How to find an investor. Marat Tolybay on the venture company Activat VC and investments in startups

Marat Tolybai, city — Almaty, CEO of Activat VC, LinkedIn

About Me

I have been involved in business since my student days: back in the 1990s, my classmates and I opened our first company and successfully made money. Later, I dedicated 15 years of my life to public service, and in 2014, I finally ended this activity and returned to business. I decided to get involved in the startup industry because I have always been interested in innovations, new technologies, and opportunities for people.

I went through the traditional path of entrepreneurship, launching six startups, but most of them failed. I realized that the serial entrepreneurship model has a downside: when the founder hands over management to the team, the team is often less interested in the project than the founders. Therefore, I abandoned the model of creating my own projects and decided to support entrepreneurs, young people with burning eyes who are full of enthusiasm and ready to work on their product day and night. I started helping them by providing funding and sharing my experience. Thus, I became an investor and a business angel.

Later, I realized that unilateral intuitive decisions often lead to mistakes. Therefore, I created the company Activat VC and formed a team of experts. Now, investment decisions are made by the investment committee, which evaluates startups based on five key criteria. This allows for more balanced decisions.

Photo source: Digital Business

About Investments

When studying a startup, we conduct an analysis based on the following questions:

1. Marketing: the market, its trends, and direction are studied. It is assessed which areas have growth potential and which may be in decline. It is also important to understand how unique the startup's offer is and how it stands out among competitors.
2. Product: the use of modern technologies, relevant programming languages, and the presence of possible technological barriers that could hinder scaling to other markets are checked.
3. Finance: the startup's financial model is evaluated — how adequately income and expenses are calculated, and whether there is a probability that the startup will be profitable.
4. Legal aspects: the legal reliability of the founders, the need for licenses and patents, compliance with copyright, and the choice of a suitable jurisdiction for company registration are checked.
5. HR: the startup's team is studied, its professional qualities, personal qualities, as well as the reputation of the founders in social networks and media. It is important that the team is cohesive, honest, and ready for long-term work.

Each criterion is assigned a weight in points, and the points are summed up. To receive investment, a startup needs to score the required number of points. This system minimizes emotional factors in decision-making.

Our investment declaration states that we invest no more than $100,000. But with the growth of the market, startups began to request larger amounts, from $200,000 to $500,000. In such cases, we are interesting to startups as lead investors or syndicators. That is, we provide not the entire required amount, but only a part. But our entry becomes a good signal for other investors to invest the remaining amount of money. Thus, the startup can raise the entire round.

Investing in tandem with other investors allows us to diversify our portfolio and reduce risks. In addition, the entry of other investors serves as additional confirmation of the attractiveness of the startup for investment.

Photo source: Digital Business

The concept of "smart money" includes not only financial support but also the provision of intangible values to the startup by the investor. We actively apply this approach in our work and transfer the following assets to startups:

1. Experience. We share knowledge based on many years of experience in different fields. Our specialists help solve complex issues, guiding startups in the right direction.
2. Networking/connections. We provide useful contacts with other companies from our portfolio, large corporations, and banks, which helps startups enter new markets and establish partnerships.
3. Assistance in fundraising. As shareholders, we actively help startups in negotiations with investors, developing strategies to obtain better terms in subsequent investment rounds.

We adhere to the early enter — early exit strategy, that is, first, we enter the startup at the earliest stages of development, when the company's valuation is still low. This gives us a chance for more favorable terms, although this approach is associated with greater risks.

Secondly, unlike many venture funds, we do not strive to remain in the startup until IPO or full maturity of the company. Our approach is to exit in one to two years or after one to two rounds. For example, if we invested $100,000 at a valuation of $1,000,000, we are ready to exit literally in a year and a half, when the company's valuation reaches $5 million or more. Of course, we could stay for another five to six years, but our experience suggests that the growth curve of the company's value after the first rapid growth becomes a gentle curve and is no longer able to give more than two or three times. We prefer to exit the startup before it turns into a slowly growing company. This approach helps to earn more profit and faster return invested money to new turnover.

Currently, the Activat VC portfolio includes 24 startups from regions such as Azerbaijan, Kazakhstan, the USA, Uzbekistan, and others. They cover different industries — from advertising to healthcare. At the moment, we have made only one exit — from the startup zypl.ai, which uses artificial intelligence to score clients of financial organizations.

We also conduct constant monitoring and track the performance of all our portfolio startups. Many of them attract subsequent investment rounds at a higher valuation than the one at which we entered. Thus, our share in them in monetary terms also grows. Some startups demonstrate impressive results. For example, one of them grew in value by 14 times over 4 years since our entry. There are startups whose value has increased five to six times or more. These results confirm the success of Activat VC as a venture investment company.

Photo source: Digital Business

Advice from an Investor

When you are looking for an investor for your startup, it is important to create a portrait of the ideal client based on several key criteria:

— direction: investors often specialize in certain industries, such as e-commerce, medicine, education, and so on. Look for investors who are interested in your sector
— stage of startup development: some investors focus on early stages, others — on late stages. Assess at what stage your project is to determine the right investor
— geography: some investors focus only on startups from specific regions, for example, Kazakhstan, while others work with international projects.

After that, it is important to understand the investor's motivation. Most often, they are guided by two goals:
— earnings: the main goal of most investors is profit. The startup should be aimed at growth and financial attractiveness
— inspiration and mission: some investors want to be part of something significant that can leave a mark in history, as it happened with Google or Facebook.

To effectively submit requests to investors, it is important to consider their motivation and adjust your message to their needs:
1. For an investor focused on profit, emphasize the growth potential of your startup.

2. For an investor looking for inspiration, focus on the mission of your project and its ability to change the world, offering to become part of something great.

After you have determined the target audience and the needs of investors, the next step will be to find investors and convey information about your startup to them. Here are several effective ways to do this:

— search on the internet. Use queries in Google or ChatGPT such as: "venture investors of Kazakhstan", "business angels of Uzbekistan" to find potential investors and their contact details
— social networks and news resources. LinkedIn and specialized portals such as Forbes, Kapital.kz, The Tech, and others will help find active investors and keep up with various news
— events. Participate in pitchings, forums, and conferences for personal meetings with investors and presentation of your startup

— networking. Exchange information with colleagues and other entrepreneurs to get recommendations on verified investors

— personal connections. Sometimes personal connections play an important role. It is important to use connections with relatives, friends, and acquaintances: ask them to help you with contacts, even in an informal setting, for example, at a family dinner or a meeting with friends. Always keep in mind that every person can turn out to be a potential investor or a useful contact. Sometimes, unexpected acquaintances can lead to important connections and investments.

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Plans

We continue to look for promising startups, especially those that aim to enter international markets. Our company remains universal in terms of business directions, with the exception of three areas: gambling, cryptocurrency, and DeepTech.

We are actively developing and plan to open several funds, including in cooperation with foreign partners, which will expand our geographical opportunities. Currently, our focus covers startups from Central Asia and the Caucasus. In the near future, we plan to expand into Eastern Europe, the MENA region, and Southeast Asia.

After increasing the volume of funds within the funds, we plan to move on to larger investments and support startups at later stages, which will allow us to expand our activities and support new projects that meet our criteria.