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The Twenty Minute VCFabrice Grinda: The First Person to Predict the Collapse of Credit Suisse? | 20VC #886
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CHAPTERS
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From founder to angel: how early investing built the FJ Labs playbook
Harry explains how he began angel investing in 1998 while running his own startups, driven by founder inbound and a desire to internalize lessons. He outlines his early focus on marketplaces and the fast decision process that later became the foundation for FJ Labs’ investing system.
- •Started investing as a byproduct of being a visible consumer internet founder
- •Belief that teaching/assessing other startups improves founder judgment
- •Early constraint: invest only in what he understood deeply (marketplaces)
- •Developed a one-hour meeting framework to decide yes/no on investments
What’s changed (and what hasn’t): scaling from solo angel to a 31-person firm
The core underwriting criteria stayed consistent, but the operational infrastructure transformed dramatically. Harry contrasts his former “auto-sign everything” approach with today’s team-driven sourcing, diligence, and back office processes.
- •Four enduring criteria: team, business economics/TAM, terms, and thesis alignment
- •Shift from solo operator to 31-person organization with a real back office
- •From one meeting to a two-step process (team first call, Harry second call)
- •Legal/document review evolved from none to structured diligence
Founder funds with LP money: focus, disclosure, and time allocation ethics
Fabrice challenges the practice of hypergrowth founders raising outside capital to invest on the side. Harry argues it can work if LP expectations are explicit and the founder’s involvement is realistically scoped, but warns against distraction from the primary mandate.
- •Key question: honest time allocation and what LPs are promised
- •Model where founder name helps dealflow while a team runs day-to-day
- •Case-by-case evaluation; “focus” is generally the right default
- •Harry’s view that investing can improve founders if managed transparently
“The Great Unknown”: why today’s macro is harder to call than past cycles
Harry frames the current environment as unusually ambiguous compared to clearer bubbles (dot-com, housing, “everything bubble”). He introduces three plausible paths forward—optimistic, stagnation, and catastrophe—each with meaningful probability.
- •Past cycles felt more legible (tech bubble, housing bubble, 2021 asset froth)
- •Today supports multiple coherent narratives simultaneously
- •Probabilistic framing: ~20% optimistic, ~60% stagnation, ~20% worse-to-come
- •Public market pain concentrated in smaller-cap tech even if indices mask it
Optimistic case: inflation fades, supply chains normalize, and tech-driven deflation returns
Harry lays out the conditions under which inflation could revert toward 2–3%, reducing the need for aggressive rate hikes. He ties the recent inflation spike to COVID-driven goods/services shifts and geopolitical shocks, arguing that normalization plus tech productivity could restore better times.
- •Valuations compress largely due to expected rate increases and discounting effects
- •COVID shifted demand to goods, stressing inflexible logistics capacity
- •Reopening could shift spend back to services and relieve supply-chain pressure
- •Ukraine de-escalation and energy price relief could reduce inflation momentum
- •Technology adoption in lagging sectors (healthcare/education/public services) is deflationary
Crypto/Web3 in a risk-off world: capital still flows, but bubbles can deflate
They discuss whether Web3 funding persists despite drawdowns. Harry expects continued long-term allocation to the space while cautioning that pricing—especially in art NFTs—can correct sharply without invalidating the broader thesis.
- •Crypto behaves like a risk asset, not a near-term inflation hedge
- •Web3 framing: decentralized applications with real use cases beyond “currency”
- •NFTs—especially art—show bubble dynamics; utility/gaming NFTs feel more durable
- •Long-term perspective: infrastructure and adoption matter more than near-term price
Stagnation base case: entrenched inflation expectations and the temptation to inflate away debt
Harry explains why “inflationary stagnation” is the most likely path: wage/inflation expectations can lock in, and high debt loads discourage sufficiently high rate hikes. The result is sideways nominal markets but declining real purchasing power and “yucky” economic conditions.
- •Risk: inflation expectations become embedded via wage negotiations
- •Global debt ~250% of GDP makes economies sensitive to higher nominal rates
- •Political incentives may favor tolerating higher inflation over Volcker-style tightening
- •Scenario resembles stagnation, but inflationary (unlike Japan’s deflationary version)
- •Likely persistence if Ukraine/geopolitical uncertainty drags on
What policymakers should do (in theory): structural deflation + careful tightening
Fabrice asks what Harry would do if he ran the Fed or government. Harry argues the problem was overly loose fiscal and monetary policy, and that today’s best path would combine gradual rate moves with structural reforms to reduce inflationary bottlenecks.
- •Hard truth: avoiding recession while cooling overheating demand is historically rare
- •Structural fixes: port/harbor productivity, permitting/building constraints, housing supply
- •Accelerate normalization by removing remaining COVID frictions to shift demand back to services
- •Geopolitics constrains what central banks can accomplish alone
- •Stagnation probability reaffirmed at ~60%
Catastrophe scenarios: sovereign debt crises, Swiss banking fragility, and geopolitical tail risks
Harry outlines a set of tail risks that could produce severe downside: much higher-than-expected rates, sovereign debt panics (Italy/EU), and banking crises. He highlights a contrarian fear that Switzerland could be vulnerable due to outsized bank balance sheets relative to GDP, and adds nuclear/chemical escalation or Taiwan conflict as wildcards.
- •8–10% rates would force radically different asset repricing (potential further 50% downside)
- •Sovereign confidence shock (Italy) could threaten the eurozone and global banks
- •Contrarian thesis: Switzerland as a ‘house of cards’ due to UBS/Credit Suisse scale and risk history
- •Systemic risk from bank write-offs and Russia decoupling impacts on profits/balance sheets
- •Geopolitical escalation (tactical nuke/chemical weapons, Taiwan) could overwhelm markets
Tech and jobs debate: rejecting the Luddite view and arguing for net job creation
Fabrice raises concerns that technology breaks the historical link between productivity and GDP by displacing labor. Harry forcefully disagrees, arguing that history shows automation increases productivity, creates new job categories, and shifts humans toward higher-value work.
- •Historical precedent: displaced categories (tellers, travel agents, retail) didn’t cause permanent mass unemployment
- •Hard to imagine new jobs ex ante (influencers, streamers, social media roles)
- •Automation often removes repetitive tasks ‘not meant for humans’
- •Humans + machines together increase output and enable new industries
What the macro means for venture: pacing, reserves, secondaries, and pricing discipline
Harry explains how he’s adjusting deployment in response to uncertainty: avoiding fresh fundraising, preserving reserves, and becoming more price sensitive. He’s especially interested in potential secondary opportunities for high-quality later-stage companies if discounts deepen.
- •Avoid going back to LPs right now; ensure runway and reserves
- •Continue pre-seed/seed/A investing but with stricter valuation and cash planning
- •Keep a “shopping list” for later-stage secondary buys if repricing becomes attractive
- •Did no C+ deals last year due to pricing; expects this could change with discounts
- •Great companies still get built regardless of near-term macro; underwriting must assume longer timelines
LP dynamics in downturns: denominator effect and oversubscribed mega-funds
They discuss how LP behavior can change rapidly when public markets fall faster than venture marks adjust. Harry describes the denominator effect and notes that many LP budgets were already consumed by large fundraises, making new allocations harder.
- •Denominator effect: public portfolio drops can double the apparent VC allocation
- •LPs may discourage capital calls or new fundraising during drawdowns
- •April 2020 example: LPs asked managers to avoid calls despite commitments
- •Mega-funds (Sequoia, Paradigm, a16z, etc.) absorb allocation capacity and budgets
Quick-fire: books, bureaucracy, biggest misses, and selling discipline
In quick-fire, Harry shares favorite books, admits a changed view on needing operational bureaucracy, and reflects on painful missed investments. He also explains his evolving approach to holding public shares and using secondaries, including a simple ‘sell 50%’ heuristic.
- •Favorite reads: ‘Sapiens’ and ‘Power Law’ (venture capital history)
- •Changed mind on processes/compliance—especially with crypto/regulation complexity
- •Misses: Zynga, Twitch, Uber (recognizing ‘foundational’ signals), and selling Tencent too early
- •Holding public positions now depends on whether compounding can still beat his ~45% target IRR
- •Secondary/liquidity rule of thumb: often sell ~50% for ‘schmuck insurance’
Investor insecurity and a recent standout deal: check size frustration and Topsort
Harry describes his biggest insecurity as being under-capitalized—writing checks smaller than he’d like relative to conviction and opportunity set. He closes by highlighting Topsort as a recent investment he’s excited about, positioning it as high-margin marketplace monetization infrastructure.
- •Under-capitalization forces small checks (e.g., ~$325K A, ~$725K B+), which can limit perceived commitment
- •Desire to deploy larger checks without competing for allocation or demanding control
- •Topsort: tooling for marketplaces to sell ads/placement with very high margins
- •Strategic fit: large marketplace portfolio creates strong distribution/customer base
