184. Iconic Companies, Frontier Markets & A Truly Founder Centric Approach (Aydin Senkut)

184. Iconic Companies, Frontier Markets & a Truly Founder Centric Approach (Aydin Senkut)
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Aydin Senkut of Felicis Ventures joins Nick to discuss Iconic Companies, Frontier Markets & A Truly Founder Centric Approach. In this episode, we cover:

  • Backstory / Path to tech in San Francisco?
  • Prior to founding Felicis Ventures, you were a Product Manager at Google, launching their first 10 international sites, its first online search licensing products, and its first Safe Search…talk about what lead to your transition to investing.
  • What’s the story behind founding Felicis Ventures?
  • Talk about the investment focus and approach of your firm.
  • It states on the firms website that you back founders looking to open up frontier markets, such as longevity and engineered foods, and reinvent critical markets such as mental health and insurance….what are some of the success factors you’ve observed in startups trying to create or reinvent markets.
  • You’ve invested in many iconic companies that have revolutionized their industry such as Shopify, Fitbit and CreditKarma, when investing at early stages, how do you differentiate between the ideas or trends that are going to have this long term affect from the ones that may not be so successful?
  • Felicis states on the site that “The difference between a good product and a great product is one incalculably better than the current alternative. Successful founders have laser sharp focus on true product differentiation, intelligent time and capital allocation” Help us understand what separates good product from great product.
  • Differences in investing in domestic vs. international startups?
  • You do this survey every year of your portfolio companies… can you talk about the key insights you’ve learned from doing that?

Guest Links:

Key Takeaways:

  1. Aydin reflects on his experiences in pharma, corporate finance, product management and sales, and how they have prepared him to successfully manage Felicis as well as relate to his founders, by understanding the many different disciplines that go into operating a growing company. 
  2. Coming from a family of entrepreneurs, early on Aydin learned the importance of understanding and relating to people, which he believes has been a key success factor in building the Felicis portfolio.
  3. During his time at Google, Aydin was involved in product excellence/strategies and became their first international sales person. He accredits these experiences for his ability to maintain a truly founder centric approach. 
  4. One of the core principles built into the fabric at Felicis, that differentiates them from many other VC’s, is having empathy for their founders. 
  5. On their annual survey with their founders, year after year “high conviction in the founder” and “trust” have been the #1 answers to the question “What are the factors most important to you when choosing an investor?” 
  6. Felicis dedicates 1% of the first check they write exclusively to founder development and coaching, to help relieve pressure from their founders and maintain a founder centric approach.  
  7. The investment focus of the firm is in startups that have the potential to be iconic leaders in their respective fields by either reinventing existing products or developing new solutions in highly influential markets. 
  8. Aydin stresses the importance of truly believing in the market and having zero doubts about the importance of implementing a solution in that area prior to having any conversations with a founder.
  9. When evaluating founders, Aydin looks for someone who has a background, in terms of education and career path, fully devoted to the problem they’re trying to solve. 
  10. When identifying startups that will have lasting and iconic impacts, Aydin looks for product simplicity and how critical the solution is to as many people or businesses as possible in large markets.
  11. Aydin has found that the best predictor of the likelihood for a company to succeed has been revenue efficiency – for every dollar invested or spent, what was the amount of revenue, traction or innovation the company was able to generate as a result. 
  12. For founders, a great way to optimize their revenue efficiency is to decrease their cost of labor by having a geo agnostic approach and hiring outside of Silicon Valley. 

Transcribed with AI:

0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the full ratchet

0:23
Welcome back to TFR today the founder and managing director of Felicis ventures Aydin Senkut joins us felices ventures invests in iconic companies reinventing core markets in early stage and seed rounds. In today’s interview, we discuss addons path from Google to founding Felicis ventures. key insights from his survey of portfolio founders. The success factors when launching startups in frontier markets or startups reinventing existing markets, the differentiating factors between iconic and revolutionary products from those that are not so successful, and we also touch on successful strategies when investing cross border. Here’s the interview with the incomparable I didn’t send kit of Felicis ventures

I didn’t send Kitt joins us today from Menlo Park iden is founder and managing director of Felicis ventures. Felicis is a Silicon Valley based venture firm with investments in admin, Shopify Pluralsight, garden health, Fitbit Rovio and Credit Karma, among others. I didn’t have been named on the Forbes minus list for the past five years and was also named to the New York Times top 20 vc list for the past three years. Previous to Felicis. iden was a senior manager at Google responsible for strategic partner development and account management in Asia Pacific. Eitan, welcome to the program.

1:50
Nick, thank you for having me on the podcast, very excited to be talking to you today.

1:56
Oh, it’s a huge pleasure. It’s a huge pleasure to have you. I’ve heard so many positive things from so many people. But before we jump into the leases, and what you guys are doing on the investment side, can you take us back to you know, maybe your beginnings in tech in in Turkey and how you found your way to San Francisco?

2:14
Yeah, I mean, I think that’s really fun. I joke that my story is somewhat akin or similar to the Jamaican bobsled team. I don’t think I had the background or the upbringing that made me an ideal candidate for VC. I think it could not be like far from that. So I always dreamt as a kid that I would travel around the world, you know, would also do something that involves numbers. I love math, and I loved investing. That’s what happens when you grew up in a country that had 100% inflation. For the last 20 years. I used to joke that Turkey and Brazil, were those two countries. And if you look at all the big banks, there are a lot of Turkish and Brazilian people. Because I think like I was growing up where every dinner conversation and this is pre iPhone, so we actually had real conversations back then. And we were texting on our phones or, you know, looking at stuff. And it was always like, Oh, my God, what are we going to invest the family’s money tonight? Because if not, you know, with that kind of a high inflation like things could change. Fast forward, I think I felt really fortunate that I had a very interesting journey. And I always remember this amazing comment that Steve Jobs made in a commencement speech, that sometimes you know, you might have all these crazy dots in your life but have faith that they connect in a meaningful way somehow. So I did a warrior’s different jobs. I worked at Hoffman Laroche, which is a pharma company that is famous for owning Genentech, one of the largest pharma companies, I was the youngest expect their work in Morocco, worked in Switzerland. I was in corporate finance, then kind of did a graduate study in Brazil, and then joined Silicon Graphics as a product manager, and worked on data mining and data visualization products. And then I was at Google, where I had a product role. And then I had a sales role. So all these crazy, different dots, and you’re like, how did these get together to connect to help me become a VC and I feel those were all important aspects. Because every different thing I did prepared me for different parts of how to manage a startup myself, we consider Felisa, still a startup in venture and outsider, but also to help founders with different angles that they’re facing as they’re growing and scaling their companies. And I think one of the things that I was rewarded for having all these different experiences is I got to see all the different sides of an operation of a company from all the disciplines and I can relate to all of them. So I think that was really really incredibly helpful for me. Plus, I come from a family of entrepreneurs, both my mom and dad started their own companies. So I thought it was only a matter of time that at some point, I would start a company myself. Wow,

4:56
did you work in those companies growing up

4:59
I did well, you know, so yes and no, I think what those companies were, were role models. To me, my dad had a textile firm, which is very, very popular in Turkey. Like, we used to joke that 1020 years ago, people were either in banking or textiles. And my mom was an executive recruiter. And that was extremely meaningful to me. And you’ll see some connections, we have a very, very deep HR talent portfolio. And part of that was inspired by her as a role model. And then also, I think one of the things that made her excellent at our role was understanding people understanding and reading people. And I feel like that that’s a key skill. One of the things hopefully, we’ll touch later in the podcast, along with her being a role model for me and my experience in sales at Google, one of the things that I realized is being able to relate to people has been a key factor in me relating to our founders at felices. And one of the really, really important differentiators and success factors for us in terms of the portfolio that we were able to build. Yeah,

6:03
so talk a little bit more about maybe some of these formative experiences at Google, and how that led you to transition into investing. I think, as I understand it, you were, you know, super angel, and you were doing investments before felices. But I’m not sure if you were doing that full time, or if that was while you were at Google. Yeah.

6:23
So just to clarify that real quick. When I was at Google, I was 100%. At Google, I didn’t do anything else. In fact, I mean, I don’t even think that I had time for anything other than Google. Like, I used to joke that when I left Google, like, one of the things that I did was a long laundry and like just myself, and I don’t think I even celebrated birthdays, like it was an intense six years. And when I started angel investing, and started felices, even from the get go, it was 110%. I didn’t dabble. That’s something that’s very important to me. People who know me know me, I’m either zero or 110%, there is no in between no shades of gray. But the thing that, you know, Google was a phenomenal experience for me in several different ways. Number one, I think just having a chance to work for Larry, as a product manager. He’s one of the biggest product visionaries that I’ve ever had the chance to collaborate with, along with, like Steve Jobs, and Jeff Bezos probably just kind of working for somebody like that, looking at things from his perspective was eye opening, you know, one of the biggest things that I learned from him that he would never ever take status quo. And he would always say, look, here’s something crazy we’re trying to do. And I don’t really care how it’s ever been done. Here’s how I want it to be done. And it would always be like, I want things to be 10 times faster, 10 times cheaper, or 10 times better. And as a result, we would all have to go back to the drawing board and really have to figure out how we can do a drastically differently and better. I think other than basically completely disregarding the status quo and thinking out of the box, just product excellence and product strategy. I mean, I think this is something where, you know, it really does help to be at a company like Google, especially in the early days, because we’ve been involved in so many different things. It really helped me how a world class company got created from the ground up. And then the second aspect of my Google experience that was really helpful for me, because of my experience in product management of launching Google in the first 11 languages, and some other products and also speaking multiple languages. By default, I was the first international salesperson for Google as well. And then I used to joke that I had a James Bond like job like I went to 40 countries for Google. And I closed Google’s deals in all these 40 countries, regardless if I spoke the language, or if I’ve ever been in those countries. So it meant that I would go to a country called where I don’t speak the language, I don’t know their history, or their their culture, I had to come up to speed extremely fast, and then basically make convinced these people that Google was the right solution for them. And I think that was amazing training for me to get in front of a founder and immediately relate to them and make them feel like we’ve done our homework about their product about their market, there is something that we really care and breaking the ice with them. And I think that was really extremely important because I feel, you know, way back before I started getting into venture like 2030 years ago, I think venture was practice where capital was king. So like VCs could do pretty much anything they want it fast forward to today, founders are in the driver’s seat, and everything revolves around them. And it really being InVenture literally means that you need to be in the world’s best companies and do whatever it takes to do that. I think, you know, being founder centric, that approach is really helped us Excel. And I owe part of that ability to my experience back at Google, both from a product side and the sales side. Awesome.

9:49
Well, I can’t wait to hear more about the specifics of how you’re founder centric and how you guys get involved and maybe even some of the tactical things about how you split time and how you, you know, spend time on deal flow versus portfolio management. But before we jump to that, can you walk us through your experience as a super angel? And how that turned into launching? felices?

10:12
Yeah, I mean, look, that’s kind of one of my favorite parts of my founder journey. So one of the interesting unique things about me, virtually every job that I had, I think, virtually all maybe with the exception of a few, but I always push my boundaries. And people told me that, you know, I wasn’t an engineer, I wasn’t a pit, I didn’t have the right years of experience or whatever, there was always some excuse where I was kind of put in the outsider block. And somehow I hustled and worked really hard, and did whatever it took to somehow break through that, you know, I don’t want to call it Glass Ceiling like, but shatter that expectation that I wasn’t a good fit. Honestly, breaking into VC was not dissimilar. At some point, I realized that because of my experience at Google, my interest in, in this interesting finance, discipline, and just strategy made me really hungry to get into this role. But just like any other founder, or maybe some founders, like I had some initial doubts about if I could do it, because I had zero background. And I’m like, maybe I should be an apprentice, I should go to another firm. But in some ways, every venture firm that I talked to, or I used as a soundboard, told me that I didn’t have the right background to be a great VC. And then if I was so convinced that I could get into it, then I should do it on my own. And honestly, at the time, it was extremely disappointing. But probably the best thing that happened to me, probably like many founders that you meet, you know, when when you’re faced with adversity, what comes next is what kind of forms you as a person. And that’s what happened to me. And I’m like, Well, if all these VCs don’t believe I can do it, but I do, I need to go prove myself out. And that’s how I started. And just like any founder, like, you know, at night, I was doing the Delaware LLC, and I was picking a logo, I literally had some drawing program on the web, and I draw the first logo. And, you know, I was on domain websites trying to pick a brand. And you can see from our Latin name, how competitive the venture field is, but I literally did what any other founder did, you know, work during the day, and at night, I would do all the back office stuff. And I would do faxes, and I didn’t even have an office in the beginning, I would take meetings from Starbucks, and founders used to joke that, hey, who’s the person that’s standing right by our table? Is this my next meeting? And I be embarrassed and say, Yes, that is my next meeting. So you know, it was very humble beginnings and including our fundraising experience, which also was not super easy. I am really proud because everything that our founders go through pretty much we went through the same experience, just on the venture side, as a startup in venture capital.

12:47
I love it. And I feel your pain I didn’t. In the Valley, it’s you know, you build it in the garage and in the Midwest is you build it in the basement. So I spent a number of years there myself. But this is kind of a good opportunity. So talk about the way that you approach working with founders, you talk yourself about having some self doubt, you know, founders have self doubt, founders have a lot of pressure from VCs, often, that can be an adversarial relationship. I’ve heard that Felicis has a unique approach to the way that that you guys, partner with founders and take the journey with them. So can you talk a bit about your philosophy on on working with portfolio companies? Absolutely.

13:30
And I think that kind of touches on one of the, you know, core thesis we have as a firm in a core principle, which is, we obviously want to be successful, but we want to be successful with empathy, empathy for our founders, empathy within our team. One of the things that I noticed, and especially in disciplines like venture capital, where success is measured by big numbers, and it’s brutally competitive, I noticed that empathy was not the first thing that comes to mind. And, you know, being the son of an HR executive and somebody who’s been in talent and observed that by osmosis for like, nearly 40 years. One thing that I wanted to run as an experiment at felices is, hey, can we be successful as a newcomer to venture capital, but with a lot more empathy or empathy at its core versus any other firms? And honestly, like one of the things that’s really important about that, look, you’re a VC yourself, you started a firm and you had amazing experience, what it comes down to us if you want to be successful, you know, your brand has to be differentiated, it has to stand for something. So when I did my research, and I looked at VCs that I looked up to, they all were excellent for different reasons where I’m like, Okay, well, a few of those. We need to be world class to just be in the game. But then we need to have our own kind of secret sauce or differentiator on top of that. And what I realized like that could be was empathy because that was not necessarily something that was associated with venture firms and we went all out. And one of the things that we realized, as we got into venture and started developing our portfolio, it was a key factor for us and extremely well time because, you know, capitals stopped being the key differentiator and relationship to founders became the key success factor, because it basically meant that almost everybody was able to kind of start seeing companies and, you know, start figuring out which companies were on the move. But then you could only be an investor in these companies, if the founder was convinced that you would make a great partner, the kind of roles shifted a lot right around the time when we decided to be founder centric. I think the other thing that we’ve seen where we are extremely analytical in everything we do, and one of the things that we really care about, except the very first few years of felices, we do an annual survey with our founders. And we do a net promoter survey where we literally ask them, like, you know, how would you rate us from a score of one to 10, in terms of recommending to another founder, and then we always ask them, Hey, what are the factors that are most important to you, when choosing an investor, right? After a year, the number one result was high conviction in the founder, and then trust the founders ability to trust their investor, this is not by accident, it’s not by chance. And then what ended up happening is with the support of our founder advisor, they said, Look, every VC out there is claiming to be the founders friend and doing great things for founders, you guys cannot just talk about it, you need to make it concrete. So we’ve done two specific things on this aspect. One was to vote our shares first. And I think to my knowledge, the only VC firm to do that is that we bought our shares with the founders. And the main reason behind that is we want the founders to trust us, we are not there to invest in them. And then if something goes sideways, you know, to vote against them and to change management. We do think that all the companies that have done well, in our portfolio, the original founder has been there or if there has been a change, the original founder has been extremely supportive and behind it. So we do believe that either we’re going to succeed by the founders dreams are not. And then the second thing that we did was this kind of mental stress aspect that you touched on, like being a founder is really stressful. So when we were trying to figure out, Hey, what is the biggest differentiator we can have? We didn’t want to copy and paste another venture firm. And they said, look like one of the things that’s really tough for us as a founder, like we can’t talk about tough things, we don’t have the courage to invest in ourselves, because we’re under extreme pressure to be scrappy. And that gave us the idea, hey, why don’t we spend money out of our pocket, our management fees, up to one, we call this the 1% founder pledge to basically up to 1% of the first check, we write in the company. We help support our founders with what we call founder development, which includes coaching, therapy, and a few other factors. And that’s been really welcome. And something that I think has been very well received by the founder community. Got

17:58
it? So you’ve covered my next couple of questions. I was gonna ask you here about the survey. But that’s amazing. So you’re pledging 1% toward career development and personal development for these founders as they’re progressing on building their startup? Yes. Wow. That’s amazing. Just taking a step back. I didn’t, can you? Can you talk about the focus on the investment side of the firm? So you’re meeting with founders, you’re investing across different stages? Do you have certain sector focus? What are some of the thesis elements? Yeah,

18:32
I mean, I’ll touch on the sector’s at the end, because I think we have a very broad per view. And, you know, obviously, there are some sectors that at any given time are higher priority to us than others. But I think we used to have this really complex approach in terms of what we’re interested in. And we realized that it’s actually quite simple. We’re basically looking for iconic companies like companies that have a chance to either be today’s or future leaders in their respective markets in areas and sectors. And then we basically put them into two buckets that we call reinvention. And frontier. reinvention is simply an existing large market, but somebody comes in and because of new technologies, or a new way of thinking, they essentially reinvent that market and come up with a new way of doing that product. But in most ways that there is already a status quo, there is already a product that exists. But for one reason or another, it has not kept up with the times or it doesn’t really answer the customer’s needs as well as this new company or the new product does. On the frontier side, we’re talking about a brand new invention from scratch. In that case, we are looking for markets for which there is a critical need, but there has never been a product or there has never been a way of solving it. And an extremely passionate and, you know, missionary founder comes by and says, You know what, just because that it hasn’t been solved doesn’t mean that it cannot be sold. And here’s a crazy way to go after this. And we’re going to go create a product where there has never been one before. And so most of our camp And he’s really fallen to these two buckets. And that I think helps us summarize the things that excites us much better than any other approach. And then the kinds of things we’re looking for, you know, I already use the term missionary founders founders that are driven by a mission to solve a really, really big important problem. We are looking obviously, for some excellence in terms of, you know, how these startups are able to generate traction, which we’ll touch on later, a little bit. And then you know, the things that we really care about that what we have seen if it’s a really big market, and it’s a critical product, and the product is differentiated in the sense that I already use this example with you, in my Google days, this concept of we call it the 10x rule, like, is it an order of magnitude a 10x, better, cheaper, faster, is a point in which, you know, the differentiation of the product is not debatable, it’s not marginal, like an order of magnitude, in our opinion is, hey, like, this is beyond the debate that this is something really game changing. And I think when we’ve seen all these factors combined, that’s when we have seen some really great things happen.

21:07
It’s clear for me to tell when a founder is mission driven, when they have a personal connection to what they’re trying to reinvent, you know, if I’m using your words here, but at times, you know, there may be a ho hum sector, or there may be a problem that’s being solved. And it’s it’s tough to differentiate if, if the founder is is a mercenary, you know, going after a huge problem, or if they’re truly mission driven. You take this very empathetic approach. And at Felicis, is there a way that you kind of get at whether, you know, founders truly mission driven, and if they’re doing something that they must do versus something that they should do?

21:49
Yeah, I mean, look, I think one of the things that I have seen, and I will only speak from my experience, which is only limited to 13 years, and everything that we have done so far, is that one of the other things about us is we’re somatic investors. So unlike some other VCs, and I don’t know, for instance, what your strategy is, but one of the things that we found is that with the founder centric approach, we have that it’s important, extremely important that before we start any conversation with any founder, the number one thing that we care about is that we believe in the market. And ideally, after the conversation, we believe in the same dream as the founder. But one of the things that I found is that if you’re trying to get some of the important things, right, like market, founder, and then the approach, like if we’re going to spend time evaluating, we want to spend all our time on the founder market fit, and then the differentiation, but we should have zero gaps on the market. And and that just makes it a lot easier, because we cannot just make the statement that we believe in missionary founder, and then basically entertain a missionary founder. But in a market we don’t believe in it’s just not. So I think that saves us a lot of headache and soul searching and kind of makes things a little bit easier, because we do have a broad purview that and I think the founders really like us, because time and time again, we had many people come to us. And when we’re conversing, they always tell us that, you know, with some of the other VCs, that they have to spend a significant amount of time explaining them about the market or explaining them why the market matters. And we’re like, Look, you don’t even have to spend time on that we believe in this market, or we wouldn’t even be having this conversation in the first place. So there has been something that I think helped us and I think if you believe in the market, then the differentiation between a missionary and mercenary founder, it’s a little bit easier. And honestly, in some ways, I mean, we come up with these terms. Look, you know, in some ways, missionary means that what is the founders resilience and tolerance for adversity, when we may mean missionaries that look, obviously, we do look for success for these companies. And at some point, it means traction, and you know, monetary success. But in some ways, you cannot really get there without product excellence. And that’s where the missionary aspect of the founder, how much resilience how much adversity is the founder willing to take or like not willing to give up at all, to get to their goal. And this is extremely important when you’re talking about frontier markets, because, you know, like, there’s going to be a lot of adversity, there’s going to be a lot of things that go wrong. And especially in frontier markets, this aspect of the founders become critical. And that’s something that we spend a lot of time in terms of future success.

24:28
Let’s go a bit deeper on that. So you back founders with these two kind of broad approaches either reinventing, you know, an existing market, or new tech in a new frontier. What are some of the key success factors and or what differentiates maybe the approach that you look for in these two different types of startup approaches?

24:49
I mean, in terms of the companies that have done really well let me touch on a few examples that I think colorful examples always helps are like two of our companies that have done extremely well. One of them is called gingko. Bioworks and, you know, one of the things that’s really exciting about this company is they decided that there were a lot of products in the world where the main ingredient is an endangered raw material or, you know, a very rare raw material, especially things like colognes, and perfumes where they initially started and expanded to a wide area. So they’re big inside was, Well, is there a some way to actually program bacteria to produce the same chemicals. And so there was a lot of chemistry involved. And it was a crazy idea. And it’s something that I related from my tenure at Roche. And the founders just had the perfect scientific background for this, there was huge risk, by no means there was any certainty that their approach was going to succeed. But, you know, it became one of our first billion dollar valued companies in a frontier area. Similarly, garden held, this is a company that has gone public last year, and they do liquid biopsy. And they came up with the idea that, you know, if you want to treat cancer, you know, one of the ways there’s ways to understand cancer is by sequencing the genes of the tumor, so we know precisely what we’re looking at. And then we can target the perfect drug cocktails for that. And then again, when you look at the founders background, yeah, multiple startups, Stanford degrees and PhD in this exact area, and the best advisors and professors, you know, guided him and were involved in his company, and he had a phenomenal team. And you look at something like this, you know, like, the thing that we’re looking at is like somebody literally devoted their entire life, to their education and experience to solve this very crazy problem that they’re going after. And then some of our other companies that I’m really excited about, like Turia, we care about longevity, and engineer food, you know, we have founders that literally spend majority of their life pretty much all their adult and growing life, with all their education and everything they’ve done, when you look at it, oh, my God, this person is meant to solve this problem, there is no guarantee that they will. But when you look at their background, and you look at how motivated they are to solve this problem, you cannot help but get excited about it. That’s

27:07
awesome. That’s amazing. You know, you’ve invested in all these iconic companies, I look at your portfolio on Felicis. And I look at your your AngelList profile page. And I think there are more exits on that page than not exits, which is just staggering the number of successes that you’ve invested in, at the very early stages, when you’re investing in a seed stage company across all these varying sectors, how do you differentiate between ideas or trends that are going to have long term impact and effect and maybe some that aren’t so much? You talked earlier in the podcast about a market that you really like? You kind of make that decision before you even engage with the founding team? You know, how do you guys look at markets? And how do you think about trends that are going to have sort of lasting impact? Yeah,

27:54
I mean, look, thank you for bringing it up. Look, I mean, in some aspects, we always need to remain humble. And you know, we’ve been very fortunate to have a good string of exits and successes, all that success is to our founders, and we were very lucky to be part of their journey. Look, I’m going to be very honest. And I’m sure you’re experiencing it too. But to be able to see this at the seed level is extremely difficult. I think what we have seen is like a very simple principle, look, the larger the market, the more people or businesses the product touches. At the first order, I think the higher the chances of success, everything else being equal. Let me explain. For instance, you know, one of our biggest exits that has gone public last year is a payments company called adhan, you know, it’s a company out of Netherlands. And look, it was a very simple thesis, we found out that even the world’s best companies like Google and Facebook are having issues with payments in some countries. And I’m like, Okay, if the world’s most highly capitalized and valued companies are still having issues in payments, in some countries in the world, this is not a solved problem. And if a company comes in solves this really, really well, in a way that has never been solved before payments is in the in the heart of commerce is in the heart of every business. When you think about it every single business, the way that humans need oxygen, every business needs payments in the needs to process payments. So it was a no brainer. And then all we need to do is make sure that the product was differentiated enough, in some ways, like when you look at our bed and garden health counselor, like look, it’s a really, really tough problem. And it’s like one of the number ones characters that affect humanity. So if there is a better way to solve cancer, how can that not be a great market? Then, in some ways, even our craziest bets, the most far fetched ideas that we back in terms of longevity, like if I came to you and I said, Nick, for yourself or your family, if we have a startup that had a product that makes you live longer or live better at any age, I think everybody would spend any money that they have to be able to do that because the number one affliction that we have, like I’m in a position where I’m upset errand to my kids and I’m somewhat a little bit of a parent to my parents, is because we want to take care of our family. And we just want to be resilient in old age and not deal with all these complications. So I do know that maybe the odds are law that it’s not that easy to develop a product. But if this company comes up with a product, that if you take a pill that makes you resistance to disease and like be a lot more vibrant, in old age, I do know that, if not all, pretty much nearly all the people in the world, you know, will care about it. So I think the thing that we like to do is like, we like to look at markets where, even at a simple way, like the market is like almost every person or almost every business in the world, we get really excited. And then the second thing that we look at is how critical is the product because sometimes in Silicon Valley, people tend to get, you know, lost in esoteric technology. And I’m like, Look, technology is really great, but only to the means that it can be a leverage to bring a great solution to people and businesses so that what we try to look for is simplicity, and how critical the product or the solution is to as many people in businesses as possible.

31:06
I didn’t on the website, it states that the difference between good product and great product is one is incalculably better than the current alternative. successful founders have laser sharp focus on true product differentiation, intelligent time and capital allocation. Can you help us understand what separates good product from great product?

31:27
Let me touch on two things on that and be very specific. So I already mentioned the 10x rule. So I think one of the things that we deal with a lot when we talk to founders, we obviously are excited about every founder that we meet, and we really want them to succeed. But when it comes to pulling the trigger on an investment in backing a founder, one of the things we still ask, Hey, is this product order of magnitude better, faster, cheaper, and we need that to be pretty clearly defined and established. But the second thing, where it kind of ties, all the things you just mentioned from our website, is we also kind of tried to look for hey, look, is there something that we can look at that summarizes if a company is truly succeeding or not, or a very good predictor of the likelihood of the company to succeed. And the number one factor that we found, is what we call revenue efficiency, meaning for any given dollar invested in even better spend, what was the dollar of revenue or traction, like innovation that the company was able to generate? The reason why I love it is it’s so simple. And it’s a combination of two factors that work in opposing direction. The reason why that is really important is we want to pick something that number one can give you true signal. But number two is very, very difficult to gain. And it’s very difficult to get right. Like you can always generate more traction. If you’re spending unlimited money. If I said, Hey, Nick, I have this great company, I will give you a $10 bill for $1. Like you would buy it every day and we could have. But that doesn’t make it a great business. Right. And in some ways, you know, the true measure of a great company, no matter what we like to talk about at the end of the day comes to like how much innovation can you generate per dollar spent? We found that to be the best predictor. And so that’s what we’re touching with on our website, when we mentioned some of the factors you just talked about. Interesting?

33:21
Well, it’s it’s especially acute of an issue with all the spin that’s going toward the big tech companies, your your former employer, Google is, is a part of this. But a lot of the venture dollars that are being invested in these tech companies are interned being spent to Facebook and Instagram and Twitter and Google these days. And if you’re not measuring the efficiency of dollar spent, you know, a lot of it goes to acquisition of sort of the leaky funnel customers and doesn’t result in long term Creative Growth.

33:56
You look you’re touching on a very important point in two aspects. So one of the things that is really important, and maybe we’ll touch there in further in our conversation, one of our key success factors has been look, I mean, it’s very hard to compete with the Googles and Facebooks of the world. Not only is it very expensive to generate traction through them, so we always look for organic growth. And that’s why revenue efficiency is such a key factor because some companies are able to generate that word of mouth, that amazing product where they don’t need to spend a lot of money on acquiring those customers. It’s very difficult and rare, but still existent. I think the second thing is also our companies are competing with the Googles and Facebooks of the world as if they’re in Silicon Valley. And you probably know where I’m going with this is kind of the International angle. One of the things we realize is look 13 years ago when I left Google, and much more so now I’m like, well, Silicon Valley is always going to have amazing companies. But these companies are really struggling like they can’t hire people. It’s very expensive. It’s very expensive to get office space and only the very best companies can So truly make it in Silicon Valley, and some of the others are struggling. So one of the interesting insights that we found is that you know what, the same way that you can have a tennis champion that can come from Spain, Serbia or Switzerland, you can have a world class company come from anywhere. I mean, Shopify came from Ottawa, you know, IDN came from Amsterdam, Netherlands. And yes, we have a lot of companies coming out of Silicon Valley. But one of the other things that we found is that, you know, having an office outside of Silicon Valley, or core engineering or core staff actually has become a significant advantage, because we’re talking about revenue efficiency. And, you know, guess what the number one cause for a startup is labor. And so one of the best ways that you’re going to be essentially optimized that ratio, in addition to not having to spend money or as much money in, you know, buying ads on Google or Facebook, one is word of mouth. But the second thing is, what is your cost of labor and where that labor is, has a huge effect on that. And so that’s one of the things that we’ve seen is the benefit of having a geo agnostic approach is that hey, are companies that are outside of Silicon Valley, maybe it is a little bit more difficult for them to find some key roles. But for the core staff that they have, the cost factor is so advantageous to them, that they can actually build more resilient and more revenue efficient companies, everything else being equal. It’s

36:21
interesting, currently, my firm just focuses on investments in the US. But we’ve invested in a handful of immigrant founders that have teams of developers back in their home countries in it, it makes for a very capital efficient talent pool that they’re leveraging. So you know, it’s, it’s been a nice advantage for us, although we’ve struggled, I think getting signal, and maybe you could weigh in on this item. But we’ve had trouble getting signal on the cultural differences, and founder market fit, and, you know, degree of tenacity, and degree to which one is mission driven. When I’m speaking with people in a different culture, you know, I was raised in the Midwest. And I’ve found that about 50% of my portfolio is Midwestern founders, because it’s, it’s easier for me to get signal on the degree to which you no one is knowledgeable and committed to their mission. I’m curious, you know, what are some of the differences when you’re evaluating these companies that are in different locations and different cultures? And is it more difficult to sort of vet that founder Market Fit side or not?

37:25
Yeah, I mean, look, you’re touching on a very important factor. So first of all, if there was a perfect way to ascertain that every investor would be successful automatically. This day, I have not seen it happen. So I don’t think anybody has found the perfect formula. But we obviously are all still aspiring to find things that give us signal. So the thing that I found to be most effective is like, going back to my Google days, I had a really great friend, who was one of the earliest engineers and one of the earliest AI engineers at Google that helped build some of the key products, it always came down to like, this is something that we call, there are two aspects of a founder that it’s very important for us to ascertain this kind of ability to articulate and define success. And also this ability that we call storytelling. We don’t call it marketing, we don’t call it communications, we call it storytelling, storytelling is really important. Because as a founder, no matter how good you are, technically, if you don’t have the ability to be inspiring to tell a good story, you cannot close customers, you cannot hire employees. And you know, eventually you also cannot close investors. So the disability is really important. And one way or another, it does come through in a conversation. And the first one, I spent a lot of time you know, in other disciplines with people that have to do this for life or death situation. Like we have couple navy seals in our portfolio, we have founders that had been Navy Seal, or intelligence officers, and I spent a lot of time with them. And I probably read over 100 books, and all it is is like you really need to be a good reader of people. And what it comes down to is asking very open ended questions. And asking somebody to see that if they can distill very complex concepts, to very simple terms in a very short amount of time, make it sound appealing, and make it super clear that even somebody in fifth grade could like understand, like how this is going to work. And honestly, it’s really that simple. Like, if you don’t have the ability to do that, either is too good to be true, or there is probably a lot of problems. Like if you take 20 slides to have to explain something, something just doesn’t sound right. And if it’s something doesn’t sound right, there probably is something our intuition is not always wrong, like there’s always signal and the other thing that we always ask founders is to be able to at least define what success is for them and how they’re going to measure it. One of the things we keep coming back like we touched on it already with, you know, founder Net Promoter surveys and all of that, you cannot manage what you cannot measure and the only way you can measure something is if you have some goals and your response. hiring in this comes down to when we asked founder as well, great, we believe in the same dream that you do well, but can you tell us what success would be for you? And then the follow up question to that is how do you define and measure it? Now, we are not expecting perfection. But what we have seen the dichotomy here is some of our very best founders have a very acute vision of success. And they have a very acute vision in terms of KPIs or other factors they measure. So they know the things that matter to their business. If the founder is not able to articulate those two things, they are not able to articulate what success means for them. And it’s just like all like, we’re gonna raise another round, are we going to do something big, but they cannot get specific, and they don’t understand the key performance indicators? Or the key factors that are critical to their business and why they’re important. I feel like if not half, the whole battle is lost. So there’s been kind of our TrueNorth, when we were looking at that,

40:55
love it. I didn’t if we could cover any topic here on the program, What topic do you think should be addressed? And who would you like to hear speak about it?

41:03
You know, I was thinking about it. And thank you for giving me an opportunity to mention that, again, I will mention two things as a VC, one of the things that I think about, you know, we’re being bombarded by so many things. I’ve been an avid reader recently of the Farnam street blog, Shane Parrish, I just love thinking out of the box, and a lot of things that we see, I think, and we get bombarded with by email, or on, you know, social media, I feel are incremental. But I love the fact how, you know, the Farnam street blog takes a different approach to this with their thinking models, and a lot of really great thoughtful pieces or a lot of disciplines. So I would highly recommend Shane. And personally, I think the thing that I am most worried about, and I don’t know who would be a great, great person to speak about this, maybe you know, one of our portfolio CEOs, but the increasing polarity of haves and have nots in the United States, and the rest of the world is a big concern. To me, I think it’s the biggest epidemic. Look, we cannot have a healthy level of democracy. And we cannot have innovation and creativity, when there is a huge income disparity in the world and in the US. So it’s something that we need to address, we as a firm are paying very close attention to what we you know, the companies we back. And we have an extremely strong positive bias towards companies that can create great businesses, but by helping reduce the income, and this kind of disparity between haves and have nots. So that’s kind of something that I’m obsessed with. So if you want, I can think of a few interesting people to suggest on that front. But I do think that we need to spend more time on that as a community. And as a group, I

42:43
think you’re right, and we’ll certainly address it here on the show. And then finally, here I didn’t what’s the best way for listeners to connect with you?

42:51
One of the things that I really do appreciate I’m easily discoverable on LinkedIn. And one of the you know, aspects of LinkedIn that I like is it gives me a chance to see people’s backgrounds and also to see which people we have in common. While we obviously, you know, have an email and a website, the most effective way for somebody to get a hold of me and us is through finding one of us on LinkedIn and trying to reach out that way, so that we can have a little bit of context about who it is who’s trying to get in touch with us.

43:20
Awesome. Well, great. Well, I didn’t this has been a huge pleasure, you are just a great role model for entrepreneurs for new fund managers, and the portfolio speaks for itself. So thank you so much for the time today, and I look forward to connecting again soon.

43:34
Thanks. Thanks. I really appreciate the opportunity and chance to be on your podcast and thank you again. Yeah, I look forward to being in touch. Thank you.

43:47
That will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us