The Exchanges

Q I would love to kick off, though, with a little bit on you. So tell me, how did you make your way into the world of investing? It was an incredible career before, so I'm going to pretend like I don't know. And then how did you come to found Capital G?

A So I started my career as a serial entrepreneur, and one of the businesses that I started along the way was a venture capital firm in Toronto. So I was first exposed to the business in the late The dot-com boom and X-Fire was the first business I started here in California. So I guess I was always kind of exposed to the VC world and different levels of investment at different stages and seeing kind of how the firms operated and the ecosystem, but from the entrepreneur side. Then I joined Google in 2005, ironically, for a green card and have been at Google since, which has surprised all my friends. They never thought I would make it even to the green card moment. It's such a big company, and I ran marketing first, globally, the chief marketing officer, and then I ran corporate development for five years. We did about a hundred acquisitions, and kind of crossed the world in the business, and then in 2013, started Capital G, I guess. At that point, I was in the mindset of leaving Google, and I talked to Larry Page, and the idea was, for me, in that conversation, was to see if he wanted to invest his own capital in my firm, and he said, why don't you do this within Alphabet? And I thought about that for a little bit, and kind of came to the conclusion that we could do something in a super differentiated way inside of Alphabet, and so I decided to start Capital G with Alphabet as th…

AI assessment note: “he said, why don't you do this within Alphabet?”

Q Yeah, I do agree. I think it's largely overhyped. How do you think about reserves? Because that's another contention. A lot of people say, actually, you're much better off adding another line of diversification than concentrating capital. How do you think about reserves?

A Practically, we don't really need to think about reserves because we have one LP. So in every fund, we have the same LP, and so we can just think about every decision discreetly. And so we think about the diversification from the standpoint of, well, from Alphabet's perspective, the whole thing is like pretty small, so they don't need to think about it. So then we can think about it from the point of view of our concentration of, let's say, my own investments, and I feel we've made 45 investments in seven years. I feel more than diversified. So actually, I feel like the concentration is better for us. That's why you'll see us kind of trying to participate In as many rounds as we can for the kind of companies that we're backing.

AI assessment note: “Practically, we don't really need to think about reserves because we have one LP.”

Q I would love to kick off, though, with a little bit on you. So tell me, how did you make your way into the world of investing? It was an incredible career before, so I'm going to pretend like I don't know. And then how did you come to found Capital G?

A So I started my career as a serial entrepreneur, and one of the businesses that I started along the way was a venture capital firm in Toronto. So I was first exposed to the business in the late The dot-com boom and X-Fire was the first business I started here in California. So I guess I was always kind of exposed to the VC world and different levels of investment at different stages and seeing kind of how the firms operated and the ecosystem, but from the entrepreneur side. Then I joined Google in 2005, ironically, for a green card and have been at Google since, which has surprised all my friends. They never thought I would make it even to the green card moment. It's such a big company, and I ran marketing first, globally, the chief marketing officer, and then I ran corporate development for five years. We did about a hundred acquisitions, and kind of crossed the world in the business, and then in 2013, started Capital G, I guess. At that point, I was in the mindset of leaving Google, and I talked to Larry Page, and the idea was, for me, in that conversation, was to see if he wanted to invest his own capital in my firm, and he said, why don't you do this within Alphabet? And I thought about that for a little bit, and kind of came to the conclusion that we could do something in a super differentiated way inside of Alphabet, and so I decided to start Capital G with Alphabet as th…

AI assessment note: “I decided to start Capital G with Alphabet as the sole LP”

Q Yeah, I do agree. I think it's largely overhyped. How do you think about reserves? Because that's another contention. A lot of people say, actually, you're much better off adding another line of diversification than concentrating capital. How do you think about reserves?

A Practically, we don't really need to think about reserves because we have one LP. So in every fund, we have the same LP, and so we can just think about every decision discreetly. And so we think about the diversification from the standpoint of, well, from Alphabet's perspective, the whole thing is like pretty small, so they don't need to think about it. So then we can think about it from the point of view of our concentration of, let's say, my own investments, and I feel we've made 45 investments in seven years. I feel more than diversified. So actually, I feel like the concentration is better for us. That's why you'll see us kind of trying to participate In as many rounds as we can for the kind of companies that we're backing.

AI assessment note: “Practically, we don't really need to think about reserves because we have one LP.”

Q Yeah, absolutely. I totally get you in terms of the downward pressure there. In terms of kind of investor mindsets, you mentioned, obviously, you started Capital G seven years ago. I know my mindset's changed immensely over the last three years. I'd love to hear, how has your investor mindset changed over the last seven years, and what do you think the big evolutions have been?

A Yeah, I'd say we're kind of much more focused on why now in our kind of assessment of when markets are going to take off. More often than not, when you're investing in growth rounds, In order to pay the top price, you need to believe that things are going to compound more than other people. Like, the growth is going to compound. The size of the market expansion is going to compound. And so, you need to have a good pulse on the why now. Like, why are things going to change significantly now? And crypto, as an example, that becomes kind of a big question. Like, when are we going to get enough people to kind of transact, meaningfully transact? And what's the tipping point? If you were thinking about VR, you'd be like, when are we going to get to ten million headsets? And that's a lot of times the tail on our investments. Like, we'll make three X with a reasonable expectation of market growth. If things go as we hope, then this could be a 10 X. And that's independent of multiple. We're just talking about market expansion. So I'd say that has become more important for us over time.

AI assessment note: “we're kind of much more focused on why now in our kind of assessment”

Q I've just joined my first boards over the last 18 months. What advice would you have for me having been on the boards and having sat with the incredible fans you have done over the last seven years? What would you advise me?

A I find it's not very effective to tell people what to do as a minority investor. I'd say it's a lot better to try and get them to see you as a mirror and be an honest reflection of what they're saying and help them think about whether they're focused on the right question. And so if people say to me, well, we're going to launch this product in six months, and then six months later, they haven't launched it. My goal isn't to kind of give them a hard time about that, but when they're kind of talking about Future deadlines or goals. I can be like, well, do we feel that we're better at estimating now based on kind of what we learned the last time? And I'm just reminding them without trying to, because who hasn't worked on software products that have taken longer, that, you know, their judgment should be improved now.

AI assessment note: “try and get them to see you as a mirror and be an honest reflection”

Q Can I ask, how do you separate yourself? It's something that I'm actually struggling with right now. It's just like not getting caught up in the vortex of excitement, valuation increases, the Twittersphere. How do you separate yourself and ensure kind of purity of decision making as a partnership?

A So we've thought a lot about that. At the core of it is kind of the decision process, and for us, which is extremely unusual for a growth equity fund, we make the investments individually. The group can and does hopefully help inform that, but it's more of an investment club than kind of an investment Decision-making body. And I was born from kind of looking at a whole bunch of different investment firms and comparing their returns to that of clubs and coming to the conclusion that clubs were actually doing better. So we take more of that approach. It's still hard to get people to take risk because they're kind of leaning out on their own, but the group is trying to help you make a decision as opposed to making the decision. And so it becomes a lot less political and a lot more kind of striving for the merits because as an individual going into kind of our investment committee, I'm trying to learn as much as I can, so I come out of that meeting and can make a good decision versus trying to sell my partners.

AI assessment note: “we make the investments individually... more of an investment club”

Q Got you. That makes total sense. Can I ask, in terms of, we speak about kind of investment mindsets evolving. Another thing that I was really keen to ask is, you know, you're on the board of some incredible companies from Lyft to Credit Karma to Convoy. How would you describe your style of board membership first? And I guess, has it changed over the years?

A It changes all the time. I think what I've realized increasingly is that different management teams need to be influenced in different ways. So I try not to have, here's the David Lowey formula for motivating people. And that takes a lot of personal time with the CEOs and the management team. You know, I think you need to know how they think and how they make decisions and what things move them. And then you need to kind of work both inside the boardroom and outside. The goal is to be tuned to a pretty phenomenal company and try and help them. And that is an extremely hard thing to do. And so the last thing you want to do is kind of be tuned out in terms of what's the reality for them, because then you're going to have more limited ability to influence them. And so that tuning time is a lot more nuanced than I kind of appreciated at the beginning.

AI assessment note: “It changes all the time. I think what I've realized increasingly is that different management”

Q Can I ask, how do you separate yourself? It's something that I'm actually struggling with right now. It's just like not getting caught up in the vortex of excitement, valuation increases, the Twittersphere. How do you separate yourself and ensure kind of purity of decision making as a partnership?

A So we've thought a lot about that. At the core of it is kind of the decision process, and for us, which is extremely unusual for a growth equity fund, we make the investments individually. The group can and does hopefully help inform that, but it's more of an investment club than kind of an investment Decision-making body. And I was born from kind of looking at a whole bunch of different investment firms and comparing their returns to that of clubs and coming to the conclusion that clubs were actually doing better. So we take more of that approach. It's still hard to get people to take risk because they're kind of leaning out on their own, but the group is trying to help you make a decision as opposed to making the decision. And so it becomes a lot less political and a lot more kind of striving for the merits because as an individual going into kind of our investment committee, I'm trying to learn as much as I can, so I come out of that meeting and can make a good decision versus trying to sell my partners.

AI assessment note: “we make the investments individually... versus trying to sell my partners.”

Q Got you. That makes total sense. Can I ask, in terms of, we speak about kind of investment mindsets evolving. Another thing that I was really keen to ask is, you know, you're on the board of some incredible companies from Lyft to Credit Karma to Convoy. How would you describe your style of board membership first? And I guess, has it changed over the years?

A It changes all the time. I think what I've realized increasingly is that different management teams need to be influenced in different ways. So I try not to have, here's the David Lowey formula for motivating people. And that takes a lot of personal time with the CEOs and the management team. You know, I think you need to know how they think and how they make decisions and what things move them. And then you need to kind of work both inside the boardroom and outside. The goal is to be tuned to a pretty phenomenal company and try and help them. And that is an extremely hard thing to do. And so the last thing you want to do is kind of be tuned out in terms of what's the reality for them, because then you're going to have more limited ability to influence them. And so that tuning time is a lot more nuanced than I kind of appreciated at the beginning.

AI assessment note: “It changes all the time. I think what I've realized increasingly is that different management teams”

Q kind of the frothy markets. The thing that happens obviously with frothy markets is the prices go up, and then obviously the multiples go down, and it's also kind of never more painful, I think, and you could disagree with me here, but never more painful, especially when you're investing kind of in the gross and growth equity rounds. How do you think about pricing your own price sensitivity today?

A Well, like I said, it differs by market. So today, the SaaS, enterprise SaaS businesses are priced to the moon on average, and kind of a lot of other businesses are not. So I think when we're making enterprise SaaS businesses, we may be going a little earlier, kind of taking different kinds of risk as opposed to just taking valuation risk, but we're trying to cast a much wider net overall. It's amazing to me that in business where people know they're investing for five years or something, most of our competitors Think of that. We think even longer. Yet people are very impacted by short-term gyrations in the public markets. So we have kind of frothy public markets or fully valued public markets right now, and that affects B rounds, C rounds. Kind of makes no sense. So I think you just need to kind of separate yourself from the moment, and it does affect growth investors more than venture investors to come in at super high prices, because we're only expecting, kind of, we're underwriting three X's. So if you have a one X, that's going to hurt you.

AI assessment note: “we may be going a little earlier, kind of taking different kinds of risk”

Q Yeah, absolutely. I totally get you in terms of the downward pressure there. In terms of kind of investor mindsets, you mentioned, obviously, you started Capital G seven years ago. I know my mindset's changed immensely over the last three years. I'd love to hear, how has your investor mindset changed over the last seven years, and what do you think the big evolutions have been?

A Yeah, I'd say we're kind of much more focused on why now in our kind of assessment of when markets are going to take off. More often than not, when you're investing in growth rounds, In order to pay the top price, you need to believe that things are going to compound more than other people. Like, the growth is going to compound. The size of the market expansion is going to compound. And so, you need to have a good pulse on the why now. Like, why are things going to change significantly now? And crypto, as an example, that becomes kind of a big question. Like, when are we going to get enough people to kind of transact, meaningfully transact? And what's the tipping point? If you were thinking about VR, you'd be like, when are we going to get to ten million headsets? And that's a lot of times the tail on our investments. Like, we'll make three X with a reasonable expectation of market growth. If things go as we hope, then this could be a 10 X. And that's independent of multiple. We're just talking about market expansion. So I'd say that has become more important for us over time.

AI assessment note: “I'd say we're kind of much more focused on why now”

Q I've just joined my first boards over the last 18 months. What advice would you have for me having been on the boards and having sat with the incredible fans you have done over the last seven years? What would you advise me?

A I find it's not very effective to tell people what to do as a minority investor. I'd say it's a lot better to try and get them to see you as a mirror and be an honest reflection of what they're saying and help them think about whether they're focused on the right question. And so if people say to me, well, we're going to launch this product in six months, and then six months later, they haven't launched it. My goal isn't to kind of give them a hard time about that, but when they're kind of talking about Future deadlines or goals. I can be like, well, do we feel that we're better at estimating now based on kind of what we learned the last time? And I'm just reminding them without trying to, because who hasn't worked on software products that have taken longer, that, you know, their judgment should be improved now.

AI assessment note: “I'd say it's a lot better to try and get them to see you as a mirror”

Q I love that in terms of the culture of, like, learning optimization for you, the kind of decision maker on, say, that particular deal, and your partner's kind of championing you to make the best decision, but how do you kind of create that culture internally with the kind of champion and challenge, not the kind of bashing other people's deals, which it could devolve into in other partnerships?

A I don't really care what the group thinks. Because in the end, I need to make the decision, and I tell that to my team, like, I'm not convinced that if the group agrees with me, my decision is a better one. I think in all investments, you're almost by definition a contrarian, because a whole bunch of people are deciding not to invest. I think once I say that to people on my team, let's say the more junior people, they kind of view their role in the meeting as different, and they see kind of time and again, the group is pretty negative on things, and we're going ahead and making investments. That's why I kind of answered your question with kind of what the decision-making structure is, because I think that has a lot of impact.

AI assessment note: “once I say that to people on my team, let's say the more junior people”

Q kind of the frothy markets. The thing that happens obviously with frothy markets is the prices go up, and then obviously the multiples go down, and it's also kind of never more painful, I think, and you could disagree with me here, but never more painful, especially when you're investing kind of in the gross and growth equity rounds. How do you think about pricing your own price sensitivity today?

A Well, like I said, it differs by market. So today, the SaaS, enterprise SaaS businesses are priced to the moon on average, and kind of a lot of other businesses are not. So I think when we're making enterprise SaaS businesses, we may be going a little earlier, kind of taking different kinds of risk as opposed to just taking valuation risk, but we're trying to cast a much wider net overall. It's amazing to me that in business where people know they're investing for five years or something, most of our competitors Think of that. We think even longer. Yet people are very impacted by short-term gyrations in the public markets. So we have kind of frothy public markets or fully valued public markets right now, and that affects B rounds, C rounds. Kind of makes no sense. So I think you just need to kind of separate yourself from the moment, and it does affect growth investors more than venture investors to come in at super high prices, because we're only expecting, kind of, we're underwriting three X's. So if you have a one X, that's going to hurt you.

AI assessment note: “we may be going a little earlier, kind of taking different kinds of risk”

Q for that. You said that kind of contrarian. Something that is surprising to say is contrarian, but as every firm say is going multi-stage, going up and down the stack in terms of going aggressively into seed and pre-IPO, you chose for a very specific growth strategy. My question is kind of what was the thinking there, and what value do you think comes from being so stage-focused on growth?

A Well, I mean, we started with growth because we thought we would have a very differentiated perspective on that and be able to help companies in a unique way by leveraging a lot of the people at Alphabet. So that was our starting point, and I guess we could have gone earlier, but my view is the job of the person doing earlier stage investing is quite a bit different, and when I talk to my friends in venture, they're invested in 15 companies, they may be on almost that many boards, and they're connecting with people kind of 20 meetings in a day type thing, because they're trying to get kind of the information on what's happening in the community versus we're being a lot more prescriptive in terms of where we go. So it's like, oh, I'm going to look at these types of businesses, and I'm going to go out and call on all those people. The process is totally different. And then I might spend a month researching a given segment, and I will come back to that six months later and spend another month. And over 18 months, we've been exploring crypto for seven years. You know, kind of made an investment in the space. I'm connected to a lot of the best crypto minds in the world. I just haven't found an investment that I like. I will eventually, same with gaming, but sometimes you just need to be patient in these categories. So the process of finding something is way different. And then I wou…

AI assessment note: “we started with growth because we thought we would have a very differentiated perspective”

Q it is off schedule, but I'm really interested, because I haven't, you know, worked through and invested through massive market cycles. You've seen them both from kind of the sides of the entrepreneur more, and then also from the side of the investor. How did seeing that Kind of crash and boom impact your investing mindset stage, you think? And what would you advise me having never seen it before?

A As an entrepreneur, it's super challenging to manage businesses where the environment is changing so meaningfully around you. So as an example, you're kind of in a prisoner's dilemma if your competitor ends up raising 10 times more capital than you have, where you need to raise the money and start investing at a pace to compete with them, even though that may be a little bit counterproductive and you're getting ahead of your skis. So that makes it extremely challenging. And the extreme of that, I think, is in markets like India, where kind of capital comes and then goes, kind of comes for two years, extremely frothy, and then people get nervous and leave the market. And those entrepreneurs go from having burns that are fifty million dollars a year to kind of needing to survive on five million dollars a year. So it just is extremely hard from an operating standpoint. From the investor standpoint, I think people are kind of a little bit more cavalier and say, oh, I invest through the cycle, and you're not going to make money. You're paid to put money to work, and you're not going to make equal amounts of money in all parts of the cycle, and while that's true, I think the world is not uniform, and I think we have the luxury of being able to invest across a lot of sectors and countries, and we should be able to find good opportunities in any sector, so I hold ourselves to a pretty …

AI assessment note: “your experience has taught you to be more risk-averse”

Q for that. You said that kind of contrarian. Something that is surprising to say is contrarian, but as every firm say is going multi-stage, going up and down the stack in terms of going aggressively into seed and pre-IPO, you chose for a very specific growth strategy. My question is kind of what was the thinking there, and what value do you think comes from being so stage-focused on growth?

A Well, I mean, we started with growth because we thought we would have a very differentiated perspective on that and be able to help companies in a unique way by leveraging a lot of the people at Alphabet. So that was our starting point, and I guess we could have gone earlier, but my view is the job of the person doing earlier stage investing is quite a bit different, and when I talk to my friends in venture, they're invested in 15 companies, they may be on almost that many boards, and they're connecting with people kind of 20 meetings in a day type thing, because they're trying to get kind of the information on what's happening in the community versus we're being a lot more prescriptive in terms of where we go. So it's like, oh, I'm going to look at these types of businesses, and I'm going to go out and call on all those people. The process is totally different. And then I might spend a month researching a given segment, and I will come back to that six months later and spend another month. And over 18 months, we've been exploring crypto for seven years. You know, kind of made an investment in the space. I'm connected to a lot of the best crypto minds in the world. I just haven't found an investment that I like. I will eventually, same with gaming, but sometimes you just need to be patient in these categories. So the process of finding something is way different. And then I wou…

AI assessment note: “we started with growth because we thought we would have a very differentiated perspective”

Q I think kind of that LP structure changes everything and changes a lot. It also changes something like potentially with regards to generational transition. I see a lot of managers who say, God, our LPs are absolutely drilling us on generational transition. And it's front and center for that reason. How do you think about generational transition? And does it differ because you do have a fundamentally different LP structure?

A I don't think it differs. Maybe the incentives. Are different to do it. One of the benefits of being started within the Alphabet family is there's a lot of experience in company building, and so a lot of the things that you might overlook as a small business, we have the benefit of people thinking about for a lot of different businesses, and so that could be like gender diversity, racial diversity. When we have these issues come up, we have the ability to tap into Alphabet to get really good thinking in terms of how to kind of address these issues, and the same is true for Some of these basic company building things, people were asking me, who's my successor from the beginning? So I didn't feel that it's something I kind of need to think of all of a sudden. I've always been thinking about that.

AI assessment note: “I don't think it differs. Maybe the incentives. Are different to do it.”

Q I think kind of that LP structure changes everything and changes a lot. It also changes something like potentially with regards to generational transition. I see a lot of managers who say, God, our LPs are absolutely drilling us on generational transition. And it's front and center for that reason. How do you think about generational transition? And does it differ because you do have a fundamentally different LP structure?

A I don't think it differs. Maybe the incentives. Are different to do it. One of the benefits of being started within the Alphabet family is there's a lot of experience in company building, and so a lot of the things that you might overlook as a small business, we have the benefit of people thinking about for a lot of different businesses, and so that could be like gender diversity, racial diversity. When we have these issues come up, we have the ability to tap into Alphabet to get really good thinking in terms of how to kind of address these issues, and the same is true for Some of these basic company building things, people were asking me, who's my successor from the beginning? So I didn't feel that it's something I kind of need to think of all of a sudden. I've always been thinking about that.

AI assessment note: “I don't think it differs. Maybe the incentives. Are different to do it.”

Q I love that in terms of the culture of, like, learning optimization for you, the kind of decision maker on, say, that particular deal, and your partner's kind of championing you to make the best decision, but how do you kind of create that culture internally with the kind of champion and challenge, not the kind of bashing other people's deals, which it could devolve into in other partnerships?

A I don't really care what the group thinks. Because in the end, I need to make the decision, and I tell that to my team, like, I'm not convinced that if the group agrees with me, my decision is a better one. I think in all investments, you're almost by definition a contrarian, because a whole bunch of people are deciding not to invest. I think once I say that to people on my team, let's say the more junior people, they kind of view their role in the meeting as different, and they see kind of time and again, the group is pretty negative on things, and we're going ahead and making investments. That's why I kind of answered your question with kind of what the decision-making structure is, because I think that has a lot of impact.

AI assessment note: “Once I say that to people on my team... they kind of view their role”

Q it is off schedule, but I'm really interested, because I haven't, you know, worked through and invested through massive market cycles. You've seen them both from kind of the sides of the entrepreneur more, and then also from the side of the investor. How did seeing that Kind of crash and boom impact your investing mindset stage, you think? And what would you advise me having never seen it before?

A As an entrepreneur, it's super challenging to manage businesses where the environment is changing so meaningfully around you. So as an example, you're kind of in a prisoner's dilemma if your competitor ends up raising 10 times more capital than you have, where you need to raise the money and start investing at a pace to compete with them, even though that may be a little bit counterproductive and you're getting ahead of your skis. So that makes it extremely challenging. And the extreme of that, I think, is in markets like India, where kind of capital comes and then goes, kind of comes for two years, extremely frothy, and then people get nervous and leave the market. And those entrepreneurs go from having burns that are fifty million dollars a year to kind of needing to survive on five million dollars a year. So it just is extremely hard from an operating standpoint. From the investor standpoint, I think people are kind of a little bit more cavalier and say, oh, I invest through the cycle, and you're not going to make money. You're paid to put money to work, and you're not going to make equal amounts of money in all parts of the cycle, and while that's true, I think the world is not uniform, and I think we have the luxury of being able to invest across a lot of sectors and countries, and we should be able to find good opportunities in any sector, so I hold ourselves to a pretty …

AI assessment note: “your experience has taught you to be more risk-averse”