Most Russian technology startups do not use external investment, according to Startup Barometer 2019, an annual independent techpreneurship market study. Venture investor Alexei Solovyov, the initiator of the research, explains the low level of foreign investment, among other things, by Russian founders’ inability to make their projects attractive to investors. Venture capital market players have shared tips on how to change this and how to approach venture funds for the desired investment, and not only in Russia, at the Gotech Arena conference in Moscow. Below is a brief account of the most important and unexpected recommendations for Russian founders.
Have global ambitions
Russian projects with global ambitions certainly have less trouble with obtaining venture funding; it probably goes without saying that having a product that enjoys confirmed market demand would be a plus. Investors are obviously interested in projects with potential scalability in different markets, regardless of the origin of the founders.
According to I2BF fund partner Alexander Korchevsky, the fund’s portfolio includes projects with a wide variety of founders, and when deciding on an investment, they primarily look at the product and where it will be marketed.
“The biggest markets are definitely the United States and Asia,” Korchevsky says.
“We prefer teams that have global ambitions. For example, in EnergyTech, we focus on markets such as the Middle East, Southeast Asia, Africa, and South America. These are very large markets with a low level of competition,” explained Pyotr Lukyanov, co-founder and managing partner of Terra VC.
Getting Russian money in the US
Still, investors warn that going outside Russia for a better chance of attracting investment does not guarantee foreign funding.
“In the United States, they will have to compete for investors’ money with numerous startups from India and China – and for US foundations you won’t be any different from them,” says Pyotr Lukyanov.
But it may still be a good strategy to go to the United States to receive funding from Russia.
Know your investor: choose speed
Looking for money back home is not the worst idea. Except that the choice won’t be as big and investment decisions take a very long time. Therefore, Pyotr Lukyanov recommends choosing an investor based on how fast it makes decisions. This advice will be particularly helpful to technological projects. Startups may also explore such opportunities as investment funds and business angels.
Quality is the key
The quality of a team is often a major factor in the decision to support a startup. According to Alexander Korchevsky, it happens very often that a really cool technology doesn’t “take off” due to difficulties with production, founders’ vision, uncoordinated actions of the team, etc. And, on the contrary, a project that seems mediocre at a first glance may transform into an exciting business in the hands of a talented team. Korchevsky also stressed that the foundation no longer focuses on a product-centric approach in its decisions and to a larger extent considers the quality of a team.
However, even if a team did not succeed with one project, its next brainchild may score a big win – as long as the team is professional. Flexibility is just as important. For example, Improvado, a startup with Russian founders presented three pilot projects over two and a half years thus increasing its net worth ten times since the very first investment from Impulse VC.
Learn to sell and think strategically
Attracting investors will be an easier and faster process if the project team pays sufficient attention to sales. “Learn to sell” – such was the advice given by representatives of venture funds to founders who are seeking investments. The advice is particularly relevant for Russian projects, whose founders often lack sufficient sales competencies.
Speaking of other mistakes that Russian founders make, Alexander Korchevsky recommended that they should adopt a more flexible approach to work and perform obligatory customization of pitches for different investors. Also, they should not ask the investor who has already refused the project to present it to other investors: such approach is unlikely to prove successful, Pyotr Lukyanov says.
Beer as test
Interestingly, a glass of beer can literally help find a proper investor for a project, as well as a proper project for investments. According to Alexander Korchevsky, having a beer together often serves as a test for building emotional connection, which is extremely important: for instance, in the United States, the investor-founder relationship often lasts longer than the average marriage (10 years against 8 years).
“This is similar to marriage or friendship; this means you have to have confidence in the partner you choose,” venture fund managing partner Kirill Belov agrees.
He recommends that founders should be extremely scrupulous about choosing an investor as they will have to share both ups and downs with each other. For instance, it is a good idea to get an opportunity to speak to companies from the fund’s portfolio before making a deal, Impulse VC representative says.
By Olga Blinova