Name: Why this investor stays away from Unicorns
Uploaded: 2015-07-15
Duration: 4 min 46 s
Description: Silver lake managing partner Egon Durban explains why his firm's portfolio has very few high flying private Silicon Valley companies.

[ MUSIC ] Silver lake is almost completely absent from investing in these venture- backed private unicorns in the Valley. Why? We There will be a time and a place. It's not that, these are great businesses- [ CROSSTALK ] Great businesses that you've chosen not to invest in. and we like to be able and this is the part where we are constrained by financial logic and linearity. When we sit with our limited partners and they explain [ UNKNOWN ] We were able to talk about all this wonderful market potential and all this opportunity. But the reality is we invested at . 6 times free cash flow to GREP. That's what it is. It's probably the best multiple we set it. We invested Skype at . 7 times for cash flow to GREP. We're a little bit of financial weenie [ INAUDIBLE ] Is this the weenies? Yeah. [ INAUDIBLE ] Our loss of capital ratio in firm history is 3 %. We get paid to hit singles and doubles. Steal third, come home on a pass. Every once in a while, the bat finds the ball and goes out of the park, and But if we have a business of not building a portfolio, and venture guys think about it in a fundamentally different way. And the risk is, if you start investing in many businesses that have big values, high growth, they're investing for future return, but maybe loosing money or a lot of money. Money. If you get caught in a different cycle, you end up in a different place. And we just had made the decision, in this environment, with what's happened with valuations over the last handful of years, and it's really picked up over the last two to three, with new entrants in the market, It's not a priority for us. We have a robust enough opportunity And it was actually three years ago up here, I was talking about a dollar of cashflow in a large cap technology company is fundamentally mispriced. And I still think it is in some cases relatively, to where interest rates are, into where the average equity yield is, across the overall market And you can look through, I'm not gonna name names, but you have to be a stock picker in this environment that there are many places where companies have many great assets embedded in them. And they yield double digit, high single digit, unlevered yields of cash flow. If you own a share you get eight, nine, ten, 12, 15 cents on the dollar of that On a relative basis we see that opportunity as being a better risk adjusted return opportunity for us as it makes tech. And then the tech enabled opportunity, as we weighed into it, is starting to feel kind of unlimited. And now it's all about selection and where we really Wanna put our resources and time behind. So, two observations regarding this unicorn list. One is that a fair number of your competitors are investing in these companies right now. Second is, you're the ones in Silicon Valley. You're the ones who have the closest, most informed, largest staffed opinion of these companies. So are these interesting? Am I making interesting observations in your opinion? Look, I think there's, if I could buy the Index, and this is how we talk about it. I'd buy the Index. Dan framed it that way. If you could buy every private company for 350 billion dollars and get everything, that's probably a pretty good trade today. On a relative basis. But you may only make two times your money, or two and a half or three. Because some will be such spectacular failures. Yeah, several of these companies will come and go, it's called technology. There are winners and losers, this has been going on longer than I've been alive. So this is gonna go up and down and ebb and flow. And in different markets, When the market feels like this, you have lots of liquidity. Our observation, though, is when the equity markets start to go down, the capital for the private company, high- value, high- growth, not making money The corresponding asset value depreciation goes down at a much greater rate. So if the market drops 10 to 15 %, the private market valuation goes from down 30 % to no bid. And it happens really quickly and abruptly. And so just to repeat something you said a moment ago so that everybody heard what Egon said, regarding this list you said for Silver Lake There will be a time and a place. There will be a time and a place, and we've done it. What's an example? We did it with Alibaba would be- With Alibaba. Would be a- [ MUSIC ]

Silver lake managing partner Egon Durban explains why his firm's portfolio has very few high flying private Silicon Valley companies.