— Zamir, tell us about the creation of the new fund. By the way, is it somehow connected to GVA?
— GVA is an international group of companies; its main activity is the organization of corporate, acceleration and other innovative programs. GVA is very successful in this activity, although the pandemic has made its own adjustments. Now we are doing the 40th accelerator - the program for bringing the CIS startups to Indian market. GVA also has several venture capital funds operating in the US market, where the bulk of the money has already been invested.
As for the Vibranium Venture Capital fund, this is an independent project, outside the GVA infrastructure. Last year we launched an interesting project, the ForestTech Accelerator, one of the key persons in its execution was my current partner in the fund, Kirill Timofeev. We worked together for a whole year, built a high-quality acceleration program, got to know each other well. As a result, we came up with the idea to launch a new venture fund to invest in startups. In this case, Kirill was involved in fundraising, while I formed the structure of the fund, strategy, and other areas of work. This is how Vibranium Venture Capital was «born»; its launch was announced last year, on December 7.
— How do you see the investment focus of the fund?
— Vibranium Venture Capital focuses on investments in B2B IT startups that are ready to enter their first foreign market. By our investments,we aim to help the projects to do this, and then scale further. I have been working in the venture market for a long time, I work closely with the CIS startups (several thousand projects have passed through our programs) and I understand the trends pretty well. In my opinion, right now is a very good time to bring the CIS technological projects to the foreign markets. There is already a critical mass of high-quality mature startups in the CIS countries.
— Which markets are interesting for scaling projects?
— We are interested in markets larger than the CIS region. Therefore, if a startup is interested in entering the market, say, in Kazakhstan, this is not specialized project for us, simply because Kazakhstan isa small market. We are looking for projects that plan to enter markets that are more significant: Europe, Asia, Africa, the USA, and Latin America.
— Who are the fund’s investors?
— Private investors, entrepreneurs who have earned capital by building a classic business. The CIS businesspersons who have decided to diversify their portfolio to include venture investments, in addition to classical businesses.
The funnel of the fund at the initial stage and it is quite wide
— The fund was launched in December 2021, how many projects have you already managed to review?
— There are already more than 80 startups in our pipeline, most of them are specialized, but at different stages of development. With some startups, we are already moving into the phase of direct interviews. At the same time, we have a wide funnel: we do not limit ourselves to one technology or market vertical. These can be startups that help companies in various fields - from blockchain to artificial intelligence and machine learning. Our task is to look at all profile projects. Perhaps, after the first transactions, we will see a trend or a technological vertical that we want to focus on, and then we will narrow the funnel.
— Are those only projects from the CIS?
— We are looking at projects from the CIS mostly for we have access to this pipeline and we know everyone in this market. But we plan to expand the geography. If we understand that we have exhausted the funnel of startups -projects ready to enter the foreign market, we will expand the geography. Also, we believe that breakthrough technologies are often born in diversified teams - and accumulated experience of such team can make a startup globally significant.
— What projects can count on investments?
— It should be a startup with a working product that has sales on the local market of at least a million rubles a month and a more or less stable team, and the business model has confirmed its efficiency. However, there might be not enough resources for scaling, although there are ambitions, desire, and competence for scaling. For such projects, we are ready to act as a source of resources, help them make the jump, build a bridge to a new market. Usually these are projects between the seed round and round A.
— Does the CIS origin prevent projects from scaling?
— For a foreign investor, such origin is not a barrier; the barrier is a legal entity in which the project is trying to attract investments. We see many examples when startups attract significant investments. Last year, the “StudyFree” startup raised a $3 million round, the Miro project raised $400 million at a $17.5 billion valuation, and the InDriver project raised $150 million — these are all projects with Russian roots but incorporated abroad. Therefore, I don't see any skepticism towards the founders from the CIS, if the project is incorporated in a clear jurisdiction, according to clear laws. The only thing I would note, is a certain skepticism and understanding the risks if a significant part of the team remains on the territory of Russia, as well as in general in the space of the CIS countries. A large number of good IT companies worked and actively grew in Belarus, but then a political crisis occurred in the country. And these are the risks that foreign investors always consider due to the instability of the political situation.
Bottleneck for startups
— Vibranium VC is not the only fund that helps startups from the CIS to scale abroad. What is the difference between the Vibranium fund and any other?
— First of all, we came to venture not from the banking investment or private equity market, but from acceleration. We understand well how a startup grows from an idea to a global market; we know how to do it with our own hands. Accordingly, we offer not just money. Through our connections, partnerships and scalability knowledge, we help a startup land in a new market. We have a good network of partners around the world, more than 30 organizations that are engaged in "landing" startups in their markets. We plan to hold meetings with all portfolio companies, but not as investors, but rather as mentors or advisers who will prompt the founder to take the right steps (of course, if the founder has a corresponding request). We do not look at startups as solely a financial investment, but rather as a business that we can help with their development. Money is not always the main problem and bottleneck in business. Very often those are the founder’s competencies, lack of soft skills or agreements in the team, incorrectly built internal processes. We can help complete these things as a minority investor partner.
— What are the most common problems among the CIS projects?
— A very common problem is the lack of skills in international marketing and sales. In the CIS projects, there may be good product specialists- people who assemble the product; but often there is an imbalance – there is no well-organized processes and systematic sales behind a good product. However, in recent years, business competencies of the CIS projects have increased quite significantly due to a variety of acceleration programs. There is still the problem of not being able to speak English. After all, if you do not know the language, you will not be able to present your project to either a future client or an investor, and our founders must definitely work on this issue. By the way, this is one of the criteria for working with a project in our fund - the startup team should have at least one person who is fluent in English.
— What do you think of the current situation in the VC market in Russia?
— The market continues to grow: according to various estimates, it has almost doubled. The size of transactions has also grown - if at the seed stages the average size previously reached $200,000, now they are approaching to $400,000. The number of new investors is also growing, with about twenty new funds opened in Russia last year alone. This is also because interest rates in the banking market have become low, the stock and bond market remains extremely volatile, and the real estate market is no longer growing as it used to do.
Therefore, people are forced to look for alternative markets for investments, including going to venture capital. It is clear that these are high-risk and long-term investments, with a horizon of 5-7 years, but at the same time they are more interesting and exciting. It’s an opportunity to touch technological innovations that change the world; to become part of a community where people create something new, and you want to be around such people. After all, participating in the next conference on investment in apartments in Dubai is not so interesting, unlike a conference about investing in innovative startups, the opportunity to communicate with their founders, to see how they change the world. This is a real drive, so such an emotional component attracts more and more people and capital. At the same time, I would not say that venture business is more risky when compared to investing in shares in the stock market. Moreover, it is definitely less risky than the same investments in cryptocurrency.
— What niches, besides the ones that were chosen by your fund, do you consider attractive for investments?
— In our opinion, we chose a very promising direction. B2B SaaS startups are growing very well; they have a high ability to survive. After all, the behavioral model of a business does not change as quickly as that of individuals, and businesses that focus on the B2C market risk being less stable. Of course, there are a few unicorns on the market that work with end-users and they are growing well. However, if you look at businesses from the CIS that are developing steadily, raising new rounds, and providing a return on investment to investors, this is the B2B segment. And these are the projects we focus on.
From a technological point of view, I personally like everything that can automate processes and replace manual human labor. These are any solutions related to process innovations, replacement of a person with algorithms, solutions based on artificial intelligence. It is clear that artificial intelligence is in its infancy, but this is the future, and we, as venture investors, must look 10-15 years ahead. In fact, we are now betting on the future, our task is to find a future leader, the DNA of an Olympic champion. This is exactly what our work will focus on.
BY O.B. @ if24