1Mby1M Virtual Accelerator Investor Forum: With Eva Ho of Fika Ventures (Part 2)

Sramana Mitra: In the 1,500 deals that you’ve seen this year, is this a trend that there are a lot of archaic industries getting heavy infusion in machine learning and artificial intelligence, and you’re seeing entrepreneurs emerge in those categories.

Eva Ho: Absolutely. When we were working on Factual in 2007, we were pitching big data and APIs to the larger Fortune 500. A lot of them were scratching their heads and not really seeing its importance. We’re early in trying to deliver the message of systemizing your data, having data as a core component in determining product opportunities, and basically affecting every function that you have.

As our conversation progressed over the years, I’ve watched the Fortune 500 come full circle and be much more receptive to it. In that, they’re more receptive in buying technologies from younger startups that have these capabilities. I can’t say that every Fortune 500 is buying new technology but majority of them have their eyes wide open and are willing to pay for these technologies as well as make investments.

Sramana Mitra: This is an interesting segue into a trend question. How do you parse unicorn mania? The kind of deals that you are looking for is not necessarily a unicorn investment thesis and I personally like that you’re going after these niches. How do you view unicorn mania though?

Eva Ho: I’m not sure I would say these are niche applications. Let’s consider fintech, for example. Five to ten years ago, a lot of the applications you were seeing were solving very pinpoint processes and improving very specific workflows. For example, putting loans online for a bank. Nowadays, we’re seeing much more platform companies changing and revolutionizing entire industries. You look at Stripe and Betterment. These are not niche applications.

Sramana Mitra: They’re much broader.

Eva Ho: We do see the capabilities of companies in these different sectors. In insurance, we’re seeing a lot of heavy investments. Lemonade announced a big investment. We think that there are these new types of companies that have the potential to be unicorns. We don’t really invest unless we believe could be a large company. I think unicorn is overused. We are looking for founders that are ambitious and feel that they are in it for the long haul and want to build something that’s truly sustainable and valuable.

We shy away from founders who come in and say, “I want to solve this for two to five years.” There are investors that might care about that, but that ambition is not aligned with what we want to do. We want to aim for companies that are going to be one of the top twelve companies that come out every year. I think there’s plenty of room for a lot more of these companies to play out.

Sramana Mitra: As a seed investor, you could get buried under later-stage liquidation preferences, how do you protect yourself?

Eva Ho: We’re not thinking about that right now in the sense that our term sheets are really clean and vanilla. Even in most of our Series A investments, it’s very non-standard for those terms to play a part.

Sramana Mitra: The question though is not about your term sheet. You probably haven’t got to that yet because you’re such a young fund. If one of your deals gets to a point where they become a hot company and this seeding frenzy of the late-stage funds starts and valuations run up, often these deals get into very dysfunctional territories. It’s a very unhealthy territory for early stage investors. Have you thought about that?

Eva Ho: Over at Susa, which is a five-year-old fund, we invested in Flexport, Qadium, and LendUp. Many of them are in the hundreds of millions of valuation. We’ve dealt with late-stage investors. There’s really no true way for protecting ourselves except to add value as investors early on and have a good relationship with the founders, and making sure the founder’s interests are protected. Founders do not win when they have a lot of these weird terms involved in later stage.

If you’re building a valuable company, most founders will not stand for these terms. However if you don’t have the optionality and Sequoia comes in, there’s not a ton we can do to protect ourselves. That’s a roundabout way of saying that as an early stage investor, we try to be as helpful as possible.

1. We have a bunch of founders who are LPs in the fund that we worked with before, which is very good validation that we do good work with them. We hope that we can preserve that relationship over time and that our interest with them will be aligned.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Eva Ho of Fika Ventures
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