Pod Insights The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch 20VC: Why Small Funds Outperform Large Funds & AUM is a Vanity Metric | Why 99% of Investments in AI Startups Will Go To Zero | Being a "Traction First" VC & Investing Lessons from Investing in Canva and Missing Figma with Nikhil Basu-Trivedi About this episode Nikhil Basu Trivedi is Co-Founder & General Partner at Footwork, an early-stage focused venture firm investing its first fund. In his venture career, he has invested in the early rounds of several companies that have exited or are currently valued at over $1B, including Athelas, Canva, ClassDojo, Color Health, Frame.io, Imperfect Foods, Lattice, and The Farmer's Dog. Prior to Footwork, Nikhil was a Managing Director at Shasta Ventures, on the investment team at Insight Partners, and on the founding team at Artsy. In Today's Episode with Nikhil Basu Trivedi We Discuss: 1. From Summer Intern to Founding a Firm: The 13 Year Journey: How did Nikhil first make his way into venture as an intern at Insight Partners in NYC? What does Nikhil know now that he wishes he had known on his first day in venture? Why does Nikhil advise all young VCs to "not look at their business card"? Why does title not matter in venture? Should founders meet with Juniors as well as GPs and more senior people? 2. Small Funds Outperform Large Funds: Why does Nikhil believe that small funds outperform large funds? Why is AUM the biggest bullshit metric in VC? How does Nikhil advise seed stage founders who have offers from seed firms for smaller rounds at lower valuations and are weighing them against larger rounds with higher valuations from multi-stage funds? Does Nikhil believe that platform value-added services really provide any value? 3. The Art of Investing: What has been Nikhil's biggest investing win? How has it changed his approach to investing? How does Nikhil prioritize between people, traction, and market? What is most important? What has been Nikhil's biggest investing miss? How has that changed his approach? Does Nikhil believe the great founders are immediately obvious? Why is market size the single question that keeps Nikhil up the most? 4. The Dysfunctions of Venture Capital: What are the single biggest areas of misalignment between GP and LP? What do many GPs see and know well that LPs should know and see more of? What are the biggest ways that decision-making breaks down in a venture fund? Why does Nikhil believe that so much of the investment in AI is going to go up in flames?
Transcript 13,127 words · 4 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 My firm belief is that small funds outperform bigger funds. It is incredibly difficult to have a 5X net return on a billion dollar plus fund. I honestly don't know if there's great AI-first opportunities for us at Footwork to invest in. Just the insane hype cycle around it at the moment. We over-rotated once again, very, very quickly towards excitement here. I don't think that there's a lot of AI-enabled companies that are going to be for us. Too expensive and there's just so much competitive noise.
0:30 Harry Stebbings? This is 20VC with me, Harry Stebbings, and I'm so excited for the show today because I first met this guest seven years ago, following a cold Facebook message. And then we spent time together when I was job hunting as an 18-year-old in San Francisco, wanting to be in venture. A lot has changed for both of us since then, and I'm thrilled to welcome back to the hot seat, Nikhil Basutrivedi, co-founder and general partner at Footwork. Now, previously, Nikhil has invested in the early rounds of Canva, ClassDojo, Frame.io, Imperfect Foods, Lattice and The Farmer's Dog. And prior to Footwork, Nikhil was a managing director at Shasta Ventures and on the investment team at Insight Partners. But before we dive into the show today, you know all those mind-numbing tedious tasks that seemingly take up half your day. Well, Coda is here with their new AI-powered work assistant
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3:51 Speaker 02 You have now arrived at your destination.
3:55 Harry Stebbings? 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.
4:03 Speaker 00 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 twenty sixteen. I called outbound messaging you on Facebook Messenger, which we realized, which is hilarious. And it's amazing to see where you've come since then.
4:18 Harry Stebbings? I mean, I look about twenty five years.
4:20 Harry Stebbings? The venture game is having its effect on me. I think I'd love to start on is I think we change how we invest so much in time. And if you were able to cool yourself the night before your first day investing, what would you advise yourself on that call?
4:34 Speaker 00 Two things. One is actually a piece of advice one of my partners at Shasta gave me pretty early on, like probably in the first couple of months, which is don't look at the title on your business card, which at the time was associate at Shasta Ventures. Just think about yourself as a venture capitalist and do as venture capitalists do, which is find, decide, win, help and exit. So the five components of our day to day job in venture and that advice I think was really profound. It sort of unleashed me and it's the advice I give young people in venture today, which is again, 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.
5:17 Speaker 00 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. This dream idea of portfolio construction and the profile of company that you're looking for. But 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, which is at the end of the day, all of what we're doing in our job is searching for the outliers and the truly exceptional companies.
5:43 Harry Stebbings? 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.
5:49 Speaker 00 Yeah.
5:49 Harry Stebbings? So often founders are told, don't speak to the associates, it's the GPs who made 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. Do you agree with the advice on just go to the GPs?
6:06 Speaker 00 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. And you're better off as a founder judging based on the actual conversation you have, which sometimes may be a lot better with the youngest person on the team versus the manager. Partner of the firm. I always give people a chance, whether it's the founders who come in through not that warm of an introduction or purely cold. I always try to review what they're saying and I'll quickly write an email back saying not interested, comma, thanks. If it truly is not a fit, but I've always kept that mentality. And I started at Insight Partners in New York,
6:50 Speaker 00 where I was bottom of the ladder as a summer intern and then an analyst. And so I obviously have bias on this dimension. 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.
7:09 Harry Stebbings? No, I often find actually that they're some of the most researched and thoughtful because they've had the time to actually map out the space. And they can actually provide a lot of value back to founders where they haven't had the time to do competitive analysis on pricing and everything in between. So totally get you there. Only exceptional companies deserve exceptions. Is there one company or a situation that just most stands out to you? Even less than the canvas of the world and many other great companies. Is there one where that was very much the case?
7:34 Speaker 00 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 a convertible note at a $25 million valuation cap. It had no revenue yet. It had a bunch of early signs of product market fit, actually, like several hundred thousand monthly active users of Canva, who were using the product really aggressively. It was growing 30 to 40% every month. But it broke a lot of the traditional rules. And so we thankfully decided to make that investment. But there were all sorts of reasons to let it go.
8:08 Harry Stebbings? Dude, I mean, just for the context, they're like married couple as co-founders who are fantastic.
8:13 Speaker 00 They were not married then.
8:14 Harry Stebbings? Love them both, but like a couple as co-founders is a contentious one. Non-technical.
8:19 Speaker 00 Yep.
8:19 Harry Stebbings? In Sydney, Australia.
8:21 Speaker 00 Yep.
8:21 Harry Stebbings? And not a like stellar who's who have like seed investors before because it was so early.
8:25 Speaker 00 Yeah, but I think when you dug beneath the surface on what was actually happening and people using the product, you could see what I just described, which is wow, there's a hundred thousand people using this every month. Who are creating three 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, their cohort retention in the first six cohorts looked very strong. It looked like it was flatlining of creators who just were using Canva on a very regular basis to to design things. It was also fragmented usage. It wasn't just Facebook posts and infographics and 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
9:08 Speaker 00 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. And if you only stared at that, you could see that there was something really special here. And if you put away the noise of everything you just described, I think what you'd have seen is a really interesting product that has strong early signs of product market fit.
9:30 Harry Stebbings? I think we actually really underestimate the momentous weight of product market fit. That once you have that, so much else goes away.
9:38 Speaker 00 Yeah.
9:38 Harry Stebbings? And don't get me wrong, you need to find the next stage of product market fit.
9:41 Speaker 00 Yeah.
9:41 Harry Stebbings? But so few actually get that. We've seen this 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 constraining fund size and it's kind of applauding all this. How do you think about the small fund versus big fund for early stage venture, Nikhil?
10:00 Speaker 00 I'm very biased here because at Footwork, we're still investing our first fund. It's a hundred and seventy five million dollar fund. And my firm belief in my bones is that small funds outperform bigger funds. It is incredibly difficult to have a five X net return on a billion dollar plus fund. I think there's incredibly few of those funds in the history of venture.
10:20 Harry Stebbings? I actually did the maths with Jason Ankin the other day, which is if you have a five hundred million dollar fund and you want to do a six X on it, yeah, you then need, if you have a 10% holding, thirty billion dollars of enterprise.
10:31 Speaker 00 That's six X gross, not net of carried interest and fees that LPs pay. And so five X actually net is a higher threshold than that.
10:38 Harry Stebbings? Yeah.
10:38 Speaker 00 It's, you know, at least one Canva in that size fund.
10:41 Harry Stebbings? With 10%.
10:42 Speaker 00 With 10%. That's high. And it's every fund. You need that on a two year cycle.
10:48 Harry Stebbings? Exactly. And there's so, so.
10:50 Speaker 00 Few companies that get to that stage. And so when you do that math, it just makes sense to me that small funds are going to help perform big funds on.
10:58 Harry Stebbings? But do you think anyone disagrees with you? Because like, of course you're right. It's easier to make money on small funds.
11:04 Speaker 00 Yeah, but then people have made decisions and taken actions that would suggest that they don't believe in it, right? If the purpose of what you're trying to achieve as a venture capitalist is maximizing returns, therefore sort of maximizing carried interest.
11:20 Harry Stebbings? There's a misalignment between GPs and LPs, which is that actually if you have a $400 million fund and you three exit, which I'm not saying is easy by any means, that's hard to do.
11:29 Speaker 00 Yes.
11:29 Harry Stebbings? But it's much better than five Xing or six Xing or seven Xing a $50 million fund.
11:34 Speaker 00 Hundred percent. And that's part of the issue, I think, which is if there was true alignment, it would be about maximizing the multiple. And that's certainly how we think about it at Footwork.
11:43 Harry Stebbings? What do you think happens then? Do you think that all of these funds downsize and say, you know what? We actually are returning back to an optimization on returns?
11:51 Speaker 00 I think a handful will, and I think there'll be a very smart handful that will, but it's a really difficult and painful decision to do that.
11:58 Harry Stebbings? Also, your team is based around the fees that you have.
12:01 Speaker 00 Yes, although I would say most venture firms have plenty of fees to cover the team and more, especially at that fund size scale. But more than that, I think 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 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 some of them have been really better off for it.
12:28 Harry Stebbings? The thing I feel quite constrained on, and I'm envious of the larger funds for, is their ability to be less price sensitive. And what I mean by that is their ownership focus, very much like I'm sure both of us are. But whether it's three million or one and a half, they don't really care as long as they get there 15 or 10%, whatever that is. And so founders 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.
13:00 Speaker 00 Certainly a challenge and it's something I think all of us have faced against 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 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. Given just how big of an inflection that is, I mean, how many times have you seen a big early-stage financing yield to nothing for the founders, nothing for the company? I just think there's very few of those rounds that actually have worked out historically.
13:36 Harry Stebbings? I'm gonna get in trouble for this, but my worst and the reason I think it should do us better to stay than ever is because I could probably open up and have more people hate me than before. But like the my worst performing and I've done a hundred and fifty investments, the worst performing ones are always the stellar VP that comes out of the stellar company. And raises ten on forty as the pre-seed.
13:56 Speaker 00 Yeah.
13:56 Harry Stebbings? They are always the ones which slowly meander to either a bad act or hire or nothing. Do you find that too?
14:02 Speaker 00 Yeah, yeah, and we don't do those types of rounds and we're not set up to do those types of rounds. So actually, in a strange way, I really like the constraint of our fund size. I actually think it forces us to make better decisions. 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.
14:22 Harry Stebbings? I agree with that. When you think about the argument with founders, I want the argument, but the debate, when they have a multi-stage fund and a seed fund. And they say, hey, 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?
14:41 Speaker 00 The variables that would go into my thinking are the firm, the partner it's set for, sort of the match of that to the type of business. And the capital match to the type of business, because there are some companies that actually do need more capital in the early days and that will benefit from that. But of course, based on Footwork being a stage specialist firm at early stage, we only lead early-stage rounds. We only lead and we only do early stage. I have a bias towards the stage specialist.
15:07 Harry Stebbings? Do you think it's possible for stage? Like us, the seed specialists, to operate and invest in the hot startups at seed anymore, which are traditionally five on twenty five, six on thirty, whatever that is. Do you think it's possible for us to build a business around those deals?
15:24 Speaker 00 I think it's very hard. That's why more often than not, the companies that we invest in are not the star-studded team with that type of round. It's a team that looks a bit more like a melancholic at Canva, but that has a product that's already out in the market, that already has some early signs that it's working, something that's resonating with customers. And so it's typically not in a really hot area like AI at the moment. And it's typically not from a really hot star-studded team.
15:49 Harry Stebbings? Do you think a load of multi-stage funds are burning a ton of money on AI seed companies right now?
15:56 Speaker 00 Yeah, I think so. I think we don't think the foundational model investments, for example, that are raising hundreds of millions of dollars in a seed, make any sense. 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 CapEx to Nvidia H one hundreds. It's going straight out the door in many cases. I don't get it. And so I'd love for you to have a bunch of those folks on your on your show.
16:23 Harry Stebbings? I think they declined.
16:26 Speaker 00 Do you understand it? I mean.
16:27 Harry Stebbings? So I think the funding rounds are very misreported. And what I mean by that is like, there's definitely been some in Europe where like, you know, hundred million dollar rounds are reported on two fifty million dollar valuations. If you actually know, you know that Maroni investors did it on uncapped notes, but actually only twenty was priced at that. And so quite often there's like structured rounds which journalists just don't get. And actually, the founders are not stupid. They're not selling half the company in that round. Investors are stupid for doing an uncapped note and well done to the founders. But one thing that I really want to ask about is, you know, there's a lot of portfolios today where the founders have done RIFs and they did preemptive A's in the good times. And so they actually have eight to ten years of runway,
17:08 Harry Stebbings? but they don't have product market fit. What happens to these companies with very long runways but no product market fit?
17:15 Speaker 00 Those companies have to find some product market fit somewhere to deserve to exist. For a longer period of time. And 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. Because the runway doesn't matter unless it leads to a takeoff or a landing. And of course, ideally, a takeoff 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's hard to do your best work yourself as a founder. And so you just have to have that at some level.
17:53 Harry Stebbings? Have you ever had a discussion with founders about returning money?
17:56 Speaker 00 Yeah, a couple of times.
17:57 Harry Stebbings? How does that go? And how would you advise me? You know, I've had it too. It doesn't always go great.
18:02 Speaker 00 Yeah, it's kind of the conversation that we are just having, which is, do you want to feel like you're winning? Do you want to feel like you have momentum? Because that's what we want you to feel. And invariably, the answer is like, yes, we want to 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? We can move on and keep the capital. But at some level, I think you have to have that type of conversation.
18:26 Harry Stebbings? Generally, they would have spent half the money, say, as an average. Is it not worse just letting them keep going? They're a team you batch in the first place. They're probably going to meet a certain level of quality. Actually, the Stuart Butterfield and Slack example always rings true for me.
18:40 Speaker 00 Yeah.
18:40 Harry Stebbings? Just keep going.
18:42 Speaker 00 I think 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 moving quickly around something, it's okay to throw eight different ideas at the wall in an experimental phase when you realize the thing that you have that you thought was going to 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. Those are the two things that I would try to suss out and judge.
19:08 Harry Stebbings? When you think about kind of those early days and actually making the investment decision, 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. How do you rank them in terms of importance?
19:22 Speaker 00 I've always been traction, early signs of product market fit, first investor, then people, and then market. And so.
19:30 Harry Stebbings? That's really interesting. That's not what people, that's often the opposite. Like you're like an Eli Gill.
19:35 Speaker 00 Yeah.
19:35 Harry Stebbings? Will be like market first and then I think people and interaction.
19:38 Speaker 00 Yeah, like I remember having a chat with Keith Raboy about this, where he was just like, look, I just look for sort of founder plus keynote. That's my stage, founder plus presentation plus idea. And as I keep that, I could never do that. I've made very few of any investments 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. And so I'm happy to unpack that if that's.
20:02 Harry Stebbings? Yeah, I'd love to understand that and like how that most commonly shows itself. Is it word of mouth? Is it revenue? Like talk to me about that.
20:09 Speaker 00 So it's certainly not necessarily revenue, right? As I mentioned with Canva, there was no monetization. It is 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, 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 from customers.
20:36 Harry Stebbings? I find so much in the comments on YouTube videos on App Store reviews.
20:41 Speaker 00 Yep.
20:41 Harry Stebbings? I find that a real goldmine of untapped.
20:43 Speaker 00 Absolutely. Product reviews in general.
20:46 Harry Stebbings? Also, are people doing tutorials around products? That's a really good one.
20:49 Speaker 00 Yeah, I mean, you can literally Google 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 so.
20:58 Harry Stebbings? The hard thing is that I agree with you totally on all this, but at the stage we invest, I find they're well past that by that point. Do you know what I mean? That's the A round by the time they've got.
21:08 Speaker 00 Yeah. Now, I should be clear about this, which is at Footwork, we only lead rounds, we only do early stage, we lead seeds and As. So we've made 11 investments so far. We've done five Series As and six seeds. I think our average initial check's about four and a half million and the range has been two to nine million.
21:25 Harry Stebbings? Hmm.
21:25 Speaker 00 We've done 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. You know, it may not be clear how big it can become. 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?
21:50 Harry Stebbings? You wrote this in your billion dollar.
21:52 Speaker 00 Yeah.
21:52 Harry Stebbings? Yeah, I, I, I remember reading in the research for this. And then I thought instantly to, we, you know, do a show called The Memo, where we review the investment decision of multi-billion dollar companies. We've had Jeremy on Snap, Alfred on Instacart, Byron Data on Twilio, the best of the best on the best companies. Every single one said, we massively underestimated how big the market would be. 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.
22:20 Speaker 00 Well, so a couple of things. One, this is precisely why I underweight market. Does that make sense? Like I weight market third on the three that you asked me about because I just think it's the hardest one to assess and predict for myself. And I think when you look at the investments you just described and some of the very great ones, that was true for those investors as well. You can imagine and dream the dream that the product market fit that this company has, 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. My thinking around this, it comes back to, well, this is exactly why I underweight market in the analysis.
22:58 Harry Stebbings? I always think you've got to be directionally correct. And what I mean by that is like Canva rode a brilliant wave of content creation, of solopreneurship,
23:07 Speaker 00 Yeah.
23:07 Harry Stebbings? of marketers within companies and every company being a brand needing content.
23:11 Speaker 00 Yeah.
23:12 Harry Stebbings? There were multiple threads at one in time intersection which come together. And that's when you have something really fucking special. 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?
23:27 Speaker 00 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.
23:34 Harry Stebbings? Yeah.
23:35 Speaker 00 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 now, it seems, 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 building the product and building the team, 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 and Ls and fundamentals that to show for the vision that they told.
24:16 Harry Stebbings? I get you and I agree that I've definitely fallen victim to that myself. But I I'm not sure. And the reason I'm not sure is because you think about founders' ability to sell to investors, to sell to customers and sell to hires. If you can do those three things, you should have a great founder.
24:30 Speaker 00 Yeah, it's not like that is a necessary precondition to failure by any means. But I think it's been a failure mode for me.
24:37 Harry Stebbings? Do you sense check yourself on it now? Like, sometimes I go, oh, it feels too slick.
24:42 Speaker 00 Yeah, for sure. Like, just how much substance is there really beneath the surface? How much does this founder actually care? How much they really understand? There's a bunch of questions that I try to ask to suss these things out.
24:53 Harry Stebbings? What sort of questions do you ask?
24:54 Speaker 00 Yeah. So oftentimes, if I'm really digging in and really excited about something, I'll I'll say something like, 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 want to have in our first board meeting right now? 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? 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 transparency and vulnerability around the answer. But I find that that question and the answer you get tells you quite a bit.
25:33 Harry Stebbings? Do you know what I find a commonality of the best founders? Often I find, you know, the not so great ones actually will kind of shield themselves. But the really great founders will say, oh, nickel, there are so many challenges. Where do we start?
25:45 Speaker 00 Yes.
25:45 Harry Stebbings? We've got one, two, three, four. And you're like, oh.
25:48 Speaker 00 Yes, it's very consistent with what I've seen as well. Again, that ability to be confident in what is actually working, but also confident in what's not working yet, and clear-eyed and self-aware about it, is, I think, a characteristic of many. The great ones.
26:00 Harry Stebbings? I spoke to actually mutual friend of ours before the show, speaking of confidence and vulnerability. And they said, the challenge I have with Nicholas, 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?
26:17 Speaker 00 I think there's certainly some truth to it. I think there's an insecurity that comes from not yet having delivered in distributions. Many, many multiples of what I've invested and an insecurity that comes from having started a firm that has so much to prove, everything to prove, and anxiousness that I'll have until, you know, we've many times over returned our first fund. But I also think that who I am, more than I've ever known, 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 trying to do the newsletter. And so my hope is that footwork is an embodiment of sort of who my partner, Mike and I are,
27:01 Speaker 00 and that we express ourselves fully, authentically through the investments we make and how we conduct ourselves as a firm.
27:07 Harry Stebbings? I was gonna ask kind of who you think you are, but it's actually a shit question because no one can actually answer that. But it's like, what actually makes you happy? And it could be anything, but like, one of my close friends asked me this the other day. What just genuinely feeds your soul?
27:19 Speaker 00 So there's two that come to mind. The first is, I've just always loved those first meetings with founders. I live for the couple every year that just blow me away and that suck me in. I've had a bunch of those now in my career, but I just love that. As a venture investor, you have to love that thrill. At least I, I believe in my.
27:37 Harry Stebbings? Do you find with those great ones, it's immediately obvious that it's great?
27:41 Speaker 00 Oh, I've gone back and forth so much on this, right? Cause it's, this is.
27:45 Harry Stebbings? Sometimes that's an unlock.
27:46 Speaker 00 Yeah, this is what decision making and judgment's all about. I do think consistent thing for me is, 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 sort of suss it out better and 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, two days later, this. Probably not a fit. 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 after a couple of days and it turned out to be a massive company. And so I certainly reflect a lot on on that.
28:24 Harry Stebbings? Do you and Mike have to agree to get a deal done?
28:27 Speaker 00 We don't. One of us has to absolutely love the company. The other can like it, not love it, or dislike it. The other can't hate it. 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.
28:47 Harry Stebbings? Sure.
28:48 Speaker 00 The other cannot be a one, strongly unsupportive.
28:50 Harry Stebbings? I don't know about this. And the reason I don't is because I think in any situation, I just generally, and I'm speaking as I have a friend who is a bluntly an associate at a different firm and they kind of have a similar scale. I said, always do a two, just always do two or a three. Either one, you're like, well, I didn't say no. Unsupportive isn't really.
29:09 Speaker 00 Yeah.
29:10 Harry Stebbings? And so it should just be four and one.
29:12 Speaker 00 Four and one, yeah, fair enough. I mean, I think.
29:13 Harry Stebbings? But am I wrong?
29:15 Speaker 00 I believe that there can be a place in the middle. So for example, I've rarely been a one 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. Or there's just something really off about it. And therefore I feel very strongly we shouldn't do it. But I've disliked a lot of companies. 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 so much. They wanted to block it or say we, that there's no way we should do it. So that's the way I think about it. I think you have to be intellectually honest, obviously, about.
29:56 Harry Stebbings? In the ones that you put as twos that turned out that you were really pleased to have done, what did you not see?
30:03 Speaker 00 Yeah, I think because of my bias towards companies that have some signs that they're working, 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, but that actually. Turned out to work. Probably the other ones sort of that I can think of off the top of my head is ones where we stretch on price to do it. I liked it, didn't love it, but then I didn't like the price. And so I was netted out as a two.
30:32 Harry Stebbings? Do you find it hard that like, okay, so you vote two, you're unsupportive, but you're not like, there's nothing super, super unsupportive. But then, given the size of our teams, you will probably have to work on it quite extensively if you do.
30:44 Speaker 00 Yeah.
30:45 Harry Stebbings? Ten years working on a deal, a lot of freaking time on a company you were unsupportive on.
30:49 Speaker 00 Yeah. For Mike and me, it is very easy for us to disagree, but very seriously commit. Every investment that we make at Footwork is so obviously 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 some kind of crazy and wacky things.
31:08 Harry Stebbings? I mean, this is 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 Nick's or that's Mike's.
31:15 Speaker 00 Well, look, we actually, for the first year after we invest, both go to all the board meetings together. We both do the work.
31:21 Harry Stebbings? Is that not a bit weird? Sorry.
31:23 Speaker 00 That's why I was about to say, it is weird and wacky and non-traditional. And of course, it doesn't scale. But it's been really important for us in the first couple of years of building the firm to operate in this way. Because we think that's the purest form of teamwork. Like every venture firm talks about we work as a team. But very few, I think, actually show up as a team. And we've tried to do that from the earliest days. Both of us being on 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.
32:00 Harry Stebbings? What are the most dysfunctional breakdowns of investment decision-making processes within partnerships? You see the venture landscape in a unique way, especially given the fact you're not in one of the large firms now.
32:11 Speaker 00 Yeah.
32:11 Harry Stebbings? What are the ways that they break down in terms of decision making?
32:13 Speaker 00 Look, there are partnerships where decisions are made based on the ability of individuals to sell internally. 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 the voting.
32:30 Speaker 00 That's a terrible way to make decisions. I think there's a lot of stuff that can bleed out from that, that selling process. I think also in general, it's sort of intellectual dishonesty that unfortunately a lot of partnerships have. Those are the things that I would cite that lead to dysfunction.
32:46 Harry Stebbings? Speaking of kind of the ability to sell internally, it makes me think of Jason Lemkin, who said to me the other day. You know, there's often advice like, don't do a deal for a year when you join someone new or you join venture. It's a total bullshit. Like, if you have a hot hand, say you come out of a great company and your alumni network is super strong, whatever that is, do deals. How do you feel about the don't do a deal for a year advice that often people get?
33:09 Speaker 00 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. If you really believe in your bones that something's an outlier, you should be trying to make that investment. I think it's as simple as that.
33:24 Harry Stebbings? Can I see, you were speaking 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, I know many of your LPs, I'm sure we probably share some. How did you select the LPs that you work with for Footwork?
33:39 Speaker 00 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 built relationships with, who we really liked as humans. Second, we thought a lot about, are these people who have seen what world class looks like? And will they push us to be world class? And third, we thought about the mission 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 dimensions that we prioritized. 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.
34:22 Speaker 00 We had about four hundred and fifty million of commitments for a hundred and fifty million dollar fund, and we ended up raising a hundred and seventy five million. 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 and type of LP. And so we wanted a nice mix of LPs where there were a few at the twenty to thirty Million dollar level out of one seventy five, a bunch at sort of the ten to twenty million dollar level, a bunch at the five to ten million dollar level. So.
34:46 Harry Stebbings? Twenty to thirty is quite a high concentration in a one seventy five fund. How do you think about concentration limits that you were comfortable with?
34:53 Speaker 00 We don't have a single LP who's more than twenty percent of our fund. We don't want one, two, three LPs having the majority of our fund and having therefore outsized control in our thinking or our decision making in some way.
35:07 Harry Stebbings? And so we have that. And in terms of like types of LPs, we have obviously there's corporates, there's pension funds, there's fund of funds, there's high net worth family offices, all the different types. How did you think about that? And do you agree with the common wisdom of endowment funds that they're so stable?
35:22 Speaker 00 Yeah, so we wanted some diversity and I think we have about fifteen institutional LPs. We have six university endowments, three other foundations. So we're a little bit weighted towards endowments and foundations, but we have a bunch of fund of funds and we have a couple of family offices as well. And so we like that mix because while the endowments are great names and they are long term oriented. There's still some level of risk of having an entire endowment based LP base. Because they may all 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 in general like the diversity and that's what we prioritized.
36:00 Harry Stebbings? To what extent are LPs sheep? And what I mean by that, I mean like you have some blue chip, blue chip endowment names that I'm sure we both know. And people generally follow when they do it.
36:11 Speaker 00 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. It's probably ten LPs, fifteen. Our biggest LPs are not LPs in my prior fund. 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 not interestingly, the very largest ones.
36:45 Harry Stebbings? A lot of people get the advice of like, you know, get your anchor first and really solidify the base. Around that. Do you agree with that?
36:51 Speaker 00 Well, what we tried to do was we had a bunch of our friends who proactively said to us, we want to commit 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. And we had 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 institution that's known you for a while, that's a well-known institution, say yes. And then we did try to prioritize the larger institutions, the sort of group of 10 to 15 that I referenced, that would do a larger check in a first time fund, because that's a small N, that's the right group to see if we can get anyone to do it out of.
37:33 Harry Stebbings? Yeah, I always think that I find some that's so focused on getting the anchor, and it's like, I always say like, get the GPs who they most respect.
37:40 Speaker 00 Yeah.
37:41 Harry Stebbings? As your LPs, and hopefully they're your friends already.
37:43 Speaker 00 Yeah.
37:43 Harry Stebbings? So get them as friendlies and then leverage them for the intro.
37:46 Speaker 00 Yeah.
37:47 Harry Stebbings? And then you can also leverage that check. And so it's like, not only did Nikhil make the intro, he's also investing. It's like, oh, wow.
37:53 Speaker 00 We, we had two slides in our Fund One fundraising deck, which actually we barely got to present. We only had it properly designed in February of 2021, and by then we already had the whole fund committed. But in that deck, the last two slides, one, board members that we've served alongside, both Mike and me, people who we've literally been in the boardroom with. That was a subtle way to say like, 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 inbound said that they want to invest in the fund. And that was a bunch of founders that we've worked with, a bunch of GPs that we've worked with at other firms. Honestly, we, we never asked any of those folks or, or any individuals if they wanted to invest in Footwork.
38:32 Speaker 00 We just let them say that they wanted to invest. And when they did, we put them on that, on that slide, again, as a way to just have a very easy way to reference us for LPs. I actually haven't asked our LPs, who ended up seeing that deck, if those two pages resonated, but I suspect that they did.
38:47 Harry Stebbings? What do you think LPs, you know, we obviously sit in the venture landscape, see a lot more of transparency, VC to VC 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?
39:01 Speaker 00 There's a difference in hunger and energy and drive that some managers have that others don't. It's sort of what we look for in the companies that we invest in. You know, of course, if it's a manager like you, for example, that really has a unique spin, 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.
39:22 Harry Stebbings? It's tangible, you can touch it as well.
39:25 Speaker 00 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 human side. I don't think that that's going to change. Assessing a person, individual GPs, real commitment to doing this, their level of drive and hunger, their ability, of course, to improve themselves and learn, their ability to source and make investment decisions and to win and help companies. It's actually hard to get to the bottom of that, just as it is hard to get to the bottom of how great a founder is for us in our jobs as VCs.
40:00 Harry Stebbings? And so you think LPs don't do that well?
40:02 Speaker 00 I don't think that they spend enough cycles on it, but I actually think some of the great ones do. And of course I'm biased here, you know, we had LPs who did 30, 40 references that we heard about on, on us each. You know, we were heavily scrutinized on us as people because so much of our strategy is really just about 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.
40:30 Harry Stebbings? You mentioned seeing, picking, winning, helping and acting. If you were to say your best and your worst, what would you say?
40:38 Speaker 00 My worst right now that I feel is on the sourcing side. You know, I think when you're a duo investing at CNA as a generalist firm, it's impossible to see everything you want to see. And 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. We do calendar audits and Catherine and Rachel, who are our operations folks at Footwork, actually send both Mike and me every week, what does our calendar audit look like for this week that's just passed and what does it look like for the upcoming week? And the single metric that we're Focused on there is are we spending more than fifty percent 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.
41:22 Speaker 00 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 the trajectory of the firm.
41:28 Harry Stebbings? Do you buy the platform value add services generation that we saw?
41:33 Speaker 00 Look, I think there's a handful of firms that have done it well, but every firm getting ahead of talent and.
41:39 Harry Stebbings? Well, if we just break down ahead of talent more like that's a great example, but like if you're hiring a head of developer relations and a company where it comes to a head of talent, that is a fundamentally different hire to a CMO. What you need to be able to discern between, they are not going to be the same, they're not going to be the same network. So at the end of the day, they're writing a JD and working the process with a firm. It's not that great.
42:00 Speaker 00 No, and it's a muscle that the great companies build themselves. Again, I I do think there are a handful of firms that have platform offerings that have moved the needle. But most of those platform offerings are about scaling the firm themselves versus about actually scaling companies and really helping companies get to the next level.
42:19 Harry Stebbings? Can I ask you one one before we do a quick fire? 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?
42:28 Speaker 00 Yeah.
42:28 Harry Stebbings? What's your biggest hit and how did that change your mindset on what good investing is?
42:33 Speaker 00 I actually think my biggest hit, at least as I can best predict it, is not Canva. On a 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, a subscription service for fresh pet food. It's doing fabulously well. Two things, first, that some of the best businesses are incredibly simple. They're simple to understand, they're actually simple to build, but they're based on unique insights. I think that that's going to 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. There are some markets where the tailwinds are just so strong in multiple different ways that there's a lot of opportunity for incredible enterprise value.
43:16 Speaker 00 And I think that that's the case for The Farmer's Dog.
43:19 Harry Stebbings? That's the winner. And what did you learn from that?
43:23 Speaker 00 The first one that comes to mind that I've reflected on a few times over the last year is Figma. You know, I spent time with Dylan Field in the very early days. I was actually one of the early interviewers for the Teal Fellowship Program, 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 in San Francisco and London. Dylan was really mature in a bunch of different ways, like the way he was thinking about the need for perfecting the product before getting it out there. The opportunity to go off to Sketch and others that were 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.
44:03 Speaker 00 And just how we make decisions together and 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 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 have been in both Canva and Figma.
44:27 Harry Stebbings? Why did you not?
44:28 Speaker 00 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 of venture rounds. So I give the folks that did those rounds, I think John Lilly-Greilach and Danny Reimer at Index, if I'm not mistaken. I give them a ton of credit. They saw the specialness, I think, in Dylan and in that market opportunity.
44:50 Harry Stebbings? And were willing to wait because there were a couple of years where it was like, when's he actually going to release something?
44:54 Speaker 00 They were willing to do it and then be patient enough. And I think there were multiple rounds, I think I talked to John Lilly-Greilach about this. Multiple rounds that John was involved in before the product even launched, which is incredible. Hats off to Dylan, hats off to those early backers.
45:09 Harry Stebbings? You said about your wonderful partner, I do have to touch on fatherhood. It's such a special but also significant change to life. There's so many ways I can say it. I think the biggest one that I'd love to understand is if you could advise yourself one thing and cool yourself up the night before your wife gave birth, what would you tell yourself?
45:25 Speaker 00 Well, first I would say you think you have a bunch of control over your life and you kind of do have a bunch of control. Control over your life right now, but tomorrow you suddenly are not going to have a bunch of control over your life. All these things are going to be out of your control as a parent. You can't control exactly who your kid is, but you can't control how they're going to behave in certain places and dimensions of life. You think you have the perfect childcare set up, but stuff's going to go wrong. You're going to have to keep adjusting your schedule. And so you have to embrace the lack of control and the surprise that is going to come from all of this experience. The joy of parenthood is in the randomness and surprises of it. And so it's still something that I'm comprehending, but was that
46:08 Harry Stebbings? Challenging to you. You're a very structured person.
46:11 Speaker 00 It's
46:11 Harry Stebbings? Challenging to embrace randomness and spontaneity and change of plans.
46:15 Speaker 00 Absolutely. And yet it's an incredible gift too. You know, we all get to live this life once. And so having that has been one of the the great joys of having a kid.
46:24 Harry Stebbings? How does it change your relationship with your wife?
46:26 Speaker 00 Yeah, it certainly makes things harder on a bunch of dimensions. The cliché thing that people say, which is you, you just have less time for each other is absolutely true. But I also think it gives us purpose. Like we have this unified person who we're thinking about and co-parenting and co-working on. It's also strengthened our partnership in a lot of different ways. It's given clarity to kind of what matters.
46:53 Harry Stebbings? Do you think it changes the type of investor you are, companies you like to invest in, where you like to operate as an investor?
46:59 Speaker 00 It does in the sense that my time obviously matters more than ever. And that's only going to continue being the case in my life. And so I have to believe in my bones when we make an investment decision. This is something I really want to spend time on. It perhaps used to be much more just about the capital and the economics. And now it's about that and time, because time is such a precious commodity.
47:23 Harry Stebbings? I have a lot of conversations with people about this and they say, I actually wish I'd had children sooner. They say that post, do you wish you'd had children sooner?
47:31 Speaker 00 I don't think so. I think I was thirty two when we had our daughter Shreya and I got a lot done in my twenties.
47:39 Harry Stebbings? Can you work as hard as a parent? This is what I worry about. I worry that you're able to, you you know me now pretty well. I just pounded at my desk a lot.
47:47 Speaker 00 Yeah.
47:48 Harry Stebbings? You can't do that when you're a parent.
47:49 Speaker 00 No, and I believe the answer is no. It it has not been the case for me. I want to preserve that window, for example, from five thirty to seven thirty P M. Every day, every day that I can, because that's a really special window to do dinner time, bath, bedtime. I also spend time with her in the mornings because my wife works starting pretty early, east coast hours. I'm typically the one who takes our daughter to Montsuri in the mornings. It just means that I have to spend my seven thirty to ten P M. window working every day. That's the only way I've found to be able to make up for some of those lost hours on work. Now, the flip side is I think 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.
48:32 Speaker 00 But I was also pretty efficient before. So I think overall, I am less productive.
48:36 Harry Stebbings? Good. Well, I'm glad it's not just my worries. I want to do, I want to do a quick fire on my friends. So I say a short statement, you give me your immediate thoughts. That sound okay?
48:44 Speaker 00 Okay.
48:45 Harry Stebbings? So what have you changed your mind on in the last twelve months?
48:48 Speaker 00 A I is being a very, very interesting category to, I honestly don't know if there's great A I first opportunities for us at Footwork to invest in. And that's because of just the insane hype cycle around it at the moment. We over rotated once again very, very quickly towards excitement here. But as I've thought through the venture investments here, I don't think that there's a lot of A I first, A I enabled companies that are going to be for us in this phase. And yet I do believe.
49:17 Harry Stebbings? Because they're too expensive.
49:18 Speaker 00 Too expensive, and there's just so much competitive noise. And there's also so much that, for example, in the large language model world, that the L L M's themselves will serve as a use case versus an application layer on top of those L L M's. You know, I've heard there are several companies now that have grown rapidly in A R R and have now started declining in A R R as retention actually starts to affect these businesses. Because there's churn from folks who just try out products built on top of these L L M's because they're interested in the novelty of them, but then churn away. And there's also. Just the reality that as ChatGPT itself gets better in leveraging G P T four and other models as an example, it serves those use cases that some of the application layers on top of ChatGPT and G P T four have tried to serve.
50:02 Harry Stebbings? I think people are forgetting novelty enterprise buying, which is like, there's a lot of A I companies, you have Walmart, McDonald's, Porsche. And it's like, you know, two people in their design team testing it out with the ten K.
50:13 Speaker 00 Yes.
50:13 Harry Stebbings? And that is not the same as enterprise wide rollouts.
50:16 Speaker 00 Totally.
50:16 Harry Stebbings? What would you most like to change about the world of venture?
50:18 Speaker 00 People talking about A U M as a metric. I think A U M 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. 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. I just think talking about the aggregate size of all the funds that you've raised is a complete vanity metric.
50:43 Harry Stebbings? I think the enterprise value of like portfolio companies is total bullshit though too. Because I could invest in, you know, Figma in the series E.
50:51 Speaker 00 Fair enough.
50:51 Harry Stebbings? And then it's like, we've created thirty five billion dollars. And you're like, come on, you put in five hundred K in the, I've seen some, do you know what I mean though?
50:59 Speaker 00 Well, yeah, I.
51:00 Harry Stebbings? I totally agree with you.
51:01 Speaker 00 I think dollars returned, that's the thing that matters the most.
51:05 Harry Stebbings? What was your biggest investing mistake between twenty twenty and twenty two in the hype cycle?
51:10 Speaker 00 Doing our pro rata in companies that quickly raised another round at a huge step up from where we first invested. Because fundamentally, there was very little de-risked. And we saw this happen where a company had raised a series A from us 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 markup. And we did our full pro rata and that becomes a very big position for you without that much being de-risked from the initial round.
51:38 Harry Stebbings? Do you do reserves now?
51:40 Speaker 00 We do, yeah.
51:41 Harry Stebbings? Why?
51:41 Speaker 00 A couple of things, one is obviously there's going to be some cases where an entrepreneur is going to need a little bit of extra support to get to the next round. You know, of course, some of those may not be the right decision to make, but some of those I do think will be. The other thing is that I think in a world where.
51:55 Harry Stebbings? Have you had bridges that lead anyone?
51:56 Speaker 00 I've had a couple in my career, yeah. But I think the other reason is, especially as a new. Firm, you want to be able to say that we can support the company in that next round. I do think there's validity to that in especially today's market where capital isn't as free, where folks are leading the next round, maybe looking at whether insiders are going to do their prorata or not as a signal. And so we like to do our prorata on the next round following ours and then we pare back. If you think about our total fund, our total fund size is about one hundred and seventy five million, right? We think we'll make about twenty investments out of that fund, average, you'll check of four to five million dollars. So just call it sort of eighty to a hundred million dollars on initial investments and the rest is for follow-ons.
52:30 Harry Stebbings? So you're like thirty to forty for follow on.
52:32 Speaker 00 That's right. So it's still, and hopefully we have recycling as well, but it's still weighted towards initial checks. But we do think there's value in having a little bit reserved.
52:40 Harry Stebbings? I just feel that reserves actually fundamentally challenging dollars to deploy because you'll most often do it according to traction.
52:46 Speaker 00 Yeah.
52:47 Harry Stebbings? And I look at mine and like some of the fastest spikes.
52:50 Speaker 00 Yes.
52:50 Harry Stebbings? And not the sustainable value creating companies. Do you see what I mean?
52:53 Speaker 00 Yeah.
52:53 Harry Stebbings? But logically, you would concentrate capital towards those. They are absolute bangers in the moment.
52:58 Speaker 00 Yeah. Look, it's where we started our particular conversation, which is the decisions that I regret in that twenty twenty to twenty two era were those prorata decisions. And I think we've got to be a lot more disciplined on those moving forward.
53:10 Harry Stebbings? Which less well-known firm do you most respect?
53:13 Speaker 00 I'll name two. USV doesn't get the credit that it deserves. It should be in that pantheon of greatness that sort of Sequoia and Benchmark are typically put in.
53:21 Harry Stebbings? Yeah, it's just being on the East Coast.
53:22 Speaker 00 I think so. 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 in the company or whatever relationship they had.
53:37 Harry Stebbings? Or a user.
53:39 Speaker 00 Exactly. And yet you heard absolutely nothing from Fred Wilson on that day, absolutely nothing from USV on that day.
53:46 Harry Stebbings? From the guy who writes a daily blog, it's great.
53:48 Speaker 00 From the guy who writes a daily blog, from the person in the firm that led the series A round, you heard absolutely nothing and I was just floored by that and I, I just loved it. 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 another that I think is less well-known, which is IA Ventures.
54:11 Harry Stebbings? I was gonna say, all right.
54:12 Speaker 00 Yeah, Jesse Beirudi, who's one of the two GPs now 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 do very little on the external brand front, but they have crushed it. And I think they know what they are good at.
54:32 Harry Stebbings? They know what is their type of deal as well.
54:34 Speaker 00 Yes, they know their taste.
54:35 Harry Stebbings? I think you know, actually.
54:36 Speaker 00 Yeah, they know their taste and they have great taste. They've kept discipline on everything. And as you know, they have done fabulously well from a return standpoint.
54:46 Harry Stebbings? Roger is now retired.
54:48 Speaker 00 Exactly, exactly. And you could see the data, I think, from.
54:50 Harry Stebbings? You know, when a fund's done well, when the manager then returns with, I'm managing my own money. Well done.
54:56 Speaker 00 Yeah.
54:57 Harry Stebbings? Best board member you've sat on a board with and why them?
55:00 Speaker 00 Oh, interesting. I'll put one that I miss right now working with, which is Vasne Adarajan at Excel. Vas and I were also at Insight together in the summer 2010. He left soon thereafter to join Excel. So he's been there, I think, for about 12, 13 years now. He led the seed round in Frame.io. We did the Series A with them at Jaster. And so I got to work with Vas and founder Emery and the team there. You know, I picked Vas because I think he's not that well known, but he's got a great portfolio. Frame.io was acquired by Adobe for $1.3 billion a couple of years ago. A segment was another one that he did. But as a board member, he just asks really thoughtful questions. He sticks to just what's most important to prioritize as a company.
55:42 Speaker 00 And in my peer group and sort of our generation, although 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.
55:52 Harry Stebbings? You can have dinner with anyone, dead or alive. Who do you choose?
55:55 Speaker 00 Two of my heroes wrote a book together and so they have a ton of chemistry. And that's Sir Alex Ferguson, the longtime manager of Manchester United, and Sir Michael Moritz, 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 sadly I've never met Sir Alex. I think what would be special about dinner with both of them is the chemistry they would have in that dinner. The fact that they are my two heroes and two of my favorite subjects would make that so much fun.
56:23 Harry Stebbings? Final one, footwork in five years' time or 10 years' time, you can choose. But you said AUM is not the metric we should be measuring. Most firms always scale. What does footwork look like in the 10-year frame?
56:34 Speaker 00 We perhaps add 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 been able to already work with a handful of really special founders and companies, where we've been their lead Series A or seed partner. And again, that probably in five to 10 years is not going to show up with distributions 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. You know, Mike got to work with 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 in revenue.
57:18 Speaker 00 And we hope that we get to work with a handful of Katrina's, of Melanie Perkins from Canvas, of Jonathan Regas from the Founder's Dogs. We hope to work with a handful of those folks over the next 10 years.
57:28 Harry Stebbings? 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.
57:34 Speaker 00 This is awesome, man. Thanks for having me.
57:38 Harry Stebbings? I absolutely loved that show with Nikhil. It really is special when you have like a seven-year relationship like that and then still being friends. So appreciate all that he's done for me and the support he's shown for me over the years. But before we leave you today, you know all those mind-numbing tedious tasks that seemingly take up half your day? Well, Coda is here with their new AI-powered work assistant that helps you and your team not just finish tasks, but make progress. So your product team can bring a feature to market faster by using Coda AI to tag customer feedback, draft PRDs, suggest target audiences, summarizing product discussions and more. Your sales team can engage more customers by bringing in data from sources like Salesforce and then use Coda AI to suggest action items, meeting agendas or lead scores.
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Previous 20VC: The $3.1BN Meeting That Led to an Uber Acquisition, The Battle With Uber; How to Outcompete When You Have 10x Less Cash & The Marketing Campaigns That Led to Pakistan MDs Fleeing and Elon Musk Fanboying with Mudassir Sheikha, CEO @ Careem Next 20Sales: Why Everyone is Responsible for Demand Generation, How to do Great Sales Discovery, How to Reduce Sales Cycles and Create Urgency and Deal Reviews; Good and Bad Reasons to Lose a Deal with Doug Adamic, CRO @ Brex Page updated September 29, 2026 · transcript and summary are machine-generated
