There is a new world order defined by great power competition and increased nationalism that will require building more dynamic, resilient systems across our most critical industries, from healthcare and financial services, to energy and education, to industrial and defense. Doing so will help keep the world safer, healthier, more sustainable, and productive…but will also require more capital, more patience, and greater levels of collaboration than ever before. One renewed area of focus for General Catalyst is modern defense and intelligence where there is an urgent (long overdue) need, proven innovation playbooks and the opportunity to create enduring global defense and intelligence companies with responsible innovation at their core – in the service of deterring aggression and promoting freer, more democratic societies everywhere.
* * * * * *
In early February, Hemant and journalist Fareed Zakaria published a piece in Harvard Business Review entitled ‘Geopolitics Are Changing: Venture Must Too’; in it they describe the end of globalization and the new market dynamics that will bring dramatic changes–geopolitical, economic, social, cultural and technological– to every corner of the world economy. These include:
There are profound implications for this new world order when it comes to technology and innovation. Companies and countries alike will look beyond global efficiency (long the holy grail of the globalization era) and start to re-prioritize a new critical factor: global resilience. It will have a meaningful impact across every industry and will result in new winners and losers on the world stage–as well as the need for new kinds of public and private partnership.
Global resilience is our term for these new dynamics at play–where countries and companies deprioritize efficiency, openness and highly interconnected systems in favor of safety, stability and greater control for enterprise (or national) benefit, especially for the most critical operations and sectors. Building independence and resilience in key global industries like healthcare, defense, energy, manufacturing, and financial services will require a new model of venture capital. These industries are our most societally important and they are giant, complex and highly interconnected sectors of the global economy; reimagining these areas through the global resilience lens will require new (longer) time horizons, different business models, more significant depth of governance and a more cooperative approach between venture capital, innovators and government. You need to look no further than the global semiconductor industry–where the US last year announced a $280 billion investment plan to revamp its domestic production capabilities and re-think that supply chain end-to-end. We believe this means a complete re-architecture of an incredibly complex industry–from R&D to component materials and manufacturing, all the way through distribution and trade, that requires huge amounts of capital, a renewed commitment to fundamental innovation and public sector cooperation.
Much of our current work in healthcare at General Catalyst has paved the way for how to think about investing in global resilience in this new world order. Our health assurance thesis is about creating a more accessible, proactive, and affordable system of care and making the healthcare system more resilient in the face of future pandemics and other inevitable global crises. We have taken a systemic approach, investing in innovation across the entire ecosystem. Our approach has always been one of ‘radical collaboration’ -- we work with more than a dozen top health systems in the US to understand each of their unique challenges and requirements in order to develop scaled systems (versus today’s proliferating point solutions) that work for all, and we are extending this overseas. This new type of partnership (as opposed to disruption) model is a blueprint for how we work in close proximity with the industry to drive transformation. We believe that such intentional collaboration will be critical in achieving our goals to transform certain industries and is a key pillar of our belief in the need to “transcend” the current venture capital model.
Global resilience is about investing in the systems that form the bedrock of society. A renewed area of focus for us within the global resilience thesis is modern defense and intelligence where we see a pressing need to invest in modern and more resilient systems for the benefit of our nation and our allies. At General Catalyst, we have history in this critical market, having acquired DARPA R&D pioneer BBN and selling it to Raytheon in 2009. BBN is most famous for having implemented ARPANET, the precursor to the Internet, and then pioneering email. It was also well-known for inventing the Boomerang gunfire detection system, which saved countless lives during the Global War on Terror. A few years later, we invested in OGSystems, a leader in geospatial analytics for the intelligence community, and in 2019, sold the company to Parsons, a major defense engineering firm. In 2017, we also invested in the seed round of Anduril, whose mission is to build a modern defense prime contractor to transform US and allied military capability with advanced technology. Beyond just the deals, we have tremendous respect and admiration for the work that the men and women serving our country are doing and we feel the obligation to support them fully. Over the years, we have spent time with some of the most elite men and women serving in the US military, special operations and intelligence communities and when you have the opportunity to understand the level of commitment to their mission, their sacrifice and the challenges they are facing, it becomes clear that we must do more for them from a technology and capability standpoint. As we have immersed ourselves in the defense and intelligence market, we now see even more opportunities to innovate new solutions to keep the world safer, more secure, and more prepared. What’s driving this thesis is as follows:
We see tremendous opportunity in building modern, resilient systems for the most essential parts of our economy and society in order to compete and win in this new world order. We have started that work in healthcare, fintech and education, and are now focused on modern defense and intelligence. Our goal is not to invest in hundreds of defense companies but rather the dozen companies that can deliver impact at scale. Anduril, Applied Intuition and Vannevar Labs are well down that journey in their markets and we are excited to partner with the next-generation of companies that are helping modernize our defense, intelligence, and industrial capabilities. We believe the new businesses that are created in response to solving global resilience –if done right– will have a tremendous positive impact on society and could generate even larger returns than what we’ve seen in the previous decades of venture capital.
* * * * * *
Source materials and additional information:
https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-chips-and-science-act-heres-whats-in-it
https://en.wikipedia.org/wiki/ARPANET
https://www.voanews.com/a/experts-warn-us-is-falling-behind-china-in-key-technologies/6751392.html
https://www.globalsecurity.org/military/world/china/budget.htm
https://www.usgovernmentspending.com/defense_spending
https://stacker.com/business-economy/50-inventions-you-might-not-know-were-funded-us-government
There is a new world order defined by great power competition and increased nationalism that will require building more dynamic, resilient systems across our most critical industries, from healthcare and financial services, to energy and education, to industrial and defense. Doing so will help keep the world safer, healthier, more sustainable, and productive…but will also require more capital, more patience, and greater levels of collaboration than ever before. One renewed area of focus for General Catalyst is modern defense and intelligence where there is an urgent (long overdue) need, proven innovation playbooks and the opportunity to create enduring global defense and intelligence companies with responsible innovation at their core – in the service of deterring aggression and promoting freer, more democratic societies everywhere.
* * * * * *
In early February, Hemant and journalist Fareed Zakaria published a piece in Harvard Business Review entitled ‘Geopolitics Are Changing: Venture Must Too’; in it they describe the end of globalization and the new market dynamics that will bring dramatic changes–geopolitical, economic, social, cultural and technological– to every corner of the world economy. These include:
There are profound implications for this new world order when it comes to technology and innovation. Companies and countries alike will look beyond global efficiency (long the holy grail of the globalization era) and start to re-prioritize a new critical factor: global resilience. It will have a meaningful impact across every industry and will result in new winners and losers on the world stage–as well as the need for new kinds of public and private partnership.
Global resilience is our term for these new dynamics at play–where countries and companies deprioritize efficiency, openness and highly interconnected systems in favor of safety, stability and greater control for enterprise (or national) benefit, especially for the most critical operations and sectors. Building independence and resilience in key global industries like healthcare, defense, energy, manufacturing, and financial services will require a new model of venture capital. These industries are our most societally important and they are giant, complex and highly interconnected sectors of the global economy; reimagining these areas through the global resilience lens will require new (longer) time horizons, different business models, more significant depth of governance and a more cooperative approach between venture capital, innovators and government. You need to look no further than the global semiconductor industry–where the US last year announced a $280 billion investment plan to revamp its domestic production capabilities and re-think that supply chain end-to-end. We believe this means a complete re-architecture of an incredibly complex industry–from R&D to component materials and manufacturing, all the way through distribution and trade, that requires huge amounts of capital, a renewed commitment to fundamental innovation and public sector cooperation.
Much of our current work in healthcare at General Catalyst has paved the way for how to think about investing in global resilience in this new world order. Our health assurance thesis is about creating a more accessible, proactive, and affordable system of care and making the healthcare system more resilient in the face of future pandemics and other inevitable global crises. We have taken a systemic approach, investing in innovation across the entire ecosystem. Our approach has always been one of ‘radical collaboration’ -- we work with more than a dozen top health systems in the US to understand each of their unique challenges and requirements in order to develop scaled systems (versus today’s proliferating point solutions) that work for all, and we are extending this overseas. This new type of partnership (as opposed to disruption) model is a blueprint for how we work in close proximity with the industry to drive transformation. We believe that such intentional collaboration will be critical in achieving our goals to transform certain industries and is a key pillar of our belief in the need to “transcend” the current venture capital model.
Global resilience is about investing in the systems that form the bedrock of society. A renewed area of focus for us within the global resilience thesis is modern defense and intelligence where we see a pressing need to invest in modern and more resilient systems for the benefit of our nation and our allies. At General Catalyst, we have history in this critical market, having acquired DARPA R&D pioneer BBN and selling it to Raytheon in 2009. BBN is most famous for having implemented ARPANET, the precursor to the Internet, and then pioneering email. It was also well-known for inventing the Boomerang gunfire detection system, which saved countless lives during the Global War on Terror. A few years later, we invested in OGSystems, a leader in geospatial analytics for the intelligence community, and in 2019, sold the company to Parsons, a major defense engineering firm. In 2017, we also invested in the seed round of Anduril, whose mission is to build a modern defense prime contractor to transform US and allied military capability with advanced technology. Beyond just the deals, we have tremendous respect and admiration for the work that the men and women serving our country are doing and we feel the obligation to support them fully. Over the years, we have spent time with some of the most elite men and women serving in the US military, special operations and intelligence communities and when you have the opportunity to understand the level of commitment to their mission, their sacrifice and the challenges they are facing, it becomes clear that we must do more for them from a technology and capability standpoint. As we have immersed ourselves in the defense and intelligence market, we now see even more opportunities to innovate new solutions to keep the world safer, more secure, and more prepared. What’s driving this thesis is as follows:
We see tremendous opportunity in building modern, resilient systems for the most essential parts of our economy and society in order to compete and win in this new world order. We have started that work in healthcare, fintech and education, and are now focused on modern defense and intelligence. Our goal is not to invest in hundreds of defense companies but rather the dozen companies that can deliver impact at scale. Anduril, Applied Intuition and Vannevar Labs are well down that journey in their markets and we are excited to partner with the next-generation of companies that are helping modernize our defense, intelligence, and industrial capabilities. We believe the new businesses that are created in response to solving global resilience –if done right– will have a tremendous positive impact on society and could generate even larger returns than what we’ve seen in the previous decades of venture capital.
* * * * * *
Source materials and additional information:
https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-chips-and-science-act-heres-whats-in-it
https://en.wikipedia.org/wiki/ARPANET
https://www.voanews.com/a/experts-warn-us-is-falling-behind-china-in-key-technologies/6751392.html
https://www.globalsecurity.org/military/world/china/budget.htm
https://www.usgovernmentspending.com/defense_spending
https://stacker.com/business-economy/50-inventions-you-might-not-know-were-funded-us-government