00:34:27 · Marc Bhargava, Molly O'Shea
So I think the area that will be hit the hardest is probably abroad in places like India, Philippines, places like that, even Mexico. So here at GC, we are committed to trying to figure out ways to how do you retrain and reskill, and can we invest in companies that are training people in in new fields? And we think it'll be most felt actually outside of The United States. [00:34:47] S1: After surveying all these different shifts and this transition period that you talk about, I think there's definitely gonna be one too. Like, you know, you don't know what the future of jobs will be. Right. Kalshi had a market that it hit up to, like, 86%. I haven't checked it recently on layoffs in tech. And that there's gonna be an 86% chance that there's gonna be more layoffs this year than in 2024. But I do think... I don't I don't know if that one's true or not, so you'd have to check the data. But you would think that because of all this mix, new industries might pop up. What are you thinking might... Like, what could come next?
00:35:29 · Marc Bhargava, Molly O'Shea
[00:35:29] S0: Yeah. I think it'll be a lot more of things that right now are really limited to people with resources. So I think there'll be a lot more legal use cases and way more representation in legal. I think, like, a real time understanding of your company, your balance sheets, accounting, it'll... There'll be a lot more there. So I think there'll be industries that already exist but much more abundance. On the nursing side right now, if you're dispatched from a hospital, maybe they follow-up with you for three months or six months, but it just doesn't make economic sense to follow-up with patients nine months, a year out. But if you were truly doing the best thing for your patient, you would follow-up with them in nine months and in twelve months. So, I think a lot of these industries like health care, insurance, legal, where people have resources but then are tapped out, there'll be just a lot more around that. And so I think you'll have way more sophisticated markets in all of these places. [00:36:17] S1: So to be as biased as possible and objective, do you think AI roll ups are underrated or overrated?
00:36:17 · Molly O'Shea, Marc Bhargava
[00:36:17] S1: So to be as biased as possible and objective, do you think AI roll ups are underrated or overrated? [00:36:24] S0: I I think they're underrated right now. I mean, most people you talk to don't... Haven't really heard of them. So we're just getting started on on this part. I think right now people think, oh, it's a way to maybe put more money to work or something. Because obviously, as you buy companies, you can move quickly. You can put more money to work. But I think folks don't fundamentally understand that in a $16,000,000,000,000 services industry, we could have companies growing faster than software companies and at higher margin than software companies. And so this pool of 1,000,000,000,000 that VC has been fishing in has actually expanded now, maybe not to the full 16,000,000,000,000, but to multiple trillion. I think very few folks really grasp that. And so I definitely think that for now, they're underrated. [00:37:07] S1: Yeah. I brought that up because I'm just thinking about all the numbers that you've been mentioning throughout this and, like, increasing EBITDA and the growth and the headcount and all of it. It seems a much more lucrative, and so I'm happy that we're we're diving deep into it. So when we look at this industry and, like, the different players that go into it, how much of a role do consulting services play in this? And what do you think happens to the McKinsey where you used to work or like Accenture? And how effective are they in this process? Because it's really difficult.
00:37:41 · Marc Bhargava, Molly O'Shea
[00:37:41] S0: Totally. Our view is, you know, at least on the AI roll up side, we're more getting these smaller fragmented style businesses and putting them together and doing this AI transformation. McKinsey and Accenture and others really focus more on the Fortune 100, And and I think they'll have some success in embedding AI there. But at GC, we created a company called Percepta, one of our transformation companies that we wanna hold for the long term. And they... You know, the thesis there is that maybe traditional consulting isn't really designed for a lot of the AI implementation piece. So they can give more strategy advice, but not necessarily the same kind of, hey, here's what we're seeing. It's a fast moving industry. Here are the companies we've invested in. Let's actually go and implement kind of fast moving AI changing technology in the Fortune 100. So I do think there's a huge opportunity for companies like Percepta. You probably will also see McKinsey and Accenture and others benefit, and the Fortune 100 also will have to evolve. Our focus more, though, on creation is incubating these companies in more fragmented industries where you don't necessarily even have the resources to go to a McKinsey or an Accenture if you wanna add AI implementation. Because [00:38:48] S1: of General Catalyst's very large platform that you have, how do the private market investments help determine or inform these companies? Are you partnering with any of them for them? How do... What... Like, how does, like, Anthropic fit in here, and what are you learning from them?
00:38:48 · Molly O'Shea, Marc Bhargava
[00:38:48] S1: of General Catalyst's very large platform that you have, how do the private market investments help determine or inform these companies? Are you partnering with any of them for them? How do... What... Like, how does, like, Anthropic fit in here, and what are you learning from them? [00:39:06] S0: Yeah. So with Anthropic, we're kinda learning where are the models going. So, you know, there's always a new release every three months, six months. We're better understanding what are the tasks that these models can do, especially as logic and reasoning is better. And then we have portfolio companies like Rox, which is taking on Salesforce, for example, and it's more AI native, or Eudia, which is focused on the legal space, also more AI native, Serval, which came out of Stealth last week, which is taking on ServiceNow in a more AI enabled way. So we're working closely with Percepta to let them know about the companies in the portfolio, what they're seeing both in terms of model improvements and also product improvements. And then Percepta is getting this real life view of, you know, everything going on as much as it can in AI and then is able to help its Fortune 100 clients implement all this new technology, a lot of which our team is helping, you know, identify and pass up to them. [00:39:56] S1: This was a good question from Kyle Harrison, but he wanted to ask, how do you decide when to choose from building an AI roll up or investing in another SaaS company?
00:40:07 · Marc Bhargava
[00:40:07] S0: Yeah. It's a really good question. One answer to that is percent automation. So if we think a space is gonna be 90 or a 100% automated, then probably software is the best solution. And honestly, an incumbent like Microsoft or Amazon or Google that has the distribution can just push the software. It can be part of your Google workplace or your Prime subscription. So if something is a 100% automatable, it probably should be a software or agentic solution. And then most likely, the winner there could be a fast growing company, but also is very likely someone who just already has the distribution. So if coding gets fully automated, maybe it can just be pushed through by Google or Microsoft or someone else. So one thing we're careful about in the AI enabled roll ups is we we target 30% automation at least, but we actually don't want more than 70% automation. Because if something is approaching 80, 90, or a 100% automation, then there's really not the people services part of it. So that's one important part. The second thing is fragmentation. Like, when the industry is really hard to sell into, imagine creating AI native software for homeowner association, HOA management. Like, that's just extremely hard to sell into. So you could create an amazing product, I'm sure, but your sales process would be very, very slow. So the second thing we look for is, hey, it's very fragmented, and it's hard to sell in a SaaS product to these businesses. And then the third thing we look for is it has to be really sticky. Like with HOA management, it's a two year contract. So it's important that, you know, it's a low churn business where we can go in, we can do all this AI implementation, and there will be some hiccups along the way, but we can kinda smooth those over and we have these kind of loyal clients. Accounting is another really good space where there's very low churn that we're in, or insurance, or MSPs. And so those are the things we look for. We do think that software services will win out in areas that are, you know, more than 80 automatable or it's easy to sell into your client base. You have a few large tech customers. There are plenty of areas where it really makes sense to be more of a software solution. That said, we think there's also this really big market for AI enabled roll ups, especially in things like services.