The entrepreneur, who made a "name" in the telecom, and now holds himself out as a venture investor, talks about his first investments, and why he is now looking not only at the Kazakhstan market, but also towards Eastern Europe.
- Murat, a few years ago, I analyzed the venture capital financing market in Kazakhstan. I found that it hardly tots up to a few million US dollars. By the spring of 2020, obviously, it has grown up; its capacity has increased tenfold. Does this picture correspond to your impressions as a venture capital investor?
Not exactly. I would call it a simplistic look. Venture has been actively developing in the country for 5 years. Perhaps such a picture has developed because most of the "venture" iceberg is in a non-public field. One of the most striking examples is Kaspi.kz, which in its formation actively used venture capital. Today it is a hybrid of e-commerce and a classic bank, and its case is studied at Harvard Business School.
Around the same time, my personal story began as a venture capital investor - I made my first investment for $1 million into Chocofamily.
On the other hand, what I agree with you is that there are few such remarkable cases.
- And if you look at this story from a wider perspective - what projects are there?
The peculiarity of Kazakhstan projects is that for the most part they are at an early stage. On the other hand, the amount of financing for such projects at the seed level is at the level of $150-250 thousand. The quantitative parameters are this - it is quite challenging to select even 10 qualitative projects in Kazakhstan as it stands.
- If we continue to "drop" in retrospective, we will find out that 5-6 years ago - these are e-commerce, coupon services, and payment systems. Then there are the platforms (for example, "Rahmet"). Now the investor is hunting for something with the prefix IoT, Big Data or Artificial Intelligence. What are you looking for? Do you have any "favorite" industries?
The past decade, as you correctly put it, I would call the time of marketplaces, instant messengers, and e-commerce projects. The new decade has its own "icons", but even with such an obvious trend, there are still projects where these ideas develop: they still pitch projects of instant messengers and marketplaces. However, the most surprising thing is not even this - large companies, groups continue to invest heavily in such projects. Maybe there are some "political" aspects, but I definitely do not see the business component there. No, I have nothing against niche opportunities around such projects, but if they are, they will work in vast markets, and not in those like Kazakhstan.
Closer to the current decade. There are, of course, trends that can be read about on the Internet, and, in my personal feeling, there is a reasonable kernel there. In general, the situation looks rather alarming – those, who read Harari's book "21 Lessons for the 21st Century", and where a futurologist gives estimates that by the end of this decade up to a billion people may be left without work, will agree - this is such an apocalypse. Then the question arises - who? Or more precisely, what will be its cause. The answer is automation. This is a big niche, and, importantly, a free niche, in which there are already many startups. And there will be even more - these are services that will automate specific processes, improve them and make them cheaper in favor of productivity growth. Briefly, I consider exactly this industry as a venture capital investor. I am interested and comfortable here.
- As far as I can make out, your latest investments suggest that this strategy is already "on the anvil". Judging by the available information, it is HR messenger, Faceplate...
I really like these projects. They are just on the trend that we discussed above. Take the HR messenger. It automates HR - this industry is now at the forefront of transformation, everything is very difficult there - there are many processes, and they are constantly complexifying. Now HR messenger radically changes them, increasing efficiency up to 10 times! The next industry where I believe similar transformations will take place is marketing. I see these needs on my part - the area of my interests includes not only my own companies, but also a number of venture projects.
A very large niche is workflow automation. Here I mean not automation in terms of transferring to paperless circulation, but in terms of automation in terms of routine operations - contracts, agreements, etc. This is what I would like to invest into. And I'm already investing.
- Murat, you are known as the entrepreneur who made a "name" in the telecom. Does this background loom over you as a venture capital investor? How do you generally estimate the prospects of telecom?
It is no secret that telecom is stagnating, despite the fact that there is a set of services on the market in Kazakhstan that is able to compete on equal terms, and somewhere even ahead of what is in Europe in terms of price/quality. In general, the prospects of telecom are skeptical in view of the lack of bright ideas, the ongoing regulatory pressure. 5G doesn't count - that is another story.
On the other hand, there are interesting niches at the intersection - for instance, IoT. One of my projects is Orion M2M is just working in this direction. This is a unique enterprise not only for Kazakhstan, but also for the post-Soviet space - a developer of hardware for LoRaWan networks. Let us speak of Faceplate, a platform for the industrial Internet of Things. It collects, processes and visualizes data from IoT sensors. Even more so, it makes predicative analytics. Very intriguing project.
- Is there a demand from top managers for such analytics?
Of course, they are the initiators of this process - demand in this case comes from above. The range of questions about the quality of such analytics is very wide, from the degree of wear and tear of the equipment to the analysis of its outages.
- Is there something specific in the Faceplate assets?
Yes, we recently made a pilot project at one of the beverage bottling plants. The owners were concerned that water consumption was not correlated with the volume of output. The source of the leak was eventually found.
After the pilots in Kazakhstan, we intend to go to Russia, the CIS and then beyond the Commonwealth.
- And yet there is some skepticism: there is an opinion that such platforms, including for IoT, can be created "only there"...
I can say that the level of specialists here is quite high. I will not say that projects of such a high level are the standard for Kazakhstani startups, but they can be found. As a person from the technological business, I see them and immediately isolate them from the bulk. In general, if we are talking about the SCAD and IoT market, then, on the one hand, there are giants with world names on it - from ABB to Siemens; on the other hand, startups here are quite free. The thing is that inside large corporations, innovations develop differently: there the path is longer, and the costs are higher. Startups are more efficacious. Sometimes it is by ten folds cheaper to buy a company.
- The most important issue for the investor is the criteria for leaving the project. If before that we talked about HR messenger and Faceplate, what are they for you in relation to these startups? When will you leave them?
There is a rule: never enter a project if you don’t understand how to leave it. I do venture capital financing not only for entertainment - there are more pleasant ways to spend money. For me, the vision is this: for HR messenger, buyers are presented in the form of strategists, and these can be large HR agencies, including from Europe and the USA. We have already talked about Faceplate - here interest may be shown from major players in the IoT market.
If we talk specifically about the cost, then the expectations for HR messenger are about $100 million. This is a realistic standard, considering even the current growth rate. Faceplate is still waiting for the development of a validated business model. Therefore, it's too early to talk about any figures. However, if it "kicks in", then it will be a very large global project.
- Murat, you have already brought up the issue of the quality of startups in Kazakhstan. It, frankly, is quite low, and there are only few of them. Therefore, investors go where they are - to Russia, for instance. Is that so? What does your personal experience say?
The reality is that today I invest mainly in companies outside Kazakhstan. That is, these are projects in Ukraine, in Africa, in Thailand, in Russia. In the next few years, I will focus on the countries of Eastern Europe.
- We see that Kazakhstan is actively developing an ecosystem for startups and innovations, in general. At first glance, these steps look quite promising. But this is in the amateur's opinion. What will a professional say?
I agree that a lot is being done. And you can see that there is both desire and resources. Astana Hub, for example, and the preferences that are for the residents. But that's not enough. The state is aimed at a quick result, it is more difficult to work in the "consistent" way, however this can have the following effects: firstly, more stability, secondly, better long-term perspective. Here we ask for measures aimed at increasing the quality of education in IT. There seem to be specialists, but, unfortunately, their competence leaves much to be desired. The same applies to venture capital investment. The state, on the one hand, says - invest. On the other hand, it doesn't want to share risks at least in terms of tax preferences. Unlike Russia, for example.
It would be nice to increase the number of grants in the starting position - this will really revive the ecosystem.
And here's what's important. If we compare the funds that are invested in the so-called "economy of simple things" and in high-tech startups, then we will see a difference by an order greater. At the same time, attempts are made all the time to put an equal mark where it is not a priori. The gap is giant. If you want any effects, if you want "stars", then invest. Looking at the largest stock indices, who are on the top lines? Not oil, not steel, but high-tech companies. And one more point. For example, if there wasn't Chocotravel on the market, do you think this place would be empty? Aviasales, Skyscanner, etc would occupy it. There are many candidates.
The conclusion here may not be the most unique, but I would like to highlight it - if we do not develop domestic startups, then in 10 years only foreign ones will be on everyone's lips.
- Murat, can you reveal the details of specific projects, those where your interest is directed right now?
I have made my priorities quite clear - platforms that optimize processes. Now I am negotiating with the guys from St. Petersburg - this is a platform using Artificial Intelligence. There are interests in Ukraine - now I am in the process of entering another HR project. It covers the unconventional task of selecting a strong specialist for IT projects.
- As far as I understand, you willingly consult start-ups. Why do you need this, given that, as you noted earlier, they still pitch instant messengers and marketplaces?
There really are many projects going through me. And I already have a kind of expert opinion.
- Is it easy to reach you? Usually investors keep their distance...
It's been easy enough so far. Unfortunately, many guys come with projects at the idea level. It is difficult to say something here - I physically do not have time for mentoring, I work with already formed projects that have at least a prototype.