How Telenor invests in startups through New York-based FJ Labs

Since the beginning of 2016, Telenor has been investing in the next wave of consumer facing marketplaces and e-commerce businesses, together with two well-known entrepreneurs, Fabrice Grinda and José Marin, at the New York-based investment firm FJ Labs.

  • Telenor and FJ Labs have screened over 2000 companies just in the last year
  • Early-stage startups that have potential to become new unicorns
  • Aim of investments is to strengthen position within online marketplaces in Southeast Asia
  • These are their main investment criteria

Since the beginning of 2016, Telenor has been investing in the next wave of consumer facing marketplaces and e-commerce businesses, together with two well-known entrepreneurs, Fabrice Grinda and José Marin, at the New York-based investment firm FJ Labs.

Johan Rostoft, Head of Classifieds New Models at Telenor, is part of the Investment Committee of the fund Telenor has set up with FJ Labs. He says that their goal with these investments is to help Telenor to innovate and drive development of new business ventures.

“We believe these are attractive investments that will deliver strong returns. In addition, this is a means of securing and developing Telenor Group’s industrial position in the Southeast Asia marketplace and e-commerce scene. The experience we are building makes us better owners and partners of digital businesses in Asia in general.”

 

Johan Rosoft here together with Fabrice Grinda, Founding Partner of FJ Labs.

How does the partnership work in practice?

“FJ Labs have a systematic process for screening opportunities, sourced through their extensive portfolio of founders and leading VC partners. We are working with leading VCs such as Andreessen Horowitz and Bessemer. In this way we get a high volume of world-class deal flow, meaning rate at which we receive business proposals and investment offers.”

“So, Telenor gains early intelligence on key trends about online marketplaces in the US, superior insights into the competitive landscape, and access to FJ Labs’ extensive network. We also have a Telenor employee embedded within the team in New York as part of our set-up to extract learning.”

4 main investment criteria

The fund invests to a large degree in the United States, making it possible for Telenor to take part in the innovation in one of the largest online marketplace arenas in the world. A large share of product, business model and marketing innovations in this space, originate from the US.

Rostoft explains that they invest in startups in the early stage; however they don’t invest in startups that haven’t launched their product yet. “Since we get in early, there is of course risk involved and we are prepared that companies we invest in might fail.”

So far, members of the Investment Committee have screened more than 2000 companies and have invested in close to 70 early stage tech-startups that might potentially become new unicorns and market leaders in their field. To handle the high volume of applications, they have set up a system with strict investment criteria.

These are some of the main criteria:

“We evaluate the team and their track-record. How well do they know their business? What kind of personality and experience do they have? Are they able to recruit the best talent?”

“After that, we look at the core business idea. What kind of product it is? What is their business model? What is the total market potential? We never invest unless it is a product we love.”

Rostoft explains they are not looking for average companies.

“We are looking for something that has a potential to become really big. In the digital space, and in particular within marketplaces, we often see a kind of winner takes it all dynamics. That’s why we evaluate how fast founders can scale their business model, how easily they attract new users, and we look at repeat buying behavior.”

To find a scalable business model might look easy from a first glance, since many models can scale well in the beginning. “A business model dependent on i.e Google advertising, might be able to grow well in the beginning, but may not be as efficient scaling in the long run.”

“Finally, when we’ve found an exciting product, backed by a solid business model and a great team, we need to assess the deal terms. What is the valuation? Who is leading the round? What other investors are coming in?”

Can you give us an example of a company you have invested in?

“Yes, I have an example within a key trend we observe within marketplaces, where we see the sites becoming more specialized versus generalist.”

“We recently invested in a company in Brazil: a marketplace for used cars. It is usually a lot of hassle to sell a car, so these guys developed a concept where you enter the details of your car, and you are immediately presented with an estimated price. If you think the price is ok, you take your car to one of their locations, and they perform a technical check. While the car is being checked, an auction is running among small car dealers, and by the time the car’s technical condition is confirmed, it has already been sold.”

“This business model has worked well in other countries. In a little over a year, the company’s revenue run rate grew from 0 to over 40 million US dollars, and they already employ more than 100 people. This is an example of a concept that we will evaluate taking to Asia.”

Today, Telenor has more than 200 million customers in over 13 markets across Europe and Asia. Asian operations generate more than 50 percent of the Telenor group’s total revenues. FJ Labs presence in the US, will allow Telenor to be at the forefront of innovation and test out new models that later could be deployed in other markets as well, such as our Asian market.

“We have strong positions in Asia, both on the telecom side and in online classifieds. One of the key objectives of our partnership with FJ Labs, is to export successful concepts to Asia when we know what works. This means we will have both a playbook for deploying the new business models, and we have access to people that have done similar ventures before.”