Fabrice Grinda: The First Person to Predict the Collapse of Credit Suisse? | 20VC #886

Origins and Evolution of FJ Labs

• Fabrice Grinda founded his first company (Auckland, an eBay of Europe) at age 23 in 1998, which led to his initial foray into angel investing.
• Grinda established a dual-track career as a tech founder and investor from 1998, initially with minimal capital but accumulating over 150 investments by the time he sold OLX in 2013.
• His initial investment process involved a one-hour decision meeting with no legal review or contract reading, often relying on auto-signatures by a virtual assistant in the Philippines.
• FJ Labs has evolved from a sole-operator model into a structured firm with 31 investment professionals and a dedicated back-office team.
• The current due diligence process has expanded to two one-hour meetings for inbound deals, which number approximately 200 per week, replacing the original single-meeting heuristic.
• Investment criteria remain consistent with four core questions: team quality (storytelling + execution), business economics/Total Addressable Market (TAM), deal terms fairness, and alignment with the firm's long-term thesis.

Macro Analysis: The "Great Unknown" Scenarios

• Grinda identifies three probabilistic macroeconomic outcomes: a 20% chance of an optimistic recovery, a 60% chance of "The Great Stagnation," and a 20% chance of a catastrophic downturn.
• Optimistic Case (20%): Requires a return to 2-3% inflation, normalization of supply chains post-COVID, geopolitical stability in Ukraine, and increased adoption of productivity-enhancing technology in previously untouched sectors (healthcare, education).
• Great Stagnation (60%): The most likely scenario, characterized by persistently high inflation (5-9%) and interest rates lower than required to tame inflation (3-5%), resulting in nominal asset price stability but real value erosion.
• Catastrophic Case (20%): Involves a sovereign debt crisis potentially triggered by a loss of confidence in European debt (e.g., Italy) or Swiss banking liabilities (UBS, Credit Suisse), leading to a massive flight to safety and global recession.
• The optimistic scenario probability has declined from 50% in December 2021 to 20% currently due to the escalation of the Ukraine conflict and oil price volatility.
• The catastrophic scenario probability has risen from 5% in December 2021 to 20% due to rising debt overhangs, geopolitical instability, and the potential for further interest rate hikes to 8-10%.
• Grinda argues that despite negative sentiment, history suggests technology-driven productivity growth (e.g., the 1998–2019 era) leads to lower unemployment and economic expansion, refuting the "Luddite" fear that automation destroys jobs.
• Current market conditions include high consumer and business sentiment decline, with oil prices exceeding $100 historically preceding recessions.
• Grinda predicts a likely recession, noting that only 3 of the 7 historical Fed rate hikes managed to avoid one, emphasizing the difficulty of the "soft landing."

Investment Strategy and Capital Allocation

• Grinda opposes founders running external LP-funded funds while maintaining full-time CEO roles, viewing it as a conflict of interest unless time allocation and duties are explicitly disclosed and managed.
• He advises that internal LP funds should be treated as "sales switches" to the LPs; if a founder dedicates only a few hours weekly and discloses this, it is acceptable, but distraction is not.
• FJ Labs has tripled its investment volume from 100 to 300 deals annually, necessitating a reduction in check sizes from $1M Series A to $325k Series A and $725k Series B+ to avoid capital exhaustion.
• The firm is currently price-sensitive, avoiding Series C and beyond deals where valuations remain high, but is actively seeking secondary market opportunities for discounted entries in strong companies.
• Grinda anticipates that "megafunds" (e.g., Insight, Redpoint) will focus on later stages (Series B+ and beyond) with larger checks, leaving the seed and Series A markets relatively open for smaller, agile funds.
• LP behavior is reacting rapidly to public market volatility, with many investors signaling reduced capital availability or prohibiting capital calls due to increased exposure limits in their portfolios.
• Grinda views the current environment as favorable for long-term technology-led solutions to climate change, inequality, and health, regardless of the specific macro scenario.
• He recommends founders raise sufficient cash at reasonable valuations and prioritize unit economics to ensure they can survive potential downturns or raise capital in the future.
• Grinda believes the "Everything Bubble" of 2021 (including SPACs, crypto, and real estate) has largely corrected, but he maintains that capital flows into Web3 and decentralized applications will continue over the next 10-20 years.
• He identifies "Top Sword" as a recent standout investment, a marketplace monetization tool with 95% gross margins that helps marketplaces increase effective take rates through advertising.

Historical Lessons and Investor Philosophy

• Grinda lists four major investment misses that shaped his mindset: Zynga (passed on at $50k pre due to marketplace skepticism), Twitch (passed on at $2M pre as a "media" company), Uber (passed on at $2B pre due to high burn rates despite calling it a "foundational company"), and Tencent (sold at IPO believing public market investment was outside his mandate).
• His most significant lesson is that if a founder is extraordinary and a company is foundational, the investor should back the team even if the financial metrics appear flawed at the time of investment.
• Grinda changed his philosophy from "auto-signing documents" and "ask for forgiveness not permission" to a structured legal and compliance-heavy approach for managing external LP capital and navigating crypto regulations.
• He adopts a "50/50 rule" for liquidity: selling 50% of a position upon an event like an IPO to lock in returns while retaining 50% to ride further upside if a 10x return is still possible.
• Grinda expresses insecurity over his fund size, wishing for a $1.5B fund to write larger checks ($2M Series A) without competing for allocation, noting that his current $300M fund forces smaller checks that may signal lower commitment to founders.
• He compares his 45% IRR in realized investments to the implied 45% IRR in his 650+ unrealized portfolio, suggesting compounding continues in private markets if capital is reallocated effectively.
• Grinda believes the best investments of the last decade (e.g., Airbnb, Uber) were often created during recessions, but their success was driven by platform shifts (mobile, apps) rather than the recession itself.
• He recommends a "long-term macro" perspective for early-stage investors, focusing on 7-10 year technological trends rather than short-term market volatility.
• Grinda identifies "Sapiens" as his favorite non-business book for its explanation of human societal evolution, and "Power Law" by Malibu as the most interesting current venture capital read.