Fika Ventures AUM Triples: Investment Firm Sees Rapid Growth

Fika Ventures Secures $195 Million in New Funding

Fika Ventures, a Los Angeles-based seed-stage investment firm established five years ago, primarily focuses on business-to-business startups, alongside fintech and healthcare IT ventures – excluding those requiring hardware development or FDA approvals.

The firm has garnered positive assessments from its investors. Following initial funding rounds of $41 million and $77 million (closed in 2019), Fika Ventures is announcing a new $160 million flagship fund and a complementary opportunity fund with $35 million in commitments.

Navigating a Competitive Investment Landscape

This substantial investment represents a significant vote of confidence in the young firm. Despite a portfolio boasting over ten promising companies – including Formative, Pipe, and Papaya Global – co-founders Eva Ho and TX Zhou acknowledge the increasing difficulty of securing favorable deals in the current market.

“The present environment is undeniably dynamic,” Ho commented.

A recent discussion with Ho and Zhou, lightly edited for brevity, provided further insights.

Seed-Stage Strategy and Investment Focus

TC: Given Fika Ventures’ growing prominence as a seed-stage firm in Los Angeles, what proportion of your investments are allocated to local companies?

EH: We believe our presence here provides a distinct advantage. Approximately 40% of our investments are made in the LA area, with the remainder distributed across hubs like Seattle, New York, Boston, Austin, and Chicago. We recently completed a deal in Toronto, attracted by its thriving AI community. However, we prioritize a physical presence, focusing on regions where we can readily attend board meetings and offer direct support to our founders.

TC: Your latest flagship fund is more than double the size of your previous one. How will this impact your investment amounts?

TZ: Our investment sizes will adjust in line with market trends. Seed rounds are currently larger than in the past. We anticipate initial investments ranging from $1 million to $3 million, with reserves of up to $10 million per company, compared to the previous fund’s $6 million limit.

Adapting to a Founder-Investor Driven Market

TC: How do you approach investing in a market where many individuals are both founders and investors?

EH: It’s a remarkably fast-paced period. We’re simultaneously engaged in a marathon and a sprint, requiring a long-term perspective while responding swiftly to rapidly evolving opportunities.

TC: How do you maintain sound decision-making amidst this accelerated pace?

EH: We’re expanding our team and conducting more in-depth industry research to enhance our preparedness. However, the compressed timelines remain a challenge.

TZ: Seed funds historically could operate as generalists, even within specific sectors. However, the past year has compelled us to develop a deeper understanding of sub-sectors within our core verticals. For instance, within fintech, we’ve focused on real estate and insurance to facilitate more informed deal assessments.

Deal Velocity and Market Dynamics

TC: What’s the quickest deal you’ve completed?

TZ: Deals previously taking two to three weeks now average one to one-and-a-half weeks. Our fastest deal closed in just five days, benefiting from a long-standing relationship with the entrepreneur and strong founder-market fit.

EH: We strategically withdraw from rounds progressing too rapidly or exhibiting unrealistic valuation expectations. Currently, pre-seed rounds are being funded at $15 million to $30 million post-money valuations with limited product, traction, or revenue. While we remain flexible, we recognize the current market exuberance.

TC: Are you considering funding pre-seed, pre-product, pre-traction teams if the terms are favorable?

EH: We’ve become somewhat more open to earlier-stage investments. Our first fund allocated 15% to pre-seed startups – defined as those with early product development and limited traction. In our second fund, this figure has risen to 25%, driven by the rapid acquisition of promising founders. However, most companies we fund still possess a minimum viable product and initial design partners.

TC: What percentage of investments in your latest fund are going to repeat founders?

TZ: Approximately 15% to 20%. While we don’t limit ourselves to serial entrepreneurs, deals involving repeat founders tend to move even faster.

Observations on the Current Market

TC: What’s the most unusual trend you’ve observed in this dynamic market?

TZ: We’ve encountered funds making decisions after a mere 30-minute call with the founder.

TC: Would you decline a company based on concerns about the other investors involved?

TZ: The speed of deals has forced us to prioritize key factors. Previously, we had an extensive checklist; now, we focus on the three to five most critical elements for each deal.

The challenge is that rapid decision-making by some investors creates unrealistic expectations among founders, who may assume all funds operate with the same speed and lack thorough due diligence.

Fostering Founder Relationships

TC: What’s your approach to encouraging founders to carefully consider their options?

TZ: We provide every founder we seriously consider with a comprehensive list of all our portfolio companies, including their contact information.

Initially intended to help us secure deals, this practice also allows founders to gain insight into our working style and build relationships with our existing portfolio.