Mastering the Slope of Learning - Nikhil Basu Trivedi - Footwork - Episode #73

I think that very specific thing for venture investors is.

How this business becomes really, really, really big.

Welcome to Not Another CEO Podcast. I'm your host, David Politis. Every week we talk to inspiring leaders and get the true stories, the ups and downs, the lessons learned, and come away with actionable advice for our own journeys.

Today's guest is Nikhil Basu Trivedi, one of the most thoughtful and well respected early stage investors in Silicon Valley. Unlike the majority of venture capitalists, Nikhil started his career as an operator. He was one of the founders of Artsy, the online art platform that changed how the world discovers and collects art. And he's already had an impressive career in venture, spending time at Insight Partners and Shasta Ventures before co founding Footwork in 2021. Over the course of his career, he's invested in companies like Canva, Frame, IO Lattice, the Farmer's Dog, and Honeydew Health, just to name a few. When I asked one of his founders to describe him, they said he's a mensch who sees through the noise, focuses on what matters, and always thinks from first principles. I couldn't describe him better myself. Please welcome Nikhil.

Thanks, Eric. Great to be here with you.

I'm excited to do this. Okay, so we're going to jump right into it. First question I ask every investor, what is the one thing that you look for in founders or companies that you invest in?

I think right now the characteristic that my partner Mike and I most hone in on when we're evaluating founders is their slope of learning. And, and so what, what I mean by that is how quickly can a founder learn?

You know, are they sort of constantly curious about their business and what could evolve in their business? Are they showing that slope of learning in just their, their decision making, how quickly they move on a potential opportunity? And it feels like that characteristic is just more important than ever in this AI era, where.

So much is changing so quickly. And so I think since we started Footwork four and a half years ago today, our emphasis on that slope of learning quality has kind of continuously increased.

And now is sort of the focal point. If you, if you press me on, like, the one thing that we look for and found is it's the focal point of our evaluation.

And, and how fast, like how fast can you assess that in someone? Or maybe how do you assess that in someone?

Your question of how fast?

In the first 30 minutes I spend with a founder, I'm trying to assess that, to decide am I going to spend another several hours with that founder or that Team, am I going to really dive into the business tonight?

And so I try to make call on it in that first meeting.

To assess it.

I'm trying to pick up on.

How that thinking on the business has evolved. I'll ask questions such as.

Take me through some of the highlights in the game film between when you started the business or when you had the idea for the business to where you are today, just to see like what they pick up on in their own journey as they reflect on it. And what were some of the key learning moments to try to assess is there slope in their thinking in sort of their actions over time?

I think you get a sense for it in the back and forth that you have with the founder, but then.

To get to a final investment decision beyond that first 30 minutes, it's a back and forth that we have, you know, over the course of a week or a couple weeks, however long the process ends up being.

Where we're really trying to assess that slope of learning. And more examples where in the case of Honeydew, for example, a mutual investment of hours. David Futurin, the founder CEO and I chatted on an almost daily basis for like a couple week period.

And so like, you know, text back and forth, quick calls to try to really understand his thinking and in that case just got more and more excited about his slope of learning as a founder. The qualities we saw in him that led to us. Mickey. That's right.

It's interesting because actually as you're saying this now, I'm thinking back to some of my investors at Better Cloud who would do one of them. I got a warm intro and he said, dave, I'll do a 15 minute call with you and if I like you after the 15 minutes, I'll fly to New York to meet with you. And I said to him, I'm like, that's kind of crazy. Like, is he going to know in 15 minutes, you know, is it worth spending time with me? But as I've now started seeing a much higher volume of companies, you do realize that there's something, there's something pretty quickly, maybe it's not 15, maybe it's 30 minutes like you said, but there's something that you very quickly get a sense for how someone thinks about their business, how they describe the business, how excited they are. And that happens in a pretty short period of time for sure.

That's why I think that the takeaway I would encourage founders to have from this is whether it's 15 minutes or 30 minutes, what you have when you Meet a potential investor is the first five minutes to really capture someone's attention and to get them to lean in for 10 more minutes, for 25 more minutes to get them thinking they have to go fly to meet you next week to spend more time. And so I always encourage founders to think about what they want to say very carefully in that book five minute window that they have in every new meeting with a potential investor because that's your opportunity to really hook someone in.

You've invested obviously in a lot of amazing companies. I could have mentioned many more than I did in the intro. When you invest really early, which you now do very early stage, how often is the idea that they end up kind of building a real big business around? How often is that idea the same one that they came to you with in that first meeting?

You know, my personal bias has been towards companies that do have some early signs of product market fit at the time at which we invest. And so there's, there's typically something there that's, that's just started to work. It was Canva six months post launch.

You know, the farmer's dog with hundreds of dogs as customers, I think about a year post launch.

So I have been more focused at that stage where typically the idea doesn't evolve and pivot into something else versus at the pure founder and idea stage where of course it does.

And so yeah, I have a few examples of companies in that, in that other bucket. The company called Athelis for example, which is today has merged with a company called Kumure and healthcare.

Company valued at $6 billion. It started off in blood diagnostic testing and today it's in revenue cycle management and software.

So it's, it's taken a bunch of twists and turns to get there from you know, that initial round where you know, I, I was lucky to be one of the early investors and really based that investment position on the founders more than anything else. But the vast majority of investments that I made in my career actually, you know, the idea I invested in, the thing that I got excited about ended up being, you know, the thing they worked on the whole duration of the business.

So hopefully that makes sense.

Yeah, makes sense. And then when, when people come in to pitch you, I'll speak for myself. First time founder, pitching a well known investor. You're pretty nervous. You pretty, you know, you don't, it's, it can be challenging when you think of the best founders that have ever pitched you. What is it in that pitch you're looking for? The slope of learning. But what is it in the actual pitch of how they tell the story that really makes them stand out to you or get you excited? Because this is one of the learnings I've definitely had recently is as I've spent more time with venture investors, they're looking for something very specific. There's other ways to go and raise money. There's. But specifically, venture capital investors are looking for something very specific. Like what. What is that in your eyes when someone's coming to present?

I think that very specific thing for venture investors is.

How this business becomes really, really, really big. And I think the founders that are the best fundraisers and storytellers.

Get to.

The heart of that very quickly, like why this is such a massive opportunity, why it may not be a massive opportunity today, but why it will be a massive opportunity tomorrow.

Perhaps a unique insight that they have that others don't have for, for why that will be the case.

And so I think there are some.

Fundamental characteristics of the best companies that I've seen over time, which is, as I said earlier, they hook you in the first five minutes. The founders are able to do that as they tell the story of the business.

They have unique insights, but other people don't have. You almost feel as an investor like you're learning from there. You picked up on something.

You didn't realize again, in a, in a pretty short window in that, in that initial meeting. And then as you sort of unpack it in your head as an investor as well. Oh, and then you come out of the conversation feeling like, wow, that could be one of the ones. Because what we're seeking in our business venture.

Is a company that 30 years from now is.

Is. Is still going and compounding, even at, at massive scale. That's one of the measuring sticks that I have for my career is I want to have a handful of companies 20, 30 years from now that I'm still holding onto as an investor where I was lucky enough to be a partner to that company at the CEO of the Series A. And.

And so it's just different to, you know, you can make a great investment by investing in, you know.

A.

Restaurant business that, you know, may still be around in 30 years, but probably isn't compounding at the rate at which, you know, AN S&P 500 company is compounding.

And so that's.

That sort of articulation for why this can be very, very big tomorrow. And what's changed in the market to enable that or what is currently changing in the market to enable that. I think that's the very unique thing that we seek out as venture investors.

So I had someone pitch me earlier today, and it was a great idea. And that thing that you're saying was 20 minutes into the pitch and I told him, I said, I felt the way you're describing. This is literally how I felt this morning. I said, oh my God, I'm learning something that I about the SRE space that I had no idea about. As if this is amazing. Why don't you start with the end, you know, and tell me up front how big this thing? He says, well, I'm scared that investors are going to think that's too big. I'm scared they're going to think I'm like Adam Newman or something, you know, pitching. We work like, what is your take on that, you know, in terms of does it come across like that, you know, or, or is that really because of what the venture business is? You need to see that and, and hear that.

I think the best pitches are ones that seem like they can be very big, that the, the founders have, you know, a serious ambition. But that ambition is not delusional. It's grounded in some fact or reality or something that they are already seeing show up in the product in the business.

Something that they have a real unfair advantage around doing versus anyone else. So I think that's the nuance, right, is you can't tell that.

Really big idea and vision and have it seem credible unless there's something.

That you have as a foundation for why that will actually happen.

That makes sense.

In terms of once you've made an investment and you've actually gone through with that, again, you are early, but you're not at inception stage. They have some product market fit, they've got a business going. How do you like to work with a founder? Specifically, how do you want to be communicated with once that deal has closed?

I think.

Especially in the early days after making investment, regular communication to develop trust.

For an investor, to develop context on the business is really important. So three regular investor updates. Whether we do that monthly, it's awesome to get like a written investor update every month from a founder and then perhaps to do a quick call to chat through a few of the key topics that surface there, a few of the key questions that a founder is wrestling with.

And to not just do an update call to rehash what's in the email, to actually go into like some discussion around a couple key topics. That's. That's pretty typical cadence that we have with the founders that we invest in doesn't have to be every month, but, but some sort of regular cadence of updates, calls to develop context, frequent text back and forths that are typically.

For us as investors pull from the founders versus us pushing things under the.

You.

Know, we don't want to be a nuisance and a time burden for the founders that we invest in. But, but there's lots of questions that, you know, you have as you build your business that come up that I think thought partnership is valuable for. And so we try to, to try to be that thought partner and to develop that trust and develop a regular cadence so we have context, especially in the early days of a new working relationship at a new investment.

I don't think I've ever asked an investor question, but I, I'm curious. You've made a lot of investments, you know, and it's a lot of things to keep in your brain about all the different businesses. Do you have some system to, to keep all. I have a hard time keeping track. Not even a professional investor. I have a hard time keeping track of the companies I've invested in advising. Like, how. How do you do that at scale?

Yeah. You know, a lot of this has just lived in my brain for the last 15 years, but as I get older, I think I need to have more system and process. One ritual that we have at footwork is Mike and I, and with our broader team, talk about every single portfolio company every week. So we don't just, you know, talk about updates on the companies that we, you know, maybe had a board meeting with in the prior week or where, you know, something came up over text. We actually go down the list and we talk about every single portfolio company. Now for us, right now, that's 23 companies. So it's not a huge end, but it's still enough that it, it takes a little bit of time. The reason for that ritual is we think it's really important for us to have shared context on any data points that we have that are going on with every single one of our employer companies, so that if one of them walked into our office today, everyone on our team would have a sense for what's going on with that fountain.

So that, you know, if we hear about a great, talented person who's looking for their next opportunity, it doesn't matter who heard about that person. We can all, we all have enough context to try to figure out, oh, that person would be a really great fit for this company because we know this company is looking for a designer right now and, you know, or like these are the three companies that will actually hire like a business generalist right now in our portfolio because they're growing very quickly. They have that need. Their cheaper stuff isn't working out that well, you know, whatever it is.

So that's one ritual that we have. And then the other thing I'll say about this is I do think there's a lot of areas in which AI can really add value to us as venture investors. And I think this is them. And so at Footlook, we're building a system where.

Every one of our portfolio company updates, every board deck that we get, every email update we get is in a single.

Database repository and where we can query that with large language models to take a look at, you know, what, what did founders say they were going to do? This is what they did. What were some of the key challenges and areas we talked about before and now? What are they? How's, how's the business evolving as a result?

So we have kind of a pre read every time we go into an update chat with a founder that sort of breaks down some of the things that would be interesting to talk about based on the history, based on, by the way, what's happening in the broader market as well and not just in the context of that company. And I think that that is only going to improve as a capability for us as these models get better.

That's a cool, that's, that's cool. And you'd be able to see trends across them and see kind of.

Yeah. One thing we want about is, you know, and I think it's very important for actually any company, venture firm in our case, or you know, a startup or frankly a big company to do this exercise, which is blank sheet of paper. If you restarted the firm today, what would you do? And it's pretty obvious that if we restart Footlook right now, we'd be building as an AI native firm. And so we tried to embrace that this year and it's obviously an ongoing journey for us, but hopefully I just gave you a peek into sound.

Yeah, yeah, that's cool. So you've, you've invested through multiple different trends, cycles, you know, new technologies. What, what is your view on where we are right now with AI? Like, as we're talking, do you think we're at the peak of this hype cycle? Is there still more to go? Is it not even a hype cycle? You know, what, what do you feel? And you've seen a lot of this in your career?

Yeah, what I feel is, I think it's the most exciting time perhaps in my whole 15 year career to be an investor.

And also one of the most scary times. And so let me unpack. Why, why do I think it's so exciting? We're seeing companies grow at a faster rate than ever before. And I think there's a lot of public stories now around, you know, companies that have gone from zero to $2 million in revenue run rate in 10 days. We actually have a company in our portfolio that this happened to. But beyond just those, you know, those sort of crazy headline type numbers, the market pull for a set of businesses is unlike anything I've seen in my venture career. You see that in ChatGPT, right? Getting to I think now close to a billion active users in less than three years since it launched.

That is remarkable. You know, I don't think we've ever seen, we've never seen user growth.

At that level and to that level of scale in this short a period of time. And you're seeing user growth in their case, revenue growth in their case and revenue growth in a set of, is this case. That's unprecedented.

More broadly speaking, I just think.

AI will be the technology market going forward and so.

It will just be one and the same thing.

And I think every business is reevaluating its stack with AI. That leads to a lot of new opportunity. I think it impacts almost every business in the industry and so.

It'S an incredibly exciting time. Why is it also carry time?

I think we just have a lot of dollars in our market of venture and so.

It absolutely feels like a hype cycle in a bubble right now as well because the, the types of rounds being raised at, at valuations relative to the fundamental progress seem absurd. And for, for some companies it, it will work out fabulously well because they'll build enormous businesses. But I do think there will be pain and there'll just be a set of stuff that, that doesn't work out just like in every other era. But you know, am I overall bullish? Absolutely. Like, do I think there'll be a set of just amazing businesses get, get built, you know, over the next five to ten years?

Absolutely.

Yeah. It's interesting. You know, for me I've kind of seen this very closely. You watched and worked through the rise of SaaS and you know, the adoption of SaaS. We started measuring it in 2012 and if you look at that adoption curve up until 21, which was the peak, you know, it took time but it was, it was growing very, very quickly. And then of course peaked in 21. In terms of the number of SaaS apps that people were using and how they were buying it. I feel like I've seen in like 24 months this type of thing for AI that took 10 years basically for SaaS, and you could argue the same for SaaS. It changed everything, changed every company, everyone became technology company, all this stuff. And with AI it's happened so fast and just like SAS came back down, the question is, you know, kind of where's the peak, where's it going to come down? But it doesn't mean that there's not going to be a whole set of new companies that are there forever, you know, for to Your point in 30 years will still be there totally.

In terms of the value that you bring to the table through something like, like a movement like that's happening with AI, you've got these companies you're investing, where do you add the most value?

And I'm curious if that value you add is different from some of the other firms you've worked with, like worked at in the past.

Yeah, I think where we at footwork really shine is being a thought partner in.

A handful of really important moments that inevitably come up.

Every year for a company. And so by, by being a lead investor at cra, by having the type of context on the business that I tried to describe earlier, with the regular cadence of updates early in our relationship.

We can hopefully show up as.

A really valuable thought partner in a key hiring decision, in.

A new fundraise, in.

A big strategic question on.

The product footprint and.

Do we prioritize this next act right now versus do we double down on the thing that is already.

Launched and working same thing on the go to market front? Do we prioritize this one channel that's working really well or we actually go run a bunch of experiments in this moment in time to figure out other channels that could work.

Almost every company I've worked with goes through.

A handful of these moments every year and a handful of these big decisions. And.

We where we show up relative to other firms that I've worked at or that I've worked with.

Is that we really invest the time to think about these decisions alongside the founders. We try to not be prescriptive, we try to not just take the pattern recognition we've seen from other companies and say hey, this worked other companies, this is what you should do. We try to think about each of these questions on first principles.

Because there's nuance to the answer in every case. And so I think that.

That'S what you're hiring us for as a founder. Raising a seed or a series A, deciding to work with or is.

You know, these, this is a small firm, an equal partnership firm. I get this combination of investing and operating experience. My people there in Mike and Nikhil today.

They only make a handful of investments every year and they care about.

This company that I work on as a result of that kind of concentrated approach and they're going to really be great thought partners in these moments that are for sure going to come up in the course of my business building journey.

Do you think that your experience as a founder first.

Impacts this approach?

I think the empathy that I have, having been a founder of a venture backed startup and then also that Mike and I have, having founded a venture firm together is.

Is really helpful because.

It, you know, we start from a place where we, we know like really hard and.

These decisions are really always tough decisions and.

Also lonely making the decisions on your own. And so.

Yeah, I think maybe subconsciously we try to be the type of partner that we wish we'd had in our own business. Building journeys, both Mike and me.

Hopefully we show up with some greater level of empathy than someone who's never started anything before. Because I do think it's just different. One, one refrain I've had, I think I've tweeted this before, is.

No one cares as much as the founder cares. And I think unless you've actually started something, don't understand what that means. Like, you know, you think about it all the time in a way that no one else really does or ever will. Maybe you're lucky, but you hire somebody who somehow carries at the same level as you, but it's, it's incredibly rare. Like, like it's so, so I do think there's probably something rare that enables us to show up, enables us to show up at just a slightly different level of average. You see.

Yeah, I think, I think at the stage that you're investing, having somebody who's been in the seat before.

There are some amazing investors out there who've never operated. But at the stage that we're talking about, it's hard to know the pain. It's actually very hard to know and recognize and empathize with the pain unless you've been through it. Like you said, there is no. This has been my biggest topic that I've been talking about writing about like, like the last couple of weeks has just been the challenge of being a founder, CEO and, and how lonely that is and how hard it is. And I think having investors that, that can get that and come at it, like you said, from first principles and not say, well, 72 other companies did it this way, therefore you should do it this way. When in reality there is something different about each company and the DNA and the market and the founder and the product and the customer. And, and so I really, I really, I, I like that and I think, I just think it's an important one for, for founders to hear that because I think sometimes you can get enamored with this idea of like, oh, they're going to have this and they, they help me with my recruiting and they help me with, in theory, of course, you said it before, you do that and you want to help and. But there's something about just having the thought partner who's kind of aligned with the, with the founder. We're trying to build a successful business here. Let me help you, you know, and be there as your thought partner. I think, I really think it's, I tell people a lot, I think the firm matters a lot less in my opinion than the person.

At this stage. At this stage.

What do you, what do you think of, of, you know, of all the deals that you've seen over the course of your career.

What, what is the deal that you missed? The biggest deal that you missed?

Yeah, sadly have, have missed a bunch. And I think that's the nature of event listings. You end up, you know, your anti portfolio of the stuff you didn't do ends up almost always being better than the portfolio you do do.

A painful one for me is Robinhood, which I think is now, you know, trading at like $100 billion public company. I haven't looked at the signal, but I do, you know, I do own the public stock at least and so, yeah, $117 billion as of today. I was really fortunate to meet Vlad and Baiju in the early days. I went over to their office in Redwood Shores, had them come in and present to our team at my prior firm and there in my mind was a lot to like about Robinhood. I was also in the. This was the stage at which they were. They had a, a beta of users. They hadn't fully launched yet. They had already raised a seed round. They were thinking about a Series A and Index ended up leading that Series A round. And that was a fabulous investment.

What unfolded with it. I think what I felt is mobile had really changed the game for what was possible with stock trading and Robinhood was playing perfectly into that.

And so, you know, kind of Feel it was this magical experience to be able to trade stocks on your phone, be able to do it for free. And I thought that a lot of people are going to resonate with that experience, at least in my generation. You know, this is back in 2015. I was 26 years old at the time, a sort of a great ICP Robinhood customer. Now where we got hung up as a firm and where we had a lot of debate is questions such as is this what people should really be doing as investors? I had a partner who felt people should really be investing in ETFs and, and in, in strategies like that versus versus just trading individual stocks. A lot of people are going to lose a lot of money doing that. My perspective was perhaps a bit more libertarian on that. Like I, I, I, I, I sort of felt it as an N of one customer. Like I just want the power to be able to do this.

And so.

So anyway, you know, kudos to, to those guys and, and how they've executed on the business. I think it's pretty awesome. They've now built 7 or 800 million dollar plus revenue businesses within Robinhood. So they've executed on multiple acts post, you know, free stock trading on the iPhone as the wedge.

Why, why did you become an investor in the first place? Like why, why transition from an operator founder to, to an investor?

I got my start in investing and Insight Partners at a Neil and.

I just ended up loving.

Their ability to have conversations with entrepreneurs as my day to day job. So it's really been about that love of the day to day and of getting to meet these incredible people every day who are building.

Businesses that are going to be the future.

It's kind of still amazing to me that that is my job. Like I sure I get to meet them, I get to evaluate them and then if I'm really lucky a handful of times every year I get to invest in them. And, and so the way this job just satisfies my intellectual curiosity.

You know, the, the sort of.

It also plays into like my competitive nature because you do have to obviously be able to win over the best founders as well. And then.

I, I do get a lot of energy from just working closely with these founders once we invest. And so you know, the reason why Footwork has this approach of just making a handful of investments every year versus you know.

Being a small investor in a lot of companies every year or a strategy like that is I, I just really value the human relationship we get to build with the entrepreneurs that we work with and trying to really be there for them during the tougher times and, and being aspiring partner and pushing them even when things are going well. And so, you know, all of that is sort of the energy that I get from the day to day work and why I continue to love doing this. And it's why once I dip my toes into it 15 years ago at Insight, it's why I just kept doing this now since that moment.

Last question for you, where is footwork in 10 years from today?

I think our aspiration is to be one of the handful of firms that.

A wide set of founders thinks about.

As the.

As one of the five to 10 firms they go to for leading their Seer and their Series A round. And so what we want to be is.

A world class brand.

Focus at the early stage, investing in a small handful of companies every year. This combination of investing and operating experience in our partnership.

We really love businesses that are a mix of both consumer and enterprise in their DNA. And so obviously OpenAI is a canonical example now right with ChatGPT. But for consumers and models used by businesses, Canva is another example where the business grow, grew organically amongst consumers and prosumers and that infiltrated the enterprise. If you think about the biggest companies in the world, most of them serve both consumers and enterprises from Google to Nvidia to Microsoft to OpenAI and others coming up. And so our aspiration 10 years from now is to be one of the five to 10 firms that the most ambitious, the best founders are thinking they want to talk to were their seed or their Series A. And hopefully our work is sort of speaking for itself ten years from now where we have already backed a handful of companies that feel like they're on that trajectory to being ones that.

We all still want to hold 30 years from.

Awesome. Nikhil, thank you very much for doing this with me. I know you're extremely busy. I've been looking forward to this conversation. So thank you a lot for founders to learn from this and so thank you for doing this with me.

Really appreciate you having me here Dave. And thanks for doing this for founders.

Awesome. Awesome. Well everyone who's listening, I hope you enjoyed if you did, please share this with your networks and we'll see you for the next episode of Not Another CEO Podcast.

That's a wrap for this week's episode of Not Another CEO Podcast. Thanks for joining. For show notes and more, please Visit not another CEOPodcast.com we'll see you next week.