Can you please tell us a bit about yourself, and any professional developments since we last interviewed you?
In the mid-90s, I left Russia, where I was born, to attend Harvard Business School. I then continued my career with Bain & Co in Boston and London, where I got the first taste for private equity and venture investing by joining Bain’s private equity advisory group. In the early 2000s, I returned to Russia for a few years where I led a private equity business of Alpha Group, and then in 2009, together with two other partners, we founded Elbrus Capital. It later became a prominent and successful investor in the FSU (Former Soviet Union) region. Elbrus was built on the premise of investing top quality international institutional capital – we never had any Russian investors – into the then fast-growing consumer internet and FMCG businesses in that region, so we managed to attract capital of major international institutions such as EBRD, IFC, DEG (German Development Institution), as well as other major Western global asset managers, pension funds and also several Middle Eastern sovereign wealth funds. Elbrus has had three unicorns in its portfolio over the years, two of them we took public on the NASDAQ and on NYSE.
A few years ago, we agreed with our global investors to start exploring international digital investments outside of FSU region. It was decided that these investments will be done via a separate structure and under a separate brand name, Chrome Capital. So, as I was based in the UK and in Europe, and stopped going back to Russia since COVID broke out in early 2020, I took a lead on launching this Chrome Capital initiative.
By that time, I largely discontinued any involvement in Elbrus’s Russian projects, so I fully focused on development of Chrome as an international investment firm investing international institutional capital into tech deals globally. So far, Chrome has invested significant capital into several exciting companies operating in the US, Europe, and Asia in the sectors that we understand well, in fintech, edtech, SaaS, and these companies are performing very well despite the quite challenging macro environment.
Could you provide some more detail on Chrome’s investment philosophy?
While one would normally respond to this question by saying that there are a few elements to any investment strategy – where you invest geographically, where you invest sector wise and which kind of company you are investing in – we at Chrome are primarily investing in people. Our first and foremost criteria is to find a very talented person or group of people that can take a business idea and grow it into a successful company.
What we learned throughout the years, especially investing in the early stage, is that neither product nor even the market that you think you’re investing in is the ultimate determining factor of success. In many cases, you need to pivot, you need to change things. Things change incredibly dramatically in your markets. Therefore, if you have partnered up with the right entrepreneur, you have very high chances of getting things right through that partnership. So, if I were to describe our investment philosophy in one phrase, it would be investing in outstanding, talented entrepreneurs.
We started sourcing a lot of ideas from founders hailing from countries of the former Soviet Union, like Russia, Ukraine, etc. One idea that’s developing and evolving in my mind is the fact that people have left their home markets, and it doesn’t have to be former Soviet Union home markets, have gone to other countries and have set out to do businesses there. For me, it has come to be a very good initial filter for the deals from which you choose. I’m thinking more and more that we may want to focus our deals sourcing on “migrant entrepreneurs” who have left their home markets. At a minimum, it proves that they are people who can take risks. It’s a huge risk to take to go to a new country and set up shop. It means that they’re decisive. That’s important in this business. It means that they’re agile, creative, and willing to try and do new things. It’s a big challenge moving for example from Vietnam to America. It’s a big step and so people who are brave enough to do it and good enough to execute their idea is a good filter for me.
How would you judge who is an outstanding person?
It is down to meeting with people and spending time with them. The way it usually starts is with incoming deal flow from various sources. These get filtered via some basic criteria. Is it the right size, the right stage for us? Is it the right sector for us where we at least make a claim to understand something? Afterwards, as soon as possible, our people get on the phone or ideally an in-person meeting with entrepreneurs and hear their story. As the process progresses, more senior people in the organization get involved and try to spend as much time as possible with the founders. Ideally, it is a huge plus if it is not the first project for an entrepreneur. When you meet with someone who already had success and can show that, it is really, interesting.
As our heritage comes from the markets of the former Soviet Union, we have focused a lot of our sourcing on founders who come from that region (Russia, Belarus, Ukraine, Kazakhstan, et cetera). There are a lot of very, very talented entrepreneurs in that part of the world. In many cases, they would have already built successful businesses in those markets. From that point of view, you can already see what these people could have achieved, maybe in a different region and in different geography, sometimes even in a slightly different sector, but you’re already investing in an accomplished entrepreneur.
What kind of size of business does Chrome invest in?
With this question, I think it’s easier to talk in numbers. So, we usually look to invest 5 to 10 million in each deal. Sometimes we go up higher, maybe up to 20 million and we usually try to get a sizable stake. It doesn’t have to be humongous and gigantic, but with our heritage coming from a private equity background, where we are heavily involved in businesses, we like to get the board seats and essentially, we like to contribute, and we like to be heard. Usually, the stakes that we take are between 10-25% and sometimes a little bit less. Translated to valuations, it comes to about $50 million, depending on the time we get in.
If you had to choose a couple of metrics or indicators which stand out to you in looking at the businesses that you’re investing in, what would they be?
It’s not so mechanical with our approach. I think there are some investors who invested in much earlier rounds where they have portfolios of potentially hundreds or dozens of different companies, and you almost run a spreadsheet and then you put some formulas in and bingo, there you go. Again, with our private equity heritage, we have a more in-depth and analytical look. So as a result, there is no single determinant factor. Depending on where the company is in its life cycle, there’s not a single number. It’s not like: when metric X is more than three, we definitely invest.
I would say that the determining factor of success is the sector where the business operates. If you get very good entrepreneurs operating in a sector that is growing quickly, that is a good prediction of success. We have also invested in fantastic entrepreneurs in very difficult sectors and results were not horrible, but they were just okay. It’s very difficult to swim against the tide. At the same time, even if you’re not number one, two, three, or four in the sector that has just taken off, you can still be very successful.
So: total addressable market, growth of the sector, the competitive environment, and the market share. It’s all very fundamentals based.
Has Chrome invested in any AI companies yet?
These days, everything is converging so quickly. There’s one company which we did not think of as an AI investment and now the company has largely turned into an AI business and many others are converging there also quite rapidly as well. So yes, you could say we’re playing in that space as well.
When you were starting the fund, was that one of the goals you had in mind? Was it to get into the AI vertical or was it just a coincidence that the fund was created in parallel to the AI boom?
It was not by design and therefore our portfolio in that area is quite limited. Due to the AI area evolving so rapidly, I think the most successful investors who will succeed in it are the ones who have lots of bets. Across those bets, some of them will play out, some of them will not.
Do you invest in companies producing innovative products that create their given vertical, or do you focus more on established markets with tried and tested products?
I totally appreciate and I understand that there are many investors who have succeeded in the first approach. We just don’t have the DNA for that at this moment. It’s hard for us to assess a product, as many of them look like amazing ideas. You sit down and speak with an enthusiastic entrepreneur about something that he or she has invented, and it all sounds exciting. You want to jump in, and some people know how to do it. Some people have the gut feel for this. It’s just not quite in our DNA, we don’t know how to do it. We are more focused on the latter approach, assessing the markets and performance of already established products.
The last couple of years were generally challenging for quite a few startups/VCs in terms of valuations and funding. Are there any challenges you see for startups/VCs soon?
I wouldn’t say that the last couple of years were horrible for startup ecosystems.
Of course, the high interest rate environment makes it a lot more challenging to raise money. But there are quite a few companies that came into this period with significant cash cushions which they used wisely. Even throughout this period, raising money was not impossible.
Maybe it was on different terms and maybe, you know, people who raised finding at 50 times revenues two years ago were really disappointed to only raise at 20 or 30 times revenues on the last fundraises, but the world does not end in those situations. I don’t necessarily think that in the last two years a disproportionately larger number of startups have failed. It would be interesting if there were statistics on this topic. It’d be interesting to see it.
Also, the major economies have been doing either okay or well. The US has been doing incredibly well and that is pulling everything, including the whole startup ecosystem. There is demand for new stuff. Europe has been doing okay, not horribly. I mean, not as good as the US, but not horrible.
Some emerging markets have continued to grow very, very quickly. So, people who are building businesses in those markets have been through much worse periods over the previous couple of decades. Additionally, the pace of technological innovation and development has been astonishing. This was driven, in many cases, by entrepreneurs and by the startups, but also that has pulled a lot of demand for startup businesses and products and services as well. The main challenge in the recent period has been the exit environment. There were very few IPOs in the last couple of years in the tech space. Again, though, the world doesn’t end just because there are fewer IPOs.
In the past few years, there were still quite a lot of M&A – good companies were able to monetize. Also, as a company, if you were planning to go public in 2023 but that was delayed and you’ll go public in 2025, the world does not end there either. If the company continues to grow and as interest rates come down, which they inevitably will, then I think that the IPO markets will come back, and people will go public.
What are your general macro views now and looking to the near future?
I’m in the camp of people who don’t think that things will go back to how they were in the last 30 years. We are making decisions based on the assumption of the relatively long term higher inflationary environment driven by many different factors. Concisely – I don’t believe there will be a quick return to a very low interest rate environment. Therefore, my view is that of not necessarily a continuation of the current environment but somewhere going back and forth between what it is today and how it was before rates rose. But again, I don’t think it’s a total catastrophe. There is lots of money around.
I think investors will ultimately adjust their mindset. And investors will continue allocating to alternatives, including venture investments and private equity, etc. There is a lot of money available and good ideas/good entrepreneurs will continue finding funding as they have been.
Our portfolio companies throughout this couple of years, even after we invested, have continued raising money. And on good terms. Not on cosmic terms, like some times in the past, but on good terms, they are raising capital to fund their growth, they’re building businesses and creating value.
What kind of advice would you give to an entrepreneur seeking investment specifically from you?
For us, it’s quite simple. If you or an entrepreneur operates in a fast evolving or fast changing market with a sizeable enough TAM, and if you have an idea or business or project which is changing the way that market operates or somehow can claim to gain share in that market, then all you need is a fairly relatively clear way to communicate this to us and we are very interested. So, come see us, send an email, give us a call, or use whatever other method of getting in touch, and we will gladly listen.
In terms of more generic advice, I would say don’t be discouraged if you get lots of nos. If you really believe in the idea that then ultimately you will find people who will be interested to invest. They may be right or wrong in their assessment, but ultimately there’s quite a lot of capital around and so perseverance is important. The other thing, which may be a little bit against my own interests, is: don’t sell out too cheap. One of the many mistakes and one of the many problems for investors as well is if entrepreneurs give up too much at early stages. There’s usually so many rounds that you need to dilute, dilute, dilute and then in the end, you may end up with 2% of a great company. You may be unhappy, and your investors may be worried that you’re not motivated enough.
Think about your startup diligently, invest time, and do work. In many cases I have seen it working well when there is, someone who specializes or devotes time specifically to raising money, because if it’s the same person who is running the team and running the product development and selling and at the same time trying to raise money, that becomes impossible for everybody involved.
So, in our experience it has worked well when there is a partner or a senior member of the team who oversees that – it works well for everybody. Founders should not spread themselves too thin over all kinds of aspects.
What motivates you personally at Chrome?
On the professional motivation level, the challenge for me is this big pivot that I have been trying to make over the last couple of years changing from operating in countries of the former Soviet Union, which had its own peculiarities, but where we achieved good successes. And then for all the reasons that we discussed I had to stop doing business there and basically start something new. That is challenging when you’re 25, building your first business and that is equally challenging when you’re 55 – arguably, it’s even more challenging when you’re 55, because so much already is set in stone. Sometimes I feel that I am doing a startup on my own, quite late in my career, which is both very, very interesting and very challenging.
I think that one of the motivations for me is: can this pivot continue to be successful? And where will this come out? The other motivating factor is related to people. Over the years, what I probably enjoyed most in my career is meeting and working with talented entrepreneurs. This really continues to motivate me to see that people can come up with brilliant ideas, can change the way we live, the way we work with their products and services, and see that something that was not there before is there now, and clearly has improved something. It’s a very big motivating factor to think about it in this way and to be there alongside the founders for the journey.
Is there anything you want to say about the AI hype right now?
I think the AI hype is very real. I think it’s going to have a humongous effect on our lives. You know, on par with the introduction of internet or mobile communication. So that has obviously got huge implications from a business point of view, the way businesses will be run.
And that is already happening, and at a super-fast pace. So, it makes it very hard to predict anything.
We will live in a new world, and in many ways where I am quite worried. I’m in the camp of people that think that we, as a society globally, are underinvesting in understanding philosophical and social implications of the AI revolution. To exaggerate, whatever the government that regulates it, or whatever the regulator is, either on the national level or on a supranational level, it should put some form of tax on every investment to be used to fund of philosophers who will tell us how to deal with these philosophical and social implications.
I think it’s a fundamental challenge, not just to the businesses, but to society at large, and we are losing very valuable time. I think very little is done about this. Here and there, some companies are voluntarily thinking about this – some are even kind of self-imposing some limitations. But it’s so big that it needs, let’s say, a structural approach. A well-funded approach and very, very quickly, because it will be a lot more costly to fix it later.
What do you think the last skill to be replaced by AI will be?
Philosophy. I think the last man standing like the first man standing will be a philosopher.
Comments are closed.