20VC Scaling from a $4M Angel Fund to $900M, Why Seed May Be The Best priced Asset Class and Not Overpriced At All & The 3 Stages of Fund Scaling and What it Takes To Build a Firm with Aydin Senkut, Founder and Managing Partner @ Felicis

In this episode of 20vc, host Harry Stebbings interviews Aydin Senkut, the visionary founder and managing partner of Felicis Ventures. Senkut, a former senior manager at Google, has transformed his investment firm from a modest $4 million fund to a colossal $900 million fund, investing in 45 unicorns and witnessing 14 IPOs. Felicis Ventures has a diverse portfolio, including giants like Adyen, Shopify, and Notion. The conversation delves into Senkut's entrepreneurial journey, the art of venture capital, the significance of growth mindset, and the importance of empathy in achieving success. Senkut also shares his strategic insights on portfolio construction, the challenges of scaling a venture firm, and the nuanced decision-making process behind investing in startups and when to exit. Notably, Senkut emphasizes the value of independence and original thinking in a field often swayed by consensus and data.

• Aydin Senkut is the founder and managing partner of Felicis Ventures.
• He scaled the firm from a super angel with a $4 million fund to a $900 million fund.
• His firm has invested in 45 unicorns and participated in 14 IPOs.
• Notable investments include companies like Adyen, Canvas, Shopify, Notion, Opendoor, and Plaid.
• Aydin was a senior manager at Google before starting Felicis Ventures.
• He has been named on the Forbes Midas list for nine consecutive years.

"I'm so thrilled to be joined today in the hot seat by one of the greatest inventors of the last two decades."

This quote introduces Aydin Senkut and highlights his accomplishments in the venture capital industry, setting the stage for the discussion about his journey and insights.

• Aydin Senkut's investment strategy is broad and global, informed by his diverse background.
• He transitioned from angel investing to venture capital to have more resources and to build a team.
• Felicis Ventures' strategy is to invest in the best companies worldwide without limiting themselves to specific stages or regions.
• Senkut embraces an unorthodox approach, avoiding crowded investment strategies.

"I always had this crazy thought of, I'm going to do things exactly the opposite or exactly outside of the orthodox way. That's the only way I know how to get to success."

Aydin Senkut explains his contrarian approach to venture capital, which has been a key factor in his success. He believes in doing things differently to stand out in a competitive market.

• Aydin faced challenges in starting his venture firm, including a lack of typical background and experience.
• He experienced many rejections from potential LPs (Limited Partners) due to his ambitious but unproven strategy.
• Despite these challenges, he succeeded in raising funds from LPs who took a chance on his vision.
• His journey reflects the entrepreneurial challenges that founders face, which he empathizes with.

"I also got a lot of no's in first LP conversations, for good reason. I did have a really ambitious strategy, but it was unorthodox and I didn't have any experience to prove that it was going to work other than a lot of hustle."

This quote highlights the difficulties Aydin faced in raising funds for his first venture fund due to his unconventional strategy and lack of a typical VC background.

• Aydin believes that the current market valuations are not as inflated as they seem when adjusted for inflation and cost of living increases.
• He emphasizes the importance of adapting to market changes to remain competitive.
• Felicis Ventures prioritizes being part of the best companies over optimizing valuation and ownership.

"The most important thing to say is I was actually running this calculation last night. Even if you said regular inflation is anywhere from three to 5%, it's been roughly 16 years since I started."

Aydin Senkut provides perspective on market valuations by considering the impact of inflation over time, suggesting that current numbers may not be as alarming as they appear.

• Aydin's parents were entrepreneurs, which inspired him to pursue entrepreneurship and venture capital.
• He views starting a company as one of the most rewarding endeavors despite its challenges.
• His career path was intentionally designed to prepare him for a role as a venture investor.

"I just think that it's one of the coolest things one can do to start a company. It is an arduous journey, but it is a very fun one."

This quote captures Aydin's enthusiasm for entrepreneurship and his belief in its value, which has informed his approach to venture capital.

• Felicis Ventures started as an angel investment activity and evolved into a full-fledged venture firm.
• Aydin's unique background and experiences have shaped the firm's strategy and approach.
• The firm's first fund was a modest $4.1 million, but they made significant investments in companies like Rovio, Shopify, and Fitbit.

"Everything that I've done in my life until the point that I started Felicis, was really designed for me to be a great venture investor."

Aydin Senkut reflects on his life experiences and how they prepared him for success in venture capital, demonstrating the importance of diverse experiences in shaping investment strategies.

• The growth potential of great companies often exceeds initial expectations significantly.
• Initial entry price becomes less relevant if a company grows substantially beyond projections.
• The focus should be on investing in the best companies, even if it means sacrificing valuation and ownership initially.

"But if the company ended up being ten to 20 x bigger and you managed to get into the best company, it makes it a mute point."

This quote highlights that the ultimate success of an investment can render the initial cost irrelevant if the company's growth far surpasses expectations.

• Ownership at the time of the first investment check is important but can be flexible.
• The strategy includes starting with a smaller stake and increasing ownership over time by proving value to founders.
• Fund size influences the approach to ownership and investment strategy.

"And then we need to double down, triple down after we show more value, after we convince the founders it's worth it."

Aydin Senkut emphasizes the strategy of initially investing a smaller amount and then increasing investment as the investor demonstrates value to the company's founders.

• The pace of investment deployment has accelerated, with funds now often deployed in 12 months or less.
• Vintage diversification is crucial to avoid concentrating investments in a single market period.
• A balanced portfolio should include sector, geographical, and vintage diversification.

"You can always say there's so many great companies, our bar is really high, but I think being able to exceed that twelve month threshold and you can manage it, especially when you're at our size and scale, you essentially change the stage mix and all of a sudden you can still not give up on speed."

Aydin Senkut discusses the importance of extending deployment pace beyond the current trend of rapid deployment to achieve diversification and manage risks effectively.

• Scaling the investment firm and fund size is necessary to lead rounds and take on board seats.
• Growth should align with market trends and the firm's capabilities.
• Fund size calculations are based on a model and plan, not arbitrary numbers.

"But that allowed us to transcend stages. That allows us to go from participating investor to lead investor."

Aydin Senkut explains that the growth of the firm's fund size enabled them to transition from passive investors to active lead investors in portfolio companies.

• Crossover funds face challenges due to the volatility of public markets.
• There is a trend of crossover funds moving into private investments to capture growth.
• Original thinking and understanding market directions are key to success in early-stage investments.

"I think that has been one of the main factors that contributed to our success is that we as a team have always thought about where the world is going to go pick the markets and sectors, right."

Aydin Senkut attributes their success to the ability to foresee market trends and choose the right sectors, emphasizing the importance of original thought in investment strategy.

• Crossover funds moving into earlier stages may inflate prices due to increased demand.
• These funds focus heavily on enterprise software, which could limit their impact on other verticals.
• Data is less available for early-stage companies, which could be a barrier for crossover funds.

"I think original thinking and knowing where the market is going to go and what markets are really important, it's still an art."

Aydin Senkut argues that despite the influx of crossover funds, the art of predicting market trends remains a crucial skill that data alone cannot replace.

• Aydin Senkut discusses the importance of experience in venture capital, suggesting that witnessing both successes and failures provides invaluable insights that cannot be bought with large funds.
• He emphasizes the complexity of building and scaling great companies, highlighting the importance of venture firms that can provide strategic guidance beyond just capital.
• Founders may prioritize the quality of their venture partners over the highest valuation, seeking firms that can help them navigate challenges and strategize effectively.

"I had an amazing experience at Google and seen one of the world's most valuable companies getting built. But I've also seen terrible things at Silicon Graphics where I've seen one of the world's greatest companies crash and disappear out of history."

The quote illustrates the value of Aydin's diverse experiences in both successful and unsuccessful companies, which inform his approach to venture capital.

• Aydin describes three main stages in the lifecycle of a venture firm: solo operator, team, and team of teams.
• He shares that his early success as an angel investor with twelve exits validated his investment strategy.
• Aydin emphasizes the importance of cultural fit and growth mindset when building a team, stating that picking the right people is much harder than choosing companies to invest in.
• He reflects on taking chances on people with raw talent and a growth mindset, leading to unexpected levels of success within Felicis.

"I think when you're creating a team, there are some things that are not obvious to me. Listen, that was probably where most of my learning has happened, is that you look at people and like, wow, these people are really smart, they're incredibly talented, incredible experience. For sure. It's going to work out great."

This quote highlights Aydin's realization that intelligence and talent are not the only predictors of success in a team; cultural fit and mindset are equally important.

• Aydin introduces the guiding principle of Felicis as "success with empathy," challenging the notion that performance must come at the expense of a supportive environment.
• He believes in achieving high performance while maintaining empathy within the team, suggesting that internal conflict can detract from the firm's focus on finding great companies.
• Aydin views Felicis' approach as an ongoing experiment that continues to receive support from limited partners (LPs) due to its performance.

"Our guiding principle is success with empathy. Now, empathy doesn't mean that it's all Kumbaya, but I think I had this theory when I wanted to start felisis, is that when I looked around, basically it was an environment where everything else was sacrificed to performance."

The quote explains that Felicis aims to balance high performance with a compassionate and supportive team culture, which is a departure from the traditional performance-at-all-costs mentality.

• Aydin doesn't see Felicis' growth as product expansion but rather as product scaling, allowing the firm to take more "shots on goal" by investing in a wider range of opportunities.
• He discusses the firm's fund of funds effort, which allows Felicis to support other venture firms with complementary strategies and networks.
• Aydin also mentions the importance of mentorship, expressing his desire to pay it forward by supporting and guiding others in the venture capital industry.

"I don't really see it as product expansion, as product scaling. When I was angel investor, I had such limited funds, I could only really do seed deals."

Aydin's quote reflects his strategic approach to scaling Felicis, moving beyond the limitations of an angel investor to a more flexible and expansive investment strategy.

• Aydin candidly discusses the importance of learning from mistakes and missed opportunities, such as his regret over not investing in Airbnb and Uber.
• He points out that the biggest mistakes are often not the investments made but the great opportunities that were declined.
• Aydin suggests that the venture capital business should focus on saying "yes" to more companies, as the unexpected and uncertain opportunities can yield the most surprising successes.

"The biggest mistakes are the ones that you should have said yes, but you didn't."

This quote emphasizes the significance of missed investment opportunities and the need to take calculated risks in the venture capital industry.

• Aydin argues that too much focus is placed on market prices and the outcomes of investment decisions, rather than the decision-making process itself.
• He believes that the quality of the process at the time of the decision is more crucial than the retrospective view of whether it was the right choice.
• Aydin suggests that venture capitalists should concentrate on improving their decision-making processes to play the "A game" in the industry.

"It comes down to process, and it comes down to process. At the time you make the decision, you can always say in hindsight, oh, that was obvious, it should have been a yes or no."

The quote underscores the importance of having a robust and thoughtful process when making investment decisions, rather than solely focusing on the outcomes.

• Importance of managing portfolio strategy and construction.
• Evaluation of network and overlooked factors in investment decisions.
• Example of Airbnb's legal risks and the role of the community in managing them.
• The necessity of making large-scale bets for significant returns in investment.

"The one thing that we can manage 100% is portfolio strategy and construction and then your process."

This quote emphasizes the control investors have over their portfolio strategy and the processes they follow, which are critical for successful investment outcomes.

"Is there something we could have done different in our network? Is there somebody we should have known, but we didn't know?"

Reflects on the importance of networking and due diligence in the investment process, questioning whether all potential influences and connections were considered.

"Sometimes you have to make the bet of how big can this company get if things go right."

Highlights the high-risk, high-reward nature of venture investing, where the potential for a company's massive success can justify the risk of investment.

• The process of deciding when to sell or hold investments.
• Importance of a high upside potential in investment decisions.
• The difficulty of predicting future revenue growth in different markets.
• The strategy of distributing stock instead of cash to investors.
• Balancing responsibility to limited partners (LPs) with the unpredictability of future stock values.

"I think we basically do a probabilistic analysis of risk reward."

This quote indicates the use of a calculated approach to evaluate the potential risks and rewards of investments, guiding decisions on when to exit.

"There has to be a high upside scenario."

Stresses that investments should have the potential for significant growth in order to be worth considering.

"Sometimes when you're really torn, you can just distribute the stock."

Suggests a strategy for handling differing investor preferences on whether to sell or hold stock by distributing the stock itself to investors.

• The shift from seeking validation to independent thinking in investment decisions.
• The challenge of maintaining independence in the face of opposing opinions.

"Being an independent thinker is really, really difficult."

Acknowledges the challenges investors face in making decisions based on their own analysis rather than following the consensus.

• The importance of emotional intelligence (EQ) in venture capital.
• The misconception that venture capital is purely a numbers game.
• The need to be both correct in investment choices and in the minority to maximize returns.

"Everybody thinks, hey, making a great investment is really important in venture. But listen, if there are like 100 other investors and tens of rounds, your returns get diluted."

This quote points out that success in venture capital is not only about making good investments but also about making unique investments that are not overly crowded with other investors.

"Being able to relate people having very strong eqs, as much of a strong factor as IQ."

Highlights the underappreciated role of emotional intelligence in building relationships and making successful investments in venture capital.

• The value of mentorship in venture capital.
• Learning from skeptical and challenging perspectives.
• The benefit of having tough LPs on the board for growth and improvement.

"We put the most skeptical ones on our board, the toughest ones."

Explains the strategic choice to include the most critical LPs on the board to facilitate learning and growth through challenging feedback.

• The impact of founder vision and decision-making on investment interest.
• Comparison of Shopify's founders to Google's early days.

"I am pretty confident this company is going to go to places."

Reflects on the confidence inspired by Shopify's founders, which influenced the decision to invest.

• The criteria for making new investments.
• Interest in innovative solutions to environmental challenges.
• The decision to invest in Living Carbon due to its potential impact on carbon capture and tree resilience.

"This is an amazing company that managed to biologically enhance trees to capture more carbon from the atmosphere."

Describes the innovative approach of Living Carbon, which contributed to the decision to invest in the company.

• The role of Harvard Management Company in partnering with investors and entrepreneurs.
• Mercury's banking services tailored for startups.
• Bots platform offering automated investing strategies.

"Harvard management company is constantly seeking out the next generation of great investors and entrepreneurs."

Highlights Harvard Management Company's commitment to identifying and partnering with emerging talents in investing and entrepreneurship.

"Mercury is building full stack banking for startups."

Outlines Mercury's comprehensive banking solutions designed to meet the needs of startup businesses.

"The Bots platform has made the most successful strategies available for everyone."

Introduces the Bots platform, which democratizes access to successful automated investing strategies.