Sergey Toporov (LETA Capital): We try to support Russian-speaking IT-professionals, it is our sweet-spot. - Unicorn Nest

Sergey Toporov (LETA Capital): We try to support Russian-speaking IT-professionals, it is our sweet-spot.

By Borys Sydiuk

10 Feb, 2020

Sergey Toporov is Partner at LETA Capital

Sergey Toporov is partner in the LETA Capital fund. He studied Math and cyber security in university and then made up his expertise in business development, project management, market analysis and finance modeling. He is former COO at ASK labs – Advanced Process control systems development company. Since 2012 as an Investment manager he has created an inbound pipeline with more than 1,000 projects per year.


How it’s all started? How you decided to enter the venture investment business?

We have a pretty long history. I work in a VC fund called LETA Group. This group of companies operates at ex-USSR markets and India. We have several IT-companies in areas such as anti-virus distribution, data management, corporate software development, system integration, etc. It was co-founded by Russian entrepreneur Alexander Chachava 18 years ago. Eight years ago the group was considering its future moves and best direction of its growth, and the coolest idea was to create a VC arm of the group. We decided to invest not only in our own businesses, but also into startups using profits of LETA Group. So in 2012 we started investing into Russian and Israeli entrepreneurs and did it for 5 years. In 2017 we sold our first 3 startups, made money and, actually, realised that we can not only spend money on startups, bur also earn money; that’s how VC investing works. Thus we started a classical VC fund with base capital of $50m. 2 years ago the capital has fully been subscribed and now the fund is in the active stage. So, as you see, everything started in IT and our own operational experience, and none of us have any financial background, only entrepreneurial. 

And do you like where you are now in terms of your current business situation? Or, maybe, you would like to try something new to apply you knowledge and ideas to?

This is the 8th year of our venture activities, and we decided to measure results from our funds. And I can say, that we are pretty satisfied with the results. We have more cash return than 1:1 with our first fund, which, by the way, still has some companies in its portfolio we are going to sell in 2-3 years, and those exits should bring us even more. I believe, we will reach 28% ROI, and this is a great result for the first VC. The second fund operates for only 2 years. The portfolio value is already bigger than $50m, and we have not yet invested the whole balance of its funds. We are going to close the $100m funding operation in about a year. Recently we decided to launch our third fund.

How you select ideas to support? What are your criteria? And what industries you’re interested in? 

We try to support Russian-speaking IT-professionals, it is our sweet-spot. We don’t have specific criteria in terms of technology, while still investing only in IT, because it is where our own experience lays. But we also want to support early stage entrepreneurs on late seedstage and later, sometimes around B. They need to prove that they can build an international business and create great traction to be considered a great company without any political things. You understand that recently people are a little bit scared of Russian-born technologies. Silicon Valley investors are ready to invest in startups only if founders are immigrants, especially considering ex-USSR, especially those who built international businesses with a little bit better performance than similar American companies born in Silicon Valley, founders of which graduated from MIT or Stanford. And we believe that we must give a chance to everyone, and that in a harder situation you can build a better company. And our portfolio proves this. We support early stage companies to help them to achieve great performance, great traction and profitability. Finally, it doesn’t matter where you came from, it’s only matter what you’ve achieved. In terms of stage it is seed, Series A and Series B. And usual check is $1-3m. I don’t like to think about a company in terms of technology, like Blockchain, Big Data, Machine Learning or AI. I prefer to think about a company in terms of their value to customers and ability to scale. In today’s world you need to create some software solution in order to succeed and invest in machine learning algorithms that may perform better than humans. But at the end the only thing that matters is an actual value that may be paid for your company.

What a startup should have to propose to catch your attention?

The first things are traction and revenue. You know, many investors say: “I never read infoboxes, I don’t like to read cold emails, I need a warm intro, etc.” I don’t like this approach, and we try to check every company that contacts us, yet trying to catch our attention is a very important part. We have a company IntelliBoard in our portfolio, it’s analytics for learning management platforms. The founder just dropped email to our corporate mailbox, and when I opened it, I saw that they had reached pretty solid revenue, solid actual revenue, and that was enough for me to start reviewing that company in depth and considering the other important things, like the team, product or industry. But something there must be inspirational moment, like huge growth, revenue, profitability, maybe some stars in the team. These all matter, but we review dozens of startups each month, you need to start with important things.

Investors like to work with teams. But have you ever support a one-person startup?

Yes, we have a few such companies in our portfolio. It’s not important how many founders a company has, rather how processes are distributed among team members, how areas are covered and what competences the team has. Actually, it doesn’t matter, how many founders a company has, because the actual driver is always one person, who has a vision, who has motivation, the real frontman of the company. And if the company has only one founder, like Arsen Tomsky (InDriver), with a good team, it will also be successful.

Who would you like more to work – Jobs or Wozniak? 

It depends on the stage. At the very early stage i’d rather prefer Steve Jobs, because much more important thing for a startup to survive is to sell – your vision, your product – both to the customers and investors. But later it is important to deliver what was promised. And if Steve Jobs may find people who can deliver, it’s good. If not, you need Steve Wozniak, who understands the product and technology, and can deliver. Nowadays sales and marketing became much more important, than technology. 

At what stage of product readiness you prefer to enter?

The most comfortable zone is when the company already sells its product with net revenue at least $50k a month. It proves that the company can build something and then sell it. Also they need to have a vision and roadmap for the future, how they will deal with the competition.

What is your due diligence procedure and how long does the process take?

Our formal due diligence process takes from 2 to 4 weeks, and by this I mean legal part, checking if metrics are presented right, bank statements, checking user statistics. Also we review a team, a market where company operates, a product – it is done before legal due diligence and may take from one month up to half a year. We prefer to work with companies that deliver what was promised, and it takes several meetings with entrepreneurs between the previous round and the next one in order to check how good he or she is in delivering, especially in the situation of little or no fundings. Otherwise you will see only a snapshot, and this way you may see the dynamics. 

How many startup projects do you review per year?

I think, we review about 2000 projects per year. In the very beginning I was the only one responsible for the whole inflow, so now I review 20-30 companies per month. But we still cooperate with the other members of the team, so, actually, I see almost every incoming proposal.

How startup team usually find you? What are the sources of all those applications/candidates?

It is my favorite topic. In reality, all VC funds have similar sources, using inbound and outbound marketing. First of all, it is our own network, and this is the source of warm introductions. Also we check our inbox, corporate email account, applications from our website and those are for about 30% of our deals, maybe even 40%. And we use active scouting, because we know the market pretty well and use all available sources, like Crunchbase, searching rather for entrepreneurs that startupers, and use, say, Capterra. I prefer to use more global data bases than those VC-oriented ones, because they supply broader information. We are a part of entrepreneurial community, not only VC. 

Have you ever invested in Kickstarter projects?


We don’t use crowdfunding platforms searching for perspective companies, but I invested in several KickStarter and AngelList projects myself, but never closed those deals. It is hard mentally to invest in early stage companies, when professionally you invest in Series A. You expect revenue, expect product readiness, but get only vision and drafts – never traction. 

How long does it take you to cover the whole way from the first meeting with founders to contact and check signing?

In most cases it takes 2 to 6 months. If we like everything about the company, it takes about 2-3 weeks to decide to invest and the rest is due diligence. Usually, longer periods are needed when we like not everything in the company, like there are not all tractions available or we are not sure that the founder may fully deliver. We check the company now and then, and if it can grow without money and founders develop the company the way they want, we are convinced to invest. So, if your project was rejected by a VC fund, it doesn’t mean it would be rejected as well by the same fund some time later. It is a corporate selling, you need to make people trust you by showing your efforts, and this trust is hard to build in a course of a couple meetings. It is especially true for our country with its light competition between VC funds, and that gives us time for more weighted decisions. 

What qualities you are looking for in teams? 

There must be someone with ability to sell, preferably a founder – ability to sell the vision, the product, the company itself to other team members. It is the most important quality. The second is the ability to deliver. I’ve seen quite a lot of companies founded by a sales genius, where a tech team wasn’t able to make actual product. It was a disaster.The next quality is huge ambition, and it is also very important. Ambition to change the world or earn a lot of money, but your motivation should be huge. Founders have to have a reason to build a $1b company. This ambition is very hard to recognise. At early stage people, usually, want more, but when they have a few millions of revenue, they may stop growing, because the life is already good. But VC companies are looking for those who want to grow as long as they can. And we try to find out if this or that entrepreneur has plans to grow in 10 or 15 years. It is a long run, people should be ready for that.

And what are your red flags? 

The main one is when the founder is complaining about external circumstances, like situation in the world or lack of investments. The second is spreading something ill about former partners. Or coarse, if they are trying to lie. I mean, founders should outsell their companies a little, because every startup has a lot of problems. But they should never cheat with metrics or assets. We sometimes step out of a deal with the signed term sheet, because during due diligence we had found some inconsistency.

Had you ever rejected a project and then regret it? 

Only once. We could enter a deal, had signed the term sheet, but lost it, because a bigger fund entered and proposed twice as much. Now it is a unicorn company. It is our only experience, and I still think we should have been asking for some smaller slot for us.Yet we decided not to invest. 

What you expect from a startup in terms of per-money and post-money evaluation?

I prefer to use multiples of revenue somewhere between 4 to 10 times of their current revenue. It is really depends on a company, product and market. It is because when we will sell the company, everybody will look at the metrics as well. And we need to make money on this sell. So we are looking there – at the growth rate. 

What was the most unusual or even exotric startup you ever supported?

One of our best performers today – InDriver – was aside of our investment focus and still we invested $10m, which is very unusual for us.They are building B2C product in a very crowded market, but they have really strong founder, even charming. And we could not reject, because it would be a bet like in casino – but kind of right bet. Sometimes we try to do opportunistic bets, like with Displair company. They created a product, a kind of displayless display sending the image onto a layer of water droplets. It was a dream about how the world should interact with displays. It was an opportunistic bet, because our business is not only about the money, but also about the dream.

What books, movies, blogs, events can you suggest to startup founders?

The most important events are those of your industry. They need to be close to the customers, not VCs. There is a saying in Russian “Investors will always help you to profit, if the profit exists.” (Инвестор всегда придёт на выручку, если она есть). My favorite book is Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel, it is the most motivating book, in my opinion. And this is it: to build a great company you have to have motivation, you have to have some strange desire and you have to believe in yourself. The rest is technics.

Can you name three most breakthrough startups in the history?

I rather name three technologies. The first one is GPS, and everyone today depends on it, it changed the transportation and how people now orient in environment. The second one is internet, and everybody understands, why. The third one is electricity, on which we depend each day more and more.

About the Author

Borys Sydiuk

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