20VC The Founding of General Catalyst, What it Takes to Build a Firm That Stands the Test of Time, Why VCs Need to Give Founders Greater Permission to Go For It & Why Venture Capital is Like Tennis with David Fialkow, CoFounder @ General Catalyst

In this episode of 20 VC, Harry Stebbings interviews David Fialkow, co-founder and managing director of General Catalyst, a top-tier venture firm with notable investments like Stripe and Airbnb. Fialkow, a serial entrepreneur who built and sold four companies before venturing into VC, discusses the origins of General Catalyst, its people-centric approach, and the importance of founder relationships. He emphasizes the firm's founder-first philosophy, the transition to new leadership under Hemant Taneja and Adam Valkin, and reflects on the personal and professional lessons learned throughout his journey. Fialkow also touches on his passion for documentary filmmaking and its parallels with venture capital, highlighting storytelling as a crucial element in both fields.

• David Fialkow is the co-founder and managing director at General Catalyst.
• General Catalyst is a leading venture firm with a portfolio including Stripe, Snap, Airbnb, Angural, Canva, among others.
• David was a serial entrepreneur prior to founding General Catalyst with Joel Cutler, having built and sold four successful companies.
• Acknowledgment of contributions from the General Catalyst team, including Adam Valkin, Haymontine, Quentin Clark, and Nico Bonazos.

"I'm thrilled to welcome David Fialkow, co-founder and managing director at General Catalyst, one of the leading venture firms of the last decade."

The quote introduces David Fialkow and highlights the prestige of General Catalyst in the venture capital industry.

• HMC manages Harvard University's endowment and invests in venture capital.
• HMC is seen as an ideal partner for long-term investment and providing insights to managers.
• Mercury offers full-stack banking for startups, including FDIC-insured accounts, debit cards, wire transfers, and integrations with various startup tools.
• Mercury also provides API access, team management, and Mercury Treasury for cash management.

"Harvard Management Company is constantly seeking out the next generation of great investors and entrepreneurs."

This quote emphasizes HMC's role in supporting new investors and entrepreneurs, reflecting their long-term investment approach.

• The Bots platform democratizes automated investing strategies, previously available only to millionaires.
• Users can choose from various automated trading bots that buy low and sell high based on data, mathematics, and science.
• The Bots app is designed to be user-friendly and is expanding its availability globally.

"Automated investing strategies. They were only available to millionaires, and now the Bots platform has made the most successful strategies available for everyone."

This quote explains the purpose of the Bots platform, which is to make automated investing accessible to a wider audience.

• David Fialkow and Joel Cutler have been best friends since childhood and business partners for many years.
• They started in the travel industry, building several travel businesses without venture capital funding.
• The idea for General Catalyst emerged during a challenge for David to participate in the Hawaiian Ironman, which led to a reflective period and the eventual founding of the venture firm.

"Joel has been my best friend and my business partner. We met when we were five or six years old, and we've been just great friends ever since."

The quote highlights the longstanding personal and professional relationship between David Fialkow and Joel Cutler, which is foundational to their business endeavors.

• David and Joel prioritized business over friendship, ensuring transparency and focus on business integrity.
• They had complementary skill sets, allowing for a divide-and-conquer approach without conflict.
• Mutual trust and respect ensured that they supported each other's decisions and maintained a united front.

"One thing we did, which I think was a very good idea, is most people who start business with their friends, I think, can make a mistake. They say, let the business never get in the way of the friendship. We said the exact opposite, let the friendship never get in the way of business."

The quote explains the unique approach David and Joel took towards their partnership, where they allowed business needs to take precedence over personal friendship to ensure the success of their ventures.

• General Catalyst started with no formal plan, strategy, or business model, but with a focus on hatching and investing in consumer companies.
• The firm was initially funded with personal money from David and Joel, with additional support from friends and family.
• The name "General Catalyst" reflects the firm's focus on being a catalyst in the journey of founders.

"All we wanted to do is be on the journey with founders, the same way we had been together under our own journey."

This quote captures the essence of General Catalyst's mission, which is to support and be part of the entrepreneurial journey alongside founders.

• The first fund was an LLC rather than a traditional GPLP, reflecting the firm's initial focus on building companies.
• General Catalyst's focus shifted from solely hatching companies to also investing in other founders' ideas.
• The firm's transition to raising institutional funds was marked by a humorous anecdote about understanding the expectations of institutional investors.

"Our first fund was all friends and family, but the majority of the money came from Joel and me."

The quote describes the humble beginnings of General Catalyst's funding, emphasizing the personal investment and risk taken by the founders.## Early Investment Experiences

• The speakers discussed their initial experiences seeking investment for their venture.
• They faced skepticism due to their lack of investment and tech experience.
• David Swenson from Yale and Andy Golden from Princeton believed in them early on.
• Their approach focused on empathy for founders and differed from financially driven VC funds.

What's our investment experience? We said, none. And what's your tech experience? And we said, well, we built a tech enabled business that a group turned around and said, I can't believe it. I will never get this 30 minutes back that you just took from me. Please leave.

This quote illustrates the skepticism and dismissal they faced when they started seeking investment without having traditional credentials or experience.

• Partners and founders recognize David's exceptional skill in building unique and authentic relationships.
• His approach is based on understanding founders' journeys and being empathetic.
• David emphasizes the importance of bringing a network of people to support the founder rather than just his own abilities.

David is truly the best in the world when it comes to unique relationship building.

This quote summarizes the feedback received about David's strength in relationship building, reflecting the high regard in which his peers and partners hold him.

• David and Harry discuss the challenge of maintaining quality relationships as their networks grow.
• Harry mentions the difficulty in managing relationships with an extensive portfolio.
• David suggests focusing on interconnectivity and shared experiences to maintain authenticity.

You're getting older and that happens. You're going to hit 30 pretty soon, and God knows what's going to happen.

This quote humorously addresses the challenge of maintaining relationships as one's network expands with age and success.

• David emphasizes the role of vulnerability in developing meaningful relationships.
• He shares personal stories to create a comfortable environment for others to open up.
• The approach is about facilitating connections rather than forcing them.

Part of developing a relationship with people is vulnerability.

This quote highlights the importance of showing vulnerability to create authentic and deep connections with others.

• David discusses the importance of surrounding oneself with a complementary team.
• He notes that founders don't need to be well-rounded but should attract talented people to fill gaps.
• This approach is crucial for both young founders and more experienced ones.

Building a business is not like playing tennis. To be a tennis player, you have to learn how to hit a back end. You can't get away with it. Business is not like that.

This quote compares business to sports, emphasizing that unlike in sports, business founders do not need to be proficient in every aspect themselves but should instead build a team with diverse skills.

• David believes in supporting founders to understand their strengths and complement them with the right team.
• Success is not just about financial outcomes but also about the willingness to take risks and learn from experiences.
• He encourages founders to "go for it" and believes that investors should support them without judgment.

The biggest mistake and the biggest definition to us or me of failure is not going for it.

This quote encapsulates David's philosophy that the true failure is in not taking the opportunity to pursue one's goals and ideas with full commitment.

• David uses storytelling and analogies to inspire founders to embrace risk.
• He advises on the importance of hiring great people and preparing for the stresses of building a business.
• The conversation highlights the need for investors to guide founders through the challenges of entrepreneurship.

Storytelling. Do it by analogy.

This quote suggests that storytelling and drawing parallels to other experiences can help founders understand and navigate the risks and challenges of building a company.## Founder Evaluation

• Evaluating a founder's potential is multi-faceted and includes personality, ability to attract talent, sales skills, and long-term partnership potential.
• Founders must possess a strong belief in their idea and the ability to inspire others to join their vision, akin to a cult-like belief.
• The founder's capacity to sell their vision through objections and rejections is critical to their success.
• A founder's curiosity, which is reflected in their listening skills, is essential for attracting talent and selling their ideas.
• Assessing if a founder is someone with whom one can work over a long period is crucial before backing them.

"If they're not that person, regardless how good their idea is, they're not going to do it, number one."

This quote emphasizes the importance of the founder's character over the idea itself in determining the potential for success.

"Are they going to attract talented people to work with them?"

The ability to attract talent is highlighted as a fundamental quality of successful founders.

"They sell right through the objections they sell right through people turning them down."

A founder's resilience and conviction in selling their idea are crucial, as they must persist through challenges and rejections.

• Storytelling is a crucial skill for founders, especially in conveying their vision and attracting investment.
• Founders should focus on painting a vivid picture of what they want to build, rather than getting bogged down by market statistics or buzzwords.
• Effective storytelling involves creative discussions that help understand the long-term vision of the business and the desired team composition.
• The art of storytelling is not just about pitching but about engaging in a meaningful dialogue to build trust and understanding.

"Paint a picture for me. What do you want to build?"

This quote underscores the importance of visualizing and articulating a clear and inspiring vision for the company.

"Forget about all the bs and all the buzzwords."

Advising founders to focus on the core story of their business rather than getting lost in jargon and metrics.

"Storytelling is what they're really doing with me."

The process of storytelling is not just about sharing information but about building a relationship with the listener.

• Trust is a fundamental aspect of building relationships, both personal and professional.
• Evaluating trust involves observing how individuals manage their personal relationships and respond to adversity.
• The notion that adversity reveals character is key to understanding how people behave under pressure.
• With power comes responsibility, and it is important to use one's influence responsibly and impactfully.
• Trust can be built through a process of curation and by empowering others to pay it forward.

"Nobody is spared. Everybody runs into shit in their lives."

Acknowledging that everyone faces challenges can help destigmatize issues and foster open communication, which is essential for building trust.

"Adversity does not teach character, it reveals it."

This quote suggests that one's true character is shown in how they handle difficult situations.

"With power comes responsibility."

The responsibility that comes with influence should be taken seriously, as it can have a significant impact on others.

• A successful marriage or partnership is based on transparency, division of labor, and mutual respect for each other's abilities.
• Ego can be the biggest challenge in a relationship, and it is important to manage it to maintain harmony.
• Having different interests can be beneficial in a partnership, as it allows each person to bring unique strengths to the table.
• Trusting your partner's decisions and respecting their competencies are fundamental to a strong partnership.

"Full trans. You have to trust that everything that everybody tells you and everything they need to know is happening all the time."

Transparency is crucial in a marriage, as it builds trust and ensures that both partners are fully informed.

"Divide and conquer strategy in life is really an important one."

Dividing responsibilities and trusting each other to manage them effectively can strengthen a relationship.

"Ego is the biggest undoing of people."

Managing ego is essential to avoid conflicts and maintain a healthy partnership.

• Work-life balance involves being a well-rounded individual, which includes nurturing personal relationships and engaging in various life activities.
• Having a safe zone with people you trust is important for discussing insecurities and concerns.
• Being empathetic and inclusive of others in your life can make you a better business person and mentor.

"You're putting activity and hours against process and outcome and success."

This quote challenges the notion that more hours equate to greater success, emphasizing the importance of a balanced approach to life and work.

"Being a well rounded human... makes you a fuller human being because you're not just dealing with your own shit."

Having a rich personal life enhances one's professional capabilities by fostering empathy and creativity.

• Transitioning leadership within a firm is a significant event that requires careful consideration and mentorship.
• Building relationships with mentors and peers in the industry can provide guidance during transitional periods.
• Open and honest communication is key to a smooth transition of power and responsibility.

"I've had a fabulous mentor... His name is Jim Schwartz, and he's the co-founder of Excel."

Mentorship is highlighted as an invaluable resource for navigating industry challenges and transitions.## Leadership Transition at General Catalyst

• Joel and David are not leaving General Catalyst but are allowing others to lead.
• Recognizing the capabilities of their team, they decided it was better for the firm to let them lead.
• The new leaders brought different skills and visions that Joel and David did not possess.
• Venture firms should enable young people to lead, so they applied this principle within their own firm.
• Haman Tunisia was tasked with establishing General Catalyst in California and succeeded.
• Adam Valkin was brought from Excel to lead in Boston.
• The leadership change was based on the belief that the new leaders were better, had a strong vision, and had earned the opportunity.
• The new leadership has taken over day-to-day management and improved the firm.

"Joel and I are not going anywhere full time working at the firm. However, what we realized is there was a handful of people that were so good, so well trusted, so unbelievably capable, that to not let them lead was a mistake for three reasons."

This quote emphasizes that the leadership transition was not about the founders stepping back but about recognizing and empowering capable individuals within the firm to lead.

"So it was not Joel and I stepping back as much as it was his time to lead."

David is clarifying that the leadership transition was about recognizing the right time for others to step up and lead, rather than the founders stepping away from their roles.

• Daniel Pink's book is favored for highlighting the value of creativity in business leadership.
• "Seven Habits of Highly Effective People" is valued for its structure and guidance on leadership development.
• These books have influenced David's approach to leadership and business.

"I would say Daniel Pink. Right. Brains of rule the world."

David appreciates Daniel Pink's book for its recognition of creative individuals' ability to lead and build businesses.

"The other one, completely unrelated, because I need structure is seven habits of highly effective people, which, of course, gives you all we need to do to build the ladder of leadership."

David values the structured approach to leadership development outlined in "Seven Habits of Highly Effective People."

• The 2011 fundraising was challenging due to market conditions, lack of liquidity, and team transitions.
• Deciding to expand to the West Coast was met with skepticism from limited partners (LPs).
• Building General Catalyst (GC) required acknowledging the limits of individual capacity and embracing a team approach.
• The hardest element was realizing the necessity of a team build rather than an individual effort.

"Why 2011? Markets sucked. We hadn't had liquidity in a while. We made major transitions in our team, decided to tell our lps we were moving to the west coast, and they were like, what?"

This quote highlights the difficulties faced during the 2011 fundraising, including market conditions and strategic changes within the firm that surprised stakeholders.

"Understanding that this had to be a team build and an individual build."

David acknowledges the importance of a collaborative team approach over individual efforts in building a successful venture capital firm.

• David hopes his children will have a love of life, generosity of spirit, and the joy of seeing others succeed.
• He wishes for them to be surrounded by wonderful people and to be involved in the success of others.
• These traits are seen as foundational for a fulfilling life and positive impact on society.

"Well, number one, I think that I'd love to have them have a love of life and a generosity of spirit."

David expresses his desire for his children to live life with enthusiasm and a willingness to help others.

"Having them be part of other people's successes is a month that lasts a lifetime."

David values the fulfillment that comes from contributing to others' achievements and wants his children to experience this joy.

• Jim Schwartz is admired for his ability to quickly understand issues and demonstrate empathy in resolving them.
• David's partnership with Jim extends beyond venture capital to filmmaking, highlighting a shared commitment to impactful storytelling.

"Jim's a processing machine with empathy."

David describes Jim Schwartz's exceptional ability to process information and address issues with understanding and compassion.

• The success of a venture firm is entirely dependent on the founders it backs.
• Continuously investing in the best businesses and founders leads to the best outcomes.
• Transparency and honesty with partners are crucial for informed decision-making.

"It's 100% about the founders, not 99."

David emphasizes the paramount importance of the relationship with founders in the venture capital industry.

"Compounding your winners over a very long period of time, continuing to reinvest in your greatest businesses and your greatest founders produces the best outcomes."

David shares a tactical insight on the long-term strategy of reinvesting in successful businesses and founders for optimal results.

• David looks forward to the continued success of General Catalyst's leadership team.
• He intends to keep making films that bring truth to power.
• Celebrating his father's hundredth birthday is a personal aspiration for the next five years.

"Number one, enjoying the leadership team at general Catalyst. Blossom and prosper and build the kind of firm that we're really proud of with the founders."

David expresses his anticipation for the growth and development of General Catalyst under its new leadership.

• Storytelling is essential in both filmmaking and venture capital as it inspires people towards a goal.
• The pivot in the film "Icarus" is likened to a venture capital outcome.
• Films like "The Great Hack" and "The Dissident" demonstrate storytelling's power in revealing truths and impacting society.
• Venture capital and filmmaking share the challenge of navigating politics and market dynamics.

"It's about the arc of the story. How does one person tell a story that enables everybody around them to be inspired toward an outcome?"

David draws a parallel between the narrative arc in storytelling and the visionary journey in venture capital.

"I couldn't get anybody now. You can still get it. But we had to self distribute it."

David discusses the challenges faced in distributing "The Dissident" and the importance of perseverance and understanding political dynamics in both filmmaking and venture capital.