Preparing for growth capital
Interview with Laela Sturdy, General Partner at CapitalG
Jane VC recently sat down with Laela Sturdy. Laela joined Google in 2007, and has been a General Partner at CapitalG for the past 7 years. We’re sharing the top takeaways from our conversation below.
1. On the metrics that investors are looking for in the post-COVID world
The business fundamentals (gross margins, market size, sales, product-market fit, etc.) still hold regardless of the cycle we’re in. Ultimately what is most important is showing the long-term viability of your business. In the current circumstances, there are additional layers to think about on top of those. The uncertainty right now means that investors are very focused on cash runway and cash cushion. Because cash is such a big focus, investors are less willing to make bets on highly cash consumptive businesses than they may have been before COVID. Businesses will see that they will get a lot more credit for cash runway and cash preservation than anything else.
2. On the general fundraising environment right now
Capital G is still excited to invest, and is actively looking at companies, submitting terms sheets, and closing deals all during the stay-at-home order. The caveat is that the times are uncertain, so everyone is feeling more skeptical. It is much harder to invest in cash consumptive businesses, businesses in sectors that have been the most hard hit, or businesses that you haven’t had a long-term relationship with. In many of the fundraising rounds that we’re part of, many entrepreneurs feel the same way and are only including investors that they already knew.
In terms of valuations at the growth stage, the public markets are very confusing to everyone right now. Macro indicators like unemployment, the huge rebound in the stock market, etc. are hard for everyone to wrap their head around. Typically public markets adjust, then 6 months later the private markets adjust, but we are all confused by the crash and uptick, so the pricing uncertainty adds a bit of friction in the fundraising process. I’m seeing some of the best companies trade at the same price that they did pre-COVID, while others have massive corrections, and then there’s everyone in between.
3. On making adjustments for this virtual time
Try to find ways to increase transparency sooner in the process of getting to know potential investors. I personally prefer to have initial conversations go deeper than just a chat over coffee. My advice is to ask prospective investors who are interested in you for help. For example, at CapitalG, we often offer prospective companies advice from our internal marketing team.
We will have to get creative over video to learn new techniques of how to get to know each other. The more that we can try to get into the substance sooner and test drive how we would work together as partners, the better.
4. On what investors look for in a founder and team
One of the most critical things that we evaluate at growth stage is the ability of the founder/CEO to recruit A+ talent. We know that the key to success are amazing founders and early-stage employees who got themselves to a certain point of success, but as they started going down the path of hyper scale, they were able to recruit A+ C-level executives to the team.
When a company is raising a big growth round, we need to be confident that the founder/CEO knows what “great” looks like across all functions — even functions they’ve never touched. I’ve seen brilliant founders who aren’t good at this which makes them under-realize their potential. You can’t scale if you aren’t able to recruit amazing talent. The bar for that talent goes up as you grow.
We don’t expect every team to be amazing and all buttoned up, but we want to see evidence that founders have been able to recruit talent “before they should have” (how did they get that person to join?). We also want to see that the founder has a good level of self-awareness of where they might not have the exact right person in the seat yet or have identified ways in which people need to grow. We need to hear founders understand how critical the right team is and have an awareness of where there are talent gaps.
5. On communicating difficult information to stakeholders
Don’t communicate only when you have big news. Even if it feels repetitive, continue to communicate. Transparency matters all the time — people want to understand how the business is doing and how leaders are weighing what’s happening with their welfare. Transparency mixed with compassion is important.
Remind yourself and your leadership team how different all of your employees are. They will all take your messages very differently. My advice is to have consistent, inclusive, transparent messaging coupled with a personalized component.
6. On launching a business in a challenging environment
Starting a company is so hard and requires so much grit, determination, and motivation. The backdrop could be harder or easier, who knows, but I wouldn’t even pay attention to it. Cycles come and go, so as a founder, you will encounter a cyclical or black swan event at some point in your growth. The current environment is a good litmus test to see how committed you are to launching/building your company. There’s a chance that it will be a little harder to raise money, but it’s also a record time in the amount of funding raised and dry powder available, so I could argue either way!
Laela Sturdy has been a General Partner at CapitalG, Alphabet’s independent growth fund, since 2013. At CapitalG, she has led investments in many consumer and enterprise companies including Stripe, Gusto, Uipath, Glassdoor, Unqork and Duolingo.
Laela joined Google in 2007 and previously was Managing Director of Emerging Businesses, where she helped start and scale businesses at the intersection of mobile, local, and commerce (including Adwords Express and Google Offers). Laela also held various leadership roles in Sales and Business Operations at YouTube and in the core search business.
Prior to Google, Laela was a consultant at Bain & Company where she helped lead projects in a range of industries including media, retail, CPG, and private equity. Laela holds an AB in Biochemistry from Harvard College, a MSc in Multimedia Systems from Trinity College Dublin, and an MBA from the Stanford Graduate School of Business.
