The founder of the foundation told us about investments, risks, and the future of the Ukrainian startup market
Adventures Lab is a Ukrainian investment fund. It was set up relatively recently, in December 2019, but had already earned a reputation as a major player on the market. It focuses on early, growth, and late-stage projects. The average size of investment amounts to 100,000 – 500,000 dollars. The foundation has already invested more than 15 million in various projects. 14 businesses have been created almost from scratch.
The founder of Adventures Lab Ruslan Timofeev (Ruslan Tymofieiev) told our publication on how to materialize the idea of a startup into a business making millions. He also shared his thoughts on the risks that investors are taking, as well as his prediction of what awaits Ukraine’s startup ecosystem in the near future.
Gamer Service and Educational «TikTok»
In its first year of existence, the fund made six major financial investments. The biggest startups Adventures Lab invested in are Reface, StreamHERO, EduDo, and others.
The EduDo project from Belarus, for which the Ukrainian foundation was the lead investor, raised a $300,000 round. This is a learning platform for short educational videos. The content is uploaded by the users themselves. Their task is to present specific material or an idea in a video lasting not more than 3 minutes. It is a kind of TikTok for children and adults but with a focus on education instead of entertainment. The investments made by Adventures Lab and partners were aimed at refining the application, adding features, creating more tools for content generation, and further monetization.
One of the fund’s largest portfolio assets is the Reface project. Adventures Lab was one of the first to believe in the project and converted its faith into investment. It happened before it gained worldwide fame. Now, this application is exploited all over the world. Last fall, Reface ranked first in the top of the most popular AppStore applications, and most recently even Elon Musk has used it. Not for the first time, it has to be said.
The livestream advertising service StreamHERO in the pre-seed round attracted $550,000. Adventures Lab participated as a leading investor. Ruslan Timofeev emphasizes that both the founders and the team of StreamHERO impressed the foundation representatives with their idea and the ways of its implementation. In addition, the cybersports industry is growing rapidly and is attracting more investors every year. The service concept is integrating ads into gamers’ streams. According to the developers, StreamHERO provides the opportunity to run ads on hundreds of live streams in a very short time. Today, thousands of gamers from different countries use the service to stream. This year, the project team will invest in improving ad algorithms and analytical tools.
Timofeev notes that selecting startups to invest in is a time and labour consuming process. It involves the most high-powered analyst and forecasts. But even a lot of effort does not guarantee that a startup will shoot the moon.
“To some extent, project selection is always a risk. Despite all the expertise, it is not always possible to be sure that the project will be successful,” explains Ruslan Timofeev. “In the Silicon Valley, likewise, there are startups making millions, and there are those which failed in the first year. Although no less money was invested in their development.” The entrepreneur believes that one should not ignore the role of chance. Therefore, the risk is certainly great. “But isn’t that the essence of venture capital investment? We are always looking for something. Adventures Lab, in particular, is looking for its unicorn,” he summarizes with a smile.
How does the «audition» for startups that eventually receive the investment look like? Timofeev explains that everything begins with monitoring the market of projects potentially interesting to a consumer. That is just the point: not to the investor, but to the consumer. Experts verify the reliability and cost-effectiveness, examine brand development strategy, professional qualities of employees, financial performance, target audience, founders’ management skills, as well as their background. Indeed, before a project gets investment, it is evaluated according to many criteria, including its innovation degree, experience and potential of employees, as well as team sustainability—the list is long.
Start-ups acquiring investments are divided into three categories: Early Stage involves projects which are still in their infancy and bring relatively little money, while investments in them are usually measured in thousands of dollars. Growth Stage presupposes startups at the stage of their development, with strategy and business plan. Normally, they attract around $1,000,000. And finally, Late-Stage brands are those making millions a year and requiring multi-million investments.
The venture capital investment involves several stages. The Adventures Lab team is most interested in two so-called start-up phases: pre-seed and seed.
“Pre-seed is an investment in the idea or the development of a demo version of the application. The investment here is small, roughly between $100,000 and $200,000. This phase has two components: an idea and a prototype. The prototype is essentially a functioning product that can already be introduced to a buyer. Then, there is a seed round. The product is already on the market but requires scaling,” concludes Ruslan Timofeev (Ruslan Tymofieiev).
The pre-seed and seed stages are characterized by increased financial risk but also by the highest payback if the brand grabs the consumer. Adventures Lab conducts a detailed analysis of the project, studies the team and product perspective, evaluates basic business metrics: Customer Acquisition Cost, current number of users, and average ticket.
Present and Future of Ukrainian Startups
The rapid and dynamic development of the domestic startup market fell at the beginning of the last decade. Then, new projects were springing up like mushrooms, large foreign investors entered the Ukrainian market, while local venture funds also tried to keep up with foreign partners. In 2013, everything changed a lot. Investments have declined, many companies have moved their assets out of Ukraine. Many startups resorted to the so-called relocation. Especially to Cyprus, Poland, Estonia, Germany, and the United States.
The founder of Adventures Lab believes that only relatively recently the ecosystem of the Ukrainian startup market has begun to revive again: new opportunities are opening for young and ambitious entrepreneurs, the IT sector is on the upswing. “The coronavirus pandemic and the great lockdown in 2020 adjusted but did not completely change this trend,” he concludes. Of course, we are still far from the United States, but by Eastern European standards, the position of our startup market has improved considerably.
A major difference between the domestic venture capital market and, let’s say, the United States, is the reluctance of local investors to invest in risky projects. This is understandable, but startups worth more than 1 billion like Uber or Didi Chuxing will not appear in our country anytime soon under this approach.
However, Ruslan Timofeev believes that the Ukrainian ecosystem as a whole is developing in the right direction. People remain the key resource. As long as there are young, ambitious, and bright-eyed entrepreneurs with a desire to develop, investors will be interested in our domestic market and our projects.