Founder of the venture fund Vestor.In compared the market for business innovation with moonshine

In 2014, Vestor.In entered the top ten most active venture capital funds in the country according to Firrma portal rating. The founder of the fund is business angel Pavel Cherkashin. Previously, he managed to work in the Russian division of Microsoft, invest in several projects, establish Sputnik Labs and Actis Systems . In 2011, the Russian Venture Company ( RVC ) recognized him as the “Business Angel of the Year.”

In an interview with Vedomosti, Pavel Cherkashin spoke about the global crisis of venture capital investment, about the Russian venture market, about star projects, about his own venture capital funds and much more.

"Megamind" leads the most interesting statements from the interview .
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On the situation in the Russian venture capital market

The situation in Russia is paradoxical. On the one hand, the market has a huge amount of money available for venture capital investment. People with this money, potential investors of the funds see how effective the model of venture financing can be based on western experience. On the other hand, they do not really understand where to carry this money and how to invest it - directly in projects or in funds or not to invest now and wait for better times.

Russia launches at least 3,000–4,000 new startups per year. And this number increases during periods of crisis. When the opportunity to get into a large corporation ends, the talented manager thinks: “Finally, I found the time and place to do my startup”. The number of startups is growing, the overall level of managers of these startups is also rising.

On the function of state institutions for the development of business projects

The function of development institutions is to ensure the circulation of innovation. This market is easier to imagine as a moonshine. There is a vat in which ideas, entrepreneurs, investors, and incubators ferment under high competitive pressure. Climbing to corporations themselves is harmful and inefficient. The best pairs from this tank through the cooling coil (venture funds) should be turned into pure alcohol of innovation for the development of large corporations. In return, corporations, through their long-term objectives (foresight), fuel interest in the development of new innovations inside the tank with the sink.
Development institutions have built a very efficient vat. Any university graduate understands that he has a great chance not to work for his uncle, but to work for himself, having made his startup. He can get all the necessary introductory, financial support for this, he knows where and how to go, where to find mentors, an idea, and so on.

But the pressure of startups and their investors rests on the traffic jam. The coil does not work, because corporations are not ready to buy start-ups, even when they need them for development. I had several conversations with the leaders of Russian corporations. They say we have an M & A department, but they only deal with projects from half a billion dollars, but if we want to buy a startup for $ 10 million, then we cannot technically do this - the board of directors will not want to consider such a deal.

About overheating of the global venture market

Yes, there is a feeling of overheating. However, the situation is very different from the late 1990s. Then the bubble was inflated on the same expectations, the company was estimated with multipliers at 200-300 to their annual income. Economically, this was not supported by anything. Now overheating is determined by the investment model found by large investors in Silicon Valley. This model is based on the principle for investors “the last one came in, the first one came out” and allows you to build a pyramid of investments without the need to go public. That is, liquidity is provided in this pyramid by new incoming investors, and not by the open market through the public sale of shares. A large number of such pyramids appear, and one of them will certainly begin to collapse.

About your first venture fund

The first fund was $ 10 million. We raised money two years ago and actively invested. Now we have completed the investment cycle of the first fund, have left only reserves for the additional investment of existing companies and are looking more from the point of view of the possibility of exit. In parallel, we are collecting the second fund. We are completely doing the second fund with a focus on this strategy - to search for the best international startups and bring them to the bazaar in Silicon Valley.
We have more than 10 investors in the first fund. In part, these are the buyers of my past businesses, almost all private individuals are entrepreneurs or investment bankers who understand how this business works. There are European investment bankers who once scattered information about this fund in their network, and we quickly raised money from private European investors. More than half of all my money and partner is Andrei Gurin, and the rest is European money. We have invested in 15 projects. At the moment there are 11 left. We have sold two, two have written off.

About the difference between "star" and just good projects.

About the star you will not know until the last. Here the principle of the opposite works. What cannot be saved must be written off, and the sooner you do this, the easier it will work. From the rest you start to slowly cut off the excess, selling what is called, bags without handles. The company can develop well from the point of view of the founder: it receives money, pays salary, grows by 30% per year. But the investor sees that this is not the story he was buying. Then he is looking for any options to get his money back to reinvest. Because when a star company shoots, you should have money to invest in it.

About the second fund

It is designed for $ 30 million. We will make the first closing at the end of the summer. We will collect at least the beginning of an investment with the most loyal investors - there are deals that are ready for this. And by the end of the year, we will get the remaining money with more conservative investors. The strategy of both the first and second fund is based on co-investment.
The foundation has a life span of seven years. Usually it is built like this: two years is an investment period, three years is the period for which we must withdraw, and another two years in reserve. At this time, we no longer receive a management fee. In fact, you should start selling the next day after you made the investment.

In the second fund there will be a significantly larger share of Russian money. More and more Russian investors are interested in this topic - you need to use it. We have a good model, they have money, but no ideas. Excellent basis for cooperation.

About venture capital investors

These are people with free capital of $ 10 million. Venture investments should not exceed 10% of the portfolio. A check to enter a venture fund usually starts at $ 1 million. If an investor wants to invest in several funds, he must have a capital of several million. We have investors who come from an entrepreneurial environment. It’s enough to look into the eyes, listen to the story, see the documents, and they are ready to say that they can participate in this story more actively than the traditional financial investor.