Domestic venture funds - do they have anything to do with the startup industry?
Write me this column was motivated by the post of Alexander Zhurba, co-founder of the new fenzureny foundation Genezis Capital, the creation of which we wrote .
Here is the text of Alexander "without cuts":
')
Here is this post on Facebook. He touched me for one reason - in fact, the same requirements are imposed on a startup as on a regular business. Well, the item “has already made the product and even started selling - the assessment is still ZERO” without any comments at all.
Let me remind you the definition of the very word “startup”: a start-up (from start-up) is a company with a short history of operating activities. As a rule, such companies have been established recently, are in the stage of development or research of promising markets .
I highlighted, I think the main thing that distinguishes an Internet startup from a small business is the presence of an unverified business model.
Alexander Zhurba - co-founder of the new venture fund. Let me remind you the definition of the word “venture fund”: a venture fund (English venture is a risky enterprise) is an investment fund focused on work with innovative enterprises and projects (start-ups). Venture funds invest in securities or shares of enterprises with a high or relatively high degree of risk in anticipation of extremely high returns. As a rule, 70-80% of projects do not bring returns, but the profit from the remaining 20-30% pays for all losses.
Those. In fact, a venture fund differs from a conventional investment fund in that it is itself a company that invests money in risky and unverified business projects. Not for nothing is written and about the approximate proportions of returns. But for it gets a share in the project, and often rather big.
If an investment fund invests in small, medium and large businesses, based on the business planning of more or less sustainable projects, then the venture capital fund is supposed to give money to potentially attractive projects.
This of course does not mean that you need to distribute to the right and left. All foundations have their own specialists, who evaluate incoming applications for projects. And they, it seems to me, should look for potential start-ups that are potentially attractive for investment.
But it also does not mean that all startups should be considered from the point of view of ordinary investment companies. A startup is a risk. If you want to risk to get a lot of money - create a venture capital fund. Just want to invest money or protect against inflation - make an investment fund. And select projects for investment, where you will get almost 100% profit.
In addition, a venture investor brings to the project not only money, but also expertise and connections. Those. there may be a good startup with poor sales people (or their absence in general) or a slightly (strongly) wrong business model and the investor’s task - to see the potential, having invested not only money in the project, but also his knowledge. It seems to me that it should be ideally.
By the way, Twitter 3 years was unprofitable, from 2006 to 2009. And only in 2009, the service showed its first and small profit. It turns out that if this project came to us - it would simply not exist.
In addition, I was touched by another point of Alexander: "the perfect team, but it is not clear where the money in the next 2 years is the ZERO score." Those. the fund, represented by Alexander, does not consider the team an asset. Although many representatives of the funds repeatedly talk about the importance of the team - and then it turns out that the team has no value at all.
We had a small conversation with Alexander in the comments to the post:
Alexey Bozhin: Alexander, everything that you described is all right. For ordinary business. But you want a stake in the project, you are a venture investor. And venture investments are always risky. You rate the business. Those. you are just an investor. With startups and venture capital investment has nothing to do.
Alexander Zhurba: Alexey, if the risks of investing are high, then why should I also overpay for an asset? I do not understand the logic.
Alexey Bozhin: You want to pay for a working project that brings money. This has the same attitude to startups as a regular online store. That is, no, this is purely business. Business project. Find the definition of a startup?
Alexander Zhurba: Yes, I want to enter the working projects. But including to invest in startups that must (lo and behold) become working businesses. And when I buy something, I want to know the price of this something. The price of any startup is zero, there’s nothing but plans and assumptions.
Conclusion - the assessment is determined only by how much the team will be motivated by the share that it will have left. Everything else - erotic fantasies of the market and startups.
Alexey Bozhin: Alexander, why are you such a startup? It is more profitable for him to take a stupid loan than to communicate to you. He has a turn, the model is tested. Why are you asking him? You need to give a share.
Alexander Zhurba: Well, this is already a matter of fact. A loan is nice, but not everyone is given, not on those terms, not always, not so much as necessary, etc., etc. Plus, the bank will not lead to communication, will not sit on the board of directors, think about what to do with the project. The bank will not go to sell the business together with the founder. Something like this.
Renata Akhunova joined the conversation, the only Russian in the list of women-venture investors and business angels, published by Forbes.com. Managing partner in Formula.VC venture capital fund.
I constantly communicate with investors and startups. Both sides have claims and claims to each other. But personally, I was stung by such an approach. The fund does not want risks, but wants to invest in startups.
For me, this is very strange, the entire startup industry is built on the risks of both parties, and when one of the parties decides to risk shifting to the other, this is wrong.
Personally, I’m fine with Alexander, I heard good reviews more than once. But the position voiced by him is, I think, a step backwards for the whole industry.
I will give a simple example. Someone in the power corridors of power thought that money should not be allocated for science. It does not bring direct profits. Why they say to spend money on scientists. Maybe they will invent nothing? Maybe nothing practical will not work? What we have in the end is probably no need to explain. We have almost nothing produced - we all import from somewhere. Machines, harvesters, electrical engineering, etc. Almost all.
And here I see an analogy with startups. No one forces to invest in startups? If you come to this market - so invest it as a venture, and not just as a fund. To strive for super-profitability is not a crime, everyone has such desires. But at the same time, the fund does not want to have excess risks, based on excess profits.
Another example is Aviasales. A successful company, high turnover, a solid part of the market - things are going fine. But if you ask its founder Konstantin Kalinin about investors, we can hear something here (our report on Habré from his master class):
Do you understand?
Analysts who work on the incoming flow of startups - can only eliminate frankly delusional projects. And potentially good ones are very difficult to recognize.
I contacted Alexander and asked him for an additional comment. Maybe I did not understand. Here is what he added (style saved):
I also contacted Renata Akhunova, and she commented on this:
What do you think?
Here is the text of Alexander "without cuts":
')
“How to realistically evaluate startups? Very simple, there is a "TRUTH" method
P = P * A * B - D + A, where
The correct assessment of the company.
The real profit of the company per month (cash that can be withdrawn, and the company will not get worse from this for the long term).
Aptimistic :) term for which you can predict this profit in months (no more than 24).
The likelihood that the scenario will be no worse than the forecast (from 0 to 1, where 1 is a traditional existing monopolistic business with an energetic team with 10 years of experience in the industry).
Debts, liens, etc., for which you will have to pay, incl. in case of liquidation of the company.
Company assets (money in the account, liquid securities, property that can be sold without the company's participation, ...).
Conclusions for startups:
- there is not even revenue and assets - ZERO assessment.
- shitty team - score ZERO.
- do not know how to sell - score ZERO.
- has invented / programmed a megaproduct that no one has to sell - a score of ZERO.
- invested 100,500 million in development, but you cannot sell it to anyone, incl. as a patent, the evaluation is ZERO.
- you think how instagram to sell to a strategist without revenue - how many projects have you personally already sold without revenue? - ZERO score.
- an ideal team, but it is not clear where the money is in the next 2 years - ZERO score
- in the industry, everything changes every day - ZERO score.
- there is nothing but an idea - the evaluation is ZERO.
- already made the product and even started selling - the assessment is still ZERO.
- you think that I am an asshole and your project costs $ 2 million at the prototype stage - the assessment is all the same ZERO (and an investor who would give a dough would have gone to the casino playing). ”
Here is this post on Facebook. He touched me for one reason - in fact, the same requirements are imposed on a startup as on a regular business. Well, the item “has already made the product and even started selling - the assessment is still ZERO” without any comments at all.
Let me remind you the definition of the very word “startup”: a start-up (from start-up) is a company with a short history of operating activities. As a rule, such companies have been established recently, are in the stage of development or research of promising markets .
I highlighted, I think the main thing that distinguishes an Internet startup from a small business is the presence of an unverified business model.
Alexander Zhurba - co-founder of the new venture fund. Let me remind you the definition of the word “venture fund”: a venture fund (English venture is a risky enterprise) is an investment fund focused on work with innovative enterprises and projects (start-ups). Venture funds invest in securities or shares of enterprises with a high or relatively high degree of risk in anticipation of extremely high returns. As a rule, 70-80% of projects do not bring returns, but the profit from the remaining 20-30% pays for all losses.
Those. In fact, a venture fund differs from a conventional investment fund in that it is itself a company that invests money in risky and unverified business projects. Not for nothing is written and about the approximate proportions of returns. But for it gets a share in the project, and often rather big.
If an investment fund invests in small, medium and large businesses, based on the business planning of more or less sustainable projects, then the venture capital fund is supposed to give money to potentially attractive projects.
This of course does not mean that you need to distribute to the right and left. All foundations have their own specialists, who evaluate incoming applications for projects. And they, it seems to me, should look for potential start-ups that are potentially attractive for investment.
But it also does not mean that all startups should be considered from the point of view of ordinary investment companies. A startup is a risk. If you want to risk to get a lot of money - create a venture capital fund. Just want to invest money or protect against inflation - make an investment fund. And select projects for investment, where you will get almost 100% profit.
In addition, a venture investor brings to the project not only money, but also expertise and connections. Those. there may be a good startup with poor sales people (or their absence in general) or a slightly (strongly) wrong business model and the investor’s task - to see the potential, having invested not only money in the project, but also his knowledge. It seems to me that it should be ideally.
By the way, Twitter 3 years was unprofitable, from 2006 to 2009. And only in 2009, the service showed its first and small profit. It turns out that if this project came to us - it would simply not exist.
In addition, I was touched by another point of Alexander: "the perfect team, but it is not clear where the money in the next 2 years is the ZERO score." Those. the fund, represented by Alexander, does not consider the team an asset. Although many representatives of the funds repeatedly talk about the importance of the team - and then it turns out that the team has no value at all.
We had a small conversation with Alexander in the comments to the post:
Alexey Bozhin: Alexander, everything that you described is all right. For ordinary business. But you want a stake in the project, you are a venture investor. And venture investments are always risky. You rate the business. Those. you are just an investor. With startups and venture capital investment has nothing to do.
Alexander Zhurba: Alexey, if the risks of investing are high, then why should I also overpay for an asset? I do not understand the logic.
Alexey Bozhin: You want to pay for a working project that brings money. This has the same attitude to startups as a regular online store. That is, no, this is purely business. Business project. Find the definition of a startup?
Alexander Zhurba: Yes, I want to enter the working projects. But including to invest in startups that must (lo and behold) become working businesses. And when I buy something, I want to know the price of this something. The price of any startup is zero, there’s nothing but plans and assumptions.
Conclusion - the assessment is determined only by how much the team will be motivated by the share that it will have left. Everything else - erotic fantasies of the market and startups.
Alexey Bozhin: Alexander, why are you such a startup? It is more profitable for him to take a stupid loan than to communicate to you. He has a turn, the model is tested. Why are you asking him? You need to give a share.
Alexander Zhurba: Well, this is already a matter of fact. A loan is nice, but not everyone is given, not on those terms, not always, not so much as necessary, etc., etc. Plus, the bank will not lead to communication, will not sit on the board of directors, think about what to do with the project. The bank will not go to sell the business together with the founder. Something like this.
Renata Akhunova joined the conversation, the only Russian in the list of women-venture investors and business angels, published by Forbes.com. Managing partner in Formula.VC venture capital fund.
I constantly communicate with investors and startups. Both sides have claims and claims to each other. But personally, I was stung by such an approach. The fund does not want risks, but wants to invest in startups.
For me, this is very strange, the entire startup industry is built on the risks of both parties, and when one of the parties decides to risk shifting to the other, this is wrong.
Personally, I’m fine with Alexander, I heard good reviews more than once. But the position voiced by him is, I think, a step backwards for the whole industry.
I will give a simple example. Someone in the power corridors of power thought that money should not be allocated for science. It does not bring direct profits. Why they say to spend money on scientists. Maybe they will invent nothing? Maybe nothing practical will not work? What we have in the end is probably no need to explain. We have almost nothing produced - we all import from somewhere. Machines, harvesters, electrical engineering, etc. Almost all.
And here I see an analogy with startups. No one forces to invest in startups? If you come to this market - so invest it as a venture, and not just as a fund. To strive for super-profitability is not a crime, everyone has such desires. But at the same time, the fund does not want to have excess risks, based on excess profits.
Another example is Aviasales. A successful company, high turnover, a solid part of the market - things are going fine. But if you ask its founder Konstantin Kalinin about investors, we can hear something here (our report on Habré from his master class):
We tried to look for investments. Well, as "we", I tried to look for investments. All investors laughed: “What do you mean? This is some kind of garbage, it will not work, I will not participate in it. Who needs it? This is some kind of nonsense. Here is Anywayanyday, here is Pososhok, which is 10 years old. Here there is a DAVS, which is some kind of ancient, it has 50 air ticket offices throughout the country. Here they are great, and you do not understand Nichrome. ”
Do you understand?
Analysts who work on the incoming flow of startups - can only eliminate frankly delusional projects. And potentially good ones are very difficult to recognize.
I contacted Alexander and asked him for an additional comment. Maybe I did not understand. Here is what he added (style saved):
"My opinion is global - in venture a huge bubble of erotic fantasies, based on the fact that" this is not like before, this is different. " They used to take a job or give a premium, now they give millions of bucks for 10% of companies and consider that this is a good deal.
Investors overpay in the early stages - that's my opinion. The difference between an ordinary Vasya, who is hired, and Vasya, who is an entrepreneur - only that Vasya-entrepreneur can (if it can) make 10 rubles out of the ruble. And for that, both his salary and semi-virtual million bucks are immediately discharged.
It is clear that motivation is important, but things should be called by their names. Hello, I - Vasya, I have no nichrome, besides the ability to set tasks for myself and plow, give me a million for 40% of the company, otherwise in 2 years I will dump from you.
This is - honestly, and not that business costs a million bucks in round A according to the practices of the Valley. ”
I also contacted Renata Akhunova, and she commented on this:
“This is a dead-end path when an alien business that requires development becomes your business and you cease to be a venture investor. Therefore, initially it is necessary to determine the concepts and personal desires: “I am a satellite” or “I am the center”.
If a company of interest agrees with a low estimate, venture investors have a number of other methods of effectively managing such a company than just snatching a bigger and cheaper piece. After all, the value of a venture investor is to consider the potential in a young company, sometimes invisible even to the company itself.
The culture of venture business is to invest in companies that you, the investor, can give additional value, and this is not the same thing as money. I deliberately use the English term here, because you can translate it differently - additional value, value, virtues - and all these options are equally true, in this case.
A rare company is worth "zero." It is more important that the investor's additional value does not equal "zero." It is better to think about the value of the company, looking at the graph of exponential growth - it will help to find an adequate assessment. An investor pays for a portion of a value that can give an exponential growth if its value increases due to the additional value of such an investor.
And this growth does not depend on how much the investor managed to lower the company's valuation, but on how much it increased it with its participation. The formula is generally much more complicated than that given in the discussion, and certainly this formula should reflect the interdependence of the parties, and not shift the entire responsibility to the company, freeing the investor from risk. ”
What do you think?
Source: https://habr.com/ru/post/173177/
All Articles