Windsor Square-based TenOneTen, a venture firm focused on startups in their infancy, was started by a group of former tech founders themselves – some of whom built companies like AdSense (which was acquired by Google) and Scopely that navigated the venture funding and acquisition deals themselves. David Waxman cofounded a slew of technology startups before beginning at TenOneTen.
Why have you chosen to set your sights on seed-stage and early-stage companies?
As former founders, this is where we feel we add the most value and to be honest, where we have the most fun. We also believe that the early stage is the best opportunity for our limited partners to get a great multiple on their investments.
Can you explain how factors like location, risk appetite and sector preference played into your decision?
One definitely needs a high risk-tolerance and patience to invest at the earliest stages. We have plenty of both.
How do you define pre-seed, seed and early stage? What benchmarks do startups need to meet in order to be classified as each?
Pre-seed can mean anything from inception to having a product with customers and some amount of revenue. For seed, we expect to see a product with real proof of customer pull and revenue in the hundreds of thousands. Of course, there is a wide variation depending on the industry, product and customers. While we would expect quite a lot of closed deals from a company selling software to SMBs (small-to-medium sized businesses), a company selling harder tech to enterprise might still be in the paid proof of concept phases with customers.
Do you feel like the standard for what is classified as “seed” or “early-stage” has changed over the years in the venture community?
Yes. The targets and names are always changing, and people make up new names (like post-seed, second seed, and pre-A). Typically, these correlate to traction and round size rather than simply denoting what number financing they’re on as it did in the old days.
Investing in nascent companies that don’t have the reputation or revenue of developed startups is rather risky. How do you go about determining what investments are the right ones?
That’s the job. We look for signals, mostly about the founders: why are they working on the problem, how much have they thought about it, what are their plans, do they have the characteristics (grit, curiosity, leadership, intellect, the ability to sell, etc.) of a successful founding team. Then, of course, we study the market, competition, product, traction, potential moats, regulatory hurdles, etc. until we get comfortable.
What is the riskiest investment you’ve ever made? How did it play out?
It’s very hard to assign relative risk to startups in the earliest stages. Any startup can fail and, if we’re doing our jobs right, any portfolio company can return a multiple of our entire fund.
What late-stage or exited company are you proud to say you’ve invested in early? What about that company made it worth the investment?
We have investments that have grown from inception into significant companies with tens or hundreds of millions of dollars in revenue such as Flock Freight, Mashgin, Artera, and CREXi.
Have you ever made an investment you regretted? Can you explain what happened?
Of course. A good investment decision can have a bad outcome. There is a lot of luck involved and sometimes it can be bad luck: market changes, unforeseen competition, changes inside key customers, or other exogenous factors. We don’t dwell on these as they are part of the process. The ones we regret most are the missed opportunities: companies where we somehow didn’t see what some other investor saw in a great company and decided not to invest. There is plenty of luck at work here too, but it’s harder to swallow because the impact of a miss can be 100 times the magnitude of a loss.
As the startup community in Los Angeles has gotten more developed, and as startups globally blurred geographic lines since the pandemic, how has your brand as a Los Angeles venture firm evolved?
We are grateful to have started in L.A. when it was a very small underserved market. 11 years later, we are a very established brand in one of the best startup ecosystems on Earth. It’s been great to see the market grow up around us. That said, we never limited our investments to L.A. companies and because we’ve had very successful investments and partnerships elsewhere, even more opportunities are opened to us.
