20VC Inside Google's Growth Fund & The 3 Criteria They Look For With Potential Investments with Laela Sturdy, General Partner @ CapitalG

In this episode of "20 minutes VC," Harry Stebbings interviews Layla Sturdy, a partner at Capital G (formerly Google Capital), Alphabet's growth investment fund. Sturdy discusses her transition from operations at Google to venture capital, highlighting her early interest in investing during her tenure at Bain & Company and her subsequent operational roles at Google, including work on YouTube and commerce initiatives. The conversation delves into the unique aspects of growth-stage investing, such as market size, product differentiation, and scalable unit economics. Sturdy emphasizes the importance of a strong market, a differentiated and sustainable product, and robust unit economics for successful growth-stage investments. Additionally, she touches on the advantages of Capital G's single LP structure with Alphabet, offering operational support and expertise to portfolio companies. The episode also explores the changing landscape of venture capital, where firms like Capital G offer significant operational value beyond capital to secure deals with the best companies.

• Harry Stebbings introduces the feature week on the 20 minutes VC podcast.
• The focus is on Capital G (formerly Google Capital), Alphabet's Growth Investment Fund.
• Investments by Capital G include Airbnb, Snapchat, and Stripe.
• Guest Layla Sturdy, a partner at Capital G, joins the show.
• Layla has invested in Duolingo, Gusto, and Glassdoor.
• Prior to Capital G, Layla worked in sales and business operations at Google.
• Thanks are given to Jenny Lefkor for the introduction to Layla Sturdy.

Hello and welcome back to a very exciting week on the 20 minutes VC with me, your eccentric and slightly nerdy british host Harry Stebings found on Snapchat at H Stebbings with two B's. It'd be great to see you there. And all ads get a personal response from me, however, to this week on the show, and we thought we'd mix it up by doing not only a feature week, but a feature week on a slightly different fund. And there really is no cooler different type of fund to do this week on than Capital G, previously known as Google Capital Alphabet's Growth Investment Fund, which have made investments in the likes of Airbnb, Snapchat and Stripe.

This quote sets the stage for the podcast episode, highlighting the unique focus of the week on Capital G and its significance in the investment world.

• Layla Sturdy's career began at Bain & Company, a management consulting firm.
• She worked with private equity clients, gaining her first exposure to the investment world.
• Layla was drawn to investing but wanted to focus on tech industries.
• She attended Stanford business school, immersing herself in the tech scene.
• Layla joined Google, working on new business ventures like YouTube and commerce verticals.
• David Lawee introduced her to Google Capital, combining her interests in investing and tech.
• Layla joined Google Capital about three years prior to the podcast.

Maybe I'll start even before that. Earlier in my career, before I was at Google, I worked at a company called Bain Company, a management consulting firm, and I actually spent a lot of my time at Bain working with some of our big, large private equity clients. So I first got exposure to the investment world through that time and I absolutely loved it.

This quote explains Layla Sturdy's initial foray into the investment world through her work at Bain & Company, which laid the groundwork for her career in venture capital.

• Google Capital, now Capital G, is Google's growth equity investment arm.
• The fund focuses on growth stage investments, as opposed to Google Ventures, which targets early stage investments.
• Google Capital and Google Ventures sometimes co-invest in companies.
• The single LP (Limited Partner) structure with Google provides efficiency and a strong relationship.

Yeah, absolutely. So Google Capital is Google's growth equity investment. Like many different firms, we have multiple different investment arms. So Google Capital is focused exclusively on growth stage investments, whereas Google Ventures focuses more on early stage investments and at different times across the investment cycle.

Layla Sturdy clarifies the role and focus of Google Capital in the investment landscape, distinguishing it from Google Ventures and emphasizing its growth-stage investment strategy.

• Google Capital has a single LP relationship with Google and Alphabet.
• They focus on financial returns rather than strategic investments for Google.
• Google Capital makes independent decisions on tech investments.
• They measure success based on financial return.

I'd say there's lots of other advantages of having Google as our single LP. So our only metric for Google Capital is financial return.

The quote highlights the benefits of having a single LP and clarifies that the primary metric for Google Capital is financial return, not strategic alignment with Google's interests.

• Google Capital has a program of advisors from within Google to assist with investment decisions.
• These advisors are senior executives with expertise in various sectors.
• They contribute to refining investment theses before and after investments.
• Advisors help portfolio companies with growth initiatives, such as international expansion, sales and marketing efficiency, and platform architecture.

We have a wonderful program within the Google capital team of what we call Google Capital advisors, which are senior execs on the technical side, business side, you name it, of operating and technical expertise within the company that work with us on different sectors.

This quote explains the role of Google Capital advisors and how their expertise from within Google is leveraged to support investment decisions and portfolio company growth.

• At the growth stage, Google Capital still values the team and leadership critically.
• They focus on market size, ensuring there is enough runway for growth.
• Product differentiation is key to ensure the company can expand market share and maintain a leadership position.
• Unit economics are scrutinized for scalability, especially regarding customer acquisition costs and their potential increase during scaling.

But beyond that, we focus on a few more things. First would be the market. So we want to know that this is a big market opportunity in front of the companies and that there are plenty of room and Runway for the company to continue growing.

This quote emphasizes the importance of market size and potential for growth as critical factors in growth stage investing.

• Google Capital does not have a predefined minimum market size for investments.
• They assess potential investments based on expected multiple of money and internal rate of return (IRR) over a five-year horizon.
• The entry valuation and the projected worth of the business in five years are crucial in the decision-making process.
• They are open to holding businesses for longer than five years if necessary.

What we typically look at when we make a decision is we want to understand what our multiple of money will be and our IRR from an investment perspective.

This quote explains that investment decisions are based on the expected financial returns rather than strict market size criteria.

• Ownership percentage is not a primary focus for Google Capital in growth stage investments.
• The valuation at the time of investment and the expected future worth are more important than ownership stake.
• Google Capital considers the potential value of their investment over time, regardless of the company's current valuation.

It's actually not, which I think is one of the differences from early stage investing. Again, the reason we don't focus as much on ownership is that we really just think about what it's in the value of our investment going to be worth.

The quote indicates that unlike early-stage investing, Google Capital does not prioritize ownership percentage but rather the future value of their investment.

• The significance of brand IP as a sustainable form of product differentiation is debated.
• Different forms of differentiation can sustain businesses in the long term.
• Brand differentiation could drive long-term value.
• At early stages of investing, it is harder to underwrite brand differentiation.
• Organic growth and performance marketing channels are the focus in the early years.
• Establishing market leadership and brand awareness is hoped to be achieved through these channels.
• Brand becomes an important part of differentiation as the company grows.

"We do believe that there are different forms of differentiation that can sustain and drive businesses in the long term."

This quote explains the belief in various differentiation strategies as key drivers for long-term business sustainability.

"It's harder to underwrite that with certainty at the stage that we enter a lot of our companies."

This quote highlights the difficulty in predicting the success of brand differentiation strategies at early investment stages.

• There is a balance between focusing on growth and unit economics.
• Definitions of growth stage investing vary, especially concerning unit economics.
• Growth stage investing is defined by having data that shows a loved product and a viable business model.
• Scalable customer acquisition channels are a critical part of the business model.
• Investments are made with some evidence of working channels, but there's still risk.
• The aim is to expand channels and customer segments to realize full growth potential.

"A critical part of the business model working is having these scalable customer acquisition channels."

This quote emphasizes the importance of scalable channels for customer acquisition as a fundamental aspect of a successful business model.

"The bet will be that they can make many more channels work and that they can operate at much larger scale within those channels."

This quote signifies the investment risk taken in the belief that a company can scale up its successful channels.

• The rise of the private IPO and extended private funding are seen as both a concern and an opportunity.
• Exit strategy and liquidity events are important, but there is flexibility due to a patient single LP.
• Support is given to entrepreneurs in deciding the right time to go public.
• Market conditions and IPO windows are cyclical and change rapidly.
• The large amount of capital in growth equity may yield excellent returns.
• Companies will go public when it is the right time for them.

"We definitely care about exit strategy and that the company will have some liquidity event at a point that makes sense for them."

This quote underscores the importance of having an exit strategy and liquidity event planned for investments.

"The fact that there have been companies that have stayed private longer than maybe they have historically has meant that there's been an incredibly large amount of capital deployed in the growth equity space."

This quote reflects on the trend of companies staying private longer, resulting in significant capital deployment in growth equity.

• There is a shift towards a more operational value-add model of VC.
• Google Capital provides additional services alongside capital investment.
• Entrepreneurs are seeking partnerships with VCs that offer more than just financial support.
• The competitive landscape in VC is changing, with a focus on providing operational support to get the best deals.

"That is one of the reasons that I'm really excited to be working at Google Capital because we do have a model that I have great conviction in."

This quote expresses confidence in Google Capital's operational value-add model and its attractiveness to entrepreneurs and CEOs.

"One of the big reasons that they choose to partner with us is the operational expertise that we can bring."

This quote suggests that operational expertise is a significant factor for entrepreneurs when choosing a VC partner.

• Google Capital invests in a limited number of companies annually, focusing on a few to provide thorough support.
• The team leverages Google's extensive network of advisors to assist portfolio companies with operational and technical challenges.
• Portfolio companies value the differentiation Google Capital offers due to the competitive capital landscape.

"We only make five or six investments a year. So we have a very focused approach to the companies that we work with." This quote highlights the selective investment approach of Google Capital, emphasizing quality over quantity in their partnerships.

"We bring these hundreds of advisors within Google that can help on a very wide range of operational and technical issues." This quote underscores the unique support Google Capital provides to its portfolio companies through access to Google's vast advisory network.

• Layla Sturdy enjoys reading and recently appreciated the book "Americana," which resonates with her as an immigrant.
• The book's relevance to the current political climate in the U.S. and the immigrant experience makes it a significant read for her.

"I read not too long ago, a book called Americana and it was fantastic." This quote reveals Layla Sturdy's recent reading choice and her positive impression of the book.

• Sturdy believes that hiring a diverse and exceptional workforce is not as difficult as commonly perceived.
• She considers the challenges around building a diverse team to be overstated.

"I don't think it's as hard as people think to hire a diverse and exceptional workforce." This quote presents Layla Sturdy's contrarian viewpoint on the ease of creating a diverse workforce, challenging a common belief in the industry.

• Dan Primack's newsletter is part of Layla Sturdy's daily routine.
• She's open to following Aaron Griffith as well, who has taken over from Primack.

"I start my day with Dan Primack's newsletter." This quote indicates the significance of Dan Primack's newsletter in Layla Sturdy's daily information consumption.

• The major pro of working with Google Capital is the people, including the team and portfolio companies.
• A con is the challenge of time management between supporting existing companies and seeking new investments.

"I literally run to work every day, so that would be my definite pro." This quote expresses Layla Sturdy's enthusiasm for her work and the people she collaborates with at Google Capital.

"I wish I had more time." This quote reflects the time management struggles Layla Sturdy faces in her role, balancing between current commitments and exploring new opportunities.

• The last public investment announced by Google Capital was in a company called Care, through a PIPE deal.
• The decision was influenced by the company's market leadership, brand awareness, and potential for growth.

"The last public investment that was announced was actually an investment in care, which was a pipe deal." This quote provides information about the most recent investment by Google Capital, highlighting its significance as the first investment in a public company.

"We see a huge Runway for growth and lots of exciting stuff happening within the company." This quote explains the rationale behind the investment in Care, focusing on the company's growth potential and dynamic developments.