“I am planning to invest about $2M in Ukrainian startups”: an interview with a venture capitalist from Kazakhstan
Murat Abdrakhmanov, a Kazakh entrepreneur, has been developing his own business in the country: a chain of dental clinics Dent Lux, medical centers Medical Park, and telecom company ASTEL. Then he turned to venture capital investments, investing in startups in Kazakhstan, Nigeria, Thailand, and Ukraine.
He plans to continue working with the Ukrainian startup market despite the crisis and has recently closed a deal with a Ukrainian startup Skyworker. AIN.UA editors asked the investor about the startups he invests in and why he is investing in the time of crisis.
They call you a venture capitalist and business angel. Do you invest your own money in startups, or do you manage a fund?
It is rather a matter of terminology. When it comes to angel funding and rounds, it usually means checks from $50,000 to $100,000 and pre-seed rounds. Venture investments start with checks of at least $150,000 and higher.
Accordingly, I work as a business angel. In the West, there is also such a term as “super angel” in the sense that such investors have higher checks on average than business angels. I invest my own money, check amounts compares to ones from a VC fund, but no fund in this case. We considered options for creating a fund, but no decisions have been made so far.
What amounts do you usually invest and in what rounds?
I don’t work with projects that are at the pre-seed stage. It is too early a stage for me. I start from the seed funding with a $150,000-250,000 check, respectively, at an early growth stage, a check can be about $500,000. In a series A round, the amount can be $1-1.5 million [Editor’s note: an investor usually gets a share in projects up to 15%, startups may submit applications through the investor’s website].
What projects have you already invested in? Are there Ukrainian projects among them?
Among the large ones: about 1 million in Chocofamily, which is an Internet holding No. 1 in Kazakhstan; in other projects, I invested from $200,000-500,000 to $1 million. Such projects include the 2C2P payment system in Thailand (it turned out to be a very successful investment, it was evaluated in the last round at $220 million), IoT project OrionM2M, Jiji in Nigeria. The latter is a subsidiary of a remarkable Ukrainian company Genesis whose shareholder I am as well.
Recently, we also closed a deal with Lidiya Terpel’s Ukrainian project Skyworker.
How do you choose projects to invest into, which industries are you looking at?
I have quite clear criteria for selecting projects, and I always try to stick to them.
Firstly, I need to understand what exactly the project does. I try not to enter industries where I don’t understand anything (for example, agriculture). I have been working in the technology business all my life, the telecom and IT spheres are close and understandable to me. It may well be a project related to agriculture, but, for example, working on digital processing of satellite images of fields.
The second important criterion: the project must certainly be scalable, not be limited to any one country, be it Kazakhstan or Ukraine, it should be able to cross borders.
An important criterion is a team, especially when the project is still at an early stage, and it is difficult to evaluate something other than the people working on it. I also have an age criterion, even though people criticize me for it. I think that the best startup age is 28 to 35. People already have experience and a good education, expertise, but at the same time, enthusiasm, and desire to conquer the world has not yet disappeared. People at this age are willing to take risks and work hard towards their goals.
As far as I understand, are you currently looking at the Ukrainian startup market? Are you planning to come here to speak with some projects after the quarantine is over?
Yes, that is correct. Firstly, I have experience working with Ukrainian companies. I like the business environment, a very high technological and managerial level. Besides, companies and projects in Ukraine aim at foreign markets from the start, and that is exactly what I’m looking for.
Do you have plans for the number of deals in the Ukrainian market, average checks? How much are you planning to invest in Ukrainian startups?
Currently, it’s quite difficult to make plans, especially as far as venture goes. Also, I do not have a venture capital fund, and I am not responsible to anyone for investments. Therefore, I have no strict plans or budget allocated for Ukraine. I have already invested about $2.5 million in Ukrainian projects, and now this amount may amount to about another $2 million.
Why have you decided to look for startups now, in particular, in Ukraine? After all, because of the quarantine and crisis, the venture capital market is slowing down.
I made this decision last year, now we just continue to work it out. Yes, coronavirus interfered with our plans, but what is surprising, now, when everyone is in quarantine, people have more time to work.
Currently, I have no day off. I take part in different summits every day, and, in general, I can say that the remote work mode now allows to do much more tasks.
Also, the thing is that startups usually have a work horizon of 5-7 years, and, as a rule, they are unprofitable companies. These couple of months will not affect them much. On the contrary, they will have time to focus on product development. Of course, for more solid companies with stable cash-flow, the quarantine could have a significant impact.
But, after all, some startups work in industries that have suffered greatly. For example, travel, rental, etc.
Absolutely, but here we are more likely to talk about companies with formed cash-flows, they can’t be called startups either. And even in this situation, from an investor’s point of view, if a company needs money to survive at this time, why not enter it at some preferential evaluation, given this period.
Do you think that risks for venture investors have not really changed?
Honestly, I do. Following the example of our Kazakhstan-based companies, in which I have invested, it is clear that some of them are in a really stressful situation. For example, the revenue of online travel agency Aviata & Chocotravel could fall by 80-90%, simply because people stopped flying and traveling. But investors still support them, they understand that the company will need 6-9 months to rebound. The company is very strong, it occupied 70% of the market before, and will reclaim its positions in the future.
Tell us about the situation on the market for startups and IT in Kazakhstan, given the quarantine and the impending crisis.
I can demonstrate it to you by way of examples from different industries. What is happening to the travel industry is clear. People don’t fly and don’t buy tickets. It’s clear that the company needs to be sponsored in this period. But at the same time, grocery retail is only growing, logistics (in particular, food delivery) is growing, there is massive recruitment taking place.
We have an IT project OrionM2M, which deals with iron, makes IoT equipment. It encountered delays with one of the products. Due to the coronavirus, there were delays in the delivery of parts from China. Now China has come back to life and resumed the supplies. But at the same time, we had a plan for expansion into the EU, and the EU is stalling now, the product certification procedure is on hold. We have a 3-month pause. But the company is not idle, there is time to focus on the R&D center.
Online services are growing rapidly. And if before they were mainly used by the younger generation, up to 40 years old, now the audience of 50+ has begun to grow, due to the need. And after all, online delivery and other online services are like riding a bicycle: once you have tried it, you will never forget how to do it. People develop new consumer habits: order food from restaurants, deliver groceries from supermarkets. There is a very good demand for distance learning: people are in quarantine, they have nothing to do – they sign up for professional courses, learn new languages, etc.
Remote working is also an important phenomenon. I have companies with a classic business model. They’ve all switched to remote work, and their working process goes well. I also have been sitting at home for several weeks. Previously, I used to always go to work, fly on business trips, but now I work from home, and everything works out great. There is no need to waste time, buy tickets, fly somewhere. You can do much more this way.
Therefore, in general, we see nothing wrong with the situation for businesses.