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Investor of the day #1. Skif Ventures.

Investor of the day #1. Skif Ventures.

1 Aug 2019

“Practically anything can be uberized today. This is a (dying) trend for investors.” — Dmitry Demidenko, Skif Ventures.

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Skif Ventures is a young venture fund initiated by a Russian-French managing team at the beginning of this year. The Fund looks for B2B startups implementing disruptive technologies, at the late seed-stage and A Series. ‘A startup of our dream is the one which can be applied in the machinery or energy industries’ — comment on the Fund’s partners Dmitry Demidenko and Eric Brisset. In today’s interview carefully prepared by Yulia Nehai, Dmitry and Eric describe what kind of startups should start expansion on the European market from France and what a ‘disruptive corporate startup’ literally means and constitutes of.

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— How should one view France as a country for startups? Which companies, industries, and technologies have greater demand from funds and corporates there?

— Dmitry Demidenko (D. D.): France is one of the world economic leaders. Most people have ever heard about french automotive industry (PSA, Renault), retail business (Carrefour, Auchan, Leroy Merlin, etc.), fashion sector (LVMH) and finance segment (BNP Paribas, Societe Generale, AXA). But at the same time, we have a well-developed technological sector. It is a country of great and powerful industrial players and equipment manufacturers, of aerospace engineering and advanced nuclear researches. As for an example, one can mention Dassault, Thales, Engie, Saint-Gobain, etc. In France, there are many big corporates from very different business spheres. Usually, they produce innovations on their own, but disruptive technologies developed abroad are of great interest for them as well. For example, Dassault Systems bought a new AI-based startup Argosim in not so long ago in order to implement it in their platform 3DEXPERIENCE. Michelin corporation announced a world competitionfor startups creating technologies for optimization of logistics and transportation. Startups from (CIS) were also allowed to participate in it. As far as I know, one Russian startup has passed through the selection and now is about to start the pilot project.

— Eric Brisset (E.B.): Which companies should start their expansion on the European market from France? Well, actually it’s quite difficult to mention any business sector which France would be weak in. Among the primary directions, I would name cybersecurity, energy, agriculture, aerospace industry, retail, fashion. The culture of innovations is advanced here, we have a prominent historical heritage (just take any higher mathematics book and calculate all French surnames there). We have great engineering and technical schools (Ecole Polytechnique, Paris Saclay University and some other universities) and huge projects like Sophia Antipolis, Ecole 42, Station F. Government also support innovations: take as example FrenchTech and Hello Tomorrow programs. Altogether these form a very interesting ecosystem.

Dmitry Demidenko

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— Your fund is positioned as French-Russian. Which part of it is French and which one is Russian? What are the peculiarities of your portfolio strategy?

— (D. D.): We chose this positioning due to the background of the managing team and our extended networking. I represent Russia. Born in Belarus I have been living and working in Moscow since 2003. I am a lawyer by education, but I have been working with France for more than 10 years already, I am an active participant of the French business community, hold the position of the Vice President of the French-Russian Chamber of Commerce.

Both partners are French having worked for many years in Russia. Eric Brisset is a top manager with 20 years of experience in the spheres of energy, resource and equipment management, he worked with such companies as Schneider Electric, Alstom, Lesaffre, etc. Joel Lautier was a famous chess player and a grandmaster, world junior champion. After finishing his career in the chess area he made his name in the fields of M&A and PE-investments.

Other members of the fund also have vast experience working with big corporations and a clear understanding of the large business needs. We think that this is our competitive advantage as we know from the very beginning where and how the technologies of our portfolio startups can be used and who are their potential buyers. What is more, some of the Skif Venture partners successfully worked with startups as business angels before.

As the fund is pretty young, we haven’t managed to collect the target funds (20 mln euro) yet and we are still fundraising. Though we do have several commitments for a part of this sum from some Russian HNWI and European family-offices already. Therefore, we are already selecting projects in the portfolio.

We are interested in the projects not only from Russia and France but also from other countries. In particular, we are now negotiating with the project from Israel. The team has developed a unique technology to control the quality of construction using artificial intelligence.

But there is a country the projects of which we aren’t looking very closely for now — the USA. In Europe an average investment cheque is lower than the one in America, this is so due to the totally different size of the venture markets and startups requirements for different investment rounds. It means that if we start investing in the American startups we will have to back seed-stage projects what doesn’t correspond to our investing strategy. We are looking for the startups at the later seed, A series and plan to invest from 600 thousand euro to 1,4 mln euro with an average cheque about 1 mln euro. But if it goes to syndicated deals, we are ready to finance American startups as well.

Our potential portfolio startup should have an MVP, regular earnings, financial proof of the product’s potential and the real interest on the market. What is more, we would like it to have revenues originated not only from the domestic market. Besides, having technology as a basis of a startup (rather than a business model) is a very important parameter for us.

As for the strategic buyers of our startups we see corporates mostly. Sure, we can’t eliminate venture funds of the later stages from this list. But choosing the projects for our portfolio we bare the corporates’ need in our minds first of all.

...

Eric

— Your fund is focused on deeptech startups. What does a term deeptech startup imply? What do disruptive technologies mean for you?

— (E. B.): Deeptech is a popular term which doesn’t have a single definition yet. We call a startup “deeptech” if it is based on patented technology, on the results of scientific research, or if the technology changes the whole industry. Such technologies are also called disruptive or groundbreaking. Though, we can spend hours discussing the essence of the word disruption. For instance, uber used to be a disruptive startup, but it wasn’t deeptech. It used a totally new business model, but not a unique laboratory innovation. But technological know-how underlay the mobile devices that made such a business model possible. Practically anything can be uberized today. This is a dying trend for investors. Deeptech startups are the ones that are now being really hunted for.

Let’s take IoT as an example. Smart sensors may be used to collect data about anything: from a railroad container to sanitation manholes. But if such a sensor costs 100 euro and requires regular technical support, there is practically no real value in using it. But if a startup finds a way how to reduce the cost of the sensor by 5 euro, how to prolong its lifetime by several years, how to limit the consumed traffic to a few bytes, this will be a disruptive technology. In this case, you can see several problems requiring being solved. Thus all the project working in this filed and in this direction will be deeptech.
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— But what if founders create something really unique, perhaps they don’t have direct competitors, so they can hardly assess the real market potential. What should the fund do in such a situation?

— (E. B.): Attempting to solve a non-existing problem is one of the most popular mistakes all startups make. If you don’t have competitors you are more likely to be in the wrong way. There may be exceptions, sure. If we are studying a very niche product, assessing the prospects we start from economic efficiency. Corporates will always strive to optimize their business processes and costs. Most of the major players in the fields of energy, engineering, transport, and logistics are looking for solutions that would reduce the costs of transportation and production. This is the matter of survival for corporates. Consequently, they have a well-defined request as they know the weak points in their production and logistics chains. It means that the one who can propose a cheaper way of solving their problems will definitely succeed.

Most projects even in such a hackneyed field as marketing struggle for each hundredth of a percent, because on the scale of the billion-dollar market, these hundredth can lead to great savings. So a narrow niche and uniqueness is not always a drawback.

On the other hand, corporates had new higher requirements in recent years connected with social responsibility for example. Nowadays more and more people are ready to purchase more expensive goods if they are produced without the involvement of child labor, if production emissions do not pollute the atmosphere. These are the new challenges that may drive the creation of new startups.

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Joel

 

— What else can you give to startups apart from financing? How are you going to cooperate with them?

— (D. D.): We adhere to the smart money principle: it means that apart from the financial investments we are ready to contribute your knowledge, skills, competencies and unique personal network. What is more, we really like the idea of ruining stereotype about Russian technological entrepreneurship on the West. That’s the reason we are planning to launch a partner project — an accelerator which will become a platform for the expansion of the Russian startups to the EU (Belarus, Ukraine, Kazakhstan and other post-soviet countries are all in the sphere of our interests). We believe that the professional competencies of our team members can ensure productive cooperation between startups and corporates. We are eager to take an active part in the work of the startups and help them with development and promotion (but not with the things that are concerned with operational activities, though we have certain requirements to financial reporting).

 

Skif Ventures
Click on the image to open Skif Ventures' profile on Rocket DAO

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— What else is important in the personality of the founders, in a team, in addition to finance and project management?

— (D. D.): Business etiquette. Founder’s mentality is another point to work at. An example will help to explain. Once we tried to sell the expertise of the Russian developers to a French corporation. During the conference call, the client mentioned that he was also studying the proposal of the Algerian outsourcing company. At this moment a representative of the Russian company joked about the quality of the Algerian program code. But this looked like criticism and an attempt to put the national qualities of Russians above the Algerians. Another point for misunderstanding could also be the fact that the negotiations were conducted in English — a non-native language for both parties. But facts are facts. The negotiations ended immediately. The customer asked us not to contact them with this Russian company ever again.

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— How do startups get into your pipeline? How would you advice startups to contact you?

— (E. B.): We have quite a narrow startups funnel. As the fund is a young one, practically the only sources of finding new startups are personal meetings and participation in the niche conferences. But we also review cold messages that might come at the contact email contact@skif.vc. Still, it is necessary to understand that our focus is narrow, and we are going to adhere to it.

If you don’t have an MVP, revenues or a really interesting technology; if we don’t manage to tell you at once which corporates may be interested in you, our acquaintance will not go further than quick reading of project’s deck. We want startups to come and say something like: ‘I am ready to develop a pilot in collaboration with Carrefour, our solution will be interesting for them, because …”.

Another dealbreaker apart from fitting our narrow focus is the absence of global ambitions. All the projects trying their fortune on the import substitution field or earn money only because the world’s major players in this field have not yet entered their country..

We also don’t like the projects connected with the army and with the dual-use technologies. They might be good, but we find them toxic in many directions.

We will carefully study all the projects without the dealbreakers described above.

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— Speaking about the niche conferences, we are taking an interview at EMERGE conference now. What do you think about the event and the Belarusian ecosystem as a whole?

— (D. D.): We know about the Belarusian startup ecosystem firsthand. What is more, there are some Belarusian startups that we put as examples, as an illustration of the fact that the ambitions of the project should initially be global. Here we often encounter local developers who don’t even have a Russian version of their products, as they are oriented at the global market since the very start of the development. I think it is connected with the fact that Belarus is a small country, the local market is not big, unlike in Russia. That’s why entrepreneurs don’t have those illusions like ‘First I will conquer the local market and then I will start globalizing my product’. In 99% of all cases, this is an erroneous strategy, those who eventually succeed adhering it are very very few.

As for Emerge, I should say that the event surprised me with the talent of the organizers to balance the audience’s size and the quality of this audience. The program was intense, but at the same time, there were practically no useless, disappearing contacts. It’s a rare thing for such events.

 

1 Aug 2019

 

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