How partners at Google parent Alphabet’s growth fund CapitalG are tackling the downturn

December 13, 2022, 12:11 PM UTC
Alphabet's growth fund CapitalG's general partners.
Courtesy of CapitalG

It’s a quiet Monday in the CapitalG offices as Jesse Wedler, CapitalG’s newest general partner, sits back in a chair in a conference room overlooking the Oakland Bay Bridge, hands behind his neck, and laughs.

“Our whole team is going through pipeline building—which is funny. Whenever someone says we’re pipeline building, you can tell that deal activity is slow,” Wedler says.

Coming off of two years of piping hot valuations and rapid-fire dealmaking, partners at CapitalG, Google parent Alphabet’s independent growth-stage investing firm, say things have calmed. The firm, whose portfolio has included the likes of Stripe, Duolingo, and Robinhood, aims to invest in established companies on the track to become, ironically, the next Google. Since its inception in 2013, CapitalG has invested $4 billion into its portfolio companies, which include heavy hitters like Databricks, fintech Albert, and Next Insurance. Currently, the firm’s website says CapitalG has $3 billion in assets under management, but a spokeswoman says that number has long been out of date and will be taken down shortly. CapitalG declined to provide a current AUM figure or returns data. 

Inside CapitalG’s office in San Francisco.
Courtesy of Anne Sraders

CapitalG has always preferred to operate at a moderate pace, making on average five to seven new investments a year and typically working with founders several months before an initial investment. In late 2020 and 2021, Wedler says companies were closing deals in a matter of weeks, or even two days, even at the growth stage. In the thick of the bull market, the firm had missed out or passed on several deals it had been interested in landing, he says.

Now it’s much easier to get founders to take a call, CapitalG GP Derek Zanutto says. Conversations are getting more creative as companies try to ready themselves and their balance sheet for a possible recession, he says.

Meanwhile, CapitalG is figuring out its new normal more than two years after the beginning of the pandemic. The firm requires proof of vaccination to get into their office in San Francisco’s Ferry Building, and either day-of negative COVID tests or masks indoors. While investment partner Sumi Das says many meetings are still happening over Zoom, the team is doing a lot of in-person meetings. “I do like 90% of my meetings at the Blue Bottle in the Ferry Building,” says Das, though he says they’re not visiting as many companies’ offices because many are still remote or they don’t have as many employees in person. 

General partner Wedler says the firm is “really pushing” to be back in the office at least three days a week, offering incentives like lunch on Mondays to draw in partners (on the menu yesterday was taco bowls with papas con soyrizo or carne asada). He predicts that moving forward, “Late stage and private equity investing is going to 100% be in person. There’s just no question in my mind.” But on this particular Monday afternoon, with the holiday season in full swing and Zanutto preparing to fly off to London, the office was quiet. 

CapitalG took a lot of initial cues from its sole LP, the 165,000-employee tech behemoth Alphabet, in terms of COVID testing requirements or work-from-home policies, and it’s had people like Alphabet’s Chief Health Officer speak to founders. 

Alphabet isn’t immune to the major plunge in tech stocks on the public markets: Its share price is down more than 35% from the beginning of this year, and the company has reportedly told employees it was scaling back on hiring and told senior managers to cut back on corporate travel. When asked whether Alphabet’s allocation to CapitalG had been or would be impacted, investment partner Das would only say that there have been “no material changes.” The CapitalG spokeswoman, Melissa Sobel, chimed in: “In this environment, every company is going to look at things with a slightly different lens, but that doesn’t change your core operations.”

Despite the slowdown in venture more broadly, GP Zanutto says it’s an exciting time. He says he expects his pace of dealmaking, at least, to speed up over the coming years (Zanutto focuses on data, security, and software startups). “This should be a period of time where you can generate a lot of value as an investor if you take a long-term view and lean in when others are on their heels or scared,” he says. That’s because valuations are “somewhere in that 20-40% range” lower in recent months than the peak a year ago for new companies he’s looking at.

This summer, CapitalG portfolio company and payments titan Stripe internally sliced its valuation, per the Wall Street Journal. When asked whether any of the firm’s other portfolio companies were considering doing the same, Das says it’s a conversation happening amongst many later-stage founders.

“I think almost all the later-stage companies that are sort of pre-IPO are thinking about something like that,” Das says. But mid-stage growth companies are not doing that yet, he says.

See you tomorrow,

Anne Sraders and Jessica Mathews
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Jackson Fordyce curated the deals section of today’s newsletter.


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