CEO Hemant Taneja on General Catalyst's First Quarterly Review

If you look at Nvidia adding a trillion dollars of market cap in 100 days, when was the last time that was happening? We're going to have companies that are routinely trillion-dollar companies. The natural gravitational pull is that a lot of that scale is going to get concentrated in a handful of companies. At General Catalyst, we don't believe that's ultimately what's going to create the most inclusive, prosperous, sustainable world.

When COVID happened, we were the first firm to go to the LPs and we wrote down our portfolio by 40% proactively for no other reason than saying this is not real.

So, we are in an incredibly fast-moving world. If you look at pace of innovation in software, which is the core of what our industry has supported for a long time, extremely rapid. If you think about geopolitics, extremely dynamic. And I think we have a system in our industry which is very addicted to provocative tweets and messages in general. And a lot of that generally skews us towards taking very polarized views because the stuff that amplifies in the world tends to be very black or white. The progress gets made in the gray. And so, we're forcing ourselves to take a step back.

Hemant.

Pronunciation is Hemant. Hemant.

Thanks for having me.

Thank you. I appreciate that.

Yeah.

Well, we've been in New York for almost 14 years now. And we have been growing. And I think as you know, one of the teams now at General Catalyst is this company called Percepta that's focused on driving transformation of enterprises. And it was really important for us to collocate all of our teams in the same place. So, GC has now got a much bigger space in New York where one floor is actually the engineers and they're building a lots of cool stuff. And I'm sure we'll talk about that. And then we have our investment team and it's really designed to be welcoming for founders and be sort of a builder environment in general.

Yeah, so what are we focused on at General Catalyst? You know, if you think about the accelerator of technology and the way the industry is evolving. Like one of my most interesting observations coming into this year was, 'Boy, we have to rethink what scale means.' And I say that because, you know, if you look at Anthropic adding $10 billion of revenue a month, when was the last time our industry was dealing with that? Or if you look at Nvidia adding a trillion dollars of market cap in 100 days, when was the last time that was happening? A trillion dollars? We're going to have companies that are routinely trillion-dollar companies. And so, I sort of take a step back and think about in that level of scale and frankly, the transformation of the world with AI that would drive resilience and abundance, the natural gravitational pull is that a lot of that scale is going to get concentrated in a handful of companies. At General Catalyst, we don't believe that's ultimately what's going to create the most inclusive, prosperous, sustainable world. You hear about phrases like techlash and whatnot. So, we sort of say, 'What are we here to do? We're here to empower founders to create power law companies that essentially create a counter concentration architecture for innovation.' And when we started to take a step back and think about that, we say, 'Okay, what does our company, or really an ecosystem, which is more I think about it as than even a single company, what does it need to look like to drive the world towards that kind of a vision?' And so, you know, when we talk about the different pieces that we have in our business, they all come together towards that true north or, you know, meeting founders where they are, helping them build power law companies and then do it in a way that creates an inclusive, sustainable world.

Yeah. So, if you want me to list those out, so first of all, you know, at our core, I think of ourselves as the largest seed venture capital fund. Our venture fund is essentially a seed fund. It's run by, you know, three senior partners, Yuri here in the Bay Area, Jeannette in Europe, Naren who covers India for us. And they together really shape the arc of our venture capital strategy as seed at its core. You know, I think that's a very different way of looking at a commitment to supporting founders at the earliest, most ambiguous stages than organizations of our size. And we just sort of committed to saying that's what our core is going to be. Then we have our creation strategy. You've had Mark on the show and we have really architected a strategy to build companies, to transform companies. And I think that gets applied both in the context of global resilience and in the context of transformation with AI. So, all the AI roll-ups you've heard of, if you look at some of the moonshots we're doing and some of the manufacturing work we're doing, a lot of the hands-on building work gets done in the creation strategy. Then we have customer value fund, which is the first investment grade rated product in our industry and it's really focused on helping companies figure out how to create hypergrowth, you know, once they figure out their businesses. And so, those are sort of the three core products and sort of when I think about it, almost a capital solution for founders so that we can help them with increasing odds become a power law company.

So, we are in an incredibly fast-moving world. You know, if you look at the pace of innovation in software, which is the core of what our industry has supported for a long time, extremely rapid. If you think about geopolitics, extremely dynamic. And I think we have a system in our industry which is very addicted to short, provocative tweets and messages in general. And a lot of that generally skews us towards taking very polarized views because the stuff that amplifies in the world tends to be very black or white. And the progress gets made in the gray. And so, a lot of what I'm forcing myself and, you know, we're forcing ourselves to do is take a step back. Don't be too in haste in trying to make sense out of the world. And so, rather than putting out lots of thinking in a regular stream, high velocity, why don't I take a step back once a quarter and say what happened? How do I make sense out of this in the context of the progress we're making in society, where do we think the world needs to go, are we doing the right things, and then share that as a more thoughtful way of looking at each quarter versus just being in this stream that I think our industry and frankly, we're increasingly addicted to social media which tends to be, you know, quick solid messages for getting reactions and tweets and virality. And a lot of times aren't even views that people really believe. I think those are just ways to get people's attention. We're so starved for attention that we're often saying things that are just not as an ecosystem helping us make sense out of where the world's going and how do we shape it.

Well, I think what I want to see is understanding the capabilities of technology and understanding how do we use them to drive resilience and abundance. And what progress are we making towards that? I want to see early signs of where things could go wrong so we can be intentional about how do we shape the arc of adoption of technology. I wanted to see us sort of sharing and learning as opposed to either doomsday mindset of the world's going to fall apart or that, you know, everything's just going to be tremendous. You know, Patrick, I mentioned this in the review. Patrick mentions beneficent singularity. And I do think AI brings a lot of advantages and positivity. But if it concentrates opportunity in the hands of very few, then it also brings instability in the end because society's going to reject that. So, I think we need to think about how to really diffuse technology and AI in this next phase in a way that's good for everybody. So, I want to see us seeing where that's breaking. I want to see where it's working so we can lean into it more. And essentially become a movement where every one of us is working towards driving that as opposed to just... I mean, I just think it's chaotic. It's petty. And it's not helping us as an industry rise up to the occasion of what's at stake. I think we're going to make progress in the next 10 years for centuries to come. I think we should step up to that and really do it right because it's going to be for all the generations that follow us. We're just going to impact them.

It's a great question. So, I try to spend time with technologists as much as I can. We are working in the bowels of a hospital and we are working on transforming other existing businesses and I'm very focused on can we learn from what's happening on the ground. I think we mentioned Percepta earlier. I actually sat down with them at the beginning of, as I said in this review, in the beginning of the year to say what changed in how we actually develop software. And literally this is a team that's been around for 15 months. They're some of the best engineers. And they said literally almost everything. And for an organization like that that's that young to say they have to formally transform how they think about taking advantage of software to solve problems in helping companies drive their AI transformation, I was profound. I was like wow, if they are having such profound changes, think about the rest of the world that needs to get their arms around this technology and how much help they need. And so, I just think sort of being closer to the mindset of being a builder as opposed to just capital allocator is something that I'm trying to push myself to and frankly all of us at GC because that's how really we're going to get a feel for what the possibilities are and how to shape it.

I mean look, I think when you think about AI, the big things that are happening, the progress that's happening in how fast technology is being developed is incredible. The progress in the capabilities of AI models, I mean, you know, we put out some research from our Percepta team that's in the review as well where LLMs are just getting a lot smarter. I think it's profound to understand those capabilities evolving. I think it's important to see the profound adoption that you're seeing with, you know, Anthropic for example. So, the capabilities of these models and how rapidly they're changing is pretty profound. And then it has an impact on the existing software industry. And it's sort of thinking through oh boy, what's going to happen to a lot of the companies that we are supporting, a lot of the founders. You know, how do they take advantage of this? And where is there risk in how we think about the value both financially and technologically. And what is sort of the new world going to look like? So, I think there's all these conclusions you have to derive on the basis of all the changes that are happening and, you know, you obviously have interesting questions like Anthropic dealing with the Pentagon that happened and, you know, what are the right ways to do this? Meta sort of got launched. We knew about this, you know, several weeks before the models were launched, but what do you do with a technology that's that important? Like what's the right way to bring this to market? And I just think it's a little ironic because the same people that, you know, a few years ago would say we need to be completely open and let technology be diffused fast would say is Anthropic being responsible in putting Meta's out where when they were also accused of being too safety native. It's just... And this is my point about just how do you... people saying things that are provocative, but not really thinking deeply of what's the best way to bring these technologies to market and the intentionality required to do that. That's all by the way, the last 90 days, right? And so, it's just the pace of progress and the complexity of what we have to deal with societally, technologically, financially, in how we think about creating value. I think our industry has to really build a lot of new skill sets to do right.

Yeah, it's been a really interesting 3 years. The thing that is remarkable is that it was completely unclear where the value is going to be very early on. And, you know, are the models going to commoditize or even if they commoditize are they going to be really valuable? It wasn't clear when the ChatGPT moment happened in November 2022. How is it going to diffuse in the enterprises? It wasn't really clear. What is the role of hyperscalers and are they going to be AI clouds that emerge? Wasn't really clear. And then how much are the models going to do versus what a big part of the Valley startups have been traditionally which is enterprise infrastructure. Are the models going to gobble up a lot of those capabilities? And so, I think when you fast forward, it's a lot clearer. And, you know, we've been fortunate that we made some investments in the clear cloud area. So, Together is an example of that, doing very well. Anthropic obviously has been a great company that came from behind, but has a strong leadership in the market in the categories that it cares about. From a model perspective, we also did Mistral in Europe because sovereignty does play, going back to how is technology going to diffuse and how do you really make sure opportunity federates around the world. And then the question is sort of on the applied layer, you know, we've sort of led the wave around these AI roll-ups where the thesis was everywhere we offshored for labor productivity, we're now onshoring back with AI. And so, and as mentioned earlier, we've had Mark on the show. I think we've gone and really industry by industry sort of thought through where will technology effectively diffuse, create efficiency and then also a way to drive abundance for the customer base of these companies. And gone and built a pretty strong portfolio there. So, I think it's been a lot of zigging and zagging, a lot of doubt. But where in the end the founders have led us is a pretty interesting stack that becomes the next generation AI native stack for how we're going to diffuse intelligence and we're going to have businesses capture value and turn their secret sauce into economic advantages in the next wave.

Well, I think that's in part cultural. We're not laser-focused whether we invested seed or we invest, you know, in the latest round of Anthropic, or anywhere in the middle, is very much about are these founders that are building companies that have the potential to be power law companies, can we bring unfair advantages to them to be highly successful, and do we believe there is extraordinary compounding opportunity from the moment the point we got in? And so, those criteria and the characteristics of those companies only change when you go from seed to, you know, late stage. You're still believing in that there is incredible appreciation and compounding and venture return from when you're entering. And that's just, frankly, the fact that we can say that and write a large check into a company at a multi-hundred-billion-dollar valuation just speaks to the concentration of the opportunity behind certain kinds of companies. But, our ethos is very much focusing on the best founders, making sure that as long as our values align, you know, we're going in to go build power law companies, that shouldn't change. We do have people that really dedicate themselves, you know, as I mentioned, we have a team that genuinely cares about making sure our venture capital fund is seed first. And seed first doesn't mean writing lots of $3 million option checks. Seed first means having a mindset and a commitment to supporting founders at that stage in where they're the most vulnerable. And there's a lot of ambiguity, and giving them everything they need to navigate that ambiguity. So, it really has forced us to really rethink how we're going to create the experience for them. I mean, I give Jeannette first of all, who's our president, a lot of credit for really pushing that when we brought La Familia in, and then Yuri and Niraj, when they brought their firms in, and we sort of put together a whole global way to support seed, they just really lead with those values. And Mark and the work we do at Creation is very much that. And if the idea is that we're going to go be essentially co-founders with a team, and pick on a thesis that we jointly believe in, and go do a roll-up or hatch a company like Hippocratic AI we did in healthcare, we're just going to lock arms, we're going to go build together, and it's a very different mindset, but it's again towards solving some massive problem. So, that common thread is alignment on values, and the belief that we're going to build companies that again fit in our overall thesis and get to significant scale. So, that does bring us together. We align economics, you know, across all these funds with the whole team. We don't have a US fund and a Euro fund and India fund. We are global in everything we do. And we're one team, and everybody participates equally, and then so everybody's got a place where they own the responsibility of building out the firm's investment capabilities, and then places where they participate.

Yeah. So, there's a reason why there's two titles. And internally, we're not big on titles. We just want to make sure we back people with the greatest amount of conviction, and we follow their conviction in the way we do our investment work. But, the role of as a CEO is to again orchestrate that ecosystem I described at the beginning of this conversation. But, the way we make investment decisions is, you know, the seed team, any two partners can do a seed. People push each other's conviction, and we have a very lightweight process. And later stage investments, we just want to see anybody, doesn't matter what their tenure is, tee up ideas with conviction. And my job is to make sure people are doing the right level of thinking and addressing questions that others have, so that the conviction passes muster. I think if we start making investments only where I believe success will be created, that'd be hubris on my part, and there'll be lots of missed opportunities. And so, it really is, you know, giving everybody who's got conviction the courage to leap forward and lean in, make an investment, and then own it, is really what I think creates the best return. So, it's like, you know, GC is a really interesting ecosystem because in that venture capital part of our business, we still continue to need to run like a partnership, and a conviction-oriented partnership, not a dictatorial partnership. And then we have other parts where, you know, we need to run with the rigor of a real company with OKRs and goals and financial planning, and the key is to have an ecosystem architecture, and this is something that's very much work in progress because we're, you know, I view us as just another startup that's trying to be an important institution in this next phase, sort of creating that architecture that allows for these entrepreneurial souls to go do their best work towards that adoption of AI that we're talking about.

I think I've aged and matured and become sophisticated, but KB here would say I'm still a 22-year-old lunatic founder in a 51-year-old body. So, the answer's probably somewhere in the middle. Look, I think the idea of leadership, I've been very fortunate to have Ken Chenault as our chairman, and Ken joined in 2018, and he's been really deeply working on not only creating succession in the business, but help us think through architecturally what does this ecosystem look like, and taught me a lot about servant leadership. And that servant leadership again is in service of making sure everybody here is successful, but then also to make sure GC is in service of the world. And so, sort of leading with humility and curiosity, and ambition, and trying to create a legacy-defining company, that is something that I deeply care about. I deeply care about values, those are not just words, we want to live them. I deeply care about making sure we're kind. I mean, one of the things I write about in this review is that kindness and ambition are not at odds with each other. I think in Silicon Valley, we try to glorify the symptom of founders thinking that's almost a necessary ingredient to succeed, and I don't think it has to be that way. And so, we're creating a culture where we can have a team where everybody feels like they're doing their life's work, and they can be entrepreneurial on the G in the GC ecosystem. I think, you know, for somebody like a Harsh to come, Harsh Natu to come and co-found Percepta with me, or Jeannette to drive European transformation on the GC platform, or Paul Kwan driving global resilience work on the GC platform, like they have to breathe. They have to be able to execute their own vision and values, which obviously has to be consistent overall for where we're going. And, you know, my job is to empower them. And so, a lot of my focus is on how can everybody here be the best version of what they can be to create the change that they care about that's aligned with where I want the world to go. So, that's the leadership philosophy.

It's a great question. And I think the main message I've communicated to LPs, but to our whole familia, as we call it, is everything we do is to meet founders where they are and give them powerful advantages. So, when we buy a hospital, if you go to Summa today in Akron, Ohio, we have seven of our companies and the Percepta team, and our own investment team that's literally there all the time trying to figure out how to take this community hospital that, you know, all odds will go...

down the path of being another bankrupt health system in this country to become an AI native hospital. To drive abundance. To actually be economically viable so that we can take care of that community where it's been for over 100 years. And so, when LPs hear that, what do they see? They see that we're getting on the ground help and work experience understanding what the problems are. Our companies are getting enterprise-wide experience to go deploy AI, and society is getting potentially a model for how health assurance, which is what I call it, is proactive, affordable, accessible care can be deployed all around the US, and hopefully at some point around the world.

If that's not the way to create the best enterprise value in our companies, I don't know what it is. So I strongly believe that all the innovation, and frankly, Ken told me in 2018 to write a three-year strategy, which we'd never done before, and now it looks like nothing like what I wrote. And he also said to me, 'Great strategies are built in hindsight.' I think we follow our intuition. We have our values. We have our true north. And all these innovations that look crazy at the time end up being consistent with the values, and some experiments will fail, but some are going to go be huge enablers for these founders to go change the world. That's the reason they should pick us, and that's the place where I want to invest our revenue that we make as a business is to go create these advantages for the founders. When LPs see that, they understand it.