[REPLAY] Aydin Senkut – Tenacious Sourcing and Founder Support at Felicis, Venture is Eating the Investment World 6 (EP.234)

Aydin Senkut · Felicis

Cheaper cloud-era startup costs shifted bargaining power from capital providers to founders.

When servers and other infrastructure became on-demand, companies needed much less money to start, so capital stopped being the scarce input. Power moved from capital to the founder. As a result, the investor's edge is the ability to show conviction and build trust with founders, which is why Felicis positioned itself as a founder-first investor that backs founders without requiring a large check or control.

“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.”at 25:19

Aydin Senkut · Felicis

Early-stage round sizes and valuations keep climbing; top companies face oversubscribed capital and no low-hanging fruit remains.

Aydin cites concrete changes in round sizes: seed rounds used to be roughly $500,000 to $2 million but now frequently run $5 to $10 million, sometimes $15 to $20 million. A rounds used to be about $5 million and can now reach $100 million. Valuations, check sizes and round sizes are all rising quickly. He compares the market to a league where 200 teams now compete instead of 32, so every game is a playoff game, and says there is no low-hanging fruit left. He attributes the rise to supply and demand: supply of top companies is short and demand from capital is high, so the environment is a fact to adapt to. He says a firm's capital structure determines whether it can even do the deal, and that his firm has moved from participating to leading about 70% of its deals as a result.

“Now, very frequently, we start seeing seed round 5 to 10, sometimes 15,000,000, sometimes 20,000,000. A rounds used to be 5,000,000. Now we have A rounds that can go up to 100,000,000,”at 45:21

Aydin Senkut · Felicis

Mental health is the most underdeveloped large part of healthcare, so it will produce multiple huge companies.

Health is the largest share of GDP, the largest budget and the largest cost in the US. Physical health can be measured through blood pressure tests, blood work and genetic tests, but mental health has no equivalent check-up or diagnostic test, so it is still in the 'stone age'. Based on this gap, he is confident multiple huge companies will be built in mental health, and Felicis 'went all in' on the theme.

“Health is the largest span of GDP, the largest budget, the largest cost in The U.S... and the only area of health that is still in stone age is mental. I guarantee you that there are going to be multiple huge companies getting created addressing mental health.”at 35:39

Aydin Senkut · Felicis

Data infrastructure, security and DevOps will stay in demand because startups' key assets are now software.

Starting a company used to require people, raw materials, a warehouse, an office and capital. Now it requires cloud services like AWS, a little capital and a few people. Because a company's biggest assets are now IP and software rather than physical assets, data, infrastructure, security and DevOps are areas that 'are never going to go out of fashion', which is why Felicis focuses on them.

“There are new areas of technology that are never going to go out of fashion. That's infrastructure, security, and DevOps... Today, what does it take to start a company? Oh, AWS, a little bit of capital, and maybe a few people.”at 36:39

Aydin Senkut · Felicis

Security will never go out of fashion as valuable assets shift to IP and software; Felicis now backs about a dozen such companies.

Aydin argues that as companies' most valuable assets become intangible (IP and software) rather than physical, security becomes more critical. Nation states stealing IP is a growing threat that is also harder to detect than physical theft. He concludes security will never go out of fashion. On that basis Felicis made a hard pivot into security, DevOps, and cloud/infrastructure, and he is convinced these will be 'monster areas' where incredible companies are created. He says Felicis has built a dozen companies in these areas from scratch despite having no in-house security or infrastructure experts.

“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.”at 37:16