General Catalyst's First-Ever Quarterly Review | CEO Hemant Taneja

[00:00] 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. People are saying we're in a bubble again. How do you think about the fund management of that? [00:30] other reason than saying this is not real. Why did you write a review? Why did you start this now? 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 [00:51] 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. One of the hot topics around Silicon Valley is general catalysts [01:08] potentially rumored IPO. [01:20] So I've heard two people pronounce your name completely differently. Is it Heymont or Hemont? Hemont. [01:27] Hey, Ma. [01:28] Is that right? The actual pronunciation is Heman.

[01:31] A month. [01:32] Hey, Mon. Yeah, there you go. You call me HT. How's that? Okay. HT, welcome to Sorcery. Thanks for having me. And congrats. It was interesting to hear about all the progress you've made about your own business. [01:44] Congrats. Thank you. I appreciate that. Well, today we're at the top of the General Catalyst Tower in San Francisco. The sun blowing at us. The sun is out and shining. So I also heard that you opened up a new New York City office. So what's going on there? Well, we've been in New York for almost 14 years now, and we have been growing. And I think, as you know, [02:14] company called Precepta that's focused on driving transformation of enterprises. [02:20] and it was really important for us to co-locate 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 engineers and they're building lots of cool stuff and we'll talk about that and then we have our investment team and it's really designed to be [02:37] welcoming for founders and be sort of a builder, [02:42] environment in general. [02:43] I want to talk about the state of general catalysts today. So you're now called a company. I know this has been in motion for a bit. And you recently just put out, I don't know if this will come out on the day of, [02:57] when it gets launched, but your quarterly review. [03:00] So if you could map out for people who aren't aware of the wide ranging structure of General Catalyst, can you share all the different buckets and the strategies that you cover?

[03:11] Yeah, so [03:13] What are we focusing on at General Catalyst? If you think about [03:17] the [03:19] accelerated role of technology. [03:21] And the way-- [03:25] the industry is evolving. Like one of my most interesting observations coming into this year was, boy, we have to rethink what scale means. [03:33] Okay, 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? [03:50] we're going to have companies that are routinely training our companies. And so I sort of [03:56] take a step back and think about in that level of scale, and frankly, the transformation of the world with AI, [04:04] we were driving resilience and abundance, the natural gravitational pull is that a lot of that scale is going to get concentrated in a handful of companies. [04:14] At General Catalyst, we don't believe that's ultimately [04:17] was 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. [04:29] to [04:30] create power lock companies that essentially create a kind of concentration architecture. [04:35] for innovation. [04:36] And when we start to take a step back and think about that, we say, "Okay, what does our company, 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?"

[04:51] when we talk about the different pieces that we have in our business, they all come together towards that, [04:57] true north of meeting founders where they are, [05:00] helping them build power lock companies and then do it in a way that creates an inclusive, sustainable world. [05:07] So you have a seed [05:10] - Yeah. - Strategy. - So if you want to list those out, so first of all, you know, [05:16] At our core, I think of ourselves as the largest seed winter capital [05:21] Fund, our venture fund. [05:23] is essentially a seed fund. It's run by, you know, three senior partners, Yuri here in the Bay Area, Jeanette in Europe, Neeraj, who covers India for us. And they together really shaped the arc of our venture capital strategy as seed at its core. [05:39] I think that's a very different way of looking at a commitment to supporting founders at the earliest, most ambiguous stages than [05:49] 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've really architected [06:00] strategy to [06:02] 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. [06:10] So all the AI roll-ups you've heard of, if you look at some of the [06:14] Moonshots we're doing and some of the manufacturing work we're doing. A lot of the [06:18] the hands-on building work gets done in the creation strategy. Then we have Customer Value Fund, which is the first

[06:28] investment grade [06:30] rated product in our industry. [06:33] And it's really focused on helping companies figure out how to create hypergrowth. [06:40] 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 lock company. [06:53] Why did you write a review? Why did you start this now? [06:57] So we are in an incredibly fast, [07:01] moving world. [07:03] You know, if you look at the pace of innovation in software, which is the core of our industry, supported for a long time, extremely rapid. If you think about geopolitics, [07:13] extremely dynamic and [07:16] And I think we have a system in our industry which is very addicted to [07:22] short, provocative [07:24] you know [07:26] tweets and messages in general. And a lot of that generally skews us towards taking [07:33] very polarized views. [07:34] Because the stuff that amplifies in the world tends to be very black or white. [07:38] and the progress gets made in the gray. [07:41] And so a lot of what [07:44] I'm forcing myself and, you know, we're forcing ourselves to do is take a step back. Don't be, um, [07:52] sort of [07:54] too in haste in trying to make sense out of the world. And he said, rather than putting out lots of thinking in a

[08:02] sort of a regular stream, high velocity, why don't I take a step back once a quarter and say, "What happened?" [08:07] How do I make sense out of this in the context of [08:10] 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 sort of a [08:18] Um, [08:19] more thoughtful way of looking at each [08:22] Quotter versus just being in this this stream that I think our industry and frankly We're including it's addicted to with social media, which tends to be you know [08:33] Quixotic messages for getting reactions and tweets and virality. A lot of times aren't even views that people really believe. [08:39] I think those are just ways to get people's attention. We're so starved for attention that we're often seeing things that are just not [08:47] not as an ecosystem helping us make sense out where the world's going and how do we shape it. [08:52] What are the messages that you want to see? [08:56] as headlines. [08:58] Well, I think what I want to see is... [09:02] 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 [09:15] early [09:17] Um, [09:19] So love. [09:20] signs of where things could go wrong. So we can be intentional about, you know, how do we shape the arc of adoption of technology. I, you know, want to see us sort of sharing and learning as opposed to either doomsday

[09:33] mindset of the world's gonna fall apart or that you know everything's just gonna be tremendous. You know Patrick mentioned this in the [09:42] review Patrick mentions beneficence singularity and, you know, I do think AI brings a lot of [09:50] advantages and positivity. But if it concentrates opportunity in the hands of very few, then it also brings instability in the end because that's not what society is going to reject that. So I think we need to think about [10:02] how to really diffuse technology. [10:06] and AI in this sort of next phase in a way [10:09] 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 there, every one of us is working towards driving that. [10:22] As opposed to just, I mean, I just think it's a... [10:28] It's chaotic. [10:30] It's [10:32] petty [10:34] And it's not-- [10:37] It's not [10:38] helping us as an industry rise up [10:40] to the occasion of what's at stake. I think we're going to make [10:43] progress in the next 10 years for centuries to come. [10:46] I think we should step up to that. [10:48] 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. [10:54] So where do you find those signals? It's a great question. So I, look, I try to spend time with... [11:03] uh,

[11:03] 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 [11:18] learn from what's happening on the ground. I think we mentioned Preceptor earlier, actually sat down with him at the beginning of, as they said in this review, in the beginning of the [11:28] year to say what changed in how we actually develop software. [11:32] And literally, this is a team that's been around for 15 months. They're some of the best engineers. [11:37] And, uh, [11:38] They said literally almost everything. [11:40] And for an organization like that, that's that young, to say they have to firmly transform how they think about it, [11:47] taking advantage of software to solve problems in helping companies drive their AI transformation, that was profound. I was like, wow. [11:55] if they are having [11:57] such profound changes. Think about the rest of the world that needs to [12:03] get their arms around this technology and how much help they need and so I just think sort of being closer to a [12:10] The mindset of being a builder as opposed to just capital allocator is something that I am trying to [12:18] 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. So the review starts out with AI because you can't start anywhere else. [12:32] I mean, look, I think when you think about AI, the big things that are happening, the

[12:40] The progress that's happening in how fast technology is being developed is incredible. The progress in the capabilities of AI models. We put out some research from a perceptive team that's in the review as well, where LMS are just getting a lot smarter. [12:57] I think it's profound to understand those capabilities evolving. I think it's important [13:03] uh, [13:04] to see the profound adoption that you're seeing with, you know, Enthropic, 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. [13:21] and sort of thinking through, well boy, what's going to happen to a lot of the companies that we are supporting a lot of the founders? [13:27] How do they take advantage of this? [13:29] and where is their [13:31] risk in how we think about the value, [13:34] both financially and technologically. [13:36] 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, [13:49] interesting questions like [13:52] dealing with the Pentagon that happened and you know what are the right ways to do this? Meethos sort of got launched. We knew about this several weeks before the models were launched, but what do you do with the technology? Does that put in 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

[14:16] a few years ago would say we need to be completely open [14:20] and let technology be diffused fast, would say, is anthropically irresponsible in putting methods out, when they were also accused of being too safety native. [14:34] It's just, and this is my point about just how do you, people saying things that are provocative, but [14:39] not really thinking deeply of what's the best way to bring these technologies to market, and the intentionality required to do that. [14:45] 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 [14:54] Societally, technologically, financially, and how we think about creating value. I think our industry has to really build a lot of new skill sets to do it right. [15:06] So I want to get into the anthropic part a little bit later, but in terms of how this is [15:12] And even with Percepta, how [15:14] is this. [15:17] like what are the implications on the investing standpoint? Like how does this impact your investing [15:23] decisions. [15:25] Yeah. Um... [15:26] It's been really interesting three years. [15:30] the thing that [15:32] is remarkable is [15:35] that it was completely unclear where the value is going to be very early on. And are the models going to commoditize? Or even if they commoditize, are they going to be really valuable? It wasn't clear when the chat GPT moment happened in November 2022.

[15:52] how is it going to diffuse in the enterprises? It wasn't really clear. What is the role of hyperscalers in-- [16:02] Are there going to be AI clouds that emerge? It wasn't really clear. And then how much are the models going to do? [16:06] versus what a big part of the Valley startups have been traditionally, which is enterprise infrastructure. [16:14] are the models going to gobble up a lot of those capabilities? [16:17] And so I think when you fast forward, it's a lot clearer. [16:21] And [16:22] We've been fortunate that we made some investments in the neoclid area, so together as an example of that, doing very well. Enthropic obviously has been a great [16:35] a company that came from behind but has a strong leadership in the market in the categories that it cares about. From a model perspective, [16:44] We also did Mistral in Europe because sovereignty does play. Going back to the [16:50] how is technology going to diffuse and how do you really make sure opportunity federates around the world and 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. I [17:04] We [17:05] offshored for labor productivity, we're not onshoring back with AI. [17:09] And so, as I mentioned earlier, you've had Mark on the show. I think we've gone and really industry by industry sort of thought through [17:17] where will technology effectively diffuse [17:20] 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

[17:31] There's been a lot of zigging and zagging, a lot of... [17:34] doubt, but where in the end the founders of Lettuce is a pretty interesting sack that becomes the next generation AI native [17:41] 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. [17:54] Next wave. [17:55] Sorcery is brought to you by Brex, the financial stack trusted by more than 30,000 companies, including one in three venture-backed startups in the U.S. Nearly 40% of startups fail because they run out of cash. Brex is literally built to help founders avoid that. Unlike traditional banks that let your money sit idle, chipping away at it with fees, Brex is designed to help you spend smarter and move faster. [18:24] powerful account. You can send and receive money globally at lightning speeds, get 20 times the standard FDIC coverage through their partner banks, and even high yield from day one. With same day and even same hour liquidity, access your funds anytime. Companies like Scale AI, DoorDash, Service Titan, HIMSS, Anthropic, Flexport, Robinhood, and Plaid trust and use Brex. [18:54] Turing is training the next generation of AI with tasks that require real expertise and real world judgment. That's why companies like NVIDIA, Anthropic, Salesforce, and Gemini partner with Turing. Turing builds realistic reinforcement learning environments and data systems based on real operational traces. The kind of infrastructure Frontier Labs need to train superintelligence. Visit Turing.com slash S-O-U-R-C-E-R-Y.

[19:24] Thank you. [19:24] I'm curious how you hold all of these different types of... [19:30] investment strategies together at one. So in Q1, you wrote, [19:35] in here that you invested in 20 seed companies, but you also invested in Anthropic Series G. So how do you hold the weight of those together? Well, I think I think that's in part cultural. We're not laser focused. Whether we invest in seed or we invest, you know, in the latest round of Anthropic, or anywhere in the middle, is very much about [19:59] are these founders that are building [20:02] companies that are [20:03] have the potential to be power lock companies. Can we bring unfair advantages to them to be highly successful? And do we believe there is extraordinary [20:11] compounding opportunity from the moment the point we got in. [20:15] And so those criteria and the characteristics of those companies don't really 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... [20:34] The fact that we can say that and write a large [20:37] check into a company at a multi-hundred billion dollar valuation. It speaks to the concentration of the opportunity behind certain kinds of companies. But our ethos is very much, you know, focusing on the best founders, [20:51] making sure as long as we're values aligned, you know, we're going in to go build power of our companies, that shouldn't change. We do have people that really dedicate themselves

[21:00] As I mentioned, we have a team that genuinely cares about making sure our Venture Capital Fund is seed first. [21:06] And seed first doesn't mean writing [21:09] Lots of [21:10] $3 million option checks. Seedfirst means having a mindset and a commitment to supporting founders at that stage where they're the most vulnerable. [21:19] and there's a lot of ambiguity. [21:21] and giving them everything they need to navigate that ambiguity. [21:25] So it really does, it has forced us to really rethink [21:30] how we're going to create the experience for them. [21:34] Jeanette, first of all, who was our president, a lot of credit for really pushing that when we brought La Familia in. And then Yuri and Neurich, 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. [21:49] and Mark and the work we do in creation is very much that. If the idea is that we're going to go [21:56] be essentially co-founders with a team [22:00] 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 very different. [22:14] mindset, but it's again towards solving some massive problem. [22:18] So that common thread is alignment on values [22:22] and the belief that we're going to build companies that, again, fit in our overall thesis and get to a significant scale. So that does bring us together. We align economics across all these funds with the whole team. We don't have a...

[22:36] US fund and the Euro fund and the India fund. We are global in everything we do and we're one team. [22:42] and everybody participates equally. And then so everybody's got a place where they [22:47] own the responsibility of building out [22:49] the firm's investment capabilities and places where they participate. [22:54] You hold a very uncommon title in the world of venture capital. [22:59] You're the CEO and managing director. So how does that lead into decision making for these investments? Are you the last person? Do you have the check writing decision making power for all of these? Yeah. So... [23:14] 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 as a CEO is to [23:29] orchestrate that ecosystem I described at the beginning of this conversation. [23:34] But the way we make investment decisions is, you know, the seed, [23:39] team, any two partners can do a seed. [23:42] People push each other's conviction, and we have a very lightweight process. And later stage investments, we just want to see anybody, it doesn't matter what their tenure is. [23:53] Tee up ideas with conviction. [23:55] And my job is to make sure [23:58] people are doing the right level of thinking and addressing questions that others have. [24:03] so that the conviction passes muster. [24:06] I think if we start making investments only where I believe success will be created, that would be hubris on my part, and there would be lots of missed opportunities.

[24:15] And so it really is giving everybody who's got conviction the courage to leap forward and lean in, make an investment, and then own it. [24:25] is really [24:27] 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. [24:39] 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, you know, financial planning and the key is to have a... [24:54] ecosystem architecture, and this is something that's very much work in progress. I view [25:00] just another startup that's trying to be an important institution in this next phase. [25:06] Sort of creating that architecture that allows for these entrepreneurial souls to go to their best work towards that, [25:14] you know, adoption of AI that we're talking about. You've experienced 25 years of Silicon Valley hype cycles. So how has your leadership and [25:22] changed throughout the years until now. I mean, before the cameras started rolling, we were talking about Anthropic and their hyper growth and how they pretty much reached a year of growth in one quarter. So how do you balance all of that for yourself? - I think I've aged and matured and become sophisticated, but KV here would say I'm still a 22-year-old lunatic founder in a 51-year-old body. So the answer is probably somewhere in the middle. Look, I think the idea of leadership, I've been very fortunate to have Ken Chenault as our chairman.

[25:51] And, you know, Ken joined in. [25:55] 2018 and he's been really deeply working on not only creating succession in the business, but help us think through architecturally what is this ecosystem looks like and and taught me a lot about servant leadership. [26:07] 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. [26:14] And so sort of leading with humility and curiosity, [26:19] and ambition. [26:21] 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. 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 [26:43] the asshole 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, you know, we're creating a culture where we can have... [26:55] a team where everybody feels like they're doing their life's work. [27:00] and they can be entrepreneurial. [27:02] in the GC ecosystem. I think for [27:07] somebody like Harsh to come-- Harsh and Attil to come and co-found Percepta with me, or Jeanette to drive European transformation on the GC platform, or Paul Kwon driving global resilience work on the GC platform.

[27:25] 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 my job is to empower them. And so a lot of my focus is on how can everybody here [27:41] be the best version of what they can be. [27:44] to create the change that they care about, that's aligned with where I want the world to go. [27:48] So that's the leadership sort of philosophy. [27:52] You're one of the most innovative funds or companies, I guess, in Silicon Valley. So how do you keep [27:59] getting buy-in from LPs on these new ideas like how do you get buy-in on buying a hospital like how do these ideas develop and how do you get the support around them it's a great question and and I think um [28:12] the [28:14] the... [28:15] main message I have communicated to LPs but to [28:19] our whole familia as we call it is [28:22] Everything we do, [28:24] is to meet founders where they are and give them powerful advantages. [28:28] So when we buy a hospital, if you go to SUMA today in Akron, Ohio, we have seven of our companies and the preceptor team. [28:35] and our own investment team that's literally there all the time [28:39] trying to figure out how to take this community hospital that [28:42] In all odds, we'll go [28:45] down the path of being another bankrupt health system in this country to become an AI native hospital. [28:50] 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 that, when LPs hear that,

[29:02] 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 and [29:15] AI and society is getting a potentially a model for how health assurance which is what I call it is proactive affordable accessible care can be deployed all around us and hopefully at some point around the world. [29:28] If that's not the way to create the best enterprise value in our companies, I don't know what is. [29:32] So I strongly believe that all the innovation, and frankly, [29:37] Ken told me in 2018 to write a three-year strategy, which we had 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 followed our intuition. [29:51] 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 [29:59] Some experiments will fail, but some are going to go be huge enablers for these founders to go change the world. [30:06] 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. [30:17] When LPs see that, they understand it. [30:20] And then how have you thought about fund management through these cycles? People are saying we're in a bubble again and at the last bubble and even through ZERP funds were selling off to secondaries or just trying to get some liquidity for DPI. But when you think about

[30:36] maybe hyperinflated assets or companies? How do you think about the fund management of that? It's a great question. It's a very hard question. I'll tell you, [30:45] the way this industry has traditionally operated is [30:49] Let's hope a couple of our companies hit the power law. [30:51] We return the fund a few times over, and the rest will take care of itself. [30:55] That's been the model. The sophistication to actually learn how to exit companies, most people in this investment business aren't very good at it. [31:05] Many people in our team are also just learning to do that. But the problem with things that way is maybe there's a couple of founders that [31:13] hit the power line, become profound companies in a fun cycle. But what about the other tens? [31:20] they also are doing important life's work. And so how do we [31:24] get them to create enterprise value? How do we get them to endure? [31:27] And how do we get them to create value? So our innovation philosophy is like figuring out how to do that. And then what I really do push our team is that every one of us has that responsibility. [31:39] the [31:41] Writing a check. [31:43] into a company is a privilege. [31:45] for everybody around the table at GC. [31:47] Creating economic value on the other side and societal value is the actual job. [31:52] And that is a cultural transformation and a journey we are on, to say we need to be able to help our founders do that. We've built a lot of effort around it. The last thing I'll say is, [32:04] What happens in bubbles is your companies get

[32:07] incredibly valued. [32:08] And [32:09] And it screws with your mind as investors because you think you're great because you got paper gains. And it screws with the LP planning because they have these inflated valuations that impact how they do capital planning. So it's not good for anybody. So when COVID happened, [32:22] We were the first [32:24] 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. [32:31] We got a lot of credit from LPs when we did that. When the chat GPT moment happened, we went back company by company and said, what is the actual reality we believe in? [32:39] And we're going to course correct and say, that's what the value is of our businesses and the nav of our portfolios. Now we're going to manage from there. So I think just being intellectually honest, rigorous, and making sure we acknowledge that a huge part of the job is to drive economic value is something that has to be how you... [32:57] manage your funds. [32:58] I don't think it matters if there's a bubble or not. Bubbles are actually great for us. No bubbles, then you also don't get companies that really make fast progress and generate outsized returns. But this philosophy has to be enduring in how you do the work. [33:12] There have been some funds that have notably sold portions of their GP, whether it's Thrive, Insight. Have you thought about that? Is that something that you've done? And maybe for people who don't know what that means, could you explain what selling your GP is? So selling a portion of the GP, usually what you do is you sell a slice of your... [33:32] fees and carry that you get from funds. And there are many reasons why people do that. You can do that because when there's a succession

[33:41] New partners want a mechanism to buy out old partners. Sometimes you need to do that because you need capital to invest in the business. So there's many reasons. [33:52] if you do that to take capital off yourself, because then you're misaligning with your investors. [33:57] Okay, the investors gave you money. [33:59] Carrie has some value, you sell it to the third party, [34:03] monetize but your investors didn't, that would be a problem. So, we did do this by the way. We did it in 2018 with Peters Hill and the reason we had done it was because we had decided [34:16] right around that time that we're going to scale to have the kind of capital needed to build companies in this generation. And, you know, I think a few firms went down the path of, you're going to need platforms. And by the way, whatever scaling we did, it seems anemic compared to what these companies need in terms of capital today. But we needed to do that to scale. But then we also did [34:37] buy that relationship back a couple years ago, once we got through the scaling capital needs. So yeah, I think it's a much more common practice outside of our industry than in venture, but some of the firms that did try to scale, they did go do that and [34:56] you know, there's there's been reasons for it. One of the fun topics you talk through in this was how the software buyout model is broken. Can you walk through the math around that? So even if a company scales and gets to 50% EBITDA, they could still be a loss to LPs.

[35:15] Yeah, look, so in private equity, there was... [35:21] there has been a circulation of assets. [35:24] the P firm buyers of company, they buy it on the idea that, you know, we're buying it on a certain multiple of EBITDA. [35:32] We will lever that EBITDA so that the amount of equity we put in that business is [35:37] let's say, a third and two thirds is dead. We'll double the EBITDA and then we'll sell the business for, let's say, double the price on the same multiple. When we do double the price, you pay the debt back, you actually could make a 4x or 5x return on your equity, in let's say, a five year period or how long it took you. [35:54] good return, it's probably a little less than that, but let's say it's a good return and [36:00] and then somebody else buys it. But this happened because [36:05] There is this assumption of a terminal value on those multiples. [36:09] in these businesses. [36:10] So, now think about the reality today. [36:14] If you said the multiples of these businesses are going to compress significantly, if the multiples went from 15 times revenue to 3 times revenue, [36:22] and your business doubled, [36:24] you're still [36:26] you know, valuing the business for a lot less, like I give an example on this in the review, than what you paid for. So your equity has actually never recovered in that case. Why? Because the assumption of terminal value is gone. [36:40] In the world of AI today, where code is self-writing, [36:45] To say that a piece of software in a company that has been existing, let's say, five years,

[36:50] the free cash flow that is worth [36:52] 30 times means you're gonna have 30 years of generating that free cash flow. [36:56] is what you're paying for. [36:58] How can you ever make that assumption when technology is changing so fast to say these things are that durable? So when you start saying these things, these existing pieces of software are not going to be worth that much, [37:10] than that [37:12] Exit math of terminal value as the way to make an investment and make money completely goes away. [37:17] Now, [37:19] That exit-match and terminal value exists in software. It doesn't exist in a lot of the other non-software industries. [37:25] In those industries, you always look at your business on a free cash flow basis. [37:30] A business is worth a certain amount on free cash flow multiple and we're going to create structures to monetize on free cash flow basis, not terminal value. I think software is just now maturing to a state where it's going to have the same dynamic and there's a one-time [37:44] Massive reset that's going to happen because the amount of leverage in the system, and there's a lot of leverage coming due in these P-back companies in the next five years. [37:53] And many of those companies, the equity value will certainly not exist. [37:57] Some of them may not even recover their debt because the compression of multiples is so large. [38:02] And by the way, that does not mean those are bad businesses. That just means they were badly priced [38:08] in the context of where the value really resides in this new reality. And so you'll see other opportunities on how to create value on those companies as well. So you're already seeing [38:19] venture capital gobbling up.

[38:21] PE businesses. If you look at a lot of what Mark and Madhu and our team is doing in creation, we're buying some of these things from PE firms. We're buying them for not a lot and we'll arb them into AI transformation and maybe there's a way to create alpha. So I think you'll see interesting structures and interesting approaches to take these [38:38] businesses and figure out how to create value on the other side of this erosion of terminal value. [38:44] What do you think about Vista's new software buyout debt fund? [38:48] It's small. That was my first observation, like $250 million. But I think they're probably towing their... [38:55] dipping their toes into the water around this idea that a lot of assets, distressed assets. And they get software, they're a great firm. They get software well and they're probably thinking about how can we design these new structures and start playing. So I bet that could become a larger [39:11] strategy for them if they figure out how to go from terminal value to [39:16] free cash flow basis of creating value in these businesses. [39:19] One of the like very unique things about General Catalyst has been your global growth. There are other funds that like to tout American dynamism that kind of baskets this like national interest, but you have global resilience. So why did you choose global resilience as a strategy? Yeah, I guess a few things. I think global TAM last I checked was bigger than the American TAM. [39:43] So it allows us to play in a... [39:47] bigger market. It comes down to our values. [39:50] we believe in inclusive prosperity, so if we're going to have AI diffuse,

[39:56] we want to make sure it's captured all around the world. It's like genuinely something we care about. And the other thing is... [40:03] If you think about our two trends, global resilience and artificial intelligence, [40:07] The geopolitics is going to force supply chains to shift. Does Europe really want to buy American defense? [40:16] Products maybe some countries will do but the biggest ones won't they want to create resilience does India really want to rely on Russia or in America for their defense not really they want to do it on their own so our view was well defense primes are going to emerge everywhere in the world and [40:31] Okay, and we want to help founders create those everywhere. [40:34] So, you know, we were in the seed. We've been invested in Andrew Wilson's seed. We are [40:39] deeply invested in Helsingston Seed, and that's a project that Jeanette and Daniel Ek and Paul Kwan have worked on. [40:48] And then we're invested in Rafi in India, that Neeraj has been working on as well. So our belief is that the opportunity is everywhere, and we want to help founders, and we do want to do it globally. I think we went down the path of... [41:04] leaning into Europe and India when [41:07] Europe was a complete contrarian [41:09] And India was starting to emerge as a FOMO. But we just think those regions are going to innovate. There's lots of smart people everywhere, opportunities everywhere. And if we have leaders at GC that care about creating successful... [41:25] innovation ecosystems there, we want to empower them.

[41:28] Part of that too is it sounds like you've been traveling a lot. [41:32] Yes. I flew 650 hours last year. 650 hours. [41:37] Okay. [41:38] Not bad. It's about a month on the plane. And growing. I think Alex Karp's numbers are like, he spent three months on a plane. I believe it. Something crazy like that. So you recently invested $5 billion in India. How did that? [41:53] It's not a fund. So again, we invest everywhere through our single funds. The commitment that Neeraj and I made was to invest five billion over the next five years in India's resilience opportunity. And that's where, you know, we're working on building hospital chain in India. We've got defense. We're working on manufacturing. We're in companies, great companies like Zepto, which is sort of the e-commerce infrastructure. Look, India's got a [42:20] tremendous opportunity out of it and you know given the GDP growth and and you know, it's a very entrepreneurial country. I was born there and I think India's tasted and [42:32] success has had a bunch of interesting large-scale outcomes now where [42:38] Parents who have a lot of influence on their kids in India, they used to push you to go work for a multinational. [42:47] if you had a good academic tradition. [42:50] it's embraced that maybe you should go start a company. [42:54] build a tech company and build something at scale because there's role models for that. And so I think the cultural resonance to entrepreneurship is there and the economic opportunity is massive. And

[43:05] And so it's a-- [43:07] We're very excited about this. It's personal to me as well. I do care about making sure we make a difference there. It is for NARA, our whole team in India and several others here. [43:21] VCX by Fundrise, the public ticker for private tech, allowing investors of all sizes to invest in venture capital. View the portfolio at GetVCX.com. That's GetVCX.com. Some of you may not have heard this yet, but our sponsor Public just launched something called Generated Assets, and it brings AI into investing in a way I've honestly never seen before. Here's how it works. You type in an idea like AI-powered supply chain companies with positive free cash [43:51] or defense tech companies growing revenue over 25% year over year. Publix AI then dispatches a swarm of agents that scan every single US stock, evaluates them, and instantly builds a custom index around your thesis. What really stands out is how clearly it explains why each stock is included. And before you invest, you can even backtest your idea against the S&P 500 so you're making decisions with real context, not just guessing. And beyond generated assets, Publix lets you invest in stocks, bonds, options, crypto, [44:21] They'll even give you an uncapped 1% match when you transfer your investments over from another platform. If you want to build a portfolio that actually reflects your thesis, visit public.com slash sorcery paid for by public investing full disclosures in the description.

[44:36] Enterprise AI runs on Merge, the AI infra platform for integrations, agent tooling, and model orchestration, so your teams ship product, not plumbing. Mistral, Dropbox, and Drada already trust Merge in production. Start building at merge.dev. [44:52] Founders scale faster on Deel. Set up payroll for any country in minutes, hire anyone anywhere, get visas handled fast, and get back to building. Visit Deel.com slash sorcery. That's D-E-E-L.com slash sorcery. [45:07] What do you think this worldview stage [45:12] has given you perspective wise? Like what are the biggest lessons? I know you've mentioned a few, but I mean, we are in San Francisco. So how do you take all of those learnings back here and help [45:23] the culture build upon that kind of light. [45:26] Look, you know there's that saying that if you want to go fast, go alone if you want to go far. [45:31] Go together. [45:32] The AI opportunity is a transformation opportunity. [45:35] And if you really want to transform the world, you need to bring it along with you. [45:40] And I think this idea that the rest of the world is dumb, [45:45] and we're just going to replace them is pure hubris. [45:48] And I just don't think it's the way [45:51] uh, [45:52] the [45:53] industries, [45:55] and the world wants to do business with us. You know, we talk a lot about TechLash, and I just think the idea of partnering [46:02] being really good at actually deeply partnering with the world is a skill that we can do a much better job of.

[46:09] And [46:11] I just think it expands the opportunity. [46:15] You know, like the irony, and I think I... [46:18] I think I put that in this review. [46:20] The irony of how we behave is, we'll say in the same breath, [46:25] I want to build a legacy defining company and legacy companies are stupid. [46:30] So somebody else's legacy from the past is stupid, and your future legacy is important. That's just a disrespectful posture in society. And I think taking these companies that serve a purpose, there are good people that work there and serve an important role in society, helping them be successful. I think that's one of the biggest economic opportunities. I think there's true joy in that. [46:53] It's hard. [46:55] because you have to deal with the inertia and friction of the world, but you can flow through it if you actually are working with them, with good intent and good respect. And that's a little bit of what defines the General Catalyst way. [47:07] Thank you. [47:09] on [47:10] The tech lash. Okay. I thought this was interesting. This was all the way at the end, but you said there are four forces of tech lash. [47:17] One is social, this like ambiguity on social media and real life. You need to be polarized. Yeah. Polarization there. Political containment. You have a really good hot take in that one. The genius asshole myth, which you talked about a bit, and then contempt for legacy, which you just covered. So, I mean, I guess to [47:37] To go over the topics that we didn't cover, could you cover the social media standpoint?

[47:42] Well, look, I think we... [47:46] We've... [47:47] Sort of justify that it's okay to say ridiculous things in social media because it gets your attention. [47:53] even though that's not how you actually perform in your day-to-day jobs. There's a lot of that because often [48:01] you know, you hear, you see people put out some messages, and that's not really what they would do in the real world. It's just to gain attention. And I think decoupling... [48:10] how you, it's like what you communicate and what you do and thinking that's okay. I don't think that works in the end. It just creates a lot of unrest and confuses people. It's not good leadership. So that's just, you know, we try not to engage in that. I can say lots of provocative things to get tweets and likes. I think it's an entirely... [48:32] unproductive exercise if you're focused on the long term. [48:36] It is a very short-term mindset. All these things are actually reflective of how short-term we become in our thinking. [48:42] And-- [48:43] This-- [48:45] this other point around politics, listen, [48:48] I think Tony Blair said this, you govern from the middle. [48:54] And all the complex issues-- [48:57] when you design policy around, you need to [49:00] take a view and understanding all sides and designing versus being really polarized. And so we took a stance that we're not going to engage in politics. [49:10] And, but we want to work with the administration, whichever one is there, with genuine partnership, to help them think about how can innovation truly be impacted scale in our societal systems. So we launched.

[49:25] General Catalyst Institute. We invested what we would have given in politics towards helping create good policy. [49:32] And that's a more enduring long-term way to engage. Even though in the short term, maybe you could see some disadvantages with that as well. But I'll tell you, leaders in D.C., [49:43] have embraced us because we have come with no agenda. [49:47] and embrace our founders. We brought many founders there, and I give our team in DC, now also supporting Brussels and Delhi, a lot of credit for helping [50:00] bring good education, good ideas to DC, and it's been embraced. And so I just have, I just, I just believe that if you create real partnership, people will engage all stakeholders. [50:10] regardless of politics. That brings us back to Anthropic versus the Department of War. Okay, so can you break down a little bit of what happened with that and then also what brings us to Mythos and how they actually [50:23] They decided to strategically roll that out with Project Glasswing. Look the Anthropic Pentagon [50:32] I think it was very tricky. [50:34] And I cannot say the perspectives on either side were wrong. It's just like from where you sit and how you think about the world and what's important. And it's really what led to those issues. But what it shows you is just the complexity. [50:49] of what we have to go through. And I think you need a culture where you can actually have conversations around this and create productive outcomes, as opposed to taking very binary positions.

[51:02] Because when I listen to and I spoke to the folks in D.C., and what they think is important for national security is correct. And when I listen to Dario and some of the things he's talking about are also correct. [51:16] These are just complicated issues. [51:18] And so judging versus just, gosh, [51:22] Think about... [51:23] the people trying to make these decisions on both sides, and the unprecedented complexity of this, [51:30] And we just rile people up. [51:32] as opposed to take a step back, think hard, and think about how do we really address this. [51:38] I'm sympathetic to it. It's like, boy, it's a very complex dynamic. [51:44] And mythos? [51:47] Listen, the... [51:48] who [51:51] I give Daru a lot of credit in the way he handled it. They've had that model for [51:55] a while. They did not release it. They thought a lot about it. And what did they do? They gave it [52:01] to the company's [52:02] to create an advantage to essentially eliminate security debt. [52:09] in the existing infrastructure before more and more complex technologies are getting out there, as opposed to not. This was not to create fear in the ecosystem. I just think it's ridiculous, frankly, to take that stand. I think they've been very responsible. I know some of the CEOs they've worked with on exposing them early, make sure they take advantage of this. [52:30] What else would you do? I thought we were accelerationists in this group. So the same people are now complaining about this. I don't really understand that. I mean, I think they actually did it responsibly. And on the other side, it's like, my God, these models are incredibly powerful. And what's to come is just, again, from an investment perspective,

[52:48] Where do you invest? Like what else is going to be after, you know, irrelevant because these models become stronger? It's like the uncertainty of What's durable or not is just stunning right now? Mm-hmm part of glass wing 40 is Nikesh or who you just brought on so how does that work and congratulations? So Nikesh just joined as a lead independent director and he's been performing cases [53:11] incredibly brilliant. He's an entrepreneurial soul running a Fortune 500 company and he's done an incredible job. [53:17] building that. [53:19] He's also great investor mind. [53:21] So as I think about our GC ecosystem, which is the collection of investors and builders, [53:27] I just think he'd be a great mentor for all of us. And I've had many conversations with him about where this is going and every one of those conversations is extremely provocative and so [53:36] It made sense to [53:38] lean on him just like I and we lean on Ken. [53:42] And I just believe in [53:43] you know, great [53:45] leaders that are deep thinkers and [53:50] have seen scale to just [53:52] be guiding the team here at GCN. So that's the purpose. [53:57] Really excited that a lot of us are going to work closely with them. [54:00] Amazing. So as we close out, just a couple of quick questions. So one of the hot topics around Silicon Valley is [54:10] General Catalyst's potentially rumored IPO. Do you have any comment on this? We're not going public. You're not going public? [54:17] No. [54:18] I've said it many times.

[54:20] Why do people think that? I don't know. You don't know? [54:23] You have to ask them? [54:24] Okay. [54:25] We'll ask you all. Two, on Harry Stebbings' podcast, this is a really difficult question. On his podcast, you said, you eat risk for breakfast. [54:36] "What do you eat for lunch?" [54:37] JOHN BARRON: Hmm. [54:41] Look, I think, first of all, why did I say that? I really do leap into new things. I imagine failure. It's just never that bad. [54:49] And so I actually want to make sure our entire organization is fearless in how we take risks. You don't want to take stupid risks. You want to take calculated risks, but you need to be able to do that to make progress. And [55:03] You know, if we can actually have a culture of taking risk and a culture of conviction, [55:07] which I guess would be my lunch meal, then we would do a great job. And what's for dinner? [55:13] Those are probably the two things I give a curiosity. [55:16] Okay. How about that? That's pretty good. [55:19] Well-rounded diet. [55:22] And then lastly, so Julian Fialco had a burning question. Your early... [55:27] Yeah, your early days at General Catalyst, you wore a puka shell necklace. [55:34] What is the story behind the puka shell necklace? I don't even remember. I think, so when I joined GC, it's actually, you know, I was 26. I joined as an EIR for four months and I quit this [55:47] Nice job I had after selling my business and my parents were like, what are you doing? What is the IR thing? But, you know, the firm and, you know, David and Joel, the founders, empowered me. Like, I take pride in empowering everybody else at GC today. And I remember my earliest reviews used to be, we think you're going to be great at this, but you just got to, you know, have a little less fun in your mid-20s. And I think Pogichelle is just a reflection of sort of that phase of life.

[56:14] That's amazing. [56:17] or [56:18] conversation and also for putting out the first quarterly review. [56:24] Thank you. [56:25] Appreciate it. Thank you. Thanks for having me.