General Catalyst’s Hemant Taneja Wants to Redefine Venture Capital

Venture firms are normally in the business of backing high-flying tech startups, so many in the industry were scratching their heads when General Catalyst bought a chain of hospitals.

The San Francisco-based firm spun out a separate healthcare unit, dubbed the Health Assurance Transformation Company or HATCo, in 2023 to buy Akron, Ohio-based Summa Health the following year. GC committed about $1 billion over seven years for the acquisition from the firm’s balance sheet, outside its typical fund structure.

The deal was perplexing. Healthcare rarely delivers the kinds of sky-high returns that define venture success; even within GC’s own $36 billion portfolio, healthtech valuations often lag far behind tech’s starriest bets.

“Why would you buy a hospital system if you’re in venture capital?” asked one of the firm’s limited partners, who requested anonymity. “It’s strange.”

GC is not trying to be a traditional VC firm; it now prefers to brand itself as “a global investment and transformation company.” Its leader since 2021, Hemant Taneja, holds the title of CEO, a common role in corporations that’s nearly unheard of at a venture firm.

“Dare I say it: venture has gotten comfortable and lazy,” Taneja wrote in his 2022 year-end letter, spelling out the firm’s new direction. “We have to transcend the traditional VC mindset if we’re going to make a difference.” (Through a spokesperson, Taneja denied multiple interview requests. A spokesperson for the firm responded with written statements.)

Under Taneja, GC has amassed stakes not only in hospitals but also old-line accounting firms and manufacturing companies. It’s building up a wealth management business, expanding its global lobbying arm, and underwriting loans for startups that are more commonly the domain of banks.

The firm recently parted ways with managing directors with traditional VC experience, including Kyle Doherty, Adam Valkin, and Deep Nishar. Two people familiar with the matter told Business Insider that other departures will be announced soon.

Meanwhile, GC is building up its ranks of bankers, this month adding longtime J.P. Morgan tech banker Madhu Namburi, who joined Paul Kwan, former West Coast head of tech banking at Morgan Stanley.

All these steps are laying the groundwork for GC to someday be the first venture firm to go public, a person with direct knowledge of the matter told Business Insider. Although nothing has been filed yet, they said GC’s IPO ambitions are frequently discussed at the highest levels of the firm with the goal of generating ever-higher management fees to someday attract a higher valuation from public investors.

“If you want to go public, you are measured on your management fees, not on your profit pool,” said the source. (A GC spokesperson said no plans for an IPO are underway.)

“Hemant is at a stage in his career where he’s really taking big swings to leave a legacy,” said Aniq Rahman, CEO of GC-backed Fabric, who added that he had no knowledge of any IPO plans.

For now, GC is judged on investment performance, and the early returns are less than promising.

As of last year, GC had a dismal internal rate of return, or IRR, of just 2.9% across 10 funds since 2020, according to filings from one of its investors, the LA City Employees’ Retirement System. The funds are still relatively new and could someday be successful. Still, GC ranked a distant last in the performance of LACERS’ top 10 largest holdings and was the only one in single digits. The typical IRR for 5-year-old funds was around 15%, according to data from Cambridge Associates.(The GC spokesperson said the LACERS performance data is outdated, and that the firm’s performance has improved considerably since last year.)

“Everything comes down to exits,” said a healthcare investor who’s frequently co-invested with General Catalyst. “GC can diversify and do what they want to do, but LPs [limited partners], at the end of the day, will look for dollars distributed. That’s just the barometer of success.”

GC sits among a rarefied handful of megafirms like Andreessen Horowitz and Sequoia Capital that are unlikely to achieve blockbuster venture returns but can still reliably produce a safer and smaller return, according to Jai Das, co-founder at Sapphire Ventures.

“I wouldn’t even call them venture funds anymore,” said Das. “They’re almost like an asset manager with different products that you invest in.”

The question is whether such a sprawling vision encompassing more than 800 companies will pay off for investors.

Taneja made a name for himself at GC as an early backer of Stripe, the payments processor that is now worth $91.5 billion. Other savvy bets included Snap, Gitlab, and Gusto.

Those who have known Taneja from his college days say he has always stood out as ambitious and smart, if a little unfocused.

“Hemant went and got five MIT degrees before figuring out what he wanted to do,” said Brad Porter, CEO & Founder of GC-backed Collaborative Robotics, who attended MIT with Taneja. “I remember Hemant being brilliant, but not knowing exactly where he wanted to go.”

The past year has been a busy one for GC under Taneja.

In September, the firm announced the General Catalyst Institute, a global think tank aiming to influence government tech policy around the world. The next month, it closed $8 billion of new fundraising. At the beginning of this year, the firm announced a wealth management arm, GC Wealth, to provide investment advisory services with a $2.3 billion pool of assets. (Andreesen Horowitz, Sequoia Capital, and New Enterprise Associates are among the firms that also offer wealth management.)

GC has also been expanding its AI-rollup strategy, buying the sorts of businesses VC usually won’t touch, like accounting firms and call center companies, and trying to make them more efficient with AI.

GC now employs over 250 people to manage its expanding directives, a big jump from the 64-person team the firm had before Taneja became CEO in 2021.

And the firm has been steadily increasing its involvement in the healthcare industry since Taneja cofounded the diabetes company Livongo inside GC in 2013.

GC was Livongo’s largest shareholder at the time of Livongo’s 2019 IPO, which valued the company at $2.5 billion, making GC’s 22% stake worth more than half a billion dollars. Teladoc then bought Livongo for a record-breaking $18.5 billion in 2020, lending further credence to Taneja’s expanding healthcare strategy.

Modernizing healthcare has long been a passion for Taneja, who cowrote a book in 2020 called “UnHealthcare: A Manifesto for Health Assurance” that advocated for solutions for what the authors described as “America’s healthcare debacle.”

But no VC firm before GC has ever acquired a hospital. Those deals are typically reserved for private equity, and they’ve recently faced a deluge of public and federal scrutiny. Steward Health Care, a Massachusetts-based system of nine hospitals formerly owned by a private equity firm, became the center of that conversation last year when it declared bankruptcy, drawing ire and even a congressional inquiry over reports that it prioritized profits over patient safety — a cautionary tale for any private investor looking to play hospital operator.

GC says the acquisition isn’t just a profit play. The firm’s goal isn’t just to modernize one hospital system — it wants to create a playbook for health systems nationwide.

The firm said it plans to transform Summa Health by improving its tech, at least in part with its own portfolio companies. GC has made about 130 healthcare investments to date, according to its website, including in Commure, the $6 billion healthcare software startup Taneja cofounded and a likely pick for a Summa Health contract. Commure has become an umbrella for other healthcare companies, with seven acquisitions under its belt since its 2020 launch, including two of GC’s previous investments, Athelas and Memora Health. (The GC spokesperson said the firm is in the early stages of reviewing technologies for the HATCo business, including those from GC’s portfolio companies, and said speculation about Summa’s plans with specific companies is premature.)

GC is also banking on a network of health system partners that Taneja has spent the last decade growing, including Nashville-based HCA Healthcare, which has a stake in Commure, and Philadelphia-based Jefferson Health, which notched a partnership in 2021 to work with several of GC’s portfolio companies. The GC spokesperson said the healthcare ecosystem the firm has fostered will help HATCo build “something traditional venture could never match.”

“At the end of the day, it’s a really powerful sourcing machine that they’ve built, that plays in every segment of the industry,” said a healthcare investor who has made several co-investments with GC. “They’re just going to get more shots on goal than other people.”

HCA Healthcare, the largest health system in the US by number of hospitals, began partnering with GC in 2021.
Rusty Russell/Getty Images

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Commure CEO Tanay Tandon, the former CEO of Athelas. HCA Healthcare has a stake in Commure as part of its GC partnership.
Athelas

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Most of GC’s returns in healthcare remain unrealized. And its healthcare portfolio has already taken a major hit with the rapid fall of startup Olive.

GC first invested in Olive, which aimed to use AI to automate healthcare administration, when the firm led a $51 million investment into the company in 2020.

But Olive fell into the classic VC trap: raising massive amounts of cash, growing too fast, and flaming out. The startup raised $900 million, reaching a $4 billion valuation in 2021. Two years later, Olive shut down for good.

Much of Taneja’s strategy seems to revolve around the maxim that bigger is better. It’s a lucrative thesis for VCs, since limited partners typically pay 2% yearly fees on assets under management, whether the investments pay off or not.

If the firm goes public, higher fees would increase revenue, which in turn would lead to a higher valuation.

Taneja raised eyebrows among some VCs when he recently addressed fees in a LinkedIn post.

“There’s been a recent narrative in some venture circles about ‘AUM maxxing’—that firms (like ours) are focused on growing assets under management for the sake of fees rather than long-term performance,” he wrote, arguing that funds will still be judged on their distributions. “It’s true that scaling platforms can bring new complexity—and that fund multiples may compress over time. But the potential to create value at scale is greater than ever.”

While some founders could feel lost among more than 800 companies, Porter, the CEO of Collaborative Robotics, says GC’s scale has been a major asset.

“What Hemant is really doing is trying to build relationships with the biggest thinkers in the world,” Porter said, adding that after the deal closes, he hopes GC will help him sell his robots to Summa Health. “As a founder, that’s an amazing set of resources to tap into.”