🎧🍌 Footwork’s Secret Sauce | Mike Smith, Nikhil Basu Trivedi
37 questions to ask when starting a VC firm, inside Canva's seed pitch in 2014, lessons scaling Stitch Fix from $0 to $1B revenue in five years, how public company boards are actually discussing AI
In 2020, Nikhil Basu Trivedi texted his friend Mike Smith asking if he’d ever consider starting a venture firm. Five years later, we sat down to record their first ever video podcast together.
We talk about that deliberate process and the 37 questions they asked each other before committing to build Footwork. They share a few hints of their secret sauce for working with founders, lessons investing in Canva’s Seed round in 2014, scaling Stitch Fix from $0 to $1B revenue in five years with only $17m of capital burned, why AI will enable a new wave of entrepreneurship, and how public company boards are discussing and adopting AI today.
Support this Episode’s Sponsor
Flex: Sign-up for Flex Elite with code TURNER, get $1,000. Apply here.
Inquire about sponsoring future episodes here.
Timestamps to jump in:
0:24 Starting Footwork from a tweet in 2020
3:11 Difference between startup and public company boards
4:52 20-40% of public board meetings are about AI
7:48 How Footwork’s investing in AI today
10:37 AI will enable millions of new entrepreneurs
15:04 37 questions to ask when starting a VC firm
17:40 Importance of investor skillset differences
23:08 The pace of VC is faster than operating
26:26 Footwork’s secret sauce (free board seat)
31:59 Investors should talk to and help employees
37:05 Building an equal-carry partnership
39:33 How Footwork makes decisions
43:21 Navigating politics and short-termism in VC firms
51:18 “You’re only as good as your next investment”
53:30 Characteristics of great founders
58:13 Canva’s Seed pitch in 2014
1:02:54 Joining Stitch Fix as 4th employee
1:06:40 Scaling Stitch Fix from $0 to $1B revenue in 5 years
1:16:48 Raising from Bill Gurley after a failed Series A
1:19:40 Footwork’s office near YC
1:22:10 Opportunities in consumer health
1:25:20 Using flash mobs to win deals
1:26:15 Dad life
Referenced:
Find Mike on X / Twitter and LinkedIn
Find Nikhil on X / Twitter and LinkedIn
Related Episodes
👉 Stream on YouTube, Spotify, and Apple
Transcript
Find transcripts of all prior episodes here.
Turner Novak:
Welcome to the show.
Mike Smith:
Thanks so much, Turner. Thanks for having us.
Nikhil Basu Trivedi:
Thank you, Turner.
Turner Novak:
This will be really fun. We were just talking about how you guys recently started, or actually not that recently, started your firm Footwork. It was 2021. What was the thinking around starting this thing, coming together and building a firm together?
Nikhil Basu Trivedi:
Yeah. Today’s actually the fifth anniversary of us setting up the management company for Footwork, January 20th of 2021. The story of how we came together is, I had been thinking for some time about going off and starting a new firm. I’d been at this firm, Shasta Ventures, for eight years, had a great chapter there, but for a number of reasons was thinking about going off and starting a new firm. I had a list of questions that I wanted to go through with potential partners, a blueprint for what a new firm could look like, and a set of potential partners to go work with, all of whom I’d been on boards with before, who I’d gotten know pretty well over the years.
Mike was basically the wildcard on that list, because he was the only one that wasn’t already in venture investing. He was at a company, Stitch Fix. I think what we thought was that we were pretty aligned on a number of core values, but also very different skill sets. I texted Mike, I shot my shot, and he and I started texting back and forth. This was at the beginning of the pandemic in 2020. Then one thing led to another and we decided to go do this together.
Turner Novak:
Mike, do you remember the text? What was the text?
Mike Smith:
I remember the text. What’s amazing about it is, actually, he texted me about a tweet that a reporter, Jason Del Ray, had tweeted that I should be considered as the next CEO of Patagonia. He asked if I wanted him to amplify it on Twitter. I said, “No, I don’t,” because I was in the middle of having a conversation with Katrina and the board about my plan for when I was going to leave Stitch Fix. I was like, “No.” Then his next text to me was like, “Would you consider chatting about starting a venture firm with me?” Which I thought was a unique bridge to the first question. But because we had known each other for a while and had so much, I think, mutual respect, it was super intriguing to explore that, and so we kick started that process in June, 2020.
Turner Novak:
Nice. It was Imperfect Foods, was that the board you were on together?
Mike Smith:
Yes. We were on that board. I joined as an independent board member, and he had led the investment with Shasta at the seat in the Series A. It was a unique situation because we had a number of venture firms that were involved in that company. There were lots of people in that boardroom. The company did really well, and then had some challenges and we had different transitions of leadership. I think the thing that I really respected most about Nikhil during that time was that he was a truth seeker. He was super high yield in that boardroom amongst sometimes the chaos that was in the boardroom. I just had a tremendous amount of respect for him.
Turner Novak:
I know you’re on a couple different boards, even some public company boards. What is that like? What’s the difference between startup, two people maybe and like the venture investor versus public company?
Mike Smith:
It couldn’t be more different, I would say. There are some things that help me be a better investor as a result of being on these public company boards. I’ll start with the board deck is, typically between 250 and 300 pages of material for a public company board, so that is very different. You want obviously our private companies to be focused on 10 to 15 slides.
Turner Novak:
It’s like actually building the product, not a board deck.
Mike Smith:
Yes. It’s just very, very different. I think there’s also, each board member has one or two specific skill sets that they are bringing to the table on the public company boards. Private company boards, I think both as an independent board member as well as an investor, you have to be way more broad in what you bring because the stage of these early stage companies, there’s needs in go to market and there’s needs in leadership development and there’s needs in branding. I prefer the early stage boards, and the way that we get to work with founders, but there are benefits where being on the Ulta Beauty Board and the Miller Knoll Board as examples, all of those buyers and the leadership team are basically buyers of enterprise software. Being able to actually talk to a buyer of like, what are you doing in AI, helps us make better decisions, helps us support our companies in ways that is, I think, differentiated in the marketplace.
Turner Novak:
Interesting. It begs the question then how our enterprise is buying AI right now? Sure. It’s like we all see it. Everyone’s talking about it, what’s actually being bought.
Mike Smith:
Yeah. I think that the things that are being bought very directly are in customer service and in coding, but the breadth of buying that’s happening in marketing, in supply chain, it is not just experimental ARR, it’s real ARR. Now, I think the bar to get into an Ulta Beauty, and actually become something that actually changes the way that an end worker in an operation works or a marketer works, the bar is really high, so product needs to be great. Of course, many of those buyers are looking at somewhere between 5 and 10 different options that they have, but it’s a very serious wave.
One of the things that I’ve talked about is, I’ve been around long enough that I’ve seen the wave of the internet and wave of mobile and wave of cloud. I think the things that are different in this case with AI, one, the speed obviously in which it’s being adopted, and two, I think the value that it’s creating at that speed that makes it feel very, very different to me than any of the other waves that we’ve experienced before, which is investors, we need to lean into that wave. Obviously, lots of people are, but I think understanding the buyer’s mentality and what the buyer’s actually doing helps us a lot at footwork.
Turner Novak:
It flows up to the board level sometimes on these decisions.
Mike Smith:
Yeah, no. One of the things that’s been really fascinating over the last year is somewhere between 20 and 40% of a board meeting’s content is talking about AI. It’s not just like two members of the board that are leading the conversation or leading the questions. It is every board member is using product, trying product, they’re pushing the leadership team to go faster. It feels very different. I wasn’t on public company boards obviously during these other big shifts in technology, but I think the knowledge, the understanding, the push that’s happening in those public company boardrooms, is very different than what we’ve experienced in the past.
Turner Novak:
That’s fascinating. Yeah, because you’d think of the average board members probably, I don’t know, average age of like in their 50s or 60s, and you just don’t think of them as being like early adopters of new technology.
Mike Smith:
I think these board members typically have made their careers being rebels in some ways, and made their careers being building amazing differentiated category defining companies, or being parts of those companies. As a result, I think they just have a different mentality around technology, and they’re just actively using this stuff in ways that, I think help the companies themselves hear what a broader group of people are, and how they’re experiencing AI.
Turner Novak:
Then, how are you guys investing in it right now at Footwork is probably, begs the next question.
Nikhil Basu Trivedi:
One lane that we’ve been very interested in for the past couple years is vertical specific AI products. We’ve made a number of investments in verticals such as life sciences with a company called Illicit, financial services in agencies, and consulting firms and brands as the customer. I think Mike’s experience has partially informed these investments. We’ve been excited about verticals that we think will not be the earliest adopters of AI, but will have to get there.
Turner Novak:
There’s almost like the... It’s still interesting from an early stage investment standpoint versus like code generations like it’s already here, everyone’s doing that.
Nikhil Basu Trivedi:
There’s so many products, there’s so many businesses that are already far along. Legal ended up being, I think, one of the earliest vertical adopters in AI, but we think that there’s several verticals where huge businesses will be built, such as the ones I just described as CPG is another one, and we’ve tried to go early into companies into several of those. That’s one way that we’ve attacked the AI opportunity in the last couple of years.
Mike Smith:
I’d say that thing I’d add to it too is, and Nicole referenced it, I was a CFO of a publicly traded company, I was a chief operating officer of a company, I was the buyer. What I understand with AI and vertical software and AI today is, I had a finance team that was 100 people and I got to actually see what work they were doing day-to-day in disciplines like accounting and then FP&A and then tax and SEC reporting. Much of that work still is pretty rote and repetitive that are perfect use cases, I think for LLMs and for AI to better the experience of people that are working on that.
I do think though that there will be fewer people in those orgs going forward. I think that is something that the ecosystem’s not talking enough about. It’s just like this huge change management that’s going to happen. I still am in too many conversations where people are talking about sort of, “What’s going to happen is, they’re just going to get jobs in other areas, or they’re going to do the part of the job that they love versus the rote part of the job.” I just think it will be way more disruptive than that in a shorter period of time than we’re ready for.
Turner Novak:
Do you think that it will enable more people to start businesses? If you just think about how technology’s evolved, throughout these different eras, like the internet, so many more people are able to just spin up a Shopify store and sell coffee mugs online. Does it get even more pronounced with AI, or maybe you have to, you don’t have a choice, you have to start a business?
Nikhil Basu Trivedi:
I’ve been a little bit delinquent on publishing my key themes of the year. It’s going to come out soon.
Turner Novak:
Are we getting a sneak peek?
Nikhil Basu Trivedi:
I’m going to give you a preview. One of those is AI enabled entrepreneurship. What I mean by that is, to your point, we think more and more people have to become entrepreneurs as a result of where things ahead in the economy, and how AI will disrupt jobs. AI also just enables people much more easily to be an entrepreneur. I think that’s one of these mega-trends under the surface of what’s unfolding that hasn’t been as publicly discussed. I think it’s an amazing thing. Part of why Mike and I just love this job is that we get to spend time with entrepreneurs every day. We are entrepreneurs ourselves, all of us having started our own firms.
The fact that more and more people are going to be able to pursue something that is an idea for them to make it a reality, I think is pretty amazing. Of course, most of those ideas are not venture back businesses, but that doesn’t matter. You can build an amazing business today just as a single person by typing in a few words and having an app be created. I think we’re going to see a lot more of that.
Turner Novak:
Yeah. You just go open up Lovable, build me a B2B SaaS for water bottle manufacturing companies, make no mistakes, go and spins it up and then you got your software.
Nikhil Basu Trivedi:
Totally. In our case, we love anything, which is a way to build an app that actually you can publish to the app store. Lovable, of course, more for prototyping, but the stories out of anything are incredible. Real estate agent who is suddenly making thousands of dollars a month with an idea that she had for an app. That’s gone from being a side idea, side hustle to now being the main thing, which is pretty incredible.
Turner Novak:
Yeah. It’s just like the barrier to entrepreneurship just like the friction continues to go down.
Nikhil Basu Trivedi:
Yeah.
Mike Smith:
Well, and I think what is happening with AI is that the cost structures of running these businesses is completely changing. The number of engineers that you need to run these businesses, the marketers that you need, it’s just likely, and is already showing significantly fewer people, which means you have a cost structure that allows for people to take more chances to start a business, and actually, have it be profitable and work. Because
Turner Novak:
You can shift a lot of that fixed cost because you have to hire an engineer, hire a marketer. People are actually like, “Sure. I’ll give you the try for a week and if it doesn’t work, I’ll go get another job.” I guess it’s like, I’m probably going to be here for a while. You almost like shift that from being a fixed cost to starting a business to, it’s variable if it works. If it doesn’t work, then there’s no cost.
Mike Smith:
Yes. Totally.
Nikhil Basu Trivedi:
Much lower upfront cost.
Turner Novak:
This episode is brought to you by Flex. It’s the AI native private bank for business owners. I use Flex personally and I love it because I use AI to underwrite the cash flow of your business, giving you a real credit line. The best part is 60 days afloat, double the industry standard. Flex has all the features you’d expect from a modern financial platform like unlimited cards, expense management, bill pay that syncs with your credit line and their new consumer card, Flex Elite.
Flex Elite is a brand new ramp-like experience for your personal life, a credit card with points, premium perks, concierge services, personal banking, cars and expense management for your family, net worth tracking across public and private assets, and a whole lot more fully integrated with your business spend. One card for your businesses, one card for your personal life, one card for everything. To skip the wait list, head to flex.one and use my code Turner to get an additional 100,000 points worth $1,000 after spending your first $10,000 with Flex Elite. That’s flex.one and code Turner for $1,000 on your first $10,000 of spend. Thank you, Flex, and now let’s jump in.
One thing you alluded to a little bit earlier that I really want to talk about, you talked about, you had this list, you made a 37 different things you thought about when starting a firm, and Mike was the wildcard on the list or wildcard candidate to talk through. What exactly was the list, and what were some of the biggest things on there that someone should think about when starting a venture firm?
Nikhil Basu Trivedi:
We drafted off of a list that Chris Pack and Jordan Cooper published about when they started Pace Capital together that they had these 33 questions that they went through. Our list became 37. There were a few that we took out, there are a few that we put in, a few that we modified, but credit to those guys for having written the blueprint for this. What we did is we had that list of questions. I think Mike and I actually chatted on a Friday about those questions. We opened up a Google Doc together, and then Saturday morning, Mike texted me being like, “Hey, I’m done with the questions.” I was like, “Whoa, that was really quick.”
I think that having started that exercise with a few people, we could tell from that Saturday that there was something unique about our potential relationship together. It just clicked in a way that didn’t with a lot of other people. I think when you do anything like this, you want to see both sides being super excited about diving in together. That’s what we had from the get go.
Now, what was on that list? Questions such as, how do you make investment decisions? How do you learn who are potential other partners that you would do this with? Who likes you in the market? Who doesn’t like you in the market? What type of brand do you want to build as a firm? What are your economic goals and over what timeframe? How do you think about attribution? How do you think about generational transition? A number of questions about us as individuals and then about what we wanted to build together.
What we found even in that first volley where Mike had answered the questions, and then I pieced it in my answers. It was independently that we answered the questions and we stared at those answers together, we saw that we were aligned on so many of the core principles of what we could do together and just values of who we are as people. But then we also saw that we were very different in a number of skillsets and experiences. It’s that combination that we got really excited about.
Turner Novak:
You got excited with some of the differences.
Mike Smith:
Yeah, I think so. He was an investor for his whole career and I was an operator for my whole career. We felt like for early stage investing and being able to support founders at this stage, we had very different skillsets, but we thought were creative to helping founders in their journey. He grew up in the UK for the first 13 years of his life and then lived in the Bay Area. I grew up in Virginia and then moved to the Bay Area, but there were this underlying, excited and inspired by the tech ecosystem and the innovation and the learning and the risk taking that comes from specifically being in the Bay Area as long as he had been... We both had coded before. There were these continue to find these through lines of consistency in some of the things that we felt were foundational principles in starting the firm, but very different operating experiences.
Nikhil Basu Trivedi:
And just styles in general. I think one of the things we realized is, I am quite micro in decision making. I like to dig into the data and to gauge product market fit. Maybe that’s my initial instinct on every opportunity, whereas Mike is perhaps more macro thinking about the market or the founder, the bigger picture. From the questions to then simulating investment decisions by making angel investments together and treating every conversation with the founders if we had a firm together already before we decided to do this.
Turner Novak:
Were you guys tag teaming calls, joining at the same time?
Mike Smith:
Yeah, absolutely.
Nikhil Basu Trivedi:
Actually, I was thinking about it. I wish we’d made a few more investments now in that window because we saw some amazing companies in that period, even ones that have survived the craziness of 2020 and 2021. But yeah, we made, I think, six angel investments together that year as we were experimenting, and we could just tell that we had different styles, we asked different types of questions, but that the whole was greater than some of the parts.
Turner Novak:
Do you remember an example maybe of one of those times where you really unearthed that? Maybe when you invested in Banana Capital Fund I, and you guys broke it in, you saw how amazing you worked together?
Nikhil Basu Trivedi:
Well, obviously, Mike had known about 200 for a while as being the biggest Stitch Fix ball out there.
Turner Novak:
Yeah. We need to talk about that.
Mike Smith:
Thank you.
Turner Novak:
We’re talking about this.
Mike Smith:
Sounds good.
Nikhil Basu Trivedi:
I think I remember when we... We made our first investment in the fund together during that period. The first company that we decided to put into the fund, a company called Table22. What Table22 does is it enables merchants such as restaurants, bakeries, wine shops to offer memberships to their patrons. It’s a B2B2C platform.
Turner Novak:
Why is a membership important for something like that?
Nikhil Basu Trivedi:
Yeah. That concept of patronage of having a member that comes to your shop, maybe get something every month, but it has some special benefits from being a member. Maybe you remember their name every time they walk in the door, you give them something special every time they show up. That’s been the way a lot of these merchants have worked for many years, but many of them haven’t actually monetized that and formalized the relationship with their patrons. Then it can actually be the best part of the P&L for these businesses.
Turner Novak:
These are like a subscription stream as a restaurant.
Nikhil Basu Trivedi:
Exactly. Table22’s built a really great business in that concept. I’d actually written a few blog posts around this thesis area of business in a box, had invested a number of consumer subscription businesses. Had a very prepared mind for this company. Actually, Cole reached out to the founder. I realized I’d known him in his prior company, and then Mike and I, came together to get excited about it. I think even in that analysis, we got excited about different things. I probably got more excited about the thesis, and Mike got more excited about the founder, Sam. That’s one example that jumps to mind of how we made decisions.
Mike Smith:
I think that the other thing in using Table22 is a continued example, which is I had been in physical businesses with Walmart.com and Stitch Fix for a number of years, and obviously, running a restaurant and then having this new revenue opportunity show up in doing things outside of the day-to-day restaurant hours and having people pick up or having Table22 deliver, is a physical business that I understood the risk with that and also, the upside with that can come if you do that extremely well. To Nikhil’s point, I think we approached the conversation, the diligence, the decision making from different angles, but hopefully, these things make us better and help us make better decisions about whether it’s a great investment for quote work.
Turner Novak:
Are there still things you guys are working through in terms of how you work together? Because it seems like you’re totally different, just like everything you explained, there’s no overlap almost, or maybe there is, but.
Mike Smith:
Well, I think the overlap is the core values and principles and aligned on how we want to individually show up, how we want to show up as a firm. One thing I had to work through, I feel like I’m starting to get some rhythm to this, is just this is a very different pace and very different rhythm than operating a company. It is not as process driven. It is you have to hustle, it’s extremely competitive. I woke up every day for 18 years competing against one of the biggest competitors out there in Amazon, but I think what is interesting about this job is you’re competing against not just one competitor or one style. You’re competing against all sorts of very, very talented people, amazing firms. The people that we want to compete against are the top tier firms. And that is a different rhythm and different way I had to show up every day. And so stylistically, I had to pick up the pace and really understand the rhythm of venture. And I was lucky enough that I had folks that had been doing the job for a long time. They happened to be more famous folks like Jeff Jordan that had spent time with me as I was making the decision, and Bill Gurley and James Slavitt and Alfred Lynn.
And they had been at amazing firms. Many of them had shifted from operating to investing. But they can tell you all that is required to understand the pace and rhythm of venture versus operating. But until you do it, you don’t really understand.
Turner Novak:
Because don’t some people say it’s like retirement, when you become a VC?
Mike Smith:
I knew that wasn’t true. I had one of those four said to me, “You know this isn’t a vacation or retirement job.” I knew that that wasn’t true because I’d worked closely enough with him and the people that I respected the most I knew were busting their tails to do the job. So I wasn’t that naive or even walked into a thinking that. I remember early in our relationship where we met a founder that we both really liked and Nikhil’s like, “Hey, we need to go visit this founder at their place in San Francisco today.” And I was like, “I don’t think we need to go today. Why today? Why don’t we just do it on Monday?” And he was like, “No, today.” And I couldn’t move things around. So he ended up going that day.
And you just realize, when your instinct is, this is a really interesting founder, an amazing business, the answer is now and go today. And that just isn’t something that I had practice with or muscle building for that I do now. Because you just understand, you cannot wait. When you hear some of the best firms and the best investors and the way they operate, and grateful for podcasts like yours where people share how they operate, you’re like, “Wow, if we want to be competing with and against the best, we need to have a now mentality.”
Turner Novak:
So is there a reason you feel like founders usually pick you guys if you’re truly like, “What are the most consequential term sheets being signed this week or next week?” Why do you think people pick you versus probably thousands of choices out there, really?
Nikhil Basu Trivedi:
I think both of us have actually been pleasantly surprised about our ability to win in this first four and a half, five year period. I think we’ve won more than-two thirds of the times that we’ve given a company a term sheet where the founders have decided to work with us. And almost every time we’ve competed against great firms. And so, what are some of the reasons? I think one is, because it is just two of us, we can move really quickly. And so we’re very often the first to have conviction about a company, to give the company a term sheet. And I think that independent conviction does matter to a set of founders and shows up differently than the many firms that are waiting around for something to become competitive before they dive in.
Second, we actually really showcase our thinking on the business as we get to know it. And so we will share our investment thesis with the founders. We’ll tell them, “Hey, here are the questions that we’re debating internally. Here are the things that we’re getting excited about. But here are the things that we see as the risks. What do you think?” We have a version of a mock board meeting that we do with almost every company before we invest so that they can get to see...
Turner Novak:
This is before you even give them a term sheet?
Nikhil Basu Trivedi:
Yes, yes. And sometimes after we’ve given them a term sheet, but usually before, because it’s a great test for us, what will they be like to work with? And we think it’s a great mutual test for them to be able to see what we’d be like to work with. I think another thing that really resonates with a set of founders is that they get this combination of both operating and investing experience when they work with us. And both Mike and I, because we don’t make that many investments every year, we can actually show up for every single one of our portfolio companies. We will both join the board meetings of the companies for the first year after we invest, which is a unique thing that you actually do get both of us.
We never think about, is it Mike’s investment or my investment? We don’t even know how to delineate the portfolio internally. So every investment is our collective investment, and they do get both of us. And, again, that matters for a set of founders. And then I think, finally, fourth point here. So first was speed. Second, thoughtfulness and showcasing our thinking. Third, they get this combo, both of us. And then fourth, I think so much of this business ends up being about the human aspect of it and the relationship between founders and investors. We’ve always met a company in person before we’ve invested, so we’ve tried to really get to know the founders and other people on the team as people.
And so very often just founders opting into the trusted relationship they feel like they’ve already built with us, feel like we’re the people that they want as part of the journey for the next many years, that’s what puts us over the edge. Would you add anything else, Mike, onto that?
Mike Smith:
No, I think those were well covered, but I think all four of those need to show up with intentionality, with thoughtfulness. And I think we do a pretty good job of all those, but nothing I would add.
Nikhil Basu Trivedi:
Yeah. There’s a few other tools in the toolkit maybe we don’t have to disclose publicly, but we try to actually add value to the business before we invest and showcase that.
Turner Novak:
You can’t say there’s other things and then stop. I mean, give us at least one thing.
Nikhil Basu Trivedi:
Well, one thing I’ll just share is, we have a document that we write up about how we’ll work with the company that usually we end up sharing with the company. And so that’s our one-pager, our sheet on why Footwork, and we tailor that to every single new investment.
Turner Novak:
So what’s usually on the list?
Nikhil Basu Trivedi:
Well, it includes some of the things I just tried to discuss. And then, specifically to that company, are there people in our network that we think will be very valuable, potential customers, potential hires, based on the conversations and the back and forth that we’ve had as we’ve gotten into the business, here are the things that we think are going to add it to you and where we can actually be added.
Mike Smith:
Yeah. I mean, I think there’s a level of diligence even in these fast processes of getting to know, as Nikhil referenced, more people on the team. What are their strengths? Where do they want to develop? And then, are there people in our ecosystem that would do anything for us that honestly would also be mentors potentially, not on a monthly basis and generally it’s like a couple times a year, but being able to articulate, “Hey, we care about you both as founders and this duo, but we also care about the development of your team and we care about being able to map people in our ecosystem that we think could be good thought partners and good mentors for them.”
And I think that’s gone over well because, as Nikhil referenced, they end up sharing the doc with the broader team and the broader teams gets to see, oh wow, this firm really cares about us as a company and not just the founders.
Turner Novak:
It’s really interesting how when you talk to maybe just an engineer, they’re like the 10th employee of the company, the investors are these mystical investors.
Mike Smith:
Yeah.
Turner Novak:
“I’ve only met them once,” or something, or they were in the office the other day, but you didn’t actually get to know them. But one thing I found is anytime I find someone like an employee joins a portfolio, I just add them on LinkedIn. I’m like, “Hey, Jacqueline mentioned you’re joining next week. I’m an investor. Let me know if I can help.” You just try to meet them if you can.
Nikhil Basu Trivedi:
Yeah, love that idea.
Mike Smith:
Yeah. I mean, we are very involved in hiring key folks on teams. And I think the feedback that we get consistently is for that candidate, even if they’ve been at an early stage company before, they’re like, “This is the first time I’m ever meeting an investor.” And I appreciate that the investor cares enough about the company-building side and cares enough about me as a person to actually spend time in the interviewing process. There’s bidirectional benefits to that.
We’re evaluating that candidate, but we’re also able to sell the candidate with a broader portfolio of what we’ve seen works and doesn’t work. And we’re intellectually honest about the strengths and the opportunities of any opportunity that they’re joining. And I think they really appreciate that and it’s different than a lot of other firms.
Turner Novak:
Do you guys know why more investors don’t meet the employees of the companies that they’re investing in? It seems like a probably should.
Nikhil Basu Trivedi:
Totally. I don’t know. I’m constantly shocked by how few investors spend time when they’re thinking about the investment getting to know more than just the founder. We see it even in our portfolio companies that go out and raise the next round, that the investors are not asking to meet with more of the team. Whereas we met all three, four co-founders, we met a couple other people on the team in a very short period of time. Maybe it’s just that so many folks have a bunch of different priorities.
And I think each slot for us is so precious that we think really carefully about each decision, the opportunity cost of each decision. And so it does seem that other firms treat those decisions and then treat how they help the portfolio after they invest a little bit different.
Mike Smith:
Yeah. I mean, I think it’s just a different level of diligence, that’s one, but one perspective I was also going to share is, I think on the company side, having been on the company side, there’s many founders that they just want to run their process. They don’t want to involve the broader team. They just want to like, “Hey, I’ll be in charge of fundraising. You be in charge of doing your job and building product or helping run the company.” But in almost every case, when we ask to meet with broader people on the team, we get granted that.
Turner Novak:
They’re usually free because no one else is asking.
Mike Smith:
Yeah, I think because no one else is asking. And, again, I think the founders, the smarter founders also see the benefit of having the team feel like, “Oh, it’s not just me, the founder, that cares about them. It’s this broader group of people that are all going to help me be better in my job and help us succeed.” And so I’m surprised people don’t do it also, but I do think there were reasons on the company’s side why you might look at it as like, “Well, why would I want to waste that engineer’s time? I want them just to code.”
Turner Novak:
Yeah. I’ve had probably a third of the companies I’ve invested in, the CTO will be like, “You’re the only investor that asked to meet me.”
Mike Smith:
Amazing.
Turner Novak:
And I’m always just like, that’s sad, I feel like.
Mike Smith:
Yeah.
Turner Novak:
I don’t know. But yeah, it definitely feels like a level of trust. There’s definitely cases where you go and get dinner with them, you’ve already met the CTO before, and they’re excited that you’re the investor that they’ve met and that they know.
Nikhil Basu Trivedi:
Totally. I think, in general, the better the founder, the more secure the founder, the more excited they are about having an investor meet more of the team.
Turner Novak:
It might be also, maybe I’m hyping us up, maybe we’re just in a privileged position where the founder’s okay introducing us to the co-founders. Because maybe some investors are like, “I don’t know about that.” Maybe, I don’t know.
Mike Smith:
Well, I mean, I do think a superpower or strength of ours, maybe not superpower, is that we do care and we are human. And one of our pillars of the firm is relationships that are human, not transactional. And I do think in cases of meeting people, we hopefully show up that way. And I think that that then earns us the right to get broader access and hopefully make better decisions as a result of that broader access.
Turner Novak:
And one thing I wanted to ask you guys about, so when you first started the firm and you announced it, it seemed pretty clear we’re doing this equal partnership. There’s two of us. There might be more people in the future. It’s still just the two of you that are the GPs. How has this evolved over time? You’re both nodding your heads.
Nikhil Basu Trivedi:
So our entire investment team is still just Mike and me. We have five people in the company, so we have three great folks on the operations side, but investment team is just the two of us. I do think that has also shown up differently in the market and helped us move more quickly on decisions, helped us win over companies in a number of instances, the fact that it is just the two of us. But our original vision was to build a firm that is more than just the two of us. And we continue to think about that every week. Since we started the firm, we’ve had several people who we’ve gone really deep with to see whether or not they should be the third GP here, and we just haven’t quite gotten there with anyone. But that is still our hope.
What we’ve realized is, in the same way that Mike and I got to know each other really well before we did this, we have to get to know that person really well. They also have to be entrepreneurial, excited to go re-found the firm with us. And so the bar is very high for who that person is, but we’re hoping that it does come together with somebody else in the next several years.
Turner Novak:
Is there anything in particular you really want to add or that you haven’t quite gotten there on some of the people you’ve looked at?
Mike Smith:
I mean, I think the thing we want to add is someone that is accretive to the firm, that pushes us in different directions, that has either the way they invest or the way they think about markets increases the surface level and surface area of where we can invest. It’s not particularly helpful to have someone that thinks like us. We want people to push our thinking. And so I think that’s the most important thing to seek, is someone that’s going to take us from what we think is on a track of being a really great firm to actually being a really great firm.
Turner Novak:
I know there’s this whole, the more people are in the partnership, the more you might disagree on something. So it maybe begs another question of, how do you guys actually make decisions? Let’s say I’m like, “Hey, you guys should meet Footwork. They’re an awesome fund. You should talk to them.” I introduce you to some founders. What happens from there?
Nikhil Basu Trivedi:
Practically, one of us has to get really, really excited about every investment that we make. We actually rate companies on a one through four scale, four being strongly supportive, very excited to make the investment, one being strongly not supportive.
Turner Novak:
I will leave the partnership if we do it.
Nikhil Basu Trivedi:
Very, very unexcited. What we’ve said is that, at least one of us has to be a four, obviously, and we are okay with one of us being a four and the other being a two and still making the investment. In reality, in the last four and a half years, in most cases, both of us have been a four. In a number of cases, one of us has been a four, the other has been a three, and we’ve still moved forward with the investment,
But we are very comfortable with disagreeing and committing because we respect the other’s judgment, the person who’s super excited about the spikes in the investment, feeling like we have to make the investment. And I think that that approach fits in nicely with the idea of having three or four GPs one day versus just the two of us. There are things though that would have to change as we grow the partnership. Right now, we can just call each other and make a decision. And what you realize going from two to three is it’s harder to have that happen because suddenly it’s a three person group call.
Turner Novak:
Yeah. That same day, we got to go meet these guys, that continued to get harder.
Nikhil Basu Trivedi:
Exactly. And the node between each person has to be really strong for it to work. And so that’s why the time that we’ve spent with potential people has been a lot of time, it’s been intense time, and will continue to be to hopefully find the person that we want to do this work longer term.
Mike Smith:
One thing I appreciate connecting two dots as you’re talking about this idea that we would do a four-two investment where someone goes a two is, even though there’s only been a few where we’ve been four-threes, after the investment, we do not talk about who was the four and who was the three. We don’t talk about if something’s not working in a company, like, “Hey, why were you a four in this case?” It is a Footwork investment, and whether it’s working or not working, we are all in on helping that company figure it out. And so I do appreciate that about the core values of the firm, of the idea of teamwork and no attribution.
Nikhil Basu Trivedi:
And, in fact, I would say we’re accountable in the other direction and we probably spend more time thinking about ones that we didn’t do and which one of us was less excited about that company and why we therefore didn’t do it.
Mike Smith:
Yes.
Turner Novak:
So thinking about how you not make the mistake in the future?
Nikhil Basu Trivedi:
Exactly. But for sure, every time we’ve done something, we have been all in.
Mike Smith:
Mm-hmm.
Nikhil Basu Trivedi:
And I think you’re right, barely ever talked about.
Mike Smith:
Well, and I think that’s where it’s more challenging for other firms to behave that way.
Nikhil Basu Trivedi:
Yes. For sure.
Mike Smith:
But if something’s not working and I said it was the best investment ever, I think it’s hard for you to trust my judgment, it’s hard for you to support me in helping that company.
Nikhil Basu Trivedi:
I think too many firms have just such a short-term view of “performance” and who gets the credit versus realize this is such a long-term game to ultimately have returns.
Turner Novak:
So why do you think that is?
Nikhil Basu Trivedi:
Well, I do think there’s just a lot of incentives that lead to that. If you gain more power in a firm, you can bring more people aligned with you into the firm. You can have more economics in the firm. You have the ability to do it for a longer period of time. And so a lot of these dynamics show up within partnerships over time. Unless you are very intentional, I think, about trying to be a certain way, it’s very easy to slip into a different motion.
Turner Novak:
So you think that politics, internal politics, you might think of for a large corporation, like a big company, is actually much more prevalent in venture capital firms than most people would appreciate or realize?
Nikhil Basu Trivedi:
100%. I mean, just look at how many changes have happened within venture partnerships in the last couple years, as one proxy for that. And not just bigger firms where people have left, but even small firms, DUOs that are now single managing partners.
Turner Novak:
For somebody who’s hearing this for the first time, what usually plays out in some of those situations? How do these things develop? Maybe if I’m a founder navigating this, there might be some things bubbling below the surface I should keep in mind when I’m choosing who I should work with for the next decade or two. What are maybe some things to just think about and try to observe and keep in mind as I’m making a decision?
Nikhil Basu Trivedi:
Yeah, I think that’s a great question. I mean, I think looking at asking questions as a founder, how do you do attribution? How do you decide who gets credit for something internally? Is that a system that you have? How do you decide?
Turner Novak:
So why is that one a big deal?
Nikhil Basu Trivedi:
Well, because that typically governs someone’s longevity at the firm. And so if you know that someone at the firm is the person who did the Cursor investment and Cursor is working incredibly well, then it’s very likely that person is going to be at the firm for a longer period of time than someone who doesn’t get credit for that investment. And so I think understanding how attribution works, how the firm thinks about whether or not someone’s going to be here for many years, the challenge is that everyone puts their best foot forward in the sales process as they’re trying to win an investment. They’re going to tell you everything that you want to hear as a founder versus the truth.
And so you have to look at their actions over time to really judge them, or you have to talk to someone who’s more unbiased. Maybe it’s one of your existing investors who has the intel. And so I think those are some things that you can do. But I think it’s a great question because not enough founders have probably thought through this, especially for the person that they’re going to have on their board and the relationship they’re going to have with the firm if, in a success scenario, it’s 10, 15 years of working together.
Mike Smith:
Yeah. I mean, using Nikhil’s language from earlier, I think the best founders have other founders that are further along that they ask questions of like, how did you pick that board member? I think the best founders do back channel references on the partner themselves.
Turner Novak:
Not just the firm?
Mike Smith:
Not just the firm. Because, honestly, the truth is, I don’t know if it’s a spicy opinion on this, but I do think firm matters less than individual. To Nikhil’s point, is that person going to stay at the firm?
Nikhil Basu Trivedi:
Well, especially the way most firms work, where you’re working with the individual.
Mike Smith:
Exactly.
Nikhil Basu Trivedi:
Versus we actually do both work every company.
Mike Smith:
Yes.
Nikhil Basu Trivedi:
That’s very rarely how it works at other places.
Mike Smith:
That’s very fair. And so I think I once took a call from a founder who was making a very big decision about who was going to lead their Series A. They were lucky enough that they had term sheets from three amazing investors, and they wanted to know what a particular investor that we had worked with, “What’s that person like over the five years that you’ve worked with them? What are they like in the boardroom when you’re having a bad day or you don’t make numbers? What is their behavior?” And I think those founders that do that bidirectional diligence and are really trying to figure out, “Do I want to be in a marriage or in a relationship with this person for a decade?”
They’re doing that kind of work because they understand the gravity and the importance of the decision of who they’re going to allow on their cap table. And I would encourage all founders to do that because it is a big, big decision.
So I think, not enough founders take that process as seriously as I think they should.
Turner Novak:
Yeah. It’s probably like what sort of, I guess, help you’ll get from the group of individuals or what sort of support or care focus you’ll get.
Because I mean, there might be some cases where we can think of the biggest, most politically bureaucratic firm you could possibly think of that actually you do get a lot from. And they have a big team that they add all this value in all these different ways. And the firm will actually throw the support behind you, but that’s probably if they know they’re going to make money from helping you.
I feel like it’s pretty transactional in that sense of like, “We know that you’re doing really well, we want to invest more, so we’ll help you because you’ll let us put more money in-
Mike Smith:
I mean, very few companies have this up into the right, very linear journey. And so you go through these periods of being in a trough or going sideways. The other thing I was thinking about coming into this is founders get pretty worked up and I understand about valuation at each stage. Very few companies have this perfect valuation. Every round they did was something that they were excited about doing.
Turner Novak:
Yeah, Facebook did a 40% down round in 2008.
Mike Smith:
Yeah. And so what you have to as a founder really think about is like, “Who are the people around the table when I’m going through these troughs? What is their behavior when I’m going through these troughs?” Trying to really understand, “Are these people that really have my back and have the company’s back?”
Versus or thinking about either their next fundraise or thinking about their own position within a firm. That’s not particularly helpful to the founder or the founding team.
And so I think you can’t obviously uncover all of those questions as you’re making decisions about who you’re going to allow to lead your series A, but you can do more work to try to figure out again, what are they like on their most challenging day?
That’s a question that I encourage founders to ask about us and also ask as they’re considering other investors are inviting onto the cap table and treating it like it’s an invitation on a cap table without too much ego. But again, we are lucky for the best founders and the best companies to be a small part of their journey.
And the founder needs to understand, again, the length of time and making sure that they’re inviting people into the party and onto the cap table that they actually want to spend time with and actually can add value in these moments when they’re trying to be great.
Turner Novak:
This maybe begs a question talking about challenging moments. What’s been the most challenging moment or period or thing about either starting your own firm, outfit work? Are there anything that’s just way more challenging than you would’ve expected?
Nikhil Basu Trivedi:
I would say the thing that first comes to mind for me is because it is just two of us, we can’t possibly see every company that we wish we could see and-
Turner Novak:
It’s kind of random and lucky. Just someone thinks of you in a certain moment and you don’t know what’s going to show up sometimes.
Nikhil Basu Trivedi:
For sure. We try to do the input work that leads to it being less random, but you’re totally right. There’s a massive amount of serendipity and luck that goes into just sourcing the next investment and you actually have to maximize the surface area for serendipity for it to happen.
But I think that’s the area that keeps me up the most. Now, we do calendar audits to figure out like, are we spending more than 50% of our time on finding the next investment? And we’ve been pretty consistent for a long time now of actually hitting that input metric.
Turner Novak:
About 50% of time is on sourcing. Okay.
Nikhil Basu Trivedi:
Yeah. So the principle behind that is we’re only as good as our next investment. We need to be spending the majority of our time finding the next one. And we can’t just get bogged down in firm building related stuff or portfolio work. We have to always be thinking about the next one.
So we have little analysis such as that to try to drive the right inputs, but it’s still, I think the hardest thing about starting a new firm, about it only being two of us, about us wanting to be a great firm that many founders put on their list of the 10 firms they want to go to for their CDO Series A is just that top of funnel.
Turner Novak:
Yeah. And I think this might be an interesting time to talk about what is a footwork founder? Does that makes sense. What’s the things you guys think about? And I mean, I know you have a pretty big track record of like greatest hits. Mike, a little less just because you weren’t doing it full-time-
Mike Smith:
I was not.
Turner Novak:
... as much, but maybe there’s certain things you guys think about today throughout the course of your career, what you’ve picked up on of what makes some of them great.
Nikhil Basu Trivedi:
I mean, there’s several characteristics we look for. I think when we started the firm, we had these three characteristics that we publicly talked about, founders that are hungry and humble, founders that know their business inside and out, founders that are magnets for talent.
I think some of the things that have evolved over time are this premium that we place today on a founder’s slope of learning and how quickly they are able to learn and iterate on the business because in this AI era, and obviously the ChatGPT moment happened post our starting footwork. And so the last three years, majority of the investments that we’ve made have been AI first companies.
But we think because of how quickly that world of AI is moving, founders that are able to learn and adjust more quickly, you could say have really strong footwork themselves is just a super important gene for them to have.
And so that’s something we probably face a premium on today.
Turner Novak:
How do you gauge that? Because you’re meeting someone, got to move quick, make a decision in a week. Is it, oh, they got so much more in last week.
Nikhil Basu Trivedi:
Yeah. Honestly, it’s a little bit of that. I mean, you can tell if someone seems like they’re growing and changing, evolving even in the span of a couple meetings that you have with them. There’s questions that we try to ask about what has changed in the business or changed in your thinking about the business even in the last couple of weeks or let’s say in the last quarter.
Actually, one of the benefits of getting to know more than just the founder is understanding the founder better in the lens of the people they’ve recruited to the company and what they’re like and as a proxy for the broader team, as a proxy for the things that the founder cares about.
Turner Novak:
Yeah. I’ve definitely had that before where you maybe meet the co-founder and you get a little bit colder just based on how the conversation went.
Nikhil Basu Trivedi:
We’ve had the opposite, which is we actually get warmer.
Mike Smith:
Yeah, that’s correct.
Nikhil Basu Trivedi:
I can think about several examples in our portfolio today where we were impressed by the founders CEO, but we got super excited to spend time with their co-founder. And then, yeah, Mike, what else would you say are some of the things that we-
Mike Smith:
I mean, I love a couple of the questions that you’ve introduced, which is, this is act one of your business today. What is act two and act three?
The fact that you actually are asking the founders to think about, you might have some product market fit today, but to build a category leading company that actually has a chance to go public, you will have multiple acts.
And I think the best founders have given some thought, even though it’s not super cogent to what those future acts will be. So that’s one that I think is a tactical question we ask.
Another one we ask is, if there were a couple of challenge topics and we’re going to, as Nikhil referenced before, we’re going to simulate a board meeting, what would those challenge topics be?
So what we’re looking for is vulnerability and actually things that aren’t working in the business, but also that they’ve already thought through some of the ways that they are going to fix this thing and they want just some thought partnership along the way. That’s another question or set of questions that I think help us evaluate the slope.
And the third one I’d say, and you have to be careful about this one, but most of these founders have a deck and they’ve presented a lot and they’re very-
Turner Novak:
It’s like a script of-
Mike Smith:
Yeah. And so what you want to do is to test some of the script, not be rude, but ask a question as they’re going through the script to see how they adjust to that question on a slide that you have on go to market or on the financials, just to see, are they able to shift out of the script and into really thoughtful point of view? And so that’s a third thing that I think we try to do to just evaluate against slope.
Turner Novak:
And it’s interesting when you think about the evolution, how you get stronger as a founder. Nikhil, I know Canva, you invested in their seed around. This was 2013.
Nikhil Basu Trivedi:
2014.
Turner Novak:
2014. I mean, LLMs weren’t a thing. It was eight years pre LLMs. But when you use Canva, there’s quite a few AI generation features inside of it. They’ve obviously benefited from it. And it’s you first off don’t even know that AI is a thing. AI wasn’t invented in 20... It didn’t exist in the same context, but then being comfortable of like, oh, they’re appropriately taking advantage of and continuing to evolve over time.
Nikhil Basu Trivedi:
I mean, I think that founders that are just so obsessed by the product about making it better, about continuing to have some sort of a competitive advantage, not just resting on their laurels and resting on things that are working, that’s the type of founder that we just absolutely love working with.
And the hard thing is that I think many of the best founders that we’ve worked with, it was very difficult to tell from their resume that that would be the case.
You look at Mel and Cliff at Canva and there was nothing their resume having grown up in Perth, having started a yearbook company and then a software company around design that they would be that way.
You have to actually spend time with them and understand them and sort of question them to get that out of them.
Turner Novak:
Do you remember what spiked back when you first met them and were making the decision?
Nikhil Basu Trivedi:
I think the thing that was pretty amazing about them in retrospect is the level of ambition that they had from the early days.
Turner Novak:
Even as a yearbook design-
Nikhil Basu Trivedi:
100%.
Turner Novak:
... software?
Nikhil Basu Trivedi:
They were talking about taking on the whole design market, going after more companies like Google and Microsoft than Adobe, even from-
Turner Novak:
Enterprise design tools, in the sense of instead of using Google slides, you’ll use Canva.
Nikhil Basu Trivedi:
Yes. So being the design software product for non-designers and how big of an opportunity that is, much bigger of an opportunity than Adobe. People always put Canva and Figma and Adobe in the same breath.
Turner Novak:
Yeah. I don’t even think Figma and Canva, they have maybe 1% customer-
Nikhil Basu Trivedi:
Exactly.
Turner Novak:
The use case is not the same.
Nikhil Basu Trivedi:
Canva’s a much closer business and total addressable market to Google and Microsoft. It’s the everyday person’s work suite, much like the G Suite or Office.
Turner Novak:
They have video editing tools. I actually, the intro for this podcast episode, my wife made it in Canva.
Nikhil Basu Trivedi:
Perfect, yes.
Turner Novak:
And they have documents also. It’s literally like the productivity suite you would use for doing professional work. They have it all at this point.
Nikhil Basu Trivedi:
And they were thinking that way in 2014.
Turner Novak:
So did people just-
Nikhil Basu Trivedi:
Despite having gotten nos from a lot of investors, worked on the thing for a long time already. Now what they had is they had six months post launch where things were going pretty well and users were growing 30 to 40% organically every month. They were at about 100,000 monthly active users when we invested.
So something was working, but the level of ambition they had for what it could become was pretty amazing. And it was almost... I mean, we talk a lot about founders have to be crazy to go build something really big. What you don’t want is for a founder to be delusional, but they have to be crazy.
And there’s a spectrum between crazy and delusional that Mike likes to talk about that every founder is on. And so what I remember vividly from that first meeting actually is they seem kind of crazy to me, like two founders who are here from Australia who-
Turner Novak:
Surfers.
Nikhil Basu Trivedi:
Yeah. A bunch of people have passed on, kite surfing-
Turner Novak:
Yep.
Nikhil Basu Trivedi:
... but huge ambition.
Turner Novak:
So Mike, that maybe begs the next question is just like, how do you decide? Because all investors see these decks where it’s like the TAM is, it’s crypto, it’s $10 trillion TAM. How do you decide maybe that’s a little too crazy?
But this design software that competes with a Google and Microsoft or this box that shows up with a bunch of clothes, it’s going to compete within inCommerce. How do you just delineate between too crazy and truly ambitious that could actually work?
Mike Smith:
Yeah. I mean, I think on the market and the product, I’m pretty a wide spectrum on what can be crazy and actually delusional because you do want people that are creating these category defining companies.
Turner Novak:
That’s how you build a big business. You have to be in the market.
Mike Smith:
That is exactly how you build a big business. And so I like to hear it all. I mean, there’s certain areas where we don’t have certain expertise or interests or can’t add as much value, but for the vast majority of companies in technology, specifically in AI, we actually think we have a right to be good partners to those businesses.
And I think we’re looking for almost the craziest stuff in terms of what their ambition to Nikhil’s point, what their ambition is for what they want to build and the why they want to build it. I mean, it can’t just be, I was doing some market research and read this McKinsey report on how there’s white space here.
It needs to be some acute challenge that they really wake up every day thinking about why they deserve to be in the world. And you can feel that in a meeting with a founder. It’s like, are they going to wake up every day and say, “This is my mission and this is my reason for being.” And can they attract similar enough people to that mission and that craziness to build a huge company?
And I think most of the best founders, you see that. I mean, one of the things people ask me about is like, “Why did you join Stitch Fix when it was just four people? What was so special about Katrina Lake, the founder?” And that Katrina shows up that way.
She shows up on a good part of the crazy to delusional spectrum. She knew her business throughout. She wanted to have a completely different shopping experience. It felt like data science was an amazing way to do that efficiently and effectively. And she built this amazing company for nine years that she was the CEO and founder of.
And you could just tell in spending, we spent multiple cycles together before I decided to join that she was a very, very special founder.
Turner Novak:
So why did you decide to join? Was there a certain thing that tipped you over the edge?
Mike Smith:
I think it was like 75% her. And what I appreciated about her is that she was intellectually honest about what she was good at and where she wanted help. She was super clear on the vision. If I think back to the first conversation I had with her on the vision for Stitch Fix and what transpired over, again, a decade of working with her, it was pretty aligned.
There weren’t like bumps in that vision road. She was like super clear on what she wanted to build, which then as you get hit by fundraising challenges or just the growth, it went from zero to $2 billion run rate in nine years.
In a physical business that is very hard to do and there’s challenges with growing that fast, but she stayed super consistent on the vision of what she wanted to build. And that consistency was something that showed up early in my conversations with her.
And the last thing I’ll cite is slope. I mean, I didn’t call it slope back then. I just talked about it as raw smarts. But when you talked to her about the business and you talked about what was working and what wasn’t working, and when you talked about what’s the contribution margin today, what’s the gross margin today?
What’s the gross margin going to be five years from now when we’re at $50 million, which is what we thought we would be five years from now. It was a very different and higher number than that. She just had amazing answers for what was going to drive margin expansion and why this was a great natural business to build.
And that was something that I got very attracted to work with her and partner with her on achieving that vision.
Turner Novak:
And so what did you do? Because you had joined walmart.com.
Mike Smith:
I had been at walmart.com. I was chief operating officer at walmart.com, and I picked up my head to see what else was out there for opportunities. And there were some CEO opportunities, but there are a decent amount of COO number two roles with these amazing founders. And I met her and just was blown away by her and was lucky enough to join.
I think she was dating other people like Nikhil was dating other people and building a firm, but fortunately I won and was able to work with her for a number of years.
Turner Novak:
So what was the biggest challenge with Stitch Fix specifically?
Nikhil Basu Trivedi:
Are we going to get to-
Mike Smith:
Yeah, we should be able to. It’s the perfect time to ask him like, why are we used to this?
Nikhil Basu Trivedi:
Did you guys actually talk about Turner in your leadership team and how cool she was?
Mike Smith:
We did because Turner had an amazing following on Twitter and it was very loud and memeish and thoughtful, honestly, about it.
Turner Novak:
I tried to throw out all those sports categories.
Mike Smith:
So we had a good bunch of leaders that knew of Turner and we would talk about Turner in leadership and like how this guy’s so bullish on us. And it was inspiring to have someone that was in your corner. You had boxing memes, I think that you used to use and it did feel like you were physically in our corner.
Turner Novak:
We still use it. I mean, my daughters, their favorite thing is going and getting the Stitch Fix box.
Mike Smith:
Is that right?
Turner Novak:
I think we get it quarterly.
Mike Smith:
Okay. Right on. Yeah.
Turner Novak:
And they like the app where you can pick what you want. It’s their favorite thing to do with grandma.
Mike Smith:
It’s an amazing business. I still am really proud of what we were able to accomplish. I think the biggest challenges in the business, one was just scaling that quickly is hard. As I referenced before, it’s like we had at the peak when I was there, 5,000 stylists, those were the people that would pick the last five things that would go on your fix.
We had 3,000 people in warehouse operations across five different warehouses in the US and one warehouse in the UK. When you’re managing that large a team, it’s definitely not easy. I managed somewhere between 12 and 15,000 people at Walmart. And when you’re managing that many people, things break or it’s hard.
So it’s just managing that level of scale, that many people and just the growth. I mean, the sales numbers, just so you know, before we filed, were a million my first year, eight our second year, then we did 75, then 345, then 760, then 960 and file. So that kind of growth in five years is not normal.
Nikhil Basu Trivedi:
And with a ton of efficiency too, right? How much capital-
Mike Smith:
Yeah. We got to a cash flow positive on $17 million of capital and we only raised in private capital $42 million of capital. The last $25 million we raised we didn’t touch. And so yeah, it was very efficient.
I mean, part of the efficiency gets to the second point of the challenge is people didn’t really want to fund the business. We were-
Turner Novak:
Why not?
Mike Smith:
Well, I think part of it, I get it now being on the other side, some of it. Most of what I still get salty about. On the salty side, I feel like there were times when people dismissed her or dismissed the team.
This is where I do think going back to how we want to show up of engaged and ask good questions, I was a little to a lot disappointed by what I was seeing on the other side. We’d go to these meetings, people would be late to meetings, they would ask not that great a question.
Turner Novak:
What if Amazon does this?
Mike Smith:
I mean, that was one. Another one is like, Trunk Club’s just going to do this. And they wouldn’t listen to the data science machine learning aspect of it. They wouldn’t ask additional questions to try to understand how is that differentiated.
Turner Novak:
So it was real. There actually was some machine learning.
Mike Smith:
Oh yeah. We had at the peak, 152 data scientists and you could see in the data how getting more data and getting more scale and the way that the algorithm teams understood information that we were getting in the style profile and a checkout was driving differentiated performance in the business.
Turner Novak:
So you were like, people were buying more things.
Mike Smith:
Exactly. So you could see if they figured out this algorithm and made it work more effectively, the contribution margin would go up, LTV would go up. So you could drive direct impact from ROI of the investment you’re making in data science and machine learning to actual business results.
And so people didn’t really spend the time to get that in private markets or sometimes in public markets when we would talk to investors. So anyway, we failed to raise our series A as a result of people not liking the business.
We met with 65 firms, 60 of them I didn’t want to be in the same room with after I left for some of the reasons that I cited earlier. And we had to develop, do a bridge and figure things out. But to the efficiency point, we were forced after all of those meetings and being really close to the edge and like a few weeks from not making payroll to figure it out. How do I get this business?
Turner Novak:
Yeah. How did you bridge those weeks of cash?
Mike Smith:
I mean, we bridged it by having plans to reduce the team, but significantly. We were able to get a million and a half from one of our existing investors that allowed us to extend that a little bit longer. But the most important thing is we got really focused on gross margin and contribution margin and what we needed to do to own our own destiny.
Turner Novak:
Were they-
Mike Smith:
It was the same kind of stories that we tell some of our teams that are struggling now is like, “You can do it. You have to make very, very hard decisions, but you can do it.”
Turner Novak:
Were these periods where the top line wasn’t growing, so it wasn’t-
Mike Smith:
No.
Turner Novak:
... or was the contribution growth margins messy? So people were-
Mike Smith:
It was just when you’re buying inventory to fuel the growth.When you see the growth, that is capital that goes out to buy stuff that you wait for customers to buy it from you to get that capital paid back. We had great terms and it was a super working capital efficient model, but you still had to buy the clothes in order to ship clothes to people. And that was the biggest issue is you needed capital to do that.
Turner Novak:
So people were concerned if this is a bad run, you just run out of money.
Mike Smith:
Well, there’s that, but the reason where I did respect certain firms and people in particular’s opinion about the business is on two dimensions. One is we’re a venture capital firm, we’re writing checks between a million and $15 million. If we’re going to write a $15 million check, it isn’t easy to have half of that $15 million go to inventory versus developing product. We had some investors be like, “That’s not a business that I’m interested in. I’m interested in $15 million going to engineers and data scientists and not product.”
So I get that. And the second one was, “This is just not a business that I wake up every day super interested in. Women’s dresses is not a business that I’m super interested in as a business.” And you want investors, having been on the other side, to intellectually be super curious about the business and wake up every day thinking about, “How can I be helpful and where can I ask questions to help advance their thinking?” So those were two reasons that I totally could sleep at night and be fine with why someone passed.
Turner Novak:
Yeah. I probably told you this story at some point, but the way this came about, me tweeting about it, I remember I was just in a group chat of people sharing investing ideas and someone was like, “Turner, what’s your craziest idea of what could be a massive company that no one’s thinking about?” And I don’t know, Stitch Fix maybe, it could be.
Mike Smith:
Wow.
Turner Novak:
I think I was going to share it in this group and I was like, “I’ll just make it like a thread and tweet it out because people might find it interesting.” And it got really popular and it was basically just this thesis of you have the permission to just ship things to people and they just buy it.
And Amazon doesn’t have that and no other e-commerce provider really has that and I think has nailed it. So I kind of was like, “Well, if this does work, it could be as big as Amazon or bigger. You could displace them.” And there’s a ton of questions around you got to get there to do that. That’s a pretty big opportunity. And I just remember my mother-in-law, when she goes clothing shopping, she kind of freezes, doesn’t really know what to get. There’s just so many options. And when she would get Stitch Fix, she would just get most of it.
And it was kind of crazy. I was like, “Wow, you’ve solved that problem for her and she likes most of the stuff.” And then now with my kids, they’re younger, but they just get it all. They just buy all of it. And maybe you’ve solved the problem or maybe you’ve snuck in below the parents and the kids, it’s like a way for the kids to just spend and get new clothes that they maybe wouldn’t have otherwise. But it was just so fascinating. I always thought of it as the recommended bar on Amazon or any retailer, and you convert very highly on this recommended bar that you’re shipping to the people.
Mike Smith:
Yeah. We sat in a very privileged seat of being invited into someone’s home, not really knowing what you’re going to get in a category like apparel that’s very emotional. So you get invited into that home, but you have to deliver. I think there are entertainment brands that get invited in the home, there are food brands that get invited in the home, but there’s not a list of 100 companies that naturally get invited into someone’s home. The home is a very special place and it creates, hopefully, memories for your kids of opening those fixes. So we were very privileged to be able to be invited in there and worked really hard to deliver amazing experiences from that invitation.
Turner Novak:
Yeah. You can expand into other categories. You started with clothes, but I think you guys also do jewelry, I believe, and men’s, kids, and other categories.
Mike Smith:
Yeah, jewelry, shoes, tops, bottoms. It’s pretty-
Turner Novak:
Are you doing makeup yet? Does Stitch Fix says they do makeup?
Mike Smith:
I’m not on the board or involved in the company, so I don’t believe they’re in makeup, but yeah.
Turner Novak:
There’s a lot of stuff you can do.
Mike Smith:
There’s a lot. We would talk about a lot of different aptitude and beyond apparel because we felt this idea of building trust where you could get data from the customer of where their interests were and then delivering an amazing experience on the backend could be applied to a lot of different categories.
Turner Novak:
I think maybe one more question on Stitch Fix. I think Benchmark ended up investing.
Mike Smith:
That’s right.
Turner Novak:
They’re a pretty good firm. Was that in the series A or is it the C?
Mike Smith:
That was in between. When we failed to raise our series A, we changed the model of how we were going to do fundraising after we got the bridge. And it was Katrina’s brilliant idea, which was, let’s identify three partners that we would want to be in a relationship for the next 10 years. Let’s make sure that we felt they had the superpowers that could help us in our journey, and then let’s bring them under the tent and treat them like they are existing investors, treat them like they are board members, do mock board meetings where we would talk about these challenge topics that we were having in the business, and then we would evaluate what their thinking was like.
Not that dissimilar to the way we ask founders to evaluate us or the challenge topics that we asked them to weigh in on. We had these three more famous investors that we had picked, and Bill Gurley at Benchmark got very excited about the model and very excited about Katrina lead the investment.
Turner Novak:
Had he passed in the traditional sense before that?
Mike Smith:
He had not passed. He and I have this funny back and forth on this over the years because I’d interviewed with him for the Uber job with Travis, and I sent him a note when I landed at Stitch Fix and said, “Hey, I think you should take a look at Stitch Fix.” And he said something like, “We’re over 33 on all e-commerce investments, so no thanks.”
And I’m clearly not a good salesperson in that case because then six months after that email, he met Katrina and I ran into him on Market Street and he was like, “Oh my gosh, she is so amazing. Why didn’t you tell me this?” I’m like, “I clearly tried, but it failed. So I’ll take that. I’ll take accountability for that.” And then he got so excited about it as he got brought in under the tent and decided to lead the realm.
Turner Novak:
Wasn’t there some story about their EAs started using it and actually convinced the team or something like that?
Mike Smith:
I never really talked to them about that, but that is the story that’s out there that I think Bill has talked about a little bit, which is he was seeing end customer love. The same reason I joined is I met a friend of mine who was at Facebook at the time and she’s like, “Oh, you’re interviewing at Sitch Fix. There’s six of us that get our fixes on a certain day, and we all try on clothes together and we do trading during that day and we love the brand.” And this was early. There were like 100 customers or something. So to have six at a company that were loving the brand was also good, quote unquote, signal for the company could be pretty interesting, but Bill was getting similar signal from his cohort.
Turner Novak:
So actually Hunter Walk at Homebrew brought this up to me. He said, “Your office is right next to YC.” Any interesting stories with YC companies just being so close? I don’t know if there is one, but...
Nikhil Basu Trivedi:
So we moved to the Dogpatch and got our office, I think two and a half years ago, maybe just after YC also landed in the neighborhood. We have hosted YC companies off to the batch at our office, so we’ve got to know a handful of them pretty well. And then we have just seen in general a number of YC companies walking back and forth on our street and peeking in. And then I think probably each of us has overheard some interesting chatter from these companies over time. I would say the most interesting thing is just getting to know this handful of companies post batch and understanding the pressure cooker environment they’re in during YC and then how that changes post-YC.
Actually, we’ve made an investment in a company, Confido, that was a completely different idea during YC versus what it is today. So our belief is there’ll be a set of companies that during the YC batch take off and work really well, but we’re more interested in the companies that grind it out post-YC and maybe they find something that’s actually different to what they’re working on during YC because a lot of YC companies end up pivoting, and we’re very excited about that characteristic of company.
Turner Novak:
Oh, interesting.
Nikhil Basu Trivedi:
But it’s a fun neighborhood to be in right now.
Mike Smith:
Yeah. I want to give him some credit on this too because, I don’t remember, it must have been three years ago, where he was like, “Hey, we need to stop meeting at Farley’s and actually get our own office space.” And I think you felt really good about this space and how it was going to develop and it is really central to AI and innovation and it’s nice to have physical space as you see the neighborhood developing around us.
Nikhil Basu Trivedi:
Yeah. We didn’t realize that OpenAI was also going to move in pretty close to us, four blocks away from us.
Turner Novak:
Do you guys do any of those, someone’s leaving OpenAI and you just give them a blank term sheet to sneak in? You guys don’t do that?
Nikhil Basu Trivedi:
We haven’t done that yet, but we have gotten to know several people at OpenAI well. So who know what’s in our future.
Turner Novak:
Yeah, that’s fair. One thing actually that maybe is in the future, you talked a lot about consumer health earlier. You mentioned that’s something you’ve been thinking about as maybe a new area Footwork have kind of been exploring.
Nikhil Basu Trivedi:
Yeah.
Turner Novak:
What are you thinking about on consumer health?
Nikhil Basu Trivedi:
I think, rightfully so, the world is obsessed with what’s happening in AI right now, but I think if you were to press me and perhaps us on what’s a non-AI-first area that you’re really excited about, the first thing that comes to mind for me is consumer health. When you look at what’s happened in the last five years post-COVID, many more people are thinking more preventatively, more proactively about their healthcare. We kind of all got educated in COVID by vaccines and masking and I think understanding our health at a different level. Secondly, you’ve had this wave of new drugs that have come out in the last five years that people have started to see a lot of benefit from, such as GLP-1s. Thirdly, you’ve got now a number of companies that have gotten pretty quickly to a level of scale in consumer healthcare.
I’m thinking about stuff in blood testing like function health, rhythm health. I’m thinking about telemedicine plus prescription services like HIMSS and Roe. So there’s a set of ingredients now in consumer healthcare that I think can yield a really interesting crop of new businesses, not to mention the intersection of AI and healthcare. You saw in the last couple of weeks, ChatGPT has now got a specific ChatGPT for health product. So we think there’s a ton of opportunity there and we’ve made several investments in consumer healthcare. A few that we’ve publicly announced, companies like Honeydew, which is in virtual dermatology care, but a few that we also haven’t yet announced that we’re very excited about and that are growing exceptionally quickly.
Turner Novak:
It’s interesting. I think healthcare is 20% of GDP. Some of it’s in insurance mixing around, but it’s basically like, “Can you just go direct to the consumer and can they make decisions?” And maybe it shouldn’t be 20% of GDP, but it should be like 10 or something. It’s still a massive chunk of what people spend money on.
Nikhil Basu Trivedi:
Well, sure. In some ways, you want people to spend less money on it because they are more proactive and competitive. But in that is an absolutely enormous opportunity economically and then just for our society more importantly.
Mike Smith:
This is what’s great about it is we’re all consumers of it too. So when you go to the doctor and you see how much work they’re doing that’s not care work. I don’t feel they’re getting as much joy out of the non-care work. They became doctors to do the care work. And there’s so much administrative things and insurance things, it sort of takes away from their joy in the job. And I think there’s still a ton of opportunity, I think, for technology and AI to have the jobs be more effective and more efficient and also have people get more out of their jobs as a result of where we can make investment there.
Turner Novak:
Is it true you guys once organized a flash mob to win a deal with this?
Nikhil Basu Trivedi:
I think what happened is a flash mob came around us when we were trying to talk through the term sheet.
Mike Smith:
It was amazing.
Turner Novak:
What happened?
Nikhil Basu Trivedi:
It was the only time, I think, that we, for a number of different reasons, were out in Salesforce Park in San Francisco and we were trying to give this company, Hood, a term sheet and suddenly people started dancing around us at the tables that we were at.
Mike Smith:
Yes. Andrew and Vic felt we had sort of engineered this to help our sales process and we did not, but I wouldn’t say it hurt. It helped us lighten the mood and bring joy, but it was maybe an inopportune time of talking about terms, but fun.
Turner Novak:
Yeah. Nikhil, what’s it been like being a dad? Two young kids, how’s it changed your views of the world, how you think about things, getting time for doing things?
Nikhil Basu Trivedi:
Yeah. I think it’s an incredible joy to get to have kids and I feel really grateful for my wife, Chandrika, and our two daughters. I think what is difficult is if you want to be a good spouse and dad and to show up for the family plus do this job at a really high level, it just takes everything out of you.
There’s been barely a day since we started Footwork that I haven’t been working. I still feel I don’t have enough time for the deep, proactive work that I want to have. When we are really excited about something, I can still go very deep, very quickly. In some ways, I feel I can move even more quickly with having a family because I just have to, I don’t have another option, but to drop everything and work on it.
But yeah, there are trade-offs and that’s life. And I think this is a particular season, especially when you have two kids that are both small. We were talking early about you have a nine-year-old and a five-year-old now and are sort of out of the really physically intense times, but I’m also trying to savor this time because you know it only happens once.
Turner Novak:
Yeah, it’s like these weird phases where now, for me, that it’s a little bit easier, you usually sleep through the night or whatever, but it’s more noticeable, like when dad leaves or when dad is not giving you attention. If they’re eight months old, they don’t know in the same way when they’re nine. I’m trying to send an email and my daughter wants to play. Our new thing is making up games. Two days ago, we made up charades, and she just came up with the idea for the game. She would draw a picture-
Nikhil Basu Trivedi:
That’s amazing.
Turner Novak:
... and then we’d write the word together that was on the picture. So I was trying to finish something and she was talking to me. And looking back on it, I just should have closed my laptop because it wasn’t that important. It’s just balancing. There’s so many different demands for your time and you got to prioritize stuff at the right time. So that’s been challenging. I don’t know. Mike, what advice do you have for us on that?
Mike Smith:
It is hard, I would say. I’m on, as we talked about, a little bit on the other side of that, but I always felt lucky that my better half supported my ambition and work and now I have a daughter who’s a young adult who knows I worked really hard to get to where I was and really appreciate that work ethic that’s needed to be great. You don’t realize at these younger ages how much these kids are picking up. And you don’t want them to think that you’re not dad, but they also recognize that you’re dad plus worker plus husband, and they really do pick up a lot of these things. In my case, she’s appreciated how hard I’ve worked and has her own ambition as a result of it. She got to meet Katrina Lake when she was 10 years old. So to meet a founder who-
Turner Novak:
Looks like you.
Mike Smith:
... looks like you, is young like you, ambitious like you want to be, it’s super inspiring. So she wouldn’t have gotten that privilege had she not had a dad that was pretty ambitious for what he wanted out of his career. But you need the right support system and you also have to find time to reflect and you also have to find time to take a little break here and there. Otherwise, it’s very hard to do the pace for 40, 50 years. There are people that do it. I think it’s very unique to be able to do that. And I think you just got to find these recharge moments where you actually end up being better on all dimensions as a dad, as a partner, and as a worker when you find these small recharge moments.
Turner Novak:
That’s fair. Anything else you guys want to talk about that you feel we missed?
Mike Smith:
I don’t think so. This was great. Yeah.
Nikhil Basu Trivedi:
Thanks so much for having us. We appreciate it.
Turner Novak:
Yeah, this was a lot of fun.
Nikhil Basu Trivedi:
And this is the first time I think that we’ve done both of us-
Turner Novak:
On a podcast.
Nikhil Basu Trivedi:
... in person, on video as well, in a podcast. So a special moment for us too.
Mike Smith:
Yeah. Thanks for bringing us together.
Turner Novak:
Hopefully, people that are still listening at this point. Hopefully, they realize how important this moment was in time.
Nikhil Basu Trivedi:
Yeah, totally.
Turner Novak:
Well, cool. Yeah. Thanks again for doing it. Thanks everyone for listening.
Mike Smith:
Thanks.
Nikhil Basu Trivedi:
Thanks.
Stream the full episode on YouTube, Spotify, or Apple.
Find transcripts of all other episodes here.