E3: Aydin Senkut on Why the Generalist Approach to VC Generates More Hits

25:31And so in order to deploy a strategy that is very unorthodox and unique, you have to have the right ingredients. I think it's just really important. And one of the other things that most people don't talk about is that you need to be great at something that other people are not. You're not going to join greats by copying other people because it's going to create some incremental stuff. And look, somebody's already great. How are you going to be even better than them doing the exact same thing that they're doing? Number one is difficult, but number two is also boring. Like, why would you want to do something that's already been done?

26:04You want to do something that's a little bit different. And I know the theory sounds different, but we put so much data around it now that everything, when you look at it, there are some things that make it difficult. But then if you master those things, those things end up being also the thing that makes it work, right? Like, so that's the kind of like, it's almost like a two-step process. Yes, in theory, it sounds like, hey, this should be like a 5 % bet. But if you do make it work, it's so unique that it ends up being actually a key differentiation. And it kind of almost makes the formula work if you master that exception.

26:39Let's dive deeper into there. So let's say that I'm an LP and I as an LP can invest in any fund that I want. And there are a lot of great funds that are coming on the show as well. The Sequoia, Benchmark, A6CZ, Kleiner, et cetera. How should I as an LP think about where Felicis situates itself in the ecosystem and why it should be considered among one of the greats in that capacity? Yeah. I mean, look, I think I will explain it, but I do also have to say that it took us maybe a decade to earn our spot with the LPs. Early on, when we didn't really have the track record, it was the premise of our strategy.

27:19Right at that time, it was more like a dream, not unlike a startup. You know, first you have the dream and the mission, like very few people believe in you and like most others don't. But then once it starts working, then people are like, well, we don't have to question it anymore. The data is there. And then it's like kind of on fundamentals. I feel like today the reason why LPs choose us is because of the fundamentals and more importantly, the consistency of it. So when we say we're generalists, basically every stage, every sector that we've ever involved in, in every area, we have basically an IPO or major exit.

27:54So every single one, without an exception. And not only that, but our results have been very consistent, fund after fund, year after year. These days, there has been so much proliferation and venture, which you yourself are familiar with. what the LPs are looking for is something that has durability. So just the track record or the premise or the strategy is not enough. It needs to be combined with, hey, do we basically have faith that this franchise has longevity, durability, and have they been able to prove that these results can be delivered consistently? And then I think the thing that is really helping us, honestly, is to not get carried away where like, again, we're still a one fund type of deal.

28:39So even we did grow the fund size, the fact that we're still one fund, it just makes it easier for people. So it's like, okay, if you believe in Felice's strategy, great, and I think the other thing is like, look, these people really do their homeworks. At the end of the day, in addition to the track record, one thing that we've been religious about, even from our very humble early beginnings, is that everybody thinks that venture success is measured in returns. that's almost like so obvious that it's not even the number is that it's not a leading indicator. The leading indicator is your brand with the founders.

29:10And so from the very beginning, we've been obsessed with our brand with the founders and measure it in terms of NPS. And because of that, like, you know, our ability to go to the LPs and like, listen, we can tell you what the future returns might look like, but here's how we can tell you like how we're going to do it with the strategy and elaborate. And then here's the founder NPS to support our brand among the founders, because it's not just enough that we'll find the companies. If the founders love us, then we'll close them. And so the thing that I think Alpes have grown to really love about us is that a lot of venture firms will have some wild success and they'll rewrite history.

29:46They'll say, well, it was this and that. And of course, after you've been successful, it's easy to tell the story. But very few of them can tell the story from the very beginning before it's achieved. And then later on, people see, oh my God, you've been telling us all along, this is how you're going to do it. and you've done it. And that's something like, I think our LPs really appreciate about us. And when you give some context on how you think VCs, you know, emerging managers, fund managers, just think about kind of VC LP fit in terms of the product that they offer LPs and different LPs that might be better fits than others.

30:19Absolutely. I mean, look, I think it's different for every manager. At a basic level, it's a little bit of survivor, like asking a founder, well, what VCs would ideally make into your syndicate? I mean, the first question is, you know, can you raise the round that you're trying to raise? I think for us, there were some things that were really important. And I share this with my team. It was the two non-negotiable things for us is that we didn't want any LPs. And that's one of the reasons we didn't grow too big that, hey, at any day, if we have to raise money from people whose values are not aligned with ours, life is too short.

30:54So the number one thing, we didn't want to have any LPs where we are literally only talking to them for the money, but for one reason or another, we might not necessarily see eye to eye on value. So that was really important. I think the second part, even from very early on, we only wanted LPs that understood and believed in our strategy and were not just writing a check blindly for the wrong reasons. It's really important because look, you know, now it's a little bit more obvious. We have the data points, but you want people that are truly believing in what you do because just like everything, like a startup too, you're going to have good days and you're going to have bad days and you don't want people to change their mind in the bad day and ask you and distract you with like stuff.

31:36I'm like, listen, this is like a minimum 10 year game, 10 year horizon. Like things are going to go sideways and differently. And if you have people that don't truly believe in your strategy, you're going to have a really tough time. And you're going to have to get distracted explaining momentary changes or, you know, some changes in between. So those were the things that we thought like, hey, listen, these are non-negotiable. And I just want to be very humble. We are so lucky that we've been able to do it. Like, I'm not telling you that it was a done deal. And a lot of times we're like, are we going to make it or not, especially in early days.

32:08But now that like we've been able to establish our brand and record, it's something that I'm really grateful. Honestly, like our founders, like this has been a great strategy because when we explain to them where our LPs are, it's a really big deal for people that are joining our team. It's a really big deal. So you're absolutely right that it's very important when people are designing their LP syndicate that there is at least some true north and they have a method to the madness of how they're going to bring these people together. And it can't just be, hey, we're just raising this amount of money.

32:40Hey, we'll continue our interview in a moment after a word from our sponsors. To me, what's understandable is why you have such a great reputation with founders, because that is measurable and you kind of have a sense for the inputs and how they lead to the outputs. To me, what's harder to really truly understand is why your picking has been so successful in the sense that it's not like you're saying... Some people say, hey, we have this special data approach and I don't even know if it works. But it feels like you and your firm kind of have the magic or something. So why don't you talk about what is the deal process at Felicis of like, what do you guys think you do differently, if at all, on the decision making in terms of how you operate as a team that leads to such quality decisions?

33:26Yeah, I mean, look, I think the decision making process is important, but I think the most critical ingredient for our success has been the strategy, which is the part where we discussed a little bit and you're like, listen, in theory, it might not make sense. it does make sense in the sense that the way that I think about it is, listen, people like to think that they're much better than they are. And, you know, like, hey, like I can pick a great company in reality. Look, it's really, really difficult. So the way that I see it is always like a race against improving the odds. Like if you go to the casino, if you have 55 percent, 60 percent odds over the long term, you're going to win.

34:02If you're below 50 percent over the long term, you're going to lose. And I think what ends up happening is people look at short things like, hey, I'm in a casino and I want a couple hands, clearly the strategy is working, but your process might be broken. So I think the thing that really works for us is so simple, is that, listen, the only way you're going to be successful is if you choose areas that will be much bigger and fertile in the future. So you need to be future looking, you need to be an optimist. And if you choose enough of those areas, your odds of finding at least one or two is much higher.

34:34It's literally as simple is that. The way that we think about it is, listen, at any given time, there is probably like 10 to 20 big waves every year in the world that are going to basically result in some great companies. What other people are saying, oh, I'm going to optimize around ownership, whatever. But when I basically explain to you that, hey, a great company has nothing to do with that, it's only if you find a great company, that's when the ownership and everything else starts coming into play. But what we said is, listen, the key ingredient of this business is literally only two things.

35:05Do you have an insight about how you can have better odds at picking companies? And then once you find those companies, you need to have such an incredible brand with the founders that those founders might, you know, should want to work with you. And I think these are the two areas that very few people talk about, right? They talk about like ownership, this and that. I'm like, dude, that only matters if you find the right company and assuming that you're going to convince the founder to come work for you. And like, I don't really hear people talk about how they are going to convince the founders to work with them or what is their unique strategy.

35:37And so I think this is like, again, coming back to prepared mind is that we were from the very early on, like the thing that we really paid attention to, if some area is going to be like slated for great growth. And can we actually imagine an exit? Like I remember one of the crazy companies we worked on just so that I can use an example was Cruise. It became a billion dollar exit. It didn't really have any revenues. It was self-driving technology. And I'm like, listen, the age of Tesla, Tesla is moving so quickly that majority of car makers are not going to be able to catch up and will be desperate to buy a technology that's going to put them on par with Tesla.

36:15And if self-driving becomes a huge part of it, it's going to be an indispensable technology. And it was the first of its kind. It didn't really have any competition. Even when it was not working perfectly, it still got acquired by GM for a billion dollars, right? So if I use any of the traditional metrics of like, do I know anything about self-driving was completely irrelevant. Do I know anything about like ownership, all of that? We didn't have perfect ownership and yet ended up being a great exit because we essentially like pictured the right exit strategy and we picked the right area. Is that a similar story for a lot of your investments in that?

36:49Are they narrative driven investments more so than kind of data driven because there just isn't a ton of data at the stage that you invest? I would like to say that virtually all of them are narrative driven. I mean, I would be lying to you if I said there is not also like data, but the way that we collect the data, I mean, look, I think one of the most important things is that you can be like doing amazing things with data analysis, but if you're looking at the wrong data, it's not going to get you great results. That's why I'm like, when I hear these approaches of we're going to look at all this data and we're going to be better than everybody else, there is still a lot of intuition because you have to imagine a future.

37:24The data is not going to tell you the future. And so data-driven investment, you're going to cap out. It's not going to get you the insights. It's more like, are you a dreamer? Because the kind of crazy thing that happens, you have to dream. But what we do that I found very telling is we have really increased our efforts of understanding where things are going to move in a market. So in the In the past, maybe we've been a little bit more oversimplistic of, okay, self-driving is really important. But now, you know, we have 12 different data sources where we collect, ask the experts, you're going to spend money on this.

37:58How many of you like have projects that are on this? Are you going to spend more money? How many companies are you looking at? What is the company that keeps coming back at? And then we go ask founders. So one of the things that we're doing is we're doing the diligence work, which is very counterintuitive before we even make the investment. And then signals come across. And so by the time we decide to talk to a company, we've done enough work to not only verify that the market is really great, but we also have an inkling of what is the correct company in that market. And then essentially we're using the meeting with the company to confirm or deny our inkling versus starting from absolute scratch.

38:35Oh my God, Eric, you're an amazing founder. Let's go and discuss your company and decide if it's going to be successful or not. I feel it's a much more difficult thing to do in terms of assessing the odds whether this thing is going to work or not, if that makes sense. That does make sense. If you were starting from scratch in 2023 and how the market looks today, would you take a similar approach? Or would you, for example, you know, you mentioned you've been successful because of your strategy. Why don't more people copy your strategy? If I'm starting my next firm, should I copy your strategy or follow what you guys have pioneered?

39:10What do you think about that? I feel very lucky that I started when I started because you could do things with very little capital. I mean, in today's world, there are so many investors and so much capital. It's very difficult to make that work. Also, I think people did copy us, to be honest with you. I mean, we were the first ones to come up with founder success that's been copied international. I mean, most people don't know, but like in my era, when I started, the top firms of the world were not making international investments until they, unless they had an office. Now, almost every major firm is making international investments.

39:42And I'd like to say that we've been there first. And I think we've been the data and people are like, wait, we don't really need to be in this continent to make bets, right? Like when you look at like, you know, and like another great example, Andreessen saying like, hey, we're never going to touch health and they have a bio fund. And, you know, like, you know, they were like not skeptical. And all of a sudden they have an AI fund, you know, they have an American dynamism fund. And so these things happen after the fact, but not that many people that can say, hey, listen, here's something that nobody else is doing.

40:11I do think, though, to answer your question more directly, the answer to what you're asking today is probably something different than what I started with. Because it feels like everyone is specializing. Exactly right. So I think the big thing is you're going to be able to do something that if not nobody else, most people are not doing. And it has to have some unique insight in it that's going to let you like generate results. But if it's like incremental, if it's like obvious and like other people have already like done it, like number one. And number two, like it has to be a good fit. If I try to say, hey, Eric, you know, like tomorrow I'm going to get into podcasting and whatever.

40:50Like I think Harry is a good example. Like I'm not going to go compete with Harry. Like he's been like putting like thousand, 10 ,000 hours into it. I don't know if I can be a great podcaster and I put like probably 10 ,000 hours to VC now. So I know like how to do it. Like I think again, like in the beginning, it's going to be really difficult. So you really have to find a niche where like you have enough time and enough opportunity to work out that niche. But if you're going against somebody else's niche where they're already very strong and establish that brand, again, I'm going to go back to this concept of odds probability, your probability of going against that and like being successful, it's a lot lower.

41:29So that's how I think about it. It's always like, hey, what are the odds of that happening? The odds for somebody else might be very low, but for you might be very high. Because you have a unique ingredient and motivation and whatever it is to try like some unique strategy to work, where some people might scratch their heads. But again, it could be like your key to success. Totally. Let's talk about your team and how you operate as a team. You know, we had Ben Horowitz on. He talks about how, you know, him and Mark are CEOs and they have a very clear sort of governance structure. I'm curious how you think of your venture firm and what's kind of the optimal sort of governance model or, you know, architectural model for how you should be structured.

42:10Yeah, I mean, I think we have a very unique system of our own. You also ask about decision making. So everything is debated. it's unanimous, but that doesn't mean that there cannot be dissents. We definitely score things. And in fact, we decided to do that multiple times because first impressions can sometimes change after you do a lot of work. So we found a lot of ways and refined it so that one of the things that we pay attention to, and like a couple of things. First of all, we do like that decisions are unanimous. That doesn't mean that everybody's like crazy about it. Some people might still be conservative, But one of the things that we found is like this has a really important purpose is that, you know, it's clear that not every company we invest is going to be great.

42:53And some of them are going to fall on hard times. By doing this, we're basically like preventing people from saying, hey, listen, I vetoed that deal. We made that investment anyway. I'm not going to help you. So if something goes sideways, everybody's motivated to not just spend time on companies that are working, but companies that are not working so that we can do a really good job without draining energy from the team with drama. I think in terms of like how things work, I would say we do have a clear leadership structure in place that always asks for people's opinion, but it allows us to keep moving very fast and be very decisive.

43:29So it's not like, oh, my God, everything has to be decided, you know, by five people for every single thing we make. Like whether we're going to have an office or not, whether we're going to have three offices or like we're in the city, all of that. a lot of this takes input, but we move very quickly. And I think that's where the clear leadership allows you to do. But then on the other hand, when we're making investment decisions, that everybody's voice is heard and is unanimous. And there was a very established process of being able to take people's input into consideration, has great benefits.

44:00In terms of the other structure, I would say that we're probably closer to benchmark than other firms. It's not perfectly cool, but everybody has like very attractive carry. So the other thing that we found is that everybody in the firm and not just the investment team, but everybody else, they should think like owners. And I think like this is really important because I would like to say that the other thing that Felicis has like evolved is we have a true platform team. We have a research team. We have founder success. We have like a people partner. We have a community partner. We have a content partner.

44:33So I think these days, like, you know, VC has also become full stack. So to be able to do what you do, if you really want to be like one of the main franchises without having like all these functions is much more difficult. But what we can do is like do things with like one or two people versus 20. And I think if you didn't compensate them and if you didn't give them enough incentive, you would not be able to do that. And the biggest thing that I learned in this business when I started, I ask a lot of managing partners, say, listen, what's the key to success? And I think the only thing that I found to be consistent is if you treat people like owners, they would act like owners because it's a 10-year horizon.

45:10It's very difficult to find anything else. But if they have skin in the game and if they can truly participate in the upside, then they will do their absolute very best. Yeah, that makes sense. And how about you personally? Ben Horowitz said that he's not as focused on investing these days. He's more focused on running the firm. and he doesn't think he's close enough to the deals anymore to be a great investor. But it seems like you're still pretty active. How do you think about it for yourself? So the quick answer to that is I am very active. I don't think I'm going to slow down. I feel like I found my life's work.

45:45I love what I do. I would never stop. Like it's the world's best job ever. I'm not doing it for money. I'm not doing it for returns. It's truly like, I don't know, it's like being Indiana Jones. Why would you stop looking for treasures? like I'm going to continue looking for it and like I'm going to like hey listen we ran out of land let's go like search in the depths of oceans we ran out of oceans let's go to Mars look for treasures in Mars you know like I'm never going to stop dreaming like I feel like I truly found my my calling um also like my parents like my mom is still not retired at 80 you know I think one of the most important things to have a purpose in life and I feel what I do at Felice is not just about the money, but it's my life's purpose to find amazing founders, to back them, to be able to have a glimpse into the future as a result of the companies.

46:31And I think that's why the other things follow, but not vice versa. Like it's not the money. It's not the title. It's not the glory. I just truly love this job. I truly feel like this job and this role allowed me to show the world that I'm capable of doing something that people didn't expect of me. So the big mission that we have with Felices is that everybody that's in Felices, we try to not put them in a box and say, listen, if you have imagination, you want to do something crazy, not just the founders we back, but our team, you can do stuff. And the fact that, I mean, you probably like know Dasha, but the founders pledge and like a lot of our greatest things came from people, the most unexpected people in the team.

47:11So if you're asking me like why you're still doing it and what makes you come to work every day, like with excitement and a little glimpse in your eye, it's what I just told you about what I do and how much I love it, but also how much I love our team, how much it makes me happy when people do something they didn't expect, people didn't expect, and yet they come up with a crazy idea and it works within Felices. And I love it because it's something that cannot be bought with money. Yeah, that's well put. Speaking of Dasha, let's transition to founder success because you guys have done a lot of surveying about what your founders care about and what founders want in their VCs.

47:48And so many VCs are trying to innovate on so many different dimensions of the founder experience. What have you learned really moves the needle and what do founders really care about getting from their VCs or at least you guys? So I'm going to start with an analogy. So I remember a couple of years back, I was invited to this dinner with a Michelin three-star chef. And I'm like, chef, this food is so incredible. What's your secret? And he told me something very simple. If you pick the world's best ingredients. You don't have to do much to it. And I think it's a lesson that I learned at Google that we were searching in an age where everybody else was trying to add more bells and whistles.

48:24And what people didn't understand is they weren't doing that to make the product better. They had to do that because the product itself was not great. So the bells and whistles was their way of like, hey, if we add the bells and whistles, will it get better? So one of the things that I have to give Dasha a lot of credit. So when we have the same approach, like, what are we going to do for our founders? We basically like did something completely different. We're like, listen, doing what other people do, like we're not going to do that. We're not going to copy anybody. But what we're going to do instead is truly ask them what is the one meaningful thing.

48:56And when we talk to them basically over and over again, it took us a lot of time. They were not initially very free to admit it, but they all at the end said, look, this takes a huge mental toll. And the one thing that would really help us is just more mental health, whether it's coaching, whether it's peer groups, whether it's anything, like anything that can relieve the stress because I know that it's very difficult. Like when we look at these founders, oh my God, your company is valued at this amount. You have these people. Why would you be unhappy? And it takes a huge toll. These are not normal things.

49:27Companies are not supposed to grow 10X year over year and the ones that are making it really well. And so once we understood that the key stress of a founder was mental, right we're like we're gonna basically put everything into helping them in that one area and what was beautiful about it is that because we took the work and we finally found the truth it was something that other people did not take time and so we were one of a kind that was also really important we were not the third VC to discover it and say we're gonna be the third fifth or the 17 VC we were the first and so it had a huge impact on us because the founders are always asking the question too, is like, why would I take money from this VC?

50:08And a lot of people's answers are so similar. Like, why would you choose this firm against the other firm? Their argument sounds exactly the same. So it allowed us to change the playing field and say, you know what, we're going to do something for you that no other venture firm does. And we truly believe in it. The founders like have used it so much and we're seeing it work. And so we're very, very happy that is something that we're doing and we're going to keep doubling down, tripling down on it. Yeah, it's interesting. I wouldn't have expected it in the sense of I would have expected something like, hey, the right introduction to the right customer or helping me close my round or something that's a point in time business critical.

50:49At the same time, if stress gets too much, then that becomes business critical, of course. A hundred percent. Not that we don't do those other things, But, you know, one thing that I have to say is, listen, I've been raised with the discipline of like looking at the data at Google. And I think one of the things that people don't do enough when they're talking about decisions or strategy, they don't really explain how they arrived at that. So even before we did this, when we were doing NPS survey every year, we always asked the founders, like, what is the number one factor when you're choosing investors?

51:22You would think that the one that helped me hire the most engineers and all of that, but in reality, it was trust, which is also related to mental, right? So the biggest fear they have in their mind is that the investors are not going to be on the same side with that when push comes to show. It's not like how many intros you made. It's not how much you help. At the end of the day, that's kind of like more tactical. But the biggest thing is like, can I trust you? Will you be on my side when things are not really that great? And so what the mental health and the founder plate sends a message, we're not here for the good days.

51:52We're here to support you in the bad days and the good. And so that's the key thing is that none of this was a surprise and none of this was like a miracle. It's just we've really done our job is getting data and the data was so consistent. And so that's the thing. Like, you know, we're doing everything for a reason because we knew like how to ask the right questions and spend time on it. And we truly like found the thing that matters. And I think the same thing happens. Like if you know to ask the right questions, get the right data, it makes decision making that much easier. Yeah, it's really interesting.

52:25Gearing towards closing here, who are a couple other investors or a couple other firms that you've really either learned directly from or admired and taken from afar? I mean, look, I mean, I grew up reading like about the big firms, right? Like I've, again, I've seen Secoin Action because they were investors at Google. and then like I read like e-boys I don't know if anybody even remembers that book but it was the story of benchmark look I mean some of them I know in person some of them I don't necessarily know in person but I think the other thing to be said is I really studied this industry like before I even started and this is again why I come back to like when you ask how do guys hire like GPs is that you really have to do your homework and I always looked at like who innovated and who was the absolute best in a category.

53:15Like, I always like to mention the same thing when I was starting out. I'm like, look, when it comes to competitiveness, it's hard to beat Sequoia. When it comes to like equal partnership dynamics, it's hard to beat, you know, benchmark. When it comes to like prepared mind, it's hard to beat Excel. Like they always keep finding companies in the middle of nowhere before anybody else found. And then I think when it comes to like creativity and conviction, it's hard to beat Founders Fund, right? Like they did like insane things when everybody's like, what is Founders Fund? doing it. And those bets ended up being really great bets.

53:46So at the end of the day, I'd like to say that those four firms set different benchmarks that I think I tried to learn from, but I tried to get to those levels without necessarily copying them and then finding like a unique ingredient that didn't exist in the grades, you know, without copying them. And so far, again, luckily, the formula is working, but it's nice to at least to have found our niche. Because you're such a student of the craft, let's say we're having this conversation in 2030 about sort of the state of venture. Do you expect major changes or more kind of incremental? The people that are still on top today, Sequoia's benchmarks likely will still be on top then.

54:28How do you think about the venture landscape going forward? Yeah, I mean, look, I think there are a couple really quick comments to make. Number one, I think one of the reasons why we are focused on early stage is I think the toughest part of this business is when you don't have a lot of data. And that part, I don't really see getting automated. And also that's the part where the human relations and trust has the biggest factor. So I feel like I'm not going to be replaced by AI or robots anytime soon. I think the second thing is like, so if you ask me, Aiden, like when you have meetings at Felicis, what is the number one true note for Felicis is learning and adapting rapidly.

55:04So when I started, I'm like, listen, we're starting from a much lower place compared to all the grades. But I do believe in one thing, which is it's not where you are in the mountain, but it's the trajectory or the slope. So if you can keep engineering the slope, and I think I cannot tell you like in 2030, which firms are going to be there. But I can tell you one thing for sure, and that is the leaders of 2030 are going to be the ones that learn and adapt the fastest. And what I tell my team, we can get everything wrong, but we cannot get learning and adapting rapidly. Like that's our one big thing we have to be world class at.

55:38So this is our way of engineering our odds of being in the Pantheon in 2030 from today. So that's something we're working on and at least how we're thinking about it. That's a great place to wrap, Aiden. Thanks so much for sharing your learnings with us today. Thank you, Eric. Thank you for having me on again. Great questions. Thank you.

56:09Thank you.