill ▶ 33:01 Bill challenges Brad's long-term compounding data windowBill directly pushes back against Brad's 10-year tech compounding thesis by noting the chart conveniently omitted peak entry points like 1999 and 2009.
Biggest teaching moment ▶ 2:18 Brad explains medical liability barriers to preventative scansBrad educates Bill on the structural and legal reasons doctors adhere strictly to cholesterol standards of care rather than prescribing direct calcium CT imaging.
Brad and Bill hold their own ▶ 8:25 Bill deconstructs circular cloud credit accountingBill delivers a sharp financial critique explaining how big tech companies use balance sheet equity investments to manufacture cashless, low-quality cloud revenue.
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 |
|---|---|---|---|---|---|---|
| Preventative Health & The Calcium CT Scan Controversy | 6 | 5 | 1 | 1 | Brad explains the medical and economic rationale behind calcium CT scans versus standard cholesterol metrics, sharing insights from cardiologists. Bill shares his personal experience doing the test and asks why the medical establishment resists it. | |
| MANG VC Investments & Circular Cloud Credit Financing | 9 | 3 | 2 | 2 | Bill breaks down the financial mechanics of big tech cloud credits being counted as venture investments and low-quality cashless revenue. Brad clarifies the dynamic with his 'Ultra Hosting Company' analogy and left-pocket-to-right-pocket framing. | |
| AI Valuation Distortions & Venture Ecosystem Fallout | 9 | 4 | 2 | 3 | Both investors analyze how non-arm's-length MANG investments distort startup valuations and secondary share markets. Brad steelmans why big cloud providers do this and notes Altimeter's discipline in passing on ambiguous deal structures. | |
| The Battle Between Open Source and Closed AI Models | 8 | 3 | 3 | 2 | Bill forcefully criticizes closed-source AI vendors who lobby regulators against open source after having built upon open research themselves. Brad adds recent developments from Meta and Elon Musk's commitments to open weights. | |
| Public Tech Multiples & Reversion to Historical Means | 8 | 4 | 1 | 2 | Brad shares data from his LP annual meeting detailing software multiples reverting from 2021 extremes to historical averages. Bill interjects to probe why the macro narrative shifted so dramatically from 2021's pull-forward beliefs. | |
| Mega-Cap Scale Advantages & Long-Term Tech Compounding | 9 | 4 | 2 | 3 | Brad highlights how mega-cap tech companies are exhibiting increasing rather than diminishing returns to scale due to massive CapEx requirements for AI compute. Bill challenges the smooth compounding narrative by pointing out entry valuation timing in 1999, 2009, and 2021. | |
| VC Correction Realities, Startup Shutdowns & Down Rounds | 9 | 3 | 2 | 2 | The conversation examines startup shutdowns occurring quietly despite massive venture fund cushions, contrasting it with 2001 dot-com bankruptcies. Bill and Brad both lament founders and young VC board members anchoring to peak paper valuations rather than facing reality. | |
| The 2024 Year of Acceptance & Organizational Fitness | 8 | 3 | 1 | 2 | Brad explains why 2024 will be the year of acceptance for cap table resets and IPOs as runway finally ends. Bill points out that internal bridge loans are usually 'piers' that lead founders nowhere compared to full restructuring. | |
| Javier Milei’s Davos Speech & Empirical GDP Growth | 8 | 4 | 1 | 1 | Brad examines Javier Milei's Davos speech presenting empirical historical GDP growth data tied to free enterprise. Bill connects the data to Matt Ridley's concept of ideas exchanging and Deng Xiaoping lifting millions out of poverty via open commerce. |
Statements from this episode (23)
Gerstner: Everyone Over Age 40 Needs a Calcium CT Scan
“I'm just thinking everybody over the age of 40 needs to get this CT scan”
Gerstner: Microsoft, Amazon, Nvidia, and Google invested $25B in VC in 2023
“We go from almost no venture capital investing, you know, out of these folks six or seven years ago to all of a sudden this twenty five billion dollars last year in VC investing”
Gurley: Mega-cap cloud credit financing will cause market distortions
“What I fear is that this is happening at such a large level and maybe we haven't seen the end of it, right? I think there's reason you can see more that it's going to create a market distortion.”
Gurley: Cloud Revenue From Invested AI Credits Is 'Low Quality'
“From the big company player side, I would just say definitively, And this could get me in trouble, but this is low quality revenue. Like, this is flat out low quality revenue, and I'm certain that they've got their auditor to sign off on it, but I don't think …”
Gerstner: Altimeter Has Not Invested in Foundation Model Companies
“So for us, we haven't invested in any of these.”
Gerstner: Foundation Model Startups Cannot Compete Without Big Tech Backing
“If you're a founder and you want to compete in this, you know, in the model game, you know, and you don't have their backing, there is no, no chance.”
Gurley: Major LLM players are lobbying regulators to disable open source
“Some of the larger LLM players have literally attacked open source directly and are telling, you know, regulators to try and disable it.”
Gurley: LLM scaling on parameters and context windows could hit ceilings
“I look at the LLM models. I mean, they've scaled up on parameter count and the width of the attention window. There easily could be limitations to that. Like if you just think about how optimization models work, they could run out. Like it's not infinite scali…”
Gurley: OpenAI used to be open-source and is now attacking it
“OpenAI that clearly is a closed model, and we have, we... And used to be open source. Right. And is now attacking open source.”
Gerstner: Four or five companies will reach GPT-4 performance in 2024
“I think, you know, a lot said in a tweet yesterday, we're going to have four or five companies that hit chat GPT four level this year with their models. I think that's exactly right.”
Gerstner: Tech trades at 36% premium to 10-year average while software lags
“The blue line represents tech. This is the Q's. We're trading at about a 36% premium to the ten-year average. I just showed you software. Software is still trading at a discount because people are more skeptical of software, but when you look at the Q's, Nvidi…”
Gerstner: Microsoft, Nvidia, and Meta PEG ratios trade in line historically
“The big three, what I call Microsoft, NVIDIA, and Meta, You know, they too are trading at a premium, about a 14% premium, but if you look at their peg ratio, this is growth adjusted on the bottom of that slide, right? They're basically trading in line with whe…”
Gurley: Megacap tech companies having the highest growth rates is unprecedented
“The largest companies in our world have some of the highest growth rates, and I think that's unprecedented.”
Gerstner: Microsoft, Amazon, and Snowflake will accelerate growth rates in 2024
“We expect our forecast is that Microsoft and Amazon, you know, Snowflake, they'll all accelerate their growth rates this year, right?”
Gurley: Startup Shutdowns Ran at Roughly 800 Per Year in 2023
“The first three quarters of 20, 23 saw
What is it?
Around a 180, a quarter of shutdowns.
And so our run rate, let's assume the run rate's like 200, we're like 800 a year shutdown.”
Gurley: Founders Must Confront Real Valuations Immediately to Survive
“I think the number one thing a founder can do is to as quickly as possible, get in touch with your, with what your real actual valuation is.
And then ask yourself, what do I need to do structurally to give this company a fighting chance, knowing that that's re…”
Gurley: Price-to-Revenue Multiples Are One of the Most Naive Valuation Methods
“Silicon Valley mostly lives on price to revenue multiples.
Like, that is the conversation du jour in in Silicon Valley, and it's one of the most naive ways you could value a financial asset in the world.”
Gerstner: Tech IPO Dam Will Break in Second Half of 2024
“I think you're gonna see the dam really break on this year, particularly in the back half of this year. And the reason is because people gotta raise capital, right?”
Gerstner: 2024 Is the Year of Acceptance for Lower Startup Valuations
“What I finally see happening this year, I think, 20, 24 in terms of the stages of grief is the year of acceptance. Right. I think people are just going to have to get liquid. They're going to accept the prices that they have to accept because frankly, there ar…”
Gurley: Startup Insider Bridge Rounds Almost Never Lead to Success
“One of the easy defaults you go to in the middle is, oh, I'll just go to my insiders and ask for a bridge. And I will tell you, at least all the data I've seen, the success stories coming off a bridge are few to none. That's why we always refer to them as pier…”
Gerstner: Twitter Platform and Product Pace Are as Vibrant as Ever
“What he did at Twitter, laying off 75% of the people that, you know, I saw somebody tweet the other day, Bill they said, I guess Twitter isn't going to fall over. Right? I mean, the platform is as vibrant and the product development cycle is vibrant as it's ev…”