Fabrice Grinda on Three Economic Scenarios and Venture Investing

Fabrice Grinda began angel investing while building internet companies. He says explaining lessons to other founders and following new approaches helped him improve as an operator. Because his time was limited, he focused on marketplaces and developed a quick decision process around teams, economics, deal terms and his view of the future.

By the 2022 interview, FJ Labs had a team and back-office processes, and Grinda says prospective investments usually received two one-hour meetings. He recalls previously signing documents without reading them when investing personally; he says the firm now conducts legal reviews. His experience is not evidence that such a practice is safe.

Stebbings questions whether founders should manage funds backed by outside investors while running a company. Grinda says disclosure, a clear division of time and a team to manage the fund matter; he sees a conflict if the founder neglects their principal responsibilities. He says he disclosed his own angel investing to his investors.

Grinda calls his macroeconomic essay The Great Unknown and describes himself as an armchair economist. In 2022 he assigns illustrative probabilities of 20% to an optimistic scenario, 60% to prolonged stagnation and 20% to a severe downside. These are subjective forecasts at the time, not measured probabilities or outcomes.

He explains that higher expected interest rates can lower the present value of cash flows far in the future, especially for high-growth companies. His optimistic case requires inflation to ease enough that rates need not rise as much as feared. The scenario depends on several uncertain conditions rather than one assured event.

In that scenario, demand shifts back from goods toward services as pandemic restrictions ease, reducing supply-chain pressure. He also imagines geopolitical uncertainty and energy prices easing, alongside productivity gains from technology. These were conditional assumptions made in 2022; his claims about the pandemic and geopolitical developments were not guarantees.

Grinda believes capital may continue flowing into web3 over the long term while crypto prices can fall sharply, including by 90% in his hypothetical. He distinguishes his enthusiasm for potential uses from near-term asset prices. He and FJ Labs invest in the sector, so the discussion involves financial interests and substantial risk.

He says he reduced his subjective optimistic probability from about 50% to 20% after changes in the geopolitical and inflation outlook. He warns against extrapolating sentiment alone and argues that long-term technology investment can remain worthwhile through recessions. This is his investment view, not a promise of returns.

As an early-stage investor, he says the macroeconomic environment many years ahead matters more to a new investment than the current quarter, although access to follow-on funding and entry valuation still matter. Stebbings counters that companies founded around the prior recession also benefited from a mobile platform shift, not simply the recession itself.

Grinda says he is uncertain whether the increased number of startups and venture dollars in 2021 would persist. That answer would affect his own deployment pace and desired fund size. He expects very large funds to focus much of their capital on larger rounds, while acknowledging uncertainty about their behavior.

His stagnation case assumes inflation expectations become entrenched, policymakers tolerate higher inflation partly because of debt burdens, and geopolitical uncertainty persists. He imagines nominal asset prices moving sideways while purchasing power and real asset values decline. He assigns this scenario 60% in the interview, a personal estimate rather than a fact.

Asked what policymakers should do, Grinda favors carefully raising rates while addressing structural supply constraints. He also proposes lifting pandemic restrictions to accelerate a return to services. These are his policy opinions from 2022, not medical guidance or a verified assessment of their consequences.

He considers recession more likely than not in his discussion, citing energy prices, confidence and the difficulty of slowing inflation without a downturn. He stresses the challenge of coordinating institutions with different incentives. The timing and outcome were uncertain when he spoke.

In the stagnation scenario, Grinda still prefers technology and says roughly 60% of his personal net worth was in early-stage startups at the time. He expects potentially fewer exits and lower exit valuations but believes technology can address large social problems. His asset allocation is a disclosure of personal exposure, not a recommendation.

His severe downside includes a hypothetical much higher interest-rate environment and further asset-price declines. He also sketches a sovereign-debt confidence crisis, using Italy as an example, and possible spillovers to banks and the financial system. These are stress scenarios, not claims that such outcomes had occurred.

He speculates that Swiss banks' foreign exposures could overwhelm the capacity to support them in a crisis, comparing the risk to Iceland's banking collapse. The exposure figures and conclusion are his estimates and hypothesis; the interview does not independently substantiate them. A later outcome should not be inferred from this 2022 discussion.

Grinda lists further possible shocks, including losses associated with Russia, escalation of the war and tensions over Taiwan. He assigns the broad severe-downside scenario a 20% probability, again as his subjective judgment. He does not establish that any particular shock or financial collapse will occur.

Stebbings asks whether technology can displace workers without increasing productivity. Grinda disagrees and points to historical job displacement alongside new occupations. His broad claim that technology has always increased labor productivity is his interpretation; the examples do not prove every worker or sector benefits.

For his own fund, he says the number of annual investments rose from roughly 100 to 300 and that he reduced check sizes to preserve capital. He recommends considering follow-on reserves and says he was still investing in early rounds while being more price-sensitive. These are descriptions of his approach at the time, not individualized financial advice.

He describes the denominator effect: if public assets fall while private valuations have not yet adjusted, a limited partner's venture allocation can rise as a percentage of the whole portfolio. In his account, that can make investors reluctant to commit new funds or meet capital calls. Actual liquidity and allocation policies vary by investor.

He remains enthusiastic about seed and Series A while expecting potential repricing in later-stage and secondary markets. He says he would consider buying certain companies at substantial discounts if those opportunities arose, expressly acknowledging that they might not. His examples are conditional, not evidence of available prices.

In the rapid-fire round, he names Sapiens among favorite books. He says managing other people's capital changed his view of operational processes: FJ Labs now uses a back office and legal procedures, including for crypto-related activity.

Grinda recalls passing on Zynga and Twitch despite seeing aspects of their potential. He attributes those misses partly to a narrow definition of marketplaces and to concerns about the economics of gaming and media. He also remembers declining an Uber investment while documenting both his admiration for the founder and his concern about valuation and cash burn.

He says he once sold public shares automatically after lockups ended, including Tencent, but later adopted a more discretionary approach. In retrospect he wishes he had sold some other holdings earlier. His account illustrates the uncertainty of exit timing rather than a rule that holding or selling is always better.

He cites approximate historical realized and unrealized return figures when explaining how he thinks about capital allocation. Those are his own reported figures, not audited performance, and unrealized valuations are not cash returned to investors. He says he sometimes sells part of a position and keeps the remainder when liquidity is available.

His concern is writing checks smaller than he would like after the number of deals increased. Small checks can help avoid competing for allocation, he says, but some founders may see them as insufficient commitment. Fund size and check-size remarks describe his situation at the time.

For a recently announced investment, Grinda names Topsort, which provides advertising tools for marketplaces. He believes advertising placement could improve marketplace economics and says FJ Labs had invested earlier and again in the latest round. The firm's portfolio and investment give it a financial interest in that assessment; future results are uncertain.