At the end of 2017, the specialists of the consulting company RB Partners Group issued a report offering that the fintech project would become one of the main trends for the Russian venture investors and corporate accelerators. Have the forecasts held up and how is the situation progressing in the interaction of the venture capital and financial market participants? Ekaterina Petrova, the Director of the GenerationS corporate accelerator (the founder — the Russian Venture Company, RVC), told Finversia.ru about it.
— Ekaterina, to what extent is the financial sector interesting for venture investors today? Can you characterize in figures the share of ventures in the fintech, investtech, regtech and so on? What is the development dynamics of the relevant area of activity?
— Last year was very indicative from the point of view of the fintech development: the growth in investments made more than $30 bln. that is almost twice more than in 2017. Today fintech is the most prospective and fast-growing segment. According to PwC, the scope of investment in innovations in this area will reach $150 bln. in the nearest 3-5 years. For the last years, a great number of startups in financial services have entered the market, for example, small and medium business services, company crediting platforms.
The insurance-related services (insurtech), the products to simplify the paperwork, consumer communication tools are also of interest for investment. And the question is not of some separate technology as it is (Big Data or Blockchain), but of a set of tools as a whole. For cloddish banks, purchasing such services is a perfect opportunity for quick and inexpensive implementation of the modern technological solutions.
— What criteria should a startup meet to attract venture capital to the project and the corporate partners’ attention? At what stage does the interaction usually occur?
— As to the venture funds, there are three main criteria an investor pays attention to first of all, and this is not only for fintech.
The first criterion is a fast growth. Depending on the project and the market, the indices can differ, but it is important to remember that when assessing the early stage projects, the main focus is given to the results of each new financing round but not to the profitability. The second criterion is that a startup should be based on a unique technology that would be difficult for competitors to reproduce. And the third, that simple, is the need in a skilful team.
As to the corporate partners, attract their attention, a startup should clearly understand what stage of production chain it can be entrenched in and what contribution it can offer from the point of view of business - cost reduction, increase in profit, launching a new sales market and so on. Often, the large players follow the way of internal innovations development, that is develop new products by the efforts of own employees. Thus, in order the customer would pay attention to any project, he should be demonstrated what certain task the project could solve. In order to offer its solution, the startup should find a specialist responsible for specialized department or participate in the accelerator that corresponds to its area of activity.
— Are there enough projects that are worth noticing in the market? Is there a need to compete with the same banks as some of them try to get hold of the prospective projects? Is there a competition with other tools, for example, ICO, crowdinvesting, etc.? Is there a place for business angels in this market?
— There are many projects as the industry is rather extensive: it includes solutions for various organizations and not always traditionally financial ones. For example, the developments in document verification with the use of blockchain, malware locking and biometrical protection traditionally belong to the fintech market, but also can be used in many structures. The peculiarity of modern fintech projects is that not all are seeking for investments, and if they are seeking, such investments are from strong performers, they are more often interested in piloting and integrating their developments. Thus, the business angels are not the most popular financing facility, but only for early-stage startups.
— Please tell about the most successful startups in the financial market or its infrastructure. What projects are they?
— Among the strongest and most prospective participants of the GenerationS acceleration programs, the projects Oz Forensics, FreshDoc and Cindicator can be identified.
Oz Forensics is aimed at solving the problem of digital fraud. It provides for services to extract text information from passports, identify the authenticity of electronic documents, photos and biometrical identification. The technology is more often used by commercial companies and state authorities by solving a task of services conversion into the digital format and recognizing the citizens by photos and videos, as well as by fingerprints or voice.
FreshDoc that uses the artificial intelligence technology makes it possible for legal entities and individual independently and quickly to create legal papers on-line. The services also includes features of collective use by employees and automated document management in the company.
Cindicator is a predictive analytics technology in good assets management by combining a human intelligence and machine training models. Such approach makes it possible to make proper decisions in the financial market minimizing a risk of high uncertainty.
Examples of successful foreign projects can be also given. Thus, the Robinhood startup — an application allowing for selling the company shares without deal fees. About 140 thousand if new users are registered in the service every month. As well as Revolut. It was started as electronic wallet controlled through the mobile application. The users could manage a multicurrency account with three different currencies simultaneously. The conversion was without fees, at the Forex trate. Today, the project has become a complete international banking service operating in Great Britain and EU, as well as plans to enter Australia, Japan, USA and Russia. Starting from 2019, the company has a bank licence of the European Central Bank.
— The examples you give, such as Robinhood and Revolut, have an international status, but they have been founded by the Russians. Say please what industries can be interesting for the companies to enter the foreign markets? What Russian startups are popular abroad, are they fintech ones only?
— The projects practically from all industries can be scaled up in the foreign markets. It depends on the strategy selected by the project and ambitions of the founders. The industry rather has an impact on how quickly and at what stage the international expansion is to be done. For example, “Uber” services are better to start from the local market development and scale up as it grows, because at first such projects need a network model built and tested in the local market.
And soft and mobile applications, vice versa, should be moved overseas as soon as possible because Russia has only 1% of the global IT market.
Furthermore, our country is known by its bright developers, that is why the IT projects, particularly those with the use of blockchain and artificial intelligence, are trustworthy and popular. This is proven by success of the Russian project Prisma and Belarusian MSQRD. It should be taken into account that some markets have been oversupplied with technical solutions, for example, China has many specific retail technologies. For the companies from the other environment, even with their well-established solutions, it will be difficult to adapt to the market needs.
— Please name the most popular countries which markets are most interesting for the Russian companies?
— According to Global Entrepreneurship Monitor, Russia belongs to the countries with too small share of the companies with the consumers abroad. About 97% of new-coming entrepreneurs pointed out that they were oriented towards the Russian market. A small percentage moving overseas does, on average, to Europe (generally, Germany and France are the priority countries), USA, China and South Korea.
However, more and more attention is paid to the regions where there is a well-built foreign startup support system — grants for soft-lending in local incubators or technoparks, promotion in the company networking at the early stages, and sometimes even assistance in the legal entity registration and account opening.
Most European countries have such programs, and it is possible to enter China through the Russian-Chinese initiatives or local strategic partner. Germany is traditionally thought to be a centre of industrial technologies, b2b solutions, and production automation. But, for example, the Great Britain exceeds Germany practically twice as large by the scope of investments into the startups and annually reduces the gap by the number of deals from the USA. This means that every country has its advantages, including in the support programs and venture market activity.
— How much time does a startup need to move overseas, on average? What does it depend on?
— It depends on the market, the project itself and what is meant by “to move overseas”. Establishing a legal entity can take from several hours to several months, but if we speak about attracting investment or starting sales, the results here are directly proportional to the efforts made and correct market launch — has a proper partner been attracted to assist in certification? Has a proper support been agreed upon with the local authorities or infrastructure? Are there the partners to assist in quicker search for the relevant partners or customers? Does one know where to search for investor? On these questions and the issue of how quickly the startup cope with them the time needed the enter the market depends.
To start working in the international market, the projects can try to test their development at the international technology competitions or cooperate with the international customer in the corporate accelerator in order to represent the obtained results to potential investors. And this is to become a decisive factor for a global investor during the company assessment.
— Please tell about the corporate innovations segment and to what extent the acceleration is a top-requested tool of the companies?
From the point of view of the work with innovations, the corporate sector is becoming more active. Thus, the number of the corporate venture deals increased more than twice for the last year - from 23 in 2017 to 47 in 2018. The number of the corporate acceleration programs is also increasing: according to official data, about 20 programs were launched in 2018, such market players as VTB, MTC, Sberbank and Unilever declared of searching for innovative solutions. The task for the future years is to master working with innovations on a systematic basis.
The corporate accelerator is one of the most universal tools from which the company, if having a well-established innovative policy, can start working with “open innovations”. There are two kinds of accelerators: internal (like, for example, MTC has) when a company individually and fully masters the mechanisms of search, assessment and implementation of the projects found. and external when the professional performers are involved to solve the task — external consultants for innovation development to assist in making a complete cycle. Such services are in demand in the West European markets. The large companies from all over the world refer to the international accelerators, such as Plug and Play, Singularity University, Rocketspace, Runway, 500 Sturtups, Betaworks. In Russia, such work is organized by GenerationS and RVC, for example.
However, it is important to understand that the accelerator is not the technology for the sake of technology. The technological development should always give a result for business. Working with the accelerator, the company better understands how to optimize production and product chains, improve the process economy and grow the startups for specific tasks.
— Please tell about the most prospective current projects of your company.
— GenerationS, the corporate accelerator. We help large business start working with “open innovations”. We solve several tasks simultaneously. First of all, the accelerator is engaged in searching for ideas and projects both on the regional and international level. Then, and this is the most important, it helps assess to what extent the discovered technology is unique, if it is possible to integrate it into the existing processes and what the result from its use will be. In 2018, VTB Group applied for our services. Now, in the frameworks of the joint accelerator, the piloting of 7 startups found by us is conducted at VTB Bank. Five more startups are at the stage of development of potential business cases to launch pilots together with the different bank departments. In case of achievement of all KPI planned, each of the startups can pretend for long-term partnership with the Bank.
Ekaterina Petrova, the Director of the GenerationS corporate accelerator by RVC.
She has been employed in the RVC since 2011. Previously, she took a position of the expert for investment methodology and controlling at the Rosnano Design Office and Department for Small and Medium Entrepreneurship Development of the Ministry of Economic Development and Trade of Russia.
Author: Vladimir Mironov