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From Samara to Boston: how to turn an informal community of entrepreneurs into an international venture fund

Monday, March 29, 2021

It is hard to overestimate the significance of the “community” for the growth of any project. But what if you make a big bet: start with conversations about startups in a Samara cafe, and end with an international venture fund in Boston? Does the attitude towards regional projects change with the entry into the global market? How to build an ecosystem from scratch — and how does it help investors? We talked about an extraordinary path with Sergey Bogdanov, founder and CEO of YellowRockets, managing partner of the venture fund and co-founder of the VOX ANGELIS International Early Stage Investor Summit.

Startup Jedi

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About the Fund

YellowRockets is a company that develops the startup community in Russia and in the world. Successfully collaborates with leading Russian and international venture funds, development institutions, business angel communities and corporations. The YellowRockets Venture invests up to ₽20M in early-stage startups and specializes in organizing acceleration, and educational programs for technology entrepreneurs. The team realizes such projects in partnership with Russian infrastructure giants and corporations (PwC Russia, Inter RAO, RZD), as well as with the international technopark of IT startups Astana Hub (Kazakhstan). YellowRockets has organized and conducted more than a dozen regional acceleration programs, and in the Samara region, the team is developing the StartupSamara project — to create one of the most effective innovation ecosystems in Russia.


How a community of entrepreneurs grew into an international venture fund

The history of YellowRockets began with informal meetings with entrepreneurs and startups: we just gathered in a cafe and discussed current topics, calling these meetings “Venture Cafe”. And already in 2013, when the Ministry of Economic Development of the Samara Region was joined by caring, “business” people, our community was transformed into a Regional Innovation Center StartupSamara. We continued to develop the community with government support, but at a new level.

For startups and innovative projects to emerge, the “rigid” infrastructure is less important — business incubators and technology parks — that is important, but rather the community — events, communication, mentoring system, and knowledge exchange. We started building this “soft” infrastructure. We held events, invited great speakers, conducted acceleration programs, hackathons, taught aspiring technology entrepreneurs — and at the same time studied themselves.

Although YellowRockets already operates throughout Russia and beyond, the StartupSamara project continues: we hold many events in the region — the community lives and is still headquartered in Samara.

It would be strange from our side to tell startups to strive for business scale and ambitious goals, but not to follow these guidelines themselves. And at some point, we realized that we could conduct acceleration programs already at the federal level, and we became the operator of several tracks of the corporate accelerator GenerationS.

It also became clear that our market desperately lacks communication, both among themselves and with foreign colleagues. Together with our partners from the International Investor Organization INVESTORO, we started holding the Early Stage Investor Summit, which resulted in one of the largest events for business angels and early-stagee funds in Russia — VOX ANGELIS. At the same time, we developed the competence of the accelerator team and helped other regions to create startup ecosystems.

We had a dream to raise our own venture fund quite early. We did an enormous amount of work: at that time, Russia had just adopted new legislation allowing the creation of a fund in the form of an investment partnership, and we were among the first to create a structure based on this principle. YellowRockets became the management company of the Samara Region Venture Fund. Almost immediately, we decided that we wanted to manage a private fund and operate on an international level — and together with our cool partners Dmitry Sutormin and Lana Graf, YellowRockets.VC was launched in Boston.

The core of our team has been working almost from the very beginning. Since working with startups is probably the most essential thing to be like a startup — to be able to change quickly and adapt to the market, so the people in our team are selected to be flexible and active. It is important for a person to get a kick out of what he or she is doing, which is the same in the whole industry: indifferent people do not take root.

Another important quality is decency because the entire venture business is based on trust and reputation, which is built on how the team works, what and how we do and say. Any professional skills can be developed, improved, or hired on the side, in the end. But an intelligent person always understands that he does not know much and is constantly learning — and we appreciate this in our team members.

Besides creating funds and investing, the YellowRockets team has worked and continues to work with startups and corporations: accelerators, pilot programs, startup marathons and hackathons are a big part of our activities. We are constantly creating and implementing new formats: for example, we are now going on the “Innovative Russia” expedition — we will travel across the country from Vladivostok to Kaliningrad to get acquainted with startups and investors.


How much and in whom are you ready to invest

How much and in whom are you ready to invest

The volume of the Venture Fund of the Samara Region is ₽100M, the term of activity is 7 years, with the possibility of extension for another 3 years. The fund invests up to ₽20M in startups with a powerful team and development potential, and gives money for a share-usually 5–10%. To receive investment from the fund, a startup must have a prototype product and first sales, as well as a staffed team and a growing promising market. In the first year of our work, we were among the top 10 most active seed funds in Russia in the rating of the Russian Venture Company and were the only regional fund not from Moscow.

In order for the venture fund to match the economy, it is necessary to invest in scalable projects — and these are, first of all, IT products. We closely monitor FinTech startups, educational projects — anything that uses technology to remove unnecessary links from the complex chain of suppliers. First and foremost, we look at the team, the real state of affairs and the prospects for scaling the business. Geography is also not important, but the startup should be ready to move the legal entity to the Samara region.

If we talk about the foundation, then it is registered in Boston. And our main focus is on Russian pre-seed and seed-stage startups that are entering the international market. The funding focus is on industries in which we have expertise: automation, AI & Big Data, Cloud, Sensors, 5G technology development.

Getting the attention of YellowRocketvc is very easy — you need to leave a request on the website, and it will immediately get to our investment analysts. We respond to all requests, even if they do not meet our selection criteria. Startups should learn to soberly assess their capabilities: the minimum “gentleman’s kit” for going to any venture fund is an MVP, a team and a growth potential of 10–20 times.


About relations with portfolio companies

Our fund always helps projects on strategic issues: with the search for partners, new opportunities, people in the team and, of course, with the collection of the next round of investments. Once every one or two weeks, we have “synchronicities” with the teams to figure out their movements and current issues. A regular venture fund or a private investor will not get involved in the operational management of a startup — only in very urgent cases.

Thanks to the pandemic, we have moved most of our events online, and now you can learn significant and relevant topics in webinars and in our YouTube channel. In addition, we work a lot with corporations, so startups that want to enter into a contract with large customers should pay attention to our programs. In addition, we can also help with effective networking.


Ecosystem approach

Ecosystem approach as a basis for the development of a modern fund

Venture funds earn money on the best deals, and the ecosystem allows you to find these deals. When we do numerous events, we see startups at the idea stage earlier than other investors — thanks to this, we can spend more time watching their development and build trusting relationships with the founders. On the other hand, the investor ecosystem allows you to co-invest with other funds, invite third-party investors to our fund, and also look for investments for portfolio startups in the next stages. Now even late-stage funds cooperate, communicate and monitor the activities of business angels and small funds like ours — they thus prepare themselves for future transactions. Moreover, ecosystems now go beyond geography: scaling a startup abroad is important, and the fund needs to be able to work and communicate with investors in other markets.

I believe that we have moved and are moving in the right direction and are focused on what is necessary. Like any fund, of course, we want to increase our volume and expand the boundaries of investment — it is crucial for us to show good returns, which will be the foundation for fundraising in new funds. We will continue our non-investment activities, expand the network, and develop the ecosystem around the fund — right now this is more crucial than ever.

29 Mar 2021


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