“Any evaluation of a Ukrainian company is now either a myth or some wild numbers.” Vitalii Gorovyi transforms InSoft.Partners into a group of companies. Why do he and his business partners need it?
Vitalii Gorovyi, a Ukrainian serial entrepreneur, has transformed the Software Development holding InSoft.Partners into a group of companies under an umbrella brand. The group continues investing in new businesses, trying out its accelerator program, launching offices in Poland, and looking forward to creating an internal corporate fund.
AIN talked to Vitalii and discussed the company’s changes, as well as nine successful deals closed since the full-scale Russian invasion has started.
When you agreed on this interview, you said that InSoft.Partners would change the concept to a group-of-company format. Please tell me the conceptual differences from its current IT holding format.
I would love to say that it’s an old strategic vision with 15 years of planning, and we are implementing it step by step. I love telling such visionary things. But let’s be honest. We just saw another opportunity and started moving to it.
Eight years ago, we started as InSoft Capital. It was a different brand, a foundation. Later, however, we understood that this format was not that convenient. We are more than bold operationalists or classic investors. We are not the ones who like to bite small pieces from many companies as ventures do, for example.
Our concept is rather about private equity with a significant operational profile. So, we consequently transformed into an investment company and then into a holding.
Basically, we started with investing money of our investors. Later, we switched to joint investments with external partners. Then, we decided to spend only our own funds. Now, we use the money of internal partners to invest. And, of course, we continue testing new business models.
What benefits did we enjoy from a holding concept? We consolidated assets within one decision-making point. Why must we become a group of companies? Because it is an ecosystem with all its members’ expertise and a cost-effective structure. InSoft.Partners will be an umbrella brand of a higher level.
Thanks to this, we may now participate in tenders that are unavailable for separate companies. Now, we spend less on establishing foreign offices and purchasing stands at large exhibitions. We apply cross-sales within our group and exchange knowledge between companies and their divisions. Our Lead Generation and Finance teams pretty long organize joint meetings and work united on many projects.
How many companies belong to InSoft.Partners’ portfolio at the moment, and how many employees does the group have?
Currently, it’s eight companies. Seven are in the main portfolio, and one is in the accelerator we started in an MVP format. The number of employees is about 700.
What is InSoft.Partners worth now, in your opinion? The last figure I heard was $40 million.
Naming a figure is complicated nowadays. Look at the current situation. Unfortunately, many international funds or strategists we know say Ukraine is not a place for investments today. Under such conditions, an M&A with some foreign partners would be a coincidence. And, unfortunately, it is usually about discounts or something like that.
So, any company evaluation would be far from reality and sound like a myth.
Still, if you want me to name you a figure calculated based on some math or finance, I would say that, according to our current margins, structure, market share, and operations, speaking about the group as a whole, including previously considered multipliers, we could have grown 1.5 times from the previous estimate of $40 million [to $60 million—edit.].
Nevertheless, it is only a figure. Only closed deals matter.
So, we are only playing with numbers now?
Yes.
You mention an important thing about investor fears. What are the three most significant risks of investing in Ukraine?
Even one reason would be enough. People who are not aware of the everyday events of this war create too many fairy tales. In fact, our image of the war also changed several times, and it continues to change.
Our Western partners were full of emotions at the beginning. Now, it’s rational thinking. For the first six months of the big war, we experienced a compassionate wave of their support and help: donations, contracts, new customers, etc. Some old clients also came back to resume our cooperation. Then, everything started to shrink. Life goes on. The corporations have their quarter and annual plans and middle-term strategies. They think about investments and bonuses, not emotional one-time support but balanced decisions. It is hard to explain to your board members that you didn’t fulfill your plan because your contractor lived an entire week in a blackout and couldn’t visit you for the last two years because he might not leave his unit.
Another fun observation is that nowadays, you can hear that Westerns got “tired” of news about the war. In my opinion, it is in the past now. As I spoke with my foreign partners in 2023, they really could wonder, “You did not sign peace yet, really?” Yes, they indeed asked me this. So now, most of our counterparts never mention the war and simply calculate potential losses from cooperation with Ukrainian companies and local restrictions.
That does not sound optimistic, but thank you for the real picture. Let’s return to the company. You privately told me earlier that the CEO of Inoxoft, Liubomyr Pohreliuk, joined your pool of investors in January 2024. Can we suggest that you are now in the middle of a story of your company and other businesses that joined your ecosystem through syndicated operations can invest in deals of the group?
That’s an interesting topic. Based on my observations, a businessman who builds a working and profitable business that doesn’t grow anymore will eventually feel bored. All these entrepreneurial extremes turn into routines, such as endless Groundhog Day, and the entrepreneur gets eaten by the routine.
Actually, we created a way for our partners to look beyond their routine operations and switch to investor relationships with us. We applied the current business model with Inoxoft longer than others, made plenty of changes, and established deep business relationships. That’s why we tried to expand the partnership format with them specifically.
With Liubomyr, we sought a potential target, conducted negotiations, estimates, and trades, and closed a deal. It all resulted in a new company in our portfolio, Rolique. And Liubomyr was not a passive investor here since he had been deeply involved in strategic and operational process development. Now, the whole group watches Liubomyr’s professional transformation and helps him because other partners are interested in switching their roles similarly.
You also mentioned syndicate. We discussed creating something like this because not all partners are ready to enter other businesses on the operational level. However, they are interested in co-investing. It’s all about finding an investment model that would be useful for all of us. Maybe we will create an internal corporate fund with interested partners.
Tell me about your evaluation procedures regarding companies you invest in.
We look at the essence of a business and check whether it has severe problems in its structure. If it doesn’t, we seek low-hanging fruits, the processes to solve pretty quickly to increase its revenues.
During the screening, we look at founders. We very appreciate an effective partnership. Every day, we work together. And such a personal connection and mutual understanding and vision are keys to a long and complicated way.
We look at companies with 100-250 employees. We can lower our expectations for a niche business or one that can quickly take over a niche.
It should be a developing company that is profitable and oriented toward Western customers. As always, we are interested in leaving the founder in charge, but we are also very close to the control share. So, we used to buy 30% of a business, but now, our appetite has grown to 49%.
In February, you also used the option to increase your share in Noltic.
To be honest, I think we did this before, too, but without a systematic approach. And after Noltic, we add such options to the contract. It’s a win-win because this option is effective for buyback deals. A buyback is when the founder can buy our share if we find our partnership non-convenient for both parties. In such a case, we wouldn’t hold our part of the business and exit pretty easily, saving good relationships with the founder.
According to this concept, we purchase smaller shares at the beginning. Because, in the case of a buyback, the founders could struggle to buy their part back. However, if a partnership works well during some time, we use our options then. It’s what we did in Noltic.
At the beginning of our conversation, you talked about an internal accelerator. Remarkably, some market players started developing their own accelerators. Tell me the conditions of how to join it.
You should know that our project is not a classic accelerator. One day, we got an idea that we could help grow both companies we used to—with 100-250 employees—and smaller ones, with 40-50. That is what we call acceleration. We share our experience and support through training, routine building, and, sometimes, branding. However, our work within the accelerator differs from our core business model. To start cooperating with our core companies, you should first go through the accelerator and grow.
Our readiness to test such an approach and the Perfsol founders’ wishes matched. I believe it is a win-win. If we win this story, it will be a win for both sides and a new opportunity for the small service company market.
Only IT companies can be candidates for acceleration, right? Or are you ready to try other domains, too?
It is the second option. I believe in niches, and we will go beyond the service IT domain. Our knowledge about lead generation, business development and operations, and the ecosystem we are building would be relevant for other niches. It is only a matter of time.
How do united teams work now as a group of companies? I remember you merged lead generation and helped each other with legal expertise. What else is there?
Yes, our lead generation and finance teams work together every week. Other teams have done it ad hoc so far. We have a small internal university our trainees attend to learn quickly on real cases. The same goes for finances—we solve non-trivial issues, for example, how to open a bank account for an Estonian entity. Everybody who has done this knows how painful it is. But together, we managed to solve this.
We also use the umbrella brand to participate in tenders. Competing at tenders is a known problem for small Ukrainian companies, up to 200 people. But if they apply as part of a large group of companies, with all its strengths, they will at least meet formal criteria.
So, if you have a small business with up to 150 employees and want to open a foreign office, it means many complications and costs for you. You must find a physical office, negotiate, understand how to hire and work with people in this country, pay taxes, consider cultural differences, etc.
But if you have eight companies in one office, it all is much easier. It is cheaper since the costs are split between all, making them irrelevant on the scale of a single company. And then, you have an expertise multiplication effect with every player aboard.
Speaking of foreign offices, where are you currently present outside of Ukraine?
Our companies already have their own small offices in different countries. What’s different about the current project is that we will immediately open such offices under a common brand, where dozens of people will work together. This will be more interesting for clients and the team. Because for partners, the logic here is based on the principle: “It does not matter if you want. You have to.” More and more clients are requesting cooperation with at least a part of the team outside Ukraine. Accordingly, we realize that this is a crucial step for us to develop further.
We are now opening our first office in Poland, in Wroclaw. We will continue to move forward according to the Agile principle: depending on how the first office performs, we will decide on locations, size, and timing.
Today, you said that a serial entrepreneur is always about a different routine. Speaking of InSoft.Partners, what is the next milestone you see for this project?
There will always be a routine. Maybe I didn’t make my point clear enough. Jumping from one dopamine game to another also raises questions. First, you need to make an MVP out of an idea, then a system, and scale it. But then the system will have to be improved. Of course, somewhere later, you can hire managers. However, everything comes in due time.
As for milestones, first, we need to establish a process where the founders of the companies from the group will systematically contribute to the group’s expansion, as Liubomyr from Inoxoft did. Secondly, we need to resolve the issue of the corporate fund because our partners have such a desire, and it would be logical to keep the money in the system. Thirdly, we need to test the idea of our accelerator. Fourthly, we need to go beyond the classic service IT.
Next, we shouldn’t forget about our foreign offices because if the concept works, we will have an exciting way to become more and more international. Then, we will move into another league when we start investing in expansion through a leveraged buyout mechanism.