How to get on the top investors' radar in developing countries?

The first question for you - you are a venture partner of Starta Ventures and BrightSky ventures. Starta Ventures works with startups from Eastern Europe and BrightSky, which has deep connections in Latin America, takes a global approach but with a preference for companies and solutions they can introduce into the LatAm market. What makes those markets of developing countries so attractive for these investors? 

Let’s take it step by step. Every investor generally has a focus in terms of what they want to invest in. If you think about it for a second, investors that want to invest need to raise money. Generally, venture capitalists need to raise money from other people in order to invest in the companies that they invest in and hopefully generate a return on investment for their investors in that way. That is the way venture capital works. I raise money from other people, I use it to invest in certain companies, hopefully, those companies do well, I can then get to a financial transaction and through the financial transaction I can return money to my investors and give them a positive return on their investment.

Let’s say you are an investor, you are a limited partner. I want to raise money from you so I can use it to invest. So the question is what is it that will give you confidence that I can actually make money for you? Every venture capitalist generally has a specialization, a pitch, an angle, a process, call it whatever you want, that allows them to say ‘I really know this market, and because I know this market and/or technology, I know how to pick companies that are going to win, that are going to be successful’ and as a result of that, when I invest, we pick the good companies that are going to win and going to be able to give you a good return for your investments. And then you’ll evaluate that statement, you’ll evaluate their capabilities and decide whether you want to invest in that group or not. 

BrightSky and Starta are similar on certain levels and different on other levels. For example, what makes Eastern Europe attractive to Starta Ventures? First of all, Starta is headquartered in Moscow. They are local, it’s a local environment and ecosystem, the one they are familiar with. I think that it is similar for BrightSky - two of the founders are from Columbia, so they know Latin America very well. The first thing is that they are looking at local ecosystems. The second thing is that when you look at Eastern Europe, for example, what I see there is a lot of talented engineers, very good skills and people that have been developing things and have a good track record of making good products, so generally, we see talent and skills.

In Eastern Europe today, unlike what it was some time ago, you have a much more open society and that open society is exposed to a lot of different technologies and other solutions from around the world. What happens when you are exposed to all that is that all of a sudden, your imagination, creativity and experience expand and you are starting to see new things, more possibilities and opportunities.

Eastern Europe has been opening up more and more and that exposure is experienced at events like GoTech. I was at Startup Village earlier and I could see the growth, the solutions that companies are developing as the result of the fact that over time, they’ve been exposed to more and more of what’s been going on in the world. So, we have skills, and talent that gives you ideas and generates opportunities, and then ultimately the other thing is the growth of the Internet and mobile platforms in most places, certainly in Eastern Europe, which provides different platforms for how to access that exposure, for how you can develop new solutions. So when you take all of that together what happens is that you have people who start to become creative and start to identify the problems that exist in the market that they can solve. And that is the essence, the beginning of an entrepreneurial ecosystem.

What is different in Eastern Europe and Latin America is that Eastern Europe is very inexpensive?

When you think about hiring people, the cost of living over there and salary levels when compared to other countries is considered very low which is one of the biggest attractions of having a team there.

One of the challenges in Eastern Europe is creating solutions that have more than local appeal and demand that reaches a global audience. And that is not always so easy despite the fact that there is a lot more openness and exposure to things. Being exposed to an outside world and feeling a part of an outside world aren’t necessarily the same thing and it takes an adjustment in mindset and personality to start feeling that you are not just a local guy but somebody who has a broader horizon, experience and exposure to the world.

I think Latin America is a bit different in that sense. Mobile in Latin America is growing tremendously quickly and that provides the platform for people to be able to get internet and see things. The cost there is still higher than in Eastern Europe, but much lower than in say North America, yet provides you with a very different kind of opportunity. There are certain things that are in very high demand over there. Every country has its own characteristics and its own issues. Some of the solutions they are developing are just for the local problems. Almost every country there speaks Spanish, except for Brazil that speaks Portuguese and because of that, there is a certain thought that it’s homogeneous continent since almost everyone speaks the same language and on a certain level it’s true. But when you get more deeply involved you start to find that the continent might have similarities in terms of language but many of the countries are somewhat different in terms of culture and the way business is done there. The challenge over there is being able to overcome what may look like a homogeneous place, but in reality is really heterogeneous. The real challenge in Latin America is overcoming the barriers and figuring out how you sell and how people adopt technologies in these countries in order to be successful over the whole continent.

One of the things we’re partnering on, that is, BrightSky and Starta, is a LatAm Expansion Track program. In it, we take very promising, high growth, early stage companies that are seeking growth opportunities in new markets and give them training both in local culture and business culture in the major LatAm markets of Columbia, Brazil, and Peru. After that, we arrange introductions to major potential corporate customers and then provide in-country support, all with the purpose of helping both these companies thrive and prosper, and to grow the LatAm market.

As a well-known expert in venture investments, could you provide more details on how a partnership between a business angel, an accelerator and a venture fund works? What entrepreneurs should pay attention to when they become a part of that alliance, so to speak?

The question is what does each party bring to the table of this relationship? What is it that motivates a person or entity to be involved in the partnership and what do they get out of this? Let’s take a look at each one and then see how it works. What motivates an angel investor to invest money? Generally, angels are people who have done well in their professions and they have some discretionary savings that they want to put to work in creative investments, like startups. Clearly they’d like to make money, they don’t give it as charity, but in reality most angels understand that at the end of the day they are probably going to end up net zero. Let’s assume they’ve taken 100 thousand dollars to invest. Overtime, if they end up with the same 100 thousand they’ve started with they’ve done okay. It means that they made some money, lost some money and ended up back where they started. They are not better and sometimes even worse at picking good investments than professionals, which by the way is why you see most angels investing through Angel Clubs. If it’s not the money that motivates them, then what does? Often times it’s an opportunity to give back to people and/or society; sometimes it is about shaping the future or just seeing the future up close. A lot of people get a lot of excitement from being part of the future, and sometimes, it’s just about working with entrepreneurs and sharing your experience.

The VC is interested in taking the money they raise from their investors and generating a positive return on their investment, as we mentioned before, and in that way they make money for themselves if they are successful, otherwise they eventually go out of the business. What they are looking for is high-quality deal flow. The VC interested in this partnership brings to the table an opportunity to put money in the companies that match their investment criteria and that they find attractive.

The accelerator’s job is to take the early stage companies and help them be more successful, more quickly and less expensively. It’s like planting a seed in the ground and watering it and tending to it until it blossoms, faster and better. The accelerator puts early stage company through a process of advancing the entrepreneurs much quicker and much better than if they were on their own, and the end result is developing highly qualified, compelling companies that can attract and close better funding. This is, for example, what Starta has been doing in NY for the last few years. We’ve had 6 cohorts come through already and the companies have all advanced while going through the program and afterward.

The entrepreneur, before choosing the program, should evaluate a couple of things - firstly you ask what the end result is? How do you measure the success of the program, how many companies that have been through it received funding? Generated more revenue? What’s going to happen if I go through this? How helpful the program is going to be? These are the things you should question firstly.

Watch the video from the discussion How to get on the top investors' radar with Saul Orbach at GoTech Arena.