By Margarita Vznuzdaeva
August 3rd, 2018

In investor’s shoes

What does it mean to be a professional investor?

In investor’s shoes

By Margarita Vznuzdaeva
August 3rd, 2018

What does it mean to be a professional investor?

During the “Future in the City” conference I had a chance to interview three representatives of this sphere. Quick Q & As about professional background, investing principles and the attitude towards blockchain projects.

Iskander Giniatullin, the partner in Sistema VC, managed media assets in the AFK Sistema before entering the venture industry.

IG: Before coming to venture industry, I worked on how to transform the traditional portfolio of media assets in accordance with the principles of the new economy. At that time it became pretty obvious that venture project investments are most likely the biggest technological breakthrough in investing, economy and the whole world. You are always on the front line, you always get the “freshest” knowledge, and, apart from earning lots of money, it is just cool!

Future Times

Sistema VC invested in into different high technology projects connected with: AI, machine learning, cognitive technologies, computer vision, big data and more. Iskander distinguishes three requirements for the projects, that just might catch the eye of a professional investor.

  1. Technology or technology-based product that is hard to duplicate need a clear purpose in real life, a way to be applied. This and consumers desire (even if the market doesn’t exist yet).
  2. Founders. The best number of founders for a projects is 2-3, more isn’t better in this case. They should be motivated and at least one of them has to understand the technological side of things plus it’s great if one of them knows the basics of business.
  3. The quality of the team. If the product is based on AI and only one person in the project knows who the data scientist is – it is a bad project.

Additionally, founders should know how to build good human relations, as the investment field itself stands on networking and communication between investors, founders and, well, people in general.

Iskander admitted he has not invested in blockchain startups and explained his point of view.

IG: Two companies from our portfolio investments are trying to implement blockchain into their existing products, but the main application of blockchain is cryptocurrencies. We don’t invest into cryptocurrencies. What about applied use in the insurance business or any other businesses, you ask? The question is if these blockchain-based startups are independent making something for single industries, or if they implement blockchain technologies into their internal processes by themselves. What it will look like is very unclear. We see few  “pure” blockchain startups not connected with cryptocurrencies.

Yury Melnichek, the founder of Bulba Ventures, calls himself an unprofessional investor.

Future Times

YM: I cannot call myself a professional investor. I sold my previous company, AIMATTER, to Google last year and the deal brought me enough money to start investing. I thought, I know better than many institutional investors in which early stage startups to invest and what areas are worth “voting with my money”. I am happy to invest and either succeed or pay to be proven wrong.

Bulba Ventures, an investment company I founded together with my business partner Andrei Avsievich, invests in machine learning startups. I asked why did he chose this sphere.

YM: Why machine learning? There are two answers – a sincere one and a “correct” one. The sincere answer is that I love machine learning. It is the area I really enjoy working in without getting tired of work. I also think that ML/AI are transforming businesses similar to how software and Internet transformed them a decade ago. There is a nice read about it – Software 2.0. And here’s a correct answer. This is the area I have expertise in that works as a bullshit filter. I can intuitively distinguish a startup with meaningful and valuable component from the one that doesn’t have it, because I was into machine learning as a cofounder of a machine learning company.

Yury Melnichek’s inner filter has three core points:

  1. Somewhere in a distanced perspective it should be about business or great benefit to society. I believe if the project does something valuable, it will receive funding anyway.
  2. We don’t invest in ideal companies. An ideal company can raise money from an institutional investor on better terms. We need to know which problems the startup has, how we can help fixing them and why we were chosen as investor among other investors.
  3. We invest only in machine learning startups or startups where machine learning is a major competitive advantage. 

Yury explained that Bulba Ventures is similar to business angels: participating in the startup’s life help with networking and frequently also with some engineering nuances. From time to time Yuri provides personal guidance for startups.

YM: We actively participate in the lives of startups that need it.

I also asked about blockchain-based startups investments.

YM: We stopped reviewing blockchain startups for now. At the moment there’s a big signal-to-noise ratio in this sphere. Firstly there are many scammers, secondly there are many incompetent startups. Between those that remain we see startups that make worthwhile things, but then there are legal regulations. Another issue is changing attitude towards these startups in the society. Moreover, the core value of many blockchain-startups is that something was made in traditional way and now it is made with blockchain. We review only those startups where machine learning is the core value. And when the core value is in machine learning, minimal viable product can be made without blockchain.

Igor Ryabenkiy, founder and managing partner of AltaIR Capital, shows more trust in blockchain projects industry.

IR: We choose projects that have the potential of becoming global in one market or worldwide. Because blockchain is a technology with the first phase of maturity, we found it quite perspective and, therefore, have been working with it for some years now. We also have a specific department that works with blockchain.

His team uses the following principles when making a choice among blockchain projects.

  1. We are interested in those who understand both the technological and business part of implementing blockchain into a specific business as an infrastructure or as an applied solution.
  2. These people not only need to understand the business, but also to know how to do it,  which steps to take in future. It doesn’t mean they will do it this way, but they have to have a vision.
  3. We chose those who don’t see blockchain as the latest fashion. It is an weighted decision that helps to widen one’s horizon, grow the market and make the project more effective.

Igor shared some of the projects he trusts and invests in. Video on Demand is a project that helps structurize and optimize the work from creators and right holders to spectators, raises the affinity, help the film “find” its spectator. There is also another project in the works that makes security measures for IoT devices. At first it wasn’t connected to blockchain, but as the customer base expanded, blockchain seemed like the best solution to provide transparency and decentralization. Igor mentions a huge number of scams, yet still keeps being quite positive about looking into the future.

IR: Blockchain is a good technology and it will be valued… But it isn’t the highest point of development, ain’t no need to praise it.