An inside look at CapitalG, Alphabet’s $7 billion growth-stage investment arm


Almost a year ago, Alphabet’s growth-stage venture capital arm, CapitalGappointed his partner Laela Sturdy as head, just as the unit’s founder, David Lawee, resigned.

Few people were surprised that Sturdy was promoted to this position. She joined Google in 2007 in a marketing role, was integrated into several departments over the next few years, and when CapitalG launched in 2013, she was recruited by Lawlee, who told CNBC in 2021: “I I sort of made a point of doing it. to find out who all the Google stars were, and Laela’s name came up often.

Of course, for many investors, the last year has been among the most difficult of their careers. We wondered if the same was true for Sturdy, a former college basketball star who is quick to note that 60 percent of his team is from diverse or underrepresented backgrounds. To find out more, we caught up with her earlier this week at CapitalG’s bright and airy offices in San Francisco’s Ferry Building; Excerpts from our discussion are lightly edited for length and clarity below.

Belated congratulations on taking the helm. How does your management style differ from that of your predecessor, David?

I still lead investments and still serve on multiple boards, but I’ve loved being able to also pay increasing attention to the team and determine how we can continue to grow the business. There is 1708154412 there are many more incredible investors that we have at CapitalG.

You have around 50 people on your team; how many of them are investors, compared to others?

Our model is to find ways that Google and Alphabet can help our portfolio companies, so not just the individuals on that team, but also give you insight. [of what I mean]Over the past two years, more than 3,500 different senior advisors across Alphabet have helped us collaborate with our portfolio companies. [to help with] pricing analysis, infrastructure scaling, marketing and setting up sales incentives. There are all these different technical and business questions that arise for growth-stage companies, and that’s what we specialize in.

Access 3,500 different senior advisors! How it works?

One example is that over the last two years we have been working with Google’s training team who provide AI and ML training for Google engineers. We said, “Hey, this training is really effective and gets really high marks internally. And many of our portfolio companies are asking us, “How can we upskill our engineers and organizations and prepare them to take full advantage of AI trends?” So we partnered with the training team and made it possible for our portfolio companies to access the exact same training, and we now have hundreds of engineers in our portfolio who have completed this training. I worked at Google for a long time before joining CapitalG, and one of the amazing things about Google’s culture from the beginning is a real culture of knowledge sharing.

The market for AI talent is extremely competitive. What can you say to portfolio companies who might be nervous about the information coming in and out of Alphabet through you?

Everything is opt-in from the portfolio company perspective. We share nothing; we operate completely separately. We do not share any portfolio company data with Alphabet and we do not share any Alphabet data with portfolio companies. We exist as an intermediary to find win-win solutions where they exist.

For example, [Google Cloud] has been an incredible go-to-market partner [and] all other cloud providers are also important and great partners, that’s why we don’t impose anything on anyone. We help facilitate great introductions, marketing partnerships and product discussions where relevant.

How are decisions made within CapitalG? Do you have the final say on who sees a check?

We have an investment committee [composed of] myself and three other general partners who are truly incredible investors. For example, my partner Gene Frantz, who I’ve worked with for 10 years – almost since the beginning of CapitalG – is a long-time investor who was at TPG and elsewhere before that. [joining the outfit]. So we’ve put together a very strong group of GPs, and those GPs submit deals to our investment committee, and we make the decision as a committee.

How many bets do you make per year? And what size checks do you write?

We typically invest between $50 million and $200 million in each company. We are very thesis-driven, so we spend a lot of time digging deep into sectors. . and we invest in about seven or eight new companies a year, and then usually [many] more follow-up [rounds] for our existing portfolio.

How much of a business do you want to own?

We are flexible on ownership percentage. What we are thinking about is the monetary returns of these companies. For example, I led Stripe’s Series D round in 2017. I think it was a $9 billion valuation. [We closed] a recent investment in AI that was prior – it had a valuation of less than $500 million – so we’re very focused on the market, how differentiated we think the company is, and whether we can invest a significant amount of capital to scale.

What are your cash-on-cash returns?

We do not share them publicly. We do not share any feedback publicly.

At $9 billion, you’re going to succeed with this investment in Stripe, whose valuation reached $95 billion before being reset to $50 billion last year. Do you think this change in valuation was a response to market trends or market performance?

Stripe is an incredible company and [tackling] it’s absolutely one of the biggest market opportunities, so I’m very optimistic about their performance to date and everything that lies ahead. When you look at valuations, public or private, over the last 18 to 24 months, they’ve all undergone some sort of reset as a result of COVID. . .so I wouldn’t read anything into the company’s performance.

Does Alphabet allocate a separate fund to you each year?

Yes, we invest from discrete funds, therefore annual funds.

How big are they?

We have $7 billion in assets under management [dating back to 2013].

So you have a lot of money in a market where others have less. With the IPO market stalling and other late-stage investors investing less, are you buying secondary shares?

We are very focused on partnerships with the CEO and management team. We will only invest if we have engagement with the CEO and have direct data from the company. Our model is that we want to be the best partners to these founders so that they refer us to the next best companies down the line. We therefore always have a direct commitment

What secondary stocks have you purchased?

I will not share specific companies as this has not been [publicly disclosed by the companies]. And many secondary sales end up being structured as primary anyway. But the broader trend that you’re referring to is interesting because it’s beginning investors who are looking for liquidity. And I think that fits perfectly with our strategy of finding the best growth-stage companies and what we think are very early in their long-term capitalization. [trajectory], so we are very happy to be on the cap table for this type of company. . . Our strategy is to establish partnerships with these companies early on and then maintain them for a long period of time.

However, you end up redistributing the shares to Alphabet.

We certainly distribute, but I would say we have a long-term orientation.

Does Alphabet really care if you make returns? Are these bets essentially strategic?

We are focused on generating returns and the mission of using the expertise and experience of Google and Alphabet to become world-class partners for these generational technology companies.

Google is obviously banking on AI. Tell me a little about your own AI strategy.

We’re as excited about AI as everyone else. We have a really great team of people focused on this topic within CapitalG, and this is another area where we have some really great advisors within Google who have allowed us to look at even more bets. techniques. Cybersecurity is a good example. We were in CrowdStrike in Series B when they had $15 million in revenue or something like that, and a lot of those early bets on cybersecurity were a differentiated technical point of view. So we bring the same rigor to the AI ​​space.

One of the things that we think is really interesting in the AI ​​space is that when we look at enterprise use cases, we actually think that a lot of the incumbents are pretty well positioned because they have a distribution, customers, workflows. . . So we looked a little bit more at places where there is real technical differentiation and where the existing workflow and distribution is less important. A company we support that we believe has strong technical differentiation is Magicwhich focuses on creating an AI software engineer.

You’re also on the board of directors of Duolingo, which parted ways with 10% of its contractors last month. A spokesperson said at the time that the company didn’t really need as many people to do the type of work it did, thanks in part to AI. Is this something you see in your portfolio companies?

I won’t comment specifically on Duolingo, but I will say that across all of our portfolio companies, they are looking at how AI can improve the customer experience and improve their other systems and processes. I think there’s a lot of surprise and fun about it. There is a lot of redesign of the marketing stack. There is a lot of overhaul of customer support and services. We are only at the very beginning. But in the same way that I see enterprise customers excited to experiment with how they can use AI in their workflow, I see startup and growth-stage companies really excited to idea to experiment with how they can use AI to rethink how they build the organization and get all their employees focused on higher value opportunities. There’s a lot of interesting work happening there.


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