20VC How To Assess Risk and Value Creation, Why It Would Be Better If VCs Had Smaller Portfolios & How To Optimise Internal DecisionMaking with Misha Esipov, Founder & CEO @ Nova Credit

In this episode of "20 minutes VC," host Harry Stebbings interviews Misha Essipov, founder and CEO of Nova Credit, a fintech startup that has raised over $69 million to help individuals use their international credit history for various applications in the U.S. Essipov shares his journey from a traditional finance background at Goldman Sachs and Apollo to founding Nova Credit and his belief in the importance of unit economics and value creation for sustainable business growth. He discusses the challenges of fundraising, the significance of building a diverse team, and the evolving role of a CEO in a scaling startup. Essipov also emphasizes the need for CEOs to adapt, delegate, and allow team members to learn from their decisions, while maintaining clear expectations and accountability.

• Nova Credit, founded by Misha Esipov, is a startup that allows the use of international credit history for credit cards, apartment rentals, loans, etc.
• Misha Esipov has raised over $69 million from leading investors like Kleiner Perkins, Index, First Round, Pear, and Core Innovation Capital.
• Misha's background includes over five years in traditional finance, including Apollo in private equity and Goldman Sachs in investment banking.
• Misha is also on the board of the World Education Services, reflecting Nova's impact.
• The episode was a collaborative effort, with input from Mark Goldberg Pesman at Pear, Ilyar at Kleiner, Bill Trenchard, and Hemont at GC.

"To date, Misha has raised over $69 million with Nova from some of the best in the business, including Kleiner Perkins Index, first round, pear and core Innovation Capital, to name a few."

This quote highlights the successful fundraising efforts of Misha Esipov and the credibility of Nova Credit, backed by prominent investors.

• Misha Esipov, originally from Russia, moved to the U.S. in the early '90s and began his career in New York at Goldman Sachs and Apollo.
• He expressed a sense of professional confusion and a feeling that something was missing in his financial career path.
• Misha's move to California for grad school led him to identify a problem and form a team, despite having no knowledge of consumer credit or global credit reporting.

"And then was sort of confused professionally about what I wanted to do with my life."

This quote conveys Misha's uncertainty in his career path, which eventually led him to pursue entrepreneurship and address a gap in the consumer credit market.

• Misha credits his time at Goldman Sachs and Apollo for shaping his approach to value creation.
• His experience in natural resources provided a unique perspective on global credit reporting as a parallel to midstream businesses.
• He compares the search for unique data to the hunt for global raw materials, refining them into a product for another market, and creating pipelines for information flow.

"In effect, we're on the hunt for global raw materials. We need to find global raw materials, and for our business, those raw materials are unique pieces of data that are hard to find and extract."

This quote illustrates the analogy Misha draws between his work in natural resources and the process of sourcing and refining data in global credit reporting.

• Misha emphasizes the importance of generating cash and a clear path to profitability for a business to be enduring and potentially go public.
• He warns against being disillusioned by high growth numbers without a solid margin profile and the ability to expand.
• Misha's experience in professional services instilled a strong work ethic and a principled approach to business strategy and execution.

"But at the end of the day, if a business does not have a clear path to generating cash, it is not an enduring business and will never be a public company."

This quote underscores Misha's belief that a sustainable business must have a clear strategy for profitability, beyond just growth metrics.

• Misha discusses the philosophical differences among founders when it comes to growth and unit economics.
• He contrasts founders who chase large total addressable markets (TAM) and plan to figure out lifetime value (LTV) and monetization later, with those who focus on unit economics from the start.
• Misha's approach with Nova Credit is centered on strong principles of value creation from the outset.

"I think that's a philosophical difference among founders."

This quote points to the divergent strategies founders may adopt, either prioritizing rapid growth or focusing on the fundamentals of unit economics and profitability.

• Importance of being principled in unit economics.
• Considering the defensibility of unit economics.
• Identifying steps to build a moat around the business.

"Principled in how do we think about our unit economics, how do we think about the defensibility of those unit economics, and ultimately, what are the steps that we're taking that allow us to continue to build a bigger and bigger moat around this or business that we've started?"

This quote emphasizes the strategic approach to maintaining and defending the unit economics of a business, which involves understanding the costs and revenues on a per-unit basis and ensuring that these figures are sustainable and protectable in the long term.

• Fundraising from top venture capitalists.
• Gaining visibility and access to investors through programs like Y Combinator.
• Approaching investor meetings with authenticity and transparency.
• Discussing business challenges openly with potential investors.

"We were teed up incredibly well, and we went to grad school in the valley. We got into Pageman's summer program, Y Combinator's summer program. And so through that, we got an incredible amount of visibility from a very early start that sort of put us on the map in the first place."

Misha Esipov explains how their educational background and participation in prestigious programs like Y Combinator provided early visibility and access to top venture capitalists, setting a strong foundation for fundraising efforts.

"My style in having fundraising conversations is not to try to hide the most challenging part of a business model under the mattress. Instead, I try to bring it up forefront and talk about why I recognize it to be a concern and how I've personally gotten comfortable with that concern and what we're doing to mitigate against it."

Misha Esipov shares their approach to fundraising discussions, which involves being upfront about the challenges of the business model, conveying how they have addressed these concerns, and demonstrating proactive strategies to mitigate risks.

• The value of investors as a sounding board for strategic and organizational questions.
• The benefits of investor involvement in recruiting executives and unlocking partnerships.
• The desire for venture capitalists to spend more time with portfolio companies beyond the boardroom.

"The flip side, first and foremost, it's a sounding board. My engagement with index, with Kleiner, with general Catalyst, with Nico, with first round, we've been incredibly fortunate to have such a strong base of supporters."

Misha Esipov highlights the importance of having investors who serve as a sounding board and support system, providing strategic advice and organizational guidance.

"I would love to see the VC engagement extend beyond the boardroom. And some vcs are very good at this and spend more time on site with the company, get to actually know the executive team."

Misha Esipov suggests that venture capitalists could create more value by deepening their engagement with portfolio companies, spending time on-site, and getting to know the executive teams better, which would enable them to provide more effective guidance.

• Admiration for VCs like Matt Harris at Bain Capital for their deep understanding of the industry.
• The value of intellectual humility and curiosity in venture capitalists.
• The importance of VCs providing guidance to first-time founders.

"We've gotten plenty of no's. Don't get me wrong, one person I've really admired is Matt Harris at Bain Capital. I think of him as sort of one of the best fintech investors."

Despite not receiving investment from all VCs, Misha Esipov expresses admiration for Matt Harris's expertise in the fintech sector and his approach to investing.

"Every time he just has this sort of intellectual humility, this curiosity, this deep, rigorous understanding of the space and how data is used and how decisions are made by enterprises."

Misha Esipov appreciates the qualities of intellectual humility and curiosity in VCs like Matt Harris, highlighting the importance of a deep understanding of the industry for providing valuable guidance to founders.

• Balancing intense commitment to the business with personal sustainability.
• The need for CEOs to reinvent themselves as the organization grows.
• The evolution of the CEO role from steering towards product-market fit to focusing on building an effective organization and executive team.

"I mean, it's a battle. I think about it as this is my life's work, at the very least for this chapter of my life. And so I am putting in an incredible amount of energy into this business."

Misha Esipov describes the psychological challenge of being a CEO, emphasizing the intense dedication required and the need to maintain a balance to prevent burnout.

"As you grow headcount, as your challenges evolve, as your executive team evolves, you have to continue to reinvent yourself."

Misha Esipov discusses the necessity for a CEO to adapt and reinvent their approach as the company grows and changes, shifting focus from individual contributions to shaping the organization and its culture.

• Consensus-based decision-making can be time-consuming and lead to average outcomes.
• It's important for a team to make decisions that push the organization forward, despite the difficulty.
• Teams, especially first-time teams, need to evolve from consensus to more efficient decision-making.

"And I think it's very tempting, especially as a first time team, to make every decision consensus based. And so you deliberate on every decision and everything takes forever."

This quote highlights the challenge of consensus-based decision-making, particularly for new teams, and the inefficiency it can bring.

• Misha Esipov received advice from David Bradford on interpersonal dynamics.
• Entering into a "contract" with team members can help prevent micromanagement and encourage team autonomy.
• A leader's ability to scale is dependent on giving space for the team to make decisions and be accountable.

"And basically the advice is something like, sit down with one of your one on ones and say something to the effect of, I want to enter into a contract with you."

Misha Esipov discusses a strategy for establishing a clear understanding with team members about autonomy and leadership expectations.

• Leaders must allow teams to sometimes make wrong decisions to facilitate learning.
• It's crucial for leaders to share their perspectives but not override decisions that team members own.
• Decisions that are not "tier one" or company-critical should be left to the team to make and learn from.

"Unfortunately, you have to let the team, on occasion, make the wrong decision and learn from that."

This quote emphasizes the importance of allowing team members to make decisions and learn from them, even if they are sometimes incorrect.

• Diversity must start from the leadership team to set an example for the organization.
• Despite having a diverse founding team, active measures are necessary to maintain balance.
• Company-wide objectives and key results (OKRs) were implemented to ensure diversity in hiring.
• Building a diverse team takes time but eventually becomes a self-fulfilling process that can attract top talent.

"So we started as three co founders and we scaled up to ten folks, and all seven of those hires were male, despite having Nikki, my co founder, not being male."

Misha Esipov reflects on the initial lack of diversity despite having a female co-founder and the realization that led to deliberate diversity efforts.

• Recruiters alone cannot solve diversity issues; it must be a company-wide priority.
• Leadership must be actively involved in the executive search process to ensure diversity.
• Personal outreach and involvement of VCs are necessary to find diverse candidates.

"I have never found a recruiter that can solve diversity."

This quote implies that achieving diversity in hiring is a complex issue that requires direct involvement from the company's leadership rather than relying solely on recruiters.

• Clear expectations must be set from the beginning to ensure fair performance evaluations.
• Leaders should align with new hires on what is expected in their roles.
• It's important to differentiate between controllable performance issues and "unknown unknowns."

"First and foremost, you have to be very clear in aligning with someone around your expectations."

Misha Esipov stresses the importance of clear communication and alignment on expectations as a fundamental aspect of performance management.

• The quick fire round is a segment where Misha Esipov will respond to short statements with immediate thoughts.

"Ooh, that sounds fun."

Misha Esipov expresses enthusiasm for the upcoming quick fire round segment in the conversation.

• Misha Esipov read "Mastery" by Robert Greene which influenced his decision to start Nova.
• The book is described as a combination of philosophy, biography, and self-help.
• It emphasizes the fulfillment that comes from mastering a craft.
• Misha decided to master the craft of building an authentic and enduring organization.

"It's a book called Mastery by Robert Greene. I read this during grad school, right when I was on the fence about whether or not to start Nova or go back to the finance world."

The quote explains the pivotal role the book "Mastery" played in Misha's decision-making process regarding his career path, leading him to entrepreneurship over returning to finance.

• Misha's superpower is being a careful listener, bringing intention to meetings and not overpowering the room.
• His weakness is having "eyes bigger than his stomach," indicating a tendency to overextend into new ventures or products too quickly.
• There's an emphasis on the importance of focusing on the core business, especially in early stages.

"My superpower is probably that I'm a very careful listener. I bring an incredible amount of intention to my one on ones to my exec meetings."

This quote highlights Misha's listening skills as a key strength in his leadership style, which contributes to his effective management and decision-making.

"In terms of weakness, it's got to be the same thing around. Eyes are bigger than my stomach."

Misha acknowledges his weakness in potentially overreaching beyond the company's core focus, which can be a challenge in maintaining a disciplined approach to growth.

• Misha Esipov doesn't recall who the first investor in Nova was but mentions Pagemon and YC's summer programs.
• Both programs were engaged with Stanford's campus, where Nova applied to a variety of accelerators.
• Nova was accepted into both programs and started the company after grad school.

"It would either be Pagemon in their summer program or YC's summer program."

This quote indicates the uncertainty of the first investor but acknowledges the importance of accelerator programs in Nova's early funding and development.

• Khalid Halim, a founder of Reboot, is Misha's mentor and coach.
• Coaching helps Misha process thoughts and instincts without being involved in the weeds of his team.
• Misha tries to emulate this coaching approach with his own team.

"I've been working with him now for about a year and a half, and he just really helps ground me."

Misha credits his coach, Khalid Halim, for helping him stay grounded and improve his strategic thinking, demonstrating the value of mentorship in leadership development.

• Hiring a head of product is challenging, especially for a CEO transitioning from product-market fit to scaling the organization.
• Letting go of product control is scary, and finding someone with the right skills is difficult.
• There must be clarity on trade-offs and prioritization of skills or leadership qualities.

"And nobody has built our business before. That's why it doesn't exist today."

This quote reflects the unique challenge in hiring for a role that requires pioneering a new business, emphasizing the difficulty in finding the right person for the job.

• Nova aims to solve financial access for people migrating around the world.
• The plan includes strengthening product-market fit and building global infrastructure.
• The long-term vision is for consumer lending markets to evolve beyond national borders, creating fair and equal access globally.

"Our vision statement as a company is a world beyond borders, which is this notion that as the world continues to evolve, it needs to transcend the notion of national borders."

Misha outlines the company's long-term vision of a global financial ecosystem without the constraints of national borders, highlighting an ambitious goal for Nova's future impact.

• Harry Stebbings expresses excitement for Nova's future and thanks Misha for the interview.
• Misha appreciates the opportunity and time given for the interview.

"Thank you Harry. Appreciate the time."

This quote is a polite acknowledgment from Misha, showing gratitude for the interview and the platform to discuss Nova's journey and vision.