John Chen of Fika Ventures joins Nick to discuss Fear and Greed in AI, The Rise of Kingmakers, and Is Seed the Sucker Round? In this episode we cover:
- Differences Between Bay Area and LA Founders
- Lessons from Emergence and Building Fika
- Investing in AI Native Services and Copilots
- Challenges and Opportunities in Seed Investing
- Founder Profiles and Career Paths
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0:17
John Chen joins us today from Los Angeles. He’s a general partner at Fika Ventures, a pre-Series A venture firm investing in B 2b companies across vertical AI, fintech, developer tools, and other real-world industries. Before Fika, John was an investor at Emergence, a writer for TechCrunch, and chief of staff at Box. He’s invested in companies including Evo, Sift, and Ciro. John, welcome to the show.
0:46
Thanks, Nick. Great to be here.
0:48
Always good to see you, man. So, tell us why build a firm in LA.
0:53
That’s a great question. So, we were founded in 2017, and the thesis was pretty simple, which is there was going to be a whole class of founders emerging from SpaceX and ServiceTitan and Snap, that we’re going to want to work on B 2b ideas. I think the proverbial wisdom at the time was L.A. is more consumer focused, more media focused, but we really really wanted to plant the flag for B 2b. Thankfully, that bet has paid off. We backed our third X SpaceX team, our fourth X Service Titan team, and so I think a lot of any company or any founder that is working on a B 2b idea is likely going to shop at Fika if they’re based in L.A. But since then, you know, we’ve grown to become a nationwide brand. So a third of our companies are in L.A. and two thirds are everywhere else, so we’re always on planes. So that’s that’s reason number one. Number two is just going back to LA for a bit. It’s the home of a lot of the real world industries that we care about. So the trades, shipping and logistics, aerospace and defense. There’s a lot of large industries here that are important customers for a lot of our companies, and then the third, maybe strategically on the firm building side, we think about it as you know being close enough to the echo chamber of San Francisco so that we can be SF calibrated, but far enough away such that you can still have some distance to you know have some independent thinking, and that’s really important for us to be you know, not high on high on our own supply, and and be able to to stand apart and and have some room to to think about things, you know, for ourselves.
2:33
How much time are you spending in the Bay Area every year?
2:36
I go up there once a week, actually. So we we are we’re constantly up there to the point of being, you know, SF calibrated. Because there’s no denying that the best, you know, some of the best founders are are there, and they are setting the bar for what excellence looks like. I think it is. There’s still a lot of things that don’t make sense that we’re seeing, but it’s it’s important. the The only way to be able to tell the two apart is to have some distance from it. So we spend you know a day or two up there every week. I do personally, but you can come back and really yeah have have some space to to work through things.
3:14
So so give us an example of something that doesn’t make sense, or you know maybe highlight some profile differences between Bay Area founders and LA founders. You know, aside from just kind of the Stanford and the the tech pedigree,
3:30
I think there is a lot of insider. I mean, I think that the number one trait is whether you’re an insider or an outsider, and you know, a lot of Fika success actually has been finding a lot of folks that are on the periphery, on the outside, that don’t have YC or Stanford or things that are really legible to SF investors, and helping them sort of move towards the inside, the insider track. And you know, great example again, Ivo is is a company that we met the founder three months after he moved here from New Zealand. He was a corporate lawyer in New Zealand. Did not have YC, did not have Stanford on his resume. was was not legible to the SF firms, but just an incredible founder. If you talk to him, he’s thought about every question that you’ve asked five times over, like an incredible product mind. We put him in front of three general counsels, who are his customers, or these were prospective customers at the time. But he was able to close all three of them in 20 minutes with just a demo of the product. Wow! And we were like, “There’s something here. And again, it’s it’s someone that was again passed over and overlooked and misunderstood. And he recently raised a Series B. His customers now include Meta, Uber, Google, IBM, Notion, Quora, Reddit, and so like the companies. Exceptionally well, but again, that that seed round, this is late 2023, was one where again we we saw somebody that was exceptional, but but was again misunderstood by by the market.
5:12
Interesting. And how do you find aside from just being out there in the network and being in LA? You know, how what’s maybe a unique way that you go about finding and sourcing some of these special individuals.
5:25
It’s funny. I’ll tell you another story of a recent investment that we made that we’re we’re very excited about. Oftentimes, I mean, obviously, we have a lot of close connections with a lot of funds that like working with us, mainly because we’re. I think the our our reputation is you know to be one of the hardest working firms out there. Like we are on the ground with our founders. We only do eight to 10 investments a year. We’re not doing call options. We’re leading and co-leading. We are deeply in context and integrated with with our founders. But this has this flywheel effect of not only again VCs wanting to work with us, but also founders that refer us, other founders. And there’s this one funny story where, like, the one of my most recent investments, one of our other founders worked in the same WeWork as this founder that we were about to invest in, and they were like, “We have no idea what these these folks do, but they’re here every Sunday before we get here, and they leave after we leave. I don’t know what they do, but you should talk to them. And and so thankfully we did. We hop on a call on a Friday. This is a company called Ajax in the in the legal space. They do AI legal timekeeping, and we met him on a Friday. We did a ton of work over the weekend, and we flew out on a Tuesday to present a term sheet. Tuesday night at 8p.m. is when we delivered the term sheet. From 8p.m. to midnight, they call eight of our founders to do references on us, and then from midnight to two a.m. they we signed a deal, and that’s that. Actually, is more of a testament to them than to us from the perspective of their ability to move quickly and decisively when they know, you know, when they when they know it, they they when they see it, they know it, and and so yeah, we’re very grateful and privileged to be working with them. But it’s it’s one where you know we we had unique insight mainly because it’s you know a founder that worked in the office next door that that saw how hard charging and how fast you know they were moving and and so we look for signals like that you know things that are just non obvious and again they they are you know again they’re very pedigreed as founders but they’re not, you know, they they weren’t from the valley. This is a company based out in New York, so it wasn’t. They weren’t plugged into the matrix of of the valley.
7:50
You’re doing a lot in legal tech, John. Yes, yeah, we’re spending. I know we do other things outside of legal tech. I promise. But these
7:57
were just two fun examples where, yeah, two founders that are are incredible.
8:02
So, John, you mentioned other firms. You worked at Emergence. Yes. You know, how is that similar, different than Fika, and what are some of the major lessons you took away from that experience?
8:12
Many lessons. Emergence is an incredible place. Was an incredible place when I was there in 2014 to 18. I think a couple of key things that are very integral to how you know I think about building Fika here as well, alongside with my partners. The first is emergence was at the time, and and you know to some extent today, aggressively non heat seeking, and it’s it the the principal question was like what do we see in this company that others don’t? I still remember in my first two weeks at Emergence we made the Zoom investment and I remember that vividly because Zoom at the time like this is hard to imagine but at the time was a late mover. It was like the ninth company in video conferencing.
8:59
100% Blue jeans
9:00
and Uber conference were like the big hot companies.
9:04
I have nightmares, John. I got to tell you, I have nightmares about WebEx. Like, oh yeah, WebEx for years was always broken.
9:11
And and actually, it’s funny because Eric Eric was a VP at at WebEx, so he was responsible, you know, for for some of the damage. And I think Zoom was Zoom was his sort of penance for, for coming out and fixing it. But you know, again, the team was based in San Jose, and all the gravitational pull was in SF, and so that was not obvious. And it’s funny because when when you actually look at the metrics, though, they were incredible. And and the funny story is actually, I think this has been told many times over, but the funny story is actually the metrics that Eric reported were actually underreporting how fast he was growing. So it actually he was actually growing faster than than what he was what he thought he was, and so all the sum of all these things is such that like you have to take an impact. Independent view on companies, you have to do the real work of you know either putting them in front of customers or really deeply looking at data or trying to do like you have to have some unfair insight, and it can be like at the early stages at Seed, it is like deep, deep founder referencing of you know when has this founder done something that stood against the grain, or when? What is the track record of success of doing really difficult things and over and over again? Or, or actually, the the more underreported one that we look at a lot is like, is there an is there evidence of their ability to look stupid for a really long time before they’re vindicated? Like, what is the one thing where they’re willing to to stand apart and and you know because they have so much conviction on a position or an idea. So anyhow, so aggressively anti heat seeking is is something that’s really important. I think the second thing is you know venture can be a team sport, and what that means is I think emergence obviously took this to an extreme, where all the investors were enterprise application or SaaS investors. There were no security investors. We didn’t do anything in infrastructure. Consumer was was off the table, so they took that to an extreme. But even as we think about Tafika, like we have different areas where we’re you know playing a bit more offense, but we still have one conversation. Like the circle of competences, you know, don’t have to be fully overlapping, but you still have to be able to have one conversation at the partner meeting. Otherwise, there’s really no point in being a partnership. So, again, I see some firms where you know you have the biotech partner sitting next to the consumer partner, sitting next to the enterprise partner, and it’s like it’s very unlikely that that’s one conversation, and so we want to preserve the the one conversation and venture as a team sport. And the last last thing is, I think what they’ve done an incredible job of is, you know, building a multi generational franchise. You know, for the long run, like we all know the firms where someone’s name is on the door, and they you know, they fall apart, or you know, things happen when that person leaves. But how do you build something that outlasts any single individual or partner on the team? And it requires a lot of a lot of restraint and a lot of individuals who have power to do the George Washington, you know, thing, and especially around economics and building long-term processes and institutions that don’t revolve again around a cult of personality. And I think they’ve done that extremely well. There’s there’s just a number of folks on that team that you know could have been, you know, the the king of emergence or the kings of emergence for a long time, and they decided to you know do the right thing and pass it on to the next generation.
12:48
And how would you describe the culture of Fika? Like, is it team oriented? Are you a consensus driven, or is it more one person bangs the table for a deal, and and that’s the way it goes.
13:00
Yeah, it’s it’s a it’s kind of a hybrid in the sense of like we have to we have a we have actually have a scoring system that tries to keep it objective. And I think that the goal of this is actually so actually maybe to roll it back up. I think the number one north star is truth seeking. Like in the partner meeting, the only objective is to find ground truth, and the way to really pull that out from everybody, including folks that are, you know, some of our junior investors, is to have them rate and fill out a survey after a full team meeting where a company comes in and pitches to, you know, on a number of different dimensions. We have probably like 15 different dimensions, and then a final score. It is a rating scale from one to seven, and the presence of conviction is what we look for, which is someone has to be a seven on the team, like especially on the deal team. If if there isn’t a seven, we should not be looking at this deal. And so, presence of conviction is is the most important, but then separately, it’s like it’s like conviction despite because in that survey process, all of the reasons not to do a deal will come out. Right? There’s actually 99 reasons to not do you know an investment for every one to do it, and so
14:16
can always talk yourself out of a good
14:18
one. 100% And so, like for that person that voted a seven, who is again likely leading the deal, like after seeing all of the feedback, like are they still excited despite all of the reasons not to do it? And that’s really ultimately what we what we look for. But again, one of the core principles again, making sure that everyone gets a voice because people like that. That’s the reason that we’re here. Like we bring on whether it’s a senior investor or a junior investor. It’s it’s actually there’s no point in having them around the table if their if their voice is not heard, and we try to make that as objective as possible.
14:51
So you talked about at emergence, you’re kind of looking for original viewpoints that aren’t necessarily chasing heat, right? And emergence was quite early to the AI native services movement. Sequoia is writing about it now. It’s it’s a popular category, definitely polarizing investment community. My question for you is: Are you investing in AI native services?
15:18
So yes, we are, and we’re actually we’re host co-hosting a AI native service event with Emergence in the fall, so we’ll have have more details on that soon. But I think the one thing I’ll say here is the most important filter for us is we’re trying to find spaces and ideas where there is a better 10x there’s a 10x product experience, better product experience that can be had, and you know that in AI native services specifically, like there there are two great examples. I mean, these are ones that are obvious at this point, but you know, like a Hanover Park, for example, tackling fun admin. Fun admin, there’s a very low bar, unfortunately, you know, in the industry where like there is plenty of headroom for a 10x better experience, so that that is a space that is great for an AI native service play. You know, for Crosby, I think that that’s another one in the legal space where they were focused just on contract redlining, which again, Ivo does that, you know, as well. But that’s like a software platform for folks that already have GCs. But for the companies that don’t, it is a high-stakes workflow that matters to them in terms of speed and cost. But the law, the big law firms, just didn’t want to touch it. It was like an underserved segment of the market where you had big firms that don’t want to touch it, and all the small service providers were not good enough. And so, an AI of service there also makes sense. But I think where people go wrong is trying to go after some of the higher end premium, you know, segments of the service market. So you know, for example, like using the legal as an example, litigation is extremely high stakes, and so what you’re paying for is not only the, you know, how fast someone can turn something around, or how cheaply they can turn something around. But rather, you’re paying for the brand name and the experience, and the you know, kind of the, I mean, just even the optics around hiring a certain firm to to handle you know that that work.
17:13
Maybe having a throat to choke.
17:15
Exactly. Right. Exactly. Right. It’s it’s and especially yeah, if there’s a a big partner that’s working with you, like their name is on the line for you know delivering an outcome, whereas you know a lot of the AI native services, like yeah, it’s there is no person that is ultimately responsible. So, so that’s the filter for us. Is like, what is there a 10x better product experience, and is are there structural reasons why the market isn’t being well served, and and also just making sure of are there reasons why people are buying the traditional service, like in because it’s a premium product, like litigation and a high stakes workflow that you just you don’t want to outsource to a new startup.
17:55
And so is the opposite true for like a a copilot or an AI tool, or an AI investment that serves, you know, a customer, a service provider. Talk to us a bit about how you select for that. What might look too narrow? You know, what is a big enough opportunity to justify a venture bet? You know, if you’re selling an AI tool instead of a service,
18:20
I think the yeah the death of copilots is is widely overstated in our opinion. Again, I think the the the common wisdom is you know don’t sell tooling to the human, just become the service, which is in the AI native service play, or you know don’t sell tooling to the human, you know sell the robot or the machine that will create you know the work. I think that’s true of a lot of white collar knowledge work, but one of the categories we’re really interested in generally is we call it where bits meets atoms. And so, in cases of you know, for example, like robotics and manufacturing automation, they will make they will improve our ability to produce new robots and machines and devices, you know, better, faster, cheaper. Like that is the right play to produce new products, but the servicing of these machines will likely still be done by humans because the problems are too multivariate and also hyper local. Like getting a robot to a very specific place to go fix or service something just doesn’t make sense, and so Copilot for humans in these complex servicing, maintenance, repair use cases makes a lot of sense. So, like the obvious sort of form factor for this, you know, we see a couple companies do this is the you know AI safety goggle that helps the human sort of navigate you know with the diagnosis of the machine and then you know the the actual repair. So we’re excited about like again copilot use cases in the physical world where it it doesn’t make sense for for. For a robot to exist, you know, yet,
20:01
and does that suggest you’ll invest in some deep tech as well, or is it more just the application is, you know, the focus of the application is where bits and atoms meet?
20:12
Yeah, it’s a great question. I think yeah, the the joke is everyone woke up in 2026. All the software investors have become deep tech investors in 2026. You know, I think for us, like we call it majors and minors. You know, our major is still very much like we’re very still we’re still very excited about you know app layer. There’s a lot of long tail categories that are sneakily large that people are I think overlooking, but there are minors where we’re calling minors where you know we’re trying to learn about new spaces that we have not been comfortable with in the past, but now are opened up because AI is again able to collapse the cost structure or the cycle time of getting a product to market, and so we’re looking at things like you know I’ve spent time with quantum companies, you know nanofiber companies, drug discovery companies, you know in the last couple months, so I think we’re feeling our way, you know, through there. But ultimately, like we’re trying to find spaces that are not obvious today that will be exciting in two years. And we we did that, for example, with backing SpaceX teams like way back in the day, and a company like Sift, for example, which is the data dog for hardware, was selling into a market that did not yet exist when we backed it. Like we weren’t sure whether there were going to be a lot of hardware companies that needed a telemetry tool. Luckily, that has come to pass. Or another example is like a field AI where robotics was not yet fully mainstream, and they were building autonomy software for the Boston Dynamics robots. And we know we did this investment, you know, several years ago, and you know they’ve they’ve had an amazing funding round, you know, recently with Tomasek and and Jeff Bezos. So yeah, so we’re trying to find the the next like misunderstood or not well understood categories, and again, a lot of these teams just to just to round this out. Like, I think a lot of the D type teams don’t like. It’s a perfect example of like folks that are not plugged into the matrix yet, where they know how to go tell the story to a mainstream investor. And so, there’s a lot of opportunity. It takes a lot of work though to actually understand some of the deeper science, but but there’s there’s a lot of really interesting things happening there, so we’re we’re excited.
22:26
And your entry point is typically seed. Is that fair?
22:29
Yes.
22:30
So, does entry entry price matter at seed?
22:34
Yes. This is a this is a topic of of great debate, both internally and and obviously externally. I think a lot of folks think that price doesn’t matter as long as the outcome is big enough, and I think that is true to some extent. Like we’re seeing outcomes and companies grow faster than we’ve ever seen before, but there is a massive dispersion in seed valuations today, such that like the thing that haunts us ultimately is, you know, is seed or pre-seed particularly the new sucker round. There, there, I think back in 2014 15, you know, back in the emergent days, like the the Series B was considered the sucker round because it was you weren’t really that far de-risked from the Series A, but you were paying a higher price, and it wasn’t the Series C when it was obvious. It was sort of this like in between where you know you were you were paying you know you’re not being rewarded for the risk that you’re taking, and that’s something we think about a lot here. Where it’s like companies, pre-seed companies raising 10 to $15 million, you know at you know the the valuations that you were going to expect for for those size rounds, like
23:42
it’s pretty wild.
23:44
It’s pretty wild, and so again, we’re open mind. We we don’t write any company off because of the round spec, right? That’s not where we operate from. But it does, again, it does raise the. It is a factor in how we calibrate and think about, you know, are we? Do we see something in this company that no one else sees. Are we being rewarded for the risk that we will take as a result of that? And again, right now we’re in this time where it’s a deeply consensus market. It’s a deeply insiders market where people are being rewarded for doing the thing that kind of feels you know obvious in the sense of like everyone else wants to do the same thing and it’s all about access, et cetera. But I think we still maintain the position that like there are going to be great companies that are not obvious, and you know it’s our job to find them.
24:30
Are you participating in these, you know, 10 to $20 million seed rounds at 100 posts? Have you done those?
24:36
You know, we we haven’t yet to date. We’ve seen a couple. We’ve been tempted to on a number of fronts, and and to be fair, like again, we don’t write off any any company that is raising big rounds at high valuations because again, there are there’s reasons for it, and you know the founders are oftentimes like you know excellent to you know in their own right. So, anyways, we haven’t done one yet. We are open-minded, but the bar is high.
25:03
So I’m curious to get your take on what is the sucker round. I mean, it’s it’s funny because I I just got an email this morning, so I sent out our 33rd up round announcement since the beginning of 25, and the response I got from the LP was, “What the heck kind of multiples are you seeing today on these seed
25:23
deals?
25:23
And I hadn’t looked at it in aggregate, but I looked at it across like our last 30 some odd deals, and you know it’s on the order of 30 to 4x trailing 12 month ARR, and I was like, whoa, that’s a lot. That’s a lot at the seed stage. So what what is the sucker round right now?
25:42
Well, I sure hope it’s not seed. I mean, I think that’s the thing that that does. I mean, it haunts us, but it’s it’s obviously like there’s the good news about seed is that there’s there’s still dispersion. You know, at that next round at the A. You know, I think every everyone to be to be totally fair, like every investor I talk to, whether you’re a seed A, B, C, always feels like their round is the second round at this in this market. So it’s it’s not a unique phenomenon. But yeah, the hope the hope is that seed just because of you have seeds that are literally you know days minus one, and then you have seeds that are like much further along, and there’s a wide spectrum, so like the hope is you know there’s still opportunities at the earliest stages to find some like to to find your right pocket in this dispersion, whereas you know things thin out pretty dramatically at the A, and and either you are you know again chosen and anointed on the track or you know, you have to find another path.
26:42
Talk more about that, right? We’ve got the kingmaker phenomenon. We’ve got the multi-sector, multi-stage firms, the Andreessens, the GCs. They’re controlling majority of capital, right? Top 30 firms, especially the top 10. So, like we feel it more pressure than ever for founders to get kingmade, right? By one of the big firms because if one of their competitors does, you know, it’s trouble. Like we had this recently. We have a seafood distribution startup, and their competitor, you know, got king made. Now, fortunately, they’re winning the bake offs every bake off they’ve been in, but it’s a concern, right? The other guys have a pile of cash. So, how do you see this playing out for those that don’t secure massive funding, or the ones that are maybe late movers to the segment?
27:33
Yeah. So, I mean, this is a unique moment in time where you know there’s there’s the customer market competition, and then there’s the capital markets competition, and you know both have always existed, but it used to be that capital markets would wait until there’s some evidence that the battle of the customer markets has been settled, that the customers have chosen the king, and the market leader emerges. But now that’s flipped, and you know the VCs are choosing who the king is, and capital has become a weapon where you know effectively you look at again the Harveys that have raised a billion and and the question even if you are growing extremely quickly the question is like with a billion like how do you how do you compete against a billion is is just a question that has to be answered. I think our hope and our thesis is that if you pick a high stakes enough category that matters to the customers, the best product will always win. And I think I mean Zoom is is one example of that in the old guard of like video conferencing is it either it works or it doesn’t, but it’s critical it’s critical infrastructure for you know how the world runs, and it has to work. And so, the best product will win there. And I think the you know using legal tech as an example, like again, Ivo has a star-studded roster of customers that have chosen them in very competitive bake-offs, like oftentimes, sometimes like 1015, vendors. Where the the good the counterintuitive thing actually is in this case the competition on the customer side is an indication of how important that workflow is to the customer like the fact that you know a Reddit is willing to trial you know 1015 vendors for this product means that it’s important enough where they’re not bargain hunting for the cheapest product nor are they just looking, you know, to the market to say who else is, you know, who else is using this. They’re actually doing the work to understand is this the right product for me. So we’re trying to find spaces where that’s the case, where people are willing to do the work. People being again, the customers are willing to do the work to make a considered purchase. And if it’s high stakes enough, and you’ve again identified the best product, even if it’s not the one that the VCs of King made. That that will carry through, you know, in the end. And so that that’s the way we we try to look at it, which is like we try to focus as much as we can on the customer market. Obviously, it’s impossible to ignore what’s happening where like there’s a lot of noise on the the cat. Capital markets competition side, but going back to the customer, like those are the our hope is again that the market is rational, where customers will eventually choose the right and best product for them, and that will that will be the market winner.
30:15
I love that you’re talking about best product. I feel like four or five years ago, there was this huge movement on Twitter that distribution trumps product, like go-to-market’s more important. And the first thought is, look, these things don’t have to be in opposition. Like he can do both well, right? But do you truly believe that in this AI-native driven era, that like best product will still win, or do you think distribution and go to market is becoming increasingly important?
30:49
I do think it’s both. I think in the case of the product side, I mean, yeah, I go back to if a customer is willing to do the work to evaluate not just one or two but 10 vendors. Then there’s something that they’re looking for, and it’s beyond just who has the better pitch or the shinier celebrity that that they’ve been able to hire onto the team. They’re looking for something very specific, and so as long as that specificity exists, and there’s they feel like there’s dispersion in the the capabilities of the product to service that need, then there is an opportunity for a best product to win. And that’s not true of all. Again, that’s not true of all industries and all use cases. But like in in the places where there are, I think you know that’s that’s something that gets us really excited.
31:44
What do you make of this phenomena where customers are buying 234, you know, products in the same segment? Right, you’ve got a law firm that’s going with Harvey and Lagora, and you know I’m the user of many different LLMs, but I mean this does not feel like an artifact from a previous super cycle. It feels new to me. How do you think this plays out? Are we all going to be buyers of multiple products to do similar things, or do you think you know we’re all testing to see which one emerges as kind of the best fit for us, and in the winter.
32:22
Yeah, this is this is puzzling for sure. You’re totally right. This is never never before have we seen something like what we’re seeing now, where there is there’s both fear and greed. I think that’s driving a lot of this. The the fear part of it is I think a lot of companies are afraid of missing the wave, and not exactly sure what’s going to work. So buying duplicative solutions is the answer, at least for now. And to be fair, like to your point, like we’re doing that internally too, where we’re paying for granola and town and Whisperflow and Claude and Grokbot and Instinct, and we we don’t like they’re all overlapping in functionality in some way, but we just don’t know like which one is going to work, so we’re going to make a bet on on all of it. There’s a greed component as well, where like it is like the form factor of of AI products is such that like there is this hope that it will be the one solution to solve everything or unlock a new lever in the business that’s never been there before, so that’s that’s the. I think everyone’s trying to throw the hail mary to figure out like what that product might be for them. But I think over time there has to be a calling. I mean, there’s there’s actually just generally cognitive load in managing so many platforms at once, especially if you’re trying to you know work on multiplayer workflows at large organizations. There’s no way that it makes sense to have you know that many you know mega mega platforms that the entire company runs on. Not to expense. Not to mention how expensive you know these platforms actually are. And so I don’t. Again, we’re not there yet, mainly because no one really. It’s this goes back to this capital markets and customer markets competition is like if in the absence of understanding, even on the customer side, like which one should I pick? You know, the ones with enough budget will just buy all of them, and and then see what happens. But yeah, again, over time, I think we think that will change.
34:24
How do you think about sort of magic numbers in sort of trick formulas that help us understand growth and margin and the trade-offs between those things? You know, I feel like we started with quick ratios with Mamun way back in the day, and then things evolved, and we we arrived at great benchmarks in SaaS, and they were kind of guiding principles, you know, both at investment and as companies progressed. I don’t feel like we’ve leveled out in AI yet. And there’s a lot of folks that don’t know exactly what to look for when it comes to the numbers. Do you have any thoughts or heuristics or guiding principles when it comes to trading off growth with margin and just you know this non-zero marginal cost environment when you’ve got you know tokens to pay for.
35:25
I think on the growth versus gross margin question, the current wisdom is margins can be fixed over time as long as there’s like some hygiene level. And again, the the SaaS hygiene level was 80% Like we are so far from that as hygiene level. Like most people are happy with, you know, the the teens. Like if you’re in the teens, you’re you’re totally fine as long as you again you’re you’re you’re you’re growing quickly. I think
35:49
yeah the the
35:50
growth growth trumps all things is kind of the you know the the one you know obvious thing that’s happening in the market right now. The margins can be fixed over time is like a valid, and we’re already seeing that with Luna and some of these other you know models coming out. There is a way to go make the economics work. The thing we actually look for, you know, especially at the early stage, where again the quick ratios don’t really emerge or not you know high signal is. I’ll use again Ajax as as an example. This is again the AI timekeeping for lawyers-they have a 97% conversion from pilot to paid. So any customer, any firm that tries them for two weeks to four weeks ends up paying like 97% That’s
36:33
incredible. It’s got to be like Whisper Flow or something else, like
36:37
exactly half
36:38
1%
36:39
And then, but the the other metric is important, which is they have 0% logo churn. They have never lost a customer, and I think that that is like, and this is a lot of their early customers were month to month, and so it was like you had to continue to choose Ajax over time. It wasn’t, you know, you weren’t locked into some multi year contract, two
36:59
year site, yeah,
37:00
exactly. And so the bar is really high. I mean, the bar is really high to clear, you know, that level on the you know on the way in, which is you know converting to paid, but then to stay paid over you know this period is is incredible. So we try to look for some of those leading indicators of that’s product market fit, you know, for us where they’ve done an incredible job of addressing a need that’s not served, and you know again, like the the metrics we invested in December as August right now, but those same metrics have held the entire time through as they’ve grown tremendously. So again, trying to find more companies like that where yeah, where there’s deep indicators of product market fit.
37:38
Well, thanks a lot for sharing Ajax with me, John. Yeah, yes, I know. Check them out. Yes, everyone,
37:44
everyone should check it out.
37:45
Oh, I wish I had been in that one. That sounds like a gem. Well done. So you know, we started off the conversation talking about founders and kind of the profile that you find maybe outside the valley, some that are on the fringe of being insiders outsiders. I’d love to get your take on kind of changes in founder profiles that we’re seeing, you know, in the supercycle. So Nico Benazzos, yeah, he was a guest on the program a number of years ago. He just wrote, “If you are 18 to 2424, years old. You’re technical. You’re NSF. You can probably have an easier time raising first money from VCs versus you know joining the right company as an employee. This doesn’t make sense to me. So it’s like it’s almost like becoming a founder is like the new career path for a lot of these young folks. What do you think about Nico’s comment? What do you think about this trend to kind of you know roll out of high school or roll out of university and go straight to being a founder?
38:57
Yes, that that is definitely the trend. I think, first off, I actually I do think it’s actually great for this country, for the world, for society that we can empower young people to take a chance on themselves. Because ultimately, like venture and becoming a founder in the past was a very opaque, you know, path that you had to be an insider or or you had to be crazy. I mean, one one of the two things to to try to pursue this path. So it’s great that there’s more options, is more education around this that you know makes this more accessible for for more people. But I I do think there’s something, and we’re trying to put our finger on, but like there’s something off about institutionalizing founder as a career path. Ultimately, it should be the exception and not the norm because it is a hard, hard journey. And I think the I mean, there’s a lot of reasons structurally why this is you know now possible and now in vogue because you know it’s a new it’s a. New super cycles and new technology. Young people are the best at sort of adopting and running fast to see what the capabilities and pushing the edges of what what’s possible with a new you know tech platform or AI transformation platform. So there is a a pact between founder and investor that was you know sacred in the past. There’s that funny meme that was going around around one of the partners at Sequoia. Was it was it Mike Moritz or was it I forget it was maybe it was Don Valentine with Jensen Huang was like if you lose my money I will kill you, and that was what was at stake. You know there was something at stake between the founder investor understanding where the investment is not a research grant. It’s not. It’s neither. Neither is it really like money for founders to, you know, be able to do what they want or to learn. Right. Like there is a return. There’s an expectation of a return on that investment because the VCs are investing on behalf of LPs that you know that really matter to us, you know, as as as fund managers, and it’s it’s not like someone is paying for that learning, and I think somewhere along the way, that’s that’s gotten lost mainly because, again, you have capital concentrating and a lot of a lot of mega platforms that can afford to take, you know, maybe more call option like bets on on teams that are you know maybe less proven, but again over time I I think maybe the north star like in in maybe this is a romantic view, but in in a in a rational market there should be something at stake on both sides where the the investor is incentive aligned to make sure that that company works and does everything possible to help that company succeed because there are consequences if that’s not true, and the same for the founder. And I think the the what’s at stake has gotten gone a bit hazy with you know some of the the the hype in the funding environment.
41:59
Agreed. And just because you add founder to your profile doesn’t not make you an entrepreneur. Yeah,
42:05
exactly,
42:06
John. If we could feature anyone here on the show, who do you think we should interview, and what topic would you like to hear them speak about?
42:12
You know, this is funny. I was I’ve been trying to find podcasts where where this person’s been on, but I don’t think I’ve I’ve found them. I I really enjoy Will Manitas on on X, and he just writes like I love great writing, and I think he he has a very unique and very entertaining approach. I think he’s he’s able to draw you know parallels from you know around tech to you know very esoteric like 15th century Europe you know political dynamics, and he’s just a great writer. But I haven’t I haven’t heard him speak anywhere on on any of the podcasts. So I just from like a how does he come up with these ideas and how does he approach writing is something I’m fascinated by. So I think he’d be a great guest. John, do you have a book, article, or video that you would recommend to listeners? Well, these are non non tech, but I still think they’re great great books. Maybe the two I would recommend. The first is the Lords of Easy Money. This is a book that’s about the history of the Federal Reserve, and that in itself sounds horribly boring. But actually, he’s the author is Chris Leonard, I believe, is is able to make it actually very exciting and very character driven. It’s just about a lot of the personalities that have shaped the way that this institution has evolved over time, and like the the implication of a lot of the decisions on you know a lot of things that are happening today, and so fantastic book. It’s it’s actually it’s strangely a page turner. I I was I finished it in like I think a day, and it’s yeah it’s fantastic. The other one is King of Kings, and this is about the Iranian Revolution, and it’s about the cast of like five characters around you know the event that that that made it all happen, and it was this highly improbable event that again was driven mainly by very human personalities. And so again, this is one where like it’s it’s a it’s a history book, but it’s actually written in a very character driven mode. So yeah, those two books are are great, and I highly recommend.
44:24
It’s kind of amazing to think about how we look back at tech history, and it seems so obvious, right?
44:30
Yes,
44:31
Google, eBay, PayPal, whatever. But it’s really the humans behind that that it shaped the companies and the subsequent kind of cycles that happened and when they happened and why and it’s it’s kind of interesting to think about alternate histories if you know it had been different characters that succeeded
44:52
100% and the last shout out I guess on on the media side is acquired. I mean I’m sure that’s been recommended 1000 times but. Ben and David do an incredible job, and and unpacking that very specific question, which is like, yeah, at at some point these companies were not inevitable and not obvious, and what was like just to put yourself in that frame is is so so wild. So yeah, shout out to them,
45:16
John. Do you have any habits or behaviors that are a secret weapon? We
45:20
we have a toddler at home who’s who’s two and a half, so all my habits and and rituals are are out the door. Unfortunately, it’s everything revolves around preschool, you know, pick up, drop off, and and and kids’ birthday parties on the weekend. So the the short answer is no, not not really. Except actually, well, I I’d say the the the the one the one steady. you know, habit is you know I come into the office five days a week when I’m not traveling, and that that is the protected sacred time. So yes, it’s in in a weird turn of events, like showing up to the office, you know, doing the at least at least from the the nine to five between all of the drop off and pick up is has become the sacred work time that has been most productive.
46:04
Amazing. And then finally, here, what is the best way for listeners to connect with you and follow along with Fika?
46:09
Yeah. So you know, we are yeah, we’re an open book. We invite anyone and everyone to to come come come connect with us. But yeah, I met John at Fika VC. That’s my email. I am not prolific on the publishing platform, so that’s that’s probably not the best place.
46:29
It’s so disappointing with with the TechCrunch roots. I know such a good writer, my man.
46:34
I I I hung up those spurs a while ago. That that that is. I would just say like that is a that being a journalist is one of the hardest things I’ve ever had to do. So that that’s a whole other conversation. But it makes maybe it makes venture look a little easier. But yeah, so I I don’t publish a lot, but but feel free to email me John at fika.vc.
47:00
All right, he’s John Chen. The firm is Fika. If you’re not following Fika, it is one of the firms to watch. What you guys do is is unique and special. I’ve known TX for a while, and I’m really happy we had this this time today because I think the audience will get a good sense for that. So, thanks for joining us, John.
47:19
No, thank you, Nick. This was fun.
47:26
All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guest know about it. Share your thoughts on social or shoot them an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to overprepare, choose carefully, and invest confidently. Thanks so much for listening.
