20 VC 072 Super Angel, Fabrice Grinda The Future of Startup Investing

In the latest episode of "20 minutes VC," host Harry Stebbings interviews renowned super angel investor Fabrice Grinda. Grinda, with a track record of over $300 million in exits and more than 200 angel investments, shares insights from his dual role as both an entrepreneur and investor. He emphasizes the importance of operational experience for investors, the challenges startups face with fundraising in different market conditions, and the intricacies of startup valuations. Grinda also discusses his personal investment strategy, focusing on consumer-facing marketplaces and the significance of execution over ideas in determining a startup's success. Additionally, he touches on his partnership with Jose Marin, the benefits of co-investing, and how he manages deal flow. Finally, Grinda offers advice to new entrepreneurs, stressing the value of grit, tenacity, and rapid iteration.

• Fabrice Grinda is a leading Internet entrepreneur and investor with significant achievements.
• He has garnered over $300 million in exits and made over 200 angel investments.
• Investments include Alibar Bar, Lending Club, and Brightroll.
• Co-founded FJ Labs with Jose Marin, focusing on investing in startups and building companies.
• Fabrice is also the co-founder and executive chairman of BP, a used car marketplace.
• BP recently raised $60 million in Series B funding.
• Prior to his current roles, he co-founded and was co-CEO of OLX, a highly visited website.

"Fabrice is among the world's leading Internet entrepreneurs and investors. Just to hit you with some numbers, he has over $300 million in exits and has made over 200 angel investments, including in the likes of Alibar Bar lending Club and bright roll."

This quote highlights Fabrice Grinda's success as an entrepreneur and investor, emphasizing his significant financial exits and numerous angel investments in various companies.

• Vidar Law is a law firm that specializes in assisting startups.
• They focus on building a solid legal foundation for startups, addressing legal conflicts, and supporting business growth.
• Vidar Law aims to alleviate the legal concerns of startups, allowing entrepreneurs to concentrate on their business.

"The reason they're so great is because they assist startups to build a solid legal foundation and take away all the hassle and worry of any legal conflicts or issues that might arise in the startup journey, allowing you, the startup, to grow and focus on your business and transition to the next phase."

This quote explains the value proposition of Vidar Law, which is to provide legal support tailored for startups, ensuring they can focus on growth without being hindered by legal issues.

• Fabrice considers himself primarily an entrepreneur, having started multiple startups.
• His first startup was an eBay-type site in France, followed by a mobile content company in the US, and then OLX.
• He has continued to found startups, with four more in the US over the last two years.
• Fabrice became an angel investor early in his career, starting in the late '90s.
• The success of his first company, Zingy, allowed him to scale up his investment activities.
• His partnership with Jose Marin led to an increase in the pace and volume of investments.

"I started becoming an entrepreneur 17 years ago when I built my first startup, which was an eBay type site for France, then built a mobile content company in the US and then built Olux."

This quote outlines the beginning of Fabrice Grinda's entrepreneurial career, marking the start of his journey in founding successful startups.

• Fabrice believes that operational experience is beneficial for investors as it fosters empathy and understanding of entrepreneurs' challenges.
• While some investors are successful without entrepreneurial experience, having been in similar situations allows for better support and relatability.
• Operational experience can be particularly helpful when startups face product iteration, technology decisions, or dilemmas about selling their company.

"Having been in their shoes, I can relate better and gives me more empathy for the position they find themselves in."

This quote emphasizes the advantage of having operational experience as an investor, as it enhances the ability to empathize with and support entrepreneurs through their challenges.

• Startups often struggle with financial sustainability in the early stages, requiring ongoing fundraising.
• External factors such as macroeconomic conditions, funding environment, and market trends are beyond the control of startup founders.
• Investors like Fabrice help startups navigate fundraising strategies, including determining the amount of capital needed, identifying potential investors, and timing and valuation for fundraising rounds.

"The main problem that we help with, and the main thing that startups fail or face, is that startups have a tendency to lose money in the early years, and so they need to be basically fundraising on a constant basis."

This quote identifies the primary challenge for startups as financial sustainability, highlighting the need for continuous fundraising efforts and investor support.

• Valuing startups is complex due to their lack of profitability.
• Valuations are influenced by supply and demand dynamics, as Fabrice and his team typically do not lead funding rounds.
• Factors affecting valuation include team experience, market size, leadership position, traction, unit economics, customer acquisition cost, and customer lifetime value.
• It's important for startups to avoid overpricing themselves to maintain viable exit strategies and future fundraising opportunities.

"The more traction you have, the more experience the team, the stronger your leadership position, the higher your valuation."

This quote summarizes the key factors that contribute to a startup's valuation, indicating that traction, team experience, and market leadership are critical components.

• Harry Stebings discusses the importance of being price sensitive and disciplined in investing.
• Most startups fail, so successful investments must cover the losses of the others.
• Investing at too high a price can prevent covering for other failures.

"Between valuation and traction, team experience, et cetera, we have a tendency to pass and we've remained reasonably disciplined and price sensitive as we've realized that most startups do fail."

This quote emphasizes the need for discipline in startup investment, acknowledging the high failure rate of startups and the necessity for successful ventures to offset losses from unsuccessful ones.

• Speaker B only invests in familiar categories due to being an operator in a startup.
• Focuses on two-sided marketplaces, vertical transactional consumer-facing marketplaces.
• Investments are primarily in the US but also in large markets like Brazil, Turkey, Russia, India, China, UK, Germany, and France.
• Stage agnostic, but more investments occur at the seed stage.
• Check sizes average from $300k at seed to $1-5 million in later stages.
• Does not lead rounds or desire board seats, and is seen as non-threatening and helpful to lead investors.

"First of all, you need to realize that because I have a day job as an operator in a startup, I only invest in categories that I understand."

This quote highlights Speaker B's strategy of investing only in sectors where they have expertise, which aligns with their professional background and provides a strategic advantage in understanding the business.

• Works with various VCs and is friendly with many due to the volume of deals.
• Frequently co-invests with notable firms like Bessemer Venture Partners, General Catalyst, Andreessen Horowitz, Redpoint, DN Capital, and others.
• Relationships with VCs are beneficial for deal flow and co-investment opportunities.

"Yeah, I mean, the reality is, by virtue to the volume of deals or investments we've made, we have a tendency to work with a lot of vcs, to be very friendly with them."

This quote conveys Speaker B's extensive network and collaborative approach with various venture capital firms, which facilitates co-investments and strengthens deal flows.

• Invests in proven business models outside the US, adapting them to local markets.
• Focuses on next-generation disruptive marketplaces in the US.
• Co-founded and disrupted new businesses, such as an end-to-end car marketplace.

"Well, when we invest outside of the US, which is a minority of investments, it's like 30% or not even these days, around 2020, 5% in non us markets, we have a tendency to take ideas, have been proven elsewhere, adapt them to the market and invest in those."

Speaker B explains their approach to international investments, which involves adapting successful business models from other markets to local conditions, highlighting the balance between innovation and proven concepts.

• Believes that execution is more important than the idea itself.
• Barriers to entry are built through execution, not the idea.
• Execution involves building a brand, customer base, and operational excellence.

"Well, not really. I mean, the reality is, the genius is in the execution, it's not in the idea."

Speaker B downplays the threat of competition by emphasizing the importance of execution over the originality of the idea, suggesting that success is determined by the effort and quality of implementation.

• Speaker B avoids taking board seats due to time constraints and the nature of their primary job.
• Believes that value can be added to a company without being on the board.
• Introduction to VCs and potential acquirers is more valuable than board involvement.

"Well, those are two really different questions. The reason I don't want to take board seats is, again, my day job is to be an entrepreneur, not an investor."

Speaker B clarifies their position on not taking board seats, attributing it to their commitment to being an entrepreneur and the impracticality of managing board responsibilities for a large portfolio of companies.

• Board seats are typically offered to lead investors from seed and Series A rounds.
• A common structure includes two investor board members and three from the founding team.
• It is suggested that the seed round investor might step down from the board as the company progresses.

"I'd offer board seats to the lead VC. If you have one at seed, and maybe the lead VC at A, maybe have the guy from the seed round actually drop off the board and have two VCs who are doing it, either A, lead it B, on the board, and then you have two investor board members and three from the founding team."

The quote explains the strategy for board composition, suggesting that lead investors from different funding rounds (seed and Series A) be given board seats, while the seed investor may step down later.

• The speaker's firm does not typically lead follow-on rounds due to insufficient information and dramatic price increases post-seed round.
• They may choose to follow on in later rounds (B or C) when a company has proven itself.
• The main criterion for follow-on investment is the obvious potential of the company.
• The speaker invests personal capital, necessitating careful consideration of capital deployment.
• Lack of sufficient information between seed and Series A rounds makes it difficult to justify follow-ons.

"The reason we don't typically follow on is usually, especially in frothy times, the amount of information you get between the seed and the A is not enough to know that this is a clear winner, so the price increases dramatically."

This quote highlights the rationale for not following on after the seed round due to the lack of significant information to justify the increased valuation.

• Having co-investors is not essential but beneficial for better deal flow and shared expertise.
• Co-investors can cover for each other and bring different skills to the table, such as handling legal aspects.

"It just so happens that it makes our lives easier. We get better deal flow. We have another set of eyes to look at companies."

The speaker expresses the advantages of having a co-investor, including shared responsibilities and enhanced deal evaluation.

• Deal flow comes from visibility as an angel investor, repeat entrepreneurs, referrals from friends, and collaboration with other VCs.
• The speaker utilizes various platforms, including social media and a personal blog, to attract deals.
• Existing investments and relationships with both early and later-stage VCs contribute significantly to deal flow.

"We've backed 209 startups, which means we've backed 500 entrepreneurs or so. These entrepreneurs come for the second time around, or they send us their friends."

The quote emphasizes the importance of a network of entrepreneurs who can provide repeat business and referrals, contributing to deal flow.

• The syndicated model of investment is growing but is far from replacing traditional VC.
• Syndicates play a role at the seed stage but are not significant at later stages.
• The speaker acknowledges the success and happiness with the syndicated model, having raised substantial funds through it.

"It's a very long way away from being able to replace the VC industry."

This quote indicates that while the syndicated model has its place, it is not a threat to the traditional VC model in the foreseeable future.

• The speaker emphasizes sticking to areas of expertise and being valuation sensitive.
• Investments in familiar sectors have yielded better results than ventures into less understood areas.
• A set of investment criteria, including team, product, business, and deal terms, guides decision-making.
• Sticking to a defined approach has led to high performance in investments.

"When we've invested in things we understood we've done well. When we've been seduced by great founders, et cetera, we've done less well."

The quote encapsulates the lesson that investing within one's area of expertise leads to better outcomes, as opposed to being swayed by other factors like founder charisma.

• Diversification is crucial in investment to increase the chances of having successful deals.
• Investing in numerous ventures has proven beneficial.
• Funding familiar and trusted people has yielded positive outcomes.

I've learned is diversification makes a lot of sense. The more investments you have, the more you're likely to have the few deals that return most of the that do most of the return. And so, making a lot of investments has paid off pretty dramatically for us. And also in our case, funding the people we know and trust has worked really well for us as well.

The quote emphasizes the importance of diversification in investment and the value of investing in people who are known and trusted, as these strategies have resulted in significant returns.

• Preferences for favorite books, like movies or songs, change over time.
• "What If?" by the XKCD author was a favorite for its humor and intelligence.
• "The Martian" by Andy Weir and "Circling the Sun" are also recommended for their engaging content.

I can tell you my favorite book of 2014 was a book called what if? Which is by the XKCD author. It's so funny and so smart... I also had a blast reading a fiction book called the Martian by Andy...

The quote reveals the speaker's favorite book of a particular year and explains the reasons for its selection, highlighting the book's humorous and intelligent content.

• Monotasking, or focusing on one task at a time, is key to productivity.
• All notifications should be turned off to avoid distractions.
• Being present and focused on the current task is essential.

Best way to be productive is to monotask and doing one thing at a time, and to be completely and entirely focused on that task.

This quote provides a productivity tip that stresses the importance of concentrating on a single task without distractions to enhance efficiency.

• TechCrunch is the most read due to its relevance in the tech industry.
• It provides updates on funding, ideas, and other industry news.

It'S tech crunch. Just by virtue of being in the tech sector, I need to be aware of what's going on in the space...

The quote explains why TechCrunch is the speaker's most read blog, emphasizing its importance in staying informed about the tech industry.

• Success is subjective and varies across fields like politics, art, and business.
• Bill Gates is cited as an example of success in business and philanthropy.
• Historical figures like Augustus and Genghis Khan are mentioned for their significant impacts.

So it's interesting because success means a lot of things for a lot of people... I'd probably say Bill Gates, both as a philanthropist and as a businessman... Octavian or Augustus who single handedly created the Roman Empire... Genkis Khan, that created the largest empire in the history of humanity...

The quote discusses the multifaceted nature of success and provides examples of individuals who have achieved significant success in their respective domains.

• The current era is the best time to create a startup.
• Grit, tenacity, and resilience are more critical than intelligence or the initial idea.
• Iteration and multivariate testing are essential to find successful strategies.

The best time ever to create a startup... it's not intelligence, it's often not the idea. It's actually grit, tenacity and resilience that's going to make the difference between success and failure.

This quote offers advice to entrepreneurs, highlighting the optimal conditions for startups today and the personal qualities necessary for success.

• Flexport, an end-to-end freight forwarding company, is a recent investment.
• The evolution of marketplaces from horizontal to vertical and now to end-to-end solutions is a trend.
• Flexport addresses the fragmented and massive freight forwarding industry with a comprehensive online solution.

The company I recently invested that I really like is Flexport, which is an end to end freight forwarding company... having an end to end solution for that makes a lot of sense.

The quote explains the rationale behind a recent investment decision, noting the potential of Flexport to innovate within the fragmented freight forwarding industry through an end-to-end solution.

• Fabrice Grinda was thanked for his participation in the podcast.
• The podcast episode and all mentioned items are accessible on the blog.

Well, Fabrice, it's been absolutely fantastic having you on the show. Thank you so much for joining us on this very special episode.

This quote serves as a polite conclusion to the interview, expressing gratitude to the guest for his insights and participation.