I had the pleasure of chatting with Meb Faber, co-founder and the Chief Investment Officer of Cambria Investment Management. He normally covers public market investing which led to a fun conversation about the differences between the two.

More details on Meb’s blog at: https://mebfaber.com/2018/09/26/episode-123-fabrice-grinda-were-still-at-the-very-beginning-of-the-tech-revolution-we-are-day-one/

Date Recorded: 9/14/18

Run-Time: 58:49

Summary: In Episode 123, we welcome entrepreneur and renowned angel investor, Fabrice Grinda. The guys begin by discussing their mutual love for skiing, talking about heli-skiing in Canada, powder skiing in Japan, and the steeps of Chamonix in France.

Meb asks Fabrice to recap his background. What follows is a fascinating look at the professional path of a wildly-successful entrepreneur and angel investor. Fabrice’s history involves consulting with McKinsey, building the equivalent of eBay in Europe and South America, starting another company that brought ringtones, mobile games, and wallpaper to the US (and eventually did $200M in revenues), and then consulting for fellow CEOs. Ultimately, Fabrice and his partner launched FJ Investments, which is where he’s currently focused.

Meb asks about Fabrice’s investment approach and the frameworks he uses. Fabrice tells us he invests in about 75 new startups each year, mostly seed and pre-seed. He writes smaller checks (about $500K), as compared to the bigger VC firms. He provides us insights into his selection criteria – one of the most important of which is unit economics. The degree to which a founder understands his/her economics is an indicator as to how well he/she understand the business. Fabrice has deployed about $140M to date, mostly personal money. He’s had 150 realized exits on 400 investments, with a realized IRR that’s pretty staggering. You’ll have to listen to get that detail.

The guys hit on a handful of topics next: Fabrice’s experience with Beepi, which ends with Fabrice’s advice to “nail it before you scale it”…. Why investing in the U.S. is often a wiser choice than looking internationally… Fabrice’s preference for investing in marketplace-oriented businesses… And how “we’re still at the very beginning of the tech revolution… we are day one.”

Next, the guys talk about the specifics of creating an angel portfolio, with Meb bringing up the phrase “spray and pray”. Fabrice tells us that’s not his methodology. He’s more selective. That said, in private markets, returns tend to follow power law, meaning the top few deals account for most of the returns so it’s important to have some of those deals in your portfolio. Given this, for most people, there’s real value in diversification.

Meb asks what lessons Fabrice has learned throughout his experiences so far. Fabrice tells us that if you’re going to invest in this asset class, you need to be diversified. He mentions that if you have less than a certain amount of investments, you’re going to lose money.

Another lesson is that investors needs to stick to their guns. For instance, Fabrice has found that his thesis, the company team, the business, and the valuation (deal terms) must all be within his desired parameters in order to move forward. There was a time when he would fall in love with a founder, and would use that as an excuse to slide on some of his other criteria. But doing so sometimes lost him money.

Other lessons involve honesty and transparency, as well as the importance of knowing your true value-add.

There’s way more in this angel-themed episode: The current angel market, including opportunities and valuations… How Fabrice sees the broader economy and recession risk… How a crypto-hacker got into Fabrice’s crypto wallet… and Fabrice’s most memorable trade. Any entrepreneurs will likely be able to relate to this one.

All these details and more in Episode 123.

Links from the Episode:

• 0:50 – Welcome Fabrice and talk about his passion for skiing
• 3:38 – Fabrice’s background as an entrepreneur
• 12:53 – The kind of work he is engaged in right now
• 19:30 – Reinventing marketplaces
• 20:55 – How Fabrice and his partner think about the geography of their investments
• 25:13 – Why his focus on marketplace businesses
• 27:28 – Why their investing approach includes putting money into hundreds of companies
• 32:18 – How they sell their stake
• 34:18 – Lessons learned as an angel-style investor
• 34:20 – EquityZen Podcast Episode
• 39:38 – How the investment landscape is looking going forward
• 45:01 – Fabrice’s thoughts on opportunity zones
• 48:01 – Any interesting crypto startups he’s looking into
• 50:27 – Most memorable investment
• 54:30 – Biggest company he missed investing in
• 56:30 – Fabrice’s skiing bucket list

Transcript:

Welcome Message: Welcome to the Meb Faber Show where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information visit cambriainvestments.com.

Meb: Welcome podcast listeners. Today we have a great show for you with a man Forbes recently named as the number one angel investor in the galaxy. They actually said the world. But I don’t know any other angel investors on Mars. He’s an investor in a lot of companies you would recognize including one of our favorites and friends, Betterment, and has invested in 400 companies. He’s not just an investor. He’s also started up, sold, three companies. He runs the startup, studio, and venture fund, FJ Labs, which he co-founded with a buddy of his. We’re thrilled that he’s joined us. Welcome, Fabrice Grinda.

Fabrice: Thank you for having me.

Meb: You are live from Punto Cana right now. We’re excited to have you on and chat. But before we get to all the serious stuff, I hear you’re a fellow skier. So you’ve gotta let me know what is your favorite ski destination in the world?

Fabrice: I’ve been skiing frankly since I’ve learned how to walk, since I was three. And I use a brace. I fell in love with powder reasonably early in my life. And I’ve had the privilege heli-skiing every winter in the Revelstoke area in British Columbia. The area around Kelowna, Revelstoke, Calgary definitely has the best deep steep tree skiing in the world. And it’s by far my favorite.

Meb: As the locals call it, Revelstoke, because a lot of times these big storms come in and you get stuck there. We went there a couple of years ago. And it was pretty awesome trip, what people call the powder highway, listeners, which is a bunch of destinations and cat skiing around there. Fabrice, have you been to ski the Empire of Japan yet?

Fabrice: I have. I…Hokkaido and…so the Niseko area is absolutely extraordinary. It’s probably the place where it snows the most in the world. The powder is extraordinary. That said, the mountains are not very high and the steep is not particularly…and the slopes are not particularly steep even though it’s an amazing place probably to learn powder skiing. And there’s also this really cool snowmobile up and ski down approach that they have, which is an alternative to heli, which I guess given the amount of snow probably makes sense. I find it somewhat less compelling than actually the Reve [SP] area and the entire British Columbia mountain range.

Meb: You get to have ramen for lunch. So it’s kind of…it’s awesome. I love skiing in Japan. I grew up in Colorado so similar story. What was your home mountain? Chamonix, Taward [SP] Valley? Where did you go to?

Fabrice: No. So I’m actually from Nice in the southeast of France. So I was skiing in the Southern Alps in [inaudible 00:03:05]. Those were the home mountains. But, of course, I would go to [inaudible 00:03:09] for the longer [inaudible 00:03:14] for racing.

Meb: To get back to Europe, the only place I’d skied was Anton. And that was like not even half as much skiing as it was drinking beer. [inaudible 00:03:22], that was the name of the bar. Oh, my God. That’s a…that was a hard one to remember. I think half…

Fabrice: I think Europe does Apres ski very well.

Meb: Oh, my God. There was like half way up the mountain, half the people…you walk out and they’re like sleeping in the snow. You had to ski down afterwards. It was a mess. All right, listeners. We’ll get into some actual investing topics. You have an interesting background. I wanna spend most of the time kinda on what you’re up to these days with your investing because your approach is a little different than a lot that we talk about.

I think it’s important to spend a few minutes on your background to help inform kinda what you’re up to today. People, it’s…I think it helps shape your world view of how you approach investing. So you started out as an entrepreneur. Maybe walk us through kinda your path from undergrad as an econ guy kinda starting companies and entrepreneur on the tech world.

Fabrice: I grew up as always a nerd. And I got my first PC in 1984, a Compaq. I was 10 years old. It was, like, love at first sight. So I immediately started programming. I had a modem so I started connecting to BBSs, ultimately build a BBS. I went to Princeton knowing I wanted to be in the tech sector in some way, shape or form. The word tech entrepreneur didn’t really exist yet. I mean, there were Dell and maybe IBM had been created by then. That was it. By kind of virtue of luck and timing, Princeton started installing high speed internet connections in my sophomore year in ’93.

So all of a sudden, we had high speed connections to the ancestor of the web in the sense that we were using things like Gopher and [inaudible 00:04:51]. Mosaic wasn’t live yet. Mosaic came out. And that was the very beginning of the web. And then when Netscape went public in ’95, it was obvious there was a bubble that was forming. So Yahoo came out. Amazon came out. And I actually was thinking through whether or not I should do something.

But the thing is I graduated Princeton. And I was actually rather good student. I finished off my class with all of these different awards. But I was a socially awkward, shy tech nerd that I never really worked in teams. I wasn’t very socially gifted. And I thought, “You know, if I go and start something, I’m probably not going to succeed. I don’t have any business expertise per se,” even though I’ve built a small startup in college to pay for college.

And so I actually graduated from Princeton in ’96 and decided I was gonna join McKenzie Company because it’s kind of like business school, except their pay you. And McKenzie actually does a really good job in investing in his people. And I took, like, oral, written communication classes, public speaking classes and working in teams. And the class was actually super helpful. But I went there as a means to an end.

So I went there knowing I wanted to be a tech entrepreneur. And actually I thought I was gonna miss the bubble. But lo and behold I didn’t miss the bubble. And so in ’98, I felt I had learned what I needed to learn. They promoted me I guess from [inaudible 00:05:55] to associate. But, you know, the time has come. I’m gonna build a startup. Now the issue is at that time, I was 23. And it was a lot harder to build startups than it is today. You didn’t have AWS. You didn’t have open source.

You needed a lot more capital. A lot of things that I wanted to build…I remember the first idea I wanted to build like…because I’ve mostly been working in fig or in the financial district services industry. An internet bank. You know, you would need like a banking license and capital and things that were probably too complicated. Frankly, they were too capital intensive for a 23-year-old. And the same thing, if you wanted to build an Amazon, too complicated. You need like supply chain management and inventories and logistics. And as an economist, you know, I’d always fallen in love with the idea of bringing liquidity and transparency to opaque and fragmented markets. That’s when I had saw eBay.

And I thought it was an amazing idea of like creating a marketplace for things that didn’t necessarily have markets for them outside of like your garage sale. And so I decided to build the equivalent of eBay in Europe and with my partner in Latin America. So I was 23, sold my apartment, quit McKenzie, moved back to France. I raised $63 million. So that time it was…I mean, it was hard at first. Then it became really easy. I mean, people were just throwing money at you, if you had the right pedigree. And Princeton, McKenzie and an internet idea…money was flowing. And so I grew that company into like 5 countries, a 150 employees, like $10 billion in monthly sales and a buy-out offer. We were valued at insane prices.

Ultimately, the bubble burst and it didn’t monetize for a variety of reasons I won’t bore you with. Neither did the Latin American one or the European one. I built a company in Latin America called [inaudible 00:07:28] or helped build it which then became like [inaudible 00:07:30] many years later. It’s not publically traded NASDAQ. Sure, I [inaudible 00:07:35] that thought long and hard. Okay. What do I do next? Do I go back to business school? Do I go to business school? Do I go back to McKenzie, try to join a venture firm?”

And I’m like, “You know, I didn’t really become an entrepreneur because I wanna make money. I became an entrepreneur because I like building something out of nothing. And frankly I feel that I’m probably rather unemployable. I don’t like having a boss. I don’t like taking orders from people. I like to do what makes the most sense to me and maximize my utility to be an entrepreneur.” And so my main constraint and consideration then was, “Okay. I need to build…I wanna be an entrepreneur. Now we are in a world where capital is no longer available. I need an idea that can be profitable. And it doesn’t really matter to me what that idea is. It just needs to be capital-efficient and ideally profitable reasonably soon.”

I thought long and hard and decided to bring ringtones and mobile games and wallpapers to the U.S. And that’s an idea that had already worked in Europe and in Asia. The U.S. was in the dark ages when it came to mobile. Now, of course, it was really hard because I went to all of the venture capitalists in 2001. And at the mere mention of B2C telecom [inaudible 00:08:36] every B2C company from E-tours to [inaudible 00:08:38] pets.com got under. All the telco companies got under. I don’t think I’d finish the sentence. And they hung up. I invested every last penny I had. I borrowed on my credit cards, lived in New York essentially on $2 a day for like two years, like, sleeping on the couch at the office, eating ramen noodles because I couldn’t even afford coffee or traditional food.

But little by little, I managed to grab victory from the jaws of defeat. So I ended up signing all the major carriers, all the major labels, all the major publishers and the company grew. I mean, I missed, in the process payroll 27 times. At one point, we went from like 30 people to 7. I had to start coding again. I mean, it was rough. Revenues went from $1 million in ’02 to $5 million in ’03 to $50 million in ’04 to $200 million in ’05. I sold it to a publically-traded company in the same category for about $80 million June of 2004 and stayed on as CEO for 18 months and then went on to build the company I really wanted to build, which was basically…which has become since then the largest classified site in the world.

So imagine what Craigslist should be. A mobile first, beautiful, spam free, murder free, prostitution free, personals free, version of a classified site that focuses on helping especially women who are the primary decision makers in all household decisions to buy and sell goods, to find…to hire a babysitter, to buy a car, to buy an apartment, etc. And so that company, OLX, I had launched with my business partner with whom I tried…I helped build [inaudible 00:10:05] of Latin America who is also a partner with [inaudible 00:10:06] today’s partner back in 2006. And we launched in 100 countries and 50 languages or so. And it really took off in 4 countries in Brazil, India, Portugal and Pakistan.

So then we focused on these four countries, became really big and then started little by little expanding. And today, OLX has 350 million unique users a month, about 3,000 employees, very profitable in the countries which we dominate from Russia to Ukraine to Brazil to the UAE and also the leader in Pakistan, India, all of Africa, all of Lat Am and Southeast Asia. So very large company, which I sold in a rather complicated deal over a number of years to a publically-traded South African media company called [inaudible 00:10:51]. We did the first transaction with them at 2010 and stayed on as a CEO till I exited in 2013.

What’s interesting is by virtue of being a consumer-facing internet CEO, other entrepreneurs would approach me and ask for money and advice. And after I started having money I started investing in startups. Now because I didn’t have time being a full time CEO as a day job, I’m like, you know, I need to only invest in things I understood. So I decided, “You know what? I’m only gonna invest in marketplaces. I’m going to create a set of thesis and a set of heuristics that allow me to make my investment decisions in one hour basically.” And so by 2013 with the other partner from the first company I started co-investing in a whole bunch of startups. So by 2013, I was already an investor in about a 100 startups. When I’m finished with OLX and I decided what to do next I’m like, “You know what? I’ve realized my partner and I both like building companies. And we both like investing in companies.” And so we created what ultimately became FJ Labs, which is this hybrid venture fund and startup studio that I’m currently running.

Meb: The way that I came across you, Fabrice was that I started dabbling in private markets in about 2013, 2014 mainly as a way…my background was asa fundamental equity analyst, all quant now. This is kind of a hole in my skill set. And so I said I wanted to become educated about this world. And the only way, in my mind, to really do a lot is to put real money behind it. And so I started investing in a lot of private companies. And I kept seeing FJ Labs either as a current shareholder or participating in a round. And I said…oh, a funny thing that it stuck in my head is because I owned at the time kind of a vintage truck, which was a 1960’s Toyota Land Cruiser, which is FJ 40. And so it stuck in my head. I said, “What is this? Does this guy love old land cruisers? Where did he get the FJ?” And it turns out, of course, that’s I think you all’s initials. Is that right?

Fabrice: Fabrice and my partner is Jose. So that’s FJ Labs.

Meb: And so I kept seeing your name. And I said, “Okay. Who is this?” And then eventually I had read some more literature and kinda became more familiar with what you all do and said, “Let’s have them on the podcast and chat.” You have made this transition to being an investor. I think you briefly mentioned this. But you also continue to create companies internally, as well. Can you expand on that? You’re a purely passive investor. Tell us the general framework.

Fabrice: By the standards of most investors, I’m probably a little bit crazy, if not probably a lot crazy. So every year I invest in about 75 new startups. We see every week about a 100 startups that come in through directly to us because we’re known as investors. A third are introduced to us by other VCs because they want our prospective in deals. And well, frankly, we don’t compete with VCs, right? Most VCs, they lead. They do due diligence, etc. We don’t lead. We don’t price. We don’t take board seats. We essentially do no due diligence. And I’ll talk about that shortly. Two one-hour meetings, so at most a week we decide whether we invest or not.

And so because we’re writing small checks…you know, if you’re a lead VC in a series A and you’re writing a $6 or $7 million check, we’ll write 750K check. If you’re company who’s raising $20 million, maybe we’ll write a $1 or $2 million check. We’re the friendly value-added investor for the startups and for the VCs with really deep domain expertise in one business model, which is marketplaces and where we can really think through, you know, how do you build liquidity on the supply side, the demand side? What is the proper business model? Should you take a rate or a listening fee? Should you take another buyer or the seller? What is the scale of that rate? So because we have this deep domain expertise and that’s where we are specific, we’re actually reasonably generalists [inaudible 00:14:14].

The other third of the companies we get every week mostly coming from the [inaudible 00:14:18]. So to date we’ve invested in 400 startups. So that’s about a 1,000 entrepreneurs. And they come back with the next company. They send us their friends. They send us their employees. You know, so basically the way it works, so every week we get about a 100 companies. We will talk to 40 because 60 are out of scope. They’re like, you know, whatever. They’re great. But they’re in, like, satellite tech or hardware or agricultural tech or biotech. So 40 we take a one-hour call. We have the standardized reporting on this call where we evaluate the company base.

First of all, does it meet our underlying theses? And number two, does it meet our heuristics in terms of quality of the team, valuation and business? And our valuation of the business is nine business selection criteria, which includes total addressable market size, the business model. But one of the most important one of those for us is unit economics. And we really want that. And by the way, the company may not be live. So it might be theoretical unit economics. But we want the company to recoup their customer acquisition cost in a unit level within the first six months and maybe to get three X net contribution margin per transaction over the first 18 months, relative to their customer acquisition cost [inaudible 00:15:25] LTB to be as high as possible.

And again, maybe the company’s not there. But they need to have a story to explain to us about how they’re going to get there. And in fact, our evaluation of how well they understand their economics is a key evaluation process for us of how well they understand their business. And so we drill fairly deeply on that in the one-hour basis. The team makes a recommendation. We have a weekly investment call every Tuesday from 10 to noon. We review the 40 companies. And then either we pass, we pass for now, or I take a call and frankly, we invest directly. And on average, we’ve been investing in 1.5 companies a week. To date, we’ve invested in 400 startups, seventy percent in the US, 20% in Western Europe and the Nordics, 10% in Brazil and India, 65% seed and pre-seed. So pretty early in their life, about 25% series A and series B and 10% in the later stages. Check sizes have been varying. But the average check size is about 500K.

Understanding that pre-seed, which is basically an idea on a PowerPoint or maybe less sub-50K revenue per month, we’re investing 225K. Seed, we’re investing like 450K. A, we’re investing 750 to 1. And then afterwards we do 1 to 2 or 1 to 3. To date, we’ve deployed a $140 million, of which $90 million has been my partner and my capital. So it’s been mostly personal capital. So we’re very different again from that perspective. And most of the capital’s been personal. And we’ve done rather well. We’ve had a 150 exits, realized exits, on the 400 investments. And on these 150 exits we’ve had a realized IR of 70% realized. You know, most VCs talk to you about like, “Oh, the implied value of my portfolio based on the last round of valuation is blah, blah, blah.” But, you know, a lot of that is gonna go to zero. So I’m talking only on the stuff that we’ve actually realized cash on cash and with about an average six X multiple. So that’s one of the two lines of the businesses, the business we do every year.

And then for fun every year we build one or two new startups de novo. My partner and I have realized we love building startups. We love helping build startups. So since 2013, we’ve built about 10. And the way it works is we go to five business schools first year. And we tell people we have this apprenticeship and future EIR program, if they wanna join. And every year on average, about 225 students have been applying from the first year of Harvard, MIT, Columbia, Warden, and Sanford. We hire three to four of those. They join us full-time during the summer, during which we make them work part-time in one of the early stage portfolio companies, part-time in venture. We teach them venture. During the second year of business school they become…they work 10, 20 hours a week for us as venture investors filtering in bad deal. And then when they graduate, the idea is that they become entrepreneurs or residents. And they start looking to…for ideas to build with us. And the business model there is a little bit different. We give them $750,000 in exchange for 35% of the company for us, 65% for them. But we join as active participants.

My partner and I become executive chairmen. And we do whatever needs to be done, whether it’s helping raise money or recruiting or frankly, even sometimes playing an operating role. Sometimes I’m CEO. Sometimes I’m chairman. Sometimes I’m something else. So it kinda varies. We do that for a year until the company raises its series A. We do the next one the next year. And that we’ve done in a number of companies. We’ve built a company called Adore Me, which is a lingerie e-commerce company doing about a $100 million in revenues. We’ve built [inaudible 00:18:41] in Brazil, which is the OTA doing $600 million revenues and profitable. We built Rebag, which is a handbag marketplace doing, like, $30 million in revenues and doing rather well. We are building a blue collar job site in New York called Merlin. We’re building a big real estate marketplace in Canada called [inaudible 00:18:58] and frankly a number of others including a number of failures, including a number of actually rather public failures like BP.

Meb: BP. Fabrice, this was…I used BP to sell a car a couple of years ago. This is one of the more surprising startups that I was like, “This was so pleasant and seamless. The entire car buying and selling experience is so miserable.” Probably find in Twitter timeline somewhere. I was like, “What a wonderful app and company.” I kinda saw that it didn’t work out or maybe they got acquired or something. But that was a surprise to me.

Fabrice: One of our theses is reinventing marketplaces where buyer and seller need to do a lot of work with a much more delightful user experience. And so creating these managed marketplaces where the buyer or the seller doesn’t need to talk to each other and the marketplace actually does a lot of the work and BP fell straight into that type of thesis. We had done really well in the first three cities. And it was a rather competitive industry with [inaudible 00:19:53]. I guess the founders felt that it was a land grab and we had to spend and expand as fast as possible. And basically, the company probably spent too much money and expanded too fast to too many geographies.

One of the approaches I really recommend to all the entrepreneurs is really nail it before you scale it. Like, get your unit of economics right, prove underlying unit profitability in the core geography before you expand to other geographies and especially if you’re in a hyper local marketplace where liquidity and critical mass buyers and sellers matter because otherwise, the only thing you’re doing is expanding your losses and your burn. I think that’s a lesson that we didn’t take to heart in that startup. And we expanded too fast, burnt too much capital. And so it was rather difficult ultimately in a rather competitive environment to continue raising. That sadly was right off. But I actually loved the company. I loved the approach. I think we were, like, essentially a 100% five star reviews on Yelp. The NPS was really high. And we’d actually really fixed a broken user experience. But I couldn’t make it work from…more from a financial perspective and made a number of mistakes along the way.

Meb: Even some of the ones that you love don’t work out. So I’ve heard you talk, and you’ve interlaced it throughout this thread a bit, about expanding and geography. And you were just talking about BP. And I’ve heard you mention, I mean, a number of these companies already pretty global. Talk to me a little bit about your interest in investing the majority in the U.S. because I know at one time, you guys were pretty heavy in some developing countries like Brazil, Russia and Turkey. And on the flip side, we had Jason Calcanis on the podcast. And he said, “No, no, no. You’ve gotta be located in Silicon Valley.” Tell me a little bit about the way you think about geography as kind of a nomad Edison of the world.

Fabrice: If you have a choice, I think build a U.S. company. Cater your US customers. Don’t go global. It’s not worth it, right? Like the U.S. has 340 million rich consumers who are early adopters and it’s an amazing market. And if you’re at a $100 million in the U.S. in revenues it’s easier to go from a $100 million to $200 million in the U.S. than it is to go from zero to $100 million anywhere else. If you’re at $1 billion, it’s still true. Most likely, if you’re at $10 billion, it’s still true. So my core recommendation for most companies is do not go global. So if you would in the U.S. you’re gonna be worth so much more just from a valuation perspective. You can actually buy the foreign companies. And by the way, it’s exhausting to be international. It’s exhausting to be traveling. And it’ll decrease your probability of winning in the U.S., right? If Uber could take a step back and not have actually gotten into all these markets and just made sure they won a 100% of the U.S., I think they would take that trade-off actually almost every day of the week.

Now that said, there are few exceptions to the rule. My comment really applies if you…your business requires like payments, inventory, supply chain management, etc. If you’re in a user-generated content business, you’re Wikipedia or your Facebook then by all means go global, right? Like, you don’t actually need local operators or local offices. It’s really easy. There may be a winner-take-all-business in that category. But for most other businesses, my recommendation is just do the U.S. Now that said, there have been opportunities for arbitrage where other countries were doing rather well.

And you can invest in great companies there. And often it’s less competitive, valuations are low and you can have exits. Now the issue with these markets is you face market risk. Often when I’ve been investing internationally…frankly I’ve been investing in ideas that were reasonably proven because they had been done elsewhere and then invested there. But that’s not the core of what I do. The core of what I do is like business model reinvention and innovation in the U.S. and reinventing U.S. business models. So that’s the most interesting part.

That said, I take into consideration…I’m an economist at heart so I look at the global macro environment. And so in 2010 Brazil was doing well. Russia was doing well. Turkey was doing well. So I was long [inaudible 00:23:35] these countries. And you may remember there’s a cover of The Economist with like Brazil is taking off. And you had like the Rio de Janeiro statue like as rocket ship going up. At that point, about 50% of our investments were in these three countries. All three of these countries made political choices. And so they were political choices originally that I felt were going to have negative macro consequences. I mean, it is somewhat different in each country. Like they elected Erdogan as president in Turkey. Vladimir Putin decided to I guess first invade Georgia, then invade Crimea and then create troubles in Ukraine. They elected Dilma Rousseff in Brazil who started passing non-business friendly laws and increasing the cost of operating there and capital controls, etc.

And so I felt that these decisions were going to have negative macro consequences, which were ultimately going to have negative micro consequences in our world. So I basically shut down all of our investments in all three countries. And we went from 50% of the new investments there to zero which proved out to be a [inaudible 00:24:33] call. Especially the timing between investment and exit is about five years. So you wanna be somewhat of a contrarian. But you don’t wanna be investing near the peak. And I felt that we were…things looked too good relative to the direction that it was heading. I was able to sell off and avoid most of the disasters that happened in all these countries. And frankly, as I said, I’d be happy to just invest in the U.S. It’s still the place with the most interesting innovation, company skill, the fastest. I mean, China is probably the other ecosystem that’s just as robust. But it’s not a level playing field. Now obviously I prefer to be in a place where it is a level playing field. And it’s really the people that are the hardest working and the luckiest and the best to win, and not the people that are the most best connected.

Meb: You mentioned your preference for marketplaces. And is that something that’s majority driven by just your skill set or is it actually a macro opportunity that you think is under-served or is right for more business models? Why in particular do you guys focus in that world?

Fabrice: I came to a lot of marketplaces because as an economist, as I said, I like bringing liquidity and transparency to opaque and fragmented markets, of which there are many. A few years ago there was this famous slide that came out of all the sites that were attacking Craigslist category by category. Many people who were investing in that and many VCs it’s just, “Oh, this is done. You know, like marketplaces are done.” The reality is much of the world has not been digitalized yet. And the tech revolution has really not reached most of the business sectors or industries. It hasn’t reached the public sector. And I find that marketplaces are the most scalable and interesting way to actually build businesses with…in a capital efficient way in every single category.

And so right now when we look at the B2B world where many of the transactions are done the old-fashioned way through Rolodex and connections and Excel or email, they’re just not efficient. And so all of the efficiency that has happened in the consumer-facing world has not yet happened in the B2B world. So we’ve been investing a lot in B2B marketplaces where no day…like petrol chemicals marketplace where RigUp, which is an oil services contractor marketplace, where if you’re an oil services firm and you wanna employ a welder, they’re a marketplace where you can find that and that person for a few weeks. And they’re doing hundreds of millions of sales and categories or industries. We’re in a dump truck marketplace called Tread that in the dump truck market people don’t realize it’s $37 billion a year market.

And things have been rather inefficiently. All these categories which are much larger than people suspect are ripe for innovation. And I find that marketplaces are actually by far the most efficient way to go after them. And so yeah, that we’re…many people think we’re both at the…you know, that everything that needs to be done has been done or invented and that marketplaces are done. And I actually think that’s far from true. And like, I think we’re still at the very beginning of the tech revolution. As Jeff Bezos wrote in his first letter to shareholder and as he keeps republishing and rewriting every year back from 1997. We are day one. I mean, we’re maybe at the bottom of the first inning. We’re at the very, very beginning of the tech revolution.

Meb: One of the unique properties of what you do, Fabrice, is…and when people probably heard the intro and they heard you say, “We invest in 400 companies,” they probably dropped their jaw and say…someone who wanted to disparaging or derogatory would say, “You know, that’s the spray and pray method. You’re just investing as many things as possible.” But maybe talk a little bit about how that could actually be a compliment with some of the properties of investing in companies and why your approach is to invest in so many companies versus concentrating in just a handful.

Fabrice: I would argue we don’t do spry and pay, given that every week we get a 100 companies. We’re investing in 1.5, right? So every year we’re seeing 5,000 plus companies. And we’re making 75 investments. It actually is a pretty strong filter, especially since it’s in a given vertical. I actually don’t have a portfolio construction theory where I’m trying to like create the ideal portfolio with a set number of companies I wanna invest in or a set number of capital that I wanna deploy. Now, in light of the strategy that I’ve defined, which is I wanna mostly do seed and pre-seed. I don’t wanna lead. I don’t wanna price. I don’t wanna take board seats. There is a maximum amount of capital I can deploy before which I would probably start competing with VC, which is the last thing I wanna do because I wanna be their partner. I wanna bring them deals, etc.

So I would argue we’re not spraying and praying because we’re actually rather specific or rather selective in the deals that we do especially, you know, it’s under one business model. But that’s it. There is a lot of value and diversification. If you think of traditional public market returns, they follow a normal Gaussian distribution curve and everything falls within whatever, one standard deviation of the [inaudible 00:29:12] basically. In private markets, especially the venture markets, actually things have a tendency to follow power law. So the top few deals actually account for most of that return. So if you look at the U.S. in the last two decades, you’ve had four super unicorns, companies with over a $100 billion, right. You have Facebook, probably Airbnb, and Uber in this decade. The decade before, you had like Facebook and Google. The decade before, you had like maybe Cisco, Oracle and Microsoft, you know, and Intel. So it’s like two a decade basically. Maybe three a decade. And [inaudible 00:29:43] in China by the way in the last two decades.

Then you have maybe 20 companies that are worth like $10 billion, $100 billion. And then there are like a 100 companies that end up being worth over a $100 billion or over $1 billion. And when you look at all of the venture deals, right, every year there’s about 5,000 seed-funded startups with 500K or more. When you look at the outcomes really over the course of a decade, 50,000 seed-funded startups, it’s actually the top 100 per decade or a 120 per decade that account for 99% of the returns. The top two account for 40% of the returns. The top 22 account for 80% of the returns. You really wanna be in those companies and there is a real value in diversification to guarantee the probability of being in those. So Kaufman did a study of how many…what’s the ideal portfolio size for an angel investor? And the funny thing is the more companies you were an investor in. the higher your IR, unless you got really lucky.

And so for most people, there is actually really, real, real value in diversification. All that said, we’re probably rather different than most…what I just described kinda suggests you want to try and play Powerball. You’re trying to be in that 1,000 [inaudible 00:30:47] or you’re trying to be in the next Facebook or Uber. I actually am…I’m investing with a belief that I’m not going to be in that because I chose to be in New York that we can talk about in a few seconds, that I’m not gonna see these deals. By virtue of investing in these companies that have valid business models, that have great unit economics I had…also by not being in the board, by not leading, I actually get a lot of exits, right? It’s very rare an angel investor VC has a 150 exits that are realized. And the reason is we’re probably doing the anti-VC strategy. Most VCs, if you talk to them, they’ll tell you, “Concentrate your bets. And find the winners. And then double down on the winners.” We’ve actually been selling our winners.

So our traditional path of ownership is we invest in the seed and we’ll sell it maybe in the C route. There’s no negative signal on selling because we own like less than 5% of the companies. And often we do it as a favor. Like the company becomes really, really hot and like whatever. Gridlock, Sequoia, and Andreessen all wanna invest. They all have 50 minimum ownership requirements, so that’s 45% dilution. The [inaudible 00:31:47] is like, “Look. I love all you guys. I want you guys and I definitely don’t want you to fund anywhere else. I don’t want that much dilution. Go buy some early investors.” If we find that the valuation is richer than we think the business dictates, we will sell 50 to 75% of our stake in the upper end. And that has allowed us to put out great returns and get reasonably early liquidity and much earlier than traditional VCs. And so it makes sense in our case to have this reasonably diverse portfolio with [inaudible 00:32:13] economics where we’re selling the upside. And I would argue that we are not at all spraying and praying.

Meb: Traditionally selling to venture capitalists who are then buying the stake in the C round or are you using companies like EquityZen? What’s the route to liquidity?

Fabrice: Now we’re mostly selling to the VCs when there’s [inaudible 00:32:30]. So in the private markets, companies are not sold. They’re bought. Either an acquirer comes in and wants to buy the company or we go public. There is a…a new [inaudible 00:32:38] happens. And as I said, it’s typically around the series C that things become hot because right now, all the VCs that used to be at the series A and B have raised funds that are so large, like, they’re multi-billion dollar funds, they wanna write bigger checks. And there are not that many companies that get to a point where they can accept $50 million [inaudible 00:32:54] where there’s so many people trying to write $50 million checks. [inaudible 00:32:57] have gone reasonably high. And vision funds, of course, is creating inflation in the later stages.

And so in fact, because everyone else is going late stage, I’m going earlier stage. So I’m…I’ve actually moved from seed to now encompass pre-seed, which is not something we did in the past. The main way we sell is to other VCs and when a round is structured. So it’ll be a round and the primary price will be whatever, a $100 million. And they’ll buy secondary at a 10% or 20% discount. Occasionally, we’ve transacted on [inaudible 00:33:29]. And I think we’ve also used EquityZen and [inaudible 00:33:32]. But there, we’ve been more buyer than a seller. We haven’t sold much stuff there. We mostly bought shares in companies that we were interested in that we didn’t have exposure to.

That said, the main reason for that by the way is a lot of the companies that we’re selling, they’re not big enough that they would be on an Equidate or [inaudible 00:33:48] or an EquityZen. I mean, the things that trade there are really quasi-public companies. It’s like Airbnb and Uber, companies that are really big, that are really reasonably well-known, that have high market caps. Companies we would be typically selling, they’re at like $80 million valuation or a $100 million valuation, $200 million valuation. They are not on these platforms. And we can only sell them to informed buyers who actually have done a lot of due diligence, decided they want more exposure or they want exposure in the category. And again, we don’t typically sell a 100%. We sell like 50% or 70%.

Meb: Dog, talk to me a little bit about…and by the way, we just had the founder of EquityZen on a prior podcast. And we had to bleep out like half of the episode because I was naming all these companies. And he’s like, “Meb, you can’t be naming these because these are active offerings. We’re gonna have to bleep out all the names.” Tell me a little bit about lessons learned. So you’ve been doing this actively as an angel style investor. Four hundred companies. You probably have a lot of successes, but also a lot of scars or disappointments or takeaways. As you look back over the past five, six years, what are some of the things that you’ve incorporated into your methodology as the years go on where you say, “You know, look. This is process we implemented because of XYZ,” or, “Hey, we’ve decided that we prefer founders over ideas or vice versa?”

Fabrice: Number one, if you’re gonna be investing in this asset class, be diversified. I mean, a few years ago I created this angel list co-investment vehicle, which we would do on a deal-by-deal basis. And we’re like, you know, up to, whatever, 75 deals we do a year. There was some where we have enough availability for friends and family to invest with us. The thing is, you know, people like my dad don’t turn around very quickly. And so at the end of the year…so they miss most of the opportunities. And at the end of the year, they had about two investments. So, you know, three years later, they had five.

And we would be at like 225. And then you would lose money on every single deal and tell me, “Fabrice, you suck. You don’t know what you’re doing.” And I’m like, “Okay. This doesn’t work. You should not…you, as a private investor without actually the ability to make…to evaluate these deals, should not be investing frankly in the asset class in a deal-by-deal basis. You should be investing in the fund. And you should get exposure in the entire portfolio because you need diversification. If you have less than 20 or 30 or 40 investments, you’re probably going to lose money as an investor.”

So we ended up not doing for the most part deal-by-deal angel syndicates. Instead, we created like a co-investment vehicle where people can invest with us. It’s kinda [inaudible 00:36:18] what we invest 100K and the fund puts a 100k but it’s not really a…it’s not a fund. There’s really capital put upfront and there’s whatever [inaudible 00:36:24] and I can sell.

Meb: Where is that located? Is that on a platform? Do you guys do it on your own?

Fabrice: It’s on angel lists.

Meb: Okay.

Fabrice: And we do one of these. You need to be an accredited investor. There’s a 99 investor limit so whenever we invite 99 investors, we stop it. And whenever we run out of money we do the next fund. So there’s no real…I mean, we have a traditional venture fund, which is the equivalent of a $200 million fund, which would be your second and traditional fund. But there our minimal investments are like $5 million. That’s different. We’re rather different I guess from most investors you see because a big chunk of the capital is our own capital rather than third party institutional funding. In fact, we have no institutions. We only have family offices and strategics investing with us.

The second big learning, I’ve learned to stick to my guns. So like I want the team, the business, and the valuation to all be within our expectations for us to invest. So I used to have these [inaudible 00:37:11] where I would fall in love with an entrepreneur and it’s like, “You know what? The entrepreneur trumps all my concerns of the business where valuation are irrelevant. They’re so amazing. They’re gonna figure it out.” More often than not, I ended up losing money when I did that. And I’ve realized I want all three. In fact, I want all four things to be true. I want the idea to meet my thesis, which is my perspective on the direction the world is heading in to invest along…to create that world of tomorrow and that better world of tomorrow. Two, I want to love the entrepreneur. Three, I wanna love the business. And four, I think the deal terms need to be reasonable. And all four of these things need to be true. And if they’re not true, we should not invest.

And we should tell them we’re not investing, which I guess leads me to point or lesson number three is we’re always honest and radically honest and transparent. One of the things I hated as an entrepreneur is I would meet a VC, I would feel the meeting went well, and then I’d never hear from them again. I never knew where I stood. I never knew if they were interested or not, if I was ever gonna get a term sheet. We tell people where they sit and we turn around quickly. And I’ve realized that builds a lot of credibility. And I guess the next thing I’ve learned is you don’t necessarily need… You know, early on in this podcast you said, “Hey, you know, you’re just on the one side. Maybe you’re just a passive investor.” And you would think we’re a passive investor because we’re in so many companies and we’re not on the board. But I would argue we’re probably some of the most value-added investors, entrepreneurs, especially marketplace entrepreneurs have, because we actually help them raise money.

Our core value-add for the entrepreneurs is…and we’ve realized like there are big venture funds out there like Andreessen and they have so many resources and headhunters and venture partners that can help you with all these things. We obviously don’t have the time, the resources, to do that. But we’ve realized what an entrepreneur is doing is always raising money. Entrepreneurs are raising on a continuous basis and we for the most part…not even for the most part. We are not going to be raising or leading the next round. We have no [inaudible 00:39:03]. We don’t have an [inaudible 00:39:05] of like wanting a low valuation. We want them to do well. And so because we’ve built these relationships with all these VCs, we will introduce them for their next round to all the top VCs.

And it’s win-win-win. The VCs love it because they see differentiated deal flow and companies they can invest in. The entrepreneurs love it because it’s easy for them to raise money and easier than it would be otherwise and they get the meeting. We made the intro to [inaudible 00:39:28] and they get the meeting. And we love it because the companies we invested in get funded. And I think we’ve come to realize what we’re good at and what to focus on and not try to boil the ocean from that perspective.

Meb: And as you look around the landscape today, I think you see a lot of macro commentary about there being a lot of money sloshing around. So as there’s been a number of developments in the past cycle, namely valuations creeping up, the existence now of money, a lot more money kinda looking at the early stage rounds, you have the platforms like an angel list or FundersClub or Wefunder, all these others and also this new legislation, which is still getting finalized on opportunity zones. There’s a lot going on. Tell me a little bit about just kinda how you see the landscape. Are you worried about all the money chasing the deals? Are you never seen so many awesome deals in your life and it’s not a concern? What’s the lay of the land look like to you?

Fabrice: I’m seeing more opportunities than ever before, especially in the early stages. So our returns are pretty exceptional, right. Like 70% of realized IR over like 19 years. And so like I don’t know if it’s probably top .1% VC of all time. While I think we generate alpha, I think the beta and the sector we’re at is really good because the fund economics are such that if you’re a fund manager and you’re good, your economic incentive is to go and raise a bigger fund, right? So all of these people from Excel to Sequoia to whatever have gone from like $400 million in our funds to like $2 billion in funds, 5 billion in funds, etc. And so they need…because of course 2% of management fee at $5 billion is $100 million. Just a lot more than 2% management fee on $400 million, which is $8 million. So the economics have incentivized managers to raise bigger and bigger funds.

And in the later stage, especially because of the introduction of the vision fund, but also frankly just because everyone has raised bigger funds, there’s a lot of value…a lot of competition and it is very, very [inaudible 00:41:21]. It has actually pushed me to the other direction. As I said, we used to do seed. Now we’re doing pre-seed because I feel that at the seed and pre-seed stage, there are few funds and there are few great funds. I mean, Floodgate or Uncorked or Slow or [inaudible 00:41:36] at the pre-seed stage that they’re F4. You know, there are a few amazing people. But for the most part, we’re competing with angel investors who don’t have VCs, who don’t have heuristics, don’t have deal flow, and don’t necessarily know what they’re doing. And the [inaudible 00:41:50] are pretty ripe. And if anything, it’s less competitive than it was a while back. There are few years ago where out of YC, it was completely crazy.

So YCombinator, every single deal was like an on cap node and at crazy valuations ultimately from a conversion perspective. And that was, like, 2011 and 2012. It has become way less crazy. Valuations, you know, are high, but not completely unreasonable. So in the early stages, not that crazy. The YC remains very frothy. But our strategy there is just to wait until the next round or do a seed extension. So we’re more creative in where we play and where the rounds are played. And by the way, by virtue of being nimble…you know, we’re a quasi-family office masquerading as venture fronts where we can change stage. We can change geography. We can change theses all the time. We’ve been able to navigate the changing landscape. And so far, you know, I don’t have a set number of companies want to invest in every year. If I meet great entrepreneurs and great deals and great companies, I invest. And if not, I don’t. I have no obligation to go in one direction or in the other. And I am reasonably confident that the companies we’re investing are amazing. The evaluations are good.

Now at a macro level, yes. Our interest rates are still reasonably low. Is there a lot of capital? Absolutely. The good news is in my category, it seems to be chasing the later stage deals that seem to be very expensive, which is creating a lot of exit opportunities. Now continuing on the macro level we’re in the eighth year of a non-interrupted economic expansion, which is longer…one of the longest expansions ever in history. There are a number of signs. You know, the yield curve is flattening and maybe inverting in the not too distant futures. There’s…at the same time it actually doesn’t like look…it doesn’t feel like we’re at a cycle, right? We’re like 3.90% unemployment and inflation remains reasonably tame. For the first time in 10 years, we have aligned growth in every one of the major economies from China to Western Europe to the U.S.

On a pure cyclical basis, you don’t actually see fundamental recession risk in the next 12 months or 24 months. That said, there is a black swan risk, which is probably more geopolitical because we have more of these uncertain political actors who could make geopolitical decisions that could lead us to recession and/or are doing weird things like trade wars that should not exist. There is clear geopolitical risk or greater than before. So the risk of a downturn is greater than has been. But barring these types of black swans, I actually remain pretty optimistic. And in our case, I mean, right now it’s a great time to actually have exits. I mean, this year we already had one IPO I think over 10 successful exits. We have another company that filed to go public not that long ago. So things are looking really good. I mean, we’re having one of our best years ever, if not maybe the best year ever.

Meb: Funny. I laugh. There’s a quote one of my buddies have that he says, “You know, so many people on the public markets love saying this is the ninth inning.” And he says, “Have you ever been to a baseball game? You know how long the ninth inning lasts? This could be years.” So that…

Fabrice: Exactly.

Meb: I love that analogy. We gotta come up with a phrase for the…what comes before pre-seed coming years. Everyone keeps moving downstream. It’s maybe just your Labs is inventing a new concept and launching it. I’m gonna ask you a few more quick questions. I’d love to keep you around today. This has actually been a lot of fun. Put on your economics hat and I don’t know how familiar you are with this new legislation on opportunity zones. If you’re not, we can skip it. But if you are, do you think something as a startup founder in the U.S. that this is a simulative type of initiative where they’re giving tax breaks for these companies and investments in downtrodden communities or is this just gonna be abused as a tax shield? Any thoughts on that in general?

Fabrice: Don’t know the legislation well enough. My intuition is that it won’t do anything great for these regions but that said, that the macro direction or trend is for people…is for more and more places to have great and robust technical systems, right? In the late 1990’s if you wanted to hire like developers, you really needed to be in Silicon Valley. Like there is no talent elsewhere. And by the way, my first company, I had to spend millions of dollars building servers and building data centers and having Oracle and Microsoft licenses. Now you just use AWS. So the cost of entry has decreased dramatically. The barrier to entry has decreased dramatically. The ability to code has become…it’s way easier to code than it’s ever been. You can…I can basically build almost anything for like 50K. And frankly, if you can get sweat equity for people basically for free, you can build almost anything.

And that is creating ecosystems that are emerging and very robust in many, many cities. And we’re now investors and startups in like North Carolina and Chicago. And, I mean, Chicago maybe is already urban and developed, but like in many non-traditional centers. Miami and, of course, New York, Boston. Now like Los Angeles with Silicon Beach has really, really emerged. But even in Chicago after Groupon…has great companies. And we’re investors in a company in Chicago called Reverb. They’re a music instrument marketplace. They’re doing like over half a billion in sales in used music instruments. I mean, you’re seeing these wonderful businesses emerging everywhere.

I don’t think it’s actually driven by legislation. It’s really driven by the cost of starting startups has declined dramatically. It’s easier to start startups than ever before. And so you have more places where people are emerging and capital is becoming more available though, especially in the series A and B, and remains concentrated in the major cities. But that’s okay. Maybe your headquarter’s there. And if you really succeed, people will find you. And I don’t actually suspect that it’s driven by legislation at all.

It’s also driven by San Francisco deciding to shoot itself in the foot. I mean, they are passing anti-business legislation. They’re creating…they’re blaming tech on their housing problem where frankly, it’s purely a supply problem or it’s mostly a supply problem. If they removed air rights and you could build up, they wouldn’t have this overpricing issue. Between the negative…the anti-business legislations, the idiotic housing legislation, they’re increasing cost to the point where there’s an exodus, both of people in the tech world and not tech world. So the combination of those two things I think will be a more prevalent driver of the growth of other ecosystems than underlying tax or business legislation.

Meb: A couple more quick ones and we’ll let you know. We didn’t talk about this. We actually don’t talk about it much on this podcast surprisingly. What’s been your involvement and do you see any interesting startups or do you participate at all in the crypto world or is that totally scarred by getting your wallet hacked years ago?

Fabrice: It didn’t get hacked years ago. I got hacked last November. So the thing is we didn’t talk about what we do as hobbies or whatever. But like I’ve been a gamer my entire life. I’ve always had these powerful GPUs so I started mining for fun in 2011. But I started doing it for, you know, intellectual masturbation or for fun and to use my GPU in its down cycle. And as a result, lived through all the bubbles that happened to the space and lived through [inaudible 00:48:40] where I lost everything. So multiple times and I [inaudible 00:48:44], etc. Oh, now between like two-factor identification and a number of their security measures, I was safe. And of course lo and behold I wasn’t and I got hacked and people literally got access into everything I had. The thing is by sheer luck…and I will easily admit that it was luck. I had decided that validations were too frothy and I’d sold everything the week before.

So literally, you know, millions of crypto that could’ve been sold, they were not sold. I think at the end of the day they sold .01 BTC out of all the crypto I’ve ever had. So I think that was great. So involvement in crypto, I decided to stop direct involvement in crypto once things became complicated enough. I mean, we’re still years away frankly from real contute mass market consumer-facing applications. We’re still investing in the underlying tools. So FJ has invested in maybe 10 startups in the crypto space. But almost all of them were like infrastructure and groundwork breaking.

We decided to not…to stop drooling over direct investments. And instead, we’ve helped build a hedge fund called Lydian [SP], which one of our EIRs is leading. We basically invested in that instead. So we’ve actually allocated our own capital to the hedge fund that we helped build, rather than continuing to direct investments because we felt that the expertise both in the trading side and frankly on the startup side was different enough that it…from a [inaudible 00:50:05] focus on marketplaces that I…that it deserved a dedicated fund.

Meb: We haven’t much participated in that world, except we reserve the Hodel Ticker for a public fund humorously watching from afar a lot of these ETF issuers try to do these crypto funds. The SEC was saying, “No dice for a long time.” We’ve been sideline cheerleaders, but don’t have any dog in that fight. One of the questions we always ask our guests near the end is what has been your most memorable investment? And so this can be good. It can be bad. But really it’s meant to be the first thing that pops into your head.

Fabrice: It’s necessarily not an investment because we’re experienced as a startup entrepreneur. When I was running Zingy I…you know, and I missed payroll like so many times. We become cash flow positive and April 1 of 2003 but the [inaudible 00:50:52] carriers were paying us quarterly plus 45. So I actually didn’t even know and we gnawed on this and said we had a good database. Get database extracts to their databases to like get paid. So we didn’t even know what we were doing. That’s the period during which we had signed all the carriers. We had gone from 27 people to 7 people.

I was like working day and night as everything, project manager, programmer, CEO, and essentially janitor. When you stop paying people, you know, they kinda stop showing up for work. So things were like really bad. And finally on August 16 or August 15 of 2003 the check from Sprint arrives for like half a million dollars. I think it was like $457,000. And that’s when I got it. We were saved. Like we were cash flow positive.

And that was like such a relief that we had made it. Like we had covered the chasm. And once you’re profitable, you’re a master of your own destiny. And until then, like, the three years or the two and a half years before then had been such a struggle, especially in the post [inaudible 00:51:45] days. And I remember that day much more than, like, the day I sold my company and made $40 million, you know, the first…the second big company I built or the next company I sold for hundreds of millions or of all the ups and downs or frankly even like…I was investor in Baba right? Like I invested in Ali Baba. I had $4 a share when it was private. And I’ve been riding it all the way since. But none of these has, you know, gut-wrenching or frankly meaningful as the day I like, turned it around. I was like, “Oh, my God. We’re getting paid by $100,000 in credit cards. I can pay the rent and the employees. And we’re gonna be around.” Like, that, was probably the most memorable day for me.

Meb: That’s funny. You know, you talk to so many entrepreneurs. And this is obviously a little bit survivor bias because the ones that don’t make it don’t have these stories. But even the ones that do make it, how many times right on the ledge…I mean, we definitely had a couple of years in the sunken place where tough times and you…the story with Elon Musk and Tesla being days away from bankruptcy and all sorts of things.

Fabrice: This summer…I mean, we had an exit in our Turkish company where I probably would be now [inaudible 00:52:47] are gonna end up making a 110 or 120 X my investment. The company was a day away from closing shop, a mobile gaming company where we’re…they’re doing it like a Clash of Clans type game for the emerging markets on Android and every game…not one of the games they ever made ever worked in that strategy. Like, they all failed. They did okay, but nothing great. We were literally closing the company. And the team for fun had built a simple casual game called 1010, kind of like 2048 or…and they put it in and like instant, instant mega hit. The company becomes profitable overnight. [inaudible 00:53:20] was okay. Well, maybe instead of trying to make these complex games, let’s focus on these casual games. And we seem to be pretty good at making them and it turned all right.

We went from being a day away from closing shop, releasing a game we’ve built in one day, one day. Like it was nothing…it had nothing to do with anything we ever did. And then the company I think last year did, like, $30 million [inaudible 00:53:39]. That has been success to success to success and then Zynga bought it for like $250 million cash upfront like…and early this summer, like three months ago, four months ago. And just that was like a 75 or 80 X for us. And so you have these stories where things can get really, really close to the edge or the precipice. But of course, many times you get to the precipice and you fall off the cliff. I mean, you don’t actually make it. We’ve been lucky both in our professional lives as entrepreneurs and as investors to make it. But 50% of the time actually in our investments. So we’ve made money in about 50% of the deals.

Meb: We laugh here all the time where we talk about how we spend so many hours on building these very serious and well-researched funds. And we’re gonna launch some stupid thematic cannabis ETF that will probably raise hundreds of billions of dollars and end up being something totally different. But so far, we’re trying to stay away from it. What’s been the biggest whiff where you passed on something that’s gone on to become…I was laughing earlier when you said a $100 billion companies because that’s almost passé now. We have two $1 trillion companies. We’re now into the Ts. Memorable whiffs?

Fabrice: I was an early investor in Tencent and I sold like just after the IPO. Tencent is today worth, I don’t know, about $500 billion. I don’t even pay attention anymore. It’s too depressing. And yeah, I made 50 X on my money. But at that time, they were just a messenger. And I never imagined they could become a Facebook plus Zynga plus WhatsApp plus everything else, right, like, and much more and a payment system and a conference platform and so that…they were just [inaudible 00:55:08] which was at that time…really ICQ was pre…it was free but it really became WeChat. And it’s one of the lessons that led me to, “Okay, instead of selling a 100%, maybe I sell 50% or 70% because sometimes trees do grow to the moon even though it’s really, really rare.” I had an opportunity to invest in Zynga very early, which I passed on because I don’t usually do gaming.

I’m a marketplace guy and I thought that I didn’t like gaming economics. We’re more of a studio business. I felt acquisition cost would increase. I’m sure it and would increase and development goals would go up and so I didn’t like the business and…but of course that was all true. But in the meantime, you could’ve built a $10 billion business. I passed on the $2 billion round at Uber and I passed it. I wrote in my debrief, “I’m gonna regret this the rest of my life because I love the product and I love the company and I love everything.” But, you know, I made the mistake of looking at their numbers and I have a hard time justifying $2 billion.

You know, when we’ve been in the business as long as I have, like, you have a lot of near wins and near misses and companies you could have invested in or the companies that you could’ve made money and didn’t sell, etc. but…and it happens, right. Like my first company that I was running, we had a $300 million cash offer from eBay and 40% of the company and wanted to sell. I would’ve made a $120 million. But my majority shareholder [inaudible 00:56:18] voted me down and I didn’t. I was 24. I didn’t really know anything. And I did have a drag. I didn’t even know what a drag was. There’s been a lot of near misses. Hopefully, the next few times we don’t do near miss, but we actually convert and hit the home run.

Meb: What is on Fabrice’s skiing bucket list for somewhere you haven’t skied yet, but love to?

Fabrice: Did recently Greenland and Iceland. Right now on my skiing bucket list, Antarctica and there’s a new heli operator that skis Antarctica. I haven’t done the Himalayas. I haven’t done [inaudible 00:56:48]. I have not done [inaudible 00:56:50]. So all of these are on the to do. I was actually recently invited to go and…so OLX is massive in Pakistan. And I’m a pretty big celebrity there. So I was actually invited to go heli ski in Pakistan. So all those are on the skiing bucket list for the next decade.

Meb: Three I think. I still have never been to Silverton outside of Telluride. It’s not a crazy mountain. But I’ve always wanted to go to Taos. It’s not necessarily the best snow but seems like a pretty cool location and I’d love to get down to Portillo or any of those places in Chile.

Fabrice: That’s also on it. I’ve not been to neither the Argentinian or Chilean ranges, heli ranges and they’re both on the to do list.

Meb: Good. Well, we’ll have a startup economic summit down there and then have a conference. The show was actually sponsored last year by Mountain Collective Ski Pass. And so that had 2 days at about 20 different locations. We’ll have to…we need to get them to re-up, Jeff. I…we gotta reach out to those guys. Fabrice, where are the best places for people to find you and all of my listeners that are going to send you all of their amazing pitch decks? Where do people follow you, if they wanna follow your writings, your ramblings, your investments and everything else?

Fabrice: The easiest probably to go to my blog. It’s just my first name, last name .com. So fabricegrinda.com. I write once every other week or so but whatever crosses my mind. The entire portfolio of companies is there, our theses, whatever crosses our mind. And I’m also on Twitter and Facebook, Instagram, and LinkedIn and all the usual suspects.

Meb: It’s been a pleasure. If you find yourself in Los Angeles, let us know. We’ll hop up to Mammoth or to Squaw or to any of those places. But Fabrice, thanks so much for joining us today.

Fabrice: Thank you for having me.