Almost a year ago, Alphabet’s growth-stage business arm, CapitalGnamed partner Laela Sturdy as the new head, just as the unit’s founder, David Lawee, stepped down.
Few were surprised that Sturdy was promoted to the position. He joined Google in 2007 in a marketing role, was hired across multiple departments over the next few years, and when he started CapitalG in 2013, he was hired by Lawlee, who told CNBC in 2021: “I kind of made it an issue. to find out who all the stars were on Google and Laela’s name came up a lot.”
Of course, for many investors, the last year has been one of the most difficult in their careers. We wondered if the same is true of Sturdy, a former college basketball star who is quick to note that 60 percent of her team comes from diverse or underrepresented backgrounds. To learn more, we caught up with her earlier this week at CapitalG’s bright, airy office in San Francisco’s Ferry Building. Excerpts of our conversation 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 on a bunch of boards, but I’ve loved being able to also pay increasing attention to the team and figuring out how we can continue to build the company. Exists 1708180274 many more incredible investors we have at CapitalG.
You have about 50 people in your group. how many of them are investors versus others?
Our model is to find ways that Google and Alphabet can help our portfolio companies so that not only the people in that group, but also give you an idea [of what I mean]over the past two years, we’ve had more than 3,500 different senior advisors within Alphabet help work with our portfolio companies [to help with] pricing analysis, infrastructure scaling, marketing and sales incentives. There are all these different technical and business questions that arise for growth stage companies, which is where we specialize.
Access to 3500 different senior advisors! How does this work?
An example is that for the last two years we have been working with Google’s training team training AI and ML for Google engineers. We said “Hey, this training is really effective and gets very high ratings internally.” And we have many of our portfolio companies asking us, “How can we upskill our engineering talent and our organizations and prepare them to take full advantage of AI trends?” So we worked with the training team and got our portfolio companies access to the exact same training, and now we have hundreds of engineers within our portfolio going through that training. I worked at Google for a long time before coming to CapitalG, and one of the amazing things about the culture at Google from the beginning is a real knowledge-sharing culture.
The market for AI talent is so competitive. What can you say to holding companies that might be nervous about information coming in and out of Alphabet through you?
Everything is opt-in from the perspective of the holding companies. We don’t share anything. we operate completely separately. We do not share holding company data with Alphabet and we do not share Alphabet data with holding companies. We exist as an intermediary to find win-wins where they exist.
As an example, [Google Cloud] has been an incredible partner for the market [and] All other cloud providers are also important and great partners, so we don’t push anything on anyone. We help facilitate the right introductions and marketing partnerships and product discussions where relevant.
How are decisions made at 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 really incredible investors. For example, my partner Gene Frantz, who I’ve worked with for the past 10 years – almost since the beginning of CapitalG – is a long-time investor who’s been at TPG and other places before [joining the outfit]. So we’ve built a GP bench that’s really strong, and those GPs bring deals to our investment committee and we make the decision as a committee.
How many bets per year do you make? 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 in areas . . and we invest in about seven or eight new companies a year and then usually [many] more continuity [rounds] for our existing portfolio.
How much of a company do you plan to own?
We are flexible in terms of ownership percentage. What we are thinking about is refunds to these companies. For example, I led the Series D round in Stripe in 2017. I think it was a $9 billion valuation. [We closed] a recent AI investment that was on the front side – it was under $500 million in valuation – so we’re very focused on the market, how we think the business is differentiated and whether we can invest a significant amount of capital at scale.
What are the cash backs?
We do not share them publicly. We do not share any of the returns publicly.
At $9 billion, you’ll do great with this investment in Stripe, whose valuation hit $95 billion before rebounding to $50 billion last year. Do you think the change in valuation was in response to market trends or its performance?
Stripe is an incredible company and [tackling] absolutely one of the biggest market opportunities out there so I’m very bullish on their performance to date and all that going forward. When you look at any valuations, public or private, over the last 18 to 24 months, they’ve all had some sort of reset based on COVID. . .so I wouldn’t read anything about the company’s performance.
Does your Alphabet have a separate fund each year?
Yes, we invest from discrete funds, so annual 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 stalled and other late-stage investors investing less, are you buying secondary stocks?
We focus a lot on partnerships with the CEO and management team. We will only invest if we have engagement with the CEO and have direct evidence from the company. Our model is that we want to be the best partners for those founders so they refer us to the next best companies down the line. So we always have immediate engagement
What secondary stocks have you bought?
I won’t share specific companies because it didn’t happen [publicly disclosed by the companies]. And many secondary sales end up being structured as primary anyway. But the broader trend you’re referring to is interesting because it’s early-stage investors looking for liquidity. And I think that’s right in line with our strategy of finding the best growth-stage companies and what we think is very early in their long-term consolidation [trajectory], so we’re very excited to be joining the capital table of these types of companies. . . Our strategy is to work with these companies early and then hold them for a long time.
However, you ultimately distribute shares back to Alphabet.
We certainly distribute, but I would say we are long-term oriented.
Does Alphabet really care if you deliver returns? Are these bets primarily strategic?
We are focused on delivering returns and focused on the mission of leveraging the expertise and experience of Google and Alphabet to be a world-class partner to these generational technology companies.
Google is obviously making big strides in AI. Tell me a little about your own AI strategy.
We’re as excited about AI as everyone else. We have a really great group of people focused on that at CapitalG, and that’s another area where we have some really great advisors within Google that have allowed us to lean into even more technical bets. Cybersecurity is a good example here. We were at CrowdStrike in Series B when they had $15 million or so in revenue, and a big part of making some of those early cyber bets was a nuanced technical point of view. So we bring that same rigor to the AI space.
One of the things that we think is very interesting in the AI space is that when we look at enterprise use cases, we think a lot of the incumbents are pretty well positioned because they have distribution, they have customers, they have workflows. . .so where we’ve been looking a little bit more are places where there’s real technical differentiation and where workflow and existing distribution are less important. A company we have backed and believe has strong, technical differentiation is Magicwhich focuses on building an AI software engineer.
You’re also on the board 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 that many people to do the kind of work they did, in part because of AI. Is that something you see across all of your portfolio companies?
I won’t comment on Duolingo specifically, but I will say that across all of our portfolio companies, they’re 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 joy around that. There is a lot of rethinking of the marketing stack. There is a lot of rethinking of customer support and services. We are still in very early innings. But in the same way that I see enterprise customers excited to experiment with how they can use AI in their workflow, I see startups and growth-stage companies really experimenting with how they can use AI to to rethink how they build the organization and all their employees focused on the opportunities with the greatest value. There is a lot of interesting work going on there.
