Nikhil Basu Trivedi: Why 99% of AI Investments Will Go Bust | E1057

Nikhil Basu Trivedi 0:00 ... two things. One, don't look at the title on your business card. Just think about yourself as a venture capitalist. Find, decide when, help, and exit. And then the second one, exceptional companies deserve exceptions.

Harry Stebbings 0:13 (instrumental music) Nikhil, I am so excited for this. We did this, like, seven years ago remotely, and so to have you in person is such a treat for me. Thank you so much for joining me.

Nikhil Basu Trivedi 0:23 Thanks so much for having me, man. Yeah. It's fun to have dug into the chats to see when we first connected. It was January of 2016. I cold outbound messaged you on Facebook Messenger-

Harry Stebbings 0:33 (laughs)

Nikhil Basu Trivedi 0:34 ... which we realized, which is hilarious. Um, and it's amazing to see what, where you've come since then.

Harry Stebbings 0:40 I mean, I, I look about 25 years older. It's, uh-

Nikhil Basu Trivedi 0:43 (laughs)

Harry Stebbings 0:43 ... the venture game is having its effect on me. (laughs) . The thing I'd love to start on is I think we change how we invest so much, um, in time. And if you were able to call yourself the night before your first day investing-

Nikhil Basu Trivedi 0:55 Mm-hmm.

Harry Stebbings 0:56 ... what would you advise yourself on that call?

Nikhil Basu Trivedi 0:58 Two things. One is actually p- a piece of advice one of my partners at Shasta gave me pretty early on, like probably in the first couple months, which is, don't look at the title on your business card, which at the time was associate at, at, at Shasta Ventures. Just think about yourself as a venture capitalist. And do as venture capitalists do, which is find, decide when, help, and exit. So the five components of our, of our day-to-day job in venture. And that advice I think was really profound. It, it sort of unleashed me, and, um, and it's the advice I give young people in venture today, which is, again, don't, don't look at your title, don't think about exactly what the role is. Just think about yourself as a VC. And I think you'll be better off for that. And then the second one that came to mind is exceptional companies deserve exceptions. And it's a mantra that I've tried to always have in my venture career, which is, yes, you have this model of how you want to invest, um, this dream idea of portfolio construction and the profiled company that you're looking for. But it, it's so often the ones that you consider an exception for, the ones that just blow you away, that feel like outliers that end up being the ones. And so I've always tried to have that in the back of my head, uh, which is at the end of the day, all of our, or all of what we're doing in our job is searching for the outliers and the truly exceptional companies.

Harry Stebbings 2:20 So I, I do just have to unpack both actually. The first one you said there about kind of do your job as a venture capitalist, don't worry about the title.

Nikhil Basu Trivedi 2:26 Yeah.

Harry Stebbings 2:27 So often founders are told, sorry, I'm going here, but I'm interested to hear your thoughts, "Don't speak to the associates. Uh, it's the GPs who make the decisions." And I'll be honest, I say that too, especially at growth, we don't have time for spinning cycles on associates. Like, just go to the GPs. I can introduce you to them. (laughs) Uh, do you agree with the advice on just go to the GPs?

Nikhil Basu Trivedi 2:48 I think it's case by case dependent. And there are so many folks who've grown up in the industry to become incredible investors, who started off at the bottom of the ladder at a firm. And so you just don't know who those people will be. I think that you're better off as a founder judging based on the actual conversation you have.

Harry Stebbings 3:10 Mm-hmm.

Nikhil Basu Trivedi 3:11 Which sometimes may be a lot better with the youngest person on the team versus the managing partner of the firm.Uh, and sometimes it won't be. I always give people a chance, whether it's the founders who, you know, uh, come in through not that warm of an introduction or purely cold. Uh, I always try to review what they're saying, and I'll quickly write an email back saying, uh, "Not interested, thanks" if it truly is, is not a fit. But I've always kept that mentality. And I started at, at Insight Partners in New York, where I was bottom of the ladder as a summer intern, and then an analyst. And so I obviously have bias on this dimension. Um, but I do think that there are people who are really young in our business who are really thoughtful, and that a conversation with them might actually lead to some learning for you as a founder, and it may even lead to an investment, as it's done for me several times in my career on the venture side.

Harry Stebbings 4:05 Now, I often find actually that they're some of the most researched and thoughtful, because they've had the time to actually map out a space, and they can actually provide a lot of value back to founders-

Nikhil Basu Trivedi 4:12 Yeah.

Harry Stebbings 4:12 ... where they haven't had the time to do competitive analysis on pricing and everything-

Nikhil Basu Trivedi 4:15 Mm-hmm.

Harry Stebbings 4:15 ... in between. So totally get you there. On the exceptional companies deserve exceptions.

Nikhil Basu Trivedi 4:20 Mm-hmm.

Harry Stebbings 4:21 Is there one company or a situation that just most stands out to you? You've invested in the Canvas of the world and many other great companies. Is there one where that was very much the case?

Nikhil Basu Trivedi 4:31 Yeah. I mean, look, I think the Canva investment for us at Shasta was an exception on so many different dimensions. And so it's obviously the one that stands out for me personally. You know, the company was based in Sydney, Australia. It was raising, um, a convertible note at a $25 million valuation cap. Um, it had no revenue yet. It had a bunch of early signs of product market fit actually, like, you know, uh, several hundred thousand monthly active users of Canva who were using the product really aggressively. It was growing 30 to 40% every month. It broke a lot of the traditional rules. And, and so, you know, we thankfully decided to make that investment. But there were all sorts of reasons to let it go.

Harry Stebbings 5:11 Dude, I mean, just-

Nikhil Basu Trivedi 5:12 Uh-

Harry Stebbings 5:12 ... for the context, it's a, like, married couple as co-founders-

Nikhil Basu Trivedi 5:15 Yes. Well, they were-

Harry Stebbings 5:15 ... who are fantastic.

Nikhil Basu Trivedi 5:16 They were not married then, but, but yes.

Harry Stebbings 5:17 I love them both, but, like, a couple as co-founders is a contentious one.

Nikhil Basu Trivedi 5:21 Absolutely. Yeah.

Harry Stebbings 5:21 Uh, non-technical.

Nikhil Basu Trivedi 5:22 Yep. Yep.

Harry Stebbings 5:23 Uh, in Sydney, Australia.

Nikhil Basu Trivedi 5:25 Yep.

Harry Stebbings 5:25 Not a, like, stellar who's who of, like, seed investors before 'cause it was so early.

Nikhil Basu Trivedi 5:30 Yep.

Harry Stebbings 5:30 Dude, it was ... Like, I look at that, and I love Cliff and Mel, but I don't know if I would have done it.

Nikhil Basu Trivedi 5:34 When you dug beneath the surface on what was actually happening and people using the product, you could see what I just described-

Harry Stebbings 5:40 Mm-hmm.

Nikhil Basu Trivedi 5:40 ... which is, wow, there's 100,000 people using this every month who are creating 3 to 400,000 designs on Canva every month. Those folks, it was about six months in after the product had launched, and you could see that those folks, sort of their cohort retention in the first six cohorts looked very strong. It looked like it was flatlining-

Harry Stebbings 5:58 Mm-hmm.

Nikhil Basu Trivedi 5:58 ... of creators who just-... were using Canva on a very regular basis to- to- to- to design things. It was also fragmented usage. You know, it wasn't just, uh, Facebook, uh, posts and infographics and, um, social media content, it was also pitch decks, it was also posters. It was a lot of different types of media and it was growing completely organically. The SEO thing hadn't yet been figured out, but it was still just growing through word of mouth from people using Canva, posting Canvas out in the wild and other people discovering Canva as a result. And so all of those characteristics gave it some early signs of product market fit. If you only stared at that, you could see that there was something really special here. And if you, sort of, put away the noise of everything you just described, I think what you would have seen is a really interesting, uh, product that has strong early signs of product market fit.

Harry Stebbings 6:47 I think we actually really underestimate the, don't laugh, but, like, the momentous weight of product market fit. Like, once you have that, so much else goes away.

Nikhil Basu Trivedi 6:56 Yeah, true.

Harry Stebbings 6:57 And ............................ you need to find the next stage of product market fit-

Nikhil Basu Trivedi 6:59 Yep.

Harry Stebbings 7:00 ... but so few actually get that. As a pre-seeder investor today and a seed investor, I- I don't know about you, but, like, so many don't even get there-

Nikhil Basu Trivedi 7:08 Yeah.

Harry Stebbings 7:08 ... to the earliest signs.

Nikhil Basu Trivedi 7:09 Yeah.

Harry Stebbings 7:09 Uh, we've seen this, uh, interesting reversion away. In last years, it was like, "Scaled funds, AUM, wow, they've raised big funds." Last six months or 12 months, we've seen this, "Ah, constraining fund size," and there's kind of apalling of it.

Nikhil Basu Trivedi 7:23 Yeah.

Harry Stebbings 7:23 Which I'm not saying is right or wrong, it's just funny, the reversion. How do you think about the small fund versus big fund for early stage venture, Nikhil?

Nikhil Basu Trivedi 7:30 I'm very biased here because, uh, at Footwork, we're still investing our first fund. It's $175 million fund. And my firm belief, in my bones, is that small funds outperform bigger funds. It is incredibly difficult to have a 5X net return on a billion dollar plus fund. I think there's incredibly few of those funds in hist- in the history of venture.

Harry Stebbings 7:52 We- I actually did the maths with Jason Manke the other day, which is if you have a $500 million fund and you wanna do a 6X on it, you then need, if you have a 10% holding, uh, $30 billion-

Nikhil Basu Trivedi 8:03 Yeah.

Harry Stebbings 8:03 ... of entry.

Nikhil Basu Trivedi 8:03 That's 6X gross.

Harry Stebbings 8:04 Yeah.

Nikhil Basu Trivedi 8:05 Uh, not- not net of carried interest and fees th- that- that LPs pay. And so 5X actually net is a, is a high threshold in that.

Harry Stebbings 8:12 Yeah.

Nikhil Basu Trivedi 8:12 It's more than thir- it's- it's- it's, you know, at least one Canva in, uh, in that size fund.

Harry Stebbings 8:18 With 10%?

Nikhil Basu Trivedi 8:19 With 10% return (laughs) .

Harry Stebbings 8:20 (laughs) It's, um, it's high. And it's every fund-

Nikhil Basu Trivedi 8:23 E- e-

Harry Stebbings 8:23 ... you need that on a two-year cycle.

Nikhil Basu Trivedi 8:24 Exactly, and there's so, so few companies that get to that, that stage. And so when you do that math, it- it just makes sense to me that small funds are gonna outperform big fund on average.

Harry Stebbings 8:36 But do you think anyone dis- uh, disagrees with you? 'Cause like, obviously, you know, I- I- of course you're right. It's easier to make money on small funds.

Nikhil Basu Trivedi 8:44 Yeah, but then people have made decisions and taken actions that would suggest that they don't believe in it. If the purpose of what you're trying to achieve as a venture capitalist is maximizing returns, therefore sort of maximizing carried interest, uh, small funds don't make sense.

Harry Stebbings 9:02 Well, it's- it's the misalignment between GPs and LPs though-

Nikhil Basu Trivedi 9:04 Yeah, absolutely.

Harry Stebbings 9:04 ... which is like actually if you have a $400 million fund and you 3X it-

Nikhil Basu Trivedi 9:08 Yeah.

Harry Stebbings 9:08 ... it's- which I'm not saying is easy by any means (laughs) -

Nikhil Basu Trivedi 9:10 Yes.

Harry Stebbings 9:11 ... that's hard to do-

Nikhil Basu Trivedi 9:11 Yes.

Harry Stebbings 9:12 ... but it's much better than 5X-ing or 6X-ing-

Nikhil Basu Trivedi 9:15 Yeah.

Harry Stebbings 9:15 ... or 7X-ing-

Nikhil Basu Trivedi 9:15 Yeah.

Harry Stebbings 9:15 ... a $50 million fund.

Nikhil Basu Trivedi 9:16 100%. And, um, and that's part of the issue, I think, um, which is i- if there was true alignment, it would be about maximizing the multiple. Uh, and that's certainly how we think about it at Footwork.

Harry Stebbings 9:30 What do you think happens then? Like, do you think that all of these funds downsize and say, "You know what? We actually are-"

Nikhil Basu Trivedi 9:36 Yeah.

Harry Stebbings 9:36 "... returning back to an optimization on returns"?

Nikhil Basu Trivedi 9:40 I think a handful will, um, and I think there'll be a very smart handful that- that- that- that will. But it's a really difficult and painful decision to do that.

Harry Stebbings 9:49 Also, your team is based around the fees-

Nikhil Basu Trivedi 9:52 Yes.

Harry Stebbings 9:52 ... that you have-

Nikhil Basu Trivedi 9:52 Yes.

Harry Stebbings 9:53 ... and that's difficult to manage as well (laughs) .

Nikhil Basu Trivedi 9:54 Although I would say most venture firms have plenty of fees to cover the team and more-

Harry Stebbings 9:59 Mm-hmm.

Nikhil Basu Trivedi 9:59 ... especially at that fund size scale. But more than that, I think there's just, there's this narrative in the industry, right, about how big your fund size is and how much AUM you have. And so it's really hard to go, I think from even a brand and reputation standpoint in the market, from, you know, having a $2 billion fund to having a $400 million fund. And the handful of firms that have actually made that type of decision historically, I think have been, uh, you know, some of them have- have been, uh, really better off for it.

Harry Stebbings 10:25 The thing I feel quite constrained on, and I'm envious of the larger funds for-

Nikhil Basu Trivedi 10:29 Mm-hmm.

Harry Stebbings 10:30 ... is their ability to be less price sensitive. And what I mean by that is their f- ownership focus very much, like I'm sure both of us are-

Nikhil Basu Trivedi 10:36 Yeah.

Harry Stebbings 10:37 But whether it's three million or one and a half, they don't really care as long as they get their 15 or 10%, whatever that is. And so founders are like, "Listen, Harry, I love you, but why would I take your offer, which is way less, than their offer, which is much more?" And so our ability to pay up is significantly reduced if we want the same level of diversification. I find that challenging.

Nikhil Basu Trivedi 10:59 It is certainly a challenge and it's something I think all of us have faced against the- the-

Harry Stebbings 11:04 Yeah.

Nikhil Basu Trivedi 11:04 ... the big multi-stage firms with billion dollar plus funds. What I'll say about that and what I try to explain to founders is, I think that that's actually a misalignment between founders and- and these types of investors, which is oftentimes in the founder's best interest is actually taking less money, being more constrained in the early days to find product market fit, as we were talking about earlier-

Harry Stebbings 11:26 Mm-hmm.

Nikhil Basu Trivedi 11:26 ... given just how big of a inflection that is. Uh, I mean, how many times have you seen a big early stage financing l- yield to nothing for the founders, nothing for the company? Um, I- I just think there's very few of those- those rounds that actually have worked out historically.

Harry Stebbings 11:43 Very few.

Nikhil Basu Trivedi 11:43 Um, and so...... I come back to. Yeah.

Harry Stebbings 11:45 It's funny, I'm gonna get in trouble for this. But my worst, uh, no reason, I think the show does better today than ever, is because I can probably open up and have more people hate me (laughs) than before.

Nikhil Basu Trivedi 11:54 (laughs)

Harry Stebbings 11:54 But like the, my worst point, and I've done 150 of this with Sam. The worst performing ones are always the stellar VP that comes out of the stellar company and raises 10 on 40 as the pre-seed.

Nikhil Basu Trivedi 12:06 Yeah.

Harry Stebbings 12:06 They are always the ones which slowly meander to either a bad acc or higher, or nothing. Do you find that too?

Nikhil Basu Trivedi 12:12 Yeah. Yeah. We, and we don't do those types of rounds. And we're not set up to do those types of rounds. So actually, you know, in a strange way, I really like the constraint of our fund size. I actually think it forces us to make better decisions.

Harry Stebbings 12:23 Mm-hmm.

Nikhil Basu Trivedi 12:24 Um, and I think there's a laziness and a lack of great decision-making that can come from having a bigger fund. In the same way that it can come from having too much capital in the early days as a company.

Harry Stebbings 12:35 I agree with that. When you think about, like bluntly, the argument with founders, and not the argument, but the debate, when they have a multi-stage fund and a seed fund, and they say, "Hey, these are our, these are our options." How do you actually advise them on taking the money? And they have much more money available to them from the larger funds. I guess my question is, is it always better to take the smaller round, do you think?

Nikhil Basu Trivedi 12:57 Look, I think it, it is dependent on the investor, of course.

Harry Stebbings 13:00 Mm-hmm.

Nikhil Basu Trivedi 13:00 So that the variables that would go into my thinking are, um, the firm, the, the partner at said firm, um, and sort of the match of that to the type of business. And, and the capital match to the type of business. 'Cause there are some companies that actually do need more capital in the early days.

Harry Stebbings 13:18 Yeah.

Nikhil Basu Trivedi 13:18 And that will benefit from that. And so I, I struggle to have a, a general, um, piece of advice on that front. But of course, based on Footwork being a stage specialist firm at early stage, we only lead ear- early stage rounds. We only lead and we only do early stage. I have a bias towards the stage specialists.

Harry Stebbings 13:37 Do you think it's possible for stage specialists like us, the seed specialists, to operate and invest in the hot startups at seed anymore? Which are traditionally five on 25, six on 30, whatever that is. Do you think it's possible for us to build a business around those deals?

Nikhil Basu Trivedi 13:55 I think it's very hard.

Harry Stebbings 13:56 Yeah.

Nikhil Basu Trivedi 13:56 And I think, you know, that's why more often than not, the, the companies that we invest in are not the star-studded team, uh, with that type of round. It's a team that looks a bit more like a Mellon Cliff at Canva, um, but that has a product that's already out in the market, that already has some early signs that it's working, uh, something that's resonating with customers. And so it's typically not in a really hot area, um, like AI at the moment. And it's typically not from a really hot star-studded team.

Harry Stebbings 14:27 Hm. Do you think a load of s- multi-stage funds are burning a ton of money on AI seed companies right now?

Nikhil Basu Trivedi 14:37 Yeah, I think so (laughs) .

Harry Stebbings 14:39 (laughs)

Nikhil Basu Trivedi 14:39 You know, we don't think that the foundational model investments, the, for example, they're raising hundreds of millions of dollars in a seed, uh, make any sense. They, they don't make sense for sure for our firm. But we don't think they actually make much sense for the, the big funds either. I mean, the money is going to fund, you know, CapEx, to, to NVIDIA H100s. It's, uh, it's going straight out the door in many cases. Uh, I don't get it. And so I'd, I'd love for you to have a bunch of those folks on your, on your show. Uh ...

Harry Stebbings 15:12 I think they declined. (laughs)

Nikhil Basu Trivedi 15:14 (laughs) Do you understand it? I mean, I ...

Harry Stebbings 15:16 Um, I, I, so I think the f- funding rounds are very misreported. And what I mean by that is like-

Nikhil Basu Trivedi 15:22 Mm-hmm.

Harry Stebbings 15:22 ... there's definitely been some in Europe where like, you know, m- $100, $100 million rounds are reported on two $50 million valuations. If you actually know, you know that moronic investors did it on uncapped notes.

Nikhil Basu Trivedi 15:34 Mm-hmm.

Harry Stebbings 15:34 But actually only 20 was priced at that.

Nikhil Basu Trivedi 15:37 Exactly.

Harry Stebbings 15:37 And so quite often there's like structures or rounds-

Nikhil Basu Trivedi 15:39 Yep.

Harry Stebbings 15:39 ... which journalists just don't get.

Nikhil Basu Trivedi 15:41 Yeah.

Harry Stebbings 15:41 And actually the founders are not stupid. They're not selling half the company in that round.

Nikhil Basu Trivedi 15:45 Yeah.

Harry Stebbings 15:45 Investors are stupid for doing an uncapped note, and well done to the founders.

Nikhil Basu Trivedi 15:49 (laughs)

Harry Stebbings 15:49 But the one thing that I really wanna ask about is, you know, there's a lot of portfolios today where the founders have done riffs, and they did preemptive A's in the good times. And so they actually have eight to ten years of runway, but they don't have product market fit. I have this in, you know, our first fund portfolio. Um, I'm sure many others have it. What happens to these companies with very long runways, but no product market fit?

Nikhil Basu Trivedi 16:13 Those companies have to find some product market fit somewhere to deserve to exist for a longer period of time. I think there's a lot of companies that are just having, you know, really honest, hard conversations around this right now. Or at least there should be.

Harry Stebbings 16:27 Mm-hmm.

Nikhil Basu Trivedi 16:27 The runway doesn't matter unless it leads to a takeoff or a landing. Ideally a takeoff (laughs) in, in startup land. The other thing is momentum and winning for companies, as I'm sure you've seen, is everything. Like if you do not have that, it is really hard to have a great culture at a company. It's really hard to hire the best people. It, it's, it's hard to do your best work yourself as a founder. And so you just have to have that, uh, at some, at some level.

Harry Stebbings 16:56 And it's infectious. I find when-

Nikhil Basu Trivedi 16:58 Sure.

Harry Stebbings 16:58 ... when things are working, more things work.

Nikhil Basu Trivedi 17:01 For sure.

Harry Stebbings 17:01 And team- and people work harder when it's working 'cause it's funner work.

Nikhil Basu Trivedi 17:04 Yeah.

Harry Stebbings 17:04 Do you know what I mean?

Nikhil Basu Trivedi 17:05 100%. I think you have to have that. And if you don't have that i- in a reasonable amount of time, then (...)

Harry Stebbings 17:11 Have you ever had this discussion with founders about returning money? How does that go, and how would you advise me? You know, I, I've had it too. It doesn't always go great.

Nikhil Basu Trivedi 17:18 It's kind of the conversation that we are just having, which is, do you wanna feel like you're winning? D- do you wanna feel like you, you have momentum? Because that's what we want you to feel (laughs) . Um, and invariably the, the answer is like, "Yes, we, we wanna feel that way too." And so the question is like, are we banging our head against the wall at the same thing for too long? Should we move on, if so? Uh, we can move on and, and keep the capital, but, but at some level I think you have to have that type of conversation.

Harry Stebbings 17:48 The question that I have as an investor is that actually if generally they would've spent half the money, say-

Nikhil Basu Trivedi 17:53 Mm-hmm.

Harry Stebbings 17:53 ... as an average, is it not worse just letting them keep going? They're a team you backed in the first place. They're probably gonna meet a certain level of quality, unless it's a real mistake.

Nikhil Basu Trivedi 18:02 (laughs)

Harry Stebbings 18:03 ... actually, the Stewart Butterfield and Slack example always rings true for me. Just keep going.

Nikhil Basu Trivedi 18:10 I think it- it- it can be if you're having the right types of honest, transparent conversations around it. And if you're seeing that the team is iterating and experimenting around something, and- and moving quickly around something. Like, it's okay to throw different ideas at the wall in an experimentative phase when you realize the thing you have th- that you thought was gonna work is not working. I think it's not okay to not be operating with a sense of urgency, and to not be able to have transparent conversations around it. And so that's, those are the two things that I would, I would try to suss out and judge.

Harry Stebbings 18:39 Yeah. No, I get you. When you think about kind of those early days, and actually making the investment decision, I- I thought this when we were talking about Canva, but I wanted to kind of let the conversation run. You have people, you have market, you have traction, say. How do you rank them in terms of importance?

Nikhil Basu Trivedi 18:56 I've always been, uh, a sort of traction, early signs of product-market fit first investor, then people, and then market.

Harry Stebbings 19:06 That's really interesting-

Nikhil Basu Trivedi 19:07 I've- I've-

Harry Stebbings 19:07 ... 'cause that's not what people... It's often the opposite. Like, you're-

Nikhil Basu Trivedi 19:10 Yeah.

Harry Stebbings 19:10 Like an Elad Gil-

Nikhil Basu Trivedi 19:12 Yeah.

Harry Stebbings 19:12 ... will be like, market first, and then I think people, and then traction.

Nikhil Basu Trivedi 19:15 Yeah. Like I remember having a chat with Keith Raboy about this, where he was just like, "Look, I- I just look for sort of founder plus keynote. That's my stage. Founder plus presentation, plus plus idea." And I was like, "Keith, that... I could never do that." I've made very few, if any investments, uh, like that. Because I like to see the early sparks of something working, and I'm willing to take more risk on the market than, I think, other investors. Uh, and so I'm happy to unpack that, if that's...

Harry Stebbings 19:43 Yeah. I'd love, I'd love to understand that, and like how that most commonly shows itself. Is it word of mouth?

Nikhil Basu Trivedi 19:47 Yeah.

Harry Stebbings 19:48 Is it revenue? Like, talk to me about-

Nikhil Basu Trivedi 19:50 Yeah. So, it's certainly not necessarily revenue, right? As I, as I mentioned with Canva, there- there was no monetization. Th- those early signals that you've built something that people love using. And so that can come in the form of, you know, high frequency of usage, or high repeat usage, or high retention, even on a really small base of users. It can come from word of mouth growth, um, even on a small base. It can come from just anecdotes, like, "I could not possibly live without this now that I've tried it-"

Harry Stebbings 20:20 Mm-hmm.

Nikhil Basu Trivedi 20:20 ... from, from customers.

Harry Stebbings 20:21 I find so much in the comments on YouTube videos, on app store reviews.

Nikhil Basu Trivedi 20:26 Yep.

Harry Stebbings 20:26 I find that-

Nikhil Basu Trivedi 20:27 Yeah.

Harry Stebbings 20:27 ... a real goldmine of untapped.

Nikhil Basu Trivedi 20:28 Absolutely. Uh, product reviews-

Harry Stebbings 20:30 Yeah.

Nikhil Basu Trivedi 20:31 ... in, in general, um.

Harry Stebbings 20:31 Also, are people doing tutorials around products?

Nikhil Basu Trivedi 20:34 Yes. Yes.

Harry Stebbings 20:34 That's a really good one.

Nikhil Basu Trivedi 20:35 Yeah. I mean, you can literally Google-

Harry Stebbings 20:37 Yeah.

Nikhil Basu Trivedi 20:38 ... (laughs) and learn a ton about what's happening to a product in the wild without ever speaking to the company. And we always try to do that. And,

Nikhil Basu Trivedi 20:45 and, and so...

Harry Stebbings 20:46 The hard thing is though, dude, I- I agree with you totally on all this.

Nikhil Basu Trivedi 20:49 Yeah.

Harry Stebbings 20:49 But at the stage we invest, I find they're well past that by that point. Do you know what I mean?

Nikhil Basu Trivedi 20:54 Yeah.

Harry Stebbings 20:55 Because that's the A round by the time they've got.

Nikhil Basu Trivedi 20:58 Now, I should be clear about this, which is, at Footwork we do... We- we only lead rounds, we only do early stage. Uh, we lead seeds and As. So we've made 11 investments so far, we've done, uh, five series As and six seeds. I think our average initial check is about four and a half million, and the range has been two to nine million.

Harry Stebbings 21:17 Mm-hmm.

Nikhil Basu Trivedi 21:17 We've done sort of later seeds and earlier As, precisely because we love this stage that I'm talking about. Where there is a little something that's working, where the founders can articulate why and have a bunch of unique insights, and where the why now is strong, and where they have a big vision for what it can become. But there may be some level of market risk. Y- you know, it may not be clear how big it can become. We, of course, try to assess that and ask that question over and over again. I wrote recently, this is the question that keeps me up the most, like, "How big can this company be? Can it be one of the ones?"

Harry Stebbings 21:47 You wrote this in your billion dollar...

Nikhil Basu Trivedi 21:49 Yeah.

Harry Stebbings 21:49 Yeah. I- I- I-

Nikhil Basu Trivedi 21:50 That's right. Yeah.

Harry Stebbings 21:50 I remember reading it in the research for this. And then I thought instantly to... We d- you know, do a show called The Memo, where we review the investment decision-

Nikhil Basu Trivedi 21:57 Mm-hmm.

Harry Stebbings 21:57 ... of multibillion-dollar companies. And we've had, you know, Jeremy from Snap, Alfred... Or, Jeremy on Snap, Alfred on Instacart, Byron Jita on Twilio. The best of the best on the best companies. Every single one said, "We massively underestimated how big the market would be."

Nikhil Basu Trivedi 22:12 Yeah.

Harry Stebbings 22:12 And so I kind of lead back from that thinking it's just a way to come to a wrong decision, trying to do market scenario planning.

Nikhil Basu Trivedi 22:20 Well, so a couple things. One, this is precisely why I underweight market. Does that make sense?

Harry Stebbings 22:24 Mm-hmm.

Nikhil Basu Trivedi 22:25 Like, I- I weight market third on the, the three that you asked me about, because I just think it's the hardest one to assess and predict for myself.

Harry Stebbings 22:32 Mm-hmm.

Nikhil Basu Trivedi 22:33 And I think when you look at the investments you just described, and some of the very great ones, that was true, um, for- for those investors as well. You can imagine and dream the dream that the product market fit that this company has, the- the- the team that's building it, can expand the market beyond your wildest dreams, can actually create a whole new market. Those are oftentimes the most special companies. And so again, if you think about (laughs) my- my thinking around this, it comes back to, well, this is, this is exactly why I underweight market in the analysis.

Harry Stebbings 23:06 I always think you've got to be directionally correct. Do you know what I mean?

Nikhil Basu Trivedi 23:09 Mm-hmm.

Harry Stebbings 23:09 And what I mean by that is, like, Canva rode a brilliant wave of content creation-

Nikhil Basu Trivedi 23:15 Yeah.

Harry Stebbings 23:15 ... of solopreneurship-

Nikhil Basu Trivedi 23:16 Yeah.

Harry Stebbings 23:17 ... of marketers within companies, and every company being a brand needing content.

Nikhil Basu Trivedi 23:21 Yeah.

Harry Stebbings 23:21 There are multiple threads at one in- time intersection which come together, and that's when you have something really fucking special. I also use it as a, like, are we going against the tide?

Nikhil Basu Trivedi 23:32 (laughs)

Harry Stebbings 23:32 Like, if you're going against a certain theme that's just very prevalent-

Nikhil Basu Trivedi 23:37 (laughs)

Harry Stebbings 23:37 ... e- it's a, it's reason to say no, not a reason to say yes. Do you know what I mean?

Nikhil Basu Trivedi 23:40 Yeah. Yeah. I agree with that.

Harry Stebbings 23:40 I- I totally get you.

Nikhil Basu Trivedi 23:41 Yeah. Yeah.

Harry Stebbings 23:42 On the people side, we all make mistakes. When you review people assessment, what have you made a mistake on that you have changed or should have seen?

Nikhil Basu Trivedi 23:52 The first thing that comes to mind, and I- I apologize that I- I didn't really look at the questions before-

Harry Stebbings 23:57 Mm-hmm.

Nikhil Basu Trivedi 23:57 ... coming in here. So, but basically-

Harry Stebbings 23:59 That wasn't on the question. (laughs)

Nikhil Basu Trivedi 24:00 All of, all of this is... All of this is unscripted.

Harry Stebbings 24:01 (laughs)

Nikhil Basu Trivedi 24:02 The first thing that comes to mind though, Harry, is there's this difference between the ability to fundraise and the ability to build a business.

Harry Stebbings 24:09 Yeah.

Nikhil Basu Trivedi 24:10 And so I have been sucked in and seduced by founders that can tell a great story, that are great in a handful of one-hour sessions and in person for the first time, who feel like they're magnets for talent, who know their business inside and out, it seems, a- and who are great at fundraising, and so attract multiple term sheets. And what I've seen happen a handful of times is that...... they are not good at the fundamentals of, of building the product and building the team, of actually finding product-market fit or growing the product-market fit that we thought that they had. And that there's that huge difference between fundraising and business building. And I think that's showing up all over the place right now. Right? Like, there were so many companies that were able to fundraise in 2021 that now don't have P&Ls and fundamentals that, to show for, for the vision that they told.

Harry Stebbings 24:58 I, I get you, and I agree that I've d- definitely fallen victim to that myself. But I, I'm not sure. And the reason I'm not sure is because you think about founder's ability to sell to investors-

Nikhil Basu Trivedi 25:08 Yeah.

Harry Stebbings 25:08 ... to sell to customers and sell to hires.

Nikhil Basu Trivedi 25:10 Yep.

Harry Stebbings 25:10 If you can do those three things, you should have a great founder.

Nikhil Basu Trivedi 25:14 It, it, it's not like that is a, a, an, a necessary precondition to, to failure, by any means. But I think it's been a failure mode for me.

Harry Stebbings 25:23 Do you sense-check yourself on it now? Like, sometimes I go, "Ooh, it feels too slick." (laughs)

Nikhil Basu Trivedi 25:28 Yeah, yeah, for sure. Like, how much substance is there really beneath the surface? How much does this founder actually care? How much do they really understand? There's a bunch of questions that I try to ask to suss these things out, such as-

Harry Stebbings 25:39 What sort of questions do you ask?

Nikhil Basu Trivedi 25:41 Oftentimes, if I'm really digging in and really excited about something, I'll, I'll say something like, "Uh, hey, let's just pretend that this is our first board meeting right now, that we just invested in the company. What's the main challenge topic or discussion topic that you wanna have in our first board meeting right now?" And the spirit of that question is just assessing, like, are they clear-eyed in their thinking right now about what's happening in the business? Uh, and can they articulate that? You know, usually, you want what they say to be the most important thing that's also on your mind, to prioritize and figure out in this phase. And you want some level of sort of just transparency and vulnerability around the answer. But I find that that question and the answer you get tells you, tells you quite a bit.

Harry Stebbings 26:27 Do you know what I find a commonality of the best founders? (laughs) Often, I find, you know, the not-so-great ones actually will kind of shield themselves. But the really great founders will say, "Oh, Nikhil, there are so many challenges. Where do we start?"

Nikhil Basu Trivedi 26:40 Yes.

Harry Stebbings 26:40 "We've got one, two, three, four..." And you're like, "Oh."

Nikhil Basu Trivedi 26:43 Yes, yes. It, it, it's very consistent with what I've seen as well. Again, that, that ability to, to, to be confident in what is actually working, um, but also confident in what's not working yet, and vulnerable about it, and, and clear-eyed and self-aware about it, is, I think, a characteristic of many of the great ones.

Harry Stebbings 27:03 I spoke to one of your friends, uh, actually a mutual friend of ours, before the show, speaking of confidence and vulnerability.

Nikhil Basu Trivedi 27:10 (laughs)

Harry Stebbings 27:10 And they said, "The challenge that I have with Nikhil is that he is one of the great ones. He just doesn't believe it yet. And he kind of feels like he should be someone, maybe that he has to be sometimes." Do you think that's fair?

Nikhil Basu Trivedi 27:24 In, in the early days of my career, which I, I still consider it to be... I mean, I'm, I'm 34. I've been in venture for, I guess, 13 years, since I started as a summer intern at Insight. There's an insecurity that comes from not yet having, uh, delivered in distributions-

Harry Stebbings 27:42 Mm-hmm.

Nikhil Basu Trivedi 27:43 ... many, many multiples of what I've in- invested, an insecurity that comes from having started a firm that, uh, has so much to prove, everything to, to, to prove, uh, an anxiousness that we'll have, that I'll have, until we've many times over-returned our first fund. But I also think that I know who I am more than I've ever known. You know, I, I think I'm able to authentically be myself. I think I've sort of been able to find my voice as a writer over the last three, four years of, of trying to do the newsletter as consistently as possible. My hope is that Footwork is an embodiment of sort of who my partner Mike and I, uh, uh, are, and that we express ourselves fully, authentically through the investments we make and how we conduct ourselves as a firm.

Harry Stebbings 28:37 I was, I was gonna ask kind of who you think you are, but it's actually a shit question 'cause no one can actually answer that.

Nikhil Basu Trivedi 28:42 (laughs)

Harry Stebbings 28:42 But it's like, what actually makes you happy? And it could be anything.

Nikhil Basu Trivedi 28:46 Yeah.

Harry Stebbings 28:46 But, like, one of my closest friends asked me this the other day.

Nikhil Basu Trivedi 28:49 Yeah.

Harry Stebbings 28:49 And I said, "It's two things. It's, one, walking around the park with my mom and getting an espresso-"

Nikhil Basu Trivedi 28:53 Yeah.

Harry Stebbings 28:53 ... have a growing-up pair. (laughs)

Nikhil Basu Trivedi 28:55 Yeah.

Harry Stebbings 28:56 Uh, and then, two, it's doing amazing, amazing shows or discussions with smart people.

Nikhil Basu Trivedi 29:02 Yep, yeah.

Harry Stebbings 29:02 Could be founders, could be investors.

Nikhil Basu Trivedi 29:03 Yeah.

Harry Stebbings 29:04 That's my two things. What just, like, genuinely feeds your soul?

Nikhil Basu Trivedi 29:07 Yeah. So, I mean, there's two that come to mind. The first is, uh, I've just always loved those first meetings with founders, where I live for the couple every year, hopefully, that just blow me away-

Harry Stebbings 29:20 Yeah.

Nikhil Basu Trivedi 29:20 ... and that suck me in. And I've had a bunch of those now in my career. But I just love that. And I think, as a venture investor, you have to love that thrill. Um, at least, I, I believe, in my, in my ones, yeah, I love that thrill.

Harry Stebbings 29:32 Do you find with those great ones, it's immediately obvious that it's great 'cause-

Nikhil Basu Trivedi 29:35 Oh, I've gone back and forth so much on this-

Harry Stebbings 29:37 Yeah.

Nikhil Basu Trivedi 29:37 ... right? 'Cause it, it's, this is what-

Harry Stebbings 29:39 Sometimes there's an on lock.

Nikhil Basu Trivedi 29:40 Yeah, this is what decision-making and judgment is all about. I do think consistent thing for me is... A- and I've gone back to try to study this. Like, if I'm thinking about it that evening, if I'm reaching out to people to, to sort of suss it out better, and, uh, you know, I'm, I'm just researching on my own about it, you know, hours after the, the first meeting, there's something there that I should pay attention to. And conversely, if I haven't done anything about it, like, two days later, that's probably not a fit. And maybe it goes on to be really special. But I actually haven't had that many of those, where I didn't really think anything of it, I didn't follow up on any interest in it, uh, after a couple days, and it turned out to be, uh, a massive company. And so, I, I certainly reflect a lot on, on that. Um, and so back to your question, I think it's, it's that thrill that has never escaped me, that I hope I have forever. Um, it's the reason why I love this job. It's the reason why I don't even think of it as work, frankly.

Harry Stebbings 30:35 Do you and Mike have to agree to get a deal done?

Nikhil Basu Trivedi 30:38 We don't. Um, we...... you know, one of us has to absolutely love the company. The other can like it, not love it, or dislike it. Uh, the other can't hate it. And so if you think about the one through four voting scale, where one is strongly unsupportive and four is strongly supportive, three is supportive and, and two is unsupportive, one of us has to be a four. One of us has to be strongly supportive to make an investment.

Harry Stebbings 31:04 Sure.

Nikhil Basu Trivedi 31:04 And the other cannot be a one. Um, strongly unsupportive.

Harry Stebbings 31:08 I don't know about this.

Nikhil Basu Trivedi 31:10 Yeah.

Harry Stebbings 31:10 Um, I, and the reason I don't is because, like, I think in any situation, uh, just generally, and I'm speaking as I have a friend who, you know, is a, you know, bluntly an associate at a different firm, and they kind of have a similar scale. And so always do a two, just always do two, or a three, because, like, either one, you're like, "Well, I didn't say no." Like, unsupportive isn't really uns-

Nikhil Basu Trivedi 31:32 Yeah.

Harry Stebbings 31:32 And so actually I'm like, I, no, it should just be four and one.

Nikhil Basu Trivedi 31:35 Four and one? Yeah. Fair enough. I mean, I think-

Harry Stebbings 31:36 Do you... But you, I- am I wrong?

Nikhil Basu Trivedi 31:38 I believe that there can be a place in the middle. So, so for example, I, I'm, I've rarely been a one on, on anything in my venture career. But where I have been, I felt like there's actual downside risk to the firm potentially with making this investment. There's just something really off about it.

Harry Stebbings 31:56 Yep.

Nikhil Basu Trivedi 31:57 And therefore, I feel very strongly we shouldn't do it. But I've disliked a lot of companies. Uh, I've been a two on a lot of stuff where others have been fours, where I'm really glad that we did it. And conversely, I've been very glad for myself that I've been a four and strongly supportive, and other folks have been a two, because they didn't think it made sense, but they didn't hate it-

Harry Stebbings 32:15 Mm-hmm.

Nikhil Basu Trivedi 32:15 ... so much that they wanted to block it or, or, or, or say we, that there's no way we should do it. So, that's the way I think about it. Um, I think you have to be intellectually honest, obviously, about the system.

Harry Stebbings 32:25 In the ones that w- you put as twos, that turned-

Nikhil Basu Trivedi 32:28 Yeah.

Harry Stebbings 32:28 ... out that you were really pleased to have done-

Nikhil Basu Trivedi 32:29 Mm-hmm.

Harry Stebbings 32:30 ... what did you not see?

Nikhil Basu Trivedi 32:31 Because of my bias towards companies that have some signs that they're working, um, some early signs of product market fit, the ones that most stand out there are ones that didn't have that. Where at Shasta, for example, we made a decision to invest in something that was pre-product, um, but that actually turned out to work. Probably the other ones sort of, um, that I can think off the top of my head is WeStretched on price to do it.

Harry Stebbings 32:58 Mm-hmm.

Nikhil Basu Trivedi 32:58 Um, and where, like, I, I liked it, didn't love it, but then I didn't like the, the price. Uh, and so I was net- netted out as a two.

Harry Stebbings 33:07 Do you find it hard that, like, okay, so you vote two, you're unsupportive, but you're not like-

Nikhil Basu Trivedi 33:12 Yep.

Harry Stebbings 33:12 There's nothing s- super, super unsupportive.

Nikhil Basu Trivedi 33:14 Yeah.

Harry Stebbings 33:14 But then given the size of our teams, y- you will probably have to work on it quite extensively if you do-

Nikhil Basu Trivedi 33:20 Yep. Yeah, yeah.

Harry Stebbings 33:21 And (sighs) dude, ten years working on a deal, a lot of freaking time on a company you were unsupportive on?

Nikhil Basu Trivedi 33:26 Well, I think for Mike and me, this comes down to just alignment in principles and values that, that we have, and respect and trust in one another that we have. And so it is very easy for us to, uh, disagree but, but very seriously commit, because we have a tremendous amount of respect for one another. I think where that would be difficult is if you did not have that type of alignment-

Harry Stebbings 33:51 Mm-hmm.

Nikhil Basu Trivedi 33:51 ... and trust within a partnership. And so that's, that's what I most think about in decisions like that. For me and Mike, you know, every investment that we make at Footwork is so obviously a, a Footwork investment. We actually don't even do attribution at the firm. We've never talked about which are Mike's investments versus my investments. We've done, uh, some kinda crazy and wacky things where-

Harry Stebbings 34:12 I mean this in the nicest way. Is that not a bit BS in the way that, like, one person sits on the board and so everyone's like, "Well, that's Nikhil's." "Well, that's Mike's."

Nikhil Basu Trivedi 34:19 Well, look, we actually, for the first year after we invest, both go to all the board meetings together.

Harry Stebbings 34:24 Wow.

Nikhil Basu Trivedi 34:24 Uh, we both do the work. We have a joint-

Harry Stebbings 34:26 Is that not a bit weird? Sorry, I'm

Narrator 34:27 (laughs)

Nikhil Basu Trivedi 34:27 That, that's why I was, uh, about to say, it is weird and, and wacky and, and non-traditional. And of course it doesn't scale. But it's been really important for us in the first couple years of building the firm to operate in this way, because we think that's the purest form of teamwork.

Harry Stebbings 34:41 Mm-hmm.

Nikhil Basu Trivedi 34:41 Like, every venture firm talks about, "We work as a team." But very few, I think, actually show up as a team. And, um, and we've tried to do that from the earliest days. And, and so both of us being on the, the text threads with all of our founders, and both of us showing up to those board meetings in year one is reflective of that commitment to actually work together, because we think we have complementary skills, that founders can benefit from that. And we really don't want to think about any of the decisions we make as individual decisions.

Harry Stebbings 35:09 What are the most dysfunctional breakdowns of investment decision making processes within partnerships? There's, you, you see the venture landscape-

Nikhil Basu Trivedi 35:17 Yeah.

Harry Stebbings 35:17 ... in a unique way, especially given the fact you're not in one of the large firms now.

Nikhil Basu Trivedi 35:21 Yeah.

Harry Stebbings 35:21 What are the ways that they break down in terms of decision making?

Nikhil Basu Trivedi 35:24 Well, look, I think there are partnerships where decisions are made based on the ability of individuals to sell internally. A- and so there's some folks that are just naturally more gifted to sell the deal to their partners. And there's political points back and forth on, you know, the voting system. And I think that's a terrible way to, to make decisions. Uh, you know, I, I think there's a lot of stuff that can bleed out from that, uh, that, that selling process. I think also in, in general, it's sort of intellectual dishonesty, um, that unfortunately a lot of partnerships have.

Harry Stebbings 36:03 Speaking of kind of the ability to sell internally, it makes me think of-

Nikhil Basu Trivedi 36:06 (laughs)

Harry Stebbings 36:06 ... Jason Lemkin, he said to me the other day, you know, there's often advice like, "Don't do a deal for a year-"

Nikhil Basu Trivedi 36:11 Mm-hmm.

Harry Stebbings 36:11 "... when you join someone new or you join venture."

Nikhil Basu Trivedi 36:14 Yep.

Harry Stebbings 36:14 He's like, "Total bullshit." Like, if you have a hot hand-

Nikhil Basu Trivedi 36:16 Yeah.

Harry Stebbings 36:16 ... say you come out of a great company and your alumni network is super strong, whatever that is-

Nikhil Basu Trivedi 36:21 Yeah.

Harry Stebbings 36:21 ... do deals. How do you feel about the don't do a deal for a year advice that often people get?

Nikhil Basu Trivedi 36:28 Yeah, I mean, look, I, again, I just, I come back to the mantra, which is exceptional companies deserve exceptions. So our entire job is to find the companies that are outliers and to invest in those companies. And if you really believe in your bones that something's an outlier, you should be trying to make that investment.... so, I think it's as simple as that.

Harry Stebbings 36:49 Can I ask you, we were talking about kind of dysfunctions within venture partnerships. Kind of extrapolating that, there's also the LP relationship. Before we talk about kind of dysfunctions there, you know, w- we n- I know many of your LPs, and I'm sure we probably share some. How did you select the LPs that you work with

Harry Stebbings 37:05 for Footwork?

Nikhil Basu Trivedi 37:06 We had three things that we thought about when we raised our first fund. And we actually ranked LPs based on these three dimensions. And they were, one, what's just the quality of the relationship with the people? We really tried to prioritize people who we'd built relationships with, who we really liked as humans, we wanted around our proverbial dining table as a firm in, in this first fund. Uh, second, we thought a lot about just, uh, are these people who have seen what world-class looks like, and will they push us to be world-class? Uh, which is what we want in, in, in our firm. And third, we thought about the mission, uh, values of the institutions themselves, and whether they were institutions that we are really excited to make money for and be partners with. And so those were the three, uh, dimensions that we prioritized. We, we assigned like a one through five rank on each of those. And then at a macro level, we were really lucky in our first fund. We had about 450 million of commitments for $150 million fund. And we ended up raising $175 million and realized that's incredibly fortunate for a first-time fund. But what we thought about as we were constructing the full LP base was just having a little bit of diversity across both check size-

Harry Stebbings 38:19 Mm-hmm.

Nikhil Basu Trivedi 38:19 ... and type of LP. And so we wanted, y- you know, a nice mix of, uh, of, of LPs where, uh, you know, there were a few at the $20 to $30 million level out of 175. A bunch at sort of the $10 to $20 million level, a bunch at the $5 to $10 million level, so there was diversity-

Harry Stebbings 38:36 20 to 30 is quite a high concentration in a $175 fund.

Nikhil Basu Trivedi 38:39 Yeah.

Harry Stebbings 38:39 How do you think about concentration limits that you are comfortable with?

Nikhil Basu Trivedi 38:42 We don't have a single LP who's more than 20% of our fund.

Harry Stebbings 38:45 Mm-hmm.

Nikhil Basu Trivedi 38:46 Um, and I think in general, we thought we don't want one, two, three LPs having the majority of our fund and having therefore out- outsized, uh, control in our thinking or our decision-making in some way.

Harry Stebbings 39:01 And so w- we have that. And then in terms of like types of LPs-

Nikhil Basu Trivedi 39:04 Mm-hmm.

Harry Stebbings 39:04 ... we have obviously those corporates, there's pension funds, there's fund of funds-

Nikhil Basu Trivedi 39:08 Yep.

Harry Stebbings 39:08 ... there's high-net-worth family offices, all of the different types. How did you think about that? And do you agree with the common wisdom of, you know, "Oh, endowment funds, they're, they're so stable." Is that true?

Nikhil Basu Trivedi 39:18 Yeah. Yeah, so we, we wanted some diversity. And I think we have about 15 institutional LPs. We have six university endowments. Uh, y- you know, I think three other foundations. So we're a little bit weighted towards endowments and foundations.

Harry Stebbings 39:31 Mm-hmm.

Nikhil Basu Trivedi 39:31 But we have a bunch of fund of funds, and we have a couple family offices as well.

Harry Stebbings 39:35 Mm-hmm.

Nikhil Basu Trivedi 39:35 And so we like that mix because while the endowments are great names and, uh, they are long-term oriented, there's still some level of risk of having an entire endowment-based LP base.

Harry Stebbings 39:48 Mm-hmm.

Nikhil Basu Trivedi 39:48 Uh, because they may all sort of have the same denominator effect issues at the same time. They also perhaps tend to be more aligned in what they care about. And so we i- in general like the diversity. And that's what we prioritized.

Harry Stebbings 40:04 To what extent are LPs sheep? And what I mean by that-

Nikhil Basu Trivedi 40:07 Mm-hmm.

Harry Stebbings 40:07 ... I mean, like, you have some blue-chip, blue-chip endowment names that I'm sure we both know.

Nikhil Basu Trivedi 40:11 Yeah.

Harry Stebbings 40:11 And people generally follow when they do it. Is that true?

Nikhil Basu Trivedi 40:15 Yeah. Yeah. Look, I think that there's, especially in a first fund, there's a handful of LPs around the world, at least that I know of and have met, who are truly independent-thinking, who will truly raise their hand and say, "We're willing to do a first-time fund, and we're willing to be the first commitment or the first big commitment." That group of LPs is very small. Um, it's probably... I don't know, what do you think? Do you think it's 10 LPs, 15?

Harry Stebbings 40:41 Yeah, yeah. E-

Nikhil Basu Trivedi 40:42 Something like that, I would say.

Harry Stebbings 40:43 Yeah. There's many actually who'll do it on a spinout. You know, GP from large fund. That is... Th- there's many.

Nikhil Basu Trivedi 40:50 Mm-hmm.

Harry Stebbings 40:50 But the ones where it's like n- respectfully not as obvious-

Nikhil Basu Trivedi 40:54 Yep.

Harry Stebbings 40:54 I would definitely put mine in that camp. (laughs)

Nikhil Basu Trivedi 40:57 Yep. Yep.

Harry Stebbings 40:57 Uh, y- yours, respectively same as yours, it's not like, you know-

Nikhil Basu Trivedi 41:00 Yep.

Harry Stebbings 41:00 ... wrote off both are coming and spinning out

Narrator 41:01 ... as that-

Nikhil Basu Trivedi 41:01 Absolutely not. Yeah.

Harry Stebbings 41:02 So-

Nikhil Basu Trivedi 41:02 And my, our biggest LPs are not, uh, LPs in, in, in my prior firm. They took a chance without having known Mike and me for a very long period of time. We have a bunch that are LPs from my prior firm but, but not, interestingly, the, the very largest ones.

Harry Stebbings 41:17 Can I ask you, a lot of people get the advice of like, you know, get your anchor first-

Nikhil Basu Trivedi 41:21 Mm-hmm.

Harry Stebbings 41:21 ... and really solidify the base around that.

Nikhil Basu Trivedi 41:23 Mm-hmm.

Harry Stebbings 41:23 Do you agree with that?

Nikhil Basu Trivedi 41:25 Well, what we tried to do was we, we had a bunch of our friends who's proactively said to us, "We want to commit to, to invest in the firm." And we went out to a broad group of LPs at the beginning in a first wave, a sort of set of friendly conversations to get feedback on our story, to practice. Uh, and we had o- one institution that we've known for a long time who said, "We'd love to do it." They didn't actually say what the check size would be, and it ended up being a small check. But it's really impactful to have one i- institution that's known you for a while, it's a well-known institution, say yes. And then we, we did try to prioritize the larger institutions, the sort of group of 10 to 15 that I referenced-

Harry Stebbings 42:04 Mm-hmm.

Nikhil Basu Trivedi 42:04 ... that would do a larger check in a first-time fund because that's a small N. Uh, we just thought that, th- that's the right group to see if we can get anyone to do it out of. And we were really lucky that we got a couple of those groups to invest in our first fund.

Harry Stebbings 42:18 Yeah. I a- I always think that I find some, they're so focused on getting the anchor in their side. I always say like-

Nikhil Basu Trivedi 42:23 Mm-hmm.

Harry Stebbings 42:23 ... get the GPs who they most respect-

Nikhil Basu Trivedi 42:26 Yep.

Harry Stebbings 42:26 ... as your LPs, and hopefully they're your friends already.

Nikhil Basu Trivedi 42:29 Yeah.

Harry Stebbings 42:29 So get them in as friendlies, and then leverage them for the intro.

Nikhil Basu Trivedi 42:32 Yeah.

Harry Stebbings 42:32 And then you can also leverage that check. And so it's like-

Nikhil Basu Trivedi 42:34 Yup.

Harry Stebbings 42:34 ... not only did Nikhil make the intro, he's also investing. It's like-

Nikhil Basu Trivedi 42:38 Yeah.

Harry Stebbings 42:39 ... "Oh, wow."

Nikhil Basu Trivedi 42:39 We, we had two slides in our, um, fund one fundraising deck, which actually, sadly, we, we barely got to present. (laughs) We, we only had it properly designed in February of, of 2021. And by then, we already had the whole fund committed.

Harry Stebbings 42:52 Yeah. (laughs)

Nikhil Basu Trivedi 42:53 But in that deck, the last two slides are-... one, board members that we've served alongside, both Mike and me. People who we've literally been in the boardroom with. Um, and that's a, that was a subtle way to say like, "Here, here's all the people you can call as references, and you probably know a bunch of these people." And then the next slide after that was, "Here are all the people who've inbound said that they want to invest in the fund." And that was a bunch of founders that we worked with, a bunch of GPs that we've worked with at other firms. And honestly, w- we never asked any of those folks or, or any individuals if they wanted to invest in Footwork. We just let them say that they wanted to invest. And when they did, we, we put them on that, on that (laughs) slide, again, as a way to just have a very easy way to reference us for LPs.

Harry Stebbings 43:35 Mm-hmm.

Nikhil Basu Trivedi 43:35 And I actually haven't asked our LPs who ended up seeing that deck if it, if that, those two pages resonated, but I suspect that they did and then that they were helpful.

Harry Stebbings 43:44 What do you think LPs... You know, we obviously sit in the venture landscape, see a lot more the transparency VC2VC is very clear, like founder to founder. What do you think we see that LPs do not see in the venture landscape about how VCs operate?

Nikhil Basu Trivedi 44:00 I think that there's a difference in hunger and energy and drive that some managers have that, that others don't. It, it's sort of what w- we look for in the companies that we invest in, right? And, and so, you know, of course, if, if, you know, i- i- it's a manager like you, for example, that really has a unique spin and a unique story and is an n-of-one on different dimensions, it's sort of easy to see that. Because you can put it on a page-

Harry Stebbings 44:30 It's tangible.

Nikhil Basu Trivedi 44:30 ... and it can stand out.

Harry Stebbings 44:31 You can touch it as well.

Nikhil Basu Trivedi 44:32 Yeah. Exactly. It's like, "Oh, it's sector-focused in this area, and I believe in that area. Great." It's like super easy to check the boxes on some, some funds like that. And don't get me wrong, there's incredible funds that are like that, right? But I think a lot of this business is the, the human side, and I don't think that that's gonna change. Assessing a, a person, an individual GP's real commitment to doing this, their level of drive and hunger, um, their ability, of course, to improve themselves and learn, their ability to source and to, to make investment decisions and to win and, and help companies, it's actually hard to get to the bottom of that, just as it is hard to get to the bottom-

Harry Stebbings 45:08 It's really hard.

Nikhil Basu Trivedi 45:08 ... of how great a founder is for us in, in our jobs as VCs.

Harry Stebbings 45:12 And so you think LPs don't do that well?

Nikhil Basu Trivedi 45:14 I don't think that they spend enough cycles on it. Um, but I actually think some of the great ones do. Um, and of course, I'm biased here. You know, we had LPs who did, I don't know, 30, 40 references that we heard (laughs) about on, on us, uh, each. You know, we were heavily scrutinized on us as people, because so much of our strategy is really just about the two of us, M- Mike and me, and our ability to make decisions and the partnership that we have. That's where we found LP-GP fit with our LPs, is the folks who really dug in on us as people and how we make decisions, and who ended up, fortunately, supporting us.

Harry Stebbings 45:50 You mentioned, um, picking... Or, or was it... It was seeing, picking, winning, helping, and exiting. If you were to say your best and your worst-

Nikhil Basu Trivedi 46:00 Mm-hmm.

Harry Stebbings 46:01 ... what would you say?

Nikhil Basu Trivedi 46:02 My worst right now that I feel is, is on the sourcing side. You know, I think when you're a duo investing at seed and A as a generalist firm, it's impossible to see everything you wanna see.

Harry Stebbings 46:15 Mm-hmm.

Nikhil Basu Trivedi 46:15 I think it's hard, too, when you have started a firm and you have other responsibilities, to be able to purely focus on sourcing companies.

Harry Stebbings 46:23 Sure.

Nikhil Basu Trivedi 46:23 We do calendar audits, and, and, um, uh, Catherine and Rachel, who are our operations folks at Footwork, uh, actually send both Mike and me every week. Uh, what does our calendar audit look like for this c- this, this week that's just passed, and what does it look like for the upcoming week? And the main, the single metric that we're focused on there is, are we spending more than 50% of our time on meeting new companies and sourcing new investments? I firmly believe you have to spend the majority of your time on those things to be able to find the next great one. And the beauty of our business is the next one can be the one, right? The next one can be the one that changes everything and, and the trajectory of the firm. And so-

Harry Stebbings 47:01 So you're gonna peel off boards, 'cause you're not gonna be able to keep that ratio.

Nikhil Basu Trivedi 47:04 Yeah. Yeah.

Harry Stebbings 47:04 ... uh, uh, keeping 'em.

Nikhil Basu Trivedi 47:04 And so tha- that's certainly something we're gonna have to figure out. And there's lots of things we're gonna have to do to figure out how to scale this firm. Um, but again, I would say sourcing's where I feel weakest at the moment. I think conversely, on the helping side, uh, I feel like while we don't talk about the great platform that we have and we don't have a bunch of people that support our companies, Mike and I really do the work. And we try to really be there for the founders that we work with. I do think it's at a different level from others. And, you know, I think when you only make a handful of investments every year, when each one really matters to you because you're leading those rounds, you can deliver that type of, of really personalized support. And th- that's so much of why we've built this firm. And I do feel really great about that d- that dimension. And, and I think y- you would find it in the references you do with our founders, which to me is one of the most important metrics.

Harry Stebbings 47:57 Do you buy the platform value-add services generation that we saw?

Nikhil Basu Trivedi 48:02 Look, I think there's a handful of firms that have done it well, but every firm getting a head of talent and, you know, a head of-

Harry Stebbings 48:09 Well, it's just also if we just break down a head of talent more, like, that's a great example. But, like, if you're hiring a head of developer relations and a company re- comes to a head of talent, that is a fundamentally different hire to a CMO. What you need to be able to discern-

Nikhil Basu Trivedi 48:21 Yeah.

Harry Stebbings 48:21 ... between... They are not gonna be the same. They're not gonna be the same network.

Nikhil Basu Trivedi 48:24 (laughs)

Harry Stebbings 48:24 So at the end of the day, they're writing a JD and working the process with a firm.

Nikhil Basu Trivedi 48:29 Yeah.

Harry Stebbings 48:29 S- s- not that great. (laughs)

Nikhil Basu Trivedi 48:31 No. And it's a muscle that the great companies build themselves.

Harry Stebbings 48:34 Yeah.

Nikhil Basu Trivedi 48:34 And so there are a handful of firms that have platform offerings that have moved the needle. Um, but most of those platform offerings are about scaling the firm themselves (laughs) versus about actually scaling companies and, and, and really helping companies, uh, get to the next level. That's certainly my firm belief.

Harry Stebbings 48:55 Can I ask you one, one more before we do a quick-fire? I think you learn a lot from your biggest hits and your biggest misses. When you think about that, what would you say is your biggest hit, other than Canva-

Nikhil Basu Trivedi 49:06 Yeah.

Harry Stebbings 49:06 ... which you shared about? What would you say is your biggest hit, and how did that change your mindset on what good investing is?

Nikhil Basu Trivedi 49:11 I actually think my biggest hit right now, um, at least as I-... can best predict it, um, is not, is not Canva. Dollar gains perspective and on an IRR basis as well. It's a company called The Farmer's Dog, which is in the pet food space. And i- it's, uh, subscription service for fresh pet food. It's doing fabulously well. Uh, and I, I love it because not many people know about it. Uh, and I-

Harry Stebbings 49:39 I do.

Nikhil Basu Trivedi 49:39 ... love this thing.

Harry Stebbings 49:39 I invest in a UK c- like alternative. It was a tough business. (laughs)

Nikhil Basu Trivedi 49:45 (laughs) Um, and so, it's two things. First, that some of the best businesses are incredibly simple, and they're simple to understand, um, they're actually simple to build, um, but they're based on unique insights, and I think that that's gonna be the story of The Farmer's Dog once the story fully, fully gets out. And the second is, the pet category is a fabulous category. And there are some markets where the tailwinds are just so strong-

Harry Stebbings 50:19 Mm-hmm.

Nikhil Basu Trivedi 50:19 ... in multiple different ways, that there's a lot of opportunity for, for, you know, i- incredible enterprise value and, um, I think that that's the case for The Farmer's Dog.

Harry Stebbings 50:30 So, okay, that's the winner. What about a miss, and what did you learn from that?

Nikhil Basu Trivedi 50:36 The first one that comes to mind that I've reflected on a few times over the last year is, uh, Figma. You know, I spent time with Dylan Field in the very early days. I was actually one of the early interviewers for the Thiel Fellowship Program-

Harry Stebbings 50:47 Mm-hmm.

Nikhil Basu Trivedi 50:47 ... which he was in. And I remember going on walks with him in Palo Alto, and a little bit like you actually, he was mature for his age. Now, I'm trying to think back to our first meetings-

Harry Stebbings 50:57 Uh-huh.

Nikhil Basu Trivedi 50:57 ... in, in San Francisco and London. You were mature in certain ways, you were immature in other ways.

Harry Stebbings 51:01 Mm-hmm.

Nikhil Basu Trivedi 51:02 But, Dylan (laughs) was really mature in a bunch of different ways, like the way he was thinking about, um, the need for perfecting the product before getting i- it out there. Um, the opportunity to, to go after, uh, Sketch and others that were in that, in that market already. But also just on life-related stuff, like I remember asking, him asking me about my relationship with my then girlfriend, now wife. How we make decisions together, and how, how we communicate, and what's good about our communication, what's poor in our communication. All sorts of stuff like that where I think he was about 20 years old-

Harry Stebbings 51:35 (laughs)

Nikhil Basu Trivedi 51:35 ... at the time, maybe even younger than that. I don't think I've still seen anyone at that age be able to think about those things, in sort of work and personal life at the level that he was thinking about. I've reflected on that a bunch of times, because I wish I could've been in both Canva and Figma. (laughs)

Harry Stebbings 51:50 Why did you not?

Nikhil Basu Trivedi 51:53 This comes back to my bias around wanting to see some early signs of product market fit before investing, and Figma did not have a launched product before its first couple venture rounds.

Harry Stebbings 52:03 Oh.

Nikhil Basu Trivedi 52:03 So I give the folks that did those rounds, I think, uh, Jon Lilley at Greylock and Danny Rimer at Index-

Harry Stebbings 52:09 Yeah.

Nikhil Basu Trivedi 52:09 ... if I'm not mistaken, I give them a ton of credit, because they saw the specialness, I think, in Dylan, and in that market opportunity.

Harry Stebbings 52:16 And were willing to wait, 'cause there were a couple of years where it was like, "When's he actually gonna-

Nikhil Basu Trivedi 52:19 That's right.

Harry Stebbings 52:20 ... release something?"

Nikhil Basu Trivedi 52:21 Th- they were willing to do it and then be patient enough.

Harry Stebbings 52:23 Yeah.

Nikhil Basu Trivedi 52:23 And I think there were multiple rounds. Um, uh, I think I talked to Jon Lilley at Greylock about this. M- multiple rounds that, that Jon was involved in before the product even launched, um, which is incredible.

Harry Stebbings 52:34 Yeah.

Nikhil Basu Trivedi 52:34 And so, hats off to Dylan, and hats off to those early backers.

Harry Stebbings 52:39 You said about your, your wonderful partner, I do have to touch on fatherhood (laughs) .

Nikhil Basu Trivedi 52:43 Yeah.

Harry Stebbings 52:43 It's such a special, but also significant (laughs) change to life. Uh, and there's so many ways I can take it. I think the biggest one that I'd love to understand is, if you could advise yourself one thing, call yourself up the night before your wife gave birth-

Nikhil Basu Trivedi 52:55 (laughs)

Harry Stebbings 52:55 ... what would you tell yourself?

Nikhil Basu Trivedi 52:57 Oh, man. Uh, well, first I would say, uh, "Go to the airport sooner than you, you think."

Harry Stebbings 53:02 (laughs)

Nikhil Basu Trivedi 53:03 Um, our daughter was born less than 30 minutes after we left the house. Fortunately-

Harry Stebbings 53:07 Wow.

Nikhil Basu Trivedi 53:07 ... we live less than five minutes from UCSF in San Francisco. But, that was the craziest 30 minutes of (laughs) -

Harry Stebbings 53:13 Whew.

Nikhil Basu Trivedi 53:13 ... of all of our lives. Um, and fortunately it was incredible, and, and my wife is a total hero and champion. But on a more serious note, (laughs) what I think I would, I would advise myself is, you think you have a bunch of control over your life, and you kind of do have a bunch of control over your life right now, but tomorrow, you suddenly are not gonna have a bunch of control over your life. Like, all these things are, are gonna be out of your control as a parent. You, you can't control exactly who your kid is. Uh, you can't control how they're gonna behave in certain places and dimensions of life. Um, you know, y- you think you have the perfect childcare set up, but stuff's gonna go wrong. You're gonna have to keep adjusting your schedule. And so you sort, you sort of have to embrace the lack of control and the surprise that is gonna come from all of this experience. And I think the joy of parenthood is in the randomness and surprises of it. And so it's still something that I'm comprehending, but that's the first thing that comes to mind.

Harry Stebbings 54:15 Was that challenging to you? You're a very structured person. It's challenging-

Nikhil Basu Trivedi 54:19 Yeah.

Harry Stebbings 54:19 ... to embrace randomness and spontaneity and change of plans.

Nikhil Basu Trivedi 54:23 Absolutely. And, and yet, it's an incredible gift too, you know, we all get to live this life once. And so, um, having that is, uh, has been one of the, the great joys of, uh, of having a kid.

Harry Stebbings 54:39 How does it change your relationship with your wife?

Nikhil Basu Trivedi 54:41 Yeah, it certainly makes things harder on a, a bunch of dimensions. The cliché s- thing that people say, which is you, you just have less time for each other-

Harry Stebbings 54:49 Mm-hmm.

Nikhil Basu Trivedi 54:49 ... is absolutely true. Um, but I also think it, it gives us purpose. Like, we, we have this unified person who we're thinking about, and sort of co-parenting and, and co-working on. It's also strengthened our partnership in a lot of different ways, and it, it's given clarity to kind of what matters.

Harry Stebbings 55:13 Do you think it changes the type of investor you are, or companies you like to invest in, where you like to operate as an investor?

Nikhil Basu Trivedi 55:19 It does in the sense that...... my time obviously matters more than, than ever. And I think it's only gonna, that's only gonna continue being the case in my life. And so, I have to believe in my bones when we make an investment decision that this is something I really want to spend time on. Perhaps it used to be much more just about the capital and the economics. And now it's about both that and, and time. Because time is such a precious commodity. So again, that's the first thing that, that strikes me.

Harry Stebbings 55:51 Can I ask you, I have a lot of conversations with people about this and they say, "I w- actually wish I'd had children sooner." They say that post ... Do you wish you'd had children sooner?

Nikhil Basu Trivedi 55:59 I don't think so.

Harry Stebbings 56:00 (laughs)

Nikhil Basu Trivedi 56:00 I think, you know, I, I was 32 when we had our daughter, Shreya. And I got a lot done in my 20s (laughs) .

Harry Stebbings 56:07 (laughs)

Nikhil Basu Trivedi 56:07 You know, I got a lot done in, in ... We, we raised, um-

Harry Stebbings 56:11 Can you work as hard-

Nikhil Basu Trivedi 56:12 ... Footwork Fund I.

Harry Stebbings 56:12 ... as a parent? Like, this is what I worry about.

Nikhil Basu Trivedi 56:14 Yeah.

Harry Stebbings 56:14 Why are you able to ... You, you know me now pretty well. I just pounded at my desk a lot.

Nikhil Basu Trivedi 56:20 Yeah.

Harry Stebbings 56:21 You can't do that when you're a parent.

Nikhil Basu Trivedi 56:22 No. And I believe the answer is no. Uh, I mean, it, it has not been the case for me. I want to preserve that window, for example, from 5:30 to 7:30 PM every day, every day that I can.

Harry Stebbings 56:33 Mm-hmm.

Nikhil Basu Trivedi 56:33 Because that's a really special window to do dinner time, um, bath, bedtime. I also spend time with her in the mornings, um, because my wife works starting pretty early, East Coast hours. So I, I'm typically the one who takes our daughter to Montessori in the mornings. It just means that I have to spend my 7:30 to 10:00 PM window working every day. That's the only way I've found to be able to make up for some of those, those lost hours on work. Now, the flip side of it is, I think y- you just, you have to be, I have to be present in those windows with her. So I hope that it does something better for my brain when I'm actually focusing on work, that I can be slightly more efficient. But I was also pretty efficient before. So (laughs) -

Harry Stebbings 57:14 (laughs)

Nikhil Basu Trivedi 57:14 ... you know, I think overall, um, I am less productive.

Harry Stebbings 57:18 (sighs) Good. Well, I'm glad it's not just my worries. (laughs)

Nikhil Basu Trivedi 57:20 Yeah. Sorry to tell

Nikhil Basu Trivedi 57:22 you that. (laughs)

Harry Stebbings 57:22 Um, I wanna do, (laughs) I wanna do a quick fire round, my friend.

Nikhil Basu Trivedi 57:24 Mm-hmm.

Harry Stebbings 57:24 So I say a short statement, you give me your immediate thoughts. That sound okay?

Nikhil Basu Trivedi 57:27 Okay. Let's do it.

Harry Stebbings 57:28 So what have you changed your mind on in the last 12 months?

Nikhil Basu Trivedi 57:30 AI as being a very, very interesting category. I honestly don't know if there's great AI first opportunities for us at Footwork to invest in. And that's because of just the insane hype cycle around it at the moment.

Harry Stebbings 57:45 Do you not think ... I, it's, uh, that is too good (laughs) of one for me to not say, you know. Do you not think though, that bluntly, people always overestimate adoption cycles and underestimate like long-term value adoption?

Nikhil Basu Trivedi 57:58 Yeah. I, I think that's right. I think-

Harry Stebbings 57:59 So, so I, for, for us, I think there absolutely will be amazing opportunities, but we don't have to shoot the fund out in-

Nikhil Basu Trivedi 58:05 Exactly.

Harry Stebbings 58:05 ... 12 months on it.

Nikhil Basu Trivedi 58:06 Yeah.

Harry Stebbings 58:06 It could be (laughs) three, four, five years out.

Nikhil Basu Trivedi 58:08 Yeah. And I, I just think we over rotated once again very, very quickly towards excitement here. And again, I'll admit at the very beginning of playing around with ChatGPT and, and, and other products, Midjourney, I was very excited just like everyone else. But as I've thought through the venture investments here, uh, I, I, I don't think there's a lot of AR- AI first, AI enabled companies that are gonna be for us in this phase. And yet I do believe-

Harry Stebbings 58:37 Because they're too expensive.

Nikhil Basu Trivedi 58:39 Too expensive, and, and there's just so much competitive noise. And there's also so much that I think, for example, in the large language model world, the, the LLMs themselves will serve as a use case versus an application layer on top of those LLMs. So for example, you know, I've heard there are several companies now that have grown rapidly in ARR, and have now started declining in ARR, um, as retention actually starts to, to affect these businesses. Because there's churn from folks who just try out products built on top of these LLMs, 'cause they're interested in the novelty of them, but then, y- you know, churn away. And there's also just the reality that as ChatGPT itself gets better, in leveraging GPT-4 and other models, as an example, it, it, it, it serves those use cases that some of the application layers on top of ChatGPT and GPT-4 have tried to serve.

Harry Stebbings 59:32 Well, I think people are forgetting novelty enterprise buying, which is like-

Nikhil Basu Trivedi 59:35 Yes.

Harry Stebbings 59:35 ... there's a lot of AI companies, as you say, you have Walmart, McDonald's, Porsche, and it's like, you know, two people in their design team testing it out with the 10-K.

Nikhil Basu Trivedi 59:42 Yes. Yes.

Harry Stebbings 59:43 And that is not the same as enterprise wide roll-outs. Okay. What would you most like to change about the world of venture?

Nikhil Basu Trivedi 59:48 People talking about AUM as a metric. I think AUM is the stupidest thing to talk about as a venture firm. Because back to what we were talking about earlier, small funds outperform larger funds. And so, you really shouldn't be talking about how much capital you've raised. I'm okay with people talking about how much capital they've returned and how much enterprise value they've created. But I just think talking about the aggregate size of all the funds that you've raised is a complete vanity metric.

Harry Stebbings 1:00:17 I think the enterprise value of like portfolio companies is total bullshit though, too.

Nikhil Basu Trivedi 1:00:21 Hmm.

Harry Stebbings 1:00:21 Just so I could invest in, you know, Figma and the series E.

Nikhil Basu Trivedi 1:00:24 Fair enough.

Harry Stebbings 1:00:24 And then it's like, "We've created $35 billion." And you're like, "Come on, you put in 500K in D."

Nikhil Basu Trivedi 1:00:30 Fair enough. Fair enough.

Harry Stebbings 1:00:30 I, I've seen some ... Do you know what I mean though? (laughs)

Nikhil Basu Trivedi 1:00:33 Well, y- yeah. I, I totally-

Harry Stebbings 1:00:34 I totally agree with you.

Nikhil Basu Trivedi 1:00:34 I think, uh, d- dollars returned-

Harry Stebbings 1:00:37 Yeah.

Nikhil Basu Trivedi 1:00:37 ... that's the thing that matters the most. (laughs)

Harry Stebbings 1:00:39 What was your biggest investing mistake between 2020 and '22 in the hype cycle?

Nikhil Basu Trivedi 1:00:44 I think it was doing our pro rata in companies that quickly raised another round at a huge step up from where we first invested. Fundamentally, there was very little de-risked.

Harry Stebbings 1:00:58 Mm-hmm.

Nikhil Basu Trivedi 1:00:58 And we saw this happen where a company would raise a series A from us, and, and two months later they did a series ... This is a real example. Two months later they did a series B at a seven X, six to seven X, um, markup. And that becomes a very big position for you, um, without that much being de-risked from the initial round. And that, then, um-

Harry Stebbings 1:01:17 Do you do, do you do reserves now?

Nikhil Basu Trivedi 1:01:19 We do, yeah. Um, but-

Harry Stebbings 1:01:21 ... why?

Nikhil Basu Trivedi 1:01:22 A couple of things. One is, obviously, there's gonna be some cases where, uh, an entrepreneur's gonna need a little bit of extra support to get to the next round.

Harry Stebbings 1:01:30 Mm-hmm.

Nikhil Basu Trivedi 1:01:31 And, you know, of course some of those may not be the right decision to make, but some of those I- I do think will be. The other thing is that I think in a world where-

Harry Stebbings 1:01:38 Have you had bridges that lead anywhere?

Nikhil Basu Trivedi 1:01:40 I've had a couple in my career, yeah. Um, obviously it's too early to tell at- at- at Footwork. I think the other reason is, especially as a newer firm, you wanna be able to say that we can support the company in that next round. Uh, I do think there's validity to that in especially today's market where capital isn't as free, where folks who are leading the next round may be looking at whether the insiders are gonna do their pro rata or not as a signal. And so, we like to do our pro rata on the- the- the next round following ours, and then we pare back. If you think about our total fund, I know I'm- I'm answering your quickfire question longer-

Harry Stebbings 1:02:10 Mm-hmm.

Nikhil Basu Trivedi 1:02:11 ... but our total fund size is about $175 million. Right? Um, we think we'll make about 20 investments out of that fund, averagely we'll check a $4 to $5 million, so call it sort of $80 to $100 million on initial investments.

Harry Stebbings 1:02:21 Mm-hmm.

Nikhil Basu Trivedi 1:02:21 And the rest is for follow-ons. So it's still-

Harry Stebbings 1:02:23 And so you've got like 30 to 40 for follow-on.

Nikhil Basu Trivedi 1:02:24 That's right, so it's-

Harry Stebbings 1:02:25 Yeah.

Nikhil Basu Trivedi 1:02:25 ... still w- and, well, hopefully we have recycling, um, as well. But it's still weighted towards initial checks, but we do think there's value in having a little bit reserved.

Harry Stebbings 1:02:33 I just feel that reserves actually fundamentally are challenging dollars to deploy, 'cause you'll most often do it according to traction.

Nikhil Basu Trivedi 1:02:42 Yeah.

Harry Stebbings 1:02:43 And I look at mine, and, like, some of the fastest spikes-

Nikhil Basu Trivedi 1:02:46 Yes.

Harry Stebbings 1:02:46 ... and not the sustainable value creating companies.

Nikhil Basu Trivedi 1:02:48 Yeah.

Harry Stebbings 1:02:48 Do you see what I mean?

Nikhil Basu Trivedi 1:02:48 Yeah. It's fair, I mean-

Harry Stebbings 1:02:49 But logically, you would concentrate capital towards those. They are absolute bangers in the moment.

Nikhil Basu Trivedi 1:02:54 Yeah. Look, it's where we started our convers- this- this particular conversation, which is the- the decisions that I regret in that 2020 to '22 era were those- those pro rata decisions, and I think we've gotta be a- a lot more disciplined on those moving forward.

Harry Stebbings 1:03:10 Which less well-known firm do you most respect?

Nikhil Basu Trivedi 1:03:13 I'll name two. I think USV doesn't get the credit that it deserves. I think it should be in that pantheonic greatness that sort of Sequoia and Benchmark are typically put in. And that's-

Harry Stebbings 1:03:25 Do you think that's just being on the East Coast?

Nikhil Basu Trivedi 1:03:26 I think so.

Harry Stebbings 1:03:27 Yeah.

Nikhil Basu Trivedi 1:03:27 And- and I think it's because, I'll never forget, for example, when Coinbase went public. Every investor was on CNBC or wrote a blog post about it, whether they were on the board or, you know, just a tiny investor (laughs) in the company or- or whatever relationship they had.

Harry Stebbings 1:03:42 Or a user. (laughs)

Nikhil Basu Trivedi 1:03:43 Or a user. (laughs) Exactly. And- and yet you heard absolutely nothing from Fred Wilson on that day, absolutely nothing from USV on that day. And-

Harry Stebbings 1:03:51 On the- oh, the- from the guy who writes a daily blog, it's great.

Nikhil Basu Trivedi 1:03:54 From the guy who writes the daily blog, from the- the person in the firm that led the series A round, you heard absolutely nothing. And I was just, I was so f-

Harry Stebbings 1:04:01 Same with Miki Malka.

Nikhil Basu Trivedi 1:04:02 There- there you go, same with Miki. But I was just so floored by that, and I- I just loved it.

Harry Stebbings 1:04:07 Mm-hmm.

Nikhil Basu Trivedi 1:04:07 And so I just respect the hell out of those guys. And I do think they are one of the most collaborative and team-based firms, if not the most, out there, which is, as you know, a north star for Mike and me at Footwork. I'll say USV, but of- of course they are well-known. I'll say another that- that I think is less well-known which is IA Ventures. Uh-

Harry Stebbings 1:04:23 (laughs) I was gonna say IA.

Nikhil Basu Trivedi 1:04:25 Yeah. J- j- Jesse Beyroudi, who's one of the two GPs now with- with Brad at IA, was a fellow intern with me at Insight, and so we've known each other since we were 20 years old. And he's just incredibly thoughtful. And the thing I love about them is very few people know about them, they- they do very little on the external brand front, but they have crushed it. And I think they know what they are good at.

Harry Stebbings 1:04:47 They know what is their type of deal as well.

Nikhil Basu Trivedi 1:04:48 Yes. They know their taste.

Harry Stebbings 1:04:49 At least in the way that I think you know, actually.

Nikhil Basu Trivedi 1:04:51 Yeah. Yeah, they- they know their taste, and they have great taste. (laughs)

Harry Stebbings 1:04:54 Yeah.

Nikhil Basu Trivedi 1:04:54 And they've kept discipline on- on everything. And as you know, uh, they have done (laughs) fabulously well from a return standpoint.

Harry Stebbings 1:05:03 Roger's now retired. (laughs)

Nikhil Basu Trivedi 1:05:04 Exactly. Exactly. And you can see the data, I think, from-

Harry Stebbings 1:05:07 You know- you know when a fund's done well when the manager then returns with, "I'm managing my own money now." (laughs) You're like, "Well done." Uh, best board member you sat on a board with, and why them?

Nikhil Basu Trivedi 1:05:16 Uh, I'll put one that I miss right now working with, which is, uh, Vas Natarajan at Accel.

Harry Stebbings 1:05:22 Hmm.

Nikhil Basu Trivedi 1:05:22 Vas and I were also at Insight together, um, in the summer of 2010. He left soon thereafter to join Accel, so he's been there, I think, for about 12, 13 years now. He led the seed round in Frame.io, where we did the series A with- with them at- at- at Shasta, and so I got to work with Vas and- and founder Emery and- and the team there. You know, I pick Vas 'cause I think he's- he's not that well-known, but he's got a great portfolio. Frame.io was acquired by Adobe for- for $1.3 billion a couple years ago, um, as an example of that. Segment was another one that- that he- he did. But as a board member, he just asks really thoughtful questions, he sticks to just what's most important to prioritize as- as a company. And in my peer group, in sort of our generation, although y- you're younger than me and I'm younger than Vas, I still think of us as sort of the same generation. I think he's one of the best, and probably hasn't gotten the credit he yet deserves for that.

Harry Stebbings 1:06:17 No, I- I totally agree. I think he's fantastic. Um, you can have dinner with anyone, dead or alive. Who do you choose?

Nikhil Basu Trivedi 1:06:22 Two of my heroes, um, wrote a book together, and so they have a- a ton of chemistry, and that's Sir Alex Ferguson, the- the longtime manager of Manchester United, uh, and Sir Michael Maritz, the longtime partner at Sequoia. And I think what would be special about dinner with both of them, I've actually had dinner with Sir Michael, but sa- sadly have never met Sir Alex. I think what would be special about dinner with both of them is, uh, the chemistry that- that- that they would have in that dinner. The fact that they are my- my two heroes and two of my favorite subjects would make that, uh, so much fun.

Harry Stebbings 1:06:59 Final one. Footwork in five years' time, or ten years' time, you can choose, but you said AUM's not the metric we should be measuring, most firms are with scale. What do- what does Footwork look like in the f- ten-year frame?

Nikhil Basu Trivedi 1:07:11 Yeah. We- we perhaps add, uh, one or two equal general partners to our group who are re-founders and co-owners of the firm with Mike and me. But most importantly, we've- we've been able to already work with a handful of really special founders and companies, um, where we've been their lead series A or seed partner. Again, that probably in- in five- five to ten years is not gonna show up with distributions and- and DPI, but hopefully it shows up in just the fundamental nature of a couple of the companies that we work with, and their scale and revenue, their business fundamentals, the impact that they're having on markets and on hopefully creating categories. And so, you know, Mike got to work with, uh, a woman named Katrina Lake, the founder at Stitch Fix, from five people to 10,000 people, and from zero revenue to a couple billion r- in revenue. And we hope that we get to work with a handful of Katrinas, of Melanie Perkins from Canvas, of Jonathan Regus from The Founders' Dogs. We hope to work with a handful of those folks over the next ten years.

Harry Stebbings 1:08:14 Uh, Nikhil, I've loved this. It's so much nicer to do it in person. I've so enjoyed this chat. So thank you so much for joining me.

Nikhil Basu Trivedi 1:08:20 This is awesome, man. Thanks for having me.