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Major tech investor: “unicorns” are too pricey for us

Tech-focused private equity fund Silver Lake is one of the most important investment firms in Silicon Valley, but its partners aren’t putting their money into the Valley’s hottest commodities—so-called unicorns, or privately held startups with a valuation of $1 billion or more.

Why?

When that question was posed to Silver Lake managing partner Egon Durban, he paused for several seconds before sighing deeply and offering a diplomatic answer.

“There will be a time and a place,” said Durban during an on-stage interview on Tuesday at Fortune’s Brainstorm Tech conference in Aspen, presumably referring to a future scenario in which valuations have fallen significantly. “These are great businesses. This is the place where we’re confined by financial logic and linearity.”

In other words, the prices are too darn high—and the risk might even be higher.

The numbers just don’t work for the $26 billion Silver Lake. “We’re a little bit financial weenies,” he said apologetically.

“If I could buy the index, I would,” said Durban. If it were possible to buy every private tech startup for $350 million, he said, “that would probably be a good trade.” But individual unicorns are off the table for his firm right now.

Big, legacy, out-of-favor technology companies, however, are another story. These cash-generating businesses, said Durban, remain better risk-adjusted opportunities than hyped-up startups.

Durban reminded the audience that three years ago at Brainstorm Tech, he told that year’s attendees that “a dollar of cash flow in a large tech company is fundamentally mispriced.” He still thinks it’s true.

When Durban walked off the stage at Brainstorm Tech after that appearance in 2012, he was introduced to Michael Dell for the first time. That meeting eventually led to Silver Lake working with Dell on a $25 billion buyout of his company in 2013.

How’s that big investment faring?

Durban said that Dell is generating a lot of cash flow and has paid down enough debt to have its rating boosted two notches to just below investment grade. He expects 2015 to be a bit more “challenging” year because of product cycles out of the company’s control, but said that it’s all relative. “You see large technology companies talking about big layoffs,” said Durban. “That’s not the case at Dell.”

The investor said that he sees a lot of potential for Dell to break out businesses from within Dell to unlock value, along the lines of the EMC Federation model. But no transaction of that type is imminent, he said.

Neither, apparently, is an IPO. Durban professed not to be in a hurry to push for that payday, saying that there were many examples of Silver Lake owning a company for more than a decade. He said there are plenty of options for an exit and “the goal is not going public—it’s just a step along the journey.”