00:42:08 · Molly O'Shea
[00:42:08] S1: Well, to shift a little bit, Sourcery sponsored by Brex. Amazing. We love Brex. They're all about spending smarter, moving faster, and performance. And when you're working and you're building on these companies, what are the metrics that you use to determine their performance? I would assume some of it's a little abstract because it's like team and that sort of thing. But how do you measure performance?
00:42:31 · Marc Bhargava
[00:42:31] S0: Yeah. And the first tranche of funding, what we're targeting is this 30% automation. So go out and get 10 clients or get five private clients, but really show us the software you can build or the agentic workforce you can build, and then come back to us and map out, if you look at all the man hours in a company, our 30% could you automate with the products that you have built or stitched together. And so that's the first really key metric. Then the second key metric is when we go and actually buy companies, we're looking for how are you improving the margin? So you've automated 30% or more. How's that flowing through to margin? And we want a really detailed plan of how to double your EBITDA margin, generally from the 15 to 20 range to 30 to 40%. So that's kind of the second really key metric. Once you start showing us you're there or you're on track to get there, that's the second really important metric. And then the third is now you're growing and you're scaling and you're moving quickly. Well, what multiples are you buying these businesses at? And how quickly do you get those multiples down as you improve the margin profile and the EBITDA profile as well? And so then we get a bit more sensitive to entry multiples and doing things like smaller tuck in acquisitions and using debt. And then the final one is just dilution. Like, we want the founders of these companies to still own at least 10% of their business. When they go public, ideally 20 or even 30. And so, you know, that's also a really important metric. Are you compounding now with your own free cash flow and with debt financing towards the later rounds so that you can still own a big chunk of your company when you go public? And, of course, we at GC can own a big chunk ideally also 20 to 25% when these companies go public. So a really large concentrated position and things that we think can be really massive outcomes. So along the way, we have these different metrics sort of for each stage of the AI enabled roll up.
00:44:10 · Molly O'Shea, Marc Bhargava
[00:44:10] S1: Oh, wow. That's highly concentrated. [00:44:12] S0: Yeah. For sure. [00:44:14] S1: This is a really difficult question. Yeah. Where are these businesses located? Where have you traveled to?
00:44:20 · Marc Bhargava
[00:44:20] S0: Right. Well, the holding companies that we help incubate and fund are pretty much exclusively in San Francisco and New York. So out of the, you know, eight or nine deals that we've done, I think six are here, and two or three are in New York. So we have seen that talent has come back for sure to the Bay Area. It's like the center of applied AI, research AI, and then New York too for financial services especially, and some of the really great m and a specialists or people who have built and sold companies are out there. So we're primarily working with really experienced entrepreneurs, second time founders, amazing operators, and they tend to be between SF and New York. Then the companies, once we create the holdcos and then create the software, we show the automation, now we're actually buying businesses. Those are almost never in San Francisco or New York. They're all across the country. Increasingly, it's getting more global. We invested two rounds in a company called Dwelly, which is out in London, which is rolling up property management and scaling really well and also doubling the EBITDA margin of the property managers they're buying. And we've also done a deal in Germany in the accounting space. And so increasingly now, well, my answer was at first US. We also have bets in, like, UK and Germany, and we're looking at this strategy really closely in India too. And Europe has much lower entry multiples. People sometimes rat on Europe that it's hard to build a big company because there's so many markets. In some ways, the AI enabled roll up is really perfect for that because we can buy our way into new markets and iterate, and it's the same back end technology to automate accounting, for example. And so increasingly, this will be a more global strategy. But to date, it's been New York, SF, London, and Berlin.
00:45:54 · Molly O'Shea, Marc Bhargava
[00:45:54] S1: When you go global, do you keep the teams here in The US and then the operations over... Like, how does that work? [00:46:01] S0: We normally we normally invest in a separate company to do HOA property management roll up, for example, in The UK, which is Dwelly, and they'll expand to broader Europe, for example. So we... Right now, none of our roll ups are really working internationally with the exception of one that's rolling up software companies, and they're based in Canada but are between Canada and The US. [00:46:23] S1: I mean, more on, like, the talent side. Like, is the talent in those geographies as, I'd say, like, AI native as they could be in The US? Like, how does that quality wise compare? [00:46:35] S0: I think it's less US versus international and sort of SF Bay Area versus everyone else. I think SF just has a much higher density of talent and quality of talent than really anywhere else in the world. But I think it is exciting that there's a lot more homegrown, great companies in New York and in London and Berlin, and the quality of talent is rising in all of these other places, so much so that we definitely are investing more in Europe and investing more in India. But in terms of where's the absolute top tier talent in the world, I think it's still here in the Bay Area. There's nothing special about the Bay Area except for it attracts all the really great people to, you know, leave wherever they are and come work here. So that's been the draw.
00:46:35 · Marc Bhargava, Molly O'Shea
[00:46:35] S0: I think it's less US versus international and sort of SF Bay Area versus everyone else. I think SF just has a much higher density of talent and quality of talent than really anywhere else in the world. But I think it is exciting that there's a lot more homegrown, great companies in New York and in London and Berlin, and the quality of talent is rising in all of these other places, so much so that we definitely are investing more in Europe and investing more in India. But in terms of where's the absolute top tier talent in the world, I think it's still here in the Bay Area. There's nothing special about the Bay Area except for it attracts all the really great people to, you know, leave wherever they are and come work here. So that's been the draw. [00:47:13] S1: You've been at General Catalyst for a couple years now. What is the biggest lesson that you've learned from Hemant?