Bill Gurley

For those that don't know this world, private investing, both on the PE side and the VC side, is this weird world where the GPs, the people responsible for the investments, report the price to the LPs.

They get to pick it.

Now there's auditors in the background messing around and you'll hear frustrated LPs because some firms will be conservative and price them low and some high.

So they get mixed signals from different people.

Yeah.

But the thing people may not realize is the managers of the VC group at the large endowments have no incentive to try and right size this number.

In fact, many of them are bonused on paper marks.

So if anything, they have the reverse incentives to get them right.

It's a great question.

I think there's two things that fight against that.

One, every founder I know has multiplied their percentage ownership times whatever the highest price their company was ever valued at and thought about that number as their net worth.

I say that without judgment.

I think it's natural that you would do that.

But then taking that number down by 70% or whatever is tough to do.

And then the other issue is, quite frankly, the lick preference.

And so this is another technicality.

So I'll explain it for the listeners.

But

The amount of money you raise in aggregate, just the raw number becomes your LIC preference.

And in M&A outcomes, the investor can choose to take the LIC preference and not convert to common so they can get their money back.