January 30, 2013

Q&A with Chris Fralic, partner, First Round Capital

Posted by: in North America

We talked with venture capitalist Chris Fralic while researching one of our 10 Trends for 2013, Peer Power. As the peer-to-peer marketplace expands in size and scope—moving beyond goods to a wide range of services—it will increasingly upend major industries, from hospitality and education to tourism and transportation. First Round Capital, which Fralic joined in 2006, has invested in a number of peer-to-peer companies. Fralic was an early employee at Half.com, spent six years at eBay after it acquired Half.com, and served as VP of business development at del.icio.us. He discussed how peer-to-peer companies are starting to disrupt industries and forcing traditional businesses to “step up their game.”

You’ve been involved in the peer-to-peer world from its earliest days. How has it changed over the years?

If you go back to a business I was part of, Half.com—back in ’99, we were trying to start up an easier way for people to buy and sell used books, music, movies and games to each other. eBay was the big player in peer-to-peer commerce. No one thought it would ever work. You’re buying something from a complete stranger, who you shouldn’t trust. Yet [eBay founder and chairman] Pierre Omidyar was right, that people are basically good. What they started eBay with was their feedback system, which was primarily designed so they wouldn’t have to do direct customer service and handle all the emails. That turned into the mechanism by which trust is developed.

If you think of peer power and commerce and services, its cousin is collaborative consumption. At Half.com, we were pretty early on that front. In 1999 it was such a new topic that there was no industry data on how big the used movie market was, or game market. Now you’ll find that anybody that’s in physical media sales is probably making huge percentages of their profits from used products, and consumers are very comfortable with the idea of using something somebody’s already had. And there’s a lot of other benefits that come from green-friendly approaches to saving money. What’s different now is that there are billions of people online, and they’re organizing and connecting and engaging through social media, and that changes everything. And it unleashes a lot of opportunity and a lot of companies.

What are some examples of peer-to-peer companies that are taking a new approach to an industry?

Things like TaskRabbit are really enabling a whole new class of service that connects people together. I remember the first time I heard about [Airbnb], I thought that was the craziest idea I ever heard. Who would ever let a stranger into your house or want to sleep on someone’s couch or spare bedroom? But yet they do.

Then you’re seeing it shift up into different areas, even things like our company Uber. It’s not exactly peer, but it’s definitely collaborative consumption and reorganizing something in a brand new way that is essentially matching up empty backseats and black cars with people that need to get places, and completely changing the dynamic. If you’re in New York and you take a limo to a Broadway show, that driver is just going to sit in the car for two and a half hours doing nothing. And now they can go out and do fill-in jobs. So that’s a good example. We’ve invested in—the co-founder of Uber has started BlackJet, which is the same basic idea except for private planes. So you’re filling up the seats on private planes.

Another in our portfolio that’s really interesting is FundersClub. They are allowing direct investment by qualified investors, but essentially creating mini venture funds to fund startups, so someone can put in as little as $1,000. And they can group them together, so there’s maybe 500 of them that can make the fundraising happen. In some ways, these funding clubs and networks can disrupt, if not some parts of venture capital, certainly angel investing, and make it more widely available.

Then there are also the peer-to-peer lending services.

Lending Club is the big leader in that space. I know people that are moving their 401(k)s over to a Lending Club portfolio because they’ve had such positive returns. Who would have thought? That would have sounded crazy just a few years ago, but it’s not.

You guys invested in TaskRabbit, the pioneering peer-to-peer services company. How is that investment doing?

TaskRabbit is doing very well. They’re growing, they’ve raised a fair amount of capital, and their customers are really happy with the service. It can be anything from someone picking up your laundry for you to waiting in line for your iPhone or even running errands. They’ve baked in a lot of things to give protection on both sides, to get a better sense of who you’re dealing with. They also do things like handling payments, so that the “task rabbit” [the person who performs the task] can pay for something with a credit card that Task Rabbit gives them, and then it’s all billed back to the other party. They’ve been rolling out in big markets and beyond.

It seems like many of these companies overlay the existing channels quite neatly, once you plug in.  

It’s a mindset shift. We’ve got another portfolio company called Hotel Tonight, which overlays a new service on existing resources. In their case it’s empty hotel rooms. You can, in the afternoon on any day, get great choices on rooms that are available that night at great prices, which would otherwise go unsold in the hotel. Folks from an ad agency in Dallas flew into New York for an event we had. On the way in, we picked a Hotel Tonight to stay in. It became an exciting addition to their stay, not knowing exactly where they were going to stay and doing it all on the fly.

There is a discovery and a deal element, in addition to a cool factor. You can’t underestimate  that quick sort of thing. Like if you’re just standing around with some people and in three clicks, book your hotel room for that night. Or you walk out of a hotel and there’s a long line for the taxi, and no taxis in sight—you pull out your iPhone, push a button, and in three minutes a black S500 rolls up. That makes an impression.

Are these types of companies augmenting existing categories, or are they forcing industries to reinvent themselves?

There’s probably lots of both. From our standpoint, you might say we’re funding a company [FundersClub] that might help unseat venture capital. That’s probably an exaggeration, but if it were true, better that we do it than someone else. A bigger trend we can see is capital being commoditized. So you have to add value in other ways, which we spend an inordinate amount of time doing.

With peer-to-peer travel, do you think these new services are broadening the industry or disrupting it? What’s the right way to look at it?

It may be making the market for travel bigger. It may be adding a whole new category that didn’t exist before. And whether it’s minor things like a hotel for the night or just a last-minute reservation, or major things like an Airbnb—creating inventory and maybe demand where it didn’t exist before—it just shows that the way we thought of and built and booked and ran hotels has to change. But whether it’s a good thing or a bad thing, it’s so hard to tell. It’s definitely a big change.

It seems that the hotel industry has to figure out what kind of extra value it can add, whether it’s a full complimentary breakfast or maybe various types of guarantees?

Yeah, maybe it’s that there are certain amenities or programs or aspects of convenience, or a lot of other things. It causes them to think through those things and the whole experience, and step up their game. If you look at hotels, you’re seeing a lot of the business focus on extended-stay kind of things that have upped their offerings in a pretty meaningful way.

Do you think the peer-to-peer approach can work in every industry?

Not necessarily. We invested in a company called Storably that was the idea of collaborative consumption for storage space and things like an empty parking spot in front of your house when you’re gone all day. They launched and had a lot of press, and it never turned into very much traction. It didn’t really fit as much as they thought, and they quickly went back to the drawing board. They came up with another, different idea. Now it’s called Curalate, and they’re doing analytics and marketing for the visual Web; they’re going gangbusters. Not everything can or should be collaboratively consumed or peer produced.

So peer-to-peer is not the answer to everything. But it does force you to rethink your notion of supply and demand.

I would agree. For example, there are a lot of people trying to aim that at the ticketing business. Half of the concert tickets go unsold every year—people need new ways to discover and buy those tickets. And the someone who figures that out will have a very nice business.

1 Response to "Q&A with Chris Fralic, partner, First Round Capital"

1 | Marian

January 31st, 2013 at 11:58 am

Avatar

Speaking of peer-to-peer lending, The FT examines the phenomenon today: http://www.ft.com/intl/cms/s/0/28247fe4-6597-11e2-a17b-00144feab49a.html#axzz2JZL7l5G9

Comment Form

SIGN UP FOR OUR WEEKLY EMAIL NEWSLETTER:

New: The Future 100

JWT AnxietyIndex

Things to Watch

  • Rivals joining forces
    January 26, 2015 | 7:19 pm

    Volkswagen_5 2000px-BMW.svg

    Not long ago, a collaboration between two rival companies would have been seen as a counterintuitive and perhaps desperate measure. In 2015, however, BMW’s partnership with Volkswagen on fast-charging electric vehicles stations makes the automakers look self-confident, open and serious about sustainability and the common good.  Continue reading “Rivals joining forces” »

  • Virgin Hotels
    January 21, 2015 | 1:42 pm

    Screen Shot 2015-01-21 at 12.34.58 PM

    Taking a cue from private clubs like Soho House—which now has outposts from Berlin to Chicago and Toronto—and cool hotel hangouts like the Ace, the first hotel under Virgin’s affordable-meets-aspirational banner houses a Commons Club. Offering “exclusivity for all,” the Commons hosts a “roundtable of ideas and indulgence” at a nightly social hour and includes a restaurant, bar and study area. Virgin marketing also taps into easyHotel lingo with the promise of no surprise fees and free wi-fi.

    Continue reading “Virgin Hotels” »

  • Google’s Ara phone
    January 16, 2015 | 11:51 am


    A new video from Google shows the latest prototype of its modular phone, which will launch this year in Puerto Rico. Project Ara emphasizes personalization—“What if you could make thoughtful choices about exactly what your phone does, and use it as a creative canvas to tell your own story?”—but the sustainability implications are also important.

    Continue reading “Google’s Ara phone” »

  • Nike taps into urban exploring
    January 5, 2015 | 1:13 pm

    Screen Shot 2015-01-05 at 12.09.46 PM

    The city is the new terrain for Nike’s rebranded all-conditions gear, now named NikeLab ACG. Taking a cue from the urban exploration trend (“urbex”)—which involves venturing into unseen and generally off-limits structures and documenting the adventure—Nike says that “For today’s athletes, the city is the ultimate landscape,” complete with “modern obstacles” and many microclimates. Images show an intrepid explorer on a rooftop amid skyscrapers. The urban environment is now as challenging, intriguing and adventurous as the natural landscape.

  • Tears become… streams become…
    December 17, 2014 | 1:50 pm

    Artists and performers are increasingly creating multisensory pieces that immerse and envelope audiences, who in turn are embracing these one-of-a-kind experiences. In New York, the latest example is the performance and installation tears become… streams become…, a “field of water that harnesses light, reflection, music and sound” by Scottish artist Douglas Gordon and French pianist Hélène Grimaud.

    Continue reading “Tears become… streams become…” »

  • The Glade Boutique
    December 11, 2014 | 5:16 pm

    More marketers across the spectrum are creating novel pop-ups and activities that add dimension to the brand and satisfy consumer interest in experiences. These experiences are also increasingly interactive, immersive and multisensory, as our past trend reports have discussed. In line with these trends, a Glade Boutique holiday pop-up in New York City’s Meatpacking district, created with fashion designer Pamela Dennis and interior designer Stephanie Goto, features five rooms themed around “scent-inspired feelings,” like relaxation and “energized” (complete with an Oculus Rift virtual thrill ride).

    The pop-up is a departure for the mass-market candle brand: It has no outside signage, just a keyhole with a neon sign asking, “What will you feel?” Inside, with white walls and polished concrete floors, there’s all the cues of a groovy concept store. Visitors walk past a terrarium to the “Feelings Lounge”—sofas arranged around an objet-bedecked coffee table—then find the new collection of candles covered in bell jars for sampling the scents, akin to the merchandising format of ultra-luxe candle brand Cire Trudon. There’s also a backlit installation made up of hundreds of Glade candles.

  • Cheap-phone wars
    December 3, 2014 | 11:54 am

    Obi Mobiles

    Mobile brands are creating cheaper, stripped-down smartphones for emerging markets, competing with domestic brands producing their own low-cost phones. The field is getting more competitive with Obi Mobiles from former Apple CEO John Sculley, which targets young, image-conscious consumers. Obi launched recently in India, the Middle East and Singapore, and plans for further expansion in 2015.

    Obi will be taking on Chinese up-and-comer Xiaomi, which is entering five new markets this year. Meanwhile, Google launched the Android One OS in India last month in tandem with several domestic brands, which are pricing the phones at around $100. Prices will get lower still, at least for the most basic smartphones: Mozilla has announced plans to sell phones that use its Firefox OS in India and Africa for just $25. —Marian Berelowitz

    Image credit: Obi Mobiles

  • Snapcash
    November 19, 2014 | 4:54 pm


    Disruption in the payments sphere is opening the way for social media brands to act as intermediaries between consumers and their money, as we note in our report on payments and currency. Facebook is said to be planning a P2P payments feature for Messenger, South Korea’s KakaoTalk announced a PayPal-like service in September, and Line is creating a mobile service that will let users make on- and offline purchases. Now, Snapchat is partnering with Square to enable payments between users, as explained in this video’s energetic retro musical number.

    After users (U.S. only and 18-plus only) enter debit card info, they simply send a cash amount within a text. While Snapchat’s recent data breaches may give some users pause, the P2P payments space is a smart place to be as young consumers get accustomed to services like Venmo that make it easy and even fun to pay friends. —Marian Berelowitz

  • Payment in a heartbeat
    November 11, 2014 | 5:26 pm

    Nymi-paywith

    Our recent report on the future of payments and currency spotlights the rise of biometric payments—using a unique physical characteristic to authenticate transactions—which promise to greatly improve security and help remove friction. So far we’ve seen systems that rely on fingerprints (e.g., Apple Pay) and the palm’s unique vein payment (see Quixter). Now, the startup Bionym is exploring ways to harness its Nymi wristband, which uses the wearer’s unique cardiac rhythm as authentication, for payments.

    Bionym is linking with MasterCard and the Royal Bank of Canada for a test in which an NFC chip in the wristband enables contactless payments. The company, which is looking to license its technology into other wearables, recently raised $14 million in a Series A funding round and has racked up 10,000 preorders for the Nymi. —Marian Berelowitz

    Image credit: Nymi

  • Vegetable co-stars
    November 4, 2014 | 6:31 pm

    veggies_4

    “Vegetable co-stars” is one of our 100 Things to Watch in 2014—the idea that veggies are gaining a higher profile on restaurant menus—and more star chefs are indeed embracing this trend. José Andrés and his ThinkFood restaurant group plan to open Beefsteak (as in tomatoes), a vegetable-focused fast casual eatery in Washington, D.C., next year. The Washington Post also points to chef Roy Choi’s new greenhouse-like Commissary in L.A., which says it serves “good food and drink based around plants as the foundation.”

    “Chefs around the country, and the globe, are pushing meat from the center of the plate—and sometimes off it altogether,” notes The Wall Street Journal, citing examples like Alain Ducasse revamping his menu at the posh Plaza Athénée in Paris. Catering to a growing group of diners looking to eat less meat, vegetable-heavy dishes also offer new opportunities for creativity. —Marian Berelowitz

    Image credit: Plaza Athénée

  • RSSArchive for Things to Watch »