ITMO University’s Accelerator has organized a workshop on venture investment. Dmitry Fialkovsky, an economist and specialist in the field of consulting and investment intermediary, explained what venture investment is, what type of business might interest a venture fund, what criteria are in play, and, most importantly, what misconceptions you have to work through before the negotiations start. ITMO.NEWS put down the keynotes. 

Venture investment from A to Z

Venture means a risky or daring journey or undertaking. But what do investment and risky adventures have in common? In fact, not all investments and sponsorships fall into the venture category. This signifies investments with a high degree of risk – risk to lose your money. But why do investors give away their money if there's a 50/50 chance they’ll never see it again? When the risk to lose everything is high, the chance to win much more is higher. Venture investments are the highest profitable assets in the world, if you’re lucky of course. 

Oftentimes, venture projects are startups with lots of potential and ambition. These are the companies that could become the next Skype, Airbnb, Google, Amazon, etc. Almost all big digital projects were born thanks to venture funds. 

A venture fund is a professional institutionalized enterprise, unlike a business angel. In essence, a fund is a money chest that was contributed to by different investors. As a general rule, only one project out of 10 can yield real profits and cover the losses from the remaining nine investments, which is why funds aim to simultaneously invest in 20-30 projects to be in the black as a result. 

Investors prefer products that can be scaled up to the largest possible market. Let's use the example of a major investment fund LETA Capital to consider the fields that are the most likely to interest a fund. 

“IT and Internet technologies for different economic sectors based on strong R&D, mostly in B2B area, which can disrupt the existing market or make it more efficient, such as business intelligence, big data analysis, machine learning, AI-based technologies for different industries, traditional business process optimization or replacement, robotics for business (logistics, production, etc.), AR/VR, Fintech,” says LETA Capital’s website on their investment areas. 

If you’re developing a startup in one of these fields, at what stage do you submit your application? Startups that already have sales or earlier investments – generally provided by business angels – can bank on attracting investments. But it’s better to start negotiating with the funds as early on as possible, because meeting them doesn’t necessarily mean that you’ll reach an agreement and cooperate. 

What else should you think about before talking to a fund? 

Investment goals. Most often these are aimed at development, upscaling, and more active growth on the market, as well as launching on new platforms. A fund can also help with attracting further investment (fundraising) and developing a growth strategy. Oftentimes, venture funds are created by a team of people who know their field inside out, which is why they can be consulted on other matters. 

You have to have a clear understanding of the goals and objectives of your project, as well as its development trajectory. It’s preferable that at the time of submitting your application, your team includes such specialists as CTO, business developer, or someone who is responsible for the strategy, markets, and hypothesis testing, as well as a team leader, some sort of a mastermind who does the fundraising. 

But even at the start of your collaboration, you have to think about exiting the investment period so that this stage would be as smooth as possible.

How to meet a representative of a fund?

You can write to them or meet them at an event. Of course, it’s important to attract their attention, prove that your project has a bright future ahead, that it’s oriented at an actively growing market, that it has international potential and you have a working prototype that shows good results. 

When writing to a fund, you need to send a presentation of your product, as well as its financial model. It goes without saying that your presentation should be short and concise (10 slides, 20 minutes, 30-point font – according to the rule by a famous Silicon Valley speaker Guy Kawasaki). Tell about a client’s problem that you can solve, and about the opportunities (for example saving money and time) that your product offers. Without divulging any commercial secrets, try to show the magic of your technology or development. Make sure to indicate your product’s current status, describe your achievements in sales, number of clients, as well as attracted investments.