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In 2018, Genesis created a venture capital fund: it has already invested $10 million and yielded 600%. How Genesis Investments works - an interview with Vitaliy Laptenok
In the last quarantined year, Ukrainian technology companies raised a record $571 million in funding, almost $30 million more than in 2019. Such data in the new annual review of AVentures Capital fund. One of the most active Ukrainian investors in 2020 is Genesis Investments. It is a "subsidiary" project of the large Ukrainian product company Genesis. In the two years of its existence, it has invested almost $10m in startups from Ukraine and Eastern Europe.
Vitaly Laptenok, the fund's managing partner, told Liga.Tech in an interview about how the fund works from the inside.
Liga.net recently hosted a podcast with Genesis CEO Volodymyr Mnogoletnyy. He talked about the fact that about 15 areas at Genesis are created by employees. That is, Genesis invests in talent and businesses as it is. What is the point of creating a separate fund if Genesis is essentially a fund as well?
We have been investing for a long time and have been quite successful, and the fund was formally set up more than two years ago. We operate as a fund within the company as well: we invest money in internal projects as well.
Genesis Investments allows us to widen our funnel and invest not only in those people and projects that might appear in Genesis: the drug delivery business Liki24, for example. We would never go into this business ourselves, but we find it interesting.How are these projects doing?
At this stage, all the projects are growing well. The two companies in which Genesis Investments invested in 2019 attracted big rounds from other investors 12 months after the deal. One company was valued at five times the valuation at which we invested, and the other was valued at 10 times the value. We considered the fund's current return to be 600% p.a., which is well above average. But I think it will normalise over time.
Where do these returns come from? And how much better is your performance than that of other funds?
The norm in the world is tens of percent. Rarely does anyone earn more. But since there is little venture money in Ukraine, you can choose the best projects in the market. For the Ukrainian market the norm is hundreds of percents.
Profitability we calculate as follows: we take the multiplier, according to which we invested, and look at how the business results have changed and how much it would cost today, based on the new business results.
It is clear that we are talking more about accounting returns. But all indications are that it will be the same in live money in the near future. Returns are lower in the USA because there is a higher percentage of failed investments than in ours, more projects are being closed down. And our businesses hardly stand a chance of closing down.What criteria do you use to select projects?
The fund's employees assess a whole range of indicators: from client feedback on the product to internal financial documents. We have a large file with a scoring model, which helps us not to be very subjective and make decisions based on numbers. First and foremost we look at the following criteria:
Talented founders and team. We are looking for people with a clear business vision, strong technical and marketing knowledge, and managerial experience. We pay attention to whether the startup team is able to plan and forecast, and whether they are prepared for different scenarios and changes in market conditions.
How many people work at the foundation, what do they do?
There are 15 people working in the fund. Our employees have worked at McKinsey & Company, KPMG, Deloitte, Fedoriv and TA Ventures. Of the entire staff, three specialists are involved in finding startups for investment, while the remaining 12 are fully immersed in supporting portfolio startups.
We advise and help companies in such areas as strategy, digital-marketing, analytics, fundraising, recruiting, PR, brand strategy and software development.How do you make investment decisions?
At the first stage of selection, we get acquainted with the startup: the founders send a presentation, describe the product and give a brief overview of the market.
If the project meets the basic selection criteria, we schedule a call and learn more about the team, its achievements, motivation, and plans. We ask questions about the business model, revenue streams and consumer portraits.
We then conduct market research and due diligence, a detailed independent review of the project. Before making a decision, we request additional information: market data, client feedback, financial results and forecasts.
What technologies will you be following in 2021?
EdTech. The online education market is not saturated yet. There are a very large number of people who will go in there and learn something, and we continue to actively monitor this area.
Mobile gaming. It's an area that's growing rapidly right now, especially mobile gaming, which has shown the market many examples of successful companies over the past few years.
MarTech. The mobile advertising market is pretty hot and trendy right now. This is partly because Google and Apple have begun to intensify their focus on privacy issues, and have also begun to change this market. For this reason, we believe that new directions will emerge and we continue to monitor this market.