20VC General Catalyst's Hemant Taneja on Why We Are In A Golden Age For VC, Why ProRata Is A Lazy Posture and Why He Does Not Focus On Price

Summary Notes


In this episode of "20 minutes VC," Harry Stebbings interviews Hemant Taneja, Managing Director at General Catalyst, discussing his journey from founding a mobile data company to becoming a venture capitalist. Taneja, who holds five degrees from MIT and sits on the Khan Academy board, emphasizes the importance of investing in companies with the potential to change the world, regardless of the investment stage. He shares insights on the concept of "unscaling," where personalized technologies rewrite traditional sectors like healthcare and education, and reflects on the importance of culture, team-building, and adaptive board dynamics. Taneja also touches on his hands-on approach to working with founders, his belief in a 30-year golden age of venture capital, and the necessity of responsible innovation.

Summary Notes

Introduction to Hemant Taneja and General Catalyst

  • Hemant Taneja is the managing director at General Catalyst, a leading venture firm.
  • General Catalyst has a notable portfolio including Airbnb, Stripe, Snapchat, HubSpot, and Gusto.
  • Taneja has led investments in companies like Stripe, Snap, Grammarly, Gusto, Livongo, and Color Genomics.
  • He directs the GC Stripe platform Fund, a $10 million initiative.
  • Taneja holds five degrees from MIT and is on the board of the Khan Academy.
  • The podcast episode is sponsored by Highfive and Culture Amp, companies that focus on business collaboration and employee feedback respectively.

"I am thrilled to welcome Hemant Taneja, managing director at General Catalyst, one of the world's leading venture firms of the last decade, with Airbnb, Stripe, Snapchat, HubSpot, and Gusto all in their portfolio, plus a reported new $1.4 billion fund raised in March this year."

This quote introduces Hemant Taneja and the venture firm General Catalyst, highlighting its success and influence in the tech industry.

Hemant Taneja's Foray into Venture Capital

  • Taneja's interest in venture capital began after starting a company post-graduate school.
  • He learned about venture capital when seeking funding for his startup.
  • After selling his company in 2001, he was approached by venture firms and joined General Catalyst as an entrepreneur in residence.
  • Taneja did not initially intend to pursue a career in venture capital.

"I left graduate school because I got enamored with the whole first phase of mobile data revolution, which was in, I would say, the late nineties. And I left with a few friends from grad school and we started a company. And when we started the company, we said, oh gosh, we need money. And then that's how I learned about venture capital."

Taneja explains his transition from graduate school to entrepreneurship, which led to his discovery of venture capital as a means to fund his business.

Transition to Venture Capital as a Career

  • Taneja's interest in venture capital grew because it allowed him to explore various ideas.
  • General Catalyst's culture of incubating companies and investing appealed to him.
  • The venture capital career satisfied his intellectual curiosity and provided a hybrid way to work with startups.

"It feeds my ADD to no end because you get to think about all kinds of different ideas. And one of the unique things at our firm is the partnership encourages each other to get excited about starting companies from scratch with great founders as well."

This quote reflects Taneja's enthusiasm for the dynamic and idea-rich environment of venture capital, as well as General Catalyst's supportive culture for starting new companies.

Establishing General Catalyst on the West Coast

  • Taneja and his team faced challenges in building a network on the West Coast.
  • He transitioned from investing in energy to technology, which required building a local reputation.
  • Early investments, including Stripe, helped establish General Catalyst's presence on the West Coast.

"So very early on we just went to work saying, let's focus on building a great portfolio and start from there. Luckily, my first investment ended up being stripe because I had met the Collisons while I was teaching at MIT."

Taneja discusses the strategic focus on portfolio building to overcome initial challenges and mentions the fortunate early investment in Stripe, which boosted General Catalyst's reputation.

Reflection on Establishing General Catalyst on the West Coast

  • With hindsight, Taneja wishes he had been more aggressive in the early 2010s.
  • He acknowledges the potential to create multi-billion-dollar companies during that era.

"Yeah, I wish I had realized earlier this notion that we are in this era where you can create ten 5100 billion dollar companies, and there were so many of them created in the 20 11, 20, 12, 20 13 time frame or a couple of years before that, that we would have been a lot more aggressive."

Reflecting on the past, Taneja expresses a desire to have capitalized more on the opportunity to aggressively fund and grow large-scale companies during the early 2010s.

Investing Strategy and Regrets

  • Harry Stebbings expresses regret for not investing more aggressively in companies beyond their usual investment stage.
  • Successful investments made outside their comfort zone led to the realization that a more aggressive approach could have been beneficial.

"Investing in some of the companies we passed on because we thought they were beyond the stage we were used to investing. We did some, it worked out really well. For us, but in hindsight, I would have been a lot more aggressive in that."

This quote reveals a reflective perspective on past investment decisions, acknowledging that stepping outside of their traditional investment stages proved successful and suggests a missed opportunity for greater gains.

Partnership Dynamics in Multi-Office Expansion

  • Concerns about the dynamics and decision-making processes in firms with multiple offices are raised.
  • Hemant Taneja discusses the approach of General Catalyst (GC) to expanding on the West Coast, emphasizing the importance of replicating culture and trust across coasts.

"Instead, what we decided was we will take myself and others from the team and ship them out so that we can replicate our culture. And the trust on both coasts would be at the same level because I'd already been with the firm for almost a decade."

This quote highlights the strategic decision by GC to ensure that the company's culture and trust were consistent across different locations by relocating existing team members rather than hiring new, potentially unaligned personnel.

Venture Capital's Golden Age and Tech Cycles

  • Hemant Taneja shares a contrarian view that venture capital is in a golden age, part of a 30-year secular shift rather than a cyclical pattern.
  • The application of core technologies like cloud and mobile to sectors such as healthcare, education, finance, and government is seen as an ongoing opportunity.
  • Emerging technologies like AR, VR, genomics, CRISPR, blockchain, and cryptocurrencies are expected to accelerate new company creation opportunities.

"So I have a very contrarian view on this. I think we're in the golden age of venture capital, and we're probably a decade into a 30 year secular shift, as opposed to being in another cycle."

This quote conveys Taneja's optimism about the venture capital industry's future, believing that significant technological advancements will continue to drive growth and innovation for an extended period.

Distribution in the Tech Industry

  • Hemant Taneja discusses the shift in focus from creating new platforms like Snapchat to adopting technology in traditional sectors.
  • He mentions Samsara, an industrial IoT company, as an example of using technology to revolutionize sectors that have been slow to adopt new innovations.

"So to me, it is about getting technology adopted in these other areas, as opposed to necessarily trying to create the next Snapchat in an App Store, because that place is crowded."

This quote reflects Taneja's perspective on the importance of integrating technology into various industries to drive progress, rather than solely focusing on crowded online distribution channels.

The Thesis on Unscaling

  • The concept of "unscaling" is introduced, referring to a shift away from traditional scaling methods in core societal services like healthcare and education.
  • Hemant Taneja has written a book on the subject, suggesting that data and AI will be at the forefront of rewriting the economy.
  • The unscaled approach is seen as a necessary response to the inadequacies of the current systems to meet modern challenges.

"So clearly, these approaches we used before are not quite working as well at the kind of scale that we're at today. And so, unscaling is a core thesis that these modern companies just use data and AI are going to rewrite all parts of this economy."

This quote explains the rationale behind the unscaling thesis, which is that traditional scaling methods are no longer sufficient and that a new approach utilizing data and AI is needed to reform various sectors of the economy.

First Principles and Business Model Rewriting

  • Hemant Taneja advocates for a first principles approach to addressing individual needs in various domains, such as healthcare and education.
  • This approach involves rethinking business models and distribution methods to provide personalized solutions at scale.

"I look at all these things from first principles in terms of what is it that the individual needs as a product."

The quote emphasizes Taneja's focus on starting from the fundamental needs of individuals when considering how to deliver products and services effectively.

Price Sensitivity and Investment Approach

  • Hemant Taneja discusses his approach to price sensitivity in investments, prioritizing the potential of the company and its founders over the entry cost.
  • He argues that focusing too much on price can lead to missing out on transformative companies.

"Price is an excuse that makes you rationalize not getting into great companies, in my experience, and I think if I look back at the successes, we've created a general catalyst. We have never really looked back and said, oh gosh, the price was too high and this ended up becoming not a great return because of that."

This quote reveals Taneja's belief that the potential for high returns justifies investment in companies with strong teams and products, even if the initial price seems high. He suggests that price should not be a barrier to investing in companies poised to make significant impacts.

Investment Strategy: Insertion Points and Stage Specificity

  • Hemant Taneja discusses the importance of the timing of investment in a company's trajectory to ensure capital appreciation and value creation for investors.
  • The beginning phase is highlighted as an optimal time for investment due to the potential for great ownership, regardless of the initial cost.
  • Investing during a company's scaling phase, where market fit has been identified, is also considered an exciting opportunity, provided the company has a large market to grow in.

"Yeah, I do think about are we at point in time, in a company's trajectory that if we invest today, our capital will appreciate and create value for our investors?"

This quote emphasizes the significance of the timing of an investment in relation to a company's development and the potential impact on investor returns.

Reserve Allocation and Opportunity Cost

  • Hemant Taneja addresses reserve allocation and the opportunity cost of capital, suggesting that investment decisions should not be viewed as a zero-sum game.
  • He advocates for a proactive approach to follow-on investments, recommending either investing more than one's pro-rata share or less, based on conviction and priorities, rather than passively maintaining pro-rata.
  • A clear perspective on a company's potential and alignment with investment strategy is crucial for deciding participation in follow-on rounds.

"So I feel like we're fortunate that our investors have supported us for the last two decades, and we believe that if we keep doing our job right, they'll continue to support us."

This quote reflects Hemant Taneja's confidence in the sustained support from investors due to the firm's track record and the strategic approach to investment decisions.

Signaling in Multistage Investments

  • Hemant Taneja discusses the consideration of negative signaling in multistage investments, particularly if a firm participates in an early round but not in subsequent ones.
  • He describes his firm's strategy to participate at some level in follow-on rounds to avoid negative signaling issues.
  • The firm's investment strategy and posture are communicated clearly within the team to manage expectations and planning.

"We generally do participate at some level in the follow on rounds, but the thing for us is we try to decide early on what is our posture about a company and how does it fit with our investment strategy."

This quote reveals the firm's method of mitigating negative signaling by maintaining some level of participation in follow-on rounds and having a clear investment strategy.

Board Membership and Effective Board Dynamics

  • Hemant Taneja believes that adaptability to a company's culture and operations is crucial for board members.
  • Building a constructive relationship with the management team and founders is emphasized, with board meetings seen as working sessions rather than judgmental evaluations.
  • Successful board dynamics are characterized by the board's ability to support and expand the thinking of the company's team on key priorities.
  • A board member's effectiveness is partly measured by being the first point of contact for the team when problems arise, indicating trust and a supportive relationship.

"First and foremost is to be adaptive. I believe every great company has its own culture, its own way of doing things."

This quote underscores the importance of adaptability for board members to contribute positively to a company's growth without imposing external playbooks.

Building Synergy with Other Board Members

  • Hemant Taneja emphasizes the importance of considering the strengths and weaknesses of oneself and other board members to create a strong and balanced board environment.
  • An adaptive mindset is again mentioned as key to productive working dynamics on a board.

"Other side, I think a lot about that. In fact, if I'm an early investor in a company, I think about that in the context of who else to bring on to say, here are my strengths, my weaknesses, and hey, it'd be nice to augment around my own weaknesses, if you will, and have even a stronger working environment."

The quote highlights Hemant Taneja's strategic approach to board composition, which involves self-awareness and the desire to complement his own capabilities with those of other board members.

Personal Strengths and Investment Philosophy

  • Hemant Taneja describes his focus on companies as human systems, emphasizing culture, first principles thinking, and customer focus over early financial metrics.
  • He advocates for developing a business at the right cadence, tailored to the company's unique context rather than obsessing over market competitors.

"I like to think about companies first and foremost as human systems."

This quote reflects Hemant Taneja's human-centric approach to evaluating and guiding companies, prioritizing internal dynamics and principles over early financial performance.

Memorable Board Experiences and Learnings

  • Hemant Taneja shares his experiences from serving on various boards and the impact of memorable board moments on his perspective.
  • Specific examples or details of these moments were not provided in the provided transcript segment.

"It's. When I joined"

The incomplete quote suggests a lead-in to a personal anecdote or lesson from Hemant Taneja's board experiences, but the transcript does not include further information to elaborate on this point.

Gusto Board's Strategic Focus

  • Gusto Board, during its first meeting, discussed competition from Zenfus.
  • Josh, from Gusto, highlighted Zenfus's rapid growth and successful business model.
  • The board decided to focus on Gusto's strengths rather than copying the competitor.
  • They chose to serve small businesses with a modern, first-principles people platform.

"the gusto board, in the very first board meeting, Josh said, we have this competitor called Zenfus, who I had met. I knew what the company was doing. They're going exceptionally fast. They've got a business model that's working really well, and they're outpacing us significantly. Having said that, we have a product that's much deeper. Should we simplify what we're offering and play that playbook? And our conversation was very much about, hey, we invested in this because we believe in the product and your vision, and don't worry about what the other company is doing and how they're scaling. This is blue ocean and play your game."

This quote emphasizes the strategic decision by Gusto's board to focus on their unique product and vision rather than imitating their competitor, Zenfus. The board believed in the potential of their product and encouraged a focus on their own game plan.

Board Support for Founders

  • Hemant Taneja sees his role as helping founders build their teams.
  • Great people are key to transforming founding teams into epic companies.
  • Taneja emphasizes the importance of selling the vision to potential team members.
  • He also focuses on founders' capitalization strategies and the dynamics between founding team members.
  • Maintaining culture while evolving roles is a crucial aspect of support.

"Yeah, I mean, I think one place where I feel it's my duty to spend a lot of time is helping them build a team. If you think about great people, which in the end ends up turning these great initial founding teams into epic companies, are in demand everywhere."

This quote highlights the importance Taneja places on helping founders build strong teams, as he believes that the right people are crucial for a company's success.

Hemant Taneja's Reading and Views on Humanity

  • Taneja is currently reading "Homo Deus" by Yuval Noah Harari.
  • The book discusses humanity's historical core problems and future challenges.

"Homo deos. I'm actually reading it right now and it presents how and what humanity focus on as core problems over the last 5000 years and what they're going to work on over the longer sort of horizon over the next few thousand years."

Taneja's interest in "Homo Deus" reflects his broader perspective on humanity's past and future challenges, providing insight into his worldview and potential influences on his decision-making.

Productivity Philosophy

  • Taneja's productivity secret is focusing on where he can make a true impact.
  • He avoids spending time on companies just because they are successful or to prevent failure.

"Very simple. I only want to spend time where my time can have a true impact instead of spending time with companies because they're very successful and makes me feel good or trying to protect companies from failing. If my time can't make a difference in either of those, I shouldn't be there."

This quote reveals Taneja's pragmatic approach to productivity, where he prioritizes his time based on the potential impact he can have.

Founder Characteristics and Mental Workouts

  • Taneja agrees that the best founders give him "mental workouts."
  • He appreciates founders who are incredibly thoughtful and challenge him to bring his best.

"Yeah, the best founders give me mental workouts."

This quote underscores Taneja's view that engaging with intellectually stimulating founders is a valuable experience that pushes him to expand his thinking.

Silicon Valley and VC Improvement

  • Taneja wishes to align what's good for businesses with what's good for society.
  • He advocates for responsible innovation.

"I want us to think about what's good for our businesses and how well it aligns with what's good for society. Build with this notion of responsible innovation."

Taneja calls for a more socially conscious approach to business and venture capital, emphasizing the importance of responsible innovation.

Morning Routine

  • Taneja wakes up at 4:00 AM, meditates at 4:30 AM, works out at 5:00 AM, and arrives at the office by 6:30 AM.
  • He uses the morning time for planning, prioritizing, and thinking.

"Well, I get up at four, I meditate at 430, I work out at five, and I'm usually in the office by about 630. And that gives me an hour and a half to just plan, prioritize and have some thinking time."

The quote details Taneja's disciplined morning routine, which includes meditation, exercise, and strategic planning, contributing to his productivity and success.

Investment in Spring

  • Taneja's most recent investment was in Spring, a company applying machine learning to longevity.
  • He was drawn to the impactful and interesting approach to treating diseases.

"Most recent company, I might get this wrong, I believe, was spring, which is a company focused on applying machine learning to longevity."

This quote explains Taneja's recent investment choice, highlighting his interest in innovative approaches to health and longevity through technology.

Acknowledgments and Further Engagement

  • Harry Stebbings thanks Tim and Nico Bonatos for their contributions to the show.
  • Stebbings invites listeners to engage with the podcast on Instagram and submit questions.
  • He also promotes Highfive and Culture Amp, companies that contribute to business collaboration and employee feedback.

"Just incredible to have him on the show there. And again, I want to say huge thank you, Tim, for giving up the time today to appear on the show, and a big hand to Nico Bonatos at GC for making the introduction, without which this episode would not have been possible."

Harry Stebbings expresses gratitude to Tim and Nico Bonatos for their roles in making the podcast episode possible, highlighting the collaborative nature of the show's production.

What others are sharing

Go To Library

Want to Deciphr in private?
- It's completely free

Deciphr Now
Footer background
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon
Crossed lines icon

© 2024 Deciphr

Terms and ConditionsPrivacy Policy