1Mby1M Virtual Accelerator Investor Forum: With Fabrice Grinda, Founding Partner at FJ Labs (Part 3)

Sramana Mitra: It sounds like your strategy is to go for the unicorns, is that right? 

Fabrice Grinda: Yes and no. With all of the companies that we invested in, we want them to have the control to be a billion-dollar company. If you are building a venture startup, you need to be able to sell and get 10x return on investment. With that said, in our case, we have had over 150 exits and we’ve made money in over half of these deals. Our average is 4x. We don’t need you to be a unicorn.

We invest in companies that have the valuation that we are looking for. If the investment is $10 million in valuation and we sell it at $50 million, that’s fine. Everyone is happy.

That said, we would love to have the potential upside of the company being a billion-dollar company. In our portfolio, 23 companies have gone from zero to becoming a unicorn and another 25 companies that were already unicorns have created more than a billion in value. 

Sramana Mitra: The other trend that we are seeing is the emergence of the micro VCs. There are a thousand-plus micro VCs in the market right now that have a fund size between $10 million and $50 million.

Many of these funds are investing in a thesis that is geared towards an early exit, doing something capital-efficient, solve a problem, and get a strategic exit in a couple of years. We are seeing that trend quite extensively. 

Fabrice Grinda: You can’t exit every company in the portfolio. You can only exit the best ones. These are the companies that are performing the best. When VCs look at the next round or when they would like to get more exposure and are considering buying out the early investors, they can only do that if you own a small percentage of the company.

Otherwise, you are sending a negative signal that you are selling. They are probably doing so well that they want to buy a part of it. It is an increasing trend. 

Sramana Mitra: I think you are hinting at a different trend. I think you are right. That trend also exists. There are two trends. People are selling to later-round investors – series A and B investors. I’m also talking about strategic exits where it’s bootstrapping to exit straight away. That is not a negative thing though. If you get a strategic exit, then that is good. 

Fabrice Grinda: That would be the type that we would like to fund because we want the optionality of the company being big. We are against early exits. If you try to build a company and we realize that your company will be better if you are part of another group, then we advocate that.

My company that I sold was already reasonably large. I sold it to Naspers, a South African media company, because I realized that it would be doing a lot better with their financial backing and the media that they can push. I didn’t sell because I wanted to sell.

In my ideal world, I would have never sold it. I realized that it was better for the company to be part of a group than to be independent. It was also the right time to sell the company. That said, what I want as an investor is not to back a team whose objective is a short-term strategic exit. That is not compelling to me.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Fabrice Grinda, Founding Partner at FJ Labs
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