Scaling Europe
00:25:13 · Zeynep Yavuz-Willson, Sebastian Johnson
[00:25:13] S1: Yeah. So, I mean, we think about this very actively, right? And therefore, in investing in driving this AI transformation in some industries need a bit more of a push, we had the roll up strategy. So, saying, let's go acquire... We're going to be a real estate agent anyway. We're going to be an accounting firm. So, what don't we think of... A payroll services company. So, let's think about capital in terms of acquiring our customers. So, think about CAC not as we spend and then we acquire customers organically, but let's think about CAC as acquisition spend for companies. So, that's one way of thinking about it. Then, for example, we've set up an initiative called EU AI Champions. [00:25:54] S0: What [00:25:55] S1: we did there was we brought together the established European businesses who want to adopt AI and have that boardroom discussion, but they have no idea how to do it. So, we've established this initiative so that we are connecting these established businesses, the CIOs and the CTOs of these companies, like Heineken and Miele, and a few other companies are part of it, and then we will connect them with AI companies of Europe. So, we make them meet, for example, do workshops three, four times year. [00:26:30] S0: The capital model is changing, right? You've mentioned this, right? The way that GC is thinking about the role at play and capitalizing and giving capital to companies. [00:26:38] S1: Yeah. CVF is a strategy where we help companies scale their go to market spend with no dilution. [00:26:46] S0: Yep.
00:26:46 · Sebastian Johnson, Zeynep Yavuz-Willson
[00:26:46] S0: Yep. [00:26:47] S1: And I think this is so important, especially now at the age of AI, for all the reasons that I have explained kind of earlier in our conversation, where the go to market, the brand building, the customer relationship is ultimately the only mode. So, your capabilities to invest in go to market are becoming so important. And if you have predictable returns on your go to market, meaning if you know when you spend this much, this is how much you get paid, and you get paid in two years, Why would you use equity for that? Equity is for things where you have high risk. You it's when you don't know if it's going work or not. That's when you should be using equity for new product investments. [00:27:31] S0: Yeah, I was going to say it's more for like R and D and products. Exactly. Not so much go to market, right? Yeah.
00:27:36 · Zeynep Yavuz-Willson, Sebastian Johnson
[00:27:36] S1: So, the go to market, when you have something that's predictable, why would you use your equity for that? We should come up with another solution for that so that you can scale your business, raise equity, but also raise CVF. So, optimize your capital structure so that you are going to become the leader in this industry and you're going to transform it. It's almost like when you do M and A, you might have a lot of cash on your balance sheet, right? And you could use that cash to do the M and A, but why? Sometimes it's better to actually take on debt for a reason to do that M and A. So, it's really all about optimizing capital structure. So, in the case of CVF, for example, if you look at some of the biggest companies they work with, so many of them are highly profitable. So, they're using CVF because they know about optimizing their capital structure. And we did this recent investment in Factorial, for example. We've been very, you know, proud partners of Jordi for many years now. And what strikes me about Jordi is that he understands this. He understands the need for optimizing capital structure. And I think the importance of that is going to be like so much higher now because a lot of the winners are just becoming a lot more concentrated. Right? So, you need to be thinking smartly about how you raise capital, and you need to be able to tap into different capital sources and think creatively about how you optimize your capital structure. [00:28:56] S0: Would you say GC is still a venture firm? No. What would you call it? Just like a sort of private equity?
00:28:56 · Sebastian Johnson, Zeynep Yavuz-Willson
[00:28:56] S0: Would you say GC is still a venture firm? No. What would you call it? Just like a sort of private equity? [00:29:04] S1: No, no, no. [00:29:05] S0: How do you define or describe it then? You're doing so much more with so many tools available. [00:29:10] S1: As I said, our core is people. That's really what we all think about. Are we partnering with the most exceptional people? And are we the first people that they call? Because they also see us as a builder. They also see us as an entrepreneur. They see us as someone who would you know, be supporting them in building the company and help them think creatively. Yeah. And we are very focused on transformation. So, we are an investment company, but we're also an AI transformation firm. And that's why we've also incubated companies like Percepta, which is driving AI transformation in kind of Fortune 500 companies and larger enterprises. That's something that we found out of our balance sheet. You know, that's something that we created as General Catalyst. [00:29:50] S0: Yeah. [00:29:50] S1: Then we have Hatch, which is transforming the healthcare space. We have acquired a health system in The US because the idea was that if we want to transform healthcare, it's not going to happen through venture investing. You know, we've invested in a lot of these tools, but selling into health systems is so difficult. So, we kind of need to eat our own... What's the word? Food. Yeah, exactly. [00:30:10] S0: Need to do it yourself.
00:30:10 · Sebastian Johnson, Zeynep Yavuz-Willson
[00:30:10] S0: Need to do it yourself. [00:30:11] S1: You need to do it yourself, and it's hard work, and it doesn't look like venture. It doesn't look like, you know, so it requires creative and bold thinking. [00:30:21] S0: And does that give you the ability to take learnings from certain companies that you're investing in, bring it back in house, distill it to other portfolio companies? Is that a role that you're playing? Are you playing the role of the transformational partner for portfolio companies? [00:30:33] S1: Absolutely. And by the way, another main reason I joined GC, right? Because as I said, I've done some private equity investing, I had done operating, and I just loved building, I loved investing as well. Loved my... The favorite thing was just like learning from founders. And at GC, I knew that we weren't just investing. We were building. Mhmm. [00:30:57] S0: Do you think that the venture venture firms or the venture landscape, especially here in Europe, is changing and adapting? And if so, are there specific investors or firms that you think, okay, I like that approach. They're moving quickly. They're changing things.
00:31:10 · Zeynep Yavuz-Willson
[00:31:10] S1: There are a lot of great investors in Europe and a lot of great firms. And I do see, I would say, I won't name any firms, but I do see there are two models. So, you think about GC, of course, again, we're not a venture company, right? As I explained, we think about value creation in creative ways, both in the capital side, but also in the ecosystem side. Yeah. And we care a lot about what we call GC, like familia, so the people in our network. And we're closely innovating between these three verticals. Then there are some firms who are just very good at the one thing that they do. And I think that's also important. The feedback loop in venture is long, and there is that markup game. And there was that markup game was so, livid. It was just so felt in that 2020 period that I kind of said, I can't, I don't think I can do this. So, the allure of General Catalyst for me was, again, this focus on building enduring companies. So, rather than focusing on like, who's gonna lead the racks around at what valuation, is this gonna be a business that's gonna endure forever, and it's gonna be a compounder? And, you know, you have to think like that if you're a multistage investor. If you are an investor who says, I'm gonna invest in you at the first stage, like see it like we did with Stripe. And I'm gonna invest in every round after that. And that is my ambition. Because you don't have an out. And it's not about having the out. You're not judged on that out and the markup. Yeah. And there were not that many funds and firms in Europe or companies in Europe that Definitely not. That offered that.