Speaker 1Today's show is sponsored by Atlas Technica. Staying ahead of the technology curve for investment organizations takes more expertise than ever before. Atlas Technica takes this entire burden off your shoulders. Atlas is an industry-leading managed service provider that's helped over 100 firms adopt the public cloud. By offering white-glove IT services and a first-rate customer experience, Atlas has quickly become a trusted partner to the alternative investment industry. To get started, visit atlastechnica.com. Today's show is also sponsored by Janus Henderson Investors. In an environment where allocators face more questions than answers, having a trusted partner is critical. Janus Henderson Investors is committed to building partnerships with institutional investors that will help you build your business. based on collaboration, insights, and transparency. With 26 offices and 350 investment professionals worldwide, Janus Henderson has the scale to offer global perspective across equities, fixed income, and alternatives, and the depth to offer local expertise and support for clients. To learn more about partnering with Janus Henderson, visit janushenderson.com slash institutional. Hello, I'm Ted Seides, and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com. Mark Andreessen from A16Z famously proclaimed a decade ago that software is eating the world. His prophecy has proved prescient. Cloud computing enabled the rapid, cost-effective deployment of software, startups flourished, and venture capital returns have been phenomenal. Venture capital is a fascinating investment area whose many days in the sun shine brightest this year. Institutional portfolios with large venture allocations soared to their best year in history. And yet, parts of venture are unique in being both efficient and unactionable. Many believe that Sequoia or Benchmark will produce returns at the top of the pack, but there's not much action anyone can take to participate. This miniseries explores the industry, focusing on some favorites of institutional investors who are still investable to those in the loop. Each has a great differential. There's a differentiated story to share, and something to prove. That said, this field moves quickly, so as the disclaimer goes, past accessibility is not a guarantee of future capacity. My guest on the sixth episode of Venture is Eating the Investment World is Aydin Senkit, the founder and managing partner of Felicis Ventures, a $2 billion early-stage venture firm that invests in founders building iconic companies that transcend geographic and industrial markets. It's success has placed Aydin on the fours-minus list for the past eight years. Our conversation covers Aydin's early exposure to entrepreneurship and international business, experience as the first international product manager at Google, and transition into angel investing and founding Felicis. We discuss his investment philosophy, proactive sourcing, and doing whatever it takes to join the cap table and support founders. We close with Aydin's perspective on competition in the venture. Venture is Eating the Investment World is brought to you by Omni. Omni helps private capital investors track and analyze individual deals while providing comprehensive financial and legal insights across their portfolio. It houses the largest database of investment transactions in the private markets extracted directly from executed agreements, including the legal terms, co-investor details, liquidity preferences, valuations, and round sizes. With that information, investors can make faster investment decisions, benchmark deal terms, understand market trends, and enhance portfolio analytics. Omni's clients include leading venture funds, corporate venture groups, family offices, and endowments, including a number of past guests on the show. You can learn more at omni.fund. That's A-U-M-N-I dot fund. I hope you enjoy the show. And if you do, this week, if you're single and walking down the street while listening to Capital Allocators, and look up and see a beautiful woman or man coming your way, what better way to get the conversation going than saying, excuse me, but do you happen to know about Capital Allocators? They might respond, that sounds amazing, and start a really interesting conversation. Who knows? It could be the beginning of a beautiful relationship. Thanks so much for spreading the word. Please enjoy my conversation, and I'll see you next time.
Speaker 2Bye., bye. I'll see you next time. Bye. My mom was in HR, so she was an HR executive, and then started a recruiting firm, and that was very active across all of Europe and Israel. And then my dad did something in textiles, which if you look at the industries at the time, banking and textiles were probably two of the most advanced industries, so he did something in textiles.
Speaker 1So were business stories part of your dinner table conversation?
Speaker 2Absolutely. Absolutely. So the most interesting thing, now that I look back, I always make this joke. There were only two countries in the world that had textiles, and I always make this joke. world that had 100% inflation, I think 25 years in a row. One is Turkey, one is Brazil. As a result, if you look at all the finance and banking people, there are a lot of Turks and Brazilians, because we can do this math from when we're eight years old. Every night, my dad is like, are we going to put our money in German marks or whatever? And so that was really cool. The second thing that was really cool is both my parents went to American high school and American university, and they were religious about not only reading, but we were very, very lucky that at that time, late 70s, early 80s, we used to get every issue of Time and Fortune and Business Week. And I used to read those magazines. I didn't have patience for books. And I looked at these CEOs and I'm like, oh my God, that looks so cool. I want to be like one of those people one day. And I daydream all the time about being an executive and also traveling around the world. My dream was to be a business executive version of Marco Polo. I always wanted to go around the world, meet people and learn cultures.
Speaker 1How did you take that through when you started off in the work world?
Speaker 2Turkey has this interesting situation where the best high schools were back from a hundred years, like foreign high schools, very difficult to get in. And by default, if you do get in, you need to take an SAT-like exam. And I was like, I think in the top hundred people out of 50,000 in my age group, you have to learn languages. That's the default. I went to a German high school with German teachers, German curriculum, and I learned English from German books. My wife still makes fun of me, my Canadian wife, that I have this crazy accent. And it's not just Turkish, all these other languages mix in. And so basically you become multilingual by the time you finish high school. And even in college, I remember taking French because I had this like incident where I mispronounced the French word badly in high school and they made fun of me. So I was determined to learn French as well. And so the only reason I'm mentioning that is it's so funny, like how you don't realize how these things like play an important role in your life as a, a result of these languages and the cultural heritage and learning. I was able to get a job at a Swiss pharmaceutical firm because I was fluent in German. I was fluent in English. And because I learned French, they're like, look, we're looking for an expat executive and the role is in Morocco. So if you don't speak Arabic or French, there's no way you can do it. And one of the things that I'm really proud of. So my first job out of college, my dream was to work in the US. So I was like, okay, I'm going to do this. So I was a good time to be looking for a job in the US, but the Swiss company said, look, we have a job for you, but it's going to involve you relocating to Morocco. I was scared out of my wits, but I thought that that was an insane experience. And they're like, we're going to make you the youngest expat in the history of the firm. I mean, this, this firm is Roche, you know, they own Genentech. They did a lot of big deals. So everybody's probably familiar with them. And I interned for them while I was in college, which probably set me up for that. So the only reason why I'm saying that is I feel like I got a very great early chance to have a crazy move that then set me up on a separate path to have very interesting experience so early in my career, only when I was like 22 years old. And then I think it really helped me be one of the youngest students in the MBA program at Wharton. And then that helped me like with my first foray into Silicon Valley. Those early days had such a huge impact for me. Also, when you live in a place like Morocco, and look, I mean, this is in 92, right? There's like no internet, no computers, no iPhone. It's not an easy place to live. I don't speak Arabic and my French was very elementary. Trying to survive on your own, you have no family, no friends. The environment was not very friendly to say the least, but you go through an experience like that. And I think it just prepared me for a lot of things that came on and hardened me, I guess, as a professional.
Speaker 1So you mentioned coming out of business school and you found your way to Google early on. Why don't you touch a little bit on that experience and particularly the things you learned?
Speaker 2Absolutely. Well, that's another really crazy story because when I was in business school, the company that proactively wanted to interview me was Green Giant. And I took one trip to Minneapolis. I think it was like negative 25. And I'm like, God, I love you guys. I cannot be in this weather. I love people from Minneapolis. I'm just not made for this kind of weather. And I don't want to be managing frozen burgers. And then I realized Silicon Graphics was coming to campus. I somehow made my way to the interview list. And the only reason why I'm mentioning it is, again, my career could have been totally different. I didn't get lucky, joined Google, and the rest is history. But I had three years at Silicon Graphics, which I think was an equally impressive company with amazing people, just had no contingency plan, had a really great thing going and thought it's never going to change and just got killed in record time by Windows. And I had to see a lot of close friends and a lot of great peers get laid off, even though they were very smart. They were very capable people. And most people don't realize this because, look, nobody or the companies that get extinguished, but a lot of companies like Netscape, TiVo, all this digital recording, all these are SGI technologies. And it's so funny that then permeated to other companies like NVIDIA. So many of these companies have Silicon Graphics heritage. And it was amazing because I work with very smart people. And the reason why I'm mentioning it, I was in this software group where the engineering manager that I work with as a product manager ended up going to Google as employee number nine. And he was one of the smartest friends that I had. I really respected him. If it wasn't for that, I'm not really sure Google would have gotten on my roadmap. And then as soon as that happened, I had a few other offers. But as soon as I had my first interview at Google, it was clear to me that it was an insane company. It was the biggest risk. And it was probably the smartest people I've ever met in my life. So all I could think was whatever it takes, I want to be in this team. I want to work with these people because I'm going to learn a lot.
Speaker 1And so what did it take?
Speaker 2This is going to be full circle. So here I am interviewing at Google, and everybody is like a PhD in computer science or computer programmer. I don't even have a 1% chance keeping up with them. But then I look around and they look at me. I'm the only person who speaks languages and not just one, but five languages. And at the time, Google is only available in English. I'm like, how can a guy from Istanbul ever have a chance to join Google? And it was that perfect time where they're like, we need Google to be in more languages other than English. And everybody in the company was monolingual. We're really language people. And then here I come in and how can I have an impact? And they're like, well, we need somebody to help us launch Google in first 11 non-English languages. And I respected them for being computer geniuses. And they look at me and like, he's the person who's master of languages. And so if I didn't have that experience growing up in Turkey, learning those languages and attempted to learn French in undergrad and live in Morocco, it's not just the stuff that you learn in school, being able to absorb culture and have an appreciation. And at that time, I also learned a lot of languages. And so I was like, well, I'm going to learn a lot of languages. And I also lived in Brazil, in Europe. So it wasn't just that I spoke languages, but I also lived in four continents. And I think that really, really helped me and put me in a unique position to be the first product manager at Google and to be the first PM launching Google in international languages. So
Speaker 1from your experience at Roche and then watching Silicon Graphics effectively collapse, what did you learn about running a business from those experiences that then as the first product manager, you knew how to do?
Speaker 2First of all, let me be very actually honest with you. I don't think anything that I learned or could have learned aggregately could not even like prepare me for what I encountered at Google. I think it was probably the most formative experience because we never did anything as it was thought or it was done heretofore. Like Larry was very much an original. He was a crazy thinker. He had a very simple philosophy, which was, I'm going to ask you to do insane things. And they are insane by default, because if they're not insane, you're going to basically revert to status quo and you're going to come up with incremental ideas. And the only way to not revert to status quo and not come up with something incremental is that I'm going to ask you something so insane that you're going to have to come up with something brand new and insane to do it. And if you don't try, you can't do it. So you have no choice but to do it. I'd like to say, oh my God, my MBA prepared me so well and all of that. In all honesty, none of my professional roles, nothing I've ever lived in my life prepared me for what was to come. And for good thing, right? I mean, I just kind of learned to never say it can't be done or it's impossible because every time we said, oh, there's no way we somehow figured out a way to do it or at least get close. So his favorite saying was, if I ask you to go to the moon, you might end up in Alaska. But if I ask you to go to a different planet in the galaxy, you're going to go to the Mars. If you don't shoot far enough, you just don't know how far you can go. And a lot of our limits are mental, self-made, and we just don't realize that. But on the other hand, let me tell you that my second job at Google, when I took on the first international sales role, everything that I did, I feel like all my experience of living in four continents and doing a lot of different disciplines were really, really helpful because I represented Google in 40 countries. And I was always the first person to get parachuted in and to do the first portal deals. Like whether I spoke the language or not didn't matter, but I somehow could break the ice and break bread with any of the people that I dealt with. And I think it was the world's best job. Maybe being James Bond is the coolest thing, but that's in a movie. And then the second best thing was to be the first international sales executive for Google. I got to see all these portals in all these countries, and that was my dream to be in all those countries. So I couldn't believe that I ended up what I dreamt. If you dream it one day, it can actually come true. So how long
Speaker 1did you spend at
Speaker 2Google? So I was at Google for about six years, from 99 to 2005. Variety of roles from product management to sales. And what was really great about it is maybe it took me a little longer to start for leases, but at Google, I did sales. I did product management. At Silicon Graphics, I did product management and dealt very closely with engineers. At Roche, I was in corporate finance and a little bit in marketing. And at school, I studied marketing. And then I lived in all these different places and always had intellectual curiosity to be interested in a lot of things. Like I did trading. I had an internship at Citibank my freshman year out of college. And the only reason why I'm mentioning to you is they allowed me to appreciate every single role in a company and the areas that I didn't do myself, like HR, I knew from my mom because I've seen her in action, how she's stressed about recruiting people, motivating people, managing people. So I feel like HR in my DNA and then all the other disciplines, I somehow had been exposed to these variety of roles that I had. The reason why I'm saying is when you become an entrepreneur and when you start a company, all of these things matter because you're responsible for all of that. And you need to hire people for all of that. If you've been in the business for a long time, you need to hire people to help you. And I think that's the thing that's really important. And I think that's really important. And I think that's the thing that's really difficult. So I feel like I had that great advantage post-Google when I was starting my own
Speaker 1firm. When you go through this, as you start talking about it, I could easily think, wow, you are so well prepared to be the CEO of another tech company. So I'm curious when you got through those years at Google, what was your decision process at that point in time when you left of what to do next and why you decided to leave and move on?
Speaker 2It's really interesting because when I was leaving Google, they came to me, hey, Aydin, look, you've done so well at Google. We trust you. Do you want to go and run Google Turkey or have a regional role? And I think what I realized is at that point, I was very happy to serve Google, to have great contributions, but I wasn't motivated to manage a thousand people or let me be the CEO of Google Turkey or Google Europe or something like that. It just didn't motivate me. I think I am much more driven zero to one than one to N. I'm not a political person. I'm very plain spoken. The other thing that I realized is, hey, you spent six years at Google, but you weren't a director or VP. That was actually a lot of people asked me when I was trying to get the VC. Yeah, like you're not a senior executive. We're not really sure you can really do this. And it's just because I think I was almost to my detriment as plain spoken. And I don't know, speaking the truth doesn't always help you, especially you're very passionate. So I realized that my only choice was to be an entrepreneur.
Speaker 1And so what'd you do?
Speaker 2It was very interesting because I thought, hey, there's no way that I can get into venture capital by myself. I need to start working somewhere. I talked to like four or five venture firms and it was clear that I wasn't going to make their cut because I didn't fit any of these checkboxes. And honestly, that's probably the single best thing that happened because the only option I had left was to basically be an entrepreneur by default. And even though I was curious about many other things, I realized that venture capital was the way to go because that was the most relevant and the best way I could leverage all the things that I learned at Google, Silicon Graphics and all the other rooms. I was very lucky because I was early at Google. I had surplus personal capital. If nobody gave me money, I had my own money that I could put at risk. And I'm like, I'm just going to go be an angel investor. And I need to be very humble and frank with you that the timing really helped me back in 2005, 2006. I mean, God knows there were maybe 50 angel investors. I mean, YC was just starting to take off first class, only 12 companies, hardly any angels, no networks, nothing. And it was just a great time to get into angel investing. And the timing was so fortuitous that by being one of the most active ones, I could maybe make it to the first wave of super angels. Now we have solo capitalists. It's just like these things get reborn and reinvented. And that really gave me a lot of impetus and momentum and a personal brand to get into great deals. And it became more self-fulfilling as it went.
Speaker 1So as you started as an angel investor, how did you approach investing? You had had a lot of experience as a business executive. This is a different thing. So how do you think about the type of investment you wanted to make?
Speaker 2Great, not just good, but great in venture. And so I had different firms for different things. And then the other thing that I decided to do was what is one thing that I can do that is so unique, that would play into my strengths, but would be very difficult for other people to copy. And at that time, it was very interesting that it was the first wave of companies that could get started with a lot less money. A lot of these things like servers and other stuff started becoming on demand. It wouldn't take a lot of capital to start a company. Right. So if capital is not that critical, what is the thing that is most critical? And it was literally a very subtle shift in the power going from capital to the founder. And if the power is with the founders, then the only thing that matters is your ability to demonstrate conviction and build trust with the founders. So I decided that the way that I was going to excel is that I was going to find the world's best founders and be their trusted advisor and investor, regardless of the size of my check. Right. And I wanted to be world class at that. And then the other thing that I realized is I was going to take everything in the venture rulebook and turn it on his head. Pretty scary. Well, when you're an entrepreneur and you have nothing to lose, you go do something crazy. So every single venture adage, oh, you have to have higher ownership. I'm like, it doesn't matter. I don't care if I have small ownership, as long as it's a great company. Always invest in what's local and what's close to you. And I'm like, look, I've lived in four continents. I've been to 40 countries. I don't care where it is. I can either speak the language or break the ice. I'll go to where the company is. Right. Very rare and unconventional at the time. And then it was also invest in what you know. And I'm like, I've done so many different things. I have so much intellectual curiosity that I'm going to pick it up. I don't need to be a VP in Genentech to invest in biotech. I know enough to know what matters and what's not. And so all of these things were very unusual at the time. And I built a strategy on that. And what was really great is that maybe a lot of people didn't appreciate it on the LP side, but it worked because it was unique and nobody else was doing it. And so when you're the only practitioner of a unique strategy like that, and also it was timely, it really helped me. I mean, I got a lot of momentum. And then the last thing is, and this is very subtle, nobody ever talks on the idea of shots on goal or hours spent. I guess we have the concept of 10,000 hours. By doing my own firm and making 100 investments in four years, four and a half years, if I was at another firm, God knows if I would have even been able to make five or six investments in that time, if at all. I never make an investment for three, four years. You're just going to sit there and watch. And I'm like, what? I don't want to sit there and watch. I just want to go do and learn. So that is why I'm saying that initial failure and the rejection was the best thing that happened to me, because then I had to figure everything on my own, just like scientific method, trial and error research. You're going to run 100 experiments, see what works and see if your strategy works. And it was probably the best way to learn venture because I feel I had so much more play time and surface area. 100 investments, I tried everything. And the crazy thing was every time I bent a rule, I had success. Then you understand and realize this is a business of outliers. Nothing that is an outlier is normal. So if you try to bring normalcy or strings attached or boxes into venture, you're not going to succeed or at best, you're going to be mediocre. So if you want outliers, you need to have an outlier strategy and you need to have outlier thinking.
Speaker 1There's a strategy when you're explaining it to other people. What you just described as, well, what works is outliers and doing a little bit of this because it's power law distribution. As you distilled the lessons that you learned over those four years and from your prior experience, what was the strategy that you then articulated when you first launched Felicis?
Speaker 2I was the first investor and I'm going to find all the markets that are growing the fastest that need critical solutions that can be satisfied by tech. But everything else, I'm not going to have any strings attached. It's still a pretty broad strategy. In traditional venture strategy, when you explain it, the LPs like it because you're so specialized that it basically roughly translates to I am so specialized that I'm going to be great at decision making. But what nobody asks is, and I had the much broader strategy. I was on the exact same page. I was on the exact opposite end of the spectrum. But people confuse that just because it's broad, it means that the universe you can pick companies from is so much bigger that you are much more likely to have many more successes. Because imagine if I told you, Ted, I'm going to do eight sectors versus just one or two. I'm going to do four stages versus just one. I'm going to do 20, 40 geos instead of just one. Think about how much bigger the universe is. And everybody thought that only like can work if you spray and pray. And I said, no, it just means that I'm going to do 20, 40 geos instead of just one. It just means that the universe is much bigger, but I'm still going to sharpshoot, find one company in a critical market. If the best company for this one area is in another place where people don't believe that it could happen, I'm just going to suspend disbelief. I mean, look at some of our biggest successes. It's like the exact epitome of that success. The first successful company, Shopify, was in Ottawa. People are like, that can never happen. It became $160 billion company. Then we invested in Rovio. It was in Finland and Helsinki. Then our payment company, Adyen. Remember when we first made the investment and wanted to take it to Wall Street Journal, Wall Street Journal was like, what is this company? It's not even our database. Just because it's in Amsterdam and everybody here knew Stripe. It's an incredible company. And that was in Amsterdam. Later on, we invested in Canva, which was in Sydney. I just want to tell you that everybody thought for the longest time, Googles and Facebooks can only happen in Silicon Valley. But very quickly, it became more democratic and international. And then what happens if you're going to invest in companies around the world? Well, do you have somebody in your team that is truly international? That's me, because I lived in 40 countries. I speak five languages. So then the founders look at me and like, you're perfectly made for this. You relate to us. You care about us. You love our country. You love our company. So it's kind of incredible that something that no VC ever thought was going to matter or is important became something that is really important, which is the founders want to feel that you genuinely care about their company. You have conviction and you believe in their dreams versus at the time, Silicon Valley VC methodology was, look, we're giving you the capital. We're going to get on your board and we're going to tell you how to run this company. And if you miss your goals, we're going to put our friends in the board or as executives. And the founder is like, no, I'm going to do crazy things. And I want to know that you're going to believe in me and you're going to let me do this thing. And you're going to support me versus telling me to run my company the way you see fit. So that's the thing that really gave us that first impetus. And today, when we have 100x more capital, even, it really sets Felice's apart as a VC because our heritage, our DNA has always been founder first and everything else, we make it work. If we find the right founder in the right market, the answer is yes.
Speaker 1I'm really curious to drill down a little bit on the process of how you get there, because when you have that broad of a canvas to paint on, the first question that comes to my mind is how do you end up sourcing the deals you want when it could be the whole world? It could be every sector.
Speaker 2That's a really good question because one of the things that really helped us from the very early on when we didn't have the strongest deal flow, we always thought that our job was not to wait for the companies to come to us. Our job was to find the companies that matter in regards to if they heard of us or not, go find that company and do whatever it takes to be an investor in that company. And to be honest with you, my experience at Google was hugely helpful. I remember being responsible for Japan. I never lived in Japan and I had such a crisp plan. I'm like, I want to find all the portals that matter. And I knew that if I was in seven of the top 10 portals and was successful, then I did solo against a competitor that had 30 people, most of which were Japanese. So we did the same thing in venture. This is a race to find the best companies and the earlier you find them, and hopefully you do find them and you close them, that's going to be the factor that's going to make you successful. So for Shopify, we had the thesis that, look, we wanted to invest in a formative commerce company. And it was in a crazy environment. And I was meeting some other founders that basically refused to take money from me. And in my defeat, I went to their blog and saw an interview with Toby. And I'm like, oh my God, this is the company. This is the company. company we're looking at. It wasn't, we went and look at thousand commerce companies and decided Shopify was it. We always try to find some way of very quickly getting who is either the current leader or the potential leader of this field. And then basically say, look, it's not that we're trying to make an investment in Canada or Holland or Australia or Finland. It's just that we're trying to find the best company in an area that we are convinced is very, very important. With Rovio, that was the first mobile app that was number one in every app store in every country. It happened to be in gaming and it happened to be based in Helsinki. So our job was to travel to Helsinki enough times until the CEO said, yes, we're going to take your investment versus waiting in Silicon Valley. Oh, like we didn't get a gaming company. We got whatever, some other company. It doesn't matter. We are only going to be successful if we're going to get into this gaming company. We're only going to be successful if we're going to get into this formative commerce company, Shopify, because we are going to get into this formative commerce company, Shopify, did know or could predict that this is going to explode. It's such an important area. Every freaking motor store is going to have an e-commerce store of some sort, and somebody is going to facilitate it. If all the information is online, there's going to be a search engine and that's going to facilitate discovery of information. So when you have that simple thesis, just go try to find the best company that essentially fulfills that promise. Let me give you an example of one of our very unusual focus areas a few years back, which was mental health. I'm not a mental health expert. I don't have any psychologists in the family. I've never had psychology training or psychiatrist training. It was a very simple thesis. One day it dawned on me that so many of my family and friends had different mental things that were going on with them. And I'm like, wow, every year I go to doctor for a physical checkup, but there is never really a mental checkup. Nobody knows what's wrong with you. They can't even diagnose it. There is no test for physical stuff. You can do a blood pressure. You can do blood check. You can do gene tests. We can pretty much identify anything that is going on with you. We cannot do anything that is happening with you mentally. Health is the largest span of GDP, the largest budget, the largest cost in the US, probably for the rest of the world. And the only area of health that is still in stone age is mental. I guarantee you that there's going to be multiple huge companies getting created addressing mental health. So we went all in on mental health or a couple of years back, we realized in the new world, there are new areas of technology that are infrastructure, security, and DevOps. Because when I went to grad school and we studied economics, what does it take to start a company? People, raw materials, warehouse, office, capital. And today, what does it take to start a company? Oh, AWS, a little bit of capital, and maybe a few people. So this is like an age where data is the new oil. There's nothing physical. In this new age, what matters the most is data and infrastructure and DevOps and security. Because if all your biggest assets are not physical, what matters the most is data and infrastructure and DevOps and their IP, their software, then security is so critical. Because if I want to steal something that is really precious, I'm not going to go steal a car or office, whatever. I'm going to go try to steal IP. So that's what's happening between nation states. And it's also crazy because it is much harder to detect. So security is never going to go out of fashion. So we made a hard pivot into these areas. It's not like I'm a security expert. I'm definitely not a DevOps expert. I'm definitely not a cloud or infra expert. So even though I'm not a security expert, I don't have any of these qualities, I am absolutely convinced that these are going to be monster areas in which incredible companies get created. And you're already seeing it. We have to find the best companies. We came from scratch. And we, I think, now have a dozen companies in these areas, even though we don't have a single resident expert.
Speaker 1How do you distill the passion and the vision that comes from looking for those opportunities to your team?
Speaker 2I try to lead by example. I mean, it's very much like an apprentice model. It's not like I have a bullet. I think Shopify took me eight emails until Toby said yes. And he asked me to fly to Ottawa. Adian took me two years to break through. Rovio took me a year and a half. And I had to meet them in the US and London and Helsinki. So it's not like I figured out this industry is the right industry. And I found the company, but I had to be relentless, getting smashed into a wall and hearing a no and no smile, like something skeptical on the other end, I think, until I broke through the ice. That's the funny thing. And I go back. And the reason why I can do this is because of my living in these crazy countries or dealing with these people where I'm like, how the hell am I going to convince them to buy what I'm selling? And that's the pivotal experience that keeps me going. And they see that. And also, if you are not showing emotion, and if you're not showing that you care, then I don't think people want to work with you. So many people think that just because they have the degree, they have the title, they have the idea that the deal and the win is going to fall into their lap. And the founders, they are putting their life into this. They don't want to think that this is just like a little checkmark or a little transaction in your Excel spreadsheet. What they want to see is that you care, that you're going to make an effort, suspend disbelief, and you're going to do whatever it takes to help them. We always talk about it. Who's your best friend? What is something that you appreciate about your significant other is because they support us. They're there in our worst days. And I think that's the important thing for that to come true. With the founders, there is that moment where they truly believe that you are that trusted partner. That is the magical moment, I think, when it's just very special.
Speaker 1So once you're in a deal with one of your founders, what do you try to do with your team to help create value at the business?
Speaker 2The most important thing that we do, honestly, is to always ask the founders, what is the one thing that matters the most to them? And what is the most critical? There are some things that we do that is across the board that involves recruiting or strategic help with next round or exits, planning, introducing them to customers. There is every now and then something that is very unique and special. I remember this was especially the case with Rovio and Shopify. Rovio was just about to launch their physical goods. They have these really cool goods, the Angry Birds, the plush toys. And they realized that a couple of weeks before Christmas that they had no experience building an online store and the time was running out. And that was right after we closed Shopify. So I went to Shopify and look, you have a lot of customers, but Rovio could be one of the biggest ones. And they put one of their best engineers. Just by connecting the two companies, both of them got something amazing out of it. I remember when we were talking to Adyen, they didn't have any notable customers in the US, but one of our biggest advisors was from Facebook and Facebook was their first major client they were trying to close. And we got some unique insight that I think really helped them in that journey. And I remember even after Shopify went public, one executive, one day I get a text from Harley. He's like, look, we just need to get ahold of this executive. Please do whatever you can in a couple of days, make the intro. I'm like, oh my God, there's no way. And then it turns out that we did find somebody in our team that could get through to that person. And we did quickly get through to that person. And we did quickly get them. So the reason why I'm mentioning this is that there is no secret formula or 200 people in the back end that just wait to do a job is our willingness in that no job is too small. Whatever the founder needs, we will just go find a way to make it happen. And they really appreciate it because the thing is that moment where it's most critical and timely, that's when they really need the help. And when you can do it, nothing builds trust more than that.
Speaker 1How do you think about the number of companies that you want to work with when you're really trying to make a difference? We try to keep a good balance
Speaker 2because I do think that having a certain portfolio size is really important because the network itself that becomes extremely valuable. But we also understand that this can't be a supermarket. We can't make hundreds and hundreds of investments. So it's a fine balance. I think one of the things that helps here is that we have a unique strategy with our team that we try to make decisions together unanimously. And that doesn't mean that we can't have different opinions and different levels. And we can still have skeptics but one of the reasons that happens by design is that the only way we can handle it is it's a little bit like a customer support team that we don't know each one of us how many demands or asks we're going to get. But if we're all working as a team, there might be one ask where at that moment, five of us are trying to help this one company. And then there are other times when each one of us can handle three companies by having that overall support of everyone that, hey, it's all about the pie. It's all about the family. It's all about our founders. Even if they're not the founder, relationship managers, not one of us directly, if there was an ask, we're all going to roll up the sleeves and figure out. And then the thing that really helps us is that we have a very diverse team and not just diverse in terms of their backgrounds or their gender or anything, but like they worked at different places, they went to different schools, they had different professions. So we can cover a lot of ground with a small team just because we have nothing in our team that overlaps. So as a result, we always have someone that's kind of likely to have either perspective or know someone that's then going to get the job done. Get us to the right answer, whatever it takes and whatever that is.
Speaker 1How's that translate to roughly the number of companies and the number of people on your team?
Speaker 2Today, we have about 26 people in our team. Roughly 10 of them are in the investment team. I do have to give a lot of credit to our founder success team. It's a very important aspect of our operation. So that's growing really fast to say like anywhere between 10 to 15. And I would like to say we probably have somewhere north of 250 active companies. So roughly half of them have exited. So I think maybe for 350 to 380 investments, we have 170 exits. So we have 200 or so companies. And so I think it's still a pretty good ratio in terms of the companies we can handle. And we are investing to grow the team and to make sure that we have capacity to help.
Speaker 1I'm curious how you think about the capacity of your capital as these companies work through later stages of rounds and funding.
Speaker 2That's one of the reasons why we kept scaling. I started with a four and a half million dollar per personal kick capacity and our first one was 41. million. Now, for the first time, we're investing out of a fund family. And together, we have, I think, 900 million committed in this latest fund. And so you're like, wow, that's quite a bit of growth. Yeah. First of all, I mean, you can see the numbers. I mean, everything is going up and to the right very rapidly. Valuations are up, check sizes are up, round sizes are up, and things are scaling very, very fast. On the one hand, all this is scary, but the companies are getting to unprecedented levels of success in unprecedentedly short times. So the only job we have is to get onto those bullet trains, hypersonic planes, however you want to call them, the companies that matter, we need to have an unfair share of those, whatever it takes. The reason why this question is important is, if you don't have the right capital structure, you might not be able to make the investment at all, even though you've seen the right company and the company might be motivated. To work with you, if you don't have a capital structure, for instance, like, let's just say, look, if we weren't $600 million main fund or $300 million focus fund, even just to be able to do a series A these days, I mean, seed rounds used to be, I don't know, half a million to 2 million. Now, very frequently, we start seeing seed round five to 10, sometimes 15 million, sometimes 20 million. A rounds used to be 5 million. Now we have A rounds that can go up to 100 million. And this is just an A round. And so it depends on demand. If you have an amazing pedigree founder, if you have an amazing pedigree founder, if you have an amazing pedigree founder, a great company, you're going to have insane capital that wants to get into that company. So in this crazy world, you just got to be able to say yes for the right companies. And if you don't have that capital structure, it's very difficult to be successful, let alone to stay in the game.
Speaker 1How do you think about the trade-off of your initial idea when you were angel investing of just wanting to be in the best companies, irrespective of how much you could put in versus this idea that you want to have enough of the businesses and maybe in some situations, being a lead investor?
Speaker 2Honestly, this strategy is not different today. There are many situations where because our true north is to be in the best companies, the only thing that has changed is we went from by default and by capital scarcity to be only participating investors to now, I think we lead or co-lead about 70% of the investments we make. And there are still 30% where we make strategic investments and some of those are most successful companies. So when we realize that it's either a small stake or no stake, we still opt for the small stake. Because one, we're in the company, we're very confident that if we can do a good job, we can over time increase those investments, which we've successfully done so far. So we don't really see it like all or nothing. It's about like, just get into the right company. And if you do the right thing, you'll have opportunity to grow your stake over time. I think the thing that we realize, it sounds like it's easier to do participating investments versus leading investments because to lead or co-lead, obviously, it's much more difficult, it's bigger check. But even in those examples, one of our most valuable companies, our initial series A ownership was probably around single digit percentage, mid single digits. In other world, ABC is like, oh, we can't even get 10, 20%. We're not going to do it. And look at where that investment is now. It's going to return a huge amount of money to Felicia. So I think this strategy is still helping us. If you look at some of our biggest successes, like Shopify, IDN, yes, we own maybe single digit percentage and sometimes small single digit percentage. But all these investments became multiple fund maker and huge for us. So it's still true. But the big thing that changed is that we realized that making participating investments, you don't control your destiny and you can be easily closed out of a deal. So the only way you can control your destiny, in addition to pursuing companies outbound, is to actually lead or co-lead a deal. Because if it's not your term sheet, God knows what's going to happen. It's not fun to wait for that call that, yes, you can make it into the round. And I think flexibility sometimes, conversely, is a huge factor in us. Winning a deal when it's competitive and the founder is like, look, it's competitive. I have five, six term sheets. Then it comes to the differentiation and brand, but also flexibility, which again, is a trademark and a huge part of our brand.
Speaker 1As you've gone through that evolution, I'm really curious about the balance between cooperation and competition with other venture capitalists. How has that played out as you've evolved to wanting to be a lead in more of your deals?
Speaker 2We have 100 times the amount of capital now. All the funds are bigger. They're all good teams. It is natural that we're going to run against each other and it's tough. We all want to be in the same great companies and we all want to maximize our ownership. So one is to remember that it's a long game. Never optimize for the one deal or investment. Be as generous and as nice as you can in every situation. The second thing is just be top of mind for people. A lot of times I wish, oh, there's a formula. You know what the formula is? Just be always good to people and try to be as top of mind as often as you can. Remember them, reach out to them. It's interesting that in this crazy age of technology, so many of the fortuitous and serendipitous things that happen, happen because we just bother to call someone and open up and ask them what they're doing. And lo and behold, oh my God, we're excited about the same area or the company. And people are much more motivated to find a way to make it happen. And even though we have these competing goals and we want to maximize ownership, things are hard. You want to have also a good trust of partner around the table too. So it's just, but it cannot be all give and no take. We are very conscious of that. And we always try to make it very easy for the other part to say yes, or be overly generous because one day we feel like that good karma will always come back to us.
Speaker 1Yeah. When you go through a process of effectively hunting down a company, what does the due diligence look like when Toby first answers your call and you've already invested all this time and energy into getting there? How do you take that initial excitement and then turn it into, to some type of research process?
Speaker 2You just got to be a great listener. And I'm just looking for unique insight. There were a couple of things that happened when I showed up. The first one is something very unusual where Toby said, look, we're doing something a little bit crazy. We only have 20 engineers and the whole company was, I don't know, 50 people, something like that. Maybe they had 25 engineers. And he said, I'm taking my best engineers off of product development, but they're going to build this real-time database for me. So then I have this real-time visibility into everything that's going on. And somebody else would have looked at that. Great. I'm absolutely walking out of here. The CEO is crazy. And I saw something that I saw exactly at Google, exactly at 50 people at Google. Larry said, you know what? We need to move even faster. And if we only put engineers on projects as they become relevant, it's not fast enough and we're going to fall behind. So for the first time in the history of Google, he took three people. He's like, from now on your Google research, you're not beholden to anyone. Go work on crazy. Things that we probably going to need a couple of years from now, but when we need it, you will have already worked on it. It was such a subtle thing, but unless I had that experience from Google, I don't think anybody would have appreciated. Everybody else was like pouring through the numbers and trying to calculate ratios. And I'm like, yeah, that might give you insight, but that insight was so different than all the other things you could get from the numbers. And then there were two more things. Number one, they were drastically underpricing the product and it might've scared someone. Number two, they were drastically underpricing the product and it might've scared someone. Number three, the message that it sent me is that it's like Amazon. No customer ever said, I want to buy a product for a higher price. Everybody's like, I want to buy it for the lowest price possible. And then the last thing is you're always looking for an unfair distribution advantage. And they're like, look, we have this crazy idea. Even though we have this great tool, majority of our customers still find us through design agencies or web agencies. So we came up with this idea that if one of those basically loop in Shopify and it's built on Shopify, they get lifetime commissions as long as the customer is on it. It's such a simple idea. Of course, it's all about keeping your customers forever. And nobody was thinking about it. Everybody's like, no, I don't want to pay out too much in commission. So literally those three things along with seeing the product, and this is an incredible product and it's a lot of gut feel. That was it. And it's always something that you don't hear from somebody else. And the moment you hear it, it automatically makes sense. Like, of course, but until you hear it, it's not obvious because if it was a product, it's not obvious. So I'm like, okay, I'm going to buy a product. Everybody else would be doing it. And it is uncomfortable, but you hear it and you're like, yep, I get it. It's very unique and nobody else is doing it. So this is the company I'm going to back.
Speaker 1And how about the other side of it where there's a similar situation, different company where you're excited about the industry. You've heard about the company, you've hunted them down. You finally get to meet them and you don't hear those special insights.
Speaker 2Yes. I don't want to preempt, but one of my investment pet peeves is every founder is constantly talking about success and every everybody's asking, how can I be successful? Everybody wants to figure it out. And it is surprising to me that nobody's ever talking about how to measure success. So if you don't know how to measure success, how the hell are you going to get there? For my German training, the one thing that I learned is if you have a plan, things might change and things might not go according to plan. But if you don't have a plan, there's no way you're getting to your destination. And part of an important part of the plan is if you have a goal, you need to have a map. And if you have a plan, you have to get to success. You need to figure out how to measure it, at least initially. And it can't be, we got an article on TechCrunch or whatever, Wall Street Journal. If it's all about user engagement, it's like the level of engagement. It's about having happy customers. What is your NPS score of the customers? If it's SaaS, are the customers willing to stay with you? We have about 100% revenue retention. And are you growing? How many customers do you have? And then even for growth, it's table stakes to say, you're going to grow X next year. The top companies are like, not only do we have that growth goal, but we have five to one pipeline coverage. Even if you get to 20% of your pipeline, you're going to hit that growth number. I know that you're you're going to hit that number because that coverage means that there is no way that you're not going to hit that number versus other people are like, yeah, we're going to grow 50x. And you look, there was nothing that's supporting it. And they don't even know how to measure it. And I'm like, I'm done. There's no belief to suspend here because there is nothing that I can hold on to
Speaker 1here. How do you think about your reputation for being so founder supportive and founder first in those situations where you got so gunged up for the opportunity, but then when you saw it and actually got in there, you wanted to walk away?
Speaker 2Here's the toughest part of my job. And our job is that 99% of the time, the answer is no, or 95%. In fact, one of the things that I'm trying to do is to only have conversation where I think there is a better than 50-50 chance of saying yes, so that we don't waste somebody's time. And we're not spending all that time in a meeting and saying no, we need to have a really good feeling the game has advanced so far now that we have some incredible research capacity that we can look up things a lot more in advance before even we have a single conversation. Here's the thing. It's the toughest thing to say no to an entrepreneur. This is their life's dream. And you know what helps? It's because I've been in their shoes. The first time I was fundraising, there were 50 LPs that said no to me. No, no way. This is not going to work. Here's some other LP. Go talk to them. And that person is like, no, absolutely not. We want to give you a single cent. Go talk to these other people. Maybe they'll give you money. The thing that really matters is to be upfront and transparent. Look, I care about your success. Here's why we can't say no. Give them something good, something healthy. Here's what I saw. I'm not going to give you a bullshit answer. If I were you, I would think about this. I would pay attention to this. I'm really sorry that we can't invest. We are rooting for you, but try to pay attention to this or at least think about it. So when they see that, it's no with like, I care about you and I'm trying to be helpful to you. And is there anything else I can do for you? And they know it's our business. We can't say yes to everyone. I know that it doesn't sound like much, but for a lot of founders, seeing that emotion, also on the no side and not just on the yes side that you care and you're trying to help, that's all you can do.
Speaker 1I'm curious how you and your team split your time between going and looking for new deals and the time you're spending with your portfolio companies.
Speaker 2It's a balance. You're hitting on another thing where it's funny that many times that we ran a lot of experiments and projects at Felicis to see how the time is even spent. You'd be surprised how little people actually measure that. And this was coming up from our LPs. There were times where we're a little bit worried about your capacity. So I'm like, well, let's figure it out. I mean, to my point to you, if you care about something, you got to measure it. And so we measured it. It's a moving target. It's not like there's a magic number. I think the thing that I'm trying to do is go to success also by process of elimination. How many meetings are we taking that we don't need to take? And if you don't free up that time, you cannot help the companies when it becomes critical. So one of the things that I can look at fundamentals and maybe start conversations and take meetings where we have a much better idea, maybe much more so than before that, hey, this company really warrants a conversation and a meeting. And by like narrowing down the focus and narrowing down the scope of companies, we take fewer meetings where we say yes more, but it also frees up a lot more time. And then the other thing that we found is that even if we have aspirations and we want to grow, we don't want 200 people in our team. So we started doing some really creative things where we start engaging people. There are some great people out there. They just want to run their own firm, whether it's recruiting or PR or whatever. We're like, look, you don't have to be on Felicia's payroll. We'll go and guarantee you 70% of your business or 80%, maybe 100% of your business. And so it's been really amazing. If you go to entrepreneurs, like, look, you want to like make sure you have some guarantee and predictability. We come up with very creative ways to drastically increase resources, but also be pretty stringent with time management so that we are trying to free people up. And so we've been doing that for a long time. And so I think that's one of the things
Speaker 1that we're trying to do. And I think that's one of the things that we're trying to do. Really curious to get your take on the venture environment. You mentioned, as everybody knows, valuations are a lot higher. There's more money going into companies at earlier and earlier stages. How do you think about participating in an environment where there is so much capital and so much happening?
Speaker 2Well, I mean, the thing that I try to tell people, imagine you're in NFL or NBA, instead of 32 teams or 36 teams, now there is 200 teams. And all of a sudden, every game goes from just a league game to a playoff game. And then it's even worse. Think of your nightmare situation, get a thousand flashes going off, or you're playing an outdoor football game in sleeting rain, 30 mile per hour winds. This is basically the environment we're in. There is no low hanging fruit left and everything is just insane. Everything is crazy. Well, the thing is that the people that are going to succeed in an environment like that are the ones that want it the most. I mean, a lot of people are still going at it despite the surplus of capital in a formulaic way. And we're still trying to do it the old school way of creating a bond with the founder, being very fast, being very prepared, always ready to adapt very, very fast to changing environment. And I think that's the one thing that's helping us. And the funny thing is I keep telling my team, don't spend a single minute on valuation environment that the numbers are high. It's just that that is now a fact because the reality is markets are supply and demand. You cannot fight supply and demand. Supply is what it is. Demand is what it is. If you have very short supply and very high demand, we're going to be in a situation that we're in now. Our job as professionals is to figure out how do you succeed in that environment? One of the things that we discuss is contingency planning. Everything we do as a plan B, plan C, and a plan D. Every single fund is a model and a backup, and we have multiple contingencies prepared. And we are maybe five times a day talking about, is there something noticeable that's changing in the market and what is going to be our reaction versus complaining that it had happened? Don't even waste a single second. About the difficulties, let's spend all the time to figure out what we're going to do about it. Show me the solution.
Speaker 1All right, Aydin, I want to turn to a couple of closing questions. What is your favorite hobby or activity outside of work and family?
Speaker 2So it used to be flying because it was a big dream of mine. But these days, due to COVID, I'm back to tennis. I realize I'm getting older, so it's really important to be physically active and much more so than before. So I'm back to my first love, my first hobby. Tennis is a sport that I love.
Speaker 1What's your most important daily habit?
Speaker 2The thing that makes me happiest is to say I love you to my wife and to my kids every day and to say thank you as many times as I can. It's just something special about that. And I'm like, look, if today is the last day of my life, I want people to know what I felt that I appreciated them and I love them.
Speaker 1You mentioned your investment pet peeve. How about the other side, your personal pet peeve?
Speaker 2Very simple. The thing that I care more than anything else is value of time. So people that don't appreciate value of time and feel like there's all the time in the world, I always feel like it's not just enough to go somewhere, but go there as soon as possible or as efficiently as possible. And people that don't respect time and move on and action-oriented are big pet peeve of mine.
Speaker 1Which two people have had the biggest impact on your professional life?
Speaker 2The first person is Omid Kurdestani, one of the most formative Google execs. He gave me my first Google offer. And if it wasn't for him to give me a chance and take a chance on me, I don't think I would have been here. The second one is Omid Kurdestani. Even though I only work with him for a year, I'm going to say Larry Page, just for the sheer fact that if you ask my wife, my team, or my founders, probably the person that I quote the most is Larry. I always like to say, hey, when I was working with Larry or when I was at Google, this is the thing that I learned. And he is the person that I learned the most from, even though some of those were very hard learned lessons, is that I learned a lot from him.
Speaker 1What's the biggest mistake you've made and what did you learn from it?
Speaker 2If I basically had a thousand shots on, having my life again, I would do the exact same things that I did today, including the mistakes. I wouldn't change a single thing. But in terms of a meta thing, I wasn't as action oriented before, and maybe I was a little bit more shy. If it's not 100%, whether it's 98 or 65, doesn't matter. And the only thing that really truly separates you from everybody else in life is to be in the 100% camp, to be consistent. I think that subtlety is lost most often. So my mistake maybe earlier on, or in general, is to be not consistent. And honestly, maybe sometimes I take things too personal and maybe for personal happiness and to be able to subsist in these difficult times as we languish, as Adam Grant says, don't take things as personal and try to think of the happy things.
Speaker 1So we started with your parents. And let me ask what teaching from your parents has most stayed with you?
Speaker 2It's interesting. So each parent told me one thing. What I learned from my dad, he grew up without his dad, with a single mom. And so his biggest thing was, don't ever be dependent on anybody else. Don't ever be in a position, where you have to beg or plead for help. By all means, do everything you can to be independent and self-sufficient. And my mom hustled. She always used to tell me, I did all these things where if you look at my IQ, or my exams, whatever, you would have never expected. But every time, she was always the person that hustled the most, that tried the best, never gave up. So that grit and resilience that you're hearing, I think through DNA and through role model and osmosis that came from my mom.
Speaker 1All right, Aydan, last one. What life lesson have you learned that you wish you knew a lot earlier in life?
Speaker 2I think I just started touching on it. We talked about consistency. But the other big thing is just to not take things personal. I'm Mediterranean by birth, and it's hard. We're emotional, a little bit larger than life. One of my F1 drivers, his nickname is Iceman. And I'm the exact opposite of that. And sometimes I wish there was a little switch that I can turn on and I can be Iceman. Just don't take it personal. Don't care about it. I remember I read this article about Robert Reich one day, who was Secretary of Treasury, and he said, look, for every decision that I have my first question is how much time do I have? I think we rush a lot of things. And this is part of being a nice man is that instead of reacting in the moment, getting emotional, taking it personal, just realize there might be more time to take this step. It's good to sleep on it or take a little bit more time to see if you feel a little bit differently, even a couple hours later. It's incredible how our mindset changes, even if we give ourselves the opportunity of a little bit of time. It's probably one of the biggest things that I learned. And I wish I knew that much younger.
Speaker 1That's fantastic. And thanks so much for taking the time.
Speaker 2Thank you, Ted. Really appreciate the chance and opportunity to join you.
Speaker 1Thanks for listening to the show. If you like what you heard, hop on our website at CapitalAllocators.com, where you can access past shows, join our mailing list, and sign up for premium content. Have a good one and see you next time. An important disclaimer from Janice Henderson Group, PLC. Investing involves risk, including the possible loss of principal and fluctuation. of value.
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