Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
General Catalyst has raised $8bn, the largest amount by a US venture capital group in more than two years, as part of a push by the high-profile Silicon Valley firm to expand globally and make new private equity-style investments.
It is the biggest since Tiger Global closed a $12.7bn vehicle in March 2022, outstripping multibillion-dollar funds raised by rivals such as Andreessen Horowitz and Josh Kushner’s Thrive Capital this year, according to data provider PitchBook.
General Catalyst — an early investor in payments company Stripe, social media company Snap and French artificial intelligence start-up Mistral — will put $4.5bn of the new capital into its core VC funds, $1.5bn into creating new start-ups and the remaining $2bn towards deepening its involvement in strategically important businesses.
Plans to deploy the $8bn haul in unconventional ways highlight the changing nature of venture capital, which has shrunk back over the past two years after a period of rapid growth and soaring start-up valuations.
“Behind the moves that we’re making is the fundamental observation that venture capital does not scale,” said Hemant Taneja, chief executive of General Catalyst. “There are the same number of outlier [companies] whether you make funds bigger or make funds smaller.”
The 25-year-old firm has launched a division to build companies, rather than simply fund them, and made a string of unusual investments. It announced plans to acquire a hospital system in Ohio this year, as part of Taneja’s push to embed technology into healthcare.
The only way to transform healthcare systems is “go acquire one and do it in a hands-on way”, he said. The firm is also targeting other complex sectors including energy and defence.
Rival investors have questioned whether General Catalyst’s ambitions are realistic.
“[Taneja] is interested in how technology can resolve very complex social issues. But how that intersects with the mandate of a venture fund I’m not sure,” said a partner at a Silicon Valley venture capital firm. “I think he may have gone too far. [In healthcare] you run into regulatory muck and you’re dealing with oligopolies, in both insurance and government.”
General Catalyst has also explored ways to hold companies for longer than the decade or so a traditional venture firm might.
Those include considering strategies more familiar to private equity groups, such as launching a roughly $1bn continuation fund to hang on to start-up stakes and rolling up multiple small businesses in a sector to create one dominant player, according to people with knowledge of the plans.
Those moves are partly an adjustment to more challenging conditions in venture. Start-up failure rates have increased sharply and successful companies such as Stripe and Elon Musk’s SpaceX are staying private for longer, hampering VC’s ability to return capital to their own backers.
“Venture investors haven’t internalised how existential this is: you need to return cash,” said one partner at General Catalyst. “Hemant is the only VC who really understood the next 10 years would be different to the last.”
General Catalyst has merged with smaller firms such as La Famiglia in Europe and Venture Highway India. It is planning its first investment in Saudi Arabia, through Venture Highway, according to a person with knowledge of the deal.
That global expansion comes as rivals such as Sequoia Capital and GGV Capital decouple from businesses in China and India.
“[Hemant] and I think about the world the same way: instead of building companies and selling them to Big Tech, how do we build companies that change industries?” said La Famiglia founder Jeannette zu Fürstenberg, who now heads General Catalyst’s European business.
Taneja has repeatedly emphasised the importance of responsibly developing technologies such as AI — a view that has brought him into conflict with some of Silicon Valley’s most vocal investors, including Marc Andreessen, who advocate for accelerating innovation.
“I think what is driving Hemant is [the view that] the way to build an enduring firm is to have an impact on broader society . . . We don’t see a conflict between profit and purpose,” said Ken Chenault, the former chief executive of American Express who now chairs General Catalyst.
Institutional investors have bought into Taneja’s expansive plans, helping the firm exceed an initial target of $6bn. But pushing outside of traditional venture investing and into highly complex, tightly regulated sectors brings new risks, as does investing in new regions such as the Middle East.
Taneja admits the approach is risky, but added that “the impact that comes out of it is going to be transformational too, and we’re in the risk-taking business”.