I had the pleasure of running into Alejandro Cremades at the latest Founders Forum in New York. As luck would have it, he had prepared the angel investor ranking for Forbes where I was named #1. He wanted to talk to me about my entrepreneurship journey and what we are up to at FJ Labs.

I am reproducing the Forbes interview below:

With over 400 startup investments and 150 plus exits Fabrice Grinda is unquestionably one of the most experienced entrepreneurs and investors on the planet today. If anyone knows what it takes to build a scrappy and scalable startup, and how to cash in on one, it’s got to be Fabrice. In a new episode of the DealMakers podcast he pulled back the curtain on his biggest mistakes and how to hit home runs, again and again as an entrepreneur and also as an investor (listen to the full episode here).

Super angel, and startup entrepreneur Fabrice Grinda has built and sold multiple companies, as well as investing in some of the most successful ventures you wish you had been in earlier. Those include Palantir, Airbnb and Alibaba Group. Joining the world’s top M&A experts, startup fundraisers, and angels, Fabrice gave an exclusive interview with the DealMakers podcast detailing how he got started, what he’d do differently now, and how he picks the entrepreneurs that receive his investment.

Scrappy Startups, $300M Exits & Impactful Marketplaces

After finding his passion for tech with his first PC at ten years old, Grinda got his feet wet in entrepreneurship with an import/export business to pay his way through college. That company moved high end computers from the US to Europe. After finishing Princeton he went to McKinsey to hone his skill and business acumen.

That first venture put $50k in Fabrice’s pocket. $25k went to a down payment on a one bedroom apartment. He sold it for $70k more than he bought it for 18 months later. The other half he invested into 4 stocks: Microsoft, Intel, Amazon and Yahoo. Those investments soon grew to $300k. He put all of it into his own startup.

That company went on to raise $60 million in capital, before getting a $300M cash buyout offer from eBay. Unfortunately, his lead investor at the time didn’t want to sell. He let his partner buy him out at a much lower price after the bubble burst.

Then there was Zingy. Launched in 2001, there wasn’t much in the way of capital in the market for a mobile game and ringtone startup. Fabrice told DealMakers listeners “I ended up living in New York essentially at $2 a day, slept at the office in the couch. I showered in the office. I couldn’t even afford coffee. I was living off ramen noodles. We missed payroll 27 times in the course of two and a half years. I was raising money but I would raise it in 5k or 10k increments.” There was a point where money ran dry and the company missed payroll four and a half months in a row. Staff shrank from 27 to just 7. Over several years he still managed to raise $1.4M, but in $5k to $10k increments.

Despite the challenges Zingy became a huge success. Owning over 53% of the company, Grinda sold it in 2004, for $80M in cash. The investors pocketed a 20x return.

Out of that windfall of money he bought himself a TV, Xbox and two tennis rackets. He stayed living in a studio apartment, too busy building a larger company to really get sidetracked by the money.

Despite hiring an investment banker who turned an initial $40M unsolicited offer for that company into an auction which yielded double that, and completing the sale, he stayed on as CEO for 18 months. Of course, as most entrepreneurs realize at this stage, things just don’t work like they used to after a sale. He decided “if you’re not going to let me conquer the world, this is not interesting to me,” and left to start a new venture.

After offering to fix Craigslist for free, and finding the founders were uninterested in improving the platform, Grinda cofounded OLX with Alec Oxenford. They received $10M in startup capital from Jeremy Levine (Bessemer Venture Partners), the Founders Fund, and General Catalyst.

OLX launched in 100 countries, testing each market with $50k to see where they could gain traction. Of course, when you build something with 350M users that consumers love, you get a lot of competition and people who want to buy you. That led to another large exit.

The Most Meaningful Moment in the Life of an Entrepreneur

You’d think some of these big exits, notable investments or the millions and millions of dollars would be the big life changers someone like this would point to as their big successes. Yet, Fabrice says “What’s interesting though, was most meaningful moment in my life at that point was actually not the day of the exit or the day that we got the $80M. It’s the day we became profitable. The day we became profitable and I paid back my credit card debt of $100,000. We made payroll and we paid the rent, etc. We were saved, and I knew we had become the masters of our own destiny. We no longer depended on third parties.”

The 4 Biggest Lessons Learned from 400 plus Startups

On the mistakes and things Grinda says he would tell his younger self, he points out:

1. Picking a VC who understood him better, and had aligned interests
2. Understanding the benefits of having ‘drag’ rights in shareholder agreements
3. Consider taking more liquidity earlier
4. The importance of your direct relationship with the partner at a VC firm

Hitting Home Runs

Together with Jose Marin, Fabrice now operates FJ Labs. A VC firm that invests in around 75 companies a year, as well as launching one or two new startups of their own. FJ Labs invests around the globe in all stages of startups. In terms of picking founding entrepreneurs to bet on, Fabrice says “over everything else, if you have a great storyteller, you have someone who is going to be able to raise money, attract talent and sell the company to partners and potential buyers.”

Find out why these entrepreneurs have an edge, how much he has given them over a simple Skype call, and all of the other secrets revealed in the full podcast episode.

Full transcript of the interview

Reproduced from Alejandro’s blog

Alejandro:   Alrightee. Hello, everyone, and welcome to the DealMakers Show. So today we have someone very, very exciting, someone that has done a lot for the startup ecosystem and someone also that has been there and has done it. So Fabrice Grinda, welcome today to the DealMakers Show.

Fabrice:   Thank you for having me.

Alejandro:   So you’ve been, normally, I mean we typically interview people that have done is you know maybe once or maybe twice but in terms of like doing a transaction whether that is an exit or fundraising, but you’ve done it all and you’ve done it all from all different fronts, from the entrepreneurial side of the table, from the investor side of the table. But I’d like to begin today with really the entrepreneurial side. So how many companies have you founded and exited by now?

Fabrice:   Yeah, it’s actually a little bit harder to count because it depends if you include first, my first company that helped me pay for college was a little sole proprietorship whereas doing import/export of high-end computer from the US to Europe to France where I was before so if you think of like companies where I was founder and CEO that were ventured bats, so I’m actually limiting the scope, it’s three large companies; one which was a company called Aucland. It was an ebay type company for France; one was Zingy which was a mobile content company selling ringtones etc from 2001 to 2005 and that one from 0 to 2 million revenues in four years; and the last one was OLX which is the largest classified site in the world with over 350 million unique visitors a month and 3,000 employees. Beyond that, I’ve also founded and roll up chairmaned another six or seven companies where I was cofounder sometimes acting CEO but usually chairman.

Alejandro:   Got it. So let’s talk about the side of the equation of really being a cofounder and a CEO. So I understand that you want to Princeton then you went to McKinsey and then you got started with the first one, right, Aucland. So this is a company that you had Bernard Arnault from France Financing. So how does this company really come about?

Fabrice:   Yeah, I went to Princeton maybe you know I was already a tech nerd. I grew up in the 1908s. I got my first PC when I was 10 back in 1984. So I grew up like programming, building computers, building PBSs and my role models already at that time I guess Bill Gates and C. Charleston. I went to Princeton knowing I would be a tech entrepreneur, definitely be an entrepreneur like they were though the internet didn’t really exist in the proper form given that I went to Princeton in ’92. We were online and we had like direct 10 megabits T one lines in a room but Mosaic only came about in ’94 and SK in ’95. Now in Princeton as I said I built a company to export computer coming from the US which paid for college. The thing is at that time I was very much like Sheldon Cooper. I was an introverted, shy, frankly academic. And even though I was getting all these A+s and was really good in school, I felt I didn’t have the toolset to succeed as an entrepreneur. And so when I graduated from Princeton and I was like at the top of my class, I decided to join McKinsey because I kind of considered it as business school except they pay you. And for me, where I was in personal development, you know, I was 21 years old, it made a lot of sense and I learned all the things I need to learn. I’ve improved my oral and communication skills, my ability to work in teams, like public speaking classes. McKinsey is really good in investing in these people but again I went to McKinsey knowing I wanted to be a tech entrepreneur. I never saw it as the end all be all where I was going to spend the rest of my professional career. And I actually went there thinking I would miss the bubble but lo and behold, in 1988, I was 23, I did not miss the bubble. I felt I have learned what I needed to learn and decided to go and build a company. The issue of course is when you’re 23 and especially back then when things were more complex, took more money and more time, a lot of things were out of my reach. I had a lot of great ideas. I want to build the internet bank because I boasted in working in financial services in McKinsey but in order to do that you needed a banking license. You needed like millions of capital, things I didn’t feel would be available to a 23-year old. And if you think of companies like Amazon, where you need like supply sheet management and logistics and inventory, then again it way more capital than what was available, but at Princeton I’ll tell you the economics and I like the way markets and marketplaces create, you know bring transparency and liquidity to otherwise [04:57] fragmented market. And so that idea of creating markets in general appealed to me regardless of the category [05:04]. And kind of randomly fell on the ebay website and kind of fell in love at first sight of like, wow, like this is a really interesting truths of taking what was fragmented in these types of markets and garage sales, etc, and putting it online and bringing massive liquidity. So I decided, oh, I should do this and I should do this in Europe. And kind of coincidentally just after that, they felt to go public so they published their S1 which kind of became the base of my business plan and I sold everything I had. I left McKinsey and in July of 1998, I moved back to France to bring the internet and to bring auctions and Aucland to France.

Alejandro:   Got it. And you raise for this company 18 million and then you went on to do an exit to get this company acquire and sold the stock to one of the investors. I guess from this transaction…

Fabrice:   Well, yeah, not quite.

Alejandro:   Okay. Tell us the story.

Fabrice:   So I sold everything I had. I left Princeton with like 50k in the bank because I built my first startup but that 50k did two things; 25k I bought a one-bedroom apartment for $115,000, the rest of course was a downpayment and so I borrowed mortgage. I sold it for 185k eighteen months later. The other 25k I invested for stocks in Intel, Microsoft, Yahoo and I can’t remember the other one, and sold that. I made like 300k. And so net of taxes I like 300k. So I put all that 300k in the start up and started building the site, hired the team. And while we were competing mostly with people that were technically focused, no one had thought okay, how do you build liquidity. And so we hired category managers from like coins and stands and all different categories and we had aggregated a lot of inventory. So we launched with actual supply acquisitions strategy and more content that was appealing and attractive than our competitors, and then the bubble started inflating and though it took a while talking to many VCs and getting many no’s, as we were contemplating, I got an offer from Bernard Arnault’s fund called Europe @ Web for 18 million. The reality is actually even then there was an option, I could’ve sold to eBay at the time for about 20 million but being a delusional 24-year old at that point, I didn’t realize how much money that was and how life-changing that was. I’m like, yeah, I’ve conquered the world and buy the what-not. I’m doing this for money anyway. So I said no, I raised money and we used it to grow. We ultimately raised a lot more money. I think in total we ended up raising 50 or 60 million. The outcome was not as great as I would have hoped it to be before for mobile reasons we then had a really, we ended up at the top of the bubble and the peak like February 2000, and got an offer from eBay and I think 300 million in cash but we’re socked. I remember eBay was a great company. Sadly, I couldn’t convince Arnault to sell and frankly he didn’t want to sell because he liked to be the industrialist who understood the internet. And so his interest and incentive was actually just to make sure to hold it tight forever so ultimately I sold – when we realized our interest were not aligned, and he wanted to sell frankly to another company who was investor which was in a different business model which is called [08:34] Ricardo, I sold to him and he sold to [08:36] Ricardo. So it wasn’t a great exit. The bubble at first and the valuations are a lot lower and I didn’t sell in the right time, at the right conditions, at the right people. It’s amazing the learnings but definitely one that was financially very fruitful.

Alejandro:   Got it. So I guess now talking about the learnings like from this experience itself, what was your biggest learning?

Fabrice:   Many learnings have—when you’re picking a VC it’s really like you’re getting married. They are the people that are going to be on your board for better or worse and they need to be by you and stand by you in the bad times especially. And the issue is Arnault offered the highest valuation and the most money but his team didn’t really come from the industry. They didn’t really understand what I was doing and frankly, many of them were actually jealous and so they were not the right investor and I should’ve raised even though the valuations were lower and the capital offer was lower, I should’ve raised to someone who really got what we were trying to do and whose interests [09:42] ambitions were more aligned. And that’s generalized, I mean when you’re raising money, you’re actually not raising from let’s say Sequoia. You’re actually raising it from that partner who is at that firm. And so what really matters is not the reputation of the firm nor frankly even the reputation of the partner, it’s your personal relationship with that partner. How do you get along with them? Did you have rapport? And do you think you’re going to be in camp, they’re going to support you in the time of need? And so really picking your VC correctly is a skill and especially as first time entrepreneur, we have a tendency to overweigh valuation and overweight capital raised as opposed to picking the person who’s really the right partner for that company for you personally on the go forward basis. And perhaps, you should be raising too much and too high price because then you price yourself out of exit. You’re pricing yourself of perfection and screening issues that we don’t actually think about whenever you’re euphoric and everyone is sort of [10:45] and everything is great. And so trying to like right size the valuation, the investment, etc makes a lot of sense as well. And then of course I learned a lot more about like you know the thing is you can’t be that young and naive. I didn’t pick necessarily the right lawyer. They didn’t take me seriously because I was so young and it was France. And I didn’t know anything like what’s a drag, what’s a tag along, what’s pre-emptive rights and the one [11:10] that would change everything in my legal contract would have been if we had a drag that we could have sold when eBay offered to buy, and we would have that, and so a lot of those mistakes. Also a lot of mistakes on the hiring side, the VCs were lobbying for me to hire people with experience and gray hair. The issue is they were more used to larger organizations where everything had to be by consensus as a result things moved, once I hired them, things moved slower. And it’s great to have people with experience but you need people that also have a cultural fit and/or willing to move fast and do great things which is the push that was needed in the competitive environment that we were in. And so we didn’t gel necessarily perfectly and so hiring for fit different larger role than I expected on a hiring perspective and I was overemphasizing you know the resume and their background experience.

Alejandro:   Got it. I mean obviously a really big learning experience for you and then you returned back to the US and you actually started another company. You go at it along with Zingy. So can you talk to us a little bit about Zingy?

Fabrice:   Yeah. So after the bubble burst and it’s sold and it kind of failed, I was thinking, “What do I do next?” And I spent a fair amount of time soul searching, do you go after McKinsey? Do I go to business school? Do I go and run digital for a media company? And I realized, you know what, at the end of the day, maybe I missed the biggest auction to succeed in life early on and maybe the internet is dead and it was never going to be as big as people expect it to be and as I expect it to be and maybe it was overhyped by you know so what. I didn’t do this to make money. I did this because I like what I was doing. I like creating something out of nothing and I like the process of being an entrepreneur. And the underlying ambition was to be an entrepreneur, to build something out of nothing. And so in this new world of 2001, I had a new set of constraints and constraint was capital was no longer available. VCs were no longer investing and so I needed an idea that could be profitable very quickly with very little capital. And I decided you know my core motivation is being an entrepreneur and in a way the idea that I pursue matters less and it’s just important that it meets the constraints at the time. And so I didn’t particularly like the idea of Zingy which was selling ringtones and mobile games in the US but I felt it was an idea that could be successful with reasonably little capital and can build the profit of a company because I’ve seen it work rather well in Europe and in Asia and the US at that time was way behind from mobile perspective. And so I sold yet again everything I had. I reinvested everything I had and moved to the US where I have to admit the first years were really, really tough. I mean I called VCs, told them I was doing BTC Telecom and every BTC company had gone under like the [14:25]. Every telecom company had gone under. No one wanted to mess anything. I ended up living in New York essentially at $2 a day, slept at the office in the couch. I showered in the office. I couldn’t even afford coffee. I was living off ramen noodles. We miss payroll 27 times in the course of two and a half years. I was raising money but I would raise it in like 5k increments. So I meet to see some guy and can at least give me 10k and yippee, I’d make payroll for this for at least two weeks. And then of course we’d be out of money again. So our employees were like, “I don’t understand. The bank made a mistake yet again with the wire.” They’re really confident where really I just have cash but ultimately I’d find someone else who would give me 5k. So I raised 1.4 million but I really raised them in like 5k to 10k increments over the course of multiple years. And at some point I ran out of people where to raise money from and miss payroll from four and a half months in a row. At that point, we went from 27 people to 7. I guess when we stopped paying people they stopped showing up for work because it kind of makes sense. It was really, really, really rough. But you know, it’s what we’re doing, we laid the foundation for success. No one else is doing this and so little by little we signed all the music companies, little by little we signed all the artists, little by little we signed all the phone companies and once the business starts taking off, it took off like a rocket ship and we survived by building this the old fashion way through profits and cash flow profitability was really what mattered, not even that probability. And I remember very clearly the day we became profitable in August 15, 2003, it was a massive cause for celebration and I knew we were saved.

Alejandro:   Yeah. I can imagine. And you were talking before that one of your biggest lessons was surround the team and investors. And what was the team like and the shareholding team initially with Zingy?

Fabrice:   Zingy was completely different because there is not VC investing so it’s not as if I had a choice between who I was investing from. Once you have a lot of term sheets, a lot of VCs you want to invest at you, picking the one that’s best for you for your marriage makes total sense. In this case, it was more desperation. It’s like I need cash, I would take money frankly from whomever was willing to give it to me, and it really didn’t matter. And so it was completely desperate. I had friends who would build a little micro from his families who gave me half million. My father gave me some money. My father’s friends gave me some money. Frankly, random people I met from every walks of life, the friends from McKinsey had given me some money. I really raised from everyone and anyone. There is no constraint. And so it was very different. At the end of the day I also invested everything I had. I own 53.6% of the company. I had a cofounder in CTO who were like 6% and then the rest of the team we hired adhoc, as needed basis. It was rather you know built differently partly because we were so capital constraint.

Alejandro:   Got it. Got it. I mean I think that the investors probably they were happy with the outcome because Zingy was ultimately your first significant exit I will say. I believe the terms are public. What were those terms, Fabrice?

Fabrice:   The company, so the first few years, we were really struggling. We did 1 million in revenues in 2002. We did 5 million in 2003, which is when we became profitable. We did 50 million in 2004 and 200 million in 2005. So the company became a rocket ship. I sold it a bit early but as I’ve learned from prior experience, better early than too late. I sold it for 80 million in cash in June of 2004. And I say it on [18:16] all the investors made 20x on the capital they invested. Yeah, everyone had an amazing outcome. All the employees who saved and invested really, really well made millions. So it was a great outcome for all and it was my first large exit. What’s interesting though was most meaningful moment in my life at that point was actually not the day of the exit or the day that we got the 80 million [18:43]. It’s the day we became profitable. The day we became profitable and I paid back my credit card debt of 100,000. I was on credit card debt and we made payroll and we paid the rent, etc, like then we were saved and I knew we had become the masters of our own destiny. We no longer depended on third parties and on the good will of others to survive. And so profitability was really the day that what the most relevant and at the point where we sold, we’ve grown so quickly. We were so busy. I didn’t even take stock. I didn’t realize. I think the only thing I did when I sold was I bought myself a TV, an Xbox and two tennis rackets. And I didn’t realize how much money like I made. I guess net of taxes I made like $26 million. That’s a lot of money and again I didn’t realize that and I still lived in my like studio apartment for another five years like that. We were just too busy you know like building a larger company. We went from I think seven employees when we were at the bottom in like August 15, 2003 to like 200 employees a year later. We have to move like four times every time. We get offices are so big, we’re like, oh, we’ll never fill them, and then we were growing so fast, we like filled them. We were really, really busy and it was really fun times.

Alejandro:   Yeah. You know I can imagine but it’s interesting so you go from 50 to 200 million, I mean that’s unbelievable growth. So I guess what was the trigger there, Fabrice, to say you know, maybe it’s time to take a look at an exit?

Fabrice:   The revenue growth was actually independent from the exit per se. So as we were struggling to become profitable, a company had approached us and offered like 8 million to buy and I owned 53.6% of the company. So I was actually on the verge of selling the company for 8 million. But they were a French company and they were taking their sweet time to get the deal done and so by the time the papers started getting done, we had grown and I wasn’t really interested in selling anymore. So then another company came in and offered 10 and another company came in and offered 12. Then another company came in and offered 15. Then another company came in and offered 18. Then another company came in and offered 20. So there’s a 20 million offer on the table but we’re growing really quickly so I’m like, you know what, I’m not selling. So I told all these people and we were talking to media companies from around the world and at the point we’re already being profitable. We started having like a million in the bank and we had signed all – so I’ll talk about what led to that success in the revenue growth. So things were going really well so I decided not to sell. Then it kind of randomly one of our suppliers of content which is a Japanese company that was publicly in the same space came in in March of 2004 and said, “Okay, we’ll buy you. We’re offering an unsolicited.” They came in and said out of the blue, “We’re buying you for 40.” And that was so much we’re like okay, I need to take this seriously. So I hired an investment bank which is called [Broadview 21:47]. We ran an auction and that Japanese company end up winning but in the process of riding the auction we doubled the price and we ended selling for 80. And it also taught me that having a banker in the sale process is very effective. It got the price up significantly, I mean double in this case, but more importantly, they played the role of bad cop while I could be the good cop with the potential buyers. And so you don’t want to alienate your buyers in the process of getting the deal done. And so having someone that you can blame for asking for things and like saying, oh, you’re telling me that this is not market and this is not fair, and blame them is an amazing way of going and it’s totally worth the amount of money. Now in terms of what was driving that revenue growth from like 5 to 50 to 200, we were a B to B to C provider, so we were not directly selling to the consumers. We were selling to the mobile operators. And it just took me two years to get the first contract done and that was a very arduous process. I mean big large companies like Verizon don’t actually want to sign with a little startup because they’re worried about and legendly so but my ability. So I would go through all the telco shows like the CTIAs in the world. I will try to set meetings. I mean at first it’s just to get my name and face out there. They wouldn’t even want to take meeting with me. I had no idea who to talk to, how to get my details. I kind of bribed Microsoft actually at the time they were desperate for revenues MSN to become the ringtone provider in the BTC way and that press release kind of led to random guy Motorola to reach out for us to write content to him, and once we’ve done that, someone at Sprint asked for 25gs of content. That was our first deal. And once that became successful, the Sprint deal, everyone else wanted to do a deal with us because we’re the only ones who had the license to all the content. And so we went from going live on Sprint I guess April 1 of 2003 and at that point we were like down and broke and to every signing and launching every to signing from after that went live, every major carrier approached us and like April, May, June, July. And we had no money and so I sort of coding again and started helping build the site and we started launching and we went live in like AT&T in August 15 and then we went live on like Virgin Mobile in like September 1 and then we went live in AllTel in October. So we started launching all these operators and so a combination of deploying every single operator in the US like the top 20 basically and increasing the product offering and then releasing more and more phones that will support the content led to the massive growth. And so that led it from 5 to 50 to 200. It was an amazing rocket ship and it was an amazing story.

Alejandro:   That’s fantastic. And this was to For-Side, right. That was the company that acquired Zingy?

Fabrice:   That’s correct.

Alejandro:   Got it. And did you have any type of insights or learnings that perhaps you know were different to Aucland when doing this transaction?

Fabrice:   Well, very different insights in the sense that I realized either having a banker makes a lot of sense, selling them early than later probably also makes sense which just make sure you’re monetizing, taking cash instead of stock. Arguably I sold to the wrong company as well. I didn’t pick the buyer pretty well because I didn’t realize that culture shock. We were on the ground floor of the beginning of the mobile revolution and we were the only ones who had a lot of money and we’re very profitable. We had the opportunity to buy Shazam US for like a million dollars. We could have bought like all these different companies and roll them up and have them be part of offering. I think we would have positioned this to be dominant in the smartphone world once the smartphone started being released and of course the first iPhone came out in 2007. The problem is the Japanese didn’t do that, didn’t want me to do that and getting to approve anything became impossible. And so I offered Shazam for a million, they said no. I mean they kept saying no to all the different things I wanted to do so at the end of the day—I stayed for 18 months because it’s still a rocket ship. It was still a lot of fun but after 18 months, you know what, to just manage it and take all the profits and cash instead of Japan you don’t need, and so I sold and made in June 2004. I stayed CEO until November 2005. And them I’m like, you know, if you’re not going to let me conquer the world, this is not interesting to me, so I left them to go to the next company.

Alejandro:   That’s OLX, right.

Fabrice:   That’s OLX.

Alejandro:   They actually conquered the world and OLX had a massive impact. So tell us a little about OLX.

Fabrice:   I’ve always wanted to build marketplace businesses, so Aucland, you know and frankly [26:56] in Latin America kind of felt in that mode. Zingy was really the [27:00]. Zingy, I wanted to be an entrepreneur. I’m like what can I do to be—what companies can I build to remain an entrepreneur in the world of constrained resources. But now in 2005, I figured the resources are not that constrained because a, I have my own money. I can invest in building a start up and b, VCs who had turned me down for Zingy either regretted it and a lot of these [schools in the later 27:24] came in and approached me for money and of course, I’m like, “Look, I don’t need money anymore but you can fund my next business.” So I started thinking through what I wanted to build and Craigslist was really starting to take off and I felt there’s a real option to do something better. And so I actually went to Craig and to Gem and I’m like, “Look, you guys are creating a massive public service to the community by offering this free service but frankly you’re not doing a very good job. You’re not moderating the content so there’s full of spam. It’s full of scam. It’s full of duplicate contents. It’s full of prostitution. Personals is full of murderers.” There’s a pretty easy I mean it takes a lot of work. You need to hire a thousand people to moderate the content but there are things we could do to improve the quality of trends and by the way, think of who are the primary decision makers in all household purchases. It’s women. Women decide the house that you buy, the babysitter than you hire, the cloth that you are buying, the car you’re driving, and you need to create an environment that’s extremely safe and friendly to women and Craigslist was really the most horrible environment for that. So I went to them and like, “Look, I’ll run it for free. Let’s take this platform and let’s make it something magical and let’s change the lives of hundreds of millions of people. You don’t even need to give me anything. You maybe give me some equity on the [28:48] schedule and if you don’t like me after one year, before I mess, you fire me.” But they didn’t care. They didn’t want to improve it. They liked it the way it was. They don’t want to improve the product. They don’t want to improve the services. So then I tried to buy them and they also said no and so I’m like okay. Maybe I can do something better. And I guess OLX was born then and I’ve been brainstorming with a friend from McKinsey who did become a venture capitalist, Jeremy Levine Bessemer, and yeah, we tried to buy a few classified sites and the Founders said, you know what, let’s go and build it, and so raised 10 million from Founder’s fund, General Capitalist and Bessemer. And I partnered with my old buddy, Alec Oxenford whom we cofounded DeRemate with. DeRemate was a Mercado Libre at that point. So they’re also freedom alec and the big chunk of the team with Jose Marin who had been one of the Parco founders of DeRemate. And we decided to build OLX as cofounders using the DeRemate core tech team which had been built on the Aucland platform so it’s like Aucland platforms we knew in a way classified is simpler than auctions. And we’re like okay, let’s build a better Craigslist for the world and let’s see what happens. I mean ideally it would have worked in the West, it would have worked in the US but we launched in a hundred countries. We spent like 50k a country to see where we could get some traction and it just so happened that it took off in four which were Portugal and Brazil and India and Pakistan. So we went from 104 and then we grew there and once it became very big and profitable and successful in those and we reexpanded to the other countries little by little.

Alejandro:   Got it. I remember I saw an interview with your cofounder and people were like really impressed that he would go to India before going to Argentina where he was from. So really interesting strategy there. So you guys ended up selling, so it was an acquisition done by Nasper, is that right?

Fabrice:   Yeah, we sold to Naspers. Look, the reality is this is a company I would have rather not sold. And I didn’t want to sell it because it’s very rare to build platforms that touch the lives of hundreds of millions of people, and we had 350 million users. We had that type of scale. I mean first of all you have a wonderful impact on the lives of so many people and every day we were getting like thousands of love letters from people telling us we’re changing their lives for the better. Some woman that [31:32], she fell in love with her husband again because she was able to get a babysitter or go on dates with him or someone who needed to make rent and like sold their couch and made money to make rent, or found jobs or millions of people who were making and living off the site, and this especially in very poor countries where no one is investing in internet there, no one is creating sources for them and so creating marketplaces or places like Pakistan or all the countries of Africa, people really enjoying and valuing and the effort and the [32:05] we’re creating especially we’re bringing trust and safety in markets where there is no underlying trust. And so we’re allowing these to actually happen and create a site that became very, very, very large. Now once you have something that big, also everything you do is statistically significant and so you can keep testing. When you have that many users you release a feature and kind of immediately you know if it’s going to work or not. And with that type of scale, you can do tests where—or you got a 1% improvement is a massive internet outcome, and so disruptive product change you know become the sum total of 1% improvements done a thousand times over. And it’s easy to do when you have that scale. If you have much smaller scale, if you have 100 users or 1,000 users, it’s really hard to do because nothing is really statistically significant and you can’t tell if it’s just a fluke if something happen or if it’s actually a real impact from your product decisions. So it makes actually improving your product testing a lot harder and it takes a lot longer. So it’s not a company I want to sell. My dream would have been a VC-owned founder and [runback 33:13] for the rest of my life. The problem is classifieds is a winner takes all business. It’s not winner takes [33:20]. It’s literally winner takes all. And in order to succeed two things. You need market share and typically you need an 85% market share in any given country, and number two, you need scale, and you need both of these things. If you have market share but not scale, someone can still take in, come in and take over. And if you have scale but no market share you can’t monetize. And so we had market share in many countries especially in Brazil, India and like in many of the emerging markets but we didn’t yet have scale. But that said, for a long time we were profitable. We’re happy and everything was great. The issue is we were facing a public traded competitor and multibillion dollar company out of Norway called Chipset. For a long time, they were fat and happy in their geographies. They were in Western Europe in the Nordics and very profitable, doing very well. And we were kind of fat and happy and emerging, I mean much less fat because we’re startup but we’re doing really well. And sadly they decided to come and attack us in all core markets and they spent hundreds of millions on TV in Brazil. They spent tens and millions on TV in Portugal. We shoot two markets on account of all our revenues and all of our profits. And so all of a sudden we found ourselves having to stop monetizing, increase spending dramatically, spend hundreds and millions on TV to fight back. And in 2010, imagine going to VCs in the US telling them, “Look, I need to raise a few hundred million to spend on TV in like Zimbabwe. It’s not a—it [34:53] overall. Maybe it would have been different today with the vision funds but in 2010 our American VCs didn’t have the appetite to go and spend hundreds of millions on TV to compete with Chipset. And so Naspers came in and offered to both buy us and invest in us and the important part was the investing part, like we needed capital to fight. And they proved to be a very aggressive acquirer because every time we go to them say, “Hey, we need 100 million.” They’re like, “No, no, no, no. You think you need 100 million what you really need is you need 200 million. And so they were amazing from that perspective because they gave us a really big war chest to fight. And with that war chest, we’re able to fight back and frankly win the war so ultimately we merged versus Brazil, 51% for us, 49% for Chipset and then that consolidation led to the company becoming very profitable and very successful. And so we sold out of necessity, frankly we rather not sold, but it turned out to work really well because we got the capital we needed to win the war and once we had won the war, then we became profitable again and so the core markets were the position expand to a lot of geographies.

Alejandro:   Got it. Got it. So I mean after OLX the experience you decided to shift gears a little bit and you started FJ Labs and you have a basically portfolio companies that have been very, very successful like Uber, BnB or Dropbox. How do you decide really to go to the other side of the table as an investor?

Fabrice:   So I never decided I wanted to be a venture capitalist or an investor but what happened is by virtue of being a consumer facing CEO for all these years, a lot of the entrepreneurs had already been approaching me for investments and advice and so after my exit in 2004 from Zingy, I’ve already started investing pretty aggressively on startups. And so by 2013 when I left OLX, Ashley already had made over 100 angel investments. In fact in many ways, I was more known as an investor than a—even though I was full time CEO in massive company, the thing is you see one company and your investor in a hundred, the more visible in a way as an investor than a CEO. And so many people thought of me as an investor already even though most of my time allocation was to being a CEO because I’m running this massive company but for me from a number of deal perspective you know so I decide I was only going to invest in the marketplaces and come up with like a thesis in US [37:21] invest pretty quickly. So in 2013 when I left OLX, I’m like you know I like building companies. I like investing. At that point I already pulled all my investments with my current partner at FA Labs, Jose Marin. And we’re like, you know, we like to do both these things. Maybe we can create a structure which is FJ Labs that allows us to do both of these things where every year we can build one or two companies that we cofound and be on the board of and play an operating role in and every year we can also invest in like 75 different startups. And so the thinking was never, oh, let’s become an investor. It’s like I kind of always have been my entire life both an investor and an entrepreneur. And so this was just the next step in the natural evolution of like let’s continue doing what I’m already doing in a more structured and formal way.

Alejandro:   Got it. So how many investments have you made so far?

Fabrice:   So total we’ve made over 400 investments where every year on average we’re investing in like 75 companies. And we’ve had over 150 exits. And on these exits, we’ve had an average 70% IR in x multiples so it’s gone really, really well on the investing side. And then every year as I said we’ve been building one or two companies and it’s gone really well from that side as well.

Alejandro:   That’s amazing. You know we have a few people in common, Fabrice, like for example, Enrique Linares from Let Go or Ander from Ticket Biz and they told me that you are one of those investors that is like truly authentic and you have their back. I mean it’s remarkable.

Fabrice:   I think it’s, look, if you’ve been an entrepreneur you know what it’s like to be an entrepreneur so you can relate to them like you understand what the issues they’re facing. You can tell them—you can have a very honest discussion with them on strategy, fundraising, etc. And I thought long and hard of like what my core value at should be as an investor and I think it’s actually helping them with the things that I’ve been through and frankly fundraising. So I actually spend a lot of time helping the company’s portfolio fundraise and introduce them to VCs because I feel FA Labs is very different from traditional VCs. We’re not taking board seats. We don’t even expect reporting if you don’t want to give us reporting. We’re not leading RAS. We’re not pricing RAS. We’re just like the friendly coinvestor who’s giving advice and be helpful, but as a result we don’t compete with VCs. And so we coinvest alongside VCs and so they invite us in a lot of their deals and more importantly we send them all of our deals. So all of our C deals will go to A. We send them to all the VCs who invest in A and VCs were happy. They entrepreneurs were happy. Of course, we’re happy because we get our companies funded.

Alejandro:   Got it. And I mean it’s a lot of companies, Fabrice. How do you track all these investments?

Fabrice:   First of all, FA Labs is a big team these days. I mean when you include the apprentices, the IRs, the back [40:18] etc, there’s like 18 of us. Maybe just as—more importantly, we built a portfolio management tool that tracks all the investments, a product called Kushim, K-U-S-H-I-M. It’s kushim.vc and so now we have a head of platform, someone wonderful who enjoyed this as an apprentice while she was at Columbia Business School then joined us to help us actually build a closer relationship between a lot of the portfolio companies, understand their needs where they’re at and see if there’s anything we do to help them. And so Kelly has been really helping us build a tighter and closer connection to all the companies in the portfolio.

Alejandro:   Got it. And I can say part of the investment I mean is you were sharing that obviously marketplaces is something that you are excited and passionate about. Is there a specific industries that you’re really excited about right now that are unfolding?

Fabrice:   Yes, so the way people are—because we have a thesis, so we think what the future looks like and then we invest along these thesis. We invest in all industries, kind of in all geographies, kind of an all stages actually. Though obviously we do more seed and more US deals than anywhere else but to give you some sense of portfolio composition: we’re 70% US, 20% Western Europe and the Nordics, 10% Brazil and India. From a stage perspective, we’re 65% seed/pre-seed, 25% A and B, then 10% late stage and industry where frankly cross all industries. Now that said, the specificity of focus which is the business model which are marketplaces and in marketplaces, there are three core thesis that we’re investing in. One is the continued verticalization of the horizontal platforms. It’s realizing that from eBay to Thumbtack to Upwork to Craigslist, you can actually take some categories and you can create a much better user experience, much better customer service, a better business model, and so verticalizing the horizontal is just one core thesis that we’re following. Number two is changing the way the marketplaces work. So in the old days, I mean think of the Craigslist of the world, the buyer and the seller they needed, you need to interact. You need interact in fact with [42:39] many different sellers or many different buyers to get one transaction done. It’s a lot of work. The new approach is one where the marketplace picks the supplier for you and you don’t need to pick them or interact with them. So think of Uber, you’re not picking your driver or if you go on Thumbtack, you want to hire someone to redo your floor, you need to talk to like a lot of floors, you need to pick one, you need to agree on a price and a contractor. It needs a lot of work. There’s a platform called Renovisa where you basically take photo of your floor, give your square footage and you’re done. They pick the—they price it out for you. They are the counterpart even though it’s marketplace and they pick the supplier. And so that’s an approach we’re doing in every category be at services, it could be online services so the Upwork type products or services, finding a developer or you know actual services of like renovating your home or maybe redecorating, etc, or and goods. And the third thesis is B2B marketplaces. And so we’re realizing that in the B2B world, a lot of transactions are still happening the old fashion way, through rolodex, through the old voice network, through Excel and email. No one has built a real marketplaces. So we’re bringing the best practices of the consumer world with B2B world.

Alejandro:   Got it.

Fabrice:   So that’s the current thesis. And [44:04] thesis then we meet the businesses and it’s like okay, do we like the team? Do we like the deal terms? And do we like the business? And do we like the business I mean there’s a whole bunch of variables in there like market size, business [44:17] etc, but one core key component for us is unit economics. And does the company kind of recoup their customer acquisition cost within six months? Do they get three times their customer acquisition cost in that contribution margin for the first 18 months and hopefully can the LTD be way more than that? And if when we need a company and basis of two one conversations, we get comfortable with they meet our thesis and we’re comfortable with the team, we’re comfortable with the deal terms and we’re comfortable with the business, then we invest. So we decide very quickly. On average, it takes us less than a week to decide if we’re investing in a company.

Alejandro:   That’s amazing. So I guess obviously the early stages people is really big component. So I guess what kind of pattern say, Fabrice, do you see in founders that have that success potential?

Fabrice:   We find that the best founders, in a way it’s unfair or amazing storytellers because when you’re an amazing storyteller and you have great control of your numbers and your vision, you’re going to be able to raise money at every stage. You’re going to be able to hire better people. You’re going to be able to talk to them to the press. So the excuse in a way in favor I mean favourably towards extroverts versus introverts but people who are amazing storytellers but obviously who are smart and greedy and at the top of their numbers or in a better position to raise than others [by the eye 45:56]. I mean clearly if you have to pick though the one variable, the one thing that you want the most to succeed is frankly is [46:03] over everything else but if you have a greedy storyteller, you kind of hit the homerun in terms of what you want to have.

Alejandro:   Got it. Got it. So if we have to go back to the days at Aucland, Fabrice, and you were able to give yourself just one piece of advice to your younger self and perhaps something that other founders can obtain some value out of it, what would be that piece of advice that you would give to your younger self as an entrepreneur?

Fabrice:   Well, there are many, there are three, well there are four main mistakes I did them or three main mistakes and one where there’s optionality but definitely I should have picked a different VC who understood me better and whose interests were aligned with me. Two, I should have had a tag, sorry, drag. Three, I mean there is an option to do a secondary and get some liquidity. During the transaction, I didn’t do that because I felt I wanted to be very aligned but I probably should have taken a little bit of the money off the table because it would have helped me for the next companies and frankly allowed me to have, be able even pay rent. Possibly I should have sold the company when eBay made the first offer. I mean unclear because they offered 20 million. In 1998, I’m like, “We just launched.” I would have made 15 million but the reality is not doing that led to the $300 million offer like a year later which was a very—would have been a better ad com had I been in a position to sell. So I could have gone both ways on that one. In both cases, the offer was higher than the company was worth so it warranted thinking about it in a more thoughtful [48:00] than I did. So a lot of losses. Well now that said, if actually I had been able to sell you know for 300 million when I and I had 40% of the company at that point. When I was 24 and I made $120 million, you know, things might have turned, I mean you can say, “Oh, you would have been on the trajectory and succeeded way more since then.” But at the same time perhaps I would have been an insufferable arrogant prick, you know, and/or thing these things come so easily I have wasted it all. I mean it’s unclear that it would have led to different outcomes from where I am today or better outcomes from where I am today. Partly who I am today comes from the hard losses that came from at that time when I didn’t monetize. I made a lot of key mistakes everything from hiring to easy selecting to good contract negotiating to thinking [48:53] exits that allowed me to not make those mistakes and improve on them on go forward basis. If things come too easily at first, maybe you think they keep coming easily and I wouldn’t have necessarily learned the hard way. I mean there’s something to be said for like learning the hard way and putting in the work, when you look at like these artists or these athletes who make hundreds of millions of dollars end up going bankrupt, in a way things because things maybe came too easily and they felt it would keep going forever even though it doesn’t so they don’t actually understand or learn the underlying principles that really lead to lasting viable success.

Alejandro:   Absolutely. You know, the other day we had Ander from Ticket Biz and we had a really nice conversation and he mentioned that one of the best pieces of advice that he got before he actually went on to take on the deal was from you. And you said, “This is your first company. How much more risk are you willing to take? Maybe you want to take a look at selling or you know you want to stick it around and increase the risk?” But he did mention, Fabrice, that that was one of the best pieces of advice that he got. So I’m sure that all the founders that you worked with, we see but tremendous amount of value from all these experiences and…

Fabrice:   Yeah and I never told you how I end up investing in the company. I was in Buenas Aires in the OLX office and I did a Skype call. He was in Bilbao if I recall correctly. And we did the call. I love the pitch. I love him on the call. On the call itself, I committed $350,000 investment or whatever and like so I think it was one hour Skype call. I was like, “I’m in. I’m investing. Just send me the docs.”

Alejandro:   Wow.

Fabrice:   And so that level of turnaround and decisiveness, something that entrepreneurs appreciate because they rarely get it from VCs beyond the advice.

Alejandro:   Yeah, absolutely. And that was 165 million. So I’m sure you guys did very well on that.

Fabrice:   We did very well and we continue to build the relationship with them ever since and you know now we co-invest together in new deals and we back him at whatever else he does ever again.

Alejandro:   That’s fantastic. Well, Fabrice, you’ve been very generous with your time. So what is the best way for folks that are listening to reach out and say hi?

Fabrice:   I guess Twitter or LinkedIn or Facebook, frankly all three I’m reasonably reachable and they can follow me on my blog where I write about everything and anything. It’s just fabricegrinda.com.

Alejandro:   Got it. Well, Fabrice, it’s been an honor to have you. I definitely learned a lot and I’m sure the people that are listening as well. So thank you so much for being part of the show today.

Fabrice:   Thank you for having me.