Thanks Nikhil & Amit for joining this panel!

Intros: both Nikhil Basu Trivedi and Amit Mukherjee are young partners in very respected VC firms (Shasta for Nikhil, NEA for Amit), and both focus on consumer investments such as ClassDojo (Nikhil) and MasterClass (Amit). They both made Forbes’ 30 Under 30 list a few years ago.

Nikhil helped write a Medium post with Tod Francis that went viral: What did Billion Dollar Companies Look Like at the Series A? They’re both active on Twitter: Nikhil. Amit.

Disclaimer: They’re both investors in Cake.

For people wanting to suggest questions to ask the panel, here’s where you can.

First question: How big a part do your personal interests play in your investments? As a hypothetical, what if you find autonomous vehicles fascinating but scooter rentals boring, yet you conclude scooter rentals would be a better investment?

Wow those are some old photos!! Amit and I also went to college together, so this will be fun. Great to be here, Chris.

I got them from Forbes' 30 Under 30 articles about you guys. 😁 You're so old now, at least a year or two over 30?

While it's always fun to meet an entrepreneur working on something I have a personal interest in, many great potential investments are likely to be working on things I wasn't interested in beforehand. I also have to recognize I'm not necessarily a representative consumer, and I need to open my eyes to the possibility of something taking off that isn't applicable to me.

on autonomous vehicles versus scooters, i actually find both fascinating ;).

i recently led Shasta's investment in Grin (www.ongrin.com) which is bringing micromobility to Latin America. they are live in Mexico City with scooters on the ground. so many short trips in cities can be on scooters instead of in cars, and that can lead to less vehicular congestion, less carbon emissions, more livable cities, etc.

but the longer term transportation paradigm of autonomy is also very exciting! i think there are different use cases for autonomous vehicles and for electric scooters, and both can co-exist as methods of transport that many people use.

Interesting. I knew you were fascinated in autonomous vehicles because I heard you on the 20 Minute VC podcast being interviewed about it.

Can you explain the venture capital power law? What should entrepreneurs know about the desire for VCs to invest in companies that can get big fast?

I invested in Casper at the Series A, but I didn't have a particular personal in mattresses. And I invested in Masterclass, but not all of the classes appealed to me, and in general, I'm not someone who obsesses over taking every single Masterclass offered. I love golf, basketball, and my dog, but I haven't made many investments that directly relate to those interests (though The Players' Tribune does feature a lot of athletes and Masterclass has as well). At the same time, I've made investments in categories that I knew nothing about before an entrepreneur walked into the room, such as Aquabyte, which provides computer vision for the fish farming industry.

I've also passed on markets I knew really well. For example, GOAT is a 2nd hand sneaker marketplace, and I was a huge sneaker fan growing up (one of my screen names was nikeboi 72).

So I don't think my personal and professional interests have really coincided. What excites me about investments are super thoughtful founders and highly dynamic markets and elegant business models. I'd always choose to work with a founder that I enjoyed more versus a category I enjoy more.

It feels like modern venture capital has trended towards microfunding thousands of companies to see which can get early traction fast.

Do you think that has favored simpler ideas which are then hard to defend against incumbents? I’m thinking of examples like Vine, which seems easier to build than a Slack or Alexa.

The general power law in VC is that the top 1% of outcomes produce 99% of the returns.

What that means is that good VCs are focused on finding companies that can become massively big, even if that means taking more risk. There are very few VCs who will get excited about an entrepreneur who can build a $50M-$100M company. Almost all are focused on entrepreneurs excited about building a $1B+ company.

What that means is that incentives between a founder and investor are not always aligned. A founder who sells his company for $100M may make a life changing amount of net worth from the sale, but an investor won't find that outcome exciting, so may discourage that sale or discourage tactical or strategic decisions that lead to that sale. They may even decrease your probability of success, as long as those success cases are much bigger. That means that founders need to really think about what their true goals are and make sure they're aligned with their VC partner.

Wow, Aquabyte, holy cow. I was thinking that the great thing about my side is entrepreneurs can get totally immersed in the most interesting thing in their lives. But having an entrepreneur walk in and tell of something I never dreamed about sounds amazing.

Some say the most important attribute of an entrepreneur is determination. Some say ruthless prioritization. Some say product savvy. Some say storytelling. Some say timing. Some say their bond with co-founders. What do you guys say?

I don't necessarily think simpler is better, or more likely to get funded. Yes, there are more seed financings occuring, but I don't think that means that there are less companies being funded that are going after hard problems. Hyperloop, BOOM, Grabango, and others, are all super complex problems that also have raised substantial amounts of money with minimal revenue traction.

the majority of venture capital returns are driven by a small set of companies that become extremely big. that's the premise behind the so-called "power law."

there are several good posts out there that dive in further -

https://hackernoon.com/the-power-law-works-both-ways-f276f0f81d99

http://reactionwheel.net/2015/06/power-laws-in-venture.html

https://twitter.com/BenedictEvans/status/1008038770396942336

Awesome summary of the power law and what it means. 👍

That brings up a growing perception among consumers that some companies seek greatness at all costs (the insanely great company) and some seek growth at all costs (the move fast and break things company). How do you think about this?

As a team, we've actually tried to be very deliberate about the vocabulary we use to describe founders, and the qualities we look for. We got sick and tired of our partners saying, "this is a great company because this is a great founder" It's sloppy thinking and communication, because the question then becomes, "okay, WHY is that founder great". So the attributes we've determined we need to focus on are:

1) Aggressiveness: Founders need to fight for resources and break down some doors to make things happen. We tend to see aggressiveness paying off:

2) Storytelling: Founders need to sell the dream to investors, employees, partners, and customers. The more they can tell the story, the more they get others to lean in. You can't be a great founder and be bad at pitching your company.

3) Relationship building: Founders need to be able to build a support network. There are many things a founder won't know how to do, so they need to be able to connect with people who can help them build

4) Thoughtfulness: This is a quality that is particularly important to me. As VCs, we are really good at asking "gotcha" questions, that reveal a flaw or achilles heel of a business. Most businesses don't hit massive breakout success, so most have some sort of flaw or achilles heel. The best founders take these hard questions and answer them so convincingly that it will give me as an investor a lot of confidence. I feel like I am learning something by speaking to them. If I'm pushing a founder's thinking too much, it's usually a bad sign.

5) Ability to learn and adapt: Companies are constantly changing. The skills for a seed stage founder are night and day different than a 100 person startup. So founders need to constantly evolve, and their ability to grow is critical. So we need to see humility and a willingness to learn.

6) Velocity of growth: Some teams simply move faster than others. Those teams tend to win over time.

I have heard prominent VCs say they don’t look for absence of weakness in an entrepreneur, they look for great strength. I understand this on a visceral level because I worked for Steve Jobs. What is it like to have one of your investments get dramatic like I perceive Apple, Tesla, and Uber to have done?

i would also just add that simpler is not necessarily easier.

in my mind, some of the most powerful companies are also the simplest to understand to consumers.

but they are not simple to build. delivering simplicity often takes a lot of work.

What are some common mistakes people make when pitching to VCs that you wish they'd stop making?

The question really comes down to, do you sacrifice quality and efficiency in exchange for growth. The answer is "yes, sometimes". Some of the market winning companies, such as Amazon from the prior generation or Instacart from this generation, suffered from negative unit economics and huge cash burns. But they moved fast and won the market. They were able to turn their business around later, and recognized that market share >>> efficiency and quality.

This isn't true for all startups. A lot of it comes down to the market you're in and its specific market dynamics. For example, the "growth at all costs" strategy would never work for Masterclass--their product is focused on quality, and nothing else in the market is remotely similar. So differentiation matters.

In contrast, Instacart became hyper relevant and helped every grocery company answer the question "what can we do about Amazon buying Whole Foods" because they were so big.

Ultimately, the strategy you follow needs to make sense for your market and for your business model.

I know you both have tight schedules, so I'll conclude with these two questions:

How do you evaluate ideas that require deep technical understanding, such as artificial intelligence? (Or aqua fish something!)

The New Yorker just published an article asserting there is a  full-fledged debate about the moral character of Silicon Valley and the conscience of its leaders. I've seen you both mention wanting to be a force for good. Do you have a point of view on what this perception is doing to the tech industry and what we can do about it?

1) Some founders walk into the room and jump straight into the pitch. At least for me, the small talk is important. We are building a relationship that may last 10+ years. So it's not all about the pitch, a lot of the meeting is about understanding the entrepreneur.

2) I think every pitch benefits from an exec summary upfront. Walk me through, in 2 minutes, what you're going to say and why it's compelling. Founders who do this well have often earned a yes immediately. That's important, because I'm typically leaning one way or another within those first 2 minutes.

3) Founders forget that at the end of the day, we are financiers. Your milestones and your uses of capital, and your P&L all need to make sense. So you need to include all of them in the pitch

4) Founders often tell white lies in an effort to create a competitive dynamic or to increase negotiating leverage. This is very transparent and ineffective

Your Grin scooters in Mexico City look pretty sweet, btw. I would tour sections of the city that way for sure.

1) To understand a technical idea, I loop in someone technical on my team who I deeply trust. At NEA, we tag team most investments, and this has proven to be highly effective. For Aquabyte, I work closely on the opportunity with Greg Papadopoulos, the former CTO of Sun. He is the board observer and I am the board member. I still know relatively little about computer vision and AI, but there are a lot of things I can still do to positively influence the company.

2) It's fair for Silicon Valley to receive the criticism and attention it garners. The reality is, technology has become far more important in the last 10 years, and it will only continue to be more important. It's an incredible thing to have witnessed, to see entrepreneurs impact every element of the way we live. 30 years ago, most entrepreneurs were making better computer chips, and perhaps better IT software. So technology is more important today than it was before, similar to the rise of the oil industry, or the rise of Ford Model-T.

When there is a lot of opportunity, there will always be investors and founders who focus on creating value for themselves, though a company may be neutral or damaging to society. I think it's fair for the government to be involved and check this. I also think that (1) "world positive" companies benefit from a halo effect from the media, from prospective employees, and for investors, so investing in "world positive" companies is smart, and (2) the most valuable companies do indeed create value for society.

Great responses. Thanks! I'm getting all kinds of feedback saying both of you can really write, and quickly.

On a personal note, Nikhil I hope you don't mind me posting this. This is Nikhil surprising his fiancée, a moment I had the pleasure of photographing. I will never forget how thrilled she was.

Amit, this is a great framework! I may have to borrow it :D.

At Shasta, we don't have a firmwide framework for evaluating founders.

Each of us on the investment team looks for different characteristics in founders that we might weigh more heavily or lightly than others.

Characteristics that I tend to be drawn to: ability to prioritize well, ability to move quickly and break through wall after wall (combo of your points 1 and 6), ability to articulate the vision of what this becomes, having the self-awareness to know what's working and what's not.

And finally, a question I think about with every potential investment is "Is this the founder's life's work?" Most great entrepreneurs have a deeply rooted need to win, and the mission they are driving towards feels like it will be their life's work if they ultimately get there.