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Yesterday, we had the chance to catch up with Fabrice Grinda, a serial entrepreneur who co-founded the free classifieds site OLX — now owned by Prosus — and who has in recent years been building up his venture firm, FJ Labs. He often likens the outfit to an angel investor “at scale,” saying that like a lot of angel investors, “We don’t lead, we don’t price, we don’t take board seats. We decide after two one-hour meetings over the course of a week whether we invest or not.”

The outfit, which Grinda cofounded with entrepreneur Jose Marin, has certainly been busy. Though its debut fund was relatively small — it raised $50 million from a single limited partner in 2016 — Grinda says that FJLabs is now backed by a wide array of investors and has invested in 900 companies around the world by writing them checks of between $250,000 and $500,000 for a stake of typically 1% to 3% in each.

In fact, the data provider Pitchbook recently ranked FJ Labs the most active venture outfit globally, just ahead of the international outfit SOSV. (You can see Pitchbook’s rankings at page bottom.)

Yesterday, Grinda suggested that the firm could become even more active in 2023, now that the market has cooled and founders are more interested in FJ Lab’s biggest promise to them — that it get them follow-on funding come hell or high water through the connections of Grinda and his partners. Indeed, while that promise was probably less interesting in a world awash with capital, it has likely become more compelling as investors pull back and founders find themselves facing fewer options. Excerpts from our wide-ranging chat with Grinda follow, edited lightly for length.

TC: You’re making so many bets in exchange for a very small stake. Meanwhile you’ve bet on companies like Flexport that have raised a lot of money. You’re not getting washed out of these deals as they raise round after round from other investors?

FC: It’s true that you sometimes go from 2% to 1% to 0.5%. But as long as a company exits at 100 times that value, say we put in $250,000 and it becomes $20 million, that’s totally fine. It doesn’t bother me if we get diluted on the way up.

When making as many bets as FJ Labs does, conflicts of interest seem inevitable. What’s your policy on funding companies that might compete with one another?

We avoid investing in competitors. Sometimes we bet on the right or the wrong horse and it’s okay. We made our bet. The only case where it does happen is if we invest in two companies that are not competitive that are doing different things, but one of them pivots into the market of the other. But otherwise we have a very Chinese Wall policy. We don’t share any data from one company to the others, not even abstracted.

We will invest in the same idea in different geographies, but we will clear it by the founder first because, to your point, there are many companies that attract the same markets. In fact, we may not take a call when a company is in the pre-seed or seed-stage or even A stage if there are seven companies doing the same thing. We’re like, ‘You know what? We’re not comfortable making the bet now, because if we make a bet now, it’s our horse in the race forever.’

You mentioned not having or wanting board seats. Given what we’re seen at FTX and other startups that don’t appear to have enough experienced VCs involved, why is this your policy?

First of all, I think most people are good-intentioned and trustworthy so I don’t focus on protecting the downside. The downside is that a company goes to zero and the upside is that it goes to 100 or 1000 and will pay for the losses. Are there cases where there has been fraud in lining the numbers? Yes, but would I have identified it if I sat on the board? I think the answer is no, because VCs do rely on numbers given to them by the founder and what if someone’s giving you numbers that are wrong? It’s not as though the board members of these companies would identify it.

My choice not to be on boards is actually also a reflection of my personal history. When I was running board meetings as a founder, I did feel they were a useful reporting function, but I didn’t feel they were the most interesting strategic conversations. Many of the most interesting conversations happened with other VCs or founders who had nothing to do with my company. So our approach is that if you as a founder want advice or feedback, we are there for you, though you need to reach out. I find that leads to more interesting and honest conversations than when you’re in a formal board meeting, which feels stifled.

The market has changed, a lot of late-stage investment has dried up. How active would you say some of these same investors are in earlier stage deals?

They’re writing some checks, but not very many checks. Either way, it’s not competitive with [FJ Labs] because these guys are writing a $7 million or a $10 million Series A check. The median seed [round] we see is $3 million at a pre-money valuation of $9 million and $12 million post [money valuation], and we’re writing $250,000 checks as part of that. When you have a $1 billion or $2 billion fund, you aren’t going to be playing in that pool. It’s too many deals you’d need to do to deploy that capital.

Are you finally seeing an impact on seed-stage sizes and valuations owing to the broader downturn? It obviously hit the later-stage companies much faster.

We’re seeing a lot of companies that would have liked to raise a subsequent round — that have the traction that would have easily justified a new outside round a year or two or three years ago — having to instead raise a flat, internal round as an extension to their last round. We just invested in a company’s A3 round — so three extensions at the same price. Sometimes we give these companies a 10% or 15% or 20% bump to reflect the fact that they’ve grown. But these startups have grown 3x, 4x, 5x since their last round and they are still raising flat, so there has been massive multiples compression.

What about fatality rates? So many companies raised money at overly rich valuations last year and the year before. What are you seeing in your own portfolio?

Historically, we’ve made money on about 50% of the deals we’ve invested in, which amounts to 300 exits and we’ve made money because we’ve been price sensitive. But fatality is increasing. We’re seeing a lot of ‘acqui-hires,’ and companies maybe selling for less money than was raised. But many of the companies still have cash until next year, and so I suspect that the real wave of fatalities will arrive in the middle of next year. The activity we’re seeing right now is consolidation, and it’s the weaker players in our portfolio that are being acquired. I saw one this morning where we got like 88% back, another that delivered 68%, and another where we got between 1 and 1.5x our money back. So that wave is coming, but it’s six to nine months away.

How do you feel about debt? I sometimes worry about founders getting in over their heads, thinking it’s comparatively safe money.

Typically startups don’t [secure] debt until their A and B rounds, so the issue is usually not the venture debt. The issue is more the credit lines, which, depending on the business you’re in, you should totally use. If you’re a lender for instance and you do factoring, you’re not going to be lending off the balance sheet. That’s not scalable. As you grow your loan book, you would need infinite equity capital, which would lead you to zero. What usually happens if you’re a lending business is you initially lend off balance sheet then you get some family offices, some hedge funds, and eventually a bank line of credit, and it gets cheaper and cheaper and scales.

The issue is in a rising-rate environment, and an environment where perhaps the underlying credit scores — the models that you use — are not as high and not as successful as you’d think. Those lines get pulled, and your business can be at risk [as a result]. So I think a lot of the fintech companies that are dependent on these credit lines may be facing an existential risk as a result. It’s not because they took on more debt; it’s because the credit lines they used might be revoked.

Meanwhile, inventory-based businesses [could also be in trouble]. With a direct-to-consumer business, again, you don’t want to be using equity to buy inventory, so you use credit, and that makes sense. As long as you have a viable business model, people will give you debt to finance your inventory. But again, the cost of that debt is going up because the interest rates are going up. And because the underwriters are becoming more careful, they may decrease your line. They may call it, in which case your ability to grow is basically shrinking. So companies that depend on that to grow quickly are going to see themselves extremely constrained and are going to have a hard time and on a go-forward basis.

The most active global VC firm on deal terms, fatality rates and the drawbacks of credit lines by Connie Loizos originally published on TechCrunch

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Fridaaaaaaaay! Today we particularly enjoyed the Equity podcast team’s 2023 predictions on the future of building, crypto, and AI.

Meanwhile, good luck to Alex (who mostly looks after TechCrunch+ these days, but he used to write the Daily Crunch and still occasionally groans at our awful jokes) as he embarks on parenthood and is taking a couple of months off to do whatever new parents do.

Oh, and still working on your holiday shopping list? Here’s a great gift idea for yourself and other early-stage and soon-to-be founders. Grab a Founder pass to TC Early Stage 2023 for just $75 by registering with this link before 11:59 p.m. PST on December 31.

Finally, we’re excited to see the back of another week. Time for some well-deserved R&R here at Crunch Towers — see y’all next week! — Christine and Haje

The TechCrunch Top 3

What a tangled web Elon Musk weaves: Lots of Twitter news to parcel out today, so we’ve grouped it all together. The top Twitter trove came from Paul, who wrote that Twitter pulled its Spaces group audio feature following a Spaces where Musk talked to banned journalists. You can find out more about the banning from Taylor. Meanwhile, that was just one of the many moves the Chief Twit made, including suspending Mastodon’s account, Taylor writes.
Meanwhile, over in Europe: Natasha L reports that European Union lawmakers sent a warning to Elon Musk, via Twitter of course, about sanctions that could be made after Twitter suspended the accounts of journalists without warning.
Second time may be the charm: The “Black Adam” movie, starring Dwayne “The Rock” Johnson, wasn’t embraced by theater-goers, but HBO Max now has it streaming in hopes of a different outcome, Lauren reports.

Startups and VC

Despite shrinking investment into startups in 2022, venture capital funds of all sizes are still being raised. However, not many of these are led by solo general partners (GPs), and although that trend is on the rise, even fewer are led by women or people who don’t come from venture capital, Anna writes. That makes Nichole Wischoff something of an exception: Her solo venture capital firm Wischoff Ventures closed a second fund of $20 million, a sizable increase from her first $5 million fund. Her target is to invest in 25 to 30 U.S. startups at the pre-seed or seed stage.

Five more to take you into the weekend… And if you need a creative boost, this stop-motion animation music video will probably do the trick.

Spilling over: Twitter is a mess, Amanda writes, so former employees are creating Spill as an alternative.
Boxing up those forms: Dropbox buys form management platform FormSwift for $95 million in cash, reports Kyle.
Getting the ROI for your CPG: Christine wrote about Kuona, a startup that bagged $6 million to show you which promotions bring ROI and which don’t.
Shining ever so brightly: Tage writes about a provider of solar energy products in Africa and Asia, Sun King, who expanded its Series D to $330 million.
Investing the Venn diagram of biotech and AI: Anna explores what biotech investors are looking for in 2023.

The rules of VC are changing: Here’s what founders should be considering in the new era

“Growth at all costs” is a fairy tale made possible by cheap money that helped venture capitalists set expectations for founders — and each other — for years.

Similarly, everyone needs 18 to 24 months of runway is a nice motto, but if it takes three times as long to raise a round as it used to, it may no longer be good advice.

“These ‘VCisms’ borne out of an era of plenty have permeated boardrooms and investor meetings everywhere,” writes Neotribes Ventures partner Rebecca Mitchem in TC+.

In a data-driven piece that looks at post-money valuations, deal size and dilution going back to 2012, Mitchem says we’re now heading into a “growth at reasonable costs” era.

Founders can continue to water down their ownership by continuing to raise fat rounds, or they can decide to grow more slowly, which leaves VCs with a larger stake over time.

“While it may feel counterintuitive, given the recent market environment, the value of the equity for all parties — investors, founders and employees — in this scenario is higher in the more conservative growth scenario,” says Mitchem.

Three more from the TC+ team:

Moar money, moar startups: With IT spending forecast to rise in 2023, what does it mean for startups? by Ron.
Getting your foot in the door: Haje shares some tips for startup founders on how to get your first investor meeting.
Biotech meets AI: Anna spoke to six investors to figure out why AI is more than just a buzzword in biotech.

TechCrunch+ is our membership program that helps founders and startup teams get ahead of the pack. You can sign up here. Use code “DC” for a 15% discount on an annual subscription!

Big Tech Inc.

Meta is doing a lot of shutting down lately. Facebook’s parent recently shut down its live shopping feature in October, and now Aisha writes that it is shutting down its Super app in February. If you are not familiar, she writes that it was an app initially created to provide “a virtual meet and greet experience that was similar to what you experience at a real-life event like VidCon or Comic-Con.” We guess it didn’t catch on as well as they would have liked…

And we have five more for you:

Get your geek on: Amazon has acquired the film and television rights to the hugely popular tabletop war game Warhammer 40,000, reports Lauren.
Your ticket to ride might be driverless: Waymo opens Phoenix airport rides to the public and doubles its downtown service area, Rebecca writes.
Elon Musk gives an early Christmas present: Tesla Powerwall customers in Texas can now sell their electricity back to the grid, Harri reports.
Seeing the music, not just hearing it: We enjoyed Devin’s story on Riffusion, an AI model that composes music by visualizing it.
Get out your gig worker pitchforks: Rebecca writes that “the battle over gig worker status is heating up.”

Daily Crunch: Twitter removes live audio chat after CEO joins Space with banished reporters by Christine Hall originally published on TechCrunch

This week, I talked with Tim De Chant about his coverage of fusion energy and what feels like a rare hopeful story in renewable energy tech. And Jacquelyn Melinek walks us through Sam Bankman-Fried’s alleged crimes and confirmed arrest. Plus, as always, we go over the top stories in tech from the week

Articles from the episode:

World-record fusion experiment produced even more energy than expected
FTX founder Sam Bankman-Fried has been arrested in the Bahamas
US attorney says ‘we are not done’ charging individuals for FTX collapse

Other news from the week:

Instagram adds text updates with new Notes feature
OpenAI’s attempts to watermark AI text hit limits
Elon Jet, the Twitter account tracking Elon Musk’s flights, was permanently suspended

SBF doesn’t need SPF where he’s going and other TC news by Darrell Etherington originally published on TechCrunch

U.S. safety regulators have opened a preliminary investigation into the robotaxis developed and operated by GM self-driving subsidiary Cruise.

The National Highway Traffic and Safety Administration said it opened the investigation after learning of incidents when these robotaxis “may have engaged in inappropriately hard braking or became immobilized while operating on public roads.” The preliminary investigation covers all Cruise AVs.

Reuters was the first to report the formal safety probe.

Cruise has received the proper permits from California regulators to operate and charge for driverless rides in certain areas of San Francisco. The company is awaiting the last remaining approval from the state’s Public Utilities Commission to expand its service area to all of San Francisco.

As Cruise has ramped up its driverless operations, so has the public’s attention. While numerous videos and posts focus on the thrill of riding in a driverless car, not all of the public’s documentation has been positive. Numerous videos and images have been posted on social media, Reddit and other public forums documenting Cruise robotaxis seemingly stuck in intersections and blocking traffic in San Francisco.

However, NHTSA didn’t learn of the hard-braking crash events from social media. Cruise reported the events via the agency’s Standing General Order, which requires manufacturers to report certain crashes involving vehicles equipped with automated driving systems or SAE Level 2 advanced driver assistance systems. This is the third investigation NHTSA has opened into an automated driving systems developer; the first two were for Pony.ai (a recall query and an audit query), according to the agency. There have been multiple investigations into Tesla’s advanced driver assistance system.

NHTSA said three hard-braking crashes were reported by Cruise through the Standing General Order. Two crashes involved injuries. Cruise said in all three of these incidents, the vehicle was supervised, which means there was a trained safety operator behind the wheel. None of the incidents resulted in police citations, according to the company.

Cruise also said it has already met with NHTSA to discuss each one of the events mentioned in their filing, and provided the agency with briefings and the information they requested. The agency said the investigation was launched to determine the scope and severity of the potential problem and fully assess the potential safety-related issues posed by these two types of incidents.

“Cruise’s safety record is publicly reported and includes having driven nearly 700,000 fully autonomous miles in an extremely complex urban environment with zero life-threatening injuries or fatalities,” Cruise spokesperson Hannah Lindow wrote in an emailed statement to TechCrunch. “This is against the backdrop of over 40,000 deaths each year on American roads. There’s always a balance between healthy regulatory scrutiny and the innovation we desperately need to save lives, which is why we’ll continue to fully cooperate with NHTSA or any regulator in achieving that shared goal.”

Lindlow noted that in each of these instances, the robotaxi was predicting and responding to the behavior of aggressive or erratic road actors, and was working to minimize collision severity and risk of harm.

NHTSA didn’t provide further insight into the cases of immobilized Cruise vehicles. However, Cruise told TechCrunch that the company designed its technology to err on the side of being conservative. Whenever the technology isn’t extremely confident in how to proceed, the vehicle will turn on hazard lights and come to a safe stop. If needed, Cruise personnel are physically dispatched to retrieve the vehicle as quickly as possible, the company said, adding this is rare and has not resulted in collisions.

The robotaxi may become immobilized because a door is left open, there’s an issue with vehicle hardware or software or there is an out-of-ordinary external event on the road like a spontaneous fireworks display in the street, according to the company. A spokesperson said the company communicates with the CPUC and the state’s Department of Motor Vehicles, the agency that regulates autonomous vehicles, around how, why and when it does this.

Cruise’s autonomous driving tech comes under scrutiny from safety regulators by Kirsten Korosec originally published on TechCrunch

Wow, that was quick.

When Elon Musk bought Twitter and took it private in October, I figured we’d have a while before things took a turn. Then, after he laid off about half the company’s employees, that estimate shortened a bit.

Now, after last night’s Spaces brouhaha, during which Musk confronted journalists he banned for retweeting links about the ElonJet tracker and then abruptly killed the feature entirely, that timeline has moved up considerably.

To be clear: Twitter isn’t going to die tomorrow or next week or even next year. But given how the last few days have gone on the platform, I’m not quite sure how long Twitter will remain a viable platform. It’s turning into the China of social media, full of censorship, arbitrary bans and groups of users/accounts that leap to Musk’s defense whenever they feel his narrative is being undermined.

Censorship, lockdowns, arbitrary bans — Twitter is turning into the China of social media by Tim De Chant originally published on TechCrunch

Despite shrinking investment into startups in 2022, venture capital funds of all sizes are still being raised. However, not many of these are led by solo general partners (GPs), and although that trend is on the rise, even fewer are led by women or people who don’t come from venture capital.

The above makes Nichole Wischoff something of an exception: Her solo venture capital firm Wischoff Ventures closed a second fund of $20 million, a sizable increase from her first $5 million fund. Her target is to invest in 25 to 30 U.S. startups at the pre-seed or seed stage.

Wischoff purposely capped her previous fund because she was still working full-time until March as a startup operator, she told TechCrunch. Now that she is solely dedicated to her fund, she plans to write larger checks of up to $1 million, up from a previous $300,000 cap.

This new fund will also be “leaning in heavily on B2B,” Wischoff said. “I tell people I invest in unsexy businesses!”

She’s particularly interested in companies that apply an AI/ML or embedded fintech component to large legacy industries. “However, I have a very big soft spot for industrial automation. Everything that makes up the majority of the GDP in the U.S., I am very interested in.”

Beyond fintech

Wischoff’s existing portfolio includes companies such as Coast Pay, Loop, Nuvo, Trustlayer and Vesta – a heavy fintech leaning owing to Wischoff’s background. However, the second is set to broaden this scope. “I know fintech well, but I don’t want to be pigeonholed into fintech,” she said.

Before becoming a solo GP, Wischooff was an early employee at lending platform Blend Labs, which went public in 2021, and part of the founding team at One Finance, a neobank acquired by Walmart earlier this year.

One’s acquisition resulted in a “huge financial outcome” for Wischoff, which led her first into angel investing while working at construction fintech Builtbefore launching her own fund with external LPs.

Backers of this new fund include Peter Thiel, Lee Fixel, Yahoo co-founder Jerry Chen, Bain Capital, Byers Capital, Cendana Capital, Crossover, Insight Partners and others.

Several of these angels and funds had also backed Wischoff’s first fund, but the profile of her limited partners (LPs) has evolved over time.

According to a summary of an analysis that Wischoff conducted, family offices now account for more than half of her second fund, compared to about a third of her first fund. For instance, her most recent fund is backed by Four More Capital, the family office of late American industrialist and philanthropist Henry Crown.

“I wish VCs were more open about their LP construction,” Wischoff said in an email. In the same transparency spirit, she added that it took her seven months to raise her second fund, compared to two months for the first one.

The first investment out of her second fund went to Stell, a engineering-focused startup founded by two women with a background in aerospace and defense, whose goal is to help hardware engineers and buyers “reduce defects and get parts faster.”

If Wischoff’s next investments are anything like Stell, her portfolio might be on track to support what she describes as “American dynamism … the real one”— a topic we plan to explore with her shortly in a separate interview.

Solo GP Nichole Wischoff raises $20M fund backed by Peter Thiel to invest in ‘unsexy businesses’ by Anna Heim originally published on TechCrunch

Amazon announced today that it signed a deal with Games Workshop (GAW), giving it IP rights to the “Warhammer 40,000” universe, a massively popular tabletop miniature wargame. This is the first deal of its kind for Amazon, the company claims.

“Warhammer 40,000” takes place in the distant future, where humanity is threatened by aliens and supernatural beings. Launched nearly 40 years ago, the game is continuously expanding and GAW has many miniature figures, tabletop games, video games, animations and books.

The agreement will allow Amazon to deliver films and TV series, among other content based on the IP. This is a notable move for the company as the “Warhammer 40,000” universe is epic in scale and has a massive worldwide fanbase.

“Warhammer 40,000 has captured the imagination of fans of all ages, from all walks of life, and all over the world,” said Jennifer Salke, head of Amazon and MGM Studios, in a statement.

“Man of Steel” and “The Witcher” actor Henry Cavill is set to star and executive produce the ‘Warhammer 40,000’ franchise. Knowing that Cavill will have a hand in the new ‘Warhammer 40,000’ content is likely comforting to some since he’s known to be a hardcore ‘Warhammer’ nerd.

In an Instagram post, Cavill wrote, “For 30 years, I have dreamt of seeing a Warhammer universe in live action. Now, after 22 years of experience in this industry, I finally feel that I have the skill set and experience to guide a Warhammer Cinematic Universe into life… Having a home like Amazon will give us the freedom to be true to the massive scope of Warhammer. To all of you Warhammer fans out there, I promise to respect this IP that we love. And I endeavor to bring you something fantastic that is, as of yet, unseen.”

Alongside Cavill, Vertigo Entertainment will also executive produce, along with Amazon Studios and GAW’s global head of marketing and media, Andy Smillie, and global IP and product design director, Max Bottrill.

It’s worth adding that it was recently confirmed Cavill wouldn’t be returning as Superman. Fans have been outraged all week, and nearly 4,000 people are signing numerous petitions that beg for his return. Cavill is also leaving Netflix’s “The Witcher” after three seasons, retiring his role of Geralt of Rivia and passing the torch to “The Hunger Games” actor Liam Hemsworth.

Amazon acquires film/TV rights to ‘Warhammer 40,000’ IP by Lauren Forristal originally published on TechCrunch