JR: Hey there. So I’m driving back from Dartmouth with one of my good friends from college, Gautam Gupta (GG). He had asked me to be a panelist for the Enter Entrepreneurship event that his firm, General Catalyst and Goodwin Procter were holding. We’re driving back in the car. It’s pretty late, but we decided, you know what, we might as well record our voice and turn it into a blog post. I’m going to ask Gautam a couple of questions about entrepreneurship, about businesses that he’s seen, about the landscape of his firm, and about where he thinks technology in general is going to go in the future. Gautam, would you like to give an introduction?
GG: Yeah, absolutely. Thanks, Jason. I’ve been at General Catalyst for two and a half years now and spend half of my time focused on consumer internet, the other half of my time on software. General Catalyst is a Cambridge, Massachusetts based venture capital firm that was founded by four guys who all went to high school together, became successful entrepreneurs, and really started General Catalyst as an entrepreneur centric VC firm. [We] have a huge amount of operational experience around the table in a variety of industries. We’ve been in business for about ten years and have raised a total of 1.7 billion dollars worth of capital since inception. We’re actively investing today, and I’m happy to answer whatever questions I can.
JR: So, Gautam , I’m sure a lot of entrepreneurs are thinking to themselves, “In this down economy, how can I get my startup off the ground? Is it still too late to get funding? Is it too difficult?”
GG: No, I think that there is plenty of money out there for great ideas, great people, big markets. Obviously, the statistics on the economy, on [the] venture capital industry are pretty well known. It’s a very tough fundraising market, but I would not let that deter you in starting a business.
JR: If somebody like a Facebook or a social network, whose entire business model falls around the network effect, came to General Catalyst and pitched a concept, would you guys take a second meeting, a third meeting? Would you potentially fund it?
GG: Absolutely, I mean I think when you’re investing in businesses that depend on, a network effect–that depend on critical mass–we love to see a proven track record, both in terms of the team and the product. It doesn’t have to be a million users, but we like to see tens of thousands of users using the platform. We like to understand how they’re using the product. What the growth or the momentum of the product is. And most importantly, what the team’s passionate about, what their vision is for the company. And how big of an idea they think that they have. But we’ll certainly fund businesses like that. We’re happy to go the very early stage, and that’s usually whether there’s a team that we trust and that we’ve worked with before or that we’ve gotten to know over some period of time.
JR: Would you invest in a network effect startup that doesn’t have traction? Would you be their funding to prove out their traction, or would they have to go to another source?
GG: There isn’t a clear science to this but I’ll give you two thoughts: first, if the team is excellent, we’ll fund no matter what stage. We focus, first and foremost, on great entrepreneurs at whatever stage, whatever location, whatever sector they may be operating in. Second, in the days of consumer internet you don’t need a whole lot of money to get off the ground. You don’t need a whole lot of money to test an effect. So if a company came to me and they said, “Hey, we’ve got a great idea. It depends getting to critical mass, and it’s in the internet space.” Most likely, my question back to them would be, “Why haven’t you tested it? My belief is that you should launch on friends-and-family money and that venture capital is something that you shouldn’t run towards taking at a very early stage. It should be a thought out decision. You know, it may not be the right thing for most…it isn’t the right thing for most businesses.
JR: Where is your firm looking for the next innovation? Are you guys looking for young students coming out of college? Are you looking for larger stage investments, say…a series C, a series D?
GG: We’re looking across the board; but traditionally, we focus on early stage–seed and series A, in that respect. A number of those are companies that we’ll work with a founder and develop the business plan and hatch right out of our office. Some of those are university spinouts, or university IP licensing. And some of those are more traditional series A type of venture deals. And then the other focus area for us is growth equity, which is where we’re partnering with entrepreneurs and established businesses. We’re usually the first institutional capital into a business, a business of five to fifty million dollars in revenue. We’re partnering with an entrepreneur to get from one inflection point to the next. And typically, we’re providing a lot of input around the growth strategy and helping to grow the company to fifty to a hundred million dollar revenue sales.
JR: You are clearly in the know…as young entrepreneurs, where should we be looking if we’re thinking…five…ten years out…
GG: Well, you know, I think that just traditionally speaking, you should always look for huge areas of dislocation. I think of some of the interest areas that I’m interested in five to ten years out… I think that synthetic biology is an area , robotics as an area of interest, and mobile. But that’s more your term. I actually feel very strong about opportunities in mobile over the next few years. I think that the creation of mobile platforms, and really the carriers starting early–we’re very early in this–starting to open up for the market is very interesting. So I think nearer-term opportunity in mobile. Longer-term opportunity in robotics and biology. Your point, about desktop computing…
JR: Uh huh…
GG: I don’t think that desktops are going away any time soon. I think they may take different forms. You could say that mobile computing is something that dates back to the laptop. And we’ve certainly seen more enterprise workers carrying laptops than before, and that number is increasing. You know, netbooks are another interesting evolution in this space. The netbook is just an easier, smaller, cheaper form factor. I think you’ll continue to see innovations around the edges of the desktop computer. But I don’t think that localized computing is going away. I do think that you’ll see more applications on the cloud and software service space application. No question in my mind about that. But I don’t see the computer going away. I think that people will still have local devices that they use to connect to the internet, that they use to work, computed active and lower latency, or kind of, standard intensive projects.
JR: We’re having more and more applications. Photoshop came out with their version of the online app. Microsoft is releasing their Office that’s been strictly online. There is computing power, and we have limitations on our bandwidth. How do you see those applications playing out? Do you think that’s just the fad they’re following right now, or does it have growth?
GG: Yeah, it’s very interesting. I don’t think it’s a fad at all. I do think that this is really the next generation of computing, in my opinion. I think that applications vendors, as I see it–are thinking about that in a very short term manner and not architecting new solutions for the web. I think we’re going to get better on that front as an industry, as a software industry, of having more intuitive design and being better at understanding web delivery. But I don’t think it’s a fad. I think that we’re just seeing early versions of web delivered desktop software packages, and it’s going to just take a couple revisions to get all the kinks out.
JR: How do you see that playing with the international environment, or are they behind on bandwidth and they can’t run these applications properly?
GG: Well, it’s very interesting. I spent more time thinking about the emerging market and, the bottom of the pyramid type of market. I think that, really, their access point is through the mobile phone which is a little bit different, I think, from what you’re saying. Your point about international community, I think that in a certain income class and in certain countries where computer adoption, internet penetration, etcetera are pretty high. There is no reason for me to believe that adoption of software service model, or anything like that, is going to evolve or happen quicker or slower than U.S. Now, if we’re talking about lower income or emerging countries or developing countries, then I think you’ve just got to realize that the computer penetration and the internet penetration numbers are completely different. That will take its time to get corrected. I think in the meantime, you’re going to see the mobile phone as the window to the internet and to various kinds of software.
JR: What do you think about the emerging markets? You mentioned that you liked emerging markets and that’s really where you want to focus. What countries do you see the most innovations, and how are you actively taking a role to help entrepreneurs who help spur innovations in those countries?
GG: The market that I’m most interested in is India. And that’s a market that I think has huge potential over the next ten, twenty years. It’s an area that I’m spending a lot of personal time learning about and trying to be helpful to entrepreneurs that I meet that are starting up businesses in India. But I’m not taking a very active role there yet.
JR: Are there any lasting words? As an entrepreneur who’s pitching to Gautam, what’s the best way for me to get attention and get a follow up call?
GG: In general I have a rule of thumb that I try and get back to any email or phone call that I receive within 24 hours. I’m rarely out of touch–very rarely unreachable via email. I would say, look, if there are ways in which we can be helpful, we’d love to be. And please do reach out, and let’s chat.
JR: Gautam, thank you very much for your time. I’m sure everybody appreciates that. I’m going to go ahead and post your email address so readers can contact you.
GG: Great. Thanks so much.
Gautam’s email address is ggupta@generalcatalyst.com