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On August 6th, 2018 | by Aydin Senkut
On June 13th, 2018 | by Aydin Senkut
On June 8th, 2018 | by Wesley Chan
On April 13th, 2018 | by Aydin Senkut
On February 9th, 2017 | by Sundeep Peechu
In one of the most exciting developments in Felicis history, we announced last week the close of our sixth and largest fund to-date ($270 million) and welcomed our fourth Managing Director, Victoria Treyger. We are incredibly fortunate that Victoria chose to join Felicis as an investing partner and Managing Director. Her deep experience scaling businesses perfectly complements and elevates the skillsets and experiences already represented in our team. As Chief Revenue Officer of Kabbage, Victoria was key to growing the company through six years of standout compound annual growth rates of over 100%. She has also held leadership roles at Amazon, American Express, Ring Central and Travelocity. As more and more of our founders grow businesses to massive M&A and IPO scale, Victoria will be an invaluable partner to them.
At Felicis, we often feel that a fundraise is really no more than a mile-marker, given our business is a derivative one that depends on the success of the teams we back. However, this milestone comes at a particularly special time in the evolution of Felicis as we build our vision for a new standard in venture capital. After experiencing Google’s very early growth as a team member, I’ve been incredibly lucky to support similarly amazing journeys of iconic companies (like Shopify, Fitbit, Adyen and 17 others that have been valued at $1 billion or more) as an investor. To do that by partnering with some of the best limited partners in our industry and operating in our own unique way based on a shared set of core values has been a dream come true for me.
My other dream from day one has been to create a firm that attracts incredible talent and maximizes personal growth far beyond what someone ever imagined for themselves. My incredible colleagues have been a key ingredient of our consistent success, so it’s only natural to recognize their contributions with well-deserved promotions.
I am very proud to share that Dasha Maggio and Katie Riester have been promoted to Partner, and Niki Pezeshki has been promoted to Principal.
Dasha has been with Felicis for over five years and has touched nearly all aspects of Felicis operations. She is a general athlete with many talents, including her unique combination of operational prowess and deep empathy. In leading our Founder Success efforts, Dasha is pioneering a new standard for how investors support founders. More exciting news to come on this front. She is the youngest Partner in our history.
Katie has over 15 years of experience in the venture industry and was one of the first institutional investors in Felicis via her prior role at SVB Capital. She joined us one year ago to lead Investor Relations here at Felicis, and has significantly elevated our strategy, process and communications in this area. As a result of Katie’s efforts, we are proud to welcome two women’s colleges and a top scholarship fund for minority students as new LPs in our sixth fund. Katie also led our investment in the longevity-focused Age 1 Accelerator.
Niki has had one of the fastest and most impactful starts in our investment team history. As a result of his thesis-driven approach, Niki found and championed some of our most notable companies, including Guideline, Guild Education, Cleo and many others. He is driven to excel under any circumstances and combines strengths in several key areas, including analytic rigor (from years of private equity training), excellent judgement (honed in part during his time in an operating role at Climate Corp), and a relentlessly positive attitude (a rare and critical asset for a venture investor). Niki is the youngest Principal in our history.
As we embark on our sixth fund, I am proud to be part of our awesome team that enables Felicis to stand out by adapting rapidly, leveraging diversity (in every way) and embracing empathy as a core strength. Empathy for our founders’ journeys is and will always be at the core of everything we do. By having empathy for each other as team members and amplifying one another’s strengths, we hope to evolve even faster, and put all our hustle into improving our probability of success.
I almost didn’t write this post. I have multiple tabs open on my browser as I search for our next investments; those who know me know that I’m constantly looking ahead. Nevertheless, I felt compelled to pause and honor an important day for a very special company: Adyen, the Dutch payments powerhouse, has become a public company.
Over seven years ago, in the midst of the rapid ascent of fast-growing companies like Uber and Airbnb, we set out to find the formative payments company that could power their global expansion. This was a major problem that had eluded even the financial services giants. Following a pursuit of multiple years, across continents, Adyen’s founders and management team granted us the privilege of becoming investors in 2013.
What I admire most about Adyen is the team’s tremendous, quiet execution. They flew under the radar for years. When I first updated my LinkedIn profile to share our investment in the company, some thought I was incorporating and investing in myself (and/or had trouble spelling). When we first mentioned Adyen to major news outlets as a rising fintech star, most had never heard of the company. The lack of public attention did not bother Adyen founders Pieter and Arnout; in fact, it enabled them to stay laser-focused on their mission. Adyen consistently achieved stellar results with a level of operational excellence I’ve not seen before in a startup.
This milestone represents Felicis’s second IPO (6th overall), and third $1B+ exit this year. But even on a day like today, it’s business as usual for the Adyen team – they’re in the office, likely working on more big customer wins like eBay. This humility and focus deeply inspires us to keep searching for the next great founders, wherever in the world they may be.
A little over a year ago we took a chance on two exceptional founders, and led the seed round for Okera, a groundbreaking data security company. Today, we’re thrilled to celebrate alongside them in the close of the company’s $12M Series A (check out the TechCrunch article here). I’m also excited to share I will join the board.
When Amandeep walked into my office with his pitch for Okera, I was exceptionally intrigued. He had a large committed contract with a top bank to help manage their core data security and infrastructure—and he had not raised a cent.
Having invested in over 100 companies in my career, I see this rarely—probably one out of a couple hundred pitches. Banks in the Fortune 100 rarely work with unknown startups. It was a signal that Amandeep had found an urgent problem—and one that only he could solve.
In a nutshell, Okera helps companies with highly confidential data—credit card transactions, purchase histories, personal records—keep their data private and secure, while ensuring the people who have access are able to do so easily in a fully accounted manner. Yes, it’s a lofty goal, especially in a world where companies are modernizing their data platforms, and locking down their data even more to prevent the breaches we read about every week in the press.
My partners and I dug deeper into what Okera had built. In doing so, we uncovered a massive problem nearly every retailer, bank, credit card processor, and pretty much anyone who does business has, and Okera can solve.
What became even more obvious to us: Amandeep and his co-founder Nong are uniquely positioned to build Okera. As architects at Cloudera, they saw first-hand many of the challenges enterprises have in protecting their data, and giving their employees the controlled and accountable access they need. Sure, you could protect and lock down the data, but then no one who has access could easily analyze it. On the flip side, you could make the data easily accessible, but then risk a major data breach—and with data lakes and cloud deployment, the risk increases exponentially. Okera built a solution to perfectly balance security with access to those who need it when they need it.
We’re honored to be part of this journey with Amandeep, Nong, and the Okera team. We’re also thrilled to join Bessemer Venture Partners, the lead investors in the Series A.
We see great things in the future for Okera. We believe this company will become the gold standard for corporations to securely store and manage confidential and private data. You can learn more by visiting the Okera website.
We’re excited to announce Grace Chou is joining Felicis Ventures as a Senior Associate on the investment team. Grace honed her operational strength in strategy and business development at Walmart eCommerce where she spent over four years leading various strategic projects in M&A, partnerships, and investments globally.
Grace’s expertise in e-commerce and retail is a tremendous addition to the Felicis investment team and her experience as an operator allows her to add incredible value to founders while easily championing our founder-friendly culture. Because we have a sector-agnostic approach to early-stage investing, we know Grace will have an important role in the future of Felicis with her ability to discover great opportunities and build deep relationships quickly, particularly with companies working on new technologies driving the future of consumer businesses.
In her time at Walmart, Grace saw the rise of digitally native brands and worked on business model innovations around the world, including the development of Walmart’s investment thesis for India. Internationally, Grace led Walmart’s $50M investment in Dada (China’s largest on-demand O2O grocery platform), and worked on key initiatives including the Walmart/JD.com partnership. She also worked on acquisitions across a range of technology startups (Adchemy, Luvocracy, PunchTab, Stylr, Yumprint) and transformative e-commerce brands (Jet, Moosejaw, Modcloth, Shoebuy). Prior to Walmart, Grace spent two years in tech investment banking at Houlihan Lokey.
Grace grew up in Taiwan and – like many others on the Felicis team, including Aydin Senkut, Sundeep Peechu, and Dasha Maggio – is a first-generation immigrant. Her self-made spirit enables her to see around the corner and help Felicis continue its streak of investing early in top companies with only a fraction of VC fundraising and her tenacity is evidenced through her early achievement on the piano. As a high schooler, Grace passed the highest piano exam offered by the Associated Board of the Royal Schools of Music.
Fluent in both Mandarin and English, Grace has traveled extensively and we’re impressed by the inspiration she finds in different backgrounds and diverse perspectives. Her global perspective aligns with our geography-agnostic approach since our portfolio companies span 18 different countries and the founders of Felicis portfolio companies have 37 different countries of origin.
Equally important to her talent, we’ve found that Grace epitomizes Felicis’s values: to learn and adapt rapidly, to lead with transparency and integrity as a team, and to ultimately garner success unconventionally with empathy. We’re fortunate and grateful to have Grace as part of the Felicis family. Please join us in giving her a warm welcome. You can reach her at [email protected] or on LinkedIn.
It’s been a fascinating period for startups. For a few years, as founders, all you heard was the mantra of “grow at all costs.” Thankfully, sanity is back, and with it has arrived a ruthless focus on efficiency and a new set of principles for evaluating startups.
One such principle is the “Rule of 40.” You can see some great posts on it here, here, and here. The reason it’s popular is because it establishes a simple rule to trade off growth against losses. For example, if you’re growing by 100%, you can lose money at the rate of 60% of your revenues. If you’re growing by 50%, you can only lose up to 10% of your revenues. Growth + losses should equate to > 40% for a healthy business.
As with any good rule of thumb, the Rule of 40 is starting to get misused. It was designed for later stage companies. Brad Feld wrote in his original post that the bar was $50M ARR. Yet I’m seeing companies with $1M ARR ask me about the Rule of 40.
TL;DR — The Rule of 40 doesn’t work for early stage. But a different heuristic might.
Let’s take a hypothetical company with $1M in 2016 revenue. The table below shows various growth rates and the losses you can expect if you apply the Rule of 40.
You can immediately see the absurdity of applying this rule blindly by looking at the bottom row. In order to grow from $1M ARR to $5M ARR, the Rule of 40 allows for -360% EBITDA losses. This means losing $18M in 2017 to generate $4M in extra revenue. There’s no way any board is approving that plan.
What gives? The Rule of 40 works well when growth rates aren’t very high. For early stage companies which typically grow 3–5x YoY, this rule breaks down dramatically. Directionally, the rule is correct. You are afforded more losses for higher growth, but certainly not at the rate above.
A better heuristic for early stage companies is the revenue efficiency per dollar of spend. As we saw in the previous example, spending $18M to produce $4M in incremental revenue seems very low, it amounts to a 22% revenue efficiency per dollar spend.
To find out what the right percentage should be, we looked at companies from the Felicis portfolio performing in the top quartile. We discovered that they tend to produce >70 cents of incremental revenue for every dollar spent. Said another way, for every $1M in revenue growth, they tended to lose no more than $1.42M. The table below shows the 70% efficiency heuristic applied to the hypothetical company from above.
You can see that for 100% growth rate, the Rule of 40 and the 70% efficiency heuristics converge. But for higher growth rates, losses from the 70% heuristic are a lot more reasonable. Assuming this hypothetical company does the mythical T2D3 — triples twice and doubles three years in a row, here’s how the company might progress.
For the purists and the bootstrapped, even these levels of losses might seem crazy. But it’s not unusual to see >$102M spent in high growth enterprise companies to get to $72M in revenue / $100M run rate. AppDynamics, which was just acquired by Cisco for $3.7B, reportedly generated $158M in revenue in the first nine months of 2016 and had an accumulated deficit of $476M as of Oct 31, 2016. If we annualize that, it amounts to a 44% revenue efficiency. By contrast, Shopify had $100M+ in revenue for 2014 and only had an accumulated deficit of $33M when it went public in 2015, which is a staggering 303% efficiency. As markets oscillate, it’s hard to know whether to follow AppDynamics’ path or Shopify’s route. There are certainly many paths to success, but given the tighter markets in 2017, we advocate for founders to be more conservative and control their own destiny!
We are a relatively young and diverse team with big ambitions. Despite our small size, we cover a wide range of age, ethnic backgrounds and personal/professional experiences that makes for a rich team dynamic. So whenever we embark on a search for a new team member, it’s quite an adventure to strike a balance between someone who inspires us, pushes us out of our comfort zone, and brings a unique perspective. We are seldom conventional in our searches and try something new every time. Sometimes it’s an unexpected recommendation from a friend or an inspiring conversation catalyzing into a partnership or an old fashioned cold outreach to someone we believe will make an enormous impact.
So when we decided to expand our investment team, we tried a new experiment with a select few people we thought could be a good match. We gave them a conceptual task that required some hustle to gather the right information and formulate a response. Out of that small group, Niki blew us away with his thoughtfulness, speed and creativity. He demonstrated convincingly that he was the best match. The process also allowed him a much better understanding of our firm and strategy. We are thrilled to welcome him to our team.
Niki was most recently part of the investment teams at Summit Partners and Vista Equity Partners. Coincidentally, he initially moved to the bay area to work at Climate Corp, one of our portfolio companies. He is obsessed about Warren Buffet & Charlie Munger and started the Value Investing Group at USC that has continued to thrive in the years since. And most importantly, he comes from a self-made background and an entrepreneurial mindset. We are super excited to welcome him to our investment team and look forward to a more colorful journey ahead.
ZERO – Back in 2006, when I started Felicis, that number represented my deal-flow, the size of my network and the chance the venture establishment gave me of succeeding. It became instantly clear that to win, changing the rules was essential. So I applied whole- heartedly one of the core principles I learned from my experience at Google: obsession with questioning the status quo. I took a different path by pursuing companies poised for remarkable future growth (instead of the obvious hot sectors), being extremely flexible with ownership, not taking a board seat, and accepting uncomfortable valuations. The ability to write smaller checks more often allowed for learning much faster than at a typical venture capital firm. That initial approach swiftly netted a dozen exits by 2010, enough to help raise our first institutional fund.
To emphasize thinking differently and to consider a wide range of perspectives, I assembled a talented, self-made team hailing from very diverse, humble backgrounds, cultures and experiences – strikingly similar to our most iconic founders.
We diversified rapidly beyond largely seed-stage consumer-internet start-ups into a variety of new sectors and geographies that were not popular with most investors. Today, our investments are spread evenly across seed-, early-, and mid-stage companies that push the technological edge in an incredible range of areas from programming bacteria, to powering global payments; from platforms that power global logistics to next generation satellite systems. Our portfolio now encompasses companies with operations in 13 countries and 14 states. (We produced this brief video to capture the amazing spirit and diversity of our founders.)
We are very proud of the fact that, to date, our unique, unconventional approach has produced more than 60 notable exits and 3 IPOs out of 180 or so investments. We’ve had exits every year that we have been in operation except our first, even during the 2008-2009 downturn. Our biggest winners now include 11 companies valued at over $1B, including 5 already exited.
Collectively, our companies have created nearly 22,000 jobs, generated well in excess of $4.3 billion in annualized revenues as of last year, and raised over $4.5 billion of capital. For every $1 we have invested, $35 followed on average from other investors. Our current realized return across all our exits (including full and partial ones) is over 8x. (True to our tradition of transparency, these interesting stats and others are depicted in this new infographic here.)
On the back of this exciting momentum, we have just raised a new $200 million fund, our fifth, to mark our tenth anniversary. We will leverage that extra scale to make much bolder bets, and support our founders in more meaningful ways with one of the most diverse teams in venture.
As we embrace our next decade, we will always be mindful that the only success we strive for is the one that our founders envision for themselves. To make a stronger point of that effort, we were the first venture firm to commit to always vote our shares with our founders. Our mission is to help them realize their dreams and create their own destinies, anywhere in the world.
To work with entrepreneurs globally who will turn convention upside down, reinvent the things everyone takes for granted and give the world something it never knew it needed, but suddenly can’t live without, that is our dream.
Pursuing the right talent along with building a unique, sustainable company culture should be top of mind for every CEO. So important in fact that in two surveys we conducted among our portfolio companies, it was highlighted as one of the most crucial areas where we can help. We listened and sought out one of the most experienced and respected executives in this field: Beth Steinberg. We’re very excited to announce that Beth has joined Felicis Ventures as Senior Advisor for Talent and People Operations.
Beth will assist us in offering our companies strategic advice in critical areas like attracting top talent and developing a scalable company culture in a high growth environment.
Beth is an incredibly talented individual who dedicated nearly her entire career to developing successful organizational and people operations strategies partnering with exceptional leaders. She served as the first VP of Human Resources at Facebook, then as VP Talent & Organization Development at Sunrun (IPO) and next as SVP, People Operations at Brightroll (acquired by Yahoo).
We have relied on Beth’s counsel not only to address our founders’ organizational challenges, but also to pursue awesome technology solutions to reinvent people analytics and operations. Beth’s unique insights reinforced our efforts to make some of our most strategic bets in this space, including Greenhouse and CultureAmp. Without a doubt, she will continue to have a tremendous positive impact on the people within the Felicis community, and beyond. We couldn’t be more excited to have her on board.
At Felicis, we have long believed that great companies can be built anywhere in the world, aided by the democratization of access to capital, customers and talent. We have been fortunate to back companies based in 11 different countries. We also recognize that Silicon Valley remains the central hub for entrepreneurship; founders come here, against all odds, leaving behind everything known to them, to start something new. Unsurprisingly, immigrant founders founded 52% of all new Silicon Valley companies between 1995 and 2005. True to our DNA, Felicis founders hail from over 29 countries.
Our founders have told us that support from someone who has been in their shoes is invaluable. That is why we are thrilled to announce that Harley Finkelstein, Chief Platform Officer at Shopify, has agreed to join our Founder Advisory Council.
Welcoming Harley to this role will allow our founders to learn from one of the most talented operators in our portfolio. We strongly believe that deepening our team’s operational experience is one of the best ways we can serve our founders as they build great companies.
A former attorney, Harley took a non-traditional path to become one of Shopify’s earliest employees, eventually helping to grow the company to power over 150,000 merchants. We have been privileged to support Harley as he and Tobi, Shopify’s CEO, led the company to become one of Canada’s epic tech success stories.
Harley is a special person. Warm and personable, he is a great hustler, community builder and operator. Shopify’s Build a Business competition is a strong testament to that effect. It has grown under his leadership from 1,378 new businesses launched in the first annual competition, to more than 21,000 in last year’s competition.
With five portfolio companies based in Canada, plus close to another half dozen in the US with Canadian founders, Felicis is deliberately long on Canada. We look forward to having Harley as our eyes and ears for the best Canadian companies yet to come.