Vladimir Sakovich: The main trend influencing the venture capital market in Russia is the development of ecosystems by several large companies. They are buying startups, which allows investors to get their money back and encourages very young people, even students, to launch new businesses in order to sell them later. There are more and more M&A (mergers and acquisitions) deals, and they free up money for new investments.
Today, many deals are happening in a chaotic manner, and one needs to understand that on the horizon of a couple of years, the development of ecosystems will be completed, and their creators and owners will move on to packing the purchased assets into a single product. Therefore, those who are launching a startup today should not be hoping to sell it to an ecosystem. These companies must be self-sustaining.
Another trend is the growth of investments by the population in general, including through mobile apps. Before, people used to play solitaire on their phones, and now they trade. I recently gave a lecture at the Skolkovo gymnasium, which was attended by children from the 5th to the 11th grade. And they told me how and what they buy through the Tinkoff app. I was shocked.
At the same time, the market for non-public investments has grown notably: people invest in startups dozens and hundreds of thousands of dollars. This is because there is more free money both in Russia and in the world, and most importantly, in recent years, especially during the pandemic, everyone realized that technological changes are our future, transformations will affect everyone, and everyone wants to buy a stake in this.
Dmitry Matskevich: There is a strategic advantage in being a founder with a Russian background. To build a complex technology, you need to attract high-quality big data specialists (data scientists). In Silicon Valley only Elon Musk can hire such people because they need to be bought from Google or Facebook. And in Russia, you can hire specialists, create a complex technology and find clients to test it all with relatively less resources. And then you can sell your startup to clients on the international market.
One of our first clients were Russian firms and they were each giving us around $0.5 mln. This helped us get into the Y Combinator. In the US, we could not immediately sell a product worth $0.5 mln. But at the same time, the American market is incomparably larger, and $100 mln earned in the US can be capitalized in a completely different way compared to $100 mln earned in Russia. In the US, you can capitalize $20 mln in $1 bln.
Vladimir Sakovich: If you are building a b2b company, then it is better to focus immediately on the whole world. B2b processes are generally similar all over the globe. The capacity of the Russian b2b market is often insufficient, and abroad no one is interested in your local experience – it gets multiplied by zero. Even if in Russia you have sold b2b products worth billions of dollars, it would mean nothing abroad. A foreign strategist would say: “I'm not interested in this, cut off the Russian story.” And then you understand that his or her investment proposal is not very interesting. On the other hand, Russian strategists are not interested in the international part of the business, they are not ready to pay for it.
Therefore, if you are building an international company, it must be immediately international. Indeed, a dollar of revenue on the international market is capitalized very differently than a dollar of domestic revenue. But you need to assess the risks: sometimes in an attempt to chase a big fish in an ocean, you can get nothing.
Dmitry Matskevich: I completely agree with Vladimir that, ideally, this is how it should be done. But in reality there are different stories. No matter how difficult it is on the way, step by step you can deal with everything. You start with development in Russia. Then you open additional offices, for example, in Amsterdam, and transfer part of the development there. Or you create a product team abroad.
I know many billion-dollar companies whose development remained in Perm, Belarus or Ukraine, and an office in the US or Europe appeared later. When you grow enough, you get resources to transfer the team abroad. And while you are small, you can develop in Russia using smaller resources.
Dmitry Matskevich: The pandemic has erased borders and made it possible to become global from anywhere in the world. We were able to conduct a Zoom investment round without ever meeting with investors. It has become more difficult to build long-term relationships, but even now in the US, we use Zoom to agree with clients on contracts worth up to $200 000.
Vladimir Sakovich: Communication on Zoom still slightly reduces the level of trust. However, the number of deals did not really drop, because another trend has realized itself: more free money appeared on the market and more people wanted to buy a stake in the future. There is now a little more of altruism: people believe that they need to do something good without caring much about financial returns. Many people began to make decisions more emotionally: they want to support startups, buy something from them, work in a startup - this is important. There is the desire to change the world for the better.
Dmitry Matskevich: Covid was a shock that made people think about what really matters and what is important. And many thought the same, so the crowd effect worked. When people have already achieved financial success, they have a new goal – do something more meaningful. And this affects many decisions, including financial ones. An example is investments in sustainable development.
Dmitry Matskevich: More and more people will look for ideas that should become a source of energy for them. Today, surviving, achieving, consuming is becoming less important. While before, projects grew due to increasing consumption – new audiences went online, spent money on advertising, bought fashionable things and goods – now conscious consumption is dominating. There are more and more applications that are focused on improving the quality of life: eating better, sleeping better, exercising, and so on.
Vladimir Sakovich: There are more glass ceilings – and sometimes reinforced concrete walls – than before. And there will be even more. In the next five years, we will see a redistribution of values related to technology: it has become clear to everyone that owning a technology can mean managing, if not the whole world, then a part of it. It is dangerous for states, companies and nations. The most striking example of recent months is China, where the state decided that the concentration of technologies and products in the hands of a very narrow group of people is not good. Therefore, with the help of regulatory powers, Beijing began to redistribute these products. Such intra-country and geopolitical shifts are inevitable, and we must take them into account.
Vladimir Sakovich: Education at a top university is one of the elements that build trust in you. And this is a very important asset in the venture and investment market. Moreover, a good education gives confidence in oneself, confidence that your decisions have an economic or mathematical basis, that you make them not just intuitively, but on the basis of scientific laws. You doubt less and move faster. Therefore, studying at NES, like any good education, increases the trust of the outside world in you and your confidence in being able to conquer the world.
Dmitry Matskevich: I agree with Vladimir's arguments. In addition, studying at NES helps to establish contacts faster, it is an important indicator of you, and it gives you an opportunity to communicate with other people. And you also learn to think, because our professors encouraged and cultivated independent thinking and independent decision making.