March 3, 2015 at 14:20Startup Investments: Investor Perspective
We continue [ 1 , 2 , 3 , 4 ] to compare approaches to work in startups in Russia and the USA. Today, the comments of Mark Andressen and Ron Conway on the aspects of attracting investments and working with investors will be commented on by Sergey Negodyaev , Project Portfolio Management Director, Internet Initiatives Development Fund. Mark Andressen says that venture capital investments are more accessible to those startups that are completely different from their competitors and show radical differences from them.
How would you rate this statement in the context of Russian realities? Do you include this criterion for evaluating startups in a number of priority?
I don’t really understand what it means to be “completely different”. In international practice, the term “disruptive” is used, which can be interpreted as “revolutionary” projects that break established rules in an industry.
An example is Uber, which is completely changing the landscape of the taxi business worldwide, or virtualization technologies Vmware or Parallels, which on one physical machine allow you to run one or more virtual machines, and then this technology allows you to build different solutions for end users.
Such projects have a very high profit potential due to a sharp restructuring of the existing paradigm, which allows you to quickly change the balance of power in the industry. In this context, Russia is no different from Asia and the West, and we, like our foreign partners, are looking for investment opportunities that have maximum growth potential.
If we are talking about copy-katas, then yes. Most Russian investors are very enthusiastic about simple and understandable projects, which is confirmed by a large number of investments in such segments as ecommerce and digital entertainment.
Ron Conway emphasizes the need to maximize the use of the company's own funds - independent work without attracting investment. Do you have a ready-made recipe for those who would like to decide on the need to attract investment? What kind of projects can’t survive without investment?
The most correct thing is to develop the project at your own expense. Investment money is very expensive for the company, it can be compared with an extremely expensive loan at a rate of 60% per year.
Without investments, it is very difficult to develop technological projects, since they can take more than 12 months to get to the first revenue. Without investments, it is also difficult to develop projects aimed at creating a large user base without the task of quickly generating revenue and reaching self-sufficiency (Instagram, Telegram).
Mark Andressen cites the following statement as an example for startups working to attract investment:
“I received seed investments and achieved such and such results. I eliminated such and such risks. Then I got an investment in Round A. I achieved such and such results. I eliminated such and such risks. These are my intended goals, these are my risks, and by the time I need investments in stage C, I will be in such and such a position. ”
Do you think this approach is sufficiently substantiated? What else would be great to emphasize when dealing with investors?
This approach is beautiful and perfect. The investor's task is to make money predictably. If a team comes to me that sets goals over the years and successfully achieves them without significant deviations, then I would give them money with my eyes closed. The problem is that such projects do not exist.
One of the main problems of the projects is poor communication with partners and investors. Such projects often bring surprises that are not always pleasant.
Seriously, it’s very important to understand the goals of the company, both financial and strategic, as well as plans to achieve them. The more clearly and reasonably the project is able to convey information and protect its goals and plans, the easier and more pleasant it is to work with it, especially if it manages to achieve them.
Ron Conway advises not to go in cycles in attraction of investments, and to pass this stage as soon as possible. Often, the founders consider getting the investment their personal achievement, but in reality this is only a basic step on their path, which is better to deal with as soon as possible.
Can you agree with this statement? What could you warn companies that are in the process of attracting investments from?
I absolutely and completely agree. Very often, projects boast that they have attracted a round of financing, but do you often hear that a particular project “made” 30-50 million revenue?
Do you often see news like: “Our project has attracted 3 million paying users with more than 50% repeatability over the past 6 months”?
Investing is the fuel for your plane to get from point A to point B or to bridge the abyss. But for this you need to have a plane that does not fall, or that has wings and an engine. If we understand that the plane “will not fly” due to, for example, the convergence of the unit economy, then “burning” investments is the same as “scaling losses”.
Why would anyone be proud of such losses? An entrepreneur must have a “victory” attitude. Investing here is just a tool to achieve this goal, nothing more.
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