E48: Building Notable Capital (fka GGV Capital): Insights from Glenn Solomon

0:03Welcome back to Turpentine VC, a podcast where we discuss the art and science of building successful venture firms, VC to VC. Joining me today is Glenn Solomon. Glenn is a managing partner at Notable Capital, which recently rebranded from GGV Capital in early 2024. We discuss how they stay ahead of the curve and invest for the long term, how fund size and strategic alignment differentiate successful VC firms over time, and how you can hack the venture system by staying sector focused. Let's dive in.

0:34Glenn, welcome to Turpentine VC. Eric, thanks so much for having me. It's great to be here. So Glenn, you're at Notable Capital, formerly GGV. You've been there for 18 years plus. The firm started in 2000. Help us have a kind of contextualized GGV slash Notable in sort of the last 20 years of venture, right? We've had firms like A16Z and Thrive scale pretty significantly. We've had firms like USV and First Round and Benchmark more stick to their knitting. GGV had a global mandate from the beginning. help contextualize, contextualize how we should think about the firm and its evolution relative to other firms or what we see in the market?

1:16Give a little bit of a history of how the firm has evolved. Thanks for asking, Eric. So first, I should say that Notable is a fairly new name for our firm. We branded as Notable, rebranded as Notable at the end of Q1 of this year. And we really like the name Notable because we think it nicely sums up the kind of firm we want to build. We want to make it about the founders. We're very founder-focused, and I'll get into that in a minute. But we think our founders are notable people. They're trying to build very notable companies. And for us, it's about them. And at the same time, it's about our investors, our LPs, many of whom are pursuing extremely notable causes with their efforts.

1:58And we want to deliver for them as much as we want to deliver for our founders. But to your question about the landscape and where we fit, I think the way I think about the venture industry, and I've now been in it myself 28 years, and we've been at this 18 years in some construct that notable, is that capital has no boundaries. And so if returns are strong in an asset class, capital tends to flow to that asset class. And when I started in this business 28 years ago, I think it felt like a lot of capital was getting invested every year in the venture business. And it was certainly less than$10 billion a year.

2:35At peak a few years ago, we were at over 30 times that number, which is just crazy, right? And honestly, I'd say that$200 billion or more of that$300 billion peak venture capital period, I would call it's really not VC. It's money flowing into the asset class looking to invest in companies that are maybe pre-IPO and to try to turn some sort of quick profit. And these rounds of$300,$400,$500 million, even more billion-dollar rounds, those are not venture capital rounds. Those are like big IPO rounds, actually. And so I don't really classify that as VC. And you've seen that the capital actually, as capital knows no boundaries, it flowed in and it has quickly flowed back out of the VC industry as the market's gotten a bit tougher.

3:30So our view is that the best founders know that building companies, one, takes time, and two, is really, really frigging hard. And Eric, I mean, you're a founder. You know that. You know this as well as I do. And so we think founders want partners that share their vision and are invested for the long term to help really try to build these notable type of businesses. And it's our view that founders are building companies. And so we've tried to architect notable to help as a be a support mechanism for the founders. We want to back them early. something like 70 or 80 % of our investments are at Series A or earlier.

4:15One of the precepts we've put together, one of our firm values is to embrace the pressure to deliver. We think founders live under that pressure every day. And we want them to feel that we're right there with them. In the early days, we're digging in and we're helping in any way we can. And for us, that's what makes us unique. Happy to go into some of the details of what that really means. But I think there are fewer and fewer firms that really have that orientation, to be honest, as firms have gotten bigger and accumulated more assets and pursued multiple strategies. This is hard work. And frankly, not a lot of people want to do it.

4:52We do. And so that's our differentiation in the market, I guess. We're gluttons for punishment. Well, I want to focus on the first thing you said there, which is sort of what is venture capital, and what is not venture capital and kind of the money flooding into the ecosystem. Because, you know, there's a version of the world where, hey, a bunch of, you know, temporary money or tourist money or dumb money is the, you know, the least charitable interpretation flooded into the ecosystem and the markets changed. And now we're sort of going back to the good old days of venture capital. That's one version of the world that could happen or maybe is happening.

5:29There's another version of the world that, you know, I talked to some of these people at these multi-stage aggregator, some of the biggest firms. And they think actually that version of what you would call maybe not venture capital, but it's here to stay actually that maybe if some money left, new money will come in and there's just no shortage of like the peak sort of, I don't know if I remember exactly what the amount, what was it 300 billion or what's the peak? Yeah, I think that's peak VC right now. Maybe we'll eclipse that someday. Yeah, they think that peak VC is actually going to be the norm at some point.

6:07And thus, maybe venture capital ceases to become something different. And they think that the firms that stuck, let's say, the benchmarks of the world, $400 million,$500 million firms, are at a disadvantage relative to the bigger firms because they have to be more price sensitive because the cost of capital is different. and these new LPs that are coming in just expect different or are more sort of accepting of low multiples because they're deploying way bigger capital and the bigger firms are just playing a different game than the benchmarks or USVs, et cetera. And that's a world that seems like it could happen too.

6:45Do you strongly believe that the first world will happen or what's your take on that? So there's a lot to unpack there. And let me try to take it in a couple of different steps. So one aspect of your question, I'm not one of the people that would describe this capital that flowed into the industry and now has flown out perhaps temporarily as dumb money. I think it's extraordinarily smart money. It, again, is just increasingly tuned to where that pool of capital is tuned and that those investors are tuned to where the return is. And so they're looking for it. And if they see it back in the venture industry, they're going to come back.

7:26So I don't know that peak VC at 300 billion will forever be peak VC. That money is going to keep flowing and it's smart and it's agile and it's quick. The differentiation distinction I was trying to make is that building companies is, particularly when you're starting, if you think about the cycle from the earliest days, it is a long-term game. And so that money and that mindset, that kind of later stage money is not at all well-matched with the duration of the typical founder. And the serious founder that wants to build a big company of note is not well-served by... You always want to match, just like you do in fixed income, you want to match duration, like what you're going to need with the outlook for the capital, you want to make sure those things line up and they don't in the case of a founder starting out a business where they want to go long versus, let's say, hotter money or money looking for a quicker return.

8:30So that's part of the answer to your question. The reason why I think the money may come back, and I think it will come back, It's just a question of when and in what kind of velocity is that the venture industry and returns to venture. This is something I learned actually from John Doerr. It's one of the few things I remember from my business school experience back at Stanford, which is going back a ways now. But John Doerr, I remember, came and spoke to our class and talked about how it's really paradigm shifts in technology that drive new opportunity for new companies to disrupt existing incumbents and oftentimes become bigger than the incumbents they replace.

9:11And, you know, at the time I've been at this so long, he was talking about the introduction of client server versus, you know, kind of more mainframe computing. But since then, we've had a number of paradigm shifts, right? We've had, I'd say, Web 1 and then Web 2. Then we've had the emergence of mobile and cloud, which kind of happened together. And I thought that was the biggest thing I was ever going to see in my lifetime. And we did very well investing against that big paradigm shift towards the cloud and mobile. But I think what's happening now with AI, even though AI is a perhaps close to 80-year-old technology, it is an overnight success.

9:51It's an 80 or 70 year overnight success story that is really hitting mainstream now. And it just, as I know, you've talked about it in a number of conversations you've had on your pod, Eric, and we're all seeing it in our daily lives. It's having an impact on consumer businesses. It's certainly having an impact on enterprise and B2B businesses. And so I think it's the next huge paradigm shift. and that's great news for us as VCs and it's great news for that later stage money as well. It'll find its way back to great opportunities. It's already happening, right? You're seeing big rounds, huge rounds for some of these foundational models and companies tied to those models, but there's a lot more to come.

10:37So I think the answer is a little bit of both, but for different reasons. Totally. And what are the implications that one of the leaders at one of these big firms was telling me was that there's a tough sort of challenge for these firms that are stuck in the middle size-wise and that there's just going to be this pressure to keep getting bigger or having a structural disadvantage. How have you guys thought about that as it relates to fund size and how big to get? Great question. And I do think there's truth to that concern about being stuck in the middle. I think the numbers don't lie, right? And the numbers I've seen suggest that funds need to be right-sized for their strategy, I think.

11:24And if you are right-sized for your strategy, you have a good chance if you've built... It puts you on the playing field and then you got to execute. And so the way we've thought about it, since we are investing in companies at earlier stages, like our fund needs to be right-sized for that effort. So I'll give you a real world example, a company that we were involved with for the last decade, which has done really well as a company called HashiCorp. In 2014, I put a million dollars behind a 24-year-old and a 22-year-old founder. There were four people in the company. And fast forward over the course of the next several years, we ended up investing$100 million into that company, but over a course of several rounds, the business grew to over 2 ,000 people.

12:14And just recently, they announced a$7.7 billion. They went public in intervening years and just recently announced the$7.7 billion acquisition by IBM. That deal has to get shareholder approval still and pass all regulatory hurdles. But assuming it goes through, that was a 10-year journey. And it started with a very small check. And we want to be right-sized to have funds that can make big returns on deals like that. And that's what we're looking to do. We're looking to find founders as great as the HashiCorp founders who want to build big businesses. So our fund size needs to reflect that. And I think in general, if you look at firms that are focused on seed and series A and series B, where we do most of our work, funds sub$1 billion in size make the most sense.

13:04That's where you can earn great TVPI, great multiple on invested capital, and a great net IRR, and also achieve strong DPI distributions versus what's been paid in. Those are the metrics that we get measured on. I think there's also a strategy to be had for firms that have huge amounts of capital that are investing hundreds of millions of dollars into companies that have already clearly established strong product market fit and are on their way to something bigger and better. And there, it's less about venture capital, even though many of those companies are private when the investments are made.

13:40It's more about trying to gauge how big the companies can get. And I think we're living in a world where companies can get bigger and bigger. So that strategy can work really well. But in the middle, if you're trying to do Series A, also Series B, also pre-IPOs, and your fund size is a couple of billion dollars, I don't think the returns have been very good in that sector, in that part of the market. And so I think being on either side of the barbell probably makes more sense, at least from what I see in the market today. Yeah, that's a good articulation. And hey, we'll continue our interview in a moment after a word from our sponsors.

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15:25To claim your match, go to givewell.org and pick podcast and enter econ102 with Noah Smith and Eric Torenberg at checkout. Make sure they know that you heard about GiveWell from econ102 with Noah Smith and Eric Torenberg to get your donation matched. Again, that's givewell.org to donate or find out more. We talked about how GGB started with a global mandate and still maintains the global mandate ex-Asia. I'm curious if there's anything worth sharing about that transition that helps us understand kind of how should we think about Asia in a venture context and what that means going forward. And I'd also be curious if you can reflect on kind of not just GGB, but also just more broadly, right?

16:08Your original thesis about going global was very contrarian at the time. Now it's less contrarian, but still not every firm is doing it. How should we think about what have we learned and what are the results? How is the balance of power shifted, et cetera? Yeah. When I got into venture business, some of the very best firms that you and I both know well were quite public and proud of their stated strategy of not backing any founder who was more than 30 miles or so radius from their offices. And so it was really viewed as a, you better be near me because I'm gonna kind of help you grow your business and kind of a quaint way of thinking about the world.

16:52I think the insight that the founders of our firm had when we started back in 2000 was that the technology markets were getting flatter and flatter and that venture capital should follow that path. I think if you fast forward to the current era and what that really means, as the world's gotten more digital and software is eating every industry under the sun, the way that companies get built has changed dramatically. And the processes and workflow. So if you take out the premise, which I think you should, that software is eating every industry. And Eric, you've talked a lot about this in media, for example.

17:35it's certainly having a huge impact, but it's true across manufacturing and transportation and logistics. It's really true, again, across every industry. Then it's the people that are building your software and deploying your software and ensuring that it's running securely. They turn out to be the most important people in your organization. They are driving the value in your organization. And if you look at how they operate, you look at the workflow, the tools they use. And you look at a software developer and you do sort of the study of how they operate and look at one in Singapore, one in Silicon Valley, but one in St.

18:10Louis, one in Sao Paulo, Brazil, they all are using the same tooling and they're the same workflows, the same services. They're all calling the same APIs. It's an absolutely incredible thing that the world really has gotten flatter in the way that these digital products are built, which makes our job as VCs harder, but also more exciting because these companies can be born anywhere. Now, it happens that the end market for most of the technology, particularly enterprise, starts in the US. And so we are in a very cherished position being in the US because we can see what's being adopted. But we have to also have a very global lens to see where are these companies getting started?

18:56Where are these founders? And where is the next great opportunity going to come from? And it could come from Europe. It could come from Asia. It could come from Latin America. It could come from Israel. We're doing a lot of investing out of Israel, where for a variety of reasons, there's an incredible amount of innovation going on in certain sectors, cybersecurity, data, data infrastructure, increasingly AI stuff. So the innovation can happen anywhere. The end markets tend to start in the US and we've tried to kind of purpose built notable to go after that kind of framing. But I think, you know, it, the cat is out of the bag and not coming back in.

19:37It's a, it's a global world. It's increasingly flattening. And, you know, the good news is these markets get bigger and bigger as a result, because there's just, you know, companies are buying the same set of technology wherever they are. And so it's interesting, you guys have been around for, for, you know, over 20 years and have had immense success. But as you just mentioned, you just rebranded and, you know, try and that's not super clear to the to the market yet, which is to say that there are other firms who are more, you know, brand famous, let's just say, and it's competitive. How do you guys think about sort of competitive differentiation in market?

20:14Is it that you're trying to get deals that other firms aren't getting or that you are competing head to head in certain places, but because of certain benefits, you're winning? You know, there's only like, you know, a handful of super famous firm, the A6Zs, the Sequoias, and there's lots of other great firms out there who just haven't put as much attention into the brand or the rebranded or whatever. But in this market, how does GV Slack Now Notable think about competing or sort of establishing a specific niche or sort of market position? Or do you not think about that? You know, no, we are very aware of our competition.

20:51I'd say we are obsessed with, as we advise our companies, right? Be like customer obsessed, be competitor aware. We're aware of our competition. And the weird thing in the venture industry, as you know, is your competition on one deal is also your collaboration on another deal. So we work very closely with all the firms you just mentioned on many, many different companies, but we compete with them head to head on new opportunities frequently. And so it's kind of a weird situation, a little different than a typical company in that regard. But we think if we stay obsessed with our customer and we view our customer, our primary customer as the founder, then we're going to put ourselves in the best position to win.

21:37So look, we've just rebranded and we have a lot of work to do and we will do the work to increase our brand notoriety. We like what we stand for and we think it's kind of an easy thing for people to grok. And I must say, I'm very pleased with the reactions we've gotten so far from the community around our new brand. But we have work to do, for sure. That being said, when we're competing for deals, which is really where this matters, I would say that most founders understand. And again, when I talk about the founders that we're most interested in, who are the founders that are serious and are very focused on building unique, differentiated, special companies.

22:18they understand that it's a journey and they focus a lot on the people they're going to be doing business with. So it's not just about the headline brand as much as it is, who's the team I'm going to be spending time with? Do they align with, you know, do they have relevant experience in my space? What do other founders say about them? And, you know, what founders where things have gone great, founders where things aren't going so great. How does this firm work through ups and downs that inevitably will occur in my startup? And so for those founders that are willing to put that time in and take advice from other founders and think holistically about the partners that they are going to be best served by, we think we stack up quite well.

23:06I'm proud to tell you that we're new enough at this that we've only competed for less than a hand handful of deals so far as notable capital, but all the deals we've put an offer in on so far, and they've all been very competitive with some of the firms you just mentioned as our competition, we're, we're batting a thousand so far. So that tells me that, you know, our, our focus, our, our obsession with our customer, the founder is really the right strategy for us. And it's what we're going to continue to do. We will try to continue also to build notable into a, you know, a brand that you speak more about on the podcast.

23:42Totally. And if we were to go back in time to the early 2000s and think about who are the best firms, you know, look at the top 10, top 15, there's probably some that have stayed the same, but also some that we don't hear about as much anymore. And, you know, there's rise and falls. What separates the firms that stay great over time versus ones that have challenges? You take this longer view. I love this question. It reminds me of a slide I saw my partner, Hans Tung, put up at a... He was speaking at, I think, Fortune Brainstorm Conference a couple of years ago. And he put up a slide, like the 10 most valuable companies in 1990 or 1980, right?

24:27And they were basically all oil companies. And then the 10 most valuable companies of today, and this was already a few years ago, but they were all data companies, right? They're all technology companies. And so there have been a huge shift in where public markets anyway have come to appreciate where value is being created. And I think I kind of liken the venture capital industry to that sort of shift as well. It is very hard to stay on top for too long because the business of technology is very dynamic and the business of venture capital as a result also is very dynamic. And they're real pioneers and people figure out new strategies to play and they work.

25:08And then the old way of doing business quickly gets antiquated. I'll give you an example. A firm, I'm not going to name the person, but a partner at a firm, there are a few firms that have been very successful in making the transition. And I think two that I'd name, Sequoia and Excel are both great firms. And they were great firms, you know, 20 years ago, and they're great firms today. And I have a lot of respect for what they do. We are in a bunch of deals with both firms. We compete successfully against both, but we are also in a bunch of deals with them and really like what they do and feel like we have some, you know, a kind of a kindred spirit focused as we are on the founder and supporting them through their growth.

25:50But a partner at one of those firms who I won't name, who's no longer there, a while ago was lamenting to me that he's like, marketing in VC is not something VC firms should do. This was back in the pre-A16Z era. And he was just really angry about the fact that venture firms were now marketing themselves because it used to be a very quiet cottage industry. And that person is now at another firm. And the firm that they're at, where he is, he's an important person at that firm, is very into marketing and they're doing a great job with it. So, you know, old dogs do learn new tricks and I'm an old dog and I've tried to learn new tricks, but you, you know, it's really difficult to stay on top.

26:37It's really difficult to get to the top and then it's very difficult to stay on top because this industry, you know, it's very competitive and it requires that you are continually thinking about staying ahead and, you know, tuning your strategy for where the market opportunity really is. So we're trying our best to climb that mountain. And when we get to the top to stay on top of the mountain is a new challenge. But right now it's about climbing. In terms of continuing to climb, just think about firm construction and team construction. Do you think about specialists versus generalist investors?

27:10Are you like, hey, we have to cover all these different sectors. Let's get the best person in the area. You're like, hey, a great investor is a great investor. How do you think about partner selection and team construction? Yeah. So one of the ways we've tried to hack not having the most recognizable brand, I mean, I'm quite proud of our prior brand. And I think we're on our way to building notable and doing a strong brand. But one of the ways we've hacked the system against some of the really strongest firms is we've stayed very sector focused. If you stay sector focused, it has compounding benefits to you and the companies you work with.

27:47So I think the old school venture capital thesis, again, in addition to investing only in companies within a 30 mile radius of your office was, you know, to be a generalist. And frankly, technology markets have moved on, markets have matured. The venture industry has industrialized to the point where if you're not a specialist, you're at a deep disadvantage, I think, relative to others. And so some of the firms that haven't made the turn well didn't realize this. I think we've done a good job here. So we have sector-focused areas that we spend our time in. It helps us identify the right companies and move very quickly on the right founders when we see them because we're only looking in these areas.