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Four years ago, Starta Accelerator founders set an ambitious goal: to launch startups from Eastern Europe on the American market. Not just to help with “infrastructure” but to disroot atavisms of post-Soviet thinking which prevent from working quickly and selling confidently. And they have already made it.
We talk to startups and investors, you get the value.
Ivan Genika-Terehin, Head of scouting at Starta Venture, tells us:
Which startups can appear in their spring selection and attract investments;
How to make the most of any acceleration program;
Why do local East-European startups have low chances for success;
What boundaries should be effaced in minds to launch a business in the USA.
By the way, Ivan himself is a graduate of the Starta Accelerator third draft. His startup — Bino is an online service for ordering secret customers and retail auditors. Starta helped the project to focus and find a financially reliable audience. Two months after, Bino attracted investments amounted to $0.5 million. In general, the startup has already attracted $1,5 million.
Alexey Hirin, the founder of the accelerator, is one of the most experienced Russian investors. He started working with startups about 15 years ago when nobody on our market knew what venture is. All this time he was mentoring startups, investing and helping with development. So, he became a kind of accelerator-man. Founders didn’t understand where to go, where to invest and what metrics to check back then. Alexey had to work with every team very closely. At the moment he understood that he, as an accelerator-men, is drained, Starta project was born. It was based on an ambitious idea to help Eastern European startups of pre-seed stages and the idea to enter American market. Make first sales on it, attract investment and stay there.
Opening a kind of accelerator in Moscow is not an investment-attractive solution: in the first half of 2019, there were 1600 exits in the USA while there were only 43 in Russia. East Coast was chosen as a location for the accelerator, in particular — New York.
East Coast is closer to Europe: you fly 7–8 hours instead of 12–13 hours. There is also a difference in focus. The Valley is more about b2c-products, services, social networks, hardware, art. On the East Coast, there are b2b-products, fintech, medtech, fashion, media, advertising technologies.
But the essence: the venture is a long time gone over Silicon Valley, and the East of the USA grows faster than the West. The number of concluded deals in California has dropped by 1%, while in New York it grew by 23%. Alexey got in the trend with the Starta Accelerator idea. At the same time with the Starta Accelerator creation, they had gathered the first fund. Such a model, when the accelerator becomes a filter to further investments from the fund is widespread and correct. Projects with bad execution are just cut off.
The first Starta selection was at the end of 2015. Up to the third batch, the accelerator and fund focused on more mature projects which already had revenue. As expected, the geography broadened with this solution: there is a small number of prospective startups which already have clients. Now we are receiving applications not only from Belarus, Russia, Ukraine but also from Baltic states, Poland and Romania. We are also considering India and Latin America.
The next selection, which is going to be the ninth, will be held from March to May 2020 — I am now gathering participants. There are usually 1000 applications per batch, and we only select 15 best projects.
In general, we consider all the software. However, we are now moving more towards deep tech projects that can implement fundamentally new technologies. In this case, it is much easier to plan an exit strategy: you understand that a particular product is organically integrated into the line of a particular corporation or several potential buyers to choose from. Such a startup, the one that does not go at random, but to a specific area with specific customers, is more interesting to us.
In our portfolio, there are also hardware startups, like Miska AI. But it is more an exception than a rule.
It lasts 3,5 months and it is built similarly to “the Star Factory” model. We match experienced entrepreneurs-advisers with startups from each industry — they guide projects during the whole course. There are also mentors in separate directions: we regularly hold meetings with them.
We constantly held events with invited external experts. Let’s say, it may be a representative from Samsung corporate venture fund. He gives a half-an-hour lecture on a chosen topic and after that, every startup has 15 minutes to communicate with him.
Every week, there are pitches of different formats, up to 1–2–3 minutes. Meetups are open, so different audiences are present there. We do it on purpose, so startups would be ready for unexpected questions from the audience.
We give the founders of each startup a schedule of external meetups, which will be useful for them to attend. We usually pay for events up to $20 ourselves.
I don’t like the word “study” to be applied to the accelerator. You can study at IIB or in universities. Starta Accelerator is not an educational program. Of course, we teach some applicative things: sales, marketing, PR, communication, etc. But the main thing that we provide is a variety of possibilities. How the startup uses them, depends only on it.
For me personally and to for my Bino project, Starta gave a lot. The most important — I understood how the business community in America works and I dived into it. Let’s imagine, that representatives of corporations, local investors, successful startup founders constantly come to your accelerator. Thanks to the intense networking, a startup has up to five meetings a day. In addition, they have to do something within their project, in other words, you completely centre around that environment. And when you come back from the USA, it turns out to be difficult and startups are “starving”. Let’s compare: in the US, I can visit two meetups on the topic of my interest a week, and here it happens once a month.
Conceptually, our entire program is at first place aimed to efface mental boundaries between how people from Eastern Europe (and now not only) think and how the North-American market actually works. There are completely different philosophies and laws of the game. We efface mind boundaries, which deny learning this essence.
I have this kind of dialogue with several companies from our portfolio:
— Who are your competitors?
— Company X and Company Z!
— Text their CEO’s and ask for a 15-minute consultation.
— Wait, what?
“Our kind of a guy” doesn’t understand that it works this way. I compelled one founder for two weeks to write to founders of the competing companies. One refused him and another (more successful one) agreed to meet, they talked for 20 minutes and the founder told what to do step-by-step, so you could achieve such results. Knowledge and experience sharing that’s how the American business environment is characterized, and our business environment lacks it.
The CEO that gave bits of advice, understood: these hints will not raise a peer competitor right away. He just gave some pieces of advice that helped him three years ago. Rateable, there is no way that you could be as successful as him in two month — the gap is huge.
Even if you are on the same level, you can and should share the information. You divide up the market and enhance the product, and service quality on it will be beneficial for everyone. Don’t be afraid of competition: the more severe it is, the stronger the economy will be. What is more, everyone will make something out as a result. Of course, when the inner startup economy grows to a specific level (usually it is Series A), you have to filter outgoing information wisely.
This mental boundary is the highest-profile when many teams from Eastern Europe are gathered on the batch: every man for himself. It overpasses with time but at first, on weekly tracktion-meetups, you can hear conversations like:
- You have good progress, but how did you manage to achieve this?
- I will tell you later…
Starta founders are Russian-speakers, and almost all mentors and experts are from the US. Thanks to this, startup founders can easily adapt to another market and another culture. The most important — they are not afraid to write, call, meet or ask a piece of advice.
One American investor with 130 startups in his portfolio told me: “I prefer not to invest in Russian-speaking startups. Americans check several hypotheses in a week while startups from Eastern Europe can snail with one hypothesis for three months.”
The ability to make decisions quickly, create and correct the movement — we are lacking this. In our startups, we were also checking hypotheses for quite a long time. Saying that there is no sufficient data and more statistics is needed. However, when you collect “enough” data, you understand that it was needless to check.
Hypotheses have to be ranked. The more they influence the main metric, the more important they are. But you need to count in expenses for checking the hypothesis, and they are rarely counted. Russian-speaking founders often think: “programmers develop features to see how it works. For us, that’s for free as we pay them salaries”. NO! You have to calculate the factual expenses for checking hypotheses — sometimes, it turns out, that they weren’t worth it. For instance, some banks offered to complete an integration. Calculate how much you are going to make out of this deal, and how much you will spend on this work. Perhaps, this integration will be paying back for three years.
From the point of view of product creation, technical quality, UX/UI, interface design — we are clinking good in Eastern Europe. However, in sales, scaling and exits — we are complete outsiders. Have a look at many American products — it is a nightmare! Try to use USA bank services, and you will understand, that let’s say, “Sberbank” or “Tinkoff” are great companies. Subscribe and try to cancel a subscription at Amazon Prime straight after: you will be charged $100 monthly until you won’t complete 50 required actions.
Our power is in our ability to produce quality products in relatively short terms. But the question about their commercialisation remains.
Many founders don’t understand that investment attraction is a sort of sales. The approach has to be systematic: to work with CRM-system and pipeline, qualify lids, etc. And as a result of these sales, you receive investments. If the process goes bad, then you are doing something wrong. If a round had closed too early, then you underestimated yourself.
Both in the accelerator and in the fund, there are three selection categories: sales, revenue and clear understanding of the further development in the USA.
Revenue availability is a global trend, startups without it are being financed less and less. The number of venture deals is cutting off but their volume is growing. So how do paychecks grow? Startups at the later stages are financed. That’s why our task is to find and invest in those who have acknowledged value and sales. Regular and replicable, not just one pilot project with a conditional state bank or oil company.
We have raised a new fund for $50 million, from which we will finance up to 25–30% of accelerator graduates, $100–300 thousand each. We sign a warranty worth of $200 thousand with every startup, of which he can immediately (if desired) receive $20 thousand as a scholarship. $180 thousand more, Starta Capital can invest in a project in cash — individually or joining a round. The acceleration program is valued separately through a convertible loan of $100 thousand. In summary, we get $300 thousand — we count from them the percentage of the company that we will agree on, based on the market evaluation of the project.
Large amounts rounds are closed with the participation of external investors, which are gathered by the founder. Starting from the current eighths selection of the accelerator, we want to try not just to join the round, but to help raise it. In order to do this, we will hold a Demo Day not only in New York but also in Moscow.
Lately, we were releasing our graduates on freewheeling — if they found money, we would join in with our investments. Now we want to change that. “Higher School of Economics” conveyed a survey and found out that 60% of startups in Russia go to the accelerator to attract financing. We decided to try to realise their hopes and help to attract investments.
Sometimes, we are compared to the giants of the startup industry. Allegedly, up to 80% of 500 Startups graduates attract investments, while in Starta it is up to 25%. Alright, apply there! But besides a severe selection, they have a country quota, that is defined by an accelerator’s desire to focus on different parts of the world. If you are a startup from Indonesia or India, you have higher chances to get in the accelerator, than a project from Eastern Europe.
A YC is a completely unpredictable thing, and still, nobody understands how it works. In one batch, there may be startups with ambiguous PowerPoint Presentations and companies with a million-dollar revenue. Batches are short and take place twice a year. You can apply for years and still don’t get invited.
That’s why, if you are ready to enter the American market, and you are from Eastern Europe, you have higher chances to get in Starta Accelerator than in more eminent accelerators. They are more watchful of startups from Eastern Europe. Graduates from Stanford or Berkeley can get $1–2 dollars for their presentation. And it is harder for those who come to conquer America.
By the way, we have already had 5 exits, and one of them is Belarusian Friendly Data startup. It was bought by ServiceNow — the most fast-growing technology company according to Forbes.
It is harder to go the way from an idea to the first sales (on the seed stage) in Eastern Europe. In the first place, because almost nobody finances pre-seed stages and idea levels. It seems that you have tested hypotheses, understood the stuff, found the value, and there is the moment when you have to develop a product but nobody gives money for this. Grants are the option, however, it is lingering and ambiguous inasmuch of connections with governmental entities. That’s why there are no tools for changing pre-seed stage startups into something bigger. Moreover, countries are poor.
If in the USA, a person can take a loan of $100 thousand from parents and create the MVP, while in Belarus, Russia and Ukraine, by far not everyone has this possibility. What is more, these parents are working as doctors in America, and they still can have a nest-bag of $100 thousand. The situation in our countries is a bit different. So somebody bootstraps and somebody gives out 20–25% of a company to developers (and does the right thing) and tries to launch a product. But most often, people just give up and find a job.
The M&A market in America is very up-and-coming: 3500 concluded deals a year. The startup purchase and sale form a separate economic sector. And it is a perfect option for a large company to develop a business: to buy a finished product, as most often, it is cheaper. It is in the nature of things there.
There is no money on the market in Eastern Europe because there are no exits. There are no business buyers, and investors are not interested in investing in the early stages. So we are going around the circle. And particularly in Russia, the venture market turns in the wrong direction. There is a group of investors who give money for dividend models but not for capitalisation growth. It is logical: the ecosystem mutates and adapts to the wider economy.
The best age to go to the USA is when you are 15. Get a degree there. But the most important, it is not necessarily the US. It can be Germany, Great Britain and other countries. You have to create a startup in a place, where you see prospects of sales or rapid growth. There is no point in building a business model at home and try to move it to the US then: it doesn’t work, you should create and develop a startup there. I’ve been there and done that. We started a project in Russia and tried to mechanically copy our experience in the USA twice — the scheme did not work. I had to do everything in a new and in a completely different way.
When entering a new market, you face the unknown. There are 25 startups in a pipeline to the new selection. Their most common fear is just the fact of going to America. The accelerator is essential to fight this fear and give certainty in actions. After 3–4 months in the USA, I understood that I can easily move there with my family and work. I came up with a real plan.
Let’s start with the fact that you have passed some kind of due diligence during the accelerator selection. And follow up with the fact that investors receive good reviews about your startup if you show good progress during the program. Evaluations from mentors who were constantly communicating with a project are more objective than a startup quarterly reports.
If the CEO stays in the USA after the accelerator, then investors from Eastern Europe start to consider this startup as more attractive for investments. What is more, R&D can be anywhere: either in Belarus or in India.
If you have been developing your startup for several years, your eyes may be blurred and you can’t understand where you go and what the key metrics are? Mentors can “clear your mind” and help you find the focus. There is no growth hacking without it.
In the post-Soviet space, you can see quite identical scenes after startup-events: startups communicate with startups, investors talk to investors and bureaucrats stick to bureaucrats. It is comfortable to mingle around people who are like you. The investor is scary and can ask you some random things. In fact, no.
A good accelerator teaches you the opposite. In Starta we were almost forced to visit meetups, and we were introduced to useful contacts. And there are 10-time more networking possibilities in New York than in Moscow.
Not everything depends on the accelerator! In Starta we pull our founders into the right “pool”, where they can learn how to swim .. or drown — depends on them. This is what has to be done to “swim”.
Clear the way before you go. Appoint meetings with partners, competitors and clients. Check all hypotheses beforehand and do a custdev. At the moment you arrive at the accelerator, you need to have a plan for at least a month ahead.
Raven” the accelerators team. Don’t hesitate to ask to introduce you to somebody or ask questions. We give it straight to startups in selections: do some “micro-terrorism”, pull the maximum of any accelerator.
Visit external events. There is an abundance of such in New York and other world startup-centres, choose most relevant.
Both founders should go to the accelerator. Divide responsibilities: let the one take care of sales and marketing while another participates in the program. You can switch places during the program, but it is vital to do everything. If you go alone, you will need to split your mind to reach progress.