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Hello and welcome everyone.
I'm Patrick O'Shaughnessy and this is Invest Like the Best.
This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money.
Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts including edited transcripts, show notes and other resources to keep learning at joincolossus.com.
Patrick O'Shaughnessy is the CEO of Positive Sum.
All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum.
This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of Positive Sum may maintain positions in the securities discussed in this podcast.
To learn more, visit psum.vc.
My guest today is Hamant Taneja.
Hamant is the CEO and managing director of General Catalyst, the global venture capital firm you'll hear us refer to as GC, which oversees nearly 30 billion dollars.
GC has set out to build resiliency across critical industries worldwide.
The firm loves just technology to retool sectors such as healthcare, energy, defense and manufacturing and explores innovative capital structures to support founders and businesses.
Hamant discusses how the firm is positioned to respond to the aftermath of crises including the pandemic, wars, energy issues and beyond.
We also discuss the building of a category defining healthcare company, Mavongo and much more.
Please enjoy this conversation with Hamant Taneja.
I always like to start somewhere that is energizing the person, things they're thinking about.
We were just talking about this.
I think it's a great place to begin.
Can you describe this concept of your and your firm's role enabling global resilience in the aftermath of the pandemic and lots of what's changed in the world and why that throughline is such a key idea for how you spend your time and energy?
If you think about the crisis after crisis we have dealt with over the last five or six years, the pandemic, the wars, the financial markets, the energy crisis and you think about the climate that we have in different nations because of the rising nationalist interests, our whole belief is that a huge wave of innovation is about bringing resiliency to nations.
What does that mean in terms of critical industries like healthcare?
If you are a country today, are you really going to rely on the United States for the vaccines for the next pandemic?
Are you going to really prepare yourselves to build your own capability?
Same thing around energy, independence, defense, all the critical industries.
Our goal has been to think about how do we retool ourselves as the firm that leverages technology to create new businesses, to rise up to that occasion and be good partners in driving that kind of resiliency for the nations.
Where does that manifest most immediately?
Healthcare is a great example obviously because what we all just lived through in the last four or five years.
But what are other areas that you feel like that sense of nationalism, that sense of self-reliance, nation-level resilience need the most investment and work?
Where does it meet with opportunity?
There's a few industries where that dynamic is playing out.
As we discussed, healthcare is one.
Energy is a huge one. If you think about defense, there's a lot going on there.
Then also, there is this whole idea of re-globalization around manufacturing.
In the last 30, 40 years, where every nation, every business was focused on globalization, you always focused on moving and manufacturing a lot of the other core functions to China and places where there was labor arbitrage and you could take advantage of cost efficiencies.
Now, I think there's a decoupling of the two worlds and there's the US, Europe, India, Technology, Ecosystem Coalescing and there's the China plus its affiliates.
What you're seeing is there's a re-globalization of those supply chains as well.
So, manufacturing is another area where that is taking hold and we're thinking a lot about how do we enable these resilient supply chains in the markets that are of interest to us.
One of the most wild things and interesting things I've seen you and the firm do is on the healthcare side, thinking about it through the lens of controlling an entire healthcare system and then trying to innovate within that thing.
Can you talk about that grand idea in as much detail as you can?
I'm fascinated by where the idea came from, what you've done so far, what you intend to do and whether this could be a model for new kinds of innovation.
Yeah. So, look, the work we're doing in healthcare is a 20-year overnight success.
In 2005, I got a call from Partners Healthcare, somebody there who said, hey, we have these electronic medical records and we're trying to figure out what to do with this information.
And my first question was, what is an electronic medical record?
Because I knew nothing about healthcare at that time.
So, actually hired a friend of mine who was a physician.
She walked me through how to read these things and I was like, wow, there's a lot to be doing there.
That whole top rock is led to building the first company that we incubated in the healthcare space where we were basically aggregating these records to improve quality of care in hospitals.
That taught me how siloed the healthcare world was from the technology world and how, in a lot of ways, we were building technology completely backwards.
The impact of technology in healthcare was it actually created less efficiency and to counter for that, the health systems had to create more jobs, which is the antithesis of what technology does.
It brings productivity in an industry.
I sort of became a lot more intentional from that after selling that business, I teamed up with Glenn Tolman, who was a very successful founder in the healthcare business.
He was retiring from all scripts and I said, hey, let's take a shot at building a company that truly is culturally at the intersection of technology and healthcare.
I'll bring the technology expertise, you bring the healthcare expertise and let's go take a shot at a problem.
That thought process led to the creation of the gong.
And we built what ended up becoming a category defining company, taking care of consumers with chronic conditions.
We came up with a business model that scaled by selling to employers because they're rational economic buyers.
And as you know, most of healthcare is not a free market.
So we found this pocket where you could actually build a business, build a product, we had an NPS better than Apple at that time, took the company public in 2019, sold it in 2020 for 18 billion.
That gave us a playbook for thinking about, hey, we can actually create this radical collaboration between technology and healthcare and solve problems in the industry.
So rather than thinking about ourselves as let's go disrupt healthcare, we're going to team up with the folks that really know a lot about it, have empathy for it and we'll go take a shot at it.
While building the gong, I started applying this idea of radical collaboration, went around to a bunch of health system CEOs and they said, hey, the technology that we have created is insurmountable.
We really need to build a software company that's truly in service of your needs.
And I would love to have three partners that kind of want that to be their legacy.
If you want a vendor to solve this problem, it'll come to you in a few years.
But if you really want to be your legacy, then come join me.
And I had Steve Klasko, who's now actually at GC, who is the CEO of Jefferson Health and a couple other CEOs sign on.
And we started this company called Camure, where we went down this path of let's really build a software stack, which is truly dedicated to healthcare.
And then what happened in 2019?
We were actually presenting internally a plan because I was seeing Camure being successful.
I saw Devongo being very successful.
I told our partners, I think we cracked the code.
I think we know how to finally build businesses in this industry that can be at scale with technology.
And we should put 20% of our capital in the next 10 years in healthcare.
I wrote a book about it. We're going to publish it in November.
And guess what happened in 2019?
COVID happened. So talk about having a prepared mind and therefore the opportunity to turn a crisis into an opportunity, we just fully leaned in.
We went to our LPs, we went to health systems, we raised the healthcare fund, and we put down this whole thesis around health assurance that I published with Steve Klasko as a manifesto.
Since then, we've basically been focused on a core thesis that healthcare should be proactive, affordable and accessible.
And in order to do that, we have to make our health institutions, our health systems better businesses.
And so a lot of what we have done since then has been with the belief that we need to deliver health assurance, we need to help these hospitals become better businesses, and we need an ecosystem of companies that are required to actually go do that.
And I said that in my book as well.
So we started a bunch of companies, we invested in a bunch of other great founders, and then we went and partnered with now over 20 health systems, almost 15% of US healthcare system were working with their C-sweets on how do you really think about technology innovation and transforming the industry.
We also decided, as you mentioned, to go and acquire one of the health systems ourselves, partner with the community, and actually create a center of excellence that can be a blueprint for all of the United States, and then also for the rest of the world on how we really should create proactive, affordable, accessible health care.
I have a dumb question. Can you just define what a health system is for us?
The thing you bought, what are the component parts of the health system so that I could then ask some questions about, okay, cool, now you control one, you don't have to worry about decisions they make, you control the thing, so you can start really pulling the levers.
So what is a health system?
Like, how should people think about what that contains and doesn't?
You have these acute hospitals.
So if you need to have surgery or you've got cancer, you go and get these complex treatments, and then you have these outpatient procedures where you can actually go get an outpatient procedure on even a knee surgery, you can go urgent care, all the things that we deal with.
And what has happened is you have these systems that ended up aggregating the acute care hospitals, building sort of this primary care, urgent care, outpatient services model around it, and the way our system works for the most part is insurance companies are the ones that end up paying for the services that these systems deliver.
So there's this model where there's a misalignment, where health systems, the combination of outpatient and patient in a volume-based system, are literally incentive to have heads in bed.
The more sick people, the more money they make.
Insurance companies want people to not be sick because then they get the premium that they don't have to have a cost.
So the who pays, who benefits is fundamentally misaligned in our system and its volume-based.
So what some of the health systems have also started doing to say is, hey, what if we took our own risk?
We should have our own insurance company so that we can actually fundamentally do what's called value-based care more effectively and keep people healthy and actually get paid for keeping people healthy.
The US healthcare system pays you for people being sick.
And what the consumer actually wants is to have a model where the entity that's providing the care is also taking risk.
And our health systems are too weak to actually be able to do that.
They don't have the capital based on the expertise.
There are so many problems operationally with these systems.
That's where we thought, hey, what's up in?
And I've actually said before the Amazon of healthcare, that sort of can be the title of the system.
And that's where we thought, hey, what's up in?
And I've actually said before the Amazon of healthcare, that sort of can be the title of transformative companies, not a trillion dollar company, but a trillion dollar ecosystem.
Because the healthcare problem is way too big for any one company.
So how do we actually create an ecosystem of companies that can then go and help these health systems, as I described in just now, become much more vibrant and actually have the ability to deliver health versus being incented to entirely focus on delivering sick care.
Could you give an example of this notion of taking risk and why that's such a key component of a healthier incentive chain?
Take Kaiser. Kaiser is the ultimate example.
Kaiser is a health plan.
And you go to Kaiser's primary care services.
And so now the way, in theory, I don't think it works perfectly and they have their own set of challenges.
But in theory, when you go see a physician that's in the Kaiser network, their whole job is to keep you out of the hospital.
Because Kaiser health plan is ultimately responsible for covering the cost of the patient.
So if Kaiser is seeing you as a patient and also are getting paid as a health plan, they're not motivated to have you enter the hospital.
They don't want you to enter the hospital.
So they'll do all the things to keep you healthy and invest in those things versus, hey, you're sick.
Welcome to us. So now we can make revenue off of you.
So I think that's why payers and providers kind of converging and becoming payviders is ultimately what will create a rational economic behavior in this space.
So it's like, is United, United has in some ways the largest delivery system attached to a called Optum.
They own it. And so now they have the risk and they have the delivery mechanism.
And the question is, can you also help health systems do the same on the reverse order so that on the other side of it, you have these systems that can truly focus on keeping people healthy, sort of being value-based as you will?
Can we talk about the steps you've taken as the leader of GC to reimagine the structure of the investing business itself and what evolutions are necessary that you've done so far or will do in the future that position you as a big investing firm to tackle these kinds of challenges?
Because this is very different stuff than writing a million-dollar seed check into a company, buying a health system or doing much bigger moves with more capital, I'm sure requires like a different way of thinking about the firm.
So I'd love you to just riff on the future of private investing and your origins and how it's evolved.
Look, 20 plus years ago when I got into the investment business, we were essentially funding companies that deliver software to make us efficient in some way.
And when after 2007, the social mobile cloud trends manifested itself, we started doing this digital transformation of society.
We went from building software for doctors to building healthcare service companies.
We built from building software for insurance to building insurance companies.
So the scope changed. And I would say there are like two companies that have had a profound impact on me in how we thought about the evolution of the firm, probably Stripe and Livongo.
So when I moved to the Bay Area, because David and Joel, the founders of the firm, asked me to go take a shot at building us in the valley.
At the very first investment, as luck would have it, I ended up seating with Stripe because I just thought, John and Patrick are amazing.
I knew nothing about payments.
Total luck. What I got to see by watching them was, A, geez, what the operational excellence was that you build a business.
And I thought a lot about how do we apply that to ourselves?
Because in some ways, venture businesses are the worst run or used to be the worst run at least.
And we're like, how do you be operational?
You're excellent ourselves.
Second thing was just watching the scope of what they were doing was, boy, this company has infinite runway.
The venture business at that time largely was, you invest in a company early, you hope it goes public for a billion dollars.
If you own 20%, you make a couple hundred million bucks, you return your fund and you're a genius.
You do that once in your lifetime, you're lucky.
You do that twice or good.
You do that three times, you're legendary.
That's what the business was.
And then also you look at Stripe, which we invested in 2010.
I've invested in it 14 times, including a very large investment in this last round.
And we doubled down when COVID happened.
And the belief was, well, there's infinite amount for this company to do.
So if we're actually going to be good partners to them, how do we need to change to actually have both the capital solutions and the kind of governance it takes to build companies that do execution of that scale?
So that was about value creation, maximization, profit maximization, and just, hey, we just got to change.
That was sort of an interesting thing.
In parallel, as I mentioned, I was starting to build Livongo in 2013.
We launched it in 2014. And that company also was like, wow, we're taking care of people's lives.
And this thing is, first of all, only going to scale if it improves health.
It's got to have real purpose and impact.
It's only going to scale if we can actually take costs out of the system, going back to my health assurance thesis of affordability.
And it's also a very large market.
We have 35 million people in the United States that have diabetes and other chronic conditions, hundreds of millions worldwide.
So that's an infinite market too.
So we could actually be company for a long time.
So seeing these companies build.
And I'll tell you in 2019, when we took Livongo public, and then in 2020, we sold the business, we sold for like 18 and a half billion.
And that day, I had an incredible buyer's remorse.
I was like, wow, we created a lot of value in the short term.
We made billions of dollars for our investors, who were the largest shareholder.
But what would have happened if in serving only half a million people, we were actually serving 10 million people and we kept doing this?
And what would have happened if we had kept the relationship with all the employers we signed on and convinced them to deliver health this way with this business model to their employees?
We've done something much more profound from an impact perspective and also maximize return.
So the thought process was, if you want to build an enduring company, you have to think about it on a much longer horizon than we're used to.
You have to think about a capital weight that is much larger and much more differentiated.
We can come back to that as well.
And you need to think about doing it in a way that the products are fundamentally in the interests of society.
So purpose and profit are not either or, but you got to align them.
And so just watching these companies and others that are in our portfolio like that, Gusto and Airbnb and others that we worked with, it just became clear to us that the opportunity was far greater than what venture used to do.
And with our mindset, because we also build companies, we're as much builders as investors, we just wanted to make sure we were building an enduring firm that could A, B there for our founders for the long term.
So we had to change ourselves in the way we run ourselves and B, we had to build with a different playbook that really focused on this whole idea of profit and purpose.
I have a million questions about all this because I think it's so interesting how you refactored the whole thing.
Maybe let's just start with the way the firm GC works.
What is most different about it today in 2024 versus 10 years ago or something like that?
Like if I was to step in one day and a decade later, what are the biggest changes that I would notice just about the firm itself?
Maybe I'll start with a story.
In 2014, 10 years ago to your point, I went to go visit David and Joel in Boston and I said, look, I think the world's changing in this industry.
And I've also got a lot more confidence that I can be a decent investor because I was completely unproven when I came to the Bay Area in 2011.
And I'd love to know what you want to do with the firm because I want to build something that's going to be fairly different given what I see the opportunity is set to be changing.
But it's your firm and I'm happy to help think about a proper transition over a couple of years and go do something.
Or if you guys are open to building something that I'd love to build, but out of respect, I wanted to ask them, to my positive surprise, did anyone blink?
They were like, no, let's go build.
And they're entrepreneurs, right?
GC started out as entrepreneurs helping entrepreneurs.
We decided, okay, great, but what does that mean?
We need to turn ourselves into a well-run business.
We know nothing about it.
Then we brought on Ken Chenald, the company chairman.
And a lot of people were like, geez, somebody retiring from running a Fortune 500 company after 18 years to come start doing venture.
What does that mean? And I think now it's pretty clear it really was about building a technology platform that could have a great impact in society.
And by the way, he's also made some great investments.
And then we just went down the spat.
We did a very intentional succession to going from a partnership to me sort of taking on as a CEO.
The firm never had a CEO before.
And it was important for us to make that transition because we were going to be a company and an investment firm.
So we sort of thought about what is the culture that builds an enduring firm?
It needed to run with the rigor of any other company.
And let's take inspiration from some real-life stripe and others.
And it also needed to protect this magic where you were really backing conviction of a few people versus consensus in some process.
And so we designed ourselves to be able to do that.
We also thought that the goal is going to be about transforming industries.
It's not about just going and chasing deals.
So you become a lot more intentional from being serendipitous in the beginning.
And so that required us to have people that are deeply, deeply entrepreneurial and have a change in the world they want to create.
Also, as entrepreneurs, there's sort of saying, hey, we have capital.
We have the amazing community of founders that we work with.
And what's the theory of change around which we want to build towards together?
So that became an interesting sort of cultural evolution of the firm.
And then the other thing we thought a lot about is what are the capital solutions required to help founders really build companies in this next generation?
So then we started thinking about the various pools of capital.
So today, the way firm runs is we have a set of partners that all have these deep views on sectors and geographies and the change they want to create.
And we have a set of partners that have fiduciaries for these different capital solutions that are required from a company building standpoint.
And we all act as one team.
We all share in the same economics.
We all get together once a week.
It sort of maintains that sort of spirit of the partnership.
But then we go off and really run.
We have OKRs and we have goals and we have budgets and everybody's got responsibility of part of the firm that they're running.
When Ken joined from American Express, that was this prior stop before coming to GC.
What were the most tangible things that you remember him doing or installing that changed the way the business ran?
So many. First thing that was amazing was we had dinner in Cambridge with David, Joel, Ken and me right after he started.
And it was such a pressure and calm.
And he said, I think I know why I'm here.
I'm here to take the firm, the two of you, and create succession to him.
And I want to just tell you guys this is going to be very messy because change is messy.
And I was like, I don't even know what that means.
And I was even uncomfortable about even the idea of there's a succession because we've done this together for so long since pretty much the firm started.
But that was a very interesting journey that he set us on.
And we're all one big family after that messy succession.
So that was one. The other thing he helped us do, he said, we really need to do a mission and values exercise.
So think about it, 18 years into his existence, we did what a company typically does at the beginning.
This goes back to like his just this next phase of going from completely serendipitous to being much more intentional.
So we did that. We had this beautiful set of values that were created out of that exercise by somebody Ken had worked a lot with Jennifer Zimmerman and then she came on to be our CMO.
So we did that. Then he asked me to write a three-year strategy for the firm.
And that's when I was able to take a step back and think, but we're really building what is the culture going to be this whole sort of duality of partnership and a company.
And also, there were some design principles that we agreed on with which I took on the orchestration of the platform build.
One of those is venture actually does not scale.
So if you think about the last 30 years of venture capital, is this accordion bubbles happen, funds get bigger, bubbles collapse funds get smaller.
The good firms stay on and once in a while there's a new firm, but it's just been kind of like this thing happening going back and forth because by having more money, you can't manufacture more outliers and all the return is in the outliers.
So one of the things with like, well, you know what, we actually shouldn't be thinking about scaling how much capital we deploy in venture.
But then the conflict is, but then we want to have all this great change, we want to drive transformations in these industries.
You can't do that with small venture funds.
So what else do we need? And we started sort of thinking about building those products.
It's been a remarkable journey.
And then the more we sort of put that viewpoint out, these amazing entrepreneurial people that are hoping to create the change in these these is just hard to be like, Hey, we want to come work with you guys come work at GCS.
I think it became clear to fly wheel of talent that now I feel like we can go tackle any interesting problems because you have such amazing bandwidth with these people that all want to run these directions and be entrepreneurial.
Good succession, successful succession in asset management businesses is incredibly rare.
It's really fraught. It's really hard to do.
You called it messy. What was the messiest part of it?
Why do you think it's the case that it's so rare that good succession happens?
You've managed it. So what was messy and what were the keys to making it happen?
When we move to the Bay Area, let me start there.
I do think that's an important insight into why this transition worked really well.
We talked to a lot of firms that were from the east to the west to try to become a Silicon Valley firm and most of them failed.
And they all had a common pattern to them.
The pattern was they would go and essentially hire a couple of young people in the valley, give them some agency and see if they can perform.
What we did instead was we literally took everybody we were developing in Boston and sent them 3,000 miles away and said we'd rather replicate trust and they can go build a community themselves so that the firm is intact.
Our LPs were super mad at us.
They said this firm is over because if Imant and others were successful, they're going to split off.
If they failed, you're going to cut them off but now you have nobody left to make the firm endure in Boston.
So they were really concerned but they underestimated the power of that trust.
And then when Ken came, his whole criteria was I want to be part of a team that I can deeply trust.
I think first thing is like this sort of foundational trusting was really important.
The other thing is that our succession isn't really a traditional succession because I've been there since 2002.
The firm's already in 2000.
So it's just really happened to be 15 years younger and I've got that runway so we can actually have as luck would have it, we have a bridge to really do the succession that's going to come after me which Ken and I talk a lot about because I want to get that right now to make sure we are able to do that when the time is right.
And then I think the messy part, boy, think about it.
We were changing the firm in such large ways.
David and Joe were predominantly early stage investors were like, I remember when I in 2016 when I said, hey, let's lead stripes around at 9 billion.
They were like, what are you talking about?
And it was sort of this conversation of how does that even make sense?
I think there's going to be 100 billion in our company and those are strange words to come out of your mouth.
But we just had conviction and they obviously great partners they are.
We went along with it. But we stretched in all these directions and we said, let's go build this health practice.
It's just not quite just venture investing, but we're going to do all these things.
And by the way, we're now going to have a CEO where we had this deep belief that there was only four or five of us around the table as a partnership.
So like so many changes that they had to get comfortable with in the process of letting go and thinking about it, hey, this is our baby and is this going to endurance thrive or what's going on?
Decrease anxiety, very understandable.
But again, goes back to that trust and confidence.
It's never been that complicated or acrimonious ever in our conversations.
But these are like real things we should be talking about.
And I do think as luck would have it, some of the decisions we ended up making in the valley really worked out.
Some of this growth investing we did really worked out some of the hatching we did of companies worked out.
And so that also got the more comfortable.
So I think it's been a very good process because to me in the end, did that trust in the relationships really preserve?
And we still all get together.
I'll call Joel who's now retired from being on a managing company all the time because I'm just used to it because it's been eight plus years of thinking through complex things together.
And we'll even joke about the things that are to orcas each other all the time.
It's exactly where you want to end up.
There's trust, there's agency to like do things differently and take them in different directions.
But you protect the core of the values of the firm.
And that's something I am very protective of.
We don't want to lose the institutional knowledge.
We don't want to lose the history of how the firm got to where it is and preserve the core values, especially around creativity and relationships in the way and then the generosity of spirit.
If you read our values, every time I read those words, like, yep, that's us.
I love that idea. I think Ravi Gupta from Sequoia is the first one to introduce me to it that Amazon has its 14 values.
But if you really pressed Bezos on it, the customer obsession would be the one that he stuck with.
If I did the same pressing of you on your values, what do you think would be the last one that you held on to?
Relationships. It's all about relationships.
When I think about our business, it's a relationship with the founders, it's a relationship with those industries that we want to change.
It's a relationship with the government and sort of having collaboration.
So it really is about this radical collaboration.
And relationships persevere because there's mutual respect, there's transparency, and there's like real collaboration.
And we take a lot of pride in being genuine about that that everybody would do a business with.
That's the last thing that'll go.
I'm sure that the answer to the next question flows from the relationship thing, but I'm fascinated to learn the story of how these new and different capital solutions came to be.
How did you learn on top of just a traditional pool of a couple hundred million bucks to make early stage investments or whatever?
How did you layer on other things with LPs?
How did you learn from them?
How did you form capital in new, unique, and interesting ways and learn how to deploy it?
Talk me through that evolution and the role the relationships played in that.
So look, I'm the CEO of the firm.
You could probably say I played a role in the CIO.
The one that gives me the most energy is actually being the chief product officer of the firm.
And really thinking about what do the founders need to drive the creation of these enduring companies and these industry transformations, which is the ultimate goal in a lot of ways.
And so for that, obviously, first we had to think about the capital ways and the governance models.
As we said, these things are much bigger markets, much more responsibilities.
So how do we evolve around that?
And then I think there's this whole idea that equity as the only lever for how we build these companies may not make sense.
For unstructured risk, when we're building a product, it makes a lot of sense.
But when you think about sales and marketing and how do we drive growth in a business, is it really in the founder's interest to be deluding them all the time to go to that growth?
Or is there a better way to give them capital to be able to do that?
We have this, our head of data science.
In fact, the only data scientist we had at that time, and I think it was 28, came to me and presented me this idea around a better way to be founder friendly in the way to build the company's subscription businesses.
First time I told him to go away, he kept coming back at me.
And then I gave him a million bucks to trial the concept.
He showed me the data. I was like, wow.
And so then we went and raised 300 million bucks.
Ask for LPs. They'd give us a shot.
This is entirely new, but we think this is part of how the companies need to be built.
That worked really well.
And today, it's a couple of billion dollar fund that Pranav, who's now in his early 30s and KV, who's his co-founder of this effort, kind of run on platform.
They've done an amazing job.
And I think we have something that really helps the founders, and especially in these markets, by the way, where not everybody's going to get to go public.
The market dynamics are changing.
We now have a way for them to actually build these companies and do their life's work, even if they were private the whole time, and still take care of their shareholders, and still take care of their growth capital needs.
And so that's an example of it.
And then, as I mentioned, from the beginning, we've been incubating businesses.
So we built three category defining businesses from scratch.
It was Kayak and Travel, which my partner, Joel, started.
Demand where which my partner, Larry, started, which became the Commerce Cloud for Salesforce and then Livongo, which I had worked on with Glenn.
And there's many more. And we said, gosh, being a builder, A.A.
makes us good player coaches, gives us the empathy, gives us strategic thinking around the spaces.
And it's an amazing business from a returns perspective.
And we should institutionalize it.
So we started institutionalizing this whole idea of incubating, transforming, venture buyouts, or like, where we really get to play as builders with co-founders versus in the venture business, where we're sort of investing and really getting behind other people's visions.
And so we institutionalized that.
So I think we've been very founder-centric on like, what capital goals are required?
What should their structures be to drive the change that is required?
And so it's been very organic.
And it's not focused on AUM because we want to be a high performance firm, which is the reason we don't scale our venture funds.
But we are willing to think about going in all directions that can help increase the chances of founders being successful.
Could you give me like a sample of transaction just to really like bring to life that middle bucket that the data scientists brought to you and how it works?
So if I'm a company that's got subscription software or something, and I want some capital, what is the structure and nature of that capital?
Almost 50 companies are using this now, including companies like FiveTran and others.
The way this works is, let's assume you're spending 100 million bucks a year on customer acquisition.
That spend leads to acquiring new set of customers that pay you.
What we say is, we'll give you a percentage, let's say 80% of that 100 million bucks that you spend, so you don't have to spend your own cash.
So all of a sudden, once you sign with us, we'll give you 80 million bucks to acquire the next set of customers, which means your cash balance will go up by 80 million bucks, but you didn't spend that.
Now when those customers get acquired with that 80 million bucks of ours and 20 of yours, those customers, when they pay, then pay us what you're getting from them up to a cap to return.
You pay us and then at some point, we're done and you're getting all that revenue stream on your business.
So you grew without actually shrinking your balance sheet.
In fact, you grew your balance sheet.
Now the question is, what do you do with that balance sheet?
You could use that to give liquidity to your shareholders, which everybody needs.
You could use that to do acquisitions.
You could use that to actually grow faster and invest more in growth.
So it opens up all these avenues because the spend on sales and marketing is a very structured risk.
We know what the inputs and outputs are.
So why take really expensive venture capital money from our venture capital funds when we can actually help you grow with this?
And that has served these companies to manage the new product.
And so it's been in an industry where we've been on this juice of how do I get the next mark and the next mark so my returns look good to actually thinking about how do I dilute less and dilute less and get bigger and bigger?
Because ultimately, it's the end game that matters.
I think that behavior change, I still think some of the venture investors don't fully get it, but I think they will over time.
But some have really had religion now and they're getting behind us in a meaningful way.
And with some incredible case studies of companies, we've just completely changed the trajectory of this book.
And so the skill set there, I'm sure, which then helps you elsewhere in the business too, is just a really deep understanding of the customer acquisition efforts of a company and in the lifetime value associated with the given customer.
And if you understand that equation, you feel confident that you can earn a great return, maybe not unlimited high return, but a high return by understanding that component of one of these businesses like Vyptran really well.
I'd love to learn a bit more about the lessons you've learned on the incubation, starting company side, and also mistakes that you've made.
I'm fascinated by the role of leadership and also the role of first risk, like someone that is both a leader but also willing to take that entrepreneurial risk.
And then without that, it can be harder to build a 20-year long duration big build out.
How do you manage that? Let's say you have an idea as GC and you need a leader to be the CEO of that thing.
What have you learned about that matchmaking process and making sure that the motivation and source of the idea has a nice long duration and it's not a mercenary or something?
We have a very clear framework for where we take on projects like this because these are very costly from a time perspective.
When one of us holds an incubation for like six, nine months, that's all you're doing.
So we're kind of out of the market and we have a lot of capital to invest.
So first is we don't want to work on problems that founders are already solving.
So we look for things that are not happening because of structural reasons.
Those structural reasons might be the very interdisciplinary or you really need a lot of capital so no one wants to take that risk or you need collaboration from people in industry that somebody just starting with no credibility just couldn't get.
Things like that which we can overcome given our gravitas as a firm in our relationships and our capital base.
That's an important criteria that we want to be not creative to the ecosystem in that sense.
The second thing is this is a lesson learned because I've started companies where it was just me in the beginning.
I was just excited about it.
But you're fragmenting doing 50 different things.
Those never worked. So we don't start unless there's somebody who's a co-founder and the primary founder that wants to own it from the beginning with us.
We'll be with them through and through but that's got to be there as a point.
The other thing we do is we set it up in a way that if along the way we lose confidence but the founder wants to keep going the capital stack isn't so messed up.
We own so much that they can't keep going.
It doesn't usually happen but it could.
So we want to make sure the founders that come and partner with us on the creation side to start new businesses they could always raise from the outside if our own alignment wasn't there even though it doesn't happen.
So I think they're thinking about those conditions to make sure the success of the project and the person you're partnering with is set up first and foremost and doing something that's really needed really needed.
Comear that I mentioned earlier and that was not going to happen.
Going and building a software company I've bought seven businesses into Comear to actually put pieces together help scale.
We've got a phenomenal leader today who's running it now and I just think the world of but it's digging and zagging and then that wouldn't have happened without somebody like us coming into it but so many things just automatically would and we should just back founders and be good partners to them in that sense.
What do you think about the Rubicon to be crossed or not for firms like yours to get into full traditional like control positions in companies where you're just buying and running businesses like private equity would with or without leverage, whatever the capital structure could be a different conversation but it seems like we're kind of heading that direction.
If firms are excellent at technology and precipitating change and transformation of industries and the way you're describing at some point maybe you just want to buy massive whole businesses and drive change that way in the way that you bought the healthcare system.
What do you think just industry-wide about that trend?
Yeah, it's a couple things.
One is on the healthcare system we're actually buying that from our balance sheet because we want to hold that for a long time and we don't want to put that community in a hey we're going to sell it in like seven years and all the PE issues going to be stuck.
Very much you're part of our long-term healthcare strategy and we're going to be a center of excellence and we're going to do it right by the community at Suma and for that it just can't be a portfolio company that has the pressure to exit.
So it's sort of a different scenario.
Having said that, I do think with AI there's a lot of sophistication around the data infrastructure being built and the models and how that all plays out and we can at some point talk about that but the place where AI has immediate value from my perspective is to onshore productivity where we offshored labor in the past.
So think about businesses that have gone and outsourced jobs and call centers or accounting or revenue cycle management issues like that.
AI can do all those things really well.
So we're going to bring that productivity back onshore at every market not just the US with AI because those businesses will go from low service businesses to high margin software businesses.
In fact, some of the most exciting IPOs that might happen financially 10 years from now might be those kinds of companies that today we think are not that interesting but it just became economically interesting with AI as a leverage point.
Those businesses we are already putting plans in place and have been buying into vehicles that we've started and then applying AI to them.
So this is already happening.
We've done half a dozen of these.
There's others that have started doing that as well.
So I think it's naturally going to happen.
The difference is in private equity you take cost out in what we call venture buyouts whereas with leverage buyouts we put innovation in and that's the big difference.
And so I actually think our creation effort where we build businesses, we buy businesses, we transform businesses, there's a lot of alpha to be created but it's hard work.
You really have to be a builder slash investor to want to do that and the people that we have doing those types of jobs in the firms we're just entrepreneurs.
They just think that way and they're investors today they have a capital base but they're entrepreneurs.
And so I think that's an important tool in the tool set to go drive these transformations.
What have you seen in the way that AI is being approached by companies, by entrepreneurs, by investors that is the most confusing to you?
Is there an area where you feel like you're the most different in your understanding of what this might mean or where it might create the most opportunity or anything like that?
Look, I don't know if we are different but when Livongo went public in 2019 we took it public as an applied AI company.
Applied AI is where I feel like we can capture the most value and we've been systematically thinking about this matrix which is where all the business functions, where all the industries and what needs to happen for each we know is a spot in that matrix.
So we incubated Hippocratic AI which is a language model for healthcare.
Got 40 systems to team up with us, we built a language model but we don't sell that as an AI model.
It's literally an online agent, AI agent, which used to be an online nurse.
That's the smartest agent that can actually check up on you and prepare you for up procedures that are coming up and whatnot and do it for a few bucks an hour versus $90 an hour which helps us really going back to their need to cut costs and be more vibrant.
That's an example of a business we help catalyze and collaborate with the industry.
We teamed up with one of my partners who's left to go build this business on an Andy Lee who built Alorica which is like the fourth largest call center company and we are building this company called Crescendo which is building these full-on sort of AI-enabled call centers.
So that matrix is super interesting.
Marketing, legal, contact center, every one of those dimensions and then how we fundamentally think about care with AI in health and financial services and others.
How do we kind of redefine that?
Underneath it, I think there's a lot of focus today on building the AI models and sort of chasing AGI.
That place is very hard for us to invest because I feel like every round is a venture round.
Even if you have some short-term revenue because as technologies get commoditized, you're just not going to be able to capture that much value.
So you don't get a return on your investment or building the model but people keep funding because it's the race to AGI with the prices so large and then whoever gets there maybe if there is AGI that we had would be this multi-trillion dollar company and none of the rest of the stuff matters.
We're not really in that game.
We're much more focused on applying AI and creating this sort of value and transitioning these businesses in the short term.
So there's a lot going on.
There's obviously then there's a semiconductor layer underneath it that all has to evolve as well to take advantage of this.
So when I do think there'll be value captured over, we've decided we want to be very deep in making sure we build these solutions that transform the workforce.
We go from again these companies where it was all about labor and outsourcing to building great businesses onshore.
So there's a bit of a global resilience team permiation in that as well and technology is ready today to capture the value.
What we're seeing is just unbelievable in terms of what these products look like and the economic benefits those products have for their customers.
Can we talk a bit about defense?
That seems if you just were an outside observer to be one of the biggest zones of change in this whole world where huge companies that require lots of capital and are hard to build products are spinning up every day it seems like and a huge amount of capital is flowing to them.
You and I I think actually first met for the first time at a dinner where the topic of conversation was China.
And just like the new landscape of geopolitics in the world and that driving lots of this defense investing and innovation which kind of had been the same like defense primes for forever and ever.
What are you seeing there?
How does that have your interest?
How would you describe it to people learning about it for the first time?
Yeah, so defense is an area we've actually been investing in for 20 years.
We bought the first defense contractor actually David did with the Co5 from BBN Technologies in 2004 the idea that we will commercialize technology from there and we built that.
We did that a couple times and then I think the first really providing company we seeded with our friends at the fund respond was Enduro.
They're the belief us to me there's two issues.
One is the misalignment of the business model with the primes.
When it's cost plus there's always going to be high cost and high plus.
And then when you think about the technological capabilities that they have versus all the innovations that got done in the consumer and enterprise world they were just backwards.
It's sort of interesting right in the Silicon Valley came out of defense.
Sure, it's a very symbiotic right in its origins.
And we're feeding back into defense.
I think that's really what's going on to say let's take all these really high reliable hardware software capabilities that are being used at scale.
Let's bring them back in and now really rethink what the cost structure should be.
So I think that's one thing which is it's an amazing opportunity.
We have a large investment in Enduro.
We also have a European company in defense called Helsing that is doing incredibly well and we have invested a lot of capital there and we're looking at doing the same in India.
Going back to sort of what is the defense sort of the ecosystem across the markets that we care about.
It's very tricky because every time we do a defense investment we have a huge debate around it.
Is this ethical? Is this the kind of thing we're going to do?
And I think now thanks to Paul Jeanette, Teresa Carlson, who's at GC as well working on our global policy work.
We now have sort of created a framework to be like, look, we're focused on deterrence.
And in fact, the first time we made the large investment in Enduro, not the first sec or the second check, we met five times in a week.
We had to write an ethics memo.
It was like so unusual for people because they're like, this makes kinetic weapons someday and what is really going to happen?
What does deterrence mean?
We're not just thinking about it.
But thanks to having Ken here who's got a lot of experience with some of these other folks, we created a framework and we said we're going to do it on deterrence.
What does deterrence mean?
I think deterrence, we have a three star general and a former senior person from the CIA asked him, what does deterrence mean?
Whatever you need to do for the bad actors to not attack.
It's not about there's line of kinetics or not, whatever you need to do for the bad actors to not attack.
And so sort of using that as a framework is a bit of a very intentional and moving target as well as what we think about what we're going to do in defense.
But look, I think these companies are very important.
They're doing incredible work.
And they are applying AI and all the innovations that have happened to this industry, it'll reduce taxpayer dollars on it.
And I think if done right, it'll create conditions for better peace as well.
So we're big believers in it.
We have a whole strategy, Paul and Jeanette in particular in US and Europe.
And then our team in India is not trying to replicate the same in India, are very deeply thinking about how to build in your income reason to space.
What are you most paying attention to in the realm of geopolitics and regulation?
It seems like everything you've described about GC is just bigger.
It's more ambitious than a bottom up seed stage focus type firm.
And so you're going to just encounter these big issues as much as any investment firm.
What most has your eye? Like what are you watching most in terms of what's going to matter and drive outcomes and opportunities in the geopolitical and regulatory spheres?
It is the question I think a lot about.
We're multi-stage firm.
We're not just seed stage, but for us, it's very important that it's not just that we're funding these companies for long term, but that they actually have real societal impact.
Sort of going back to that alignment of profit and purpose.
So I think in that arena, there's two things.
Take AI. By the way, one thing I should say with geopolitics and AI, this is peak ambiguity.
In the last 25 years I've been in the business, it's never been more confusing as to what's going to happen.
So I think in those times, you really have to lean into your values to follow it through the north.
And I would say with AI, there's this regulation, non-regulation that I try to stay away from a lot of that.
What we need is collaboration.
What we need is work with the governments because that's going to happen and make sure we accelerate our resiliency in AI.
So we develop, and every nation should think this way.
I'm saying we here in the US, Jeanette will say that in Europe and Neeraj and Priya are India partners, we'll say that about India.
But how do we make sure that there is resiliency and we advance our technological capabilities so we're winning?
I think we have to do that.
We have to make sure we're investing in everything that does that.
At the same time, when you apply it to society, we have to make sure it doesn't cause unintended consequences, like what happened with social media and whatnot.
So I don't think it's either or of regulation, no regulation.
The world's not black or white, guys.
You've got to embrace this ambiguity and understand how to work towards a solution that accomplishes both.
I think that's one thing I think about and say is Europe trying to think about regulating too much and slow down.
It's US kind of not thinking about the right way.
Every region's got their own issues and how they're approaching.
So I think a lot about that.
And then I think on the geopolitics side, the other thing that's really top of mind is what is this democratic supply chain going to look like in AI, in manufacturing, in defense, in energy, in health?
And can we actually be custodians of innovation across these ecosystems that can pull that together?
But you bubble both of those up.
The thing that I think a lot about as effectively a global CEO of a global firm is, will we be given the license to do that the right way?
Can we build a culture that we really think what's best for US was best for Europe, was best for India?
And our teams on the ground are really dedicated to that mission.
And how do we go execute that?
Ken and I had a long conversation about you and yesterday on how do we just make sure our culture and values are that that's the way we're going to build this firm, that's the way we're going to do our work.
And our doors are open to do business with all these geographies that share our values.
Are there other investing firms that have most inspired you?
Our lead investor for the last 20 plus years has been Andy Golden.
Andy just retired as the head of the Princeton Endowment.
He's a very close friend and mentor.
And when I was leaving Boston, come to the Valley, those last three years, I would take him down to the bar at the IM meeting and just bludgeon him with booze and ask him, how do I beat the firms that are these legendary firms?
What do I have to do? And I think it was more hubris and I was young.
And he would always say to me, play your own game, run your own race.
I do think I actually took that to heart before I came to the Valley.
I've not really paid attention to what other firms are doing in terms of their strategies.
Again, as I said, there's such amazing people.
I learn a lot from Mark and Andreessen or Vinod and like some of these other legendary people that are just such deep-rooted understanding and history of technology.
I learn a lot from these folks.
But when it comes to what we want to do, I just think we have to do our own thing.
I'm heads down in that and I always encourage our team to just not worry about what they're doing.
I think you have to believe in what you're doing and stay the course.
I haven't spent time with Andy from the Endowment, but his name comes up a lot in the context of a question like this.
What about the flip of the question, which is a lot of times you'll hear people ask limited partners like him, what makes a great GP?
What's the inverse from your GP perspective and investing perspective?
What makes a fantastic limited partner capital provider investor?
I would tell you what Andy said about this because we just had a retirement party for him and he said, GC was an experiment for him because there was a belief that in order to be a good steward of capital for an endowment, you have to be hands-off and away from your managers and not engage and build relationships.
With GC, he really invested in building a deep relationship, which by the way, gave him the agency to help shape us.
They've always on every key decision gone and gotten their advice.
Usually, I get yelled at, hold my firm ground and get my way, but it's always the big daddy taking his belt out scenario before I go to talk to him.
I think that's one, which is can you actually build the same deep relationship like we try to do with our founders?
I think that's one. The other thing I would say is, look, when you are a big endowment and you're creating a portfolio to de-risk yourself, you don't want a portfolio of portfolios.
You want people that really focused on the strategy that you want to dare executing and not diversify.
If they're backing us to be an early stage firm, the moment we come and say, hey, we also want to do good, they're like, no, we already have girlfriends.
Or if you say, I'm going to make this up because we don't do this real estate, they're like, what are you talking about?
We already have real estate.
I think that's where the misalignment happens.
As an entrepreneur, I always look at it and say, who are the LPs that want to believe in the strategy, believe in me and our team and give us the agency.
But in return, what we ask them to believe in is a framework to say, here's our guiding principles that we're going to innovate on the platform.
As long as we're agreed to that, and as long as we adhere to that, back us and don't question why are we scaling because we're scaling to just help build the biggest companies, which is inevitably going to make us a high performance firm if we do our job right.
Some of our old LPs have stuck with us and sort of helped us, got behind us in that like Princeton and others.
And then we have new LPs that came in that also wanted to back us as some of these entrepreneurs in that journey.
And that's been really amazing.
I can tell what it feels for our founders when we do that with them to really have their back and give them the agency to take risks and increase their ambition and go bold.
And fortunately, we have some LPs that also do that with us.
Very cool. What do you think GC is the worst at?
We lean on creativity over process all over the place.
And so if you walk inside a GC, it's just going to feel like a broken startup and all kinds of shit breaking everywhere.
Okay, so when you're in it, and we have some investors that have a tremendous track record, having been in these elite discipline firms, they're like, what is going on?
And I think you look back and say the numbers are actually pretty good, but it just feels messy.
And I think you either just embrace that and embrace the chaos and the ambiguity because it breeds creativity and frankly ambition, or it'll drive you nuts.
And so I don't think GC is for everybody.
And by the way, look at David and Joel, they were like, they're like from the beginning, people at GC were like that, I'm like that.
And so I think that's probably the place where I think we can get better.
And in all of the things we've discussed, which is starting companies, backing companies, new forms of capital, industry transformation, there's so much going on inside the firm with a common mission.
Which pieces of it get you the most personally juiced up?
Is it deal making? Is it some new understanding of a product or technology?
What are the moments, the repeatable moments that you find yourself most living for inside the business?
Creation. I just love creating new stuff.
We built a school with Hellcon where our kids went.
I've started in a climate policy shop 15 years ago.
It was very vibrant and active.
Started some businesses, even on the GC platform, each one of these is a new business.
So I think just bringing new things to life just gives me a lot of energy.
That inevitably requires doing deals.
I mean, I love doing deals.
I am still the largest supplier of capital in the firm, every fund.
And I see my obligation to be that if I am not delivering elite returns, I should not run it.
I strongly believe that.
And I do think whoever will end up taking over from me, that's going to be a criteria as well that you've got to be in the business of creating value.
You've got to live it. That's what gives me the most energy.
If we were writing Hamant's The Art of the Deal book, what would the key chapters be?
What would be the key components of your version of that book?
It's very simple. I think I always started to focus on the win-win.
I always think about what's best for the other person and can we structure something that also works for us?
That's one. And I think the other is a lot of people get stuck in short-term optimizations, local maximizations, and I always think about a longer game.
And I'm happy to give, to move forward on things, if I think the price is big enough for all of us.
So I think just having that mindset, which again comes to me, good relationships are based on mutual respect, transparency, trust.
I think every deal needs to be based on that.
In the spirit of that longer game, what have you learned from John and Patrick Collison at Stripe about building in an infinite market, which is a nice term you used earlier?
So much. I think they've had such a profound impact on me.
I think they're relentless focus on talent.
They're deep belief on the journey and not the end game.
There's no end game for them.
I think that's important.
I asked Patrick yesterday, what's the second act?
He's like, arc. So I think I think this ambition to be like, we can do anything.
So, you know, Stripe and arc to me is like this continuation of a journey because it's, you know, it's a big journey, him and so on.
And I just think thinking and playing that long game, having confidence in what they're doing, there were so many other competitors.
And if you think about the payments market, you had three companies that got started that were meaningful.
One focused on big companies, Audi and one focused on small existing businesses, Square and one focused on new businesses.
They kind of stuck to the fact that, you know what, we just have to get every new business because the world just turns over in 20 years and then we're going to have everybody.
Right. And so, I think that kind of a long term mindset and not being seduced by what else might be working and doing, I think they did that for a long time.
And then they also had the patients that they remember at one point, they had all these products that they built but not launched.
They're like, we don't want to be distracted.
We want to really sort of be a singular focused company.
So just the way they made these decisions, the patience, the relentless excellence and sort of having maintained their boldness and their humility all through this, that's something I really aspire to.
I think that's really important and that's the kind of leader I want to be.
That's the kind of leader I want everybody else to be.
What's next? What are you thinking about that hasn't yet happened that you think might happen at GC and the GC cinematic universe?
So I think we have a really good plan around some of these industries like health, defense, manufacturing from a transformation standpoint.
We have a really good thesis around AI that we're quietly executing but at scale.
We have to put a lot of capital towards this applied AI theme.
I do think a lot about energy.
As I mentioned, I created this organization, Advanced Energy Economy with Tom Steyer and a lot of it was focused on creating clean, affordable, secure energy.
So this was not a solving a RIM analyst but really building advanced energy solutions.
And I feel like technology industry has the ability to shape the energy industry because we represent a lot of new demand because a lot of the computer work that's going to happen.
And so can we step up to the occasion because once you have new demand, you can bring innovation into a sector.
So I think a lot about how do we go about executing that where you're going to have to do some moon shots that are 25 year horizon projects.
They don't get done in the venture scale and you're going to have to think about infrastructure that gets built.
What is our role in enabling that because that's in some ways foundational to everything we do on top of it.
So I'm thinking through that with a few people in the team as to like, when would we do something in that area?
My friend, David Senra has this phrase he loves, which is, I think it's from Churchill and the phrase is always more audacity.
And that seems like a good description of GC under your leadership and kind of your plans for the future.
It's been fascinating to hear about its evolution.
When I interview people, I always ask the same traditional closing question.
What is the kindest thing that anyone's ever done for you?
Wow, that is an amazing question, the kindest thing.
I'll have to give you a little detour first.
My definition of happiness is this interplay between curiosity and generosity.
I feel like you're happy if either you're learning and growing as a person or you're helping other people.
I do think that's like an amazing way to think about sort of what makes you happy.
So when I did my first deal at GC, it was a company called Smartling.
I just joined GC. It just happened to be a business deal.
And David called me and said, I want you to take a couple thousand bucks, go have a meal with who you want to go do it.
And actually took my parents.
And then we went and celebrated.
So doing my first sort of milestone thing.
It wasn't the deal that I led, but I sort of helped do.
And moments like that are just incredible where somebody's kind of celebrating in your success and helping you share that forward.
What a lovely little thing and moment.
And knowing David, like I could just see it, I could see the conversation.
That is so cool. I love it.
What a great story. Simple.
Come on. This has been a total pleasure.
Thank you so much for your time.
Awesome. Great. Wonderful.
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