The legendary Silicon Valley investor Bill Gurley thinks Los Angeles tech founders should be more focused on growing their business over the long term instead of selling to larger competitors too quickly.

"I think [they've] historically been a little too transactional, which I blame on Hollywood," Gurley said, speaking in a keynote session on the second day of the dot.LA Summit. "You tended to have more M&A outcomes than IPOs."

dot.LA Summit -- Bill Gurley & Spencer Rascoff www.youtube.com

Bill Gurley, General Partner at Benchmark Capital

Gurley also talked about how startup founders are overly skeptical about Wall Street. He compared a private company going public to a football player moving from college football to the NFL.

"There's this myth in ventureland that Wall Street is not very smart, and it's just wrong," Gurley said. "It's an up-or-out game. I'm sorry it may sound harsh. You have to decide whether you have what it takes to go the distance."

For all his enthusiasm about going public, however, Gurley thinks the traditional IPO process is broken because it reaps huge gains for investment banks and their favored clients, which come out of the pockets of those who built the company.

"The system by which they allocate capital has gotten worse and worse," Gurley said. "It's a shock that the SEC allows it because it's such a game."

Instead, Gurley favors direct listings and SPACs, which have been growing in popularity.

Referring to calls in Washington to break up large tech companies, Gurley said he has long thought Apple's 30% cut of app store purchases was "aggressive." And he does not think it bodes well for Google that it also takes the exact same cut for Google Play.

"The fact that Google has the exact same number is a bad fact, not a good fact," Gurley said.