Why do we invest in Ukrainian startups and what are we looking at – Genesis Investments

Genesis Investments Manager Olena Mazhuga in the column for AIN.UA talked about why startups from Eastern Europe find it difficult to attract Western capital, the coronavirus crisis and the fund’s approach to selecting companies.

In 2019, investments in Ukrainian startups, according to a study by UVCA and Deloitte, for the first time exceeded $ 0.5 billion. This is a record amount, it is 1.5 times higher than in 2018.

The outcome of last year also was the birth of a new unicorn in Ukraine – the Grammarly company, which after the next investment round was valued at more than $ 1 billion. And although American capital still makes up the bulk of the investments attracted by Ukrainians, transactions with Ukrainian funds are increasingly appearing.

Why invest Genesis

There is a common problem in the markets of Ukraine, Belarus, Latvia and Lithuania: startups at the pre-sowing and sowing stages very often do not receive sufficient funding. It is difficult for companies to attract investments from the USA and Western Europe if they do not have sales in these markets, and especially if the founders do not live there.

By creating funds in Ukraine, this demand can be met – to help startups grow to the point where they can raise money from a large Western investor. To do this, you need to increase sales, enter new markets, expand the team and, if necessary, move.

When we launched Genesis Investments, we did not limit the pool of industries we were looking at. And now we are focusing on areas of interest to us in which Genesis has expertise and experience. These are Digital Health, Online Education, Mobile Apps, Artificial Intelligence & Machine Learning, and Advertising Tech.

According to the results of 2019 and the first half of 2020, Genesis Investments was recognized as the most active investor in Ukrainian startups among venture funds (Ukraine Innovation Awards 2020). During this period, we closed deals with Liki24, Mate Academy and Elision. But the most significant transaction was a half-million investment in the Belarusian startup Vochi, despite the fact that the usual amount for us is $ 300,000-400,000.

There are other reasons for creating an investment fund. Genesis is committed to attracting the best people from the market to its company. But those people who started their businesses, most often do not return to hired work. Investing in startups allows you not to lose such specialists, but to keep them in your circle of communication and share the experience.

What investment funds look at in 2020

A successful startup is a mix of ideas, experience, team and dating. To please investors, you need to meet several criteria:

• Talented founders and team. We look at social networks, the reputation of the founders, and collect feedback. They must have a positive experience in establishing their own business, possess unique skills and knowledge.
• An international market with an estimate of over $ 10 billion. If a startup takes 10% of the market within 10 years, it will have revenue of $ 100 million a year, it may not become a unicorn, but it will be valued in the range from $ 300 million to $ 1 billion.
• Availability of sales and positive feedback from users. Ideas alone do not cost anything – the product should solve the real problems of people. If there is nobody to sell the technology, then nobody needs it.
• The company’s chances of becoming profitable in the next two years. The crisis may drag on, and the money will not be as accessible as, for example, in 2019. Therefore, those startups that can quickly start earning will be more attractive to investors.

What directions to follow

• Digital Health. In the world, a huge number of people do not have access to fast and high-quality medicine. This applies to both developing and developed countries. According to Deloitte, global health spending by 2023 will grow at an aggregate annual rate of 5%. At the same time, the industry remains underfunded and not efficient enough. An aging population, a global pandemic and other challenges contribute to finding innovative ways to get health care. Therefore, it is worth betting on developments in telemedicine, drug delivery, health monitoring applications.
• Online Education. Classical education lags far behind market realities. This also applies to western universities. If a person is not going to work in the field of investment banking, consulting, rocket science, medicine or American politics, perhaps he should not spend five or six years of his life studying at universities. The COVID-19 pandemic has also shown the importance of distance education. According to current trends, gamification, cross-platform training and other new technologies will be further introduced into the educational process.
• Мобильные приложения. They are reluctant to invest in applications, considering it an easy field. In fact, building a good application with a multi-million audience is difficult. Many do not know how to launch the application and reach the millionth revenue per month in a year, but Genesis knows. In addition, in quarantine time it is one of the few areas that is growing. According to Sensor Tower, in the first half of 2020, consumer spending on mobile applications and their installation increased by almost 24% compared to the same period last year and exceeded $ 50 billion. According to analysts, user spending on applications will increase over the next five years despite the crisis, and can reach $ 170 billion by 2024.

Spheres such as gaming, streaming and conservative industries that do not adapt to technological progress so quickly, such as logistics, banking or construction, will also grow.

Crisis or opportunity

The crisis caused by the COVID-19 pandemic hit startups around the world, according to a study by Startup Genome. Firstly, they faced the problem of reducing consumer demand, and secondly, with a potential shortage of capital in the near future. As a result, a large number of employees had to be fired. Also, according to the study, venture capital funds reduced funding and even already concluded transactions were called into question.

The crisis has not affected Genesis Investments. At first we were going to reduce the number of investments, but now we do not see any obvious prerequisites for this.

Any crisis is also an opportunity. Therefore, we will continue to invest in promising projects and plan to close about five deals by the end of the year.

The importance of investment for the IT market

In a global perspective, investing promotes market development and starts the animation process. If start-ups appear and find the necessary financing, then the Ukrainian IT market will be able to get closer, for example, to the Estonian one in the future 15 years. This means an increase in R&D, job creation, an increase in the level of specialists. As the market becomes more competitive, the profit of a single fund, of course, will decrease. But whoever becomes a pioneer in this business and deserves a good reputation, all the best deals will be his.

Posted by Olena Mazhuga, Investment Manager, Genesis Investments

Source: ain.ua