Fika Ventures, a seed stage fund based in Los Angeles, is five years old. It has funded mainly business-to-business and fintech startups.
According to the investors, the firm is doing a good job. Today's announcement includes a new flagship fund of $160 million and an opportunity fund with $35 million capital commitments.
This is a huge endorsement for a young company. Even with 10 promising portfolio companies, such as Formative, a Santa Monica-based platform that allows teachers to create assessments; Pipe, a Miami startup that lets companies sell recurring revenue streams via its platform; and Papaya Global in Israel, which sells payroll, onboarding, and compliance services and raised $100 million earlier in the year, it's getting harder to do what they do. Ho says it is a wild time.
Yesterday, we had a candid conversation. Below is a short edited version.
TC: What percent of your investments are locally?
EH: We feel that we have a home-court advantage here. So about 40% of our deals take place here. The rest are in markets such as Seattle, New York and Boston. Because of the great AI community in Toronto, we recently made a deal. We still believe in the need for boots on the ground, so we continue to pursue geographies that allow us to fly to board meetings and to be available physically to support our founders when they need us.
TC: Your new flagship funds are twice as large as your previous fund. What will this mean for how much you can invest?
TZ: We will see an increase in our check sizes as a result of the market. Seed rounds are becoming more expensive, as you may have noticed. Initial checks should be between $1 million and $3 million. With the last fund we had $6 million per company, now we have $10 million.
TC: Please tell us about investing in a market that has everyone a founder and everyone an investor.
EH: It's definitely an exciting time. It's like running a marathon while trying to run a sprint. It is important to look long-term and place bets keeping that horizon in view. However, initial and follow up rounds are now much more efficient.
TC: How can you make smart decisions in a fast-moving world?
EH: We have been increasing the size of our team and doing more research on the industry in advance so that we are more ready to take on the world. It's still a challenge because everything is so compressed.
TZ: In the past, seed money could have been considered a pure generalist, even within certain sectors. Over the past 12 months, we have been forced to learn more about each of our sub-sectors. We have done a deep dive into insurance and real estate in fintech. This helps us to make deals prepared for the rapid pace of these industries.
TC: What's the fastest deal that you have done?
TZ: We used to be able to close deals in as little as two weeks. Now it takes us about a week to reach a decision. In a situation where the entrepreneur has been a friend for many years, the fastest time we have moved was probably in five days. It was also a good fit between the founders and the market in terms of their goals.
EH: We have pulled ourselves out of certain rounds which are moving very fast and/or the valuation expectation upfront is just insane. Pre-seed rounds are pre-product and pre-traction rounds. They are often done at $15 million, $20 million, or $30 million post money valuations. Yes, it is possible to flex for the right things but there is just too much froth in this market.
TC: Are you financing pre-seed, post-product, and pre-traction teams if the terms are correct?
EH: We have made some progress in certain cases, to be quite honest. We invested about 15% in pre-seed startups in the first fund. This to us is very early product, very early traction, and sometimes no traction. Fund two has invested 25% in pre-seed deals. This is because great founders are able to execute quickly and have vision. You have to be able to adapt and grow a bit to move down a bit. However, almost all of the companies we fund have at least one minimum viable product and have initial design partners, even though they don't have any significant revenues.
TC: How much of your recent investments have gone to repeat founders in your fund?
TZ: I would say 15% to 20%. We can't limit ourselves to serial entrepreneurs, but repeat founders make deals move faster than ever before.
TC: What is the most bizarre thing you've seen in this market for go-go?
TZ: The most bizarre thing we've heard is that funds make decisions after a 30-minute conversation with the founder.
TC: Do you think that you would ever give up on a company if the rest of the capital is not exciting to your attention?
TZ: Deals are so fast that we have to quickly identify what is important to us. We used to have a long list of things to do. Now, instead of having to keep track of them all, we are able to focus on three to five of the most important things for each deal.
The problem is that founders have unrealistic expectations of investors, who can make decisions in 30 minutes. They expect everyone to process information in that time, but I believe they are missing the fact that these funds aren't processing the information.
TC: How can founders slow down and pay more attention?
TZ: Every founder we've been close to backing with contact information and a complete list.
We did this initially to help us win deals. But I think founders quickly get a feel for what it is like to work alongside us.
