The one question prominent Silicon Valley investor Bill Gurley asked Warren Buffett when they met

Venture capitalist Bill Gurley has, for a while, been one of the most prominent voices in Silicon Valley warning of a tech bubble, especially in on-demand companies
And on an episode of the Recode Decode podcast with Kara Swisher released Monday, Gurley talked about one particular factor he sees contributing to it: global interest rates, which have been low for the past seven years.

Gurley said that this summer he met Warren Buffett, and got the chance to ask him one question. Gurley mentioned to Buffett that he’d seen low interest rates creating irrational competition in his own industry, and asked for Buffett’s take.

“You bet it is,” Buffett responded. Buffett had been seeing a similar phenomenon in his businesses as well, according to Gurley.

But why is that so bad?

“With interest rates so low, you just have people looking for yield, and money sloshes around,” Gurley explained. “I would have never imagined in my life as a venture capitalist that the biggest problem would be too much capital everywhere.”

But that’s what has happened.

And Gurley has also seen an increase in risk seeking in Silicon Valley. He’s been seeing people invest in businesses with lower and lower gross margins, which a lot of time involve consumer products and big discounts, Gurley said. You can create infinite revenue if you sell a dollar for 85 cents, and your customers will love you. But it’s not a sustainable business.

One of the big risks Gurley sees is the size of the losses being taken by some of the bigger Silicon Valley startups.

“If you go back to ’99, there were a whole bunch of companies going public and everything, but no one, people were still moving toward profitability and 30 or 40 million in revenue” he said. “This is way different. There are way fewer companies, whatever the number of unicorns is. But they are being given piles of money hundreds of millions. And burn rates literally are areas we have never seen before. And steering those back toward profitability if capital ever becomes scarce is going to be a really difficult exercise.”

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