July 31, 2024 • 1hr 3min

Hemant Taneja - Engineering Global Resilience - [Invest Like the Best, EP.382]

Invest Like the Best with Patrick O'Shaughnessy

In this episode of Invest Like the Best, Patrick O'Shaughnessy interviews Hemant Taneja, CEO and Managing Director of General Catalyst (GC), a global venture capital firm overseeing nearly $30 billion. Taneja discusses how GC has evolved to build resilience across critical industries worldwide, leveraging technology to retool sectors such as healthcare, energy, defense, and manufacturing. He shares insights on GC's approach to company building, capital formation, and tackling major societal challenges through technology and innovation.

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Key Takeaways

General Catalyst (GC) has evolved from a traditional venture capital firm to a global investment platform focused on building resilience across critical industries like healthcare, energy, defense, and manufacturing.
GC takes a long-term view on company building, aiming to create enduring businesses that align profit with societal impact. This requires new capital structures and governance models beyond traditional venture capital.
The firm has expanded its capital solutions to include venture buyouts, growth equity, and innovative financing structures to support founders at different stages.
GC is applying AI to "onshore productivity" by transforming labor-intensive businesses into high-margin software businesses, particularly in areas like call centers and back-office operations.
In defense investing, GC focuses on deterrence and bringing consumer/enterprise tech innovations to modernize the sector. They have a framework to evaluate the ethics of defense investments.
Hemant Taneja emphasizes the importance of trust, relationships, and radical collaboration in building both GC as a firm and in working with founders and limited partners.
GC aims to be a high-performance firm focused on building category-defining companies, rather than scaling assets under management. They prioritize creativity and entrepreneurship over rigid processes.

Introduction

In this episode of Invest Like the Best, Patrick O'Shaughnessy interviews Hemant Taneja, CEO and Managing Director of General Catalyst (GC), a global venture capital firm overseeing nearly $30 billion. Taneja discusses how GC has evolved to build resilience across critical industries worldwide, leveraging technology to retool sectors such as healthcare, energy, defense, and manufacturing. He shares insights on GC's approach to company building, capital formation, and tackling major societal challenges through technology and innovation.

Topics Discussed

Enabling Global Resilience (4:01)

Taneja explains GC's focus on building resilience in critical industries like healthcare, energy, and defense in response to recent global crises:

The pandemic, wars, financial market volatility, and energy crises have highlighted the need for nations to build self-reliance in key sectors
GC aims to leverage technology to create new businesses that enhance national resilience
Focus areas include healthcare capabilities, energy independence, defense, and re-globalization of manufacturing

"Our whole belief is that a huge wave of innovation is about bringing resiliency to nations," says Taneja.

Healthcare Innovation and Livongo (7:08)

Taneja shares the story of building Livongo, a category-defining healthcare company:

Started in 2005 with exploring electronic medical records
Realized healthcare was siloed from technology, leading to inefficiencies
Partnered with healthcare expert Glenn Tullman to build Livongo
Focused on caring for consumers with chronic conditions
Scaled by selling through employers as rational economic buyers
Went public in 2019 and sold for $18 billion in 2020

This experience provided a playbook for radical collaboration between technology and healthcare.

Evolving GC's Investment Approach (15:40)

Taneja discusses how GC has reimagined its structure and approach:

Operational excellence: Inspired by portfolio companies like Stripe to improve GC's own operations
Long-term view: Shifted from hoping for billion-dollar IPOs to supporting companies with "infinite runway"
Purpose alignment: Ensuring profit and societal impact are aligned in portfolio companies
Capital solutions: Developed new financing structures to support different stages of company growth
Intentional succession: Transitioned from a partnership model to having Taneja as CEO

"We designed ourselves to be able to do that. We also thought that the goal is going to be about transforming industries. It's not about just going and chasing deals," explains Taneja.

New Capital Solutions (32:42)

Taneja elaborates on GC's innovative financing approaches:

Developed alternative financing for subscription businesses to fund growth without dilution
Created a $300 million fund (now several billion) for this new model
Allows companies to grow their balance sheet while accessing capital for customer acquisition
Institutionalized company incubation, building on successes like Kayak, Demandware, and Livongo

"We've been very founder-centric on what capital goals are required, what should their structures be to drive the change that is required," says Taneja.

AI and Onshoring Productivity (41:39)

Taneja shares GC's perspective on AI opportunities:

Focus on applied AI rather than chasing artificial general intelligence (AGI)
Using AI to "onshore productivity" in areas previously offshored for labor arbitrage
Transforming low-margin service businesses into high-margin software businesses
Examples include call centers, accounting, and revenue cycle management
GC is buying and transforming businesses with AI as a leverage point

"Every market, not just the US, with AI, because those businesses will go from low service businesses to high margin software businesses," predicts Taneja.

Defense Investments and Ethics (47:10)

Taneja discusses GC's approach to defense investing:

20-year history of defense investments, including early contractor acquisitions
Focus on bringing consumer/enterprise tech innovations to modernize defense
Investments in companies like Anduril (US) and Helsing (Europe)
Developed an ethical framework focused on deterrence
Aim to reduce taxpayer costs and create conditions for better peace

"We said we're going to do it on deterrence. What does deterrence mean? Whatever you need to do for the bad actors to not attack," explains Taneja.

Geopolitics and Regulation (50:11)

Taneja shares his thoughts on navigating geopolitical and regulatory challenges:

Current period of "peak ambiguity" in geopolitics and AI regulation
Need for collaboration between tech industry and governments
Focus on building resilience and advancing technological capabilities in AI
Balancing innovation with preventing unintended societal consequences
Working towards a "democratic supply chain" in critical industries

"I don't think it's either or of regulation, nor regulation. The world's not black or white guys you got to embrace this ambiguity and understand how to work towards a solution that accomplishes both," says Taneja.

Reflections on Leadership and Strategy (53:16)

Taneja shares insights on GC's approach and his leadership philosophy:

Inspired by Princeton endowment's Andy Golden to "play your own game"
Values deep relationships with limited partners who believe in GC's strategy
Acknowledges GC's weakness in favoring creativity over process, leading to some chaos
Personally energized by creating new things and doing deals
Emphasizes win-win deal-making and taking a long-term view

"I always try to focus on a win-win. I always think about what's best for the other person and can we structure something that also works for us?" explains Taneja.

Hemant's Future Plans (1:01:14)

Taneja outlines areas of future focus for GC:

Continuing to execute on transformations in health, defense, and manufacturing
Scaling up investments in applied AI
Exploring opportunities in the energy sector
Considering GC's role in enabling long-term energy innovation and infrastructure

"I do think a lot about energy. As I mentioned, I created this organization, advanced in energy economy with Tom Steyer and a lot of it was focused on creating clean, affordable, secure energy," says Taneja.

The Kindest Thing Anyone Has Ever Done for Him (1:02:55)

Taneja shares a personal story about kindness:

Defines happiness as an interplay between curiosity and generosity
Recalls GC co-founder David Fialkow celebrating Taneja's first deal
Fialkow gave Taneja money to have a celebratory meal with his parents

"Moments like that are just incredible where somebody's kind of celebrating in your success and helping you, you know, share that forward," reflects Taneja.

Conclusion

This conversation with Hemant Taneja provides a deep dive into how General Catalyst has evolved from a traditional venture capital firm into a global investment platform focused on building resilience across critical industries. Taneja's insights reveal a long-term, purpose-driven approach to company building that aims to align profit with societal impact. By developing new capital structures, embracing radical collaboration, and focusing on transformative technologies like AI, GC is positioning itself to tackle major challenges in healthcare, energy, defense, and beyond. Taneja's leadership philosophy, emphasizing trust, relationships, and a balance of creativity with operational excellence, offers valuable lessons for investors and entrepreneurs alike in navigating an increasingly complex global landscape.