20VC CapitalG's Laela Sturdy on The Current State of Growth with Crossover, PE and Hedge Funds All Entering, How To Think Through Upside and Downside Scenario Planning at Growth & The Biggest Challenges Startups Face Post ProductMarketFit but PreScale

In this episode of 20 VC, host Harry Stebbings interviews Leila Sturdy, General Partner at CapitalG, Alphabet's independent growth fund. Leila discusses her journey from operating roles at Google to venture capital, emphasizing the importance of relationships, authenticity, and a deep understanding of market opportunities. She highlights the significance of founders attracting top talent early and the challenges of scaling post-product-market fit. Leila also shares insights on investment decision-making, balancing data with intuition, and the necessity of taking risks. CapitalG's unique structure as a single-LP, evergreen fund allows for deep involvement with portfolio companies, and Leila underscores the firm's commitment to being a value-added partner through hypergrowth stages. She reflects on learning to trust her judgment, the excitement of ongoing learning, and the joy of seeing long-term investments come to fruition.

• Leila Sturdy is recognized as a kind, genuine, and brilliant individual in the venture capital business.
• She is a general partner at Capital G, Alphabet's independent growth fund.
• Capital G has made investments in companies such as Stripe, Uipath, Looker, Robinhood, and Lyft.
• Leila joined Capital G shortly after its inception in 2013 and has led investments in several high-profile companies.
• Before joining Capital G, Leila had a career at Google, holding leadership roles within YouTube and search.

"Our guest is one of the most kind, genuine, brilliant people in this business, and so I'm thrilled to have them back for a very special round two." "As for Leila, she joined Capital G shortly after inception in 2013 and has led investments in Stripe, Duolingo, Gusto, Uipath, and Uncork, to name a few."

The quotes highlight Leila Sturdy's reputation and her significant role in making successful investments through Capital G. They also touch upon her previous experience at Google, which contributed to her expertise in the venture capital industry.

• Leila's journey into venture capital was unexpected.
• Her career was previously focused on operations, working at Google on early-stage business models, scaling teams, and acquisitions.
• She was approached by David Lawee, now her partner at Capital G, about joining the new fund.
• Leila was excited to bring her operational skills to investing and has enjoyed learning new skills in her venture capital career.

"I joined Capital G about eight years ago and had spent my entire career before that on the operating side." "David Lowey, who's my now partner at Capital G, approached me and told me he was starting this new fund called Capital G and asked if I was interested."

These quotes detail how Leila transitioned from an operational role at Google to venture capital at Capital G, highlighting the influence of her now partner, David Lawee, in her career shift.

• Leila realized early on that venture capital was the right career path for her.
• She enjoyed the process of learning about new companies, industries, and business models.
• The defining moment came when she started serving on boards and felt part of the teams with the founders and companies she backed.
• The combination of intellectual challenge and teamwork solidified her passion for venture capital.

"And then I'd say when it really sort of clicked was after I had made my first few investments and I was serving on the boards and I started to really feel like part of the team with the founders and companies I backed."

The quote reflects the moment Leila felt a strong connection with her role in venture capital, emphasizing the importance of being part of a team and the strategic aspect of investing.

• Leila acknowledges her competitive nature, stemming from her background in sports, particularly basketball.
• She values the team aspect of sports and translates that into her venture capital career.
• A healthy level of competitiveness is necessary in the venture world, and Leila believes she possesses it.

"I think that's why I played team sports. I love the relationship and winning together and pushing yourself and trying new things." "You need to have a healthy dose of competitiveness, I think, to make it in the venture world."

These quotes express Leila's appreciation for teamwork and competition, both in sports and in venture capital, and how these traits contribute to success in her field.

• Leila observes that there has never been a better time to build a software or Internet mobile business.
• There is an abundance of opportunities, with companies achieving significant growth and revenue.
• The current market is characterized by early-stage cloud adoption, innovative software building methods, and exciting trends.
• However, the influx of competition and new entrants has led to all-time high valuations.
• Investors must work harder to identify opportunities early, build relationships with founders, and compete against various types of capital.

"So there are so many great companies, and I think we see this at every stage." "The valuations are at least at an all-time high that from when I started investing eight years ago."

These quotes capture the excitement and challenges of the current venture capital market, highlighting the growth of opportunities and the increased competition affecting valuations.

• The availability of capital and its low cost can benefit entrepreneurs by allowing quick fundraising and risk-taking.
• Entrepreneurs can access capital earlier to build out their vision.
• However, raising too much capital too quickly can lead to a lack of discipline and potential complications.
• The right balance is needed to ensure entrepreneurs build strong teams and business models without being overwhelmed by capital.

"The cost of capital is lower than it's ever been." "Not everything is always rainbows and unicorns and up into the right."

These quotes discuss the double-edged sword of capital availability for entrepreneurs, stressing the importance of balancing capital infusion with disciplined growth.

• The investment strategy is highly dependent on the market structure and the specific situation of a company.
• Founders need to consider their team, competitive positioning, and long-term company building rather than just raising funds and growing fast.
• The entry price for investments has doubled, which affects how investors compete against new entrants with different return expectations.

"When there's a lot of stumbling or a lot of challenges, you may lose talent, you may lose competitive positioning."

This quote highlights the risks associated with rapid scaling and fundraising without a solid strategic foundation, emphasizing the need for careful planning and consideration of market conditions.

"When you think about winning against some of the newer entrants, we both know they have different Multiple expectations and they have different return profiles in a lot of ways."

Leila Sturdy discusses the challenges of competing in an investment landscape where new entrants may have different financial expectations, affecting competition and investment strategies.

• Valuation should be considered in relation to the total opportunity of the investment.
• Even in environments with rich valuations, it's possible to find outliers where it makes sense to invest.
• The example of Stripe's Series D investment demonstrates the importance of assessing potential growth against high valuations.

"It's not just absolute valuation, 9 billion seemed very high at the time, but it was thinking about valuation in relation to the total opportunity."

Leila Sturdy reflects on the Stripe investment, emphasizing the importance of considering the broader potential of a company rather than just the immediate valuation.

• Founders choose investors based on more than just valuation; they also consider chemistry, complementary skill sets, and the resources a firm can offer.
• Investors should aim to be authentic and support founders through both their professional and personal challenges.
• Capital G provides resources to help companies scale, including cybersecurity, marketing, and technical infrastructure.

"They're really choosing on who's the partner that they want to work with and who's the firm that they want to work with."

Leila Sturdy explains that founders prioritize the relationship and compatibility with their investors, looking for partners who can contribute meaningfully to their company's growth.

• Authenticity and trust are key to building relationships with founders.
• Investors should be transparent and share their own experiences and challenges to create mutual understanding.
• Supporting founders can range from being a sounding board to providing tactical help with specific business strategies.

"I try to share both the struggles I'm going through as a person, as a leader inside of my firm, with the founders I work with, and I try to invite them to do the same."

Leila Sturdy discusses the importance of sharing personal challenges to build authentic relationships with founders, fostering trust and transparency.

• Capital G is an independent growth fund backed by Alphabet with a single LP structure.
• Portfolio construction is driven by the strategy to be the most valuable partner to technology companies during hypergrowth.
• Each GP at Capital G invests in about two companies a year, maintaining a manageable portfolio size for deep involvement.

"We think about portfolio construction based on sort of driving our strategy, which our overall strategy is to be the most valuable partner to every technology company that's in hypergrow through their scaling challenges."

Leila Sturdy describes Capital G's strategy and how it influences their portfolio construction, aiming to be deeply involved and supportive partners to their investments.

• Capital G's strategy includes supporting companies over multiple funding rounds.
• Being value-added partners allows for a good understanding of the business and market, which aids in reinvestment decisions.
• The relationship with management teams is crucial for continued investment opportunities.

"Our goal is to support companies over multiple rounds. And because we're working so closely with the companies, we have both a really good view on the business and the market opportunity."

Leila Sturdy emphasizes the goal of providing ongoing support to companies through various stages of growth, leveraging close working relationships to make informed reinvestment decisions.

• Growth stage investing typically aims for a minimum 3-5x return on investment.
• Investments should have the potential for a 10x return, though this is less likely and based on probabilities.
• A 5x return is considered the "sweet spot" and a common expectation.
• Successful investments like UiPath and CrowdStrike have achieved or are in the 10x range.
• The potential for a 100x return is very rare and would be impressive at the growth stage.

"So in general, we look for growth stage investing to have a sort of three to five x return as a minimum threshold for money on money return on investments, with an eye towards investments that have a ten X opportunity."

This quote explains the target return multiples for growth stage investments and the ideal but less probable 10x opportunity.

• Growth stage investments typically come with lower expectations of losing money due to post-product market fit and potential exit strategies that preserve capital.
• The loss ratio is much lower in growth stage investing compared to early-stage venture capital.
• Growth stage investors generally do not expect to lose money across their portfolio.

"So typically in growth stage, you don't expect to lose money."

Leila Sturdy explains that growth stage investments are generally safer with a lower risk of loss due to the companies being more established.

• Growth stage investors have been considering earlier investments due to increased competition and frequent funding rounds.
• Establishing relationships with founders early on is important, even if initial investment is unlikely.
• The best companies often prefer to bring in multiple partners to help build out their board and support them.
• Growth stage investors need to be engaged early to be considered for future funding rounds.

"We have definitely gone earlier over the last couple of years, just as we talked about, as the market has gotten more competitive and funding rounds have happened and preempted rounds have happened with even greater frequency."

Leila Sturdy discusses the trend of growth stage investors moving earlier in the investment cycle to build long-term relationships and secure future investment opportunities.

• Hiring and talent are universal challenges for companies at the post-product market fit but pre-scale point.
• Successful companies manage to recruit world-class leaders earlier than expected.
• The ability to attract top talent is a significant factor in preparing a company to scale rapidly.

"The most common one would be hiring and talent. I mean, every single company has to figure that out."

Leila Sturdy identifies hiring as a key challenge for companies transitioning from product-market fit to scaling, emphasizing the importance of securing top leadership early on.

• Founders often look to venture capitalists for help with hiring, but the best founders may not need this help.
• VCs can provide introductions and help close candidates, but ultimately, candidates join because of the CEO or hiring manager.
• The role of investors is to support, but the founders and their team drive the company's success.

"But it's very likely we've invested in the b in several of our best portfolio companies are where we led the series B investments and then supported them over the lifecycle."

Leila Sturdy explains the importance of early engagement with founders for future investment opportunities and the ongoing support provided throughout the company's lifecycle.

• Growth stage investing requires a balance between analytics, data, and intuition.
• Making investment decisions involves courage and the willingness to take risks.
• Over time, investors may shift from being analytical to relying more on intuition and people skills.
• The challenge and excitement of investing come from the difficulty of making great investment decisions.

"You have to sort of dig deep from the courage perspective, and all the great investments look obvious in retrospect, but at the time, they're terrifying."

Leila Sturdy reflects on the need for courage in making significant investment decisions and the evolution of her investing style towards trusting her intuition.

• Attribution refers to the recognition of individual partners for their involvement in investments.
• Capital G's structure gives general partners autonomy to focus on areas of interest.
• Partners like Leila's colleague, Noah, focus on specific sectors like cybersecurity.
• Leila herself has worked on both consumer and enterprise investments.
• Capital G operates as a team, with a strong support system post-investment.
• Individual partners often lead investments with support from vice presidents, associates, and the full partnership.

"So at Capital G, the way that we've structured our team is that the general partners have a lot of autonomy to focus on areas and companies that interest them most."

This quote explains the operational structure at Capital G, emphasizing the autonomy of general partners in choosing investment focuses.

• Capital G has an investment committee that meets on Mondays.
• The committee discusses opportunities, challenges, and supports each other.
• Additional ad hoc meetings occur for advice and multiple partner engagements.
• The traditional Monday investment committee is maintained despite a more flexible approach.

"We have an investment committee on Mondays where we go in a ton of detail on all the opportunities and challenge each other, support each other."

This quote describes the investment committee's role at Capital G, highlighting the collaborative approach to decision-making.

• Leila identifies her biggest strength as her self-awareness and perceptiveness.
• Her biggest weakness is a conservative approach to risk in investing.
• Leila works on appreciating successes and being in the moment.
• She advises founders to not be hard on themselves and to appreciate their achievements.

"The biggest weakness back to this point, I'd say especially around investing. At times, I don't think I've taken enough risk."

Leila reflects on her cautious approach to investing as a weakness, indicating a desire to embrace more risk.

• Leila's recent investment is in Webflow, a no-code website development platform.
• She was impressed by Webflow's CEO, the company culture, and the long-term vision.
• The market opportunity for Webflow is seen as massive due to its innovative pipeline.

"Most recent investment is in Webflow and I'm incredibly excited about this."

The quote highlights Leila's enthusiasm for Webflow, emphasizing the founder's qualities and the company's potential.

• Leila wishes she knew that things would work out without putting too much pressure on herself.
• She emphasizes the importance of enjoying achievements and being present.
• Leila advises others to be less hard on themselves, a practice she also finds challenging.

"Would all work out? I didn't need to put so much pressure on myself."

Leila reflects on her journey at Capital G, suggesting that a balanced approach to work and self-expectations is beneficial.

• Leila's favorite book is "The Great Gatsby," chosen for its life lessons.
• The book teaches not to judge by appearances and the importance of finding purpose beyond material wealth.

"So Great Gatsby. I mean, and the why is I think it's just got so many of the life lessons, right, that you don't know what you see on the surface."

The quote reveals why "The Great Gatsby" resonates with Leila, highlighting the depth of human experience and the search for purpose.