The Unicorn Formula Funding Winners Before the World Notices

Thank you. [snorts] And really thrilled to be here. I'm at my third Abu Abu Dhabi finance week and it's amazing to have an opportunity to be here on stage. More importantly, it's amazing to have an opportunity to be here with Jose. Um so Jose has built a business with a partner which is angel investing at VC scale.

Uh they are never a lead in a round and they are never on a board. It's about a billion dollars uh under management. They have about 20 people in their firm. They see about 300 deals per week in terms of inbounds. They have roughly a thousand positions, maybe a little bit less.

So a huge number of companies. roughly 40 unicorns in that list uh that they've really led or been early and then a number of companies that they've invested in a bit later. So call it 75 companies that have been sort of from unicorns to decacorns. Um now they are enablers of marketplaces that drive networks. That's their core philosophy as I've spent some time with Jose learning about his business.

So FJ is uh comes from the word Fbris and Jose uh and that's that's Jose's partner. So why did you marry Freeze and when and how was the proposal?

Well, first of all uh thank you very much for having us here. We are big believers on the future of this region and we're very excited to have the possibility of continuing to coming over you know and learning and and sharing our learnings with you know with with the with the groups here. So thank you for that. Now in terms of of of FJ Fabris and I way go way back. We I started my first company right out of Stamford when I was 22 and Fabris was building the same business for France.

um he ended up uh giving me the technology to start my first company that became more than a decorn eventually know it's a it's a company in Latin America called Mercado Li today my company was called the Ramate and and you know Fris and I were friends you know and met already 25 years ago plus um and we ended up keeping a very tight relationship since very complimentary you know then we went on to build another company that became one of the largest online classified businesses in the world. So had the privilege and luxury of building two unicorns you know to the to the purpose of this panel. Um and then we became investors by chance. No we were not thinking that ah we're going to manage money of no one else. And you know we were just deploying our own money uh in a in a way where you know founders were coming to us and we're saying hey guys we want to learn from you guys.

we're going to have you in our cap table. So, you know, let's uh let's invest. And then Paris and I said, "Ah, you know, we don't know if we're going to make a lot of money here, but let's help the community. Let's do something we like some something we're very excited." And then we started to realize that we were getting incredible deal flow, that we were getting incredible returns.

And then we became massively aggressive into, you know, deploying our own capital. No. And at the beginning we said you know let's create a holding company that let us do what we like. And that was really the genesis of FJ Labs. You know we were

What year was that Jose?

This is in 2015.

Okay.

So you know almost 12 years. Mhm.

Um so so you know we we said well we have to start uh deploying our own capital and and very quickly we realized that investing 20 or $30 million of our own money per year was not necessarily sizing up to the opportunity. you know, and and and we had the privilege after that, you know, to to to to start raising external capital and as of today, you know, we manage about a billion dollars of external capital and north of $220 million of our own money. No. So very exciting ride, very complimentary skills and you know when we talk about spotting or building unicorns, one of the single most important thing is you know to have passion and to have drive you know and as founders Fris and I have been historically complimentary and we have done you know a lot of things that he likes that I don't like as much and vice versa which makes that bonding and marriage very synergic and very interesting. Amazing.

So great yinyang which uh based on 2015 which was an interesting transition time and certainly since 2020 it's incredibly important to have balance and figure out a way to maximize while the world is uh you know quite active or volatile. So obviously there's AI companies and there's cloud and there's blockchains. uh a lot of people think those are interesting and maybe there's some ways to invest directly but oftent times these technologies are applied much more broadly. So if you want to find an AI company only there may be several but if you want to find companies that are taking advantage of AI you know there's a lot more of them and based on your model where you see hundreds and invest in many so if you think about the idea of like the retail consumer e-commerce space or media or delivery uh services and you've touched all of these how do you think of that horizontal sort of technology waves versus how you take advantage of it where you know maybe the real problems or the opportunities exist in terms of applying those technologies much more broadly uh and globally.

Yeah, I mean we we actually focus in in investing on the things that we understand very well and I think that already gives us a very strong edge having been founders of marketplaces. You know, we have been investing in over 1,000 companies historically. So that is an an amazing asset to have because very quickly you can spot trends. You can realize when we see 10 or 15 companies that are trying to do the same thing, we say well there is something happening here. No.

Now

so you telling me that having an understanding helps you invest.

Yes.

That sounds crazy.

Yes.

Interesting.

No, but having having experience, having built businesses is actually quite attractive. Now if you put on top of that the ability to be able to see a lot of deals that's incredible. Now our our initial thesis was verticalization of horizontals to your point. No, I mean we look to businesses. The second company we build is a very large mobile, sorry, very large horizontal classified business called OX, you know, and and and Fis and I were saying, well, do we think that a lot of these vertical categories in the horizontals are going to be disrupted?

and and clearly we started to place bets on companies that were building some of these verticals and and frankly been very surprised that even in verticals that we thought were way less attractive you know there's been massive companies that have been built no so so so that has been a thesis for us which is you know going to horizontal companies like eBay or like Craigslist and then finding businesses that you can verticalize now on top of that we have learned a lot about network effect businesses. Fintech have very strong network effects. We've been lucky and privileged to invest in some of the most attractive fintech businesses in the world. You know, companies like New Bank or Revolute or you know that have become massive unicorns uh they have very strong network effects. So a lot of synergies you know that we have built out of our model you know and most recently the the the AI situation no I mean everybody in in the valley is investing in generative AI 70% of the capital that was deployed in the US in the last 12 months was geared towards AI

70

70

Wow no so that obviously creates scarcity into other sectors that are not necessarily AI oriented and a lot of that AI investment is in generative AI. Now we are big believers that the generative AI is going to be won by some of the large incumbents. I mean clearly players like OpenAI and Tropic they're doing incredible things and the question here is do you really have the ability you know on on on plays where technology can become a commodity can you really build uh you know a sustainable advantage and make sure that even though you have very quick growth you know that technology doesn't create a race to the bottom no so I have way bigger question marks on how gener generative AI would disrupt marketplaces and and the way we play AI is not necessarily by placing bets on generative AI. I believe that some of the people that are investing at very high prices in some of these generative plays might not end up making venture returns. The way we play AI is by utilizing or playing cards on on on businesses that can utilize AI to build um to build something or to do something that couldn't be done before or to be able to do something that was being done before in a much more efficient way.

And on top of that, I add what I call the picks and shovels of the industry. So the fact that AI is here to stay that is massively transformative you know and that is creating a big change in the world will create a lot of things surrounding AI that would create very big business opportunities no so that's where we are placing our bets these days we believe that you know we have a number of early stage companies that we have backed that would become unicorns but you know historically we when when you have such a diversified portfolio you know It's frankly easier to be able to to catch unicorns than than maybe you know if you invest on a 25 company fund per fund 25 company per fund compared to us that we invest in about 150 companies per per year. No.

Yeah. And if you go to the FJ Labs website by the way it's super interesting just by the way it's there's so many words on it by design. Um so when we talked in our prep about you know the things that uh prevent companies from succeeding we talked about product market fit unit economics on the big AI side there's a lot of debate about unit economics and energy and then what is the real purpose of these and is it practical is there an ROI you don't really deal with that end of it but you're very much on the other end where companies fail often because they have a fine idea but it's not the right product it may not be the right market um and they maybe didn't go to market properly But how do you think about that failure mode and what has your experience been on that missing product market fit or unit economics which we talked about a bit?

The single most important factor that make companies fail is problems between co-founders you know. So that means that

when you choose your co-founders or when you invest in a company make sure that you have a good grasp on you know how those co-founders work together how do they know each other you know and whether they are complimentary you know and and you know and and and a good fit no I think that's a very very important thing now as soon as you do that you know early stage companies raise money just to test things you know and we like to see companies that have the ability you know to spend money you know and do a lot of stuff. Of course when you test things you make a lot of mistakes and you have to create a culture where you allow where you allow people to make mistakes because if you don't allow people to make mistakes people don't test and if you don't test you don't figure it out. No. So that is the initial phase of any startup you know uh spend a little bit of money to start testing and to start understanding what's happening. Now from there uh you know we are very unit economics driven.

No so for us there's no product market fit until we uh we understand that there is if not clear unit economics at the moment at least that there's a very clear path you know to be able to make money on a perunit basis. No. And for us that is incredibly critical as we spot uh interesting opportunities. We like to see things that you know either have the ability to prove that you put money in and you put money out you know and that you are going to pay back your investment and that even if it's not today because in a lot of cases you cannot see unit economics working at the beginning you know to make sure that the founder has a path and that the founder is thinking about yes I'm putting this money in and I'm going to get it out.

Amazing. So bad marriages designed bad product market fit which then can't even get to the union economic problem. That's a very interesting point and personally I'm sure that resonates with everybody. It's hard to build a big platform even as a family where you've married for Bree. How is your partnership going with your uh Free?

Are you guys on good terms? Cuz he's been talking about

incredibly good terms, very synergic, you know. You know, we've been together for many years. But but but but also what I can say is we like we like to see people that think big, you know, and and I encourage the audience, whoever is an entrepreneur here, whoever is an investor here, let's look for people that want to think big. Let's look for people that want to change the world. You know, those are the people that we like to back and those are the people that we like to partner with.

You know, big ideas don't happen until you have people that want to drive them. And it's very easy to say we, you know, we are going to back the best people. We could spend a whole uh conversation talking about what does that mean? But anyway, uh people matter and let's think big.

Think big, run small. Two, one, done. Fantastic. [laughter] Thank you very much.

Thank you very much. Thank you.

Thank you.