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Angel Talks #3. German Kaplun — the way of the venture investor

Angel Talks #3. German Kaplun — the way of the venture investor

22 Oct 2020

We are delighted to present you the third episode of Angel Talks! Our today’s guest is German Kaplun, one of the founders and the strategy director of TMT Investment venture fund.

Startup Jedi

We talk to startups and investors, you get the value.

Angel Talks is a video podcast in live-mode format, where venture investors, business angels and experts in the venture investment industry (analysts, lawyers, mentors, etc.) share their experience with current and future investors and technical entrepreneurs. The authors and podcast hosts are Sergey Belyaev and Ivan Lomakin.

In the past, German Kaplun was one of the co-founders of RBK, one of the largest business media-holdings. Startups appeared in the framework of the holding, and their quantity just continued to rise, and what consequently led to the creation of TMT Investment venture fund in December 2010. In the course of their work, more than 60 investments were downed, 2 fund’s projects are already acknowledged as “unicorns” and another 2 projects are close enough to be such in the nearest future.

...

Is the future of venture in the Robinhood type of platform?

— Is it possible that in the nearest future anyone who feels like investing and who has notional 1000 Rubles, would do it in a Robinhood principle?

— This topic has been discussed for over 10 years but the whole problem is that there is no good implementation concept of such platforms yet.

The problem with the model is that when a company goes public, a lot of information is required from it, which any non-public startup is afraid to disclose because it is afraid of competition. For an investor, the more information about a startup he has, the more likely, that he will invest in it.

All startups need to disclose some of the necessary information that could be standardized, for such platforms to work. In addition, an appropriate legislative framework is required.

...

About Elon Musk and biotech startups

— How will Elon Musk’s presentation of neurolink affect the number of biotech startups?

— There are still a huge number of startups in the biotech field. At the same time, the sphere itself can come at high-cost and high-risk. That’s caused by the fact that at any stage of work on the product, side effects may appear that will lead to the project closure.

...

About the investments in a startup with “a broad vision”

— Is it worth investing in startups that attract attention and are really promising, but at the same time don’t enter or are partially included in the sphere of investor’s professional competencies?

— First of all, making such a decision depends on the size of the fund and the availability of free money. For example, TMT Investment invests:

  • In the projects, in the development of which the fund’s team is really confident;

  • In the projects that have potential — experimental projects.

Usually, investors invest in projects that are close to them to some criteria.
...

Business tools

— Will such direction as business tools be delevoping?

— There are “great deals” for development in this segment, however, today, the emphasis is shifting to the field-specific subtopics, and with this, new directions continue to appear. Everything depends on the field specificity: for instance, a startup’s product can become software development for the forest procurement process.

...

Venture studios

— What are venture studios?

— As a phenomenon, venture studios can be compared to serial entrepreneurship. When it comes to startups, it is rare to be successful without full immersion. In this case, it is impossible to simultaneously conduct, for example, 5 projects. This approach works in incubators at large companies, but it is better for investors to work according to the scheme of gradual work: they made one project — sold it, made another — sold it again.

...

About competition for startups

— Is there a competition for startups?

— There is competition because there are very few worthy startups. Another thing is what counts as a worthy startup. Conventionally, the investors’ interest’ in startups can be divided concerning risk, geography, technology. And for some investors, startups “diverge” in these categories, where they find a suitable project for themselves.

At the same time, some projects seem to be attractive to everyone. And then, investors organize some kind of a “beauty contest”. The following factors come here in action:

  • “The chemistry” between the investor and the project;

  • The startups’ subjective attitude — usually, startups want a more famous investor, as this directly influences the future prospects of the project.

So, sometimes the project takes a favour of a smaller amount of investment and relies on the fame, the experience of the investor, his competence and connections.

Problems that investors may have in the initial stages:

  1. In ⅓ cases, startups want to know the investor’s reputation in advance. Investors with a small portfolio are not that interesting.

  2. Startups want to close 1 round with one investor because it seems to them that this is easier. In fact, it is better when there are several investors.

...

About relations with investors

— How to build relationships with investors?

— There is such a phenomenon as information rights — this involves informing the investor about the development of the project. Building relationships with investors is very important: when the investor is satisfied — this is good, he is loyal to the project and he’s ready to help him with advice and a network.

Depending on the project specifics, it is necessary to send an information letter to the investor 1–2 times a month, you can call once a quarter — that’s enough. Informal meetings are also welcomed. All companies have problems, but if you don’t run away from these problems, the investor will meet you halfway.

...

Why do you need an investor, who solves 10% of the problems?

— Does the investor solve all startup problems?

— When they say that an investor has come and solved all the problems, these are all fairy tales. No investor can solve all the problems, but if this happens, the investor buys your business. It is important to remember that this is your business, not investor’s.

How can investors help:

  • Help to conclude a legitimate deal;

  • Help to search for additional investors;

  • Help to reacquisit stakeholders.

The investor’s immersion in the project also depends on the relationship with the startup. If this is a good relationship, then the immersion reaches 10%, otherwise 3–5%.

...

How to find a strategic investor?

In available open sources, you have to look for those who bought similar companies. Making a list of such “strategic investors” and their competitors, and that’ the whole secret.

...

How does an entry and exit deal in TMT Investment look like?

The deal includes the following stages:

  • Making a decision to enter the licensing committee (most projects are eliminated at this stage);

  • Project discussion at the licensing committee meeting;

  • Clarifying the questions, that are left after the licensing committee meeting;

  • The endgame — submit the project to the Board of Directors.

...

How investor comes to a fund

— How can investors invest in a classic venture fund?

— There are 2 possible ways:

  1. When an investor has good expertise and has a sufficient amount of money to invest it in several dozen projects. In this case, it makes no sense for an investor to come to the fund.
  2. Then the conditions of the first scenario are not met: there is not enough expertise and not enough money to invest in a large number of startups. In this case, the fund makes it possible to reduce risks through the expertise of its employees. Usually, the fund takes 2% of the investment value annually for its services — this money goes to the fund’s maintenance.

The full Angel Talks episode is available by this link.

22 Oct 2020

 

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