Alexander Smbatyan, founding partner of Aybuben Ventures talks about investing in tech start-ups and a $50 million fund for Armenian tech.
Can you explain how your approach to tech funding and entrepreneurial projects compared to your early investment ventures?
We have always invested in companies across widely different sectors of the economy. We found partners who best understood some offline businesses and working together started developing online services that allowed people to do things faster and better. However, a service that seemed to meet a need for thousands of people turned out to be not in demand. Generally, for many services people simply didn’t want to pay despite focus groups, and others, stating the opposite. This happened quite a lot. As a result we realized that we needed to talk to people directly and not fall in love with our rescue mission. And this is the first thing we pay attention to now. We want to know how deeply an entrepreneur understands his users do his ambitions exceed the potential we see. It’s also important that an entrepreneur can build effective teams and ensure they can quickly adapt to changes. At the same time we need to understand that an entrepreneur also places importance on the well-being of his employees. So in a sense our approach, compared to the early days, has changed significantly.
Would you say there is a refinement in your approach compared to traditional investors and are you an important link between much sought after capital and tech start-ups seeking investment funds?
We are by no means traditional investors. Each of our partners was and remains an entrepreneur. This is an important message for start-ups. They are sometimes wary and suspicious of men in suits who see a start-up solely through the prism of reporting, key performance indicators, graphs and projections. While clearly these things have their place traditional investors don’t see the company as a living organism. This has no value for them yet it’s one of the most important things. So, yes, you can say our approach is much more refined and cognisant of more subtle but important values. We can also say that our approach, if we distil it, is essentially about communication, that is, we create links between people who have different goals and often speak different languages. In short, we emphasise that we create the first link between entrepreneurs and the world of potential that they know is there but can’t quite grasp it. But more than this we can also reveal opportunities that start-ups never realised existed.
What general principles do you look for in a tech start-up and how do you get a sense of which ventures will be successful?
No one can really know about which venture, which start-up team will be successful. In the final analysis it often comes down to the will and determination of the start-up. That said, our investment decisions are based on a formula with a common core. But there is never a standard investment amount. In detail, we do pay special attention to the entrepreneur and the chief technical officer. Much, if not all, depends on these two people. The first one is in a sense a practical dreamer who can bring things to life but also have a deep sense of loyalty to his users and customers. The CTO must also feel all-powerful in that they really understand the tech side of things, see how trends are shifting and anticipate the future. Together the pair can see the market need, predict a movement towards demand and determine ahead of the game how the technology can be used, its main functions and why users will be happy to pay for such a service. The companies we consider must also have a sales tracker so we can model how investments will scale success. And of course the company must have a patent or patent pending for its technology. This is critically important.
Regarding tech start-up failures do you see it as a question of having the right management and marketing in place?
Good management is important but alone is not enough. From my experience, there are several issues that can lead to failure. The first is that the start-up team loses track of the market pulse and communication with its customers. Secondly, they can be too focused on technological developments and make a fundamental error of not testing it with a sufficient number of users. Finally, there can be a splintering of the product focus with a company aiming at several target audiences at the same time rather than concentrating on an initial audience then building from there. That said, failures are often stepping stones to success as long as lessons can be learnt.
In terms of Aybuben Ventures and your targeting of the Armenian tech sector and Armenian entrepreneurs do you see yourself as helping create a global networked nation?
We don’t need to. It is already here and thriving. This was evident at the World Congress on Information Technology 2019 held in Yerevan, Armenia. A huge number of startups founded by Armenians came to Yerevan. This is not a story about Armenians developing something for the nation, rather it’s a story about Armenians believing they can do something important for everyone, and doing it with passion, inventiveness and intelligence and connecting people from different parts of the world to dovetailing interests and goals and achieve results together.
Is part of your mission is to unite tech start-ups with other companies that can complement each other in products and services?
Not exactly. Many start-ups already do this. Our primary task is to find companies that are solving complex technological challenges and as an outcome creating extraordinary commercial potential and opportunities. We support them in this development and together find new markets, partnerships and so on where their developments can be successfully leveraged commercially.
What are the most significant tech developments that have been driven by Armenian tech entrepreneurs in the past few years and how successful have they been?
There are great companies such as PicsArt, ServiceTitan, SoloLearn and so on. These companies are already successful and I think will continue to be even more successful. There are also many others following in their wake who in time are set to be equally successful. There are also companies like Krispos, Renderforest, Disqo and Teamable which are also very successful within their fields.
What are your investment targets in terms of how many tech start-ups you plan on supporting?
Based on the fund size we are projecting up to 20 investment deals. This planned investment is based on both initial funding and follow-on investment rounds funding. However, the investments will be made on a world-wide basis and not exclusively in Armenia. We can’t separate the Armenian tech sector from the world tech sector as there is a lot of interlocking and overlapping. This is a pan-Armenian fund and there are a lot of Armenian entrepreneurs who have strong links into Silicon Valley and many of the world’s tech giants, so opportunities will also arise here. In terms of investment size we have a $50 million and are looking at approximately $1 million to $3 million for each project. These investments are designed to drive development and expand sales geography as well as increasing investment attractiveness for following funding rounds.
How much is the Armenian tech sector valued at and what rates of growth do you expect to see in the coming years?
Armenian entrepreneurs are active across many IT market sectors, especially in artificial intelligence, virtual reality and visual recognition. The size of these markets is expressed in billions of dollars with double-digit annual growth rates. That said, in terms of the specific Armenian tech sector I don’t think there are any accurate statistics that provide an estimate of all companies whose shareholders or leaders have Armenian roots. But personally, and based on my knowledge of the Armenian diaspora, I believe there are hundreds of such companies with a total capitalization that runs into billions of dollars. According to open source material, during the last few years well-known companies such as ServiceTitan, PicsArt, Teamable and others have obtained finance in excess of $300 million, which only confirms their high potential in the eyes of investors.
Is your ultimate objective to create a global community of Armenian tech companies that drive new tech initiatives and also interact with other tech players around the world?
A resounding Yes. Armenian entrepreneurs and professionals have successfully created some of the most advanced technologies either by starting their own companies or working in other companies around the world. Armenians live all over the world. Potentially this creates a huge global pool of entrepreneurs, professionals, capital, companies and knowledge, which can be leveraged and scaled in any of the world’s economies. We aim to be instrumental in providing effective operational tools that leverages companies, talent, and finance to create opportunities for the technologically astute for those who are brave enough to grasp the opportunities.
