Podcast Summary: Odd Lots – "Nina Achadjian on What It Takes to Win in VC Right Now"

Release Date: December 19, 2024
Host/Authors: Bloomberg's Joe Weisenthal and Tracy Alloway
Guest: Nina Ishadian, Partner at Index Ventures

1. Introduction and Setting the Scene [01:20 - 03:13]

In this episode of Odd Lots, hosts Jill Wiesenthal and Tracy Alloway delve into the dynamic world of venture capital (VC) with special guest Nina Ishadian from Index Ventures. Filmed live in San Francisco, the conversation sets the stage by highlighting the vibrant VC ecosystem on the West Coast, contrasting it with traditional investment spheres.

Jill Wiesenthal shares her enthusiasm for being on the West Coast, noting, “We did a live episode last night. I love coming out here.” Tracy Alloway adds, “It's been fun. We also had some really good Chinese food afterwards,” emphasizing the blend of professional and casual interactions in the VC world.

2. Understanding Venture Capital and Index Ventures’ Unique Approach [03:13 - 05:09]

Jill Wiesenthal introduces Nina Ishadian, who outlines her role at Index Ventures: “Our job is to find exceptional entrepreneurs, really build trust with them, and be part of their journey in building a generational company.” Nina emphasizes Index Ventures’ global perspective, rooted in its European origins nearly 30 years ago, and its commitment to investing in diverse regions beyond Silicon Valley.

Nina Ishadian explains, “When we hear a pitch, we actually spend a ton of time diligencing the entrepreneur and trying to build a foundation of trust to understand what motivates this person... we try to see them in many different settings.” This meticulous approach underscores Index Ventures’ focus on the people behind the startups, rather than just the ideas.

3. Beyond Financial Support: Building Relationships with Founders [05:09 - 10:17]

Tracy Alloway probes deeper into the VC-founder relationship: “What are you doing for founders besides writing checks?”

Nina Ishadian responds, “At Index, we don't pride ourselves on being the cheerleader for a founder... we really want to be business builders along with the founder.” She elaborates on two key roles:

• Being a Mirror: Providing honest feedback and identifying blind spots. For instance, she might point out if a founder has outgrown a particular executive role.

  “You want to have that positive energy in the board meeting. For us, we really want to be business builders...” [05:35]

• Mitigating Founder Anxiety: Nina shares her proactive approach to board meetings by engaging with team members beforehand to ensure founders aren’t blindsided.

  “We can kind of calibrate, hey, this CRO is excellent, or... you need to think about... putting them into a different role.” [07:36]

This approach contrasts sharply with public company boards often seen as rubber stamps, highlighting the supportive and constructive role VCs can play in private startups.

4. The Mechanics of Private Company Board Meetings [08:09 - 09:08]

Jill Wiesenthal inquires about the agenda of private company board meetings. Nina Ishadian describes an ideal scenario:

• Preparation: Materials are shared 24 hours in advance, often in memo format.

• Collaborative Discussion: Focuses on reviewing past performance, addressing open questions, and making strategic decisions rather than mere reporting.

  “The ideal board meeting is... more of a discussion versus like a report.” [09:08]

This setup fosters a more engaged and strategic environment, benefiting both the founders and the investors.

5. Technical Expertise in Venture Capital [09:08 - 10:17]

Tracy Alloway queries the level of technical expertise required for VCs:

“Does it get as granular as you're looking at someone's like source code...” [09:27]

Nina Ishadian clarifies that while technical diligence is crucial during the investment phase—often involving technical experts—the ongoing role of a VC is more about business building and talent management.

“At the end of the day, because these companies start so small, the people that they are bringing around the table and what the bar of excellence is for the entrepreneur is really important.” [10:17]

6. Sourcing and Winning Investments in a Competitive Landscape [10:17 - 16:36]

Jill Wiesenthal and Tracy Alloway explore the dynamics of sourcing deals and the importance of being a first-choice VC.

Nina Ishadian breaks down the VC role into three main components:

1. Sourcing: Identifying and attracting promising startups.
2. Diligence: Assessing market potential, product viability, and team strength.
3. Winning: Convincing founders to choose your firm over others.

She emphasizes that winning isn’t just about being first but about aligning with the founder’s vision and demonstrating commitment.

“Being able to convince the entrepreneur that you are the person in the firm that is going to work the hardest...” [11:12]

Nina also discusses how the VC landscape has shifted since 2021, noting that transactional approaches have diminished in favor of deeper, more authentic relationships.

“Founders realized that those who took the money from those firms that were more like, I think someone else threw this phrase out, like atm... they were not around when times got tough.” [13:05]

7. Creative Strategies in Pitching and Relationship Building [14:34 - 16:36]

Tracy Alloway asks about creative ways to engage and win over founders. Nina Ishadian shares her tailored approach:

• Research: Deeply understanding the founder’s background through podcasts, social media, and mutual contacts.
• Personalization: Customizing interactions based on the founder’s personality and preferences.
• Continuous Engagement: Mapping out touchpoints from term sheet issuance to signing, including thoughtful notes and special events.

“I map out the entire process of, okay, if they're gonna sign by X date, and most likely we're gonna give them a term sheet on this date...” [15:00]

This meticulous planning ensures that Index Ventures remains top-of-mind and demonstrates genuine interest beyond financial backing.

8. Nina Ishadian’s Journey: From High-Yield Bonds to Baklava Baking [22:12 - 26:09]

Tracy Alloway shifts the conversation to Nina’s eclectic background. She reveals her diverse experiences, including working as a high-yield bond trader at Citi and unexpectedly spending a year baking baklava in Istanbul.

Nina Ishadian recounts her unconventional path:

“I decided to write a proposal to work at a baklava bakery, because food is the perfect intersection between Armenian and Turkish culture...” [22:37]

She draws parallels between baking and venture capital, highlighting the importance of collaboration, adaptability, and consistency.

“It really does take a village. And I think the analogy is to build an amazing company, it takes a village.” [25:25]

This unique background brings a fresh perspective to her role in VC, emphasizing creativity and resilience.

9. Navigating the AI Investment Landscape [26:09 - 34:51]

The conversation then pivots to the booming field of artificial intelligence (AI) and its implications for venture capital.

Nina Ishadian shares her insights on AI investments:

• Foundation Models: Believes the market has consolidated around a few major players like OpenAI’s ChatGPT, with challenges for new entrants to compete.

  “AI valuations range from even half a billion dollars for some new seed companies because they're run by incredible technologists.” [33:16]

• Domain-Specific AI: Excited about AI applications tailored to specific industries, which offer tangible ROI by solving real workflow problems.

  “I'm very excited about... smaller models that are very domain specific.” [27:52]

Tracy Alloway raises concerns about valuation bubbles in AI, questioning the sustainability of high valuations compared to non-AI companies. Nina Ishadian acknowledges the disparity, attributing it to limited talent supply and abundant capital inflows driving up valuations.

“Supply drives demand and supply is what drives valuations.” [33:16]

Jill Wiesenthal points out that non-AI companies may be undervalued due to the current hype around AI. Nina Ishadian agrees, highlighting opportunities in vertical software and predicting consolidation among startups to avoid a race to the bottom.

“I think there's a huge opportunity... there is a huge opportunity... a lot of those companies raised at very high prices... expecting consolidation.” [34:51]

10. Europe’s Role in the AI Ecosystem [36:13 - 38:37]

Tracy Alloway inquires about Europe's position in the AI landscape, considering perceptions of lagging behind the US.

Nina Ishadian counters this view by highlighting Europe's rich talent pool and presence of major AI players like DeepMind. She cites the rapid growth of companies like Mistral and the strategic advantages of Index Ventures’ transatlantic presence.

“I think Mistral is a great example... there are some companies, but maybe as a prime beneficiary of some of the product boost.” [36:42]

Jill Wiesenthal adds that Europe’s industrial sectors could significantly benefit from AI advancements, positioning them as major consumers rather than just technology developers.

11. Emerging AI Innovations and Future Outlook [38:37 - 43:14]

Nina Ishadian discusses cutting-edge AI applications, including the development of AI agents capable of performing complex tasks like booking trips autonomously. She emphasizes the need for an operating system that allows these agents to interact seamlessly.

“Building the operating system for these agents to be able to interact with one another.” [38:37]

Exploring market dynamics, Nina forecasts a potential opening of the IPO market contingent on economic factors like interest rates and inflation. She observes that companies are actively preparing for IPOs amidst high NASDAQ valuations.

“They're getting their systems, their CFO, their IR person all ramped up.” [40:18]

12. Conclusion and Final Thoughts [43:14 - 43:35]

The episode wraps up with the hosts reflecting on the depth of their conversation about the true nature of venture capital. They appreciate Nina Ishadian’s insights into the strategic and relational aspects of VC, moving beyond the stereotypical view of VCs as merely financial backers.

Jill Wiesenthal concludes:

“Hearing some of the things like, okay, it's not enough to meet them. You also have to win and what it takes to win. I thought that was really interesting.” [41:04]

Key Takeaways

• Venture Capital is About Relationships: Successful VCs prioritize building trust and understanding with founders, acting as strategic partners rather than just financial investors.

• Importance of Being a Mirror: VCs provide honest feedback and help founders identify and address blind spots, fostering stronger, more resilient companies.

• Navigating the AI Boom: While AI presents significant investment opportunities, distinguishing between foundation models and domain-specific applications is crucial. Valuation disparities between AI and non-AI companies highlight the need for discerning investment strategies.

• Europe's Emerging AI Scene: Despite perceptions of lagging, Europe boasts a strong AI talent pool with companies like Mistral leading the charge, offering ample investment opportunities.

• Adaptability and Resilience: Nina Ishadian’s diverse background underscores the importance of adaptability and resilience in the VC landscape, traits essential for navigating the complexities of startup ecosystems.

Notable Quotes

• Nina Ishadian [03:35]: “Our job is to find exceptional entrepreneurs, really build trust with them, and be part of their journey in building a generational company.”

• Nina Ishadian [05:35]: “We really want to be business builders along with the founder.”

• Nina Ishadian [15:00]: “I map out the entire process... what needs to happen in that gap of time.”

• Nina Ishadian [33:16]: “Supply drives demand and supply is what drives valuations.”

• Nina Ishadian [38:37]: “Building the operating system for these agents to be able to interact with one another.”

This episode of Odd Lots offers a comprehensive look into the venture capital landscape, emphasizing the nuanced roles VCs play in nurturing startups. Nina Ishadian’s insights provide valuable perspectives for both aspiring venture capitalists and entrepreneurs seeking meaningful partnerships.