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Ventures from the Valley brings you inside the rooms where billion-dollar decisions get made. Hosted by R136 Ventures, each episode features candid conversations with the founders, operators, and investors shaping the future of technology; from AI infrastructure to global fintech to the companies redefining how we build.
One of the world's most active early stage venture capital firm managing over 500 million in assets really FJ Labs started off as a family office of two tech entrepreneurs 200 inbound opportunities every week you invested in over 1,000 companies it's really huge number I had always loved technology growing up I always was an early adopter of gizmos and gadgets but at the time in in the early 2000s there really was no tech and venture scene in New York they needed someone who could help inst institutionalize and scale a venture fund. They would teach me investing. I would teach them fundraising. That was early 2017 and it's been an amazing journey ever since. Our process is two phone calls. We do two 45minute phone calls. So for a ticket of on average 300K, that's pretty good dollars per minute. Once you get on that venture treadmill, that like hamster wheel, it's very hard to get off. So just buyer beware and consider not creating such a binary outcome with your company. Good morning, good afternoon, good evening dear friends. Um this is a podcast uh ventures from the valley which is brought to you by uh Victor Adowski and R136 Ventures. We have an exciting guest today. Jeff uh Winstein is a partner at FGA Labs where he co-heads the investment team at one of the world most active early stage venture capital firm uh managing over 500 million in assets and uh thousands I believe of startups. FJ FJ Labs is a venture fund founded by Fabris Grinda and Jose Marin headquarted in New York City. Welcome Jeff. Thank you for having me. Nice to see you. Thank you. Uh so let's start with your journey. So you started uh at at FJ Labs in 2017. You were promoted to a partner which I know is very difficult. Um uh and it's like a huge reward to become a partner. Uh in 2021 so it's like in less than five years. So that's an amazing uh uh upgrade and um you had a vast experience in hedge funds before. We will definitely speak about that but give like a little bit of your story in your colors in your flavor. Sure. It's interesting growing up in New York there wasn't really much of a tech industry when I was growing up. It was very much a finance town and in fact my dad actually worked in finance. Uh, so when I was in university, I didn't really know what I wanted to do. I had always loved technology growing up. I had attended computer camp. I took some computer science classes in high school and I always was an early adopter of gizmos and gadgets. And so I loved technology, but at the time in in the early 2000s, there really was no tech and venture scene in New York. So I did the thing that was normal for New Yorkers to do after graduation is I went to go work in finance. And so I worked at a small fund of hedge funds in New York called Dunar Capital and I was there for a couple of years and it I'm very grateful for that time because it was a taste of asset management and it taught me a lot about alternatives and then from there uh I ended up getting a job at a small venture firm in New York called Lux Capital. And so at the time I was doing LP fundraising uh for Dunbar, helping them manage investor relations. and Lux was looking for somebody to help them uh scale up their the LP side of their firm. And it was fantastic because at the time no one had really heard of Lux. It's a bigger name now. I think they managed north of six billion AUM. But at the time they had just raised their second institutional fund. So their AUM was about 350 million. And the New York tech scene was growing and Lux was starting to build its brand. And I was there for four years and I learned so much and I'm still very close to the Lux guys. I'm extremely grateful for my time there. And that was my first taste of venture and that's when I knew I loved being at the intersection of technology and finance. And so I was at Lux for four years and uh I actually thought I was going to go to business school because I was doing fundraising but I had always loved investing. I would invest my PA and uh I the truth is that Lux is such an elite specialized firm that most of the investors there have a terminal degree in the hard sciences. Lux is all about deep tech and frontier tech. And that wasn't my background. I was a PPE major in undergrad, politics, philosophy, and economics. And I've always been a bit of an investing nerd and a markets nerd, but I didn't have that hard science pedigree. And so I was going to go to business school. And I actually just got very very lucky and that I was catching up with an old friend of mine who I met at an undergraduate business conference. I attended there was this conference called business today that Princeton put on. I went to Penn but Princeton hosted it. A friend of mine at Princeton invited me and said hey you should come. It's a nice weekend in New York. Really interesting people. And I met this guy there and we stayed in touch. And 10 years later I saw he was in venture. I said I'm in venture. You're in venture. Let's grab coffee. and he told me he was actually at this firm FJ Labs and he was starting a new company and he was looking to basically hire his replacement and they were looking they had just raised their first outside capital from LPS. It was originally a family office and I can talk about that and then uh they needed someone who could help institutionalize and scale a venture fund and it was really a perfect fit. they would teach me investing, I would teach them fundraising and uh that was early 2017 and it's been an amazing journey ever since. Well, um that's an exciting uh part really. Um so uh actually I just heard uh like I just listened for like last uh podcast with Mark Andre where I think he told like uh kind of an unconventional thing about venture that when like best uh students best graduates go work for technology companies that's the time when uh it's a hype and you should stop investing while when they go and work for Wall Street and u uh uh invest investment firms this is the time when you should invest because that like uh venture is cooling down and that's like a good time to entry. Do you agree with the statement? U yeah I love that concept that that MBAs are like the great contraindicator that wherever they're flocking to is is at its peak and you should look elsewhere. I'm trying I don't actually know. I I will say that I think venture is no longer popular for new graduates. Frankly, in the venture job market is in a deep recession right now. I mean, most new firms are not only not hiring, but they're actually firing. And I think that's just a downstream of the fundraising environment, which outside of some of the top brandame firms like Andre and Harris, it's actually a very bad fundraising environment. So, I'm not actually sure. For a while, it was search funds. I don't know if you've heard, you know, the concept of entrepreneurship through acquisition, search funds, that was all the rage in MBA land. Uh but I'm not actually sure what's going on. I should I should look into that. I don't think it's venture nowadays actually. Well, yeah, I do agree with you that it was a venture uh venture or at least fundraising. So maybe maybe we can a little bit touch on this fundraising uh role you played. And are you still in charge of fundraising for FJ Labs? It's it's a team effort, but I do lead a lot of the fundraising initiatives. So, we have a head of IR who I work with and and we tag team a lot of the fundraising and our co-founder Jose does a lot of the fundraising as well. So, uh how I mean you are relatively large fund but yet it's like sub billion dollars right and uh from what I see going fundraising so we are almost the same size as R16. uh when we go uh fund raise we really see that uh like uh top 20 firms are eating it all. So they become kind of giant and there is a clear separation between like u uh top 20 who are like billion dollars billions of billions of dollars and they keep fundraising right I mean there is no real concern or anything like um wrong with that uh I mean but they're taking the entire state right so what would be the strategy for a small firm uh to fund raise and how would you differentiate yourself across the industry. It's a real problem because you're seeing a couple of phenomena happen at the same at the same time. So, first of all, funds are getting bigger than ever before. Billion dollar fund used to be big. Now, you're seeing five billion, sometimes 10 billion dollar funds. I mean, you're seeing billion dollar SPVS. You're seeing 10 billion dollar SPVS in just single names. the capital needs of some of these AI companies are so unbelievably large that you're all like the the field of play has been completely warped. And what's interesting is that these funds are not even funds anymore. They're really asset management platforms. They're almost like the West Coast version of a Carile or a KKR. And in fact, many of these look like they're going to go that route. They're adding family office arms. They're adding lending arms. They're adding hedge funds and I think some of them are going to IPO. I wouldn't be surprised if some of these actually IPO and become public asset managers. So if if that's the case, their north star is not financial returns. Their north star is AUM, which is fine. Look, I think some of these people are amazing. They're they're heroes of mine in many ways. Like Mark Andre is an absolute legend. Uh that said that leave some for the rest of us, right? And so you're seeing this bifurcation where you're seeing you have sharks and minnows and you have these these mega funds which by the way are also the ones with the multi-dead long track record and the relationships with all of the big LPS and pension funds and sovereign wealth funds. And so they're taking an unprecedented share of the pie. And then you're seeing a bunch of LPs gravitate I think rightfully so towards emerging managers. So you're seeing some very hot managers that are subundred and sub 200 million as the it's kind of an open secret that emerging managers often perform very well because they're smaller, they're hungrier, they're leaner, uh, and they're not getting fat on management fees. And so LPs, you've got this kind of missing middle where if you're a fund between a hundred million and a billion, it's actually a really, really tough time to fund raise, particularly if you don't have a long enough track record. And with venture, things take so long. And actually, they're taking longer than ever before. Our fund one was 2016, so we're at about 95% distributed for that, which is solid. But that's very solid. What that means is that only now are you returning that capital. So that means that if if an LP wants to basically recycle the proceeds of exits into the manager, you're talking like a 12year 14-year uh you know loop or like a cycle. And so even you know we've been around for nine years as an institutional fund for Bris and Jose have been angel investing for about 20 25. But the ones who have gathered all the assets are usually the 20-year-old plus firms. And so what I've heard is that I think they say around year 14 is when it starts getting easier. And so I think you know hopefully for us maybe in three four years it'll be a bit easier. But that's an awfully long time to have to persevere and build through a firm. And often they say that when you're raising fund one, you can raise off of story or you raised this proof of concept and then fund two, you can kind of build on that story a little bit and say, "Hey, we did what we said we would do and we're going to do that again." But by the time you get to fund three, fund four, if you don't have some early DPI, it's really hard to raise right now. Absolutely. Absolutely. I totally agree. Yeah. And I think that uh DPI is a key word uh and the key thing indeed for like many funds nowadays. Um so let's let's go to your like strategy and it's an early stage fund but it's somewhat like very unique uh in a way because you are uh looking at around 200 inbound opportunities every week uh and you invested in over 1,000 companies uh so far. So it's it's really huge number. Uh so maybe you can give a little bit of u insights of how you manage this all. So what does your calendar look like? How much time do you allocate towards uh spending time with uh hundreds and hundreds of companies versus looking into new companies? And uh uh like how you do it all? I mean how big is this is the team and what's the secret behind it? How do you find like a signal from the noise? Yeah, I our model is very unique. I think it's helpful to explain why we do what we do and the history. So really FJ Labs started off as a family office of two tech entrepreneurs, Fabris Grinda and Joseé Marin. They've been building tech startups since the late 90s, the web 1.0 era. And so Fabric, he's originally French. He was educated in the US at Princeton. He had a brief stint at McKenzie, but then his first startup that he built was an online auction site for LAM. A lot of the web 1.0 0 era you had this and by the way you see this now as well for what it's worth and I actually still like this model but you have this concept of X for Y finding a proven business model and transposing it to another vertical or another geography and so for Bris's first business if you really distilled what it was it was eBay for France and actually Jose built a business which was eBay for Latin America online auction site like eBay and that's how they actually met each other uh Jose and his team at Damati com in Latin America. They they licensed Free's software and his server stack at uh at Auckland. And so that was the beginning of a long and fruitful business relationship where they started to make some money from the exits of their startups and reinvested it into the ecosystem. And by nature of being relatively well-known consumer founders, they started to get a lot of deal flow and founders wanted to learn from them and work with them. And they still had day jobs as founders. So they had to come up with basically a a systematized way of evaluating startups. And so that was really the genesis of FJ Labs is that developing this muscle of angel investing, not leading, not taking board seats, co-investing alongside blue chip VCs with whom we've known for decades and being relatively handsoff light touch and writing smaller tickets. What started off as 25 or 50k tickets has now scaled to 250 to 500k tickets. But the principle remains the same. We love marketplaces. We love network effects businesses. Network effects lead to very large winner takes all or winner takes most outcomes. And you can foster network effects everywhere in the world. And in fact, in an era where AI is transforming things so dramatically, and we can talk more about this later, but we think that network effects are a great source of defensibility and actually matter more than ever before. So fast forward to 2015 2016 when I started to meet the FJ team. They had been angel investing at scale for about a decade and had built their own personal angel portfolio of about 150 startups and in came a very large Norwegian corporate called Telenor. Telenor is the te is a state telco the basically half private half owned by the the government of Norway. and they had entered into a JV with a very large uh media company called Shipstead. Shibstead owned online classified sites all around the world and actually were Fris's biggest opponent. Let me fast forward for a second. So Fris builds Augland. He he sells that for equity at the peak of the dot bubble. So it doesn't actually the stock goes down like 99%. He sells it to a business called QXL Ricardo which is still publicly traded actually a Swiss company. Uh, and then he builds he parlays some of his proceeds from that into a company called Zingi, which is an mobile phone ringtone marketplace, like a basically a place to buy cell phone ring. I remember the company. Yeah. Oh, okay. So, he he grew it from zero to 200 million of sales in four years. He ended up selling that one for cash to a Japanese conglomerate called Foreside. And that's when he could really start to angel invest and scale. And so last but not least, he built a business called OX, which is one of the the world's largest online classifies conglomerates. Y stands for online I know I know them by as well. Yeah. So it's an amazing company from he raised from Jeremy Lavine at Bessemer. He raised from Founders Fund, General Catalyst, uh DN Capital and others. And by the way, Naspers Naspers I think is a big invested. So he sold it to Naspers. He sold it in 2010 over a series of transactions and stayed on as CEO till 2013. And so all the while building network and relationships and brand and reputation all which contributes to that deal flow engine that we benefit from today and we continue to foster. And so what that led to is this interesting place in the market where you start to see the emergence of super angels where you used to have small business angels, but you start to develop people who will not just do a couple of investments in friends and family, but actually build a reputation and start to do tens of investments and the case of Fabric and Jose, hundreds of investments. And one thing leads to another and we end up raising outside capital in a first fund 2016 fund with a single LP and I join and we start to build an investment team. And you fast forward to today, we have a 20 person team, 10erson investment team. We just finished investing our $290 million fund three and uh we've we've really built this incredibly powerful flywheel where we inject we basically ingest all of these deals from all around the world. We selectively outbound ones that interest us and we end up investing in north of a hundred startups per year globally with a focus on early stage with a focus on marketplaces and network effects. How how early it is? Uh is it like pre-revenue, pre-product, uh pre-product market? What is it? I mean, how early it can go? We can go extremely early, but we prefer not to. This is another unique thing about our model. When most people hear the phrase angel investing, they associate it with pre- everything. Uh friends, family, and fools. That's what angel stands for. Yeah. Yeah. That's not how I use it. But the way I use angel is I I mean it as a quick deciding passive co-investor writing a small ticket. And I mean now we have a fund but with Fris and Jose being kind of the prototypical angel investors. But because of the affformentioned dynamics of network effects leading to winner takes all or winner takes most outcomes. You don't want to pick the wrong horse. There are not many winners in each category. And so and there are and there are more and more startups right with this AI we'll come back to AI uh and how like this landscape is changing but uh I think that if there were only hundreds of companies tackling a problem uh whatever the problem is like uh three five years ago that matures into like thousands or maybe dozen of thousands of startups nowadays. So it's really hard to choose, right? Because they are all in a kind of an early stage in doing almost the same thing, especially with all these LLMs. They're just building on top of LLM. So you never know who will win. And that's like an interesting insight. Maybe you can share. Yeah. But yeah, absolutely. And I can talk about how we see that world. Uh but given we focus on marketplaces and network effects businesses, we benefit a lot from early evidence of product market fit. We're not taking tech risk here. It's all about execution risk. So, we're not betting on a highly scientific team that's looking to innovate using some new patented technology. No, no. So, so all this LLM stuff like foundational models isn't something what you would kind of doing, right? I mean, uh because it's a deep tack in a way, right? Yes. No hardware for example, even as a company. Now I will say we there are exceptions and I can talk about figure AI which is this crazy humanoid robot company we ended up in because we had backed the founder before but certainly not a consumerf facing app or whatever maybe a marketplace at some point but nobody nobody knows it's really it's really not a marketplace but that's okay the founder previously built a marketplace and so we really have a strong preference for execution risk over tech risk. And so I would rather wait a little bit to see how the founder has been operating and to see early evidence of product market fit. And so my favorite place to invest is really late seed to series B, not preede. We will on occasion do preede. We typically call that a flyer or a founder bet, but the bar is very very high. And so more than ever, by the way, in an era when you can vibe code your way to an MVP and you can do more with less, we expect to see more traction than we used to because you don't, you know, when Fris was building his first company, you needed millions of dollars just for servers. Nowadays, it's it's never been cheaper and easier to build a product. And so you can do it like in base. And by the way, you do not need to sc any uh knowledge of tech, right? You may even have no knowledge of uh like coding, right? Uh I mean it it would all be done like with all the tools like with like all almost no code, low code mode, right? Yeah, absolutely. And so that means two things. One, I expect to see at least an MVP when I'm looking at startups nowadays. You know, sometimes people will pitch us and they'll say, "We need to raise $5 million to go build a product." Nine times out of 10, 99 times out of 100, I say, "No, just like go vibe code something. Show me what you have in mind." Obviously, that doesn't make mean it's going to be production ready. But show me you have agency. Capital is not the limiting factor nowadays. It's agency. Like, I love that quote, you can just do things. It's true. You can just go do things. you don't I mean it's never been more democratic in the way you can build a company and build a business and so we expect to see more at the early stage and then because it's as a result it's never been easier to go build competition and there's never been more competition I want to wait and see who the breakouts are because I don't want to bet on when there's Uber and so I would really like to see okay even if it's not a proven I'd like to see the momentum and see, okay, wow, they're growing really fast. Wow, they're super metrics oriented. Wow, you know, they're out they're out competing their peers. I I always care I do care about competitive landscape when I'm investing particularly when there are low barriers to entry which by the way I'm starting to care more and more about barriers to entry just because in a world where the barriers are coming down due to all of these coding tools and the and the prevalence of AI. How do you think about investing? It's like you said, it used to be the case there was only Uber or Lyft, but now there could be hundreds or thousands of competitors. And so I I think a lot about defensibility nowadays, more than I used to when I was starting my career. Uh yeah, let's go a little bit deeper in this uh particular area. Um so uh you mentioned um uh this angel type of investing although it's not like angel angel like not friends and family and pools uh but like very smart way of investing and definitely not friends and family uh yet um uh uh you have to really be fast and very efficient in making decisions. You could not make tons of uh tons of uh due diligence, right? So uh can you just name a few uh uh key differentiators for companies whom would you select? I know that there is like an industry and uh the potential of the market. That's right. But what you expecting from founders um Yes. And I I'm sure you're not looking into data rooms, right? I mean it should like be a presentation. We are actually Oh, you are because I mean it should take like for you like a very high spin, right? to make uh so many uh like uh I mean so many uh to review so many opportunities and uh probably how much time how much time in average you spend on um on your investment case. So before like making decision go not go people derisively call our model spray and prey but then I've had some people join our investment committee meetings and they're always shocked and pleasantly surprised by how rigorous we are in the evaluation and I think the way you figure the way you can kind of meld those two conflicting views is you think about the paro principle the concept that 20% drives 80% of the value and you see this power law and this distribute all around the world and you see that in venture. And so what we see is basically if you really get to the crux of the matter, that's all you really need to know about a business. And so think about here's here's how we short circuit the investment process. Okay? We don't set the dirt the deal terms ourselves. We don't lead and we take we don't take board seats. So now you've cut out the entire term sheet negotiation process. You've cut out all of that time being on boards. I've been on some boards. We I really don't want to do that. It has to be a super unusual exception. Like we we think that with all due respect to our friends who lead deals and take board seats, they're doing God's work and you know, we are happy for them to do it for us. And so the way we short circuit so much of the work is by co-investing alongside blue chip VCs with whom we have multi-deade long relationships. So when Jeremy Lavine at Bessemer is leading a series A in a marketplace and he leads a $10 million round with a $7 million ticket, he's more often than not happy to cut us in for 500K alongside him because he knows having been on the board of OX and he knows Fris's skill as an operator and he knows the FJ Lab's expertise and and reputation, we're the type of syndicate partner that he wants for marketplaces. And so Bessemer sends us a deal and they say, "Hey, we're leading this marketplace." Like I said, $10 million series A. We're writing seven. So then we immediately take a quick call. In the case of Now we will treat if a Jeremy sends us a deal, it goes straight to a senior partner, right? Typically a cold inbound deal, we we have one of our four junior team members take a screening call. So I'll give you that example. Let's say we get a cold inbound. One thing that's unusual about FJ, by the way, all of the cold inbound deals that we get, we review. A lot of VCs only take warm intros from vetted partners, which I totally understand, but we've had some diamonds in the rough where we So, so an advice to those who listen to us uh who consider fundraising, just go and send uh uh an email to FJ Labs uh to Jeff. No, no, no. That's not And uh and most probably you will be reviewed. not will be like put into you will be reviewed but warm intros are better for sure like my advice actually is if you're trying to pitch FJ Labs find a warm intro with someone in your network who can serve as social proof so so warm in are still are still good are still good yeah good to but as I was just saying the cold inbounds are treated differently than the warm inbounds we review the cold inbounds it doesn't just go straight to spam but they are reviewed in a different and a lower bucket Mhm. Because going back to the agency concept, it's not that hard if you're a high agency person to work the network and work the angles to get a warm intro. And that's the typical VC mindset, which is true and I agree with that. But I'm just telling you, we do still use some of our junior resources to review the cold inbound. May I ask you a provocative a provocative question on that? Sorry, jumping on that. It's important. And have you missed anything big uh while uh not while passing on inbound your inbound uh uh uh opportunities? Have you seen anything what you like reviewed in a light way which you really like missed like a a big thing something was it like something in your memory and do you like do you analyze this uh stuff like what you haven't invested in how how do you go shadow shadow portfolio whatever yeah or anti-portfolio if you call it uh yeah I mean absolutely if you're not having a good anti-portfolio you're not a good investor and that's why I like that Bessemer for example They published their famous anti-portfolio. I have some painful ones. Absolutely. I was I mean the worst myth. It's funny. It's not actually even a deal. It's a fund. We were investors in Multicoins's hedge fund. And Multicoin is one of the most successful crypto funds ever. And the the hedge fund did very well for us, but they sent an email out for their first venture fund. And I think I was on paternity leave. And so we didn't end up investing. And that's one of the best performing venture funds of all time. They did the series A of Salana. And so that was that one to this day is extremely painful. But don't cry for us. We did the hedge fund, you know, but there are others. I mean, we passed on um I remember passing on OpenC when they were in Y Combinator because we thought that digital collectibles, how big could that be? And so now funny thing is that OpenC made they went all the way up to the 12 billion and they went down. But we sell secondary. So that would have been a chance for us to exit like at least partially for sure. True. Uh but yeah, I mean many many examples you know just just today Poly Market announced their raise of two billion at a nine billion post led by um ICE the uh I guess the New York is that New York Stock Exchange the very large stock exchange company. And uh I begged to get in before like early on because I loved I was a user of Poly Market and so it I I don't remember what year it was maybe 22 or 23 when it was starting to build up to the election. I I I got an intro to Shane and we were like begging him listen this is right up our alley. It's a marketplace like please please let us in and we just couldn't get in and now look at it. So, but yeah, I mean every V every VC worth his or her salt should have absolutely dozens of stories like this. If you don't, you're not fishing in the right pond. That's true. Yeah. So, uh sorry I interrupted you. So, we were speaking about uh about u um this uh like angels mode but still like going very deep. So, uh warm winters are somewhat is important. So still like what are the qualities of founders are looking like for? I mean what would be what would make it uh I know that you you could not open all secrets but at least uh open we will actually because we think that for us by nature of being kind of the friendly collaborative co-investor we are able to share more than others are. There is no secret sauce. Actually, quick aside, one of my favorite books for business and for business strategy, it's a book called Seven Powers by Hamilton Helmer and it talks about the various sources of call it persistent differential return and when and we use this to think about startups that we're investing in like what is your defense? What is your defensibility? What is your edge? And one of the seven powers is of course network effects, network economies. That's our favorite. It's not the only one, but it's very common in startups to see people try to build network effects. Anyway, I think a lot about FJ Labs and what are our persistent sources of differential edge or return. And so you have brand power. We've built a brand by being on this podcast. I'm helping to build the FJ Labs brand. And then we have network effects ourselves where the more deals we do, the more surface area we have, the more founders that send us deals, the more the the bigger our founder network grows, the more deal flow we get. The more deal flow we get, the better we get at pattern recognition and pattern matching. So anyway, I'm very open about the way we invest. And so transitioning to your question, we the way our process typically works is as follows. We get an inbound deck. Depending on who it came from and how, we triage it and we send it to a different team member. If it's a cold inbound, it goes to one of the junior team members. If it's Jeremy Lavine or like a prominent VC who we know and we trust, it goes to a partner. At that point, we think about the following heristics. You mentioned market size. We want this to be a billion dollar plus market. Now, a lot of VCs will pass due to market size, but we've seen enough times that startups can conquer a small market and then expand across different categories and geographies. So, we really use market size instead as a way of understanding the thoughtfulness of the founder. In other words, like does the founder, even if you're starting in a small market, do you at least have aims to expand to another market or geography? And if so, what are your aims? So to give you an example of a market that sounds tiny that we recently invested in, we invested in a business called Palm Street. Palm Street is a live shopping app for plants. So they started off with selling it was basically stores uh selling live plants on video. Okay, sounds tiny, right? Well, first of all, it's bigger than you would expect, but of course there's category expansion. So now they're selling like gemstones and lizards and they're basically becoming like whatnot what they do with trading cards. It's like whatnot for the female demographic. And so if some VCs might say, "Oh, plants. I mean, I'm not investing in a plant store." Yeah. But you have to think more about like the natural category expansion. And better to dominate your category and then expand than to just try starting in the world's largest category. So that's how we think about market size. In terms of founder archetype that we we think about, we care a lot about two things. We want to see good storytellers because storytelling reduces your slope of fundraising, of recruiting, of business development, winning deals, and it just makes everything easier. And so we'd like to see good storytellers and or we'd like to see highly numerate executionoriented founders. So previous history of excellence whether it's operating excellence, academic excellence. We're more willing than other VCs to back firsttime founders because of the type of deals that we're investing in which are often these marketplaces that are really executionoriented. We actually like MBAs. That's something that most VCs strongly disagree with, but we've done great investing in MBAs because MBAs are often very strong in terms of execution, operations. Uh so we have no problem investing with MBAs, but that I think is specific to the type of business we're doing. You don't necessarily are investing in drop drop droppers uh like drop offs from universities, colleges. Oh, dropouts. Dropouts. Yeah, dropouts. We would I we have I mean I I wouldn't say we look specifically for dropouts. What's What's your youngest What's your youngest founder? Oh, that's a good one. I think the the youngest one I can think of is 19. Uh I would not say we're looking for young founders. I think we are open to young founders. Uh, but you know, there are some other funds that have this thesis of like we only back dropouts or we back super young founders. I'm honestly open-minded. I'm happy to do older founders. I'm happy to do first-time founders. I'm happy to do second time founders. I just want to see good founder market fit. Like, why are you building what you're building? What's your connection to this market? Is there one? What's your right to win? What is your academic or operational pedigree? Have you demonstrated excellence in the past? And so if you think about Fris and Jose, I mean, Fris was he didn't do MBA, but he was at McKenzie, which is kind of like a paid MBA. And then Jose was actually at at Stanford GSB. So I we we like MBAs. I mean, frankly, I would a lot of people like hate MBAs. I'd say not only do we not hate them, we actually like them for the type of businesses that we invest in. Do do you do you necessarily speak with founders? Uh uh or you may rely on some like say you said Bessemer will go straight to your like top level is it like a must have that you meet founder or Yeah. So if founders says just I don't have like much time for your 25 50 whatever 100 grand ticket in my 5 million round would you invest still like if you think that the founder is right you won our process is two phone calls we do two 45 minute phone calls so for a ticket of on average 300k that's pretty good dollars per minute you know indeed so even but we are cognizant that we have less leverage in a billion dollar round than in a million dollar round. And there are extremely rare exceptions where we don't talk to the founder where we feel like we have enough knowledge about the company. That's usually at the late stage. And one other thing we can talk about is that we're not only early stage, we're mainly early stage, but we have done very successfully some late stage deals. And so we came into Andero at 8 billion, for example. I did not talk to Palmer Lucky. I did not ask him dumb questions for we did a million and a half in that annual round. We will go a little bit bigger at late stage by the way. We'll do like one two million something like that. And then we we invested in Farfetch at a billion. That ended up being quite profitable for us. We came in late in Uber and Alibaba. So in those rare occasions, yes, we do not talk to the founder, but that is very very rare. And our bread and butter is okay call it late seed to series B and the pro so Bessemer sends us a deal you know see General Catalyst sends us a deal we take a first call with a founder that's typically one of the junior team members uh and we have a template that we use. It's not quite a checklist, but it's a standard debrief template where we basically talk about like what's the business, what's the business model, what are the early metrics, what's the founder background, what's the founder pedigree, what are the round dynamics. We care a lot about round dynamics. And I think VCs should care about this more actually. How much are they raising at what price? What's the syndicate? Most importantly, how far does this round take you? How much are you burning? How much cash do you have? Any debt? And where do you think this round takes you in terms of runway, in terms of traction, and then why at how much is the business worth at that point? And then how much are they raising at that point? And so then they out that debrief, then we present to IC. We have a debate at that IC and our options are pass, we don't like it, we don't like the market, we don't like the founder, pass. Most most of them I I believe are what you pass on, right? And then probably like a percentage which you accept is like fairly small. The funnel is like this. We get about 150 plus inbound deals per week. Out of those about 30 to 40 graduate to a first call. Out of those usually 10 to 12 make it to investment committee. At that point we can pass. Usually if you make it to investment committee it's interesting enough to discuss. So then you usually pass and reconnect which is we like it but we don't like it right now. We don't like the valuation. We don't like the round terms. We don't like we think they're going to have to raise again in a year. So So you like you like a company but we do not like the moment at which companies invest whatever reason. And what we do is we set a reminder in our CRM and we check back with them in advance of their next round because we might like it at series A, but we might like it better at series B. And so that's the thing I love about our model, which is different for many VCs. If you care about ownership, you can't really do this. If you're a seed fund and you need 10% ownership and you need a board seat and your fund size dictates that you can only write tickets of $2 million in size, Once you pass, it's gone forever. Almost always. Y just need to capture a company into the right uh size. Yeah. Right. Right time. We we pass and we reconnect all the time. All the time. That's the number one thing we do. And then we can revisit at the series A, we can revisit at the series B, we can come in at the series C. We just look at the very the riskreward of every round. And we're flexible. And I think that pays dividends. And so, okay, so first call we have a decision. If it graduates to to and the investment committee, if we like it, then we say, okay, one of the most skeptical senior team member, typically the most skeptical partner, we'll take a second call and then we probe on key questions that we surface during the debate. So it might be like probe on the unit economics. How good is their payback really? How scalable are their acquisition channels? Probe on the competitive landscape, probe on the founders's ownership. Do they have enough ownership of the company right now? And if not, how are we going to solve that? So then the partner takes a second call. They they record their their debrief of the call and then we go to a second investment committee meeting and then we have the same process and it's either pass if you take it to a second call you usually like it enough that you want to reconnect. Yeah. Yeah. Yeah. So it's usually pass and reconnect or invest. And if we invest we have set check sizes by stage. So if it's a series A we write 300K. If it's series B we do 500K. those modulate up and down a little bit based on where we are with our fund life and and the round dynamics, but at that point we commit. And so the entire process from start to finish is usually two phone calls and two investing committees. And we could usually we could do that in as little as seven days. And by the way, one of our rules of venture is that we think a lot about error of omission and error of commission. Error of omission, it's worse to miss that next 100x. an error of commission which is you invest in one more company that's a zero. You have a bounded downside nearly unbounded upside. So we've designed our decision process so that it makes it more likely for us to invest in that incremental deal. So every pounder, every partner has the ability to pound the table on a deal that they like. Even the analysts can do this, although they don't usually do this. Wow. But if there's a deal that someone sees something and they say, "I don't care. I know you guys don't want to do it. I'm pounding the table. Do you have do we have a limitation for that? How many times you can like push it through? Like how many bullets? Yeah. Yeah. Well, so no one's really abused it because it's not good for your career if you abuse it. Let me put it this way. You can pound the table, but we're watching you. And so if you pound the table and you're wrong, it's not not ideal. That's why the junior team members always hesitate to pound the table. I'd say I'm one of the most frequent table pounders, actually. I probably pound the table once every year or something like that. Well, it's not it's not often. No, it's not a popular decision because you're basically shortcircuiting the decision process. You're saying and then then everyone is watching you, right? Yeah. Yeah. So, it's something Yeah. Yeah. It's it's something you use very you use it very carefully and so but but on the other front on the other front, sorry, Jeff. uh it's like I mean consensus is what is not good for venture right because if everybody is in agreement there is something wrong there right because it should be like a serendipity like a lot of risk takingaking right I mean you should at the end of the day not really fully understand what founder is doing right I mean because I mean sometimes like I mean the best thing are hidden away right I mean if you know everything you go and do it yourself so for some reason people are doing it some others don't right so how much agreement do you allow like uh is it like a consensus you need to achieve or it's still like a debate and no need for consensus? No, it's it's loose consensus with the ability to table pound. And so we usually get to consensus. Occasionally we have some very heated discussions. Okay. And someone we need there to be a a champion. And if there's no champion, then the deal dies. And so table pounding is what happens when everyone does not want to do it, but one person sees something. And we agree with you. And those are usually not not usually but often the deals that the most hotly contested deals are often the best performers. And so that's why we've implemented this decision to pounding. Okay. So u switching gears um when you invest how much time like you invest certain amount of money right how much time do you invest into your portfolio companies? Are you doing something what like other funds are trying to do like with helping with marketing whatever sales uh coaching I mean you're not the board member but still how much are you in the businesses may founder call you uh with like asking passions advice that what NFX is good at I mean they also investing small tickets but they like putting a lot of effort and emphasis onto um basically going alongside with founders through the journey right in the I I have so many uh founders who came through like the Zenfax uh uh uh being on their cap table and they said that despite the ticket is very small like uh like uh engagement is very large. So it's like disproportional uh uh from the ticket size uh perspective to how much they invest um into into startups or their personal brand and uh a lot of u definitely a lot of like insights and they help much. I mean there are many funds that claim they do but I'm sitting on the boards uh unlike you and I know how much they may help and how much not. So I I I think that that's like important for founders at the end of the day. Right. Yeah, we love NFX, by the way. We've done a lot of deals with them. We think very Awesome. Yeah. Yeah. What we like to say to founders is that we don't claim to have a 100 person platform team. We're not going to be doing systematic recruiting for you. We're not going to be doing outsourced finance for you. But for a very small ticket, we're typically buying one% ownership or 2% ownership will be well north of the value ad compared to our weight class. So, we punch pound-for-pound well above our weight class. And the areas where we're most helpful are typically surprisingly fundraising actually because the incentives are not always aligned with your lead investor when you're a founder. If let's say a tier one fund leads your series A, it's not in their best interest to shop around your series B. They want the option to preempt your series B if things are going really well. Uh but if you're but we serve as almost this neutral third party like a Switzerland where when you're ready to go raise your series B, we know everyone and provided you're performing, we'll make warm red carpet intros to all of the Sand Hill funds and then many others that you may not know. Because we have this network driven model. It's our job to know all of the funds that matter in our neck of the woods. Is it is it only is it only the option for your portfolio companies next round or for example if there is an inbound not a warm interest and then you like company really like company do you like help them to raise absolutely so you you help to find the term [ __ ] right for like best yeah if we find a company that we really like and there's not a lead yet we make intros for them and okay that we help catalyze the round now you have to be pretty amazing to do that because obviously if we're not on the cap table yet it means we're really motivated and we'd like to invest and so we do that on there. There are at least two companies I have as an angel which I would definitely show it to you all uh like post money uh sorry post revenue already like making few million dollars in error and without any any uh like investments from outside bootstraps. Love it. We we'll talk about this afterwards for sure. Absolutely. Absolutely. and and so we our network is our superpower and our ability to help you fund raise is our superpower. And then beyond that, we do have a full-time operating partner on our team who was a former marketplace founder. His name is Jeff Berer. He is a serial entrepreneur. He built and sold his last business for hund00 million to private equity. It was a jobs marketplace. And so he serves as our unified point of contact with FJ Labs. And it's very different. A lot of other funds for their head of platform or head of portfolio or whatever role that is, it's often someone who's a bit younger and more uh like communitydriven, network driven. But here, this guy is a former founder. So if we have for example Ryan Peterson at Flexport, he doesn't he's not going to give the same time and attention to a young MBA as he is to a for a fellow founder. And so JB he's our secret weapon in the sense that he can talk to anyone in the portfolio as a peer as a a fellow successfully exited founder who's gone through the same trials and tribulations and can give helpful advice. And so when you combine these two things, we say, we say upfront, listen, we are not on your board. We're not going to be bothering you. We're going to be handsoff. We're going to be as helpful as you want us to be. Many founders don't want you to be all that helpful. And if you ask most founders, they say that VCs are typically net negative. They're not only not value ad, they're value detracting. And so we're we're going to be But use us for our network. We have an amazing network across VCs, founders, RVPs. We can open a lot of doors for you. We can help with intros. And by the way, if you're a B2B startup, particular if you're targeting other startups, we have one of the world's largest startup portfolio. So, we can make intros overous. We have over 800 active. You're like a like a YC uh uh kind of stuff. Yeah. Like in in that sense. Yes. Yeah. Well, um maybe a few questions on uh uh how you uh structured within like the term you mentioned like you have a bunch of panelists. You you yourself were promoted to a partner. So is that is there any clear like uh uh career path for your junior colleagues to become partners? Do they know what they need to do to end up being a partner in FJ Labs at some point? Our analyst program is similar to some of the other funds that you see. It's basically designed to be a two-year program and at that point typically there is no expectation that you will stay full-time after that. Now, I will also say that this is a relatively new program and we've already hired full-time one of our great analysts. So, we probably set a dangerous precedent here that now all of our analysts going to try to become full-time. But the reason for this program is that just being realistic about the dynamics of most venture funds, there is not infinite room for upward mobility. We have five partners now and I think it'll be hard for us realistically to add to the partnership anytime soon without dramatically expanding the firm. I mean, this is why you see this the existence of these kind of two-year analyst programs because you can't always promote people up. Venture is not a a scale business in and of itself. It's it's much more of an artisan boutique business and you look at no there now that I will say also you're seeing that change a little bit with some of these like hyperscaler funds like Andre MGC they are becoming dozens of partnered hundreds of employees. Well, yeah. I was I was I was once like there was an attempt to interview me myself into one of these funds. I don't want to name it. Um I got kind of a request if I want to join. So I was surprised to be seen as partner number 172. Yeah. And I'm not kidding. I was I asked was it like a partner role? They said, "Yeah, it's just partner. How come you they have so many partners?" They said, "Well, it's like $40 billion fund. I mean, what do you want?"
So what we say is listen, we say everyone at the firm associate and up is on partner track. And so at some point, you know, right now we have five partners, two associates, two analysts, and our operating partner. At some point, if you're an associate and up, the expectation is that you're on partner track. And if you're not partner track, we're going to let you know and we might help help you find a better home. Uh but the reality is is that we're probably right sized as a firm at the moment. And so everyone, we're super happy with everyone at the firm right now. Everyone's doing an amazing job. Uh the analysts are in they're wrapping up year one of the program. At year two, we'll figure out if it makes sense for them to become permanent. if they go to a portfolio company, if we help them land at another firm, uh to be determined. Absolutely. Yeah. So my last um uh part of questions uh for today uh is about all about uh evolution of marketplaces and uh consumerf facing businesses. Um I think that after like this uberization of economy and partner Uber uh I think there was not much left and uh like there is like every field being tackled with like like uh like a lot of opportunities uh for building up marketplaces of all sorts. There is no one single u solution being graphed outside of uh customerf facing apps right there are millions of millions of apps for everything. So how do you see this evolution going forward? uh where you put your bats, how you think marketplaces will evolve. Uh obviously everything you spoke about like this uh network effects and other powers that that will stay, right? But uh obviously marketplaces will change um the consumerf facing apps will change and those who are on top probably will be replaced with someone who is evolving uh now. So what you see like in 10 years from now say and most of companies you're investing in are those which will uh well at least the winners will end up being winners like in 10 years. So what do you think will happen to marketplaces overall and consumerf facing apps overall especially with this new wave of AIS maybe there is something uh maybe blockchain I don't know like web30 so whatever you uh put your bets on so it would be interesting to see your uh trending forecast uh for that type of things yeah it's an amazing time we're watching with great interest we're allocating carefully we're going back to what you said before we're not playing much of the infrastructure game. We're not in any of the foundation models companies. We're not really in any of the picks and shovels per se. We're not in any data center companies. And we're thinking long and hard about the future of marketplaces because there's so much changing and there are some really interesting new paradigms popping up. To me, I'm very excited by voice, for example. I think you're going to see a whole wave of voice AR voice AI startups. But going back to what you said before, you know, and going back to what I said about the seven powers in Hamilton Helmer, network effects, in my opinion, remain one of the key sources of defensibility. And the reason that even though anyone can vibe code an Uber competitor nowadays, the reason why Uber reigns supreme is because of that liquidity. Because anywhere in the world, you can call a car and it'll be there in under three minutes. And that makes it extremely hard to disrupt. So, and so I think about some of our star marketplace companies. I think about Vinted in Europe, which is the dominant secondhand platform. It's going to be very hard for an AI native competitor to go and disrupt Vinted. Vinted has and controls the liquidity. Rather, what I think is going to happen is that Vinted with the amazing tech team they're having is going to benefit from AI. And we're seeing a lot of marketplaces actually implement these AI tools to make them more efficient to increase their fill rate to increase liquidity uh to reduce the friction to list. And so in many ways innovation innovation is becoming also easier than ever before right I mean for this big companies right and by the way who were not innovative for uh decades now can be innovative back to like their early days. In many ways, AI is a game of kings. And I think that this is one of the interesting waves of technology where the incumbents are benefiting. And by the way, look at the public markets. Look at how eBay is treated. Yeah. You see that actually the the largecaled players that have scale economies and network economies are doing very well. That's not necessarily what you would expect. And so in the ca for example, we're investors in a startup called TopSort. Topsort is using machine learning to help offer better auction-based ads for marketplaces. So this like Amazon ads, sponsored listings, they they work with a bunch of marketplaces in Latin America to give them top quality ads and promoted listings. And so you see this, we have a company called Photo Room. They started as consumer, but they they're really more B2B nowadays. Photo Room allows for mass uploads and customizations of backgrounds and cleanups of imagery. So, if you're eBay, you want every listing to look perfect or or improved, you work with Photo Room. And so, these are all AI startups that are actually additive to the incumbent marketplaces. And if you're vented and you control the liquidity, you can have another way of accessing your marketplace by voice. So voice AI startups can be good for vintage. Now that don't get me wrong, there are risks and you see for example OpenAI and all the amazing new product launches that they have. It doesn't keep me up at night per se, but I could see a world where open AAI basically captures the demand side and then goes and hunts the supply. And so you have Do you think that companies like Google are inventured with OpenAI? Do you think that they may lose substantial market share? I used to think Google was in danger and now I've changed my mind. I think Google is in an amazing position actually because they have so much free cash flow. Uh the capex needs of these companies at the moment are enormous unprecedented and Google has the world's most beautiful business and their team is amazing and Gemini is exceptional. Now, it is the ultimator ultimate innovator's dilemma where the better Gemini gets, the more they attack their own business model. But I think they've done a good job of building it carefully while maintaining cash flows. And so I would not bet against Google actually. Where where would where where do you see I mean what kind of marketplaces would you uh like the most? Uh which areas which industries? I mean there are many like healthcare like construction um agriculture where things are yet not being uh uh yet put into this marketplace mode right what else you think uh and maybe you can also elaborate little bit of geographies uh where you see like the biggest growth for this kind of stuff. What do you think of fintech for example? Do you like have any bets on payments? Yes. And yes and yes. And so for us, we think there's a huge opportunity in B2B marketplaces right now. B2B is about a decade behind consumer and digital adoption. And there's a really interesting why now? Because a lot of these family-owned businesses have the next generation taking over. And their digital natives who are used to buying and selling anything on their phone. So why can't they do business on their phone as well? you should be able to buy and sell construction equipment or a products or whatever on your phone. And so that's starting to change and you're seeing these behaviors starting to change now. There have been a number of false starts in B2B marketplaces, but we're starting to see some breakout and we've gotten burned by a couple, don't get me wrong, but you're seeing some scaled ones that are quite interesting. I mean, we're unfortunately that going back to anti-portfolio, we missed equipment share, which is a very interesting construction equipment marketplace in the US, but I'm very excited about one in Brazil called Cayena, which is like a restaurant supplies marketplace. They've they've scaled with amazing economics. They're starting to do really well. We're investors in dozens of B2B marketplaces all around the world in different verticals and so continued. I'd actually say we're more excited about B2B marketplaces than we are about consumer marketplaces right now. That's and it's like more global than just the US market, right? So you just do a lot into like Latin America. Do you do anything in Africa? We've done a little bit in Africa carefully. Uh but you're absolutely right in that markets that where the consumer might not be that interesting, you can still build very large B2B marketplaces, but we are careful with some of the emerging and frontier markets. We've actually done quite well in some of these, but nonetheless, you you want to make sure you're being careful. You're working with trusted local partners on the ground who you know and you trust. And um and just there's a little bit of like a buyer beware in some of these markets. Uh finally, Jeff, um any advice you may give uh to founders uh especially early stage founders, anything they should uh uh care about the most? uh something or what is changing uh ever changing in this world uh what they should really look after um what's like the most important thing they should focus on. Fundraising is a tool to get to a place. I think a lot of founders overindex on fundraising as their most important KPI. Like, oh, I raised a $50 million round. That's the first of all, the more you raise and the higher the valuation, the higher the bar that you've set to execute and more and more responsibilities you take also in terms of table stock. And by the way, the ri the more risk you've embedded into your startup and the now your investors expect a certain multiple on that which means that you have to act with more risk and you're basic it's a lot of people especially nowadays you see all these fundraising announcements. People are making videos to announce fundraisers which implies that fundraising is is the name is the name of the game of the goal. No. No, fundraising is used to get you somewhere. And so I would recommend to founders, especially in this era, going back to what we said before, where you can do more with less, and the limiting factor is not often capital, but agency, particularly in a lot of these more asset light digital business models. It's a very different story if you're like a AI company and you need to raise a billion dollars to spend on GU. You need like 50 50,000 GPUs. Yeah, that's a different and you do you like that's fine. I'm referring to marketplaces to network effects businesses where actually you can keep doing more with less. Think about maybe you don't need to raise that mega round. Think about what if you raised less and you diluted less and then you didn't create such a binary outcome where you have to be a 10 billion dollar company or a zero.$und00 million exits are very good if you don't raise that much capital. Now I'm talking against my own interests here because as a VC I want there to be fundraising so I can invest. But more founders should consider good more bootstrapped outcomes. You know they talk about seedstrapping is this new phenomenon. You raise one round and you never dilute again and you sell for a great outcome and you can count. We have a company like that. We invested in 2014 2015. They raised basically nothing for years and years and now they've raised one growth round and they're at a hundred million of ARR and it's they're they have they're in control of their their own destiny and it's basically guaranteed that they're going to clear a hundred million themselves. Investors are going to have an amazing time too. So once you get on that venture treadmill that like hamster wheel, it's very hard to get off. So just buyer beware and consider not creating such a binary outcome with your company. Yeah, it's an amazing uh and very controversial advice. Um so uh that was Jeff uh Winstein uh who is a partner at FJ Labs uh and uh Victorski uh this podcast was brought to you by R136 Ventures. Uh please listen and subscribe to us. Uh this was a podcast ventures from the valley and thank you all for listening and watching us Jeff. It was my pleasure and honor to have you at this podcast. Thank you so much. Thank you for having me.