Angel investors may earn their nickname in the noble quest to rescue cash-starved startups, but, as revealed in a recent meeting of the Skolkovo Business Angels Club, they can be positively fiendish in forcing them to justify their salvation.
The business angels meeting at API Moscow center this month. Photo: sk.ru
Eight fledgling companies hoping for a cash injection were grilled by an audience of a dozen investors at the API Moscow center in the city this month.
The investors unleashed a barrage of barbs in a feisty and humorous pitch session - “no chance whatsoever on the B2C operation,” “your idea has no future in Russia,” and “when I heard you already had an order, I stopped listening” – but it was the innovators who displayed the patience of angels, brushing them off with cool aplomb.
Five of the presenting companies were Skolkovo residents, with the other three invited by the Venture Club. All boasted innovations in IT.
Genexis founder Valery Nikitin. Photo: sk.ru
First up was e-learning tool Genexis, an online-based augmentation of regular school education that helps teachers by checking homework for them. Seeking $1.5 million in round A investment, founder Valery Nikitin claimed the system can rake in $7 million in annual profit in Russia alone.
Nikitin dealt admirably with the questions thrown his way, though the investors were still only half way through their morning coffee. After offering a 4 percent slice of the company for $200,000, he agreed to a proposal from an investor that he seek half via a Skolkovo mini-grant and half in regular investment.
Next was Vitaly Peshkov’s IQ Planner, a solution to purchasing multi-stop trips online. After beta testing the company hopes to provide itineraries in minutes using its product, which is aimed at experienced business and leisure travelers.
Barely had Peshkov, angling for a seed round of $200,000, finished his presentation, as a voiced boomed from the back of the hall: “No chance whatsoever on the B2C operation, close to zero,” surmised the investor, a prominent businessman in startup circles. “But you have a chance with B2B, there’s your opportunity,” he added, before theatrically throwing down a canapé.
“You can’t talk to a fridge”
Lexy developer Dmitry Suvorov. Photo: sk.ru
The following participant was no stranger to the Skolkovo ecosystem: Lexy, the robot assistant with attitude.
Dmitry Suvorov, the project’s director, said the company is worth $2.5 million and needs $200,000 to function this year.
The idea behind Lexy is to provide a robot that will answer all the regular kinds of questions that current smartphones and tablets can – what the weather's like, what’s playing at the movies, where’s the nearest Chinese restaurant – but also tiptoe into areas of artificial intelligence.
Lexy will recognize you and say hello, should you walk into the room. The little black and green orb will ask to shut the window when it’s too cold, or snap at you if it’s cranky.
What worried the investors, however, was not the robot’s personality.
“How do you intend to fight with Samsung’s Internet of Things?” one asked. “Why should I place Lexy in my home instead of a Samsung fridge?”
That was a reference to forthcoming technology that will see all household items connected to the internet for full-scale smart home wireless control.
Suvorov was quick on his feet.
“You can’t talk to a fridge,” he insisted, drawing chuckles from the front row.
Igor Kaloshin, a renowned investor and the head of Intel Russia’s R&D arm, had a solution: “So the perfect solution is to put Lexy in the fridge and have done with it?” An age seemed to pass before the laughter died down.
The unenviable task of following Lexy fell to Bitcoin-management system E-coin, looking for a slice of a $4.2 billion market. E-coin’s founders offer to store the virtual currency in online vaults, much like competitors Xapo and ANX, making their money off a 2 percent commission levied on transactions.
Only one question came from the audience – how the company plans to enact KYC. The abbreviation stands for ‘know your customer’ and is frequently put forward as a reason why bitcoin might come unstuck as a viable alternative currency.
Traditional banks know who their customers are and can reliably trace transactions back to them. With bitcoin, the waters are a little muddier. The lack of government guarantees or oversight leaves the crypto-currency open to abuse, which remains a significant obstacle to the market - and investors wary.
Sharp tongues
Following E-coin was Skolkovo resident Qbaka Vision, which was quickly subjected to the sharp tongues of the investors.
Qbaka Vision CEO Andrey Mima. Photo: sk.ru
CEO Andrey Mima labeled the industry-leading Google Analytics “a nightmare” to use, and says others are too expensive.
But after mooting average rates of $250 per month, a voice piped up: “$250 per month? Who’s ready to pay that much?”
Qbaka Vision provides instant internet user analytics for business websites. The software tracks a user’s pathway through a website from entering the homepage right through to making a purchase at checkout – a behavior pattern known in ecommerce as a conversion funnel. Every aspect of interaction with the website is logged – where the mouse hovers at certain times, what is entered (and even deleted) from online forms and fields and so on.
Mima proceeded to justify the cost by pointing to the lack of need for prior programming and simple interface combined with the exhaustiveness of the data collected and the complete absence of data limits.
“It seems a good idea but I don’t see any future for it in Russia,” said one experienced investor.
More developed foreign markets made for a more sensible initial target as the company goes about raising $250,000 in seed capital, the investor explained.
The pitch session then switched from the virtual to the physical domain with a presentation from HolDi Holographic Displays. The startup is building a machine that projects holographs to an audience with 120-degree visibility. Users can deploy various gestures to manipulate the holograph.
The presentation was going smoothly until chief business development officer Dmitry Kovalenko revealed the company already has a client.
“You have an order, but you also want angel investment? Why should we put our money into the project when you will calibrate it according to the needs of a particular customer?” an investor barked. Kovalenko’s reply – that the technology is cheaper and better than existing prototypes and does not require the use of 3D glasses – seemed to appease the investor only partially.
“You’re an entrepreneur? I want to hear a presentation from a specialist,” was the next complaint. Kovalenko deftly batted the jibe away by talking through the project’s technical specifications in some detail.
"Sorry, what?"
Screen grab of the iTunes Store. Photo: sk.ru
It was back to cyberspace for the next innovation – an app called Music Sense that streams internet radio based on the user’s music tastes, which are gleaned from a scan of the music library.
Developer Vladislav Venigora may like his music loud but soon learned he was a quiet speaker.
“Sorry, what do you make?” asked one frustrated audience member. “Yes, but what do you make?”
Venigora explained again: More than 100 factors go into deciding what music to stream. The app itself is minimalist, carrying the iTunes tagline “Just hit play and MusicSense does the rest.”
The potential market is huge, he claimed, saying 64 percent of smartphone users listen to music every day before asking for a $70,000 investment for a 5 percent stake.
Lastly came a promising electronic patent system named after its URL: Onlinepatent.ru. The company aims to exploit the notoriously laborious bureaucracy involved in registering patents at home and abroad. It has separate legal entities in Russia and the United States, and is asking $250,000 for a 25 percent stake in the American branch.
Asked what results he expects from the pitch session, Alexander Borodych, who was named Russia’s angel investor of the year at a Skolkovo ceremony in November, was pragmatic.
Alexander Borodych. Photo: sk.ru
“What we are expecting from this event is a very close deal process. We are hoping that in six weeks from now we will close syndicated deals with two of the projects,” said Borodych, who founded the Closed Business Angels Club.
“As a venture club our goal is to bring the most interesting projects to the face-to-face meeting to close the deal as soon as possible.”