Apr 29, 2021 · 36m · 20vc
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
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of 20VC's 'The Memo', host Harry Stebbings speaks with First Round Capital Board Partner Chris Fralic about the 17-year journey behind investing in Roblox, unpacking valuation strategies, founder conviction, board governance, and the evolution of venture capital.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 34.9% of the talking time here. How this is scored →
Harry as informed peer 3.9 Guest teaching 3.6 Guest disagreement 0.7 Harry pushing back 1.7
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:00 Chris criticizes the SPAC wave
Chris breaks from his gentle tone to strongly critique the SPAC frenzy, warning that forcing unprepared companies into public markets is a race that will end badly.
Hardest push from Harry ▶ 11:07 Harry refutes post-seed ownership growthHarry forcefully rejects the premise that VCs can reliably buy up ownership in later rounds today, arguing preemptive capital prevents it in 99% of cases.
Biggest teaching moment ▶ 27:21 Chris counsels VCs to stay silent on boardsChris provides blunt governance advice to Harry, explaining that most board members are unhelpful or destructive and urging young investors to speak less and listen more.
Harry holds his own ▶ 23:12 Harry puts forward his partner wealth theoryHarry pushes his own thesis on VC fund dynamics, arguing that partner personal wealth removes downside fear and leads to better venture returns.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Discovering Roblox and the Initial Pass in 2008 | 3 | 3 | 1 | 1 | Harry asks Chris about the initial 2007/2008 pass on Roblox and how to manage relationship-building under compressed modern deal timelines. Chris explains how passing on Twitter taught First Round not to get hung up on valuation for potential breakout companies. | |
| Slow-Bake Companies vs. Fast-Bake Winners and Ownership Strategy | 5 | 3 | 1 | 5 | Harry challenges the common VC strategy of 'buying up' ownership post-seed, arguing that in 99% of modern cases preemptive rounds make it impossible. Chris agrees that capital abundance has made post-initial ownership accumulation significantly harder. | |
| David Baszucki's Long-Term Conviction Through Company Bumps | 3 | 3 | 0 | 1 | Chris recounts David Baszucki's unwavering conviction during severe company bumps, including missing financial metrics and failing to generate outside investor interest during fundraises. Harry listens adaptively to the internal board perspective. | |
| The Hype vs. Substance Ratio and Sector Learnings | 4 | 3 | 1 | 1 | Harry inquires about avoiding cognitive biases when assessing past winners and losers. Chris candidly admits his past e-commerce bias from eBay caused him to dismiss Etsy, contrasting it with applying positive learnings from Roblox to Rec Room. | |
| Navigating Capital Oversupply, Direct Listings, SPACs, and Liquidity | 6 | 3 | 1 | 3 | Harry demonstrates strong knowledge of fund mechanics, citing industry perspectives on SPACs, direct listings, and secondary exits, while proposing his own theory on how partner wealth encourages risk-taking. Chris offers a critical analysis of SPAC overreach. | |
| The CEO Evolution of David Baszucki and Effective Board Governance | 3 | 6 | 1 | 1 | Harry solicits advice on being an effective board member as a young investor. Chris schools the host on governance, noting that most board members are unhelpful or value-destructive and advising young VCs to listen more and talk less. | |
| Quickfire Round: Roblox Pivots, Key People, and NYSE Listing Memory | 3 | 4 | 0 | 0 | In the quickfire section, Chris shares how Microsoft forcing Roblox to restrict its game catalog on Xbox counterintuitively drove quality focus. The segment ends with a warm personal memory of Roblox's NYSE direct listing. |
Statements from this episode (15)
First Round passed on Roblox in 2008 at a $10M valuation
“We decided not to invest in January of 2008. A lot of it was based on the price. Your listeners might laugh, but a ten million dollar valuation seemed outrageous, was way out of our normal range back then, and the game really looked raw.”
First Round Capital invested in Roblox six months after initial pass
“About six months later, we were able to make our first small investment and then later on did a larger investment.”
First Round passed on Twitter over a $20M valuation limit
“Yeah, I think we might have been fortunate back in those days to have made a really poor investment decision, missed one of our biggest of all time, with Twitter. When we were all early users, we had an opportunity to invest at first round, and didn't, primari…”
Fralic: First Round invested $3M in Roblox at a $40M valuation
“We invested at about an eleven million dollar valuation when we first came in, and then we led around And put in about three million dollars at what was around a forty million dollar valuation, which was very high, but we could see the traction in the revenue,…”
First Round Capital's Second Fund Included Uber, Square, and Roblox
“It turns out that fund had Uber and Square and Roblox in it.”
First Round retained over 5% ownership in Roblox at direct listing
“Our initial investment was 500 K Roblox or so, and that was probably on the high end of an average investment. And we were starting to think about our best companies and opportunities. Where could we put more capital to work? How could we deploy more into the …”
Fralic: Increasing Early-Stage VC Ownership Post-Initial Round Is Way Harder
“I think it's way harder for everything you mentioned, and there's so much more capital that's around so many more firms. Again, like, I think Roblox was unique in being under the radar company for so long, whereas anything that's got traction and visibility wi…”
Fralic: I did not share Baszucki's conviction on Roblox's eventual scale
“And to be honest, I didn't share that conviction all the time. I didn't think it could be as big as it is now, but I think he always did.”
First Round passed on Etsy due to Fralic's misplaced eBay confidence
“We had the opportunity to look at Etsy, and I was almost dismissive, or I just thought of it as this little niche of handmade goods or something, and I think I was jaded. I mean, I thought I knew so much from eBay that it kind of turned me off to the whole cat…”
Fralic in 2021: The SPAC boom will end badly
“I think it'll go too far. You know, the SPAC Invasion of the SPACs. I think some of that will end badly. It's too much too quick, I believe, but in general, more public companies, more capital, more funds is good for us, and more importantly, for our companies…”
Chris Fralic: First Round took secondary liquidity in Uber and Roblox early
“If you look at our investments in our two most notable returns with Uber and with Roblox, we had taken some capital off the table along the way at various points, Which made sense and drove great returns relative to that investment, and yet what was left was s…”
Fralic: Deployed $100M into ~75 companies over 15 years at First Round
“And then as an investor at first round for the last 15 years, I've deployed about a hundred million dollars in about 75 companies.”
Fralic: Only a small percentage of startup board members truly add value
“If I look at all the board members I've seen in action, the number that are really adding value, really trusted partners of the CEO are in a small percentage. I think probably the, maybe the bulk are mostly harmless, or sometimes helpful, and they write checks…”
Fralic: Altos Ventures owned ~24% of Roblox at its public debut
“When Roblox went public, Altos owned about 24% of the company”
Xbox forced Roblox to prioritize game quality over quantity at launch
“In order to do that, they couldn't just open up all the millions of games that they have on Roblox that can look like YouTube in terms of almost too much choice, and Microsoft and Xbox forced them to have a very limited small number of games that were on that …”