Aydin Senkut: Series A investors want efficient growth

At Post Seed, the Felicis Ventures founder talked about what's changed about raising a Series A

Editor's note: Our Splash Health, Wellness and Wearables event is coming up on March 23 in San Francisco. We'll have Mario Schlosser, Founder & CEO of Oscar Health, Brian Singerman (Partner, Founders Fund), Steve Jurvetson (Draper Fisher Jurvetson), J. Craig Venter (Human Longevity), Lynne Chou (Partner, Kleiner Perkins), Michael Dixon (Sequoia Capital), Patrick Chung (Xfund), Check out the full lineup and register for tickets before they jump! If you’re a healthcare startup and you’re interested in being part of our competition, learn more and register here.

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At our Post Seed conference last Thursday, Aydin Senkut, founder and Managing Director of Felicis Ventures, sat down with Rolfe Winkler, technology reporter at the Wall Street Journal, to discuss his role as a contrarian investor.

The conversation began with a question about how the game has changed for companies looking to raise a Series A round. 

"You've done a lot of early stage stuff in your career, and a lot of people in this audience are curious about what do you do in this environment, if you've raised your seed but you don't know if you're going to get to that A?" Winkler asked.

"Honestly, it's tough situation because, when I started 10 years ago, we were very excited about more startups coming, and I'm still very excited about it. The reality is that, towards the top of the funnel, the number of companies that are getting A rounds, and then the ones that get to really, really large, meaningful scale, has not changed that drastically," he said. 

That makes it harder for companies to get funding and what they're are facing now, said Senkut, is what he faced when he first started investing, which helps him understand where they're coming from. 

"It just comes down to it's the same thing that I faced. I can relate because when I raised my institutional fund, I could have just kept writing personal checks as an angel, but I had 40 nos before I had my first yes. That's why I think we really relate to our founders."

With so much competition, the startups need to be able to tell their story well, so they stand out from the crowd.

"I always thought that I had a story and I didn't realize how important it is to tell that story well, to convince the people, not just of the facts, but the mechanism of getting the facts. So, it's not like, 'I'm raising an A because I need to raise an A,' but, 'I have a product that works, this is it works, this is why I can work at scale and this is why I need the money to take it to the next level,'" he said.

"I obviously wish all of these companies in the audience to do really well; the reality is that the bar keeps getting higher. It used to be that all you need to do is show charts that go up and to the right, and I think people have gotten smarter. They not only want to see growth but they want to see efficient growth, i.e. companies that can create success at scale with as little resources as possible."

So, then, why did that change?, asked Winkler.

"Historically, people wake up to the fact that you can go really fast by selling a dollar for 10 cents. There will be a lot of customers and, sooner or later, the reality catches up to them. One of the things I've seen more and more, and we ourselves became a lot of more instrumented, but understanding the mechanism of that growth, and how efficient it can happen," said Senkut. 

After doing a benchmarking survey, he revealed, Felicis found that two of its "most interesting companies," Credit Karma and Fitbit, were in the top 10 percent of cash efficiency of generating revenue.

"There was a very strong correlation between companies that produced the most with few people, and that produced the most with as little dollars as possible. What's now happening is that everybody else is catching to that. So, they not only want to see the growth, but they want to see the growth being generated by a very efficient mechanism."

Ultimately, what really changed, according to Senkut, is that all the new investors who had come in when money was flowing eventually got smarter about where they were going to put those dollars. 

"I think what happens is that there are a few people that always follow good discipline and have good instrumentation, but, then, at times of hype, when it's really, really easy to get money and invest money, people get a little more lax, and you have a lot of new entrants. They try to do it in a more obvious, easy way, and then it reverts back to people seeing the fundamentals."