Repatriates' diary: how we raised a $ 1 million investment in six weeks (and gave less than 15%)
At UpStartConf - a section on the investment market and start-ups within the RIF-2011, the founders of Ostrovok.ru talked about how to attract global investors to Runet.
Experts, investors and IT entrepreneurs of Runet agreed that there are no start-up public cases on the Russian Internet market, no training for start-up web entrepreneurs, which adversely affects the market. In this post, repatriates Kirill Makharinsky and Sergey Fage present a case on attracting investments on the example of the Ostrovok.ru project
Startups in Russia are dedicated to
')
One of the things that we noticed after returning from Silicon Valley to Russia was how many Russian startups (often very talented people) experience difficulties in attracting initial funding.
We decided to share our experience and write a series of posts for hack readers. In the first post we will introduce ourselves, describe the stages of the search for investments and the process of attracting a million dollars to create the Islet in 6 weeks. We hope that our experience will help those people who are preparing to launch a startup in Russia. And that it will be useful for the development of a local ecosystem of startups.
About our project
Ostrovok.ru is a product whose goal is to help Russian users in the process of ordering hotel rooms in Russia and around the world. We started with a list of the best deals and will soon launch a full-featured hotel booking system. Our main competitors are travel agents offline. Our main online competitor is booking.com, but we hope to create a better user experience for Russian travelers.
We started working quite recently (and we know that the product is now far from ideal), so if you notice any mistakes, criticize and we will make it even better!
Prior to Ostrovka, we worked on our own Internet projects in Silicon Valley. Cyril founded Quid , a data analysis company that attracted funding from PayPal founder Peter Thiel, previously worked at Slide (the # 1 social application developer in the world at the time) and studied at Oxford. I ( sergef ) founded the video communication company TokBox , which attracted $ 26 million from Sequoia Capital and other investors, and before that I worked at Google in California and studied at the MBA at Stanford.
We founded the service for online booking of Ostrovok.ru hotels in 2010 and attracted over $ 1 million in investments from the founders and investors of the leaders of the global online travel industry, including Kayak.com, ITA Software, Booking.com and Qunar.com.
Step 1. Theory
“In theory, theory and practice are the same. In practice, they are not ”- Albert Einstein
The initial investment attraction stage is called the “seed round” or “angel round” and it looks like this.
- The most typical investors are individual investors with experience in the field of high technologies. A less common type of investors is venture capital firms that want to invest in small transactions. It can also be your relatives or friends. Try to stay away from investors who have no investment experience or who you, your relatives or friends do not know - it will be difficult to deal with them.
- The typical amount of initial financing is $ 100,000-500,000. Attracting less than $ 100,000 is meaningless because it is not enough to reach the next stage of financing. It is very difficult to take more than $ 500,000, as the company is still underdeveloped.
- The typical percentage that you will give to investors ranges from 10% to 30% of the company's shares, ideally less than 20%. Never give more than 30% for initial financing. Here is a more detailed explanation of why this should not be done.
- There are many forms of structuring transactions that can be used to obtain investment. The best way is convertible debt (loan investments, which later turn into stocks). Here is a very detailed explanation of why this is ideal for a startup.
Step 2. Preparation
Fortune Favors The Prepared Mind - Louis Pasteur
We returned to Russia in July 2010 with a plan to make a start-up in the field of e-commerce. In August, we spent 3 weeks and conducted a study of industries that were well developed in other countries, but were not developed here. We tabulated the result with comparable companies, major competitors, and positive / negative aspects for each such industry. After that, we chose the two most promising areas from this list (online trade in clothing / shoes / accessories; and the online sales sector of tourism products) and analyzed them in more detail in the following week.
On August 31, we made a decision to concentrate on the travel-segment and made a 12-slide presentation for potential investors. The presentation contained mainly text, there were almost no graphics and images, there was no business plan and financial model. For a good example of how to make an investment presentation, see the blog post 10-20-30 from Guy Kawasaki . Drawing up a complete business plan and financial models at such an early stage is usually a waste of time, because everything will change very quickly. At this stage, it is important to understand and demonstrate (a) how the market grows, (b) the lack of identical solutions, (c) the attractiveness of the business model, and (d) why your team will succeed in this market.
During August, we began working with a lawyer in London, Chris Grew at Orrick Herrington & Sutcliffe . His firm was the primary lawyer for Facebook and many other successful technology companies. We were introduced to a friend who previously used their services for his startup. They agreed to work with us, and postpone the payment of their services until we receive an investment of $ 3 million or more. If we do not receive, we do not have to. This is a very common form of cooperation and technology law firms practice it . Chris and his team created a (a) legal structure (in the state of Delawer in the USA, since this place is most familiar to our investors) (b) documents for investors.
In parallel, we have compiled a list of target investors. It was an Excel file from 20 investors that at least one of us knew. Then we prioritized the investors — we determined who we would talk with first and then with whom. We also agreed on specific deadlines for each investor to consider.
Step 3. Attracting investors
"Always Be Closing" - Glengarry Glen Ross
Our first investor was Naval Ravikant , the founder of the Angel List. For more information about them, post on TechCrunch . We chose him because he has an excellent reputation and credibility among investors.
We had a conversation in Skype, where we described the Russian market and what we want to do. He agreed to invest before the end of the call. The motives for this were primarily the fact that Russia is the least competitive large market in the world (from the point of view of e-commerce). Secondly, he was attracted by our team. Receiving these first investments was the most important step in the whole process.
As soon as we received his verbal consent, we turned to the next 15-20 investors, appealing to the fact that Naval had already agreed. This interested many investors, but it is difficult to translate interest into the formal signing of documents without additional motivation.
We offered more favorable conditions for those who decide faster, and additionally motivated investors when someone else agreed. Every time when we had new agreements, we let all other investors with whom we communicated know about it, thereby pushing them to join the project. After about 4 weeks, we gathered a fairly large pool of investors, and each next step was easier than the previous one. Nothing pushes investors like other investors. Here is another example of a startup that conducted a similar but longer process.
Every time someone agreed, we immediately asked them to sign documents and send money (regardless of what all other investors do). This is very important, because every day of delay reduces the likelihood of signing. As Alec Baldwin says, Always Be Closing .
Summary: choose a niche for a startup - find the first investor with a good reputation - communicate with many investors (3-4 times more than you need) - “put pressure on them” - complete each transaction.
Next habrapost
The question is, how is all this useful for you if you do not have primary contacts and reputation from the point of view of investors? In the next post we will try to describe how to find these key links and build trust from a zero start in Russia, as well as describe the key mistakes we made.
Your questions?
Experts, investors and IT entrepreneurs of Runet agreed that there are no start-up public cases on the Russian Internet market, no training for start-up web entrepreneurs, which adversely affects the market. In this post, repatriates Kirill Makharinsky and Sergey Fage present a case on attracting investments on the example of the Ostrovok.ru project
Startups in Russia are dedicated to
')
One of the things that we noticed after returning from Silicon Valley to Russia was how many Russian startups (often very talented people) experience difficulties in attracting initial funding.
We decided to share our experience and write a series of posts for hack readers. In the first post we will introduce ourselves, describe the stages of the search for investments and the process of attracting a million dollars to create the Islet in 6 weeks. We hope that our experience will help those people who are preparing to launch a startup in Russia. And that it will be useful for the development of a local ecosystem of startups.
About our project
Ostrovok.ru is a product whose goal is to help Russian users in the process of ordering hotel rooms in Russia and around the world. We started with a list of the best deals and will soon launch a full-featured hotel booking system. Our main competitors are travel agents offline. Our main online competitor is booking.com, but we hope to create a better user experience for Russian travelers.
We started working quite recently (and we know that the product is now far from ideal), so if you notice any mistakes, criticize and we will make it even better!
Prior to Ostrovka, we worked on our own Internet projects in Silicon Valley. Cyril founded Quid , a data analysis company that attracted funding from PayPal founder Peter Thiel, previously worked at Slide (the # 1 social application developer in the world at the time) and studied at Oxford. I ( sergef ) founded the video communication company TokBox , which attracted $ 26 million from Sequoia Capital and other investors, and before that I worked at Google in California and studied at the MBA at Stanford.
We founded the service for online booking of Ostrovok.ru hotels in 2010 and attracted over $ 1 million in investments from the founders and investors of the leaders of the global online travel industry, including Kayak.com, ITA Software, Booking.com and Qunar.com.
Step 1. Theory
“In theory, theory and practice are the same. In practice, they are not ”- Albert Einstein
The initial investment attraction stage is called the “seed round” or “angel round” and it looks like this.
- The most typical investors are individual investors with experience in the field of high technologies. A less common type of investors is venture capital firms that want to invest in small transactions. It can also be your relatives or friends. Try to stay away from investors who have no investment experience or who you, your relatives or friends do not know - it will be difficult to deal with them.
- The typical amount of initial financing is $ 100,000-500,000. Attracting less than $ 100,000 is meaningless because it is not enough to reach the next stage of financing. It is very difficult to take more than $ 500,000, as the company is still underdeveloped.
- The typical percentage that you will give to investors ranges from 10% to 30% of the company's shares, ideally less than 20%. Never give more than 30% for initial financing. Here is a more detailed explanation of why this should not be done.
- There are many forms of structuring transactions that can be used to obtain investment. The best way is convertible debt (loan investments, which later turn into stocks). Here is a very detailed explanation of why this is ideal for a startup.
Step 2. Preparation
Fortune Favors The Prepared Mind - Louis Pasteur
We returned to Russia in July 2010 with a plan to make a start-up in the field of e-commerce. In August, we spent 3 weeks and conducted a study of industries that were well developed in other countries, but were not developed here. We tabulated the result with comparable companies, major competitors, and positive / negative aspects for each such industry. After that, we chose the two most promising areas from this list (online trade in clothing / shoes / accessories; and the online sales sector of tourism products) and analyzed them in more detail in the following week.
On August 31, we made a decision to concentrate on the travel-segment and made a 12-slide presentation for potential investors. The presentation contained mainly text, there were almost no graphics and images, there was no business plan and financial model. For a good example of how to make an investment presentation, see the blog post 10-20-30 from Guy Kawasaki . Drawing up a complete business plan and financial models at such an early stage is usually a waste of time, because everything will change very quickly. At this stage, it is important to understand and demonstrate (a) how the market grows, (b) the lack of identical solutions, (c) the attractiveness of the business model, and (d) why your team will succeed in this market.
During August, we began working with a lawyer in London, Chris Grew at Orrick Herrington & Sutcliffe . His firm was the primary lawyer for Facebook and many other successful technology companies. We were introduced to a friend who previously used their services for his startup. They agreed to work with us, and postpone the payment of their services until we receive an investment of $ 3 million or more. If we do not receive, we do not have to. This is a very common form of cooperation and technology law firms practice it . Chris and his team created a (a) legal structure (in the state of Delawer in the USA, since this place is most familiar to our investors) (b) documents for investors.
In parallel, we have compiled a list of target investors. It was an Excel file from 20 investors that at least one of us knew. Then we prioritized the investors — we determined who we would talk with first and then with whom. We also agreed on specific deadlines for each investor to consider.
Step 3. Attracting investors
"Always Be Closing" - Glengarry Glen Ross
Our first investor was Naval Ravikant , the founder of the Angel List. For more information about them, post on TechCrunch . We chose him because he has an excellent reputation and credibility among investors.
We had a conversation in Skype, where we described the Russian market and what we want to do. He agreed to invest before the end of the call. The motives for this were primarily the fact that Russia is the least competitive large market in the world (from the point of view of e-commerce). Secondly, he was attracted by our team. Receiving these first investments was the most important step in the whole process.
As soon as we received his verbal consent, we turned to the next 15-20 investors, appealing to the fact that Naval had already agreed. This interested many investors, but it is difficult to translate interest into the formal signing of documents without additional motivation.
We offered more favorable conditions for those who decide faster, and additionally motivated investors when someone else agreed. Every time when we had new agreements, we let all other investors with whom we communicated know about it, thereby pushing them to join the project. After about 4 weeks, we gathered a fairly large pool of investors, and each next step was easier than the previous one. Nothing pushes investors like other investors. Here is another example of a startup that conducted a similar but longer process.
Every time someone agreed, we immediately asked them to sign documents and send money (regardless of what all other investors do). This is very important, because every day of delay reduces the likelihood of signing. As Alec Baldwin says, Always Be Closing .
Summary: choose a niche for a startup - find the first investor with a good reputation - communicate with many investors (3-4 times more than you need) - “put pressure on them” - complete each transaction.
Next habrapost
The question is, how is all this useful for you if you do not have primary contacts and reputation from the point of view of investors? In the next post we will try to describe how to find these key links and build trust from a zero start in Russia, as well as describe the key mistakes we made.
Your questions?
Source: https://habr.com/ru/post/118303/
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