The Informative Style Title: Insights on Small Funds’ Outperformance, the Vanity of AUM, and the Risks in Investing in AI Startups: Lessons from a “Traction First” VC with Nikhil Basu-Trivedi – 20VC

In the world of venture capital, where big funds and high-profile investments often dominate the headlines, it’s easy to overlook the potential of small funds. However, recent studies and success stories have shed light on the outperformance of these smaller players in the industry. One such example is Nikhil Basu-Trivedi, a venture capitalist who has made a name for himself by adopting a “traction first” approach to investing.

Basu-Trivedi, the co-founder of Shasta Ventures, a small fund based in Silicon Valley, has been able to consistently outperform larger funds by focusing on early-stage startups with promising traction. This approach involves investing in companies that have already demonstrated market validation and customer adoption, rather than solely relying on their potential.

One of the key advantages of this strategy is that it reduces the risk associated with investing in early-stage startups. By investing in companies that have already gained some traction, Basu-Trivedi is able to assess their potential more accurately and make informed investment decisions. This approach also allows him to avoid the common pitfalls of investing in companies solely based on their technology or team, which may not always translate into commercial success.

Another interesting insight from Basu-Trivedi’s approach is his skepticism towards the traditional measure of success in the venture capital industry: assets under management (AUM). While many investors and funds strive to increase their AUM as a sign of growth and success, Basu-Trivedi believes that this metric can be misleading. He argues that focusing on AUM can lead to a misalignment of incentives, where investors prioritize raising more capital rather than making sound investment decisions.

Instead, Basu-Trivedi emphasizes the importance of staying lean and nimble as a small fund. By keeping the fund size small, he can maintain a focused investment strategy and ensure that every dollar is deployed strategically. This approach allows him to be more selective in his investments and work closely with portfolio companies to drive their growth.

One area where Basu-Trivedi has been particularly successful is investing in artificial intelligence (AI) startups. While AI has been a buzzword in the tech industry for years, investing in this space comes with its own set of risks. Basu-Trivedi acknowledges that the hype around AI can often overshadow the challenges and uncertainties associated with building successful AI companies.

To mitigate these risks, Basu-Trivedi looks for AI startups that have a clear value proposition and a strong understanding of the problem they are solving. He believes that successful AI companies are those that can effectively leverage data and algorithms to create tangible value for their customers. By focusing on these fundamentals, Basu-Trivedi has been able to identify promising AI startups and help them navigate the complexities of the industry.

In conclusion, the success of small funds like Shasta Ventures and the insights shared by Nikhil Basu-Trivedi highlight the potential of adopting a “traction first” approach to investing. By focusing on early-stage startups with promising traction, staying lean and nimble, and carefully evaluating the risks associated with investing in emerging technologies like AI, small funds can outperform their larger counterparts. These lessons serve as a valuable guide for both investors and entrepreneurs looking to navigate the ever-changing landscape of venture capital.

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• Source Link: https://zephyrnet.com/20vc-why-small-funds-outperform-large-funds-aum-is-a-vanity-metric-why-99-of-investments-in-ai-startups-will-go-to-zero-being-a-traction-first-vc-investing-lessons-from-investing-in-canva-a/