Tech Brew Ride Home - Office Hours With Chris Fralic Of First Round Capital

Episode Date: April 17, 2021

Chris Fralic of First Round Capital was involved in funding such companies as Ring, Hotel Tonight, Warby Parker, Rec Room, and as you’ll hear today, Roblox. But in addition to being a legend, as you’ll hear, Chris is just an all around good dude... Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. all, as I said, this is a teaser for Ride Home Plus content. If you'd like to have immediate access to all Ride Home Plus bonus content, you know what to do. Go to tech.com.com.com. You can do it right inside your podcast app. And there's a link in the show notes. Enjoy.

Welcome to another Office Hours episode of the TechMeme Ride Home. I'm Brian McCullough. Today we have a VC legend, Chris Freilich of First Round Capital. who was involved in funding such companies as Ring, Hotel Tonight, Warby Parker, Rec Room, and as you're about to hear, Roblox. But in addition to being a legend, as you'll hear, Chris is just an all-around good dude. Chris, I love you. I like to think of you as a friend. So I always follow what you have to say on Twitter. And I sort of knew that you at first round were involved in Roblox,

but then you shared a great story about your personal investment and history with Roblox. So as much as you'd like to share, just tell us that story. Just go. Sure. Well, thanks, Brian. Good to be here and appreciate all the work you've done. And glad you asked me to be on. So the Roblox story is an interesting one from a couple perspectives.

One is my son helped us land this deal or at least note. know to be you know inform us to be interested that this is a really good game he he wouldn't stop playing once i asked him to check it out as we were considering the company and uh you know so that's been that's been an unfair advantage i think i've had how many how many years ago so it started in 2007 when he was eight years old that right okay and uh and you know the other unique element of it is that we even after first meeting dave and taking a first meeting dave and taking a first look at it for, you know, for a few reasons, including it seemed a little expensive for us at the time. We decided to pass, but fortunately did it in a way that didn't alienate Dave

Buzuki, the CEO. And because my son kept playing, we kept in touch and I would go visit him on trips to California and, you know, give him feedback. And he would update me on how the business was progressing. And we were fortunate to get another. pass another another opportunity to invest, which we took in 2008. And then we, you know, later, later followed up and, and led a later investment round and got a meaningful ownership position. And it was fantastic and almost surreal two weeks ago today to, you know, I, you know, in the time of COVID, going public isn't as public of an event as it used to be. Dave Bazuki was almost by himself ringing the bell at the New York Stock Exchange.

But it was cool. I was able to drive up from Philadelphia where I live and, you know, wait in front of the New York Stock Exchange with the little statue of the fearless girl right in front of me, the big Roblox banner in front of. of the, you know, the institution of the New York Stock Exchange. And then Dave pulled up, uh, in order to go in and be on CNBC and then ring the bell. And I was able to give him a, give him a wave and, and wish him luck and say thanks. I just, you know, honor the thing that he is built and he and the team. And then, you know, drove back home and watched him ring the bell by the time I got home. But it was just a cool thing to see that. And what they've turned into when for much of their, their history was very slow growth.

growth extremely remarkably under the radar. And for most of the years, we were investors. I'd mention it to another investor. And I'd say Roblox, it'd say roadblocks. And they wouldn't know what it was. And now the typical response is more like, oh yeah, my daughter plays Roblox. Or as I've been saying on the show, it's one of the most buzzed about companies. in recent times in terms of people that I talked to.

After having no buzz. Right, exactly. I'd say maybe Stripe people are more FOMO about, you know, but the, but you know, 2008, that's so long, that's like an entire different environment ago. And so real quick, the question I would have with this is, I feel like, and maybe I'm wrong about this, that traditionally USVCs wouldn't,

weren't crazy about gaming as an investment space versus the Chinese, which has thrown all sorts of money into buying every gaming company they can get their hands on. Do you know why that is? If I'm wrong about that, please correct me. But if I'm right, why do you think that's been? I think there's certainly more Chinese investors that might be comfortable. I think, and there are a small number, but a growing number, I guess, in the U.S. that have had success and are focused on that category.

I think from first round, in our perspective, it was a little bit more of like a traditional gaming company, tend to be organized like studios. You tend to think of games as hit or miss. And again, we've had some investments in that kind of a model, and they haven't all worked out. I think what we recognized was different about Roblox was that it wasn't one game.

It's multiple. multiple games from across, you know, from all kinds of categories and, and their user generated. Like, so that was always right on very much part of what was different and, you know, probably harder to pull off in terms of things that need to go right. But once it does, it's, it's less vulnerable to becoming, you know, super cool than out of, you know, out of favor and out of mind. And again, like back then, we, you know, things that were in vogue were things like club Penguin was still a thing and Webkins was a thing. And people were worried about,

we were thinking about what's Lego going to do with Lego universe. I mean, heck, that's probably slightly even before Minecraft, right? Yeah, it was before. In fact, I remember distinctly first hearing about Minecraft and checking it out and downloading the beta and being a little bit freaked out that they looked and felt a lot like Roblox. and they kind of weren't on our radar. And I think I even wrote, you know, wrote, you know, kind of an impassioned, you know, email to all the other board members about, you know, this thing coming out of nowhere

that is capturing all the, you know, all the oxygen and the excitement of what we kind of, we kind of started, right? I mean, it got, it got way bigger than than Roblox much quicker. It was quicker. It was acquired, you know, for a couple billion. by Microsoft, which was a huge amount of money, anytime, but especially back then. And then it's been amazing to watch Roblox

climb up and exceed Minecraft in a lot of the usage numbers years ago and then just generally in being more broadly understood and accepted. Well, amazing story. And I guess it's also a different era. I think, you know, that was my theory that either being a hit space business, that's not very scientific, so a lot of people don't want to get into it. But now that you can achieve such scale with it that maybe that can change for people's thinking.

Or it was just everyone remembers Noel Bushnell and the first video game bust, you know? So, but all right, before we get to the traditional questions, you're someone that I have unique questions about, which is if anyone's ever been to the first, round offices in New York, you go in and in the lobby, there's sort of a tech museum waiting for you, unless you've changed it in recent years. And you also, I've discovered over the years, have a bit of a tech museum in your house. So tell me about this. Is this just Packrat? Is this just, I'm a collector? Do you have any sort of thesis for collecting tech gadgetry and things like that? Yeah, I've collected and have gadgets from decades ago when I used to work and sell computers. And Brett Burson, who's our partner in San Francisco, when we were rebuilding the San Francisco office,

he asked me, can I pick out some items that might be cool to have around the office? And he sort of went on a hunting expedition on eBay and picked up a lot of cool things. And I had an extra, I think, an original Apple portable that I gave them. And it's always remarkable in San Francisco office. We did the same thing in New York. And it's a thing I love. I've now joined the Computer History Museum. I'm on the board there and know a lot of the people who are into collecting.

And it's cool to have the objects. It's even more cold, I think, to have the stories and know about the people that are behind. him but I actually have a couple things that I'm up to show you if you're awesome awesome I was hoping I didn't ask but I was hoping yes I was watching your your Gary Tan office hours and it was a really cool conversation about Star Trek versus Star Wars right right we'll get to the rapid fire eventually yeah go on yeah he gave this awesome answer about why it's you know hands down Star Trek in his mind but I got this a little while ago which is pretty pretty rare thing if you could see it so

it's a it's a cassette version of Star Wars. The game, I'm assuming. The game for your Apple 2. It loads. It's less than 16K. But on the flip side is Star Wars. So that's a cool, rare item and an interesting medium. You don't always see.

Other Apple related but not Apple things. This is, do you know what this is? I'll ask you first. Do you have any idea? Okay. It's obviously a keypad input device, but for what? I couldn't tell you. When Waz left Apple, he started a remote control company called Core. It's basically a universal remote remote before that was even a concept. It was designed by frog design and failed, rumor would say in part because Steve Jobs got mad at the whole idea in the company. But there aren't many of them. I've never seen one.

live before someone pointed it to me on eBay. And I'll show you one other little thing that I don't think I've shown anywhere before. You know what that is. I'm guessing it's a motherboard, or maybe it's old enough that that's not a motherboard. That's maybe just a chip. Well, it's kind of close. It's kind of both. It's the company that Steve Jobs and Steve Wozniak had, not a company.

It's their business before Apple. It's bluebox. It's the chip set that plugged into a little keypad and a earpiece for phone freaking, for phone freaking, blue boxing, calling, making free long distance calls while you hack the phone system. They famously called the Vatican, and pretended to be Henry Kissinger and almost got the Pope on the phone. They were this close, I'm told.

Do you have an Apple One? I don't. I have a replica. I have a replica of an Apple One. I'm assuming you have an Apple 2. I do. I have an Apple 2 signed by WOS and refused to be signed by jobs. What would you say the most valuable?

And maybe that's a tough one because by dollar figure, I don't know if that matters, but maybe what do you think it's like the most historically valuable thing that you got? The most unique thing might be that blue box I just showed you. I'm told there were only, you know, there's a small number of them made and maybe as little as 30 or 40. and I don't know how many are still in existence, but, you know, some of the, I like some of the things that have that are kind of one of a kind. There's a, there's a startup or a company called mischief in Brooklyn near you. Do you know those guys? No. They do almost performance art with drops of unique products.

And once they, they created a laptop with the seven most deadly viruses ever, created by man and kind of sealed it off in a Tashiba laptop. And I have a replica of that signed by all the people that work at mischief. So that's one. You're careful not to plug that one. I was going to say, I feel like I've heard about that as a like a stunt. They did it. Yeah, they did it as a stunt. All right. Let's try to squeeze in some of these typical questions, if we can. Who's the best boss you ever had? That's pretty easy for me because I've been lucky to work with Josh Coppulman for a long time. I've known him for almost 25 years and work with him since 1999, so 22 years.

And in a startup where I was working for him as head of business development, half.com, And then the last 15 years working for him and partnering with him at first round and, you know, watching and helping him build, build this crazy idea of a seed sage venture firm, which there really were a small number of folks doing it professionally back in 2005 or even four when he and Howard got it going. When I joined and Rob Hayes joined in 06, if I'm getting the years right, there was still like one handful or two at the most of firms that were professionally and full time focused on seed stage investing. And now there's hundreds or thousands. It's a whole different landscape. But Josh's just lives up to his great reputation. and in terms of seeing the future and building it and bringing great teams along with them to help do it. I feel like we should reference the fact that there's a great Internet History podcast interview with Chris

that you can look up that will tell you the whole half.com story and more of Chris's entire career, which we won't get into as much here, but seek it out. Is there a quality that the most successful people you've worked with over the years have had in common? I would probably give two or a variation on one. I think the worst quality that you avoid is any kind of hypocrisy or if you can't trust or believe what someone says. And so integrity and doing what you say you're going to do, like those are super core values. To me, I think I used to think of it just in terms of sales,

people, skills, and traits you'd want to see, but I think it's more broad, is probably empathy, I would say, is the character or the trait that is, super important to be able to have a sense of what, you know, of being in the other person's shoes working, you know, once you're in that headspace to be able to work on a common solution together. And, you know, the best salespeople, business development people, you know, even leaders, I think generally tend to have that quality and you don't hear it talked about that often. Is there something that you think you're better at than anyone else in the world?

I don't think, I don't know if there's anything. No, by the way, no is a fair answer to that question. Yeah. I can't name one thing, but I think I have a unique combination of things. So, you know, I think, like one example is I come out of a business background in college and I was selling computers. but I would tend to know more about how they worked than other people who were just selling computers, like they could have been selling typewriters or paper or anything else. I truly always loved the thing that I did and knew about it.

And so when I eventually started getting into startups, I was raising capital and I was doing deals, and I was having successes and I was having failures. It was like I kind of lived part of the startup life, not being an actual founder and entrepreneur myself. I've joined, you know, I've joined three different companies when I was the fifth employee, more or less. And so that, you know, I have a good understanding what that's like. And I think that's translated into how I've been able to work with, you know, and partner with the 75 companies that I led when I was actively investing over the course of my first round career. And again, one thing that, I don't know if it's a record or it's unique, but, you know,

an investor has to see a company or an opportunity, has to decide to invest and then has to win the deal, right? So that's sort of the third element of it. And in my history of 75 investments, I only lost one. There was only one investment, one company that we wanted to invest in that I was point on where we put in a term sheet and wanted to make an offer and they didn't accept it. So I think I was pretty good at selling first round and myself and getting into virtually every deal that we wanted to get into, which a lot of investors get through the first two parts. And then there's six term sheets on a table and five losers and one winner. If you could pick one, what would you say is the number one way that you see founders screw up their startups?

You know, the simplest is running out of money. That's kind of an obvious one, I guess. Well, that's forced upon you, maybe, well, sometimes. Well, yeah, it's less obvious. I think what's more subtle about that is companies tend to spend as much money as they raise in 24 months, more or less, no matter how much they raise. You know, and that's that's controllable and that's definitely problematic. I would also say like generally it ends up being more self-inflicted wounds that kill them than any direct competitive. competitor. I think, in fact, companies often spend too much time just focused on everything

that's happening out in the marketplace and not enough on what they can control and what they're doing inside their own walls. These three are, they seem like they're similar, but if you, there's a subtle difference in these next three. So the first one would be, what do you think is the most overrated or played out narrative in tech right now? And narrative more than, you know, technology or trend or something, specifically narrative. I don't know if this qualifies or you think. Like, I think SPACs are interesting, but way, there's too much too fast. Like, you just know there's going to be some negative outcomes and bad,

behaviors incentivized, even though just the concept of having more public companies is a good thing. And I just think I think we need to go from find a good medium between, you know, we have half the number of public companies that we did decades ago to having hundreds of SPACs roll out, you know, every few weeks or months, hunting for their targets. It's like I think there should be some happy medium. So that's one thought on the narrative there. Yeah, SPACs generally. So the number two, the biggest story in tech right now, and by story, I mean the thing that a guy like me would write a book about 20 years from now. You know, it might be a theme just, I would think of a company that maybe up until very

recently was under the radar is a. is a company called Rec Room? Have you been tracking them at all? No, not really. I know of them, but not really tracking them. So yesterday, the Wall Street Journal ran a story with them that they raised it over a billion dollar evaluation. And they're kind of a Roblox in some ways, but different. But they started off in VR and then they kind of expanded into other formats.

But it's also very much user-generated content. Users make it all. Avatar's interaction real time. I think it's just part of like with Roblox, with Rec Room, just the whole theme of user generated content, avatars Metaverse, in VR, in your tablet on your PC, really becoming a thing. Like I think these aren't going to be, you know,

just a few of the companies. I think it's an absolute theme. And you're, you know, in 20 years, Ready Player 1 might be very much what we're living in. Right. In fact, like, you listen to like Elon Musk and just talking about, like, we're, how fast technology changes. It's actually probably harder to make an argument that that's not where we are in 20

years than it is to say that's where we're going to be. Well, and, you know, listeners to the show have been listening along as I've been trying to get deeper into AR and VR. So like the whole Matthew Ball theory that the Metaverse is finally upon us. Yeah. Yeah, if it's really here, then yes, that's the book that someone will write 20 years for me. He said it very eloquently. You know, in his piece he wrote probably six months ago on the topic.

And but clearly, clearly there's a movement there and it's possible. That's the one. It's also just, you know, it's interesting that AR, VR, VR was an area I was really, really focused on several years ago. And for a while, thought I might have put too much energy into that. that and it wasn't really paying off, but always felt good about rec room was, you know, one investment that came out of that and could just see them accelerating and following and learning faster and iterating faster than we watched Roblox do. And so that, that, you know, and then now you're even seeing like a, you know, a comeback in VR. Like I think you had the, you know,

what they call it, the hype cycle and the trough of disillusionment, and we're kind of coming back. And, you know, just on a ski trip with them, some friends. And I brought a little Oculus Quest with me. And everybody was just blown away. They'd never been in VR. And everybody, you know, loved it. And, you know, again, I think it's going to, you know, it and the metaverse and avatars and all that will absolutely be a thing that we're all dealing with going forward. Third of the three then is the most underrated or underreported story or theme in tech right now.

The thing that even someone like me that tries to pay attention every day wouldn't have on my radar. You might have stumped me with that because I think everything is so completely reported. At the surface, yeah. Do you have any, maybe you could. Well, like, what's something that needs more that people are sleeping on, that while it's people are undervaluing that this. could be the next big thing. So maybe it's more of a meta theme of, is technology good or bad?

Or if you watch social dilemma or things that nature, Tristan and others, a lot of the Facebook backlash is really interesting. And for my whole career, I probably would have said that I was like a technical, Utopian, right? Like Wired Magazine, you know, I really ate it and drank it and believed it was for the vast majority all for good. And I think in the reality lately, there's a lot of bad, right? I don't know what the breakdown is, but it's not 90-10. It might be more 60-40 good to bad or I don't know what the right balance is. But I guess my point is maybe it's underrated and really important that we figure out how to make technology work for good and for our better instincts and making us smarter and better. And it isn't right now.

And again, like if you if you would have asked me, if we would have done this, this, this, this, interview on a VHS camcorder 25 years ago, and you would have told me that everyone is going to have a supercomputer in their pocket with all the world's information, available for free, I probably would have thought we would have been smarter or better or done more with it than what we turn out to have done to ourselves and what we really actually spend time doing with it. So I think there might be a, it's underreported and needed that we figure out how to point ourselves in positive directions with all this cool technology we have. Speaking of the supercomputer in your pocket, is there an app, that's on your your lock screen, that maybe I wouldn't have something that you can't

live, some app that you would want to proselytize and turn people on. Let me see. Can I give you a quick, quick hit, a couple? Sure, yeah, yeah. I love tech mean. I also love Nuzzle. So it's a social version of that. So what are my folks I follow reading and?

Or retweeting, yeah. Retreating. So I find out as an interesting news source. notion it's one of our companies but i kind of live on it i i keep everything in there um and love that on the home screen and then i love music and there's a there's a high end kind of i think it's a small niche but if you're really into high quality digital music and knowing everything about the artist you love there's a there's an app and a service called roon r oon that i bet you haven't heard of. No. People have. And it basically just organizes all your music you have

and your network, connects to the high-end services like title is one of them, and provides an overlay of incredible information that lets you dive ridiculously deep into the rabbit holes of every artist, every genre, every album, and everything about them that you ever wanted. So that's you can get a free trial for 14 days if you want to try it out. We'll come back to music because I want to end with that. But let me squeeze one more in here, which is what is your tool of choice for Zen, be it exercise, meditation, drugs, legal or otherwise? Like, if you need to go to your happy place or relax or something, what is it?

Yeah, it's probably a workout or a peloton or a run. It's something physical, physical like that. And if it's a run, I'm listening to some music on my headphones. So that's what would get me there. Is there, well, which one should I do? I'll do, what's the last book you read? I can tell you because I keep a list in my notion. Hold on.

Let me look at it. I'm going to probably go to the last good one. Yeah, probably. The wise choice. The 26 words that created the Internet. Jeff Kasef is his name. Incredibly well done. It deserves an entire book.

It's an autobiography of a law. It's not even a law. It's a series of words and part of a section and part of a big law that he make, again, And you should be right up your alley. Yeah, absolutely. You should do an episode with him of what was intended, what was written, how it played out, how it changed. And once you read that, you realize that everybody who's got an opinion on what should happen to it now has not done enough homework. Like there will be no matter what you do to it now, there would be so many unintended consequences.

And everybody's got an agenda, you know, like Facebook just came out today with what their, proposal would be to amend it and fix it. And I'm sure it benefits them. And we had past presidents who wanted to just delete the whole thing completely and see what happens for their reasons. And it's so important and very subtle. And you want to be really careful when you mess with it. So I'd recommend that to everybody.

Okay, rapid fire. And I'll end with the music, Rapid Fire. so we can talk about that. But Star Trek versus Star Wars for you? I would say more Star Trek because I just grew up on it. I can't get as philosophical with Gary on the prime directive or anything, but just William Shatner and the guys in the red shirts. And that was my thing as a kid as a kid growing up.

Coke versus Pepsi? Coke. Even occasionally the coffee Coke. It's a new thing and a can. It's twice as bad for you. You know what? I've never asked anyone this. Have you ever switched?

Because I used to be a Coke person, and in the last couple of years, I've totally switched to Pepsi. No. You ever go back and forth? No, yeah. I feel like most people pick one and stick with it. Yeah.

iOS versus Android. Easy. iOS all the time. I get lost in Android. I always have a backup phone just in case, and I can never figure it out. I'm very, very all in on Apple. Mac versus PC.

All Mac. Oh, Mac. But I have both. I game on a PC and VR. a PC, but I am a Mac person. Tupac versus Biggie? You know what? I would probably have to say Biggie, but I'm not qualified enough to give you

a big reason behind either, but I would have to do it. Well, this is maybe you're more qualified for it. And I'll give you the trifecta, which is Elvis versus Beatles versus Stones. I would go with the stones. And I can say that with authority in the sense of during pandemic, I bought the box vinyl sets of both the Beatles and the stones and went through every album. And they're both amazing.

But the stones is just so completely epic and was of my time, or at least for part of it. And so I would, you know, Elvis influenced them all, but I would pick the stones and they're still kicking, which is just like the amazing part. Can't believe. My answer to that is stones. And the reason why this is a generational thing, like, you know, I'm of that age of, you know, the Beatles were just always on in my house when I was a kid. So it was in the air.

Beatles weren't that. And I heard the early 60s stuff. But when I got to college and realized and started to hear the stone stuff from the 70s, and it blew my hair back. And like, so that's why Stones is my answer for that because I just hadn't been exposed to it. And it's amazing. It holds up so well. Yeah. So speaking of music.

Do you do the clubhouse thing weekly? Yeah, yeah. So I've enjoyed playing around with Clubhouse and a group of us do a weekly show or room, as they call it, called Record House. It's vinyl music, music culture, the music that moves you. And we pick a topic every week and kind of dive deep on it with ourselves, our four or five co-hosts, plus we sometimes have

guests and we always, we're playing music and giving samples and we have an ongoing playlist on Spotify called the Record House ongoing playlist if you want to find it. And you'll, you know, right there you would find hundreds and hundreds of songs that we've picked, our audience has picked over the last almost 30 shows that we've, that we've done. And it's just been a, it's been a fun thing and how we, you know, none of us have ever met in person. We all met through in Clubhouse. I'm sorry, one person. I knew in person, but otherwise it's all virtual. And we're kind of self-organizing and figure out how we come up with topics and,

you know, who's leading each week and coming up with calendars. It's really fun. Makes me appreciate what you do with podcasts. Actually, I have to say, is it Ashwin or? Yeah, Ashwin. Ashwin actually was the guy that helped me figure out how to get audio into and out of clubhouse. Yeah.

So we didn't know how to do that at first. Like the joke was I was, uh, DJ Frey or something they called me, but I was literally holding up my iPhone to my speakers. Yeah. And then Ashwin and, you know, I figured it out from London. And he now has a, you know, a little system that plugs it, tunes it right in. And we sound almost professional. Yeah.

Oh, you sound good. But it's fun. And I hope you'll join us Thursday at 630 p.m. Yeah, by the way, like I was there last week, but I think you were doing 73 or 74. And it's like, that's not, that's enough before my time that I can't, I feel like I was right in my, that was right in my real. Yeah. So I loved, I love that topic. Let me know if you ever do something like like 1991.

All right. I have a lot to say about that. But, hey, Chris, you're the best. Thank you so much. Thank you, Brian. Thanks for all you do for the internet and tech meme and everything.