“A manager must be replaceable.” Adventures Lab founder Ruslan Tymofieiev about startups and venture capital investments
Ruslan Tymofieiev (Ruslan Timofeev) is the founder of Ukrainian venture capital fund Adventures Lab. Back in his student years, he created the successful CPA partner network Everad. However, soon his curiosity in investing turned out to be stronger: Tymofieiev sold his stake in Everad, founded the venture capital fund, and deeply dived in financing startups. Today, among the portfolio companies of Adventures Lab are well-known services such as Reface, SALO, EduDo, and StreamHero.
In November, Adventures Lab's portfolio was expanded by another high-profile project—Narrative BI. It is an American marketing startup created by Michael Rumiantsau, a native of Belarus and a member of the Forbes 30 under 30 2019 list. Another fund’s recent investment is Pibox, a Ukrainian startup for music and video production.
How does the fund select startups for investment? What mistakes do novice investors make? Why might even a very solid startup fail to take off in the end? Ruslan Tymofieiev answers these and other questions in an interview.
This activity has always been interesting to me. But I started my first financial investments in 2014. At that time, I was still actively developing Everad. In parallel, I began to invest in various projects.
Investment in a Kyiv taxi service. Something like Uber. But the first step is always the hardest. The founders processed that project as a technical toy. They believed that it was enough to create an application and everything would work automatically. But this is an operational business, and just an interface is not enough. As a result, the project failed.
Not critical. Up to 100,000 dollars. Then, I invested in other projects. They were not completely successful. But that was the first experience that you must get if you are willing to invest.
It is essential to start with theory. One should make a thorough study of the experience of other investors. The more useful information you have, the higher is your expertise. In this case, you will avoid most of the childish mistakes and will not lose money “out of the blue.” It is always better to learn from the negative experience of someone else than from your own.
I was naive, invested in projects without proper expertise, and incorrectly assessed markets, competitiveness, and capabilities of founders. I relied on emotions, not calculations. I liked the idea and invested money in it. Such an approach is absolutely wrong. There was no full analysis; every project I liked seemed to be potentially successful. For example, at Adventures Lab, we fund one or two out of a hundred startups under consideration.
And Now, Does It Happen That A Founder Comes With A Project, And You Immediately Feel Like Investing In It?
It happens. But all decisions are taken only after a detailed examination. But sometimes, I retrospectively analyze the first deals of our fund and understand that we would not have concluded some of them at this stage.
What Are Your Main Selection Criteria? What Do You Pay Attention To The Most When Choosing A Startup To Invest In?
First of all, I carefully study the market and the niche. How high is the competition and whether the startup will take a significant market share. Often, everyone starts to analyze a project from its team and founders. But I initially estimate external factors, market factors. How broad and deep a market is, how overheated it is. And only after that do I pay attention to the founder. The founder must necessarily have a sufficient level of competence.
Does It Happen That The Founders Have Created A Great Product, In All Accounts, But Market Factors Show That The Startup Will Not Take Off?
It happens. We are interested in not overheated but rather a “warmed up”, dynamically growing market. There was a case when some guys came to us with an excellent project, in all accounts. But after a thorough analysis of the market situation, we came to the conclusion that they would not receive more than $30,000 of net profit in the niche they have chosen. Because the market itself is not deep. Having a growing market can be a criterion for great success, even if you are not a top manager. While overheated market usually has its limits.
You Said That A Founder Must Have A Sufficient Level Of Competence. What Other Requirements Are There For Them?
As strange as it may sound, a founder, or a manager, must be replaceable. Because there can always be an option to replace a manager, as it was in Reface. And the startup should not suffer from this. There must be a person in the team who can take over corporate management if something happens because the circumstances can vary. Such a person is either hired, or one of the employees evolves to such a level. In addition, the network effect of the founder is important, their communication skills, because a wide network of acquaintances and contacts automatically expands access to valuable information. And this, among other things, allows the founder to make the right decisions and stay ahead of competitors.
The fact is that we select not the good, but the best projects. The main focus is for a company that has an unlimited market. So we have to reject many really good startups with strong founders, an excellent team, and a systematic approach. Because you have to turn down good offers in order to invest in the best ones—that's how it is. And the diversification of our assets comes from the best companies, not the good ones. Better risk more but eventually get significantly more profit. If the check is $500,000, then the risk will be very high, but the potential reward is unlimited. As in the case with Reface, we took a lot of risks, but now the project has grown dozens of times and fully paid off that risk. And the profitability later allowed us to invest in 30 companies with the same check.
And The Last Question. When It Comes To The Forthcoming Years, In Which Global And Ukrainian IT Trends Is Adventures Lab Ready To Invest?
The trends will most likely include the Internet of Things, Artificial Intelligence, and Mobile. But the question is not about trends. We invest not in trends but in spheres where we have expertise. These are what we are good at and where we have high competence. But at the same time, we do not reject completely any direction. There is always a founder who will discover something new, even in the most trivial directions.