Despite rollercoaster markets, historic unemployment claims, and an expanding national shutdown, investors continue to have a healthy appetite for technology start-ups.
The latest evidence: today venture firm General Catalyst announced that it has raised $2.3 billion to spread across three new funds. Managing Director Hemant Taneja told FORBES that GC is creating three new funds: a $600 million early-stage fund, a $1 billion growth fund for companies with $10 million-plus in annual revenue, and a $700 million “endurance fund” to back large companies doing more than $100 million in sales. General Catalyst already has a stake in such late-stage companies like Airbnb, Stripe, and Gusto.
Venture firm General Catalyst announced that it has raised $2.3 billion to spread across three new … [+] funds
“This pandemic has shed light on how technology can be used to rethink many core services like healthcare, education, and small business,” says Taneja. “We’re optimistic that founders will step forward and do some profound work.”
The Covid-19 pandemic, and the widespread social isolation required to fight its spread, has released a torrent of uncertainty on the investing world as entire sectors of the economy shutter, tens-of-millions of people shelter in place, and travel halts. Still, throughout this calamity, venture firms continue to invest and fundraise.
“Innovation is what’s required to move us forward. We can’t freeze as a society,” says Ken Chenault, GC’s chairman and former CEO of American Express. “I’m heartened by the commitment of founders to bring about positive change. The entire venture community understands the dire situation that the world is in, and technology is more important than ever.”
Limited partners like university endowments and pension funds commit capital to venture firms like General Catalyst for long periods, sometimes a decade-plus, in the hopes of earning high-multiple returns. The bets are illiquid, risky and, if placed right, extremely lucrative. General Catalyst, founded in 2000 by Joel Cutler and David Fialkow, has had big wins including Kayak, Snap, Datalogix, Datto, and Livongo. Current portfolio companies include Airbnb, Stripe, Gusto, Warby Parker, Oscar, Deliveroo, and Lemonade.
With the major public stock markets down more than 20% year-to-date and experiencing extreme volatility daily, the values of private companies—typically opaque at best—have been rocked by uncertainty. “There’s definitely a reset in the valuations. Does that end up being a short term occurrence or long term? We’ll see.” says Taneja, “But long term, the technology being built just three months ago and the new solutions created during the pandemic are massive ideas. The need for capital to help scale these businesses will remain as strong as ever.”
Chenault, who recently replaced Bill Gates on the board of Warren Buffett’s Berkshire Hathaway, says the venture and start-up ecosystems are looking to back relevant sectors like healthcare software, technologies for remote education and working, and tools for small business rocked by the current Covid-19 shutdowns. “It’s important that we focus on the now, and also think about long term solutions that deal with the changes taking place so we can live in a healthy and productive society,” says Chenault, who sees likens this moment to the period after 9/11 and the 2008 credit crisis. “Whenever you have a fundamental change, either positive or negative, progress emerges. That’s a tremendous benefit of capitalism and speaks to the values of this country.