General Catalyst has backed some of the most interesting tech firms of our time, including Canva, Deliveroo, Snap, and Stripe in addition to Canva, Airbnb, and Instacart. The company has given over a thousand businesses $14+ billion in over twenty years. Although the venture capital firm undoubtedly catalyzed the American Silicon Valley, the VC firm in India is still in its infancy. The portfolio includes 15 additional firms in addition to unicorns Cred and Spinny.
General Catalyst claims that by investing in themes that could transform India into a resilient force in the new global order, they are demonstrating their investment philosophy of bringing about powerful, lasting change in the areas of healthcare, inclusive finance, the environment, and supply chain investments.
The booming tech sector as a whole has struggled throughout the economic downturn, as evidenced by bank failures, funding collapses, layoffs, and valuation declines. Bank expansion at any cost looks to be a thing of the past, just like it is in Silicon Valley. General Catalyst Partners has urged Indian entrepreneurs to embrace responsible innovation and not imitate the Move Fast and Break Things startup culture of Silicon Valley.
Therefore, a new frontier has developed as entrepreneurs reset their models to fit this new world order. It is also known as artificial intelligence, a technology that holds both promise and the potential to be dangerous. AI “changes everything,” according to Hemant Taneja, the CEO and Managing Director of General Catalyst and author of a book on the subject. To survive it, guardrails are required, and soon.
Here is the complete interview with his future game plan:
You’ve been a member of the group that has supported saving Silicon Valley Bank. According to The Wall Street Journal, the FDIC has rejected non-bank approaches for the Silicon Valley bank. How will this affect risk appetite and what does it signify for the future of SVB and the valley?
Answer: In the boom, there was a lot of overfunding, and many companies are still adjusting to their high values. In retrospect, we just lacked the proper treasury management techniques for our startups, which is the truth. And you know, looking back, it was a mistake for these businesses to rely solely on one bank to manage their funds. I believe that will be resolved.
Because Silicon Valley Bank has been a crucial institution for us, I’m incredibly delighted that the ecosystem as a whole has rallied behind and supported them. And I’m also optimistic that in the future, we’ll have two or three organizations supporting the ecosystem, similar to Silicon Valley Bank.
The Valley is, in my opinion, generally a happy place. There is a lot of excitement about being able to exploit the most recent developments in AI as the beginning of the next wave of innovation, and many business owners are currently launching their operations there.
Q: We’ve discussed course modifications on occasion. With rules, 2008 presented its difficulties. Will the culture of government bailouts and interference create a moral hazard where capitalism as we know it is rendered ineffective?
A: The challenge we are currently facing with regional banks is distinct from the one we faced in 2008 when the mortgage-backed crisis was at the forefront and most of the legislation aimed to strengthen the larger banks. Many of those things did not, however, apply to these regional banks. Their investment strategy and internal treasury management procedures were therefore out of step with how to handle the shifting market climate over the past couple of years, which is why I believe a lot of this came to fruition.
As a result, there are some additional rules. The issue is that regulation just addresses existing issues rather than proactively addressing ways to increase resilience. I believe that if you look ahead five to ten years, there won’t be as many regional banks, and you’ll see a consolidation in that market. My hoI hope is that, once again, the role that some of these regional banks play, such as the ones that are focused on the tech ecosystem, will be preserved, as it’s essential for our innovation economy.
Q: What will the macroeconomic challenges with rising interest rates mean for values and fundraising shortly?
A: You won’t observe valuation stability, in my opinion, until interest rates settle, and even then, I believe they may rise a little higher. As a result, if interest rates increase, stocks, and DCF models appear to be more costly, and the market tends to course correct.
I do believe that many later-stage private companies are working through those problems in the background and are becoming more robust and growing in their values.
You will undoubtedly experience some downturns, but I believe it is completely acceptable for businesses to continue operating as normal during these times. On the plus side, there is some hope that in nine to twelve months, valuations will begin to normalize and the IPO market will begin to open up.
Q: Euphoria is supposedly back in the valley, but it doesn’t appear that way, especially in light of all the layoffs and business closures. Where can you discover the bright side?
A: The debut of GPT4 coincided with the week that the SVB collapsed. A lot of entrepreneurs are launching incredible businesses if you look underneath the growth companies. It is taking place in and around AI. According to us, it profoundly alters the function of the software. We think that businesspeople are beginning to consider how to apply this technology in a commercial setting across all major industries. We’ll likely see a few hundred business proposals centered on AI this year alone. The next wave of very intriguing firms is, in my opinion, just getting started.
Q: Concerns about AI exist not just for sectors but also for employment and markets, particularly in India. There have been estimates that the ‘AI jobpocalypse’ may affect 5 million developers in India. Is it a bold prediction?
A: It’s a new technology, so the optimist imagines all the wonderful things it can accomplish while the pessimist considers all the negative possibilities. The truth is that everything hinges on our ability to use it.
Our fundamental belief is that if we can utilize AI to improve human potential, we can build a far more successful society. You must proceed with caution. We have written extensively about the need for guardrails on how to use this technology because it has the potential to go in a lot of bad directions. Nevertheless, we do see a world where it will be great for enhancing human productivity, bringing more abundance to areas where it is currently lacking, and potentially revolutionizing many sectors that are just beginning to consider adopting it.
Q: Who will install the barriers around AI?
A: While I genuinely believe that innovation should never cease, I also feel that we shouldn’t make the same mistakes again by moving too quickly and breaking things on social media as part of this technological cycle.
The guardrails will be implemented in two ways: first, our technology sector and the way we create businesses require a framework for self-regulation, an AI framework with the responsibility that has the attitude and tools to create these businesses in a way that is beneficial to society. The only way to achieve it is to gauge how technology’s unexpected effects affect society as a whole.
The other is that someday, the government will have a guideline for how AI technologies are observed and controlled. In my opinion, the government lacks any type of sophisticated instrument to accomplish this. To create such frameworks as well, technological players and governments will need to work really closely together.
I don’t believe in excessive regulation, but I do think that if we can build up the correct set of self-regulations for AI, we can make the most of this technology.
A responsible AI group is assembling in the valley to develop some best practices that we can all support. That’s a good place to start, but it’s insufficient. We need a regulatory structure to keep an eye on the evil applications of technology, which will continue to occur. But I do believe that ultimately we need both.
Q: What about the success of Indian startups offers you optimism and assurance? How does your portfolio for India look?
A: About the possibility in India, we are tremendously thrilled. There is clear evidence of good firms being established if you look over the previous several years. Starting with UPI and Aadhar, India has done an excellent job of creating platforms in such a way that they are really encouraging innovation in the ecosystem.
When you consider the geopolitics of it all, as Fareed Zakaria and I just wrote about, we believe that the U.S.-India corridor is extremely crucial and will have a significant impact on innovation and technology.
Our goal is to assist growing businesses in India using the lessons we’ve learned there while also learning from the innovations made there and bringing them back to the US. Over the next 10 to 20 years, I believe the innovation cycle will be outstanding.
Q: What additional bets besides AI do you want to place in India? Which industries are promising for you to invest in and spread that strategy globally?
A: We are absolutely looking at opportunities. We are looking at long-term views for our core areas of interest. The short-term dynamics of markets really don’t deter us and shouldn’t to anybody from investing in innovation here. The long-term promise of what’s to come here over the next 10-20 years is extremely bright. As you know, the companies that can take advantage of the promise over the next decade are going to be built today. We think it’s an exciting time to be investing actively.
Q: How much of a correction, in addition to what you are witnessing inside your own portfolio businesses, are we expecting to see across the Indian startup ecosystem?
A: Unprofitable expansion is undesirable in both up and down cycles. Companies are becoming more disciplined in the context of comparatively little cash. That’s a nice thing in general. The incorrect perspective is that these firms are not expanding as quickly as they formerly did. We ought to consider how much more profitably they are expanding now.The long-term opportunity for these businesses still exists, and now is the time when great entrepreneurs can be distinguished from impulsive ones because the former will be careful with their money and the latter will build their companies at whatever growth rates are appropriate for them given the physics of the industry. We believe that such businesses will be able to raise money as and when they require it.
Q: Do you think the worst is over? Or may things go worse?
A: The worst has passed. In our own portfolio or the relationships, we have with CEOs of significant firms, they have been taking action over the previous 12-18 months. We went through a deep exercise in our portfolio last year. Every corporation was re-underwritten, and operational strategies that were more prudent financially, suitable, and profit-oriented were ensured. Now, it’s up to these businesses to keep operating with that budgetary restraint. Honestly, some of them are going to have a hard time raising capital. It’s only typical. If they are sound enterprises, they will continue to grow by raising money at the appropriate cost for the operation. Entrepreneurs and investors shouldn’t be discouraged, in my opinion, by the down rounds. When the bubbles rupture in cycles, this occurs. The truth doesn’t go away that most of these concepts and the technology innovations that these firms are working on in the long run are fairly resilient.
Q: There is a lot of dry powder in the VC world. Do you think risk appetite will increase again or stay at a low level until 2023? Observe how this develops while pausing to catch your breath.
A: We are highly engaged in the early stages of a multi-stage company like ours. On the growth front, such businesses are continuing to implement their goals and raising their valuations from the earlier stages. Everybody is anxious to learn where the multiples should lay. Because interest rates haven’t stabilized, it’s also uncertain what the best multiples are to employ to underwrite these firms. The markets will likely open up as much of it returns to normal over the following nine to twelve months. There is a lot of dry powder available, and the finest businesses can still obtain it. Over the next year or so, the remainder will become used to the system.
Q: The addressable and monetisable markets in India differ significantly from one another. What perspective do you have on this divergence? And do you think we can close this gap in the upcoming five years?
A: I believe we can close the gap. I believe we just pay attention to the top of the pyramid and assume that since their expenditures are larger than the rest of the market’s, we won’t be able to build an inclusive digital infrastructure for the nation. The actual query is: How do you envision creating these firms and considering the addressable market for each market segment? Because of this, we consider investing in fintech or software just as much as resilience. The potential will be in constructing businesses around agtech and the local climate, as well as in developing regional supply networks. In the long run, according to our projections for GDP growth and per capita income, things will move far more swiftly in this country than they did in China in terms of the adoption of new technologies. In India, we don’t believe that is that far away. The moment to start businesses that can seize that potential during the following ten years is now.
Q: What are some of the themes you see playing out in 2023 — India and globally?
A: Understanding AI is something that interests us a lot. There is a significant software hub here, which presents India with a significant opportunity. There is no reason why the upcoming generation of software firms can’t begin here. I believe there will be a significant opportunity with the next technology change. Agtech is highly fascinating, and there are many outstanding entrepreneurs in this environment. We firmly think that there are numerous local chances to create resilient, sustainable businesses all around the world. We are resolving the market failure in healthcare that occurred in the US and was sparked by COVID. These opportunities are prevalent in India, as we can see. We are careful to avoid making the same errors that were made in the development and expansion of the healthcare system in the US, and we want to accomplish it here with the attitude of health assurance from the beginning.