The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch

20VC: The Roblox Memo: First Round's Chris Fralic on The 17 Year Journey to Build a $41BN Market Cap Company, Why It Is Way Harder To Increase Ownership Across Rounds Today & What Happens Post SPACMania

Apr 29, 2021

Chris Fralic, Board Partner at First Round Capital, shares insights from his journey in venture capital, specifically with Roblox. He recounts the initial rejection of investing in Roblox and the lessons learned in maintaining relationships with founders. The discussion dives into the complexities of funding in today's saturated market, including preemptive funding and SPAC implications. Fralic emphasizes the importance of vision and adaptability in leadership, alongside significant milestones like Roblox's partnership with Xbox that shaped its success.

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ANECDOTE

Initial Rejection and Reconsideration

Chris Fralic initially rejected Roblox due to its $10M valuation and raw appearance.
However, his son's continued interest and Fralic's relationship with CEO David Baszucki led to a later investment.

ADVICE

Maintaining Relationships

Maintain relationships even after rejecting a deal, as circumstances can change.
Fralic's sustained relationship with Roblox allowed for a later investment.

ANECDOTE

Learning from Twitter Miss

First Round Capital missed investing in Twitter at $20M but learned to not overemphasize price.
This lesson informed their later, higher-priced investments in Square and Roblox.

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Chris Fralic is a Board Partner @ First Round Capital, one of the leading seed-stage venture firms of the last decade with investments in the likes of Uber, Square, Notion, Warby Parker and more. As for Chris, he has led deals in Roblox, Ring.com, HotelTonight, Rec Room and many more incredible companies. Prior to the world of venture, Chris was VP of Business Development at social bookmarking and tagging company del.icio.us through the Yahoo! acquisition. He was also one of the early employees at Half.com and after the eBay, acquisition spent six years with eBay in a variety of business development, media and entertainment roles.

In Today’s Episode with Chris Fralic You Will Learn:

1.) How did Chris come to first meet Dave and the team at Roblox? Where was the first meeting? Who was in attendance? How did Chris feel post that first meeting with the team?

2.) Turning the company down: Why did First Round turn down Roblox on first look? How does Chris assess his own relationship to price? Through what mechanism does he determine whether to pay up or not? How does Chris retain relationships with founders when saying no? Does Chris believe you can buy up ownership post first check today, with the capital proliferate we have?

3.) What does Chris mean when he discusses the lessons from First Round's portfolio when it comes to "slow bake vs fast bake"? How did the First Round partnership analyse the Uber, Square, Roblox portfolio at the time? Through what framework does Chris think about reserves management given the challenge of "slow bake companies"? How does he address it today?

4.) What does Chris mean when he discusses the hype to substance ratio? Why is it more important than ever today? What does this mean for startups? How can startups with a low hype to substance ratio raise funds at good prices? What advice does Chris have for them? How does Chris think about the importance of firm and individual brand in venture today?

5.) How has Chris seen Dave evolve as a leader and CEO over time? What caused the changes in his leadership style? What moments stand out as the most challenging moments to Chris in the scaling of Roblox? Who does Chris believe are the behind the scenes rockstars that made Roblox possible?

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