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20VC: CapitalG Founder David Lawee on Why People Overvalue Diversification in Venture, Why Investment Clubs Are More Successful Than Investment Partnerships & How Growth Funds Think About Portfolio Construction, Loss Ratio & Reserves

Oct 8, 2020

In this engaging discussion, David Lawee, founder of CapitalG and former CMO at Google, shares his journey from serial entrepreneur to venture capitalist. He sheds light on why he believes diversification is overrated in venture capital and emphasizes a more focused investment approach. Lawee also compares early-stage investment strategies to growth funding, discussing loss ratios and portfolio construction. He reveals how avoiding consensus thinking and fostering independent decisions can lead to greater investment success in today's market.

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INSIGHT

Current Investment Climate

While valuations were more favorable in 2013, current market changes, like COVID and remote work, are driving new innovation.
This creates opportunities for extraordinary growth, even with downward pressure on pricing.

INSIGHT

Evolving Investment Mindset

Lawee's investment mindset has evolved to prioritize understanding "why now" for market opportunities.
Assessing the timing of compounding growth and market expansion is crucial for justifying top prices in growth rounds.

INSIGHT

Multiple Expectations

Capital G's fund performance is expected to be similar to venture funds in terms of IRR, but with a different distribution.
They aim for fewer zeros and more 2x and 10x returns, targeting an average IRR of 25-30%.

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David Lawee founded CapitalG, Alphabet's independent growth fund, in 2013, drawing on his experience both at Google and as a serial entrepreneur. Since then, he has helped transform high-potential startups into some of the most highly valued businesses of our generation, including Airbnb, Lyft, Snap, Robinhood, Credit Karma, Oscar, Lending Club and Thumbtack. Prior to CapitalG, David played a pivotal role in Google's growth story--first as Google's Chief Marketing Officer and then as the instrumental VP of corporate development where his group spearheaded over 100 acquisitions for the company.

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In Today's Episode You Will Learn:

1.) How David made his way into the world of startups, came to be the first CMO @ Google and how that led to his founding CapitalG?

2.) Having operated and invested through both the dot com and 08', how has seeing the booms and busts impacted David's investing mindset? How does David think about temporal diversification today with CapitalG? Why does David believe diversification is largely overrated?

3.) How does David think about portfolio construction today, given CapitalG is a growth fund? How does David compare early-stage to growth today? How does David think about loss ratios at growth? How does David benchmark good vs great from a multiple perspective at growth?

4.) How does CapitalG approach investment decision making today? How does David avoid consensus thinking/following the crowd when it comes to deals? Why does David believe investment clubs operate much more successfully than partnerships? How does that change the structure for CapitalG?

5.) How has David seen himself evolve and develop as a board member of the years? What type of board member would David say he is today? How does that change with the founder? Who is the most memorable board member David has sat on a board with?

Items Mentioned In Today's Show:

David's Fave Book: Born A Crime: Stories from a South African Childhood

David's Most Recent Investment: Albert

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