Arteen Arabshahi cofounded Culver City-based Fika Ventures, which focuses on early-stage funding for a rather capital-intensive category: enterprise and business-to-business startups like companies in cloud storage, cybersecurity and software-as-a-service. Fika Ventures invests in these companies early on, allowing the firm to shape how these startups move through Fortune 500 companies later on.
Why have you chosen to set your sights on seed-stage and early-stage companies?
I love that at the early stage, you as an investor are the most aligned with a founder than anyone else will ever be on the capital stack. Literally seed preferred and common shares are the closest together on a cap table and with each subsequent round the investor and the founder incentives get slightly further apart. I love being as aligned with founders in the journey as possible, and early-stage investing makes that front and center structurally.
It’s the most fun. There is true creativity, beauty and art involved in starting and scaling an early-stage business. At a certain point in a company’s journey, their problems become more familiar, and their expansion becomes more repeatable, but in the earliest stages and on the road to finding product market fit, things tend to be a bit more creative, which is what excites me most.
How do you define pre-seed, seed and early stage? What benchmarks do startups need to meet in order to be classified as each?
Ultimately, I think the naming conventions these days are all blurring together. I try to define rounds by the sequence or the size of the round rather than by the name. Specifically, I think of a pre-seed as the first round of financing, seed as the second and so on and so forth. Though, these days, the rise of “mango seeds” and “seed plus” and pre-series A have certainly made this more complex.
In round size, I think the average pre-seed is less than a $2 million round, seed rounds are less than $6 million and “early stage” can loosely be defined as “pre-product market fit” in my opinion. The benchmarks are also more variable than ever in the early stages, but generally speaking we tend to see (for B2B companies) some early design partners or product validation for pre-seed and some “real” revenue for seed (let’s say $300,000-to-$2 million ARR). In many ways, the seed rounds of today are the series A rounds of 10-15 years ago.
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?
This is a combination of founder experience, market dynamics and existing product and traction. We tend to index heavily on “founder market fit,” as in, is this person uniquely equipped to solve this problem, and market sizes, as in, is this category big enough today or will grow to be big enough sometime in the near future such that there is a “venture scale outcome” potential to be had. In many cases, this means underwriting an opportunity to a path to be a $1 billion-plus company, if not more. Venture capital is a unique tool in a tool belt, but it isn’t right for every business.
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?
My first ever venture investment was in Figs, the medical apparel company. They actually started as a B2B (business-to-business) business and then evolved into both B2C (business-to-consumer) and B2B. I think I’m most proud of it because it was my first one and it aligned closely with the things I care about: clear problem areas, clear solution that is better than what is offered in the market, large market size, and most importantly, incredibly thoughtful and compelling founders who had extremely relevant “founder market fit.”
What role do seed-stage and early-stage firms play in the larger startup community?
Early-stage investment dollars are essential fuel for the founders who build incredible companies. While some founders choose to bootstrap, venture backed companies generate incredible job opportunities and growth within local startup communities. Without the venture funding to support that, the companies wouldn’t be able to grow at such a pace. The entrepreneurs are the real “chefs” of that growth generation, but the early-stage venture ecosystem is an important ingredient in their recipes.
What role do you see later-stage venture firms playing in bolstering the innovation ecosystem?
These days, some companies are focusing on extremely capital-intensive areas, so later stage firms with lots of capital to deploy are strategically important for some of the “moonshot” technological advancements that require that type of capital. Later stage firms generally play a different role with founders than early-stage investors, and I’m certainly biased to think ours is more interesting, but both have an important role in the ecosystem.
Have you ever made an investment you regretted? Can you explain what happened?
I tend to think that you can learn from every decision you’ve made, whether the outcome ended up positive or negative, so I don’t think I have any investments that I regret, per se. I’ve learned and grown from every single one. One thing I try to avoid is investing in founders who seem to be more focused on themselves than on their companies.
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?
It seems that post-pandemic, entrepreneurship has dispersed even more so we are finding great companies everywhere. That said, we are an L.A.-based firm with all of our team based here. We remain deeply committed to investing in L.A. and the surrounding areas and have now also built up a presence all across North America with a considerable number of our investments in New York, San Francisco, Seattle, Toronto, Atlanta, Chicago, Denver and more.
