World’s Most Active Venture Capital Firm by Deal Terms, Mortality Rates, and Credit Line Defects • TechCrunch

Yesterday, we had the pleasure to meet Fabrice Grina, a French serial entrepreneur based New York. Fabrice founded the free classifieds site OLX, now owned by Prosus, and has recently built his trading company. FJ Labs. He likens the outfit to an “angel investor on a large scale”, saying that, like many angel investors, “we don’t lead, price, or take board seats.” We decide after a few one-hour meetings over a week whether or not we invest. “.

Grinda and Jose Marin co-founded the group. It has been very busy. Her first fund raised $50 million, although it was relatively small. One limited partnerGrinda reports that FJ Labs received $250,000 to $500,000 in checks in 2016. This is a typical stake of 1%-3% in each company.

PitchBook, a data provider recently ranked FJ Labs as one of the top five data providers. The most active project outfitWorldwide, by SOSV International. (Pitchbook ratings can be viewed at the bottom.

Yesterday, Grinda suggested the company could get more proactive in 2023, now that the market has calmed down and the founders are more interested in the biggest promise FJ Lab has made to them — that they get additional funding coming to hell or high water with connections all over the world. These are excerpts from our extensive conversation, lightly edited for length.

TC: You are placing too many bets on small bets. I was betting on Flexport, which made a lot of money. These deals are not worth your time if you don’t win from other investors.

FC: Sometimes you can go from 2% to 1.1% to 0.5%. If the company is able to come out with 100 times that value, let’s say $250,000 and it becomes $20,000,000, that’s fine. It doesn’t bother you if the company dilutes along the way.

Conflicts of Interest are inevitable when making as many bets than FJ Labs. What is your policy regarding funding companies that might compete with one another?

We do not invest money in competitors. Sometimes, we place our bets on the wrong horse. We’ve made our bet. This happens only if we invest into two non-competing businesses that do different things but one of them spins in the market for the other. Other than that, we have a very Chinese wall strategy. We don’t share any data, not even extracted, from one company to another.

We WillYou can invest in the same idea in different locations, but we will first explain it to the founder because there are many companies that appeal to the same markets. We may not be able to call a company in pre-seed, incorporation, or any stage where seven companies are doing the exact same thing. You know what? We don’t feel comfortable betting right now because if we do, he will be our horse in the race for ever.

You mentioned that you don’t want to have or need to have seats on the board. We’ve seen the results of FTX and other startups lacking enough experienced venture capitalists. Why is this your policy?

First of all, I think most people will be trustworthy and well-intentioned. So I don’t worry about the downside protection. The downside is that the company is shut down. The upside is that it can go to 100 or 1,000 and you will be responsible for the losses. Are there instances where numbers have been inflated fraudulently in some cases? Yes, but would I know that if I was sitting at the board? The answer is no. VCs rely only on the numbers that the founder provided them, and what if someone gives the wrong numbers to them? It’s not as if the board members of these companies will be able to define it.

My personal history also influences my decision to not be on boards. As a founder, I thought it was a useful reporting function. However, it wasn’t the most interesting strategy conversation. Many of my most memorable conversations have been with investors or founders who don’t have anything to do with my company. Our approach is to make sure that founders can reach out to us if they need advice or feedback. This leads to more honest and interesting conversations than if you were in a formal board meeting which can feel smothering.

The market has changed and there is less late-stage investment. How active are these early-stage investors?

They may write a few checks, but not many. It doesn’t matter what, it’s not a race. [FJ Labs]These guys are writing a Series A check of $7 million to $10 million. medium seed [round]The pre-money valuation is $9 million. After that, it’s $12 million. We see $3million. [money valuation]As part of that, you can write checks for $250,000. If you don’t have a fund of $1 billion or more, you won’t be able to participate in that pool. To deploy that capital, there are too many deals.

Do you see a difference in the seed stage volume and valuations as a result of the wider downturn. It was evident that it affected the later stages companies quicker.

We are seeing many companies that would like to raise another round, but have traction that would justify an overseas round two or three years ago. Instead, they have chosen to raise an internal fixed round as an extension to their last round. We just invested in the company’s A3 round – three accessories at the same price. We sometimes give these companies a 10% to 15% or 20% bump to reflect their growth. These startups have grown 3x-4x and 5x since the last round. And they are still growing steadily.

What about death rates? Last year, many companies made money with extremely high valuations. What do your portfolios look like?

We have been profitable for about half of the trades that we have invested in. There have been 300 exits. Our success is due to our price sensitive approach. However, there are more deaths. We are seeing more “employees made” and companies selling for less than they raised. Many companies have cash left over until next year so I believe the real wave will come in the middle of next. The current activity is consolidation. We are seeing the acquisition of the weaker players in our portfolio. One of the transactions I saw this morning was where we received 88% back, another gave 68% and another where we received between 1 and 1.5x our money. This wave is coming, but it will take six to nine more months.

How do you feel about the concept of debt? Sometimes I worry about founders thinking it’s relatively safe, but it can lead to them getting in over their heads.

This is what startups do most often. [secure]Debt can be as high as rounds A and B. This is why project debt is not a problem. The problem is that you need to use all of your credit lines, depending on the size of your business. If you are a lender, for example, and you’re factoring your loans, you won’t be able to do balance sheet lending. This is not sustainable. To grow your loan portfolio, you will need unlimited capital. This would bring you to zero. You will find that if you are in the lending business, you start with balance sheet lending. Next, you get some family offices and hedge funds. Eventually, you can get a bank loan line of credit.

The problem is in a price rising environment, where maybe the base credit scores — models you use — aren’t as high or aren’t as successful. If these lines are pulled, your business could be in serious trouble. [as a result]. As a result, I believe that many fintech companies that rely upon these lines of credit could be at risk. They didn’t take on more debt. This is because they may have to repay the credit lines they used.

In the meantime, the inventory-based business continues to thrive [could also be in trouble]. Direct-to-consumer businesses don’t need stock to purchase inventory. Instead, they use credit. People will loan you money to fund your inventory as long as you have a viable company model. The cost of this debt is increasing because interest rates are rising. As underwriters become more savvy, they may decrease your streak, which could affect your ability to grow. Companies that depend on this to grow quickly will find themselves constrained and having a difficult time getting ahead.