One of tech's most successful investors says Silicon Valley's unicorns need to 'grow up'

Key Points
  • Benchmark general partner Bill Gurley called on Silicon Valley's "unicorn" start-ups to grow up, get profitable or go public.
  • Currently, 168 venture-backed companies hold unicorn status, with valuations at or over $1 billion, according to Dow Jones data.

Influential venture capitalist Bill Gurley says it's time for Silicon Valley's "unicorns" to grow up.

Gurley, a partner at venture capital firm Benchmark, spoke in an interview on CNBC's "Squawk Alley" on Friday, following the , an e-commerce fashion start-up backed by his firm. Stitch Fix priced shares at $15, below its expected range, but the stock is up about 13 percent in its first day of trading.

But Gurley saw its debut as a huge success because the company had kept a low profile during the fundraising stage and has been profitable for some time.

He said:

"One of the unique things about Stitch Fix relative to all the unicorns in Silicon Valley is they've run a very disciplined and profitable approach. They've been profitable for several years. The reason that you never heard of them as a unicorn is that they never raised money over a billion because they didn't need to raise money."

raised $50 million in venture funding with its last private, postmoney valuation at $300 million. Post-IPO, the company's valuation is around $1.5 billion, generating a windfall for its CEO Katrina Lake, her employees and early investors.

Stitch Fix bucks a current trend in Silicon Valley of companies staying private longer.

According to Dow Jones VentureSource, 168 venture-backed companies currently hold unicorn status, with valuations at or over $1 billion. Companies such as Uber, Airbnb and SpaceX are at the top, each with a valuation over $20 billion.

Yet, few unicorns have gone public. Some have stayed private so long that venture firms who placed early bets on these companies haven't been able to generate returns and liquidity for the endowments and institutions whose money they manage.

Gurley said the trend was concerning and called on the companies to focus on fundamentals, such as profitability. He said:

"As many of the unicorns mature and age, many of them are having to come to the recognition that they have to grow up, get profitable, go public, or do something along those lines, and this silly notion of 'we're going to stay private forever' is not playing out in a very positive way.

CNBC's Carl Quintanilla asked Gurley if — another Benchmark investment — may have gone public too soon, encouraging some unicorns to stay private longer. The social media company was an influential unicorn itself, but has shown lackluster growth since its IPO.

Gurley said:

"Being public is about playing at the next level. I like to use the sports analogy of moving from college athletics to pro athletics. If you want to be better, if you want to succeed, if you want to play at the next level, you have to step it up and go there. ... I think you're gonna see a large number of unicorns who were afraid to play on Sunday, afraid to play in the public markets, who didn't get their act together in time, who didn't get profitable, didn't understand unit economics, and hurt the value of the equity as a result."

He also noted, "I do think there's a lesson for entrepreneurs in general that capital has a cost, that you eventually need to have solid unit economics and need to move to profitability."