LETA Capital Manifesto

We are looking to back startups creating the future today. We support companies in achieving exceptional results. We believe that our goal as an investment firm is to deliver high returns to our investors by financing improvements in the world through IT and new technologies. In our opinion, the time has come for Eastern European tech entrepreneurs, and we are set to support them with all of our energy.

For most entrepreneurs the fundraising process takes time, affecting their core job, taking away precious days and weeks which could have been spent on product development, customer service or team development. We have great respect for entrepreneurs and value their time, thus with this post, we will try to describe in as much detail and transparency as possible what sorts of companies we are interested in, what we pay attention to and how we make investment decisions. We hope that this will help entrepreneurs to save time when talking to our fund.

Who we are

I am Alexander Chachava, founder of the investment firm Leta Capital, serial IT entrepreneur. I have built multiple IT businesses with hundreds of employees and annual revenue of $100 million. The funds which are managed by LETA are also backed by entrepreneurs with the aim of supporting the most talented teams. We are well aware of the challenges, problems, and needs of our peers.

Since 2012, LETA Capital has invested in 40+ startups, including investments in such successful companies as inDrive, NovaKid, Synthesis AI, Bright Box, Unomy, 365Scores, Double Data, DevAR, Buddy AI and Prodly, among others. Today our portfolio includes notable fast-growing companies operating on the largest markets, which is the main asset of our fund and the resource of the most relevant expertise and competitive advantage.

Source of capital

The current fund amounts to US$70 million.

LETA Capital has a transparent origin of capital. I am the largest investor in the fund, most of the other investors are successful entrepreneurs originating from Europe and Israel who have a successful track record.

For instance, among our investors are Innokenty Belotsky and Ivan Mishanin — founders of BrightBox, LETA Capital portfolio company which was sold to Zurich Insurance Group.

Our value-add is beyond money

Every venture capital firm has a polished pitch prepared on this topic. We recommend each startup spare some time studying an investment fund’s portfolio and, most importantly, make reference calls with selected portfolio companies. We are happy to assist you in getting the feedback from any of our portfolio startups, however, for the sake of fair play, you should reach out yourself to founders of both successful and failed companies.

Such validation is by far the most objective way of evaluating the fund’s value-add. Startup founders are autonomous enough and can talk honestly about the ups in good times and downs in bad ones.

If you are still keen to hear about our version of value-add, it goes as follows.

We usually help founders with further fundraising, contribute to strategy development, support during M&A negotiations, share ideas and experience on business development. Founders are always welcomed to approach us with any question, we do our best to help. During the history of our fund, there were various cases, ranging from rescuing startup money on the frozen accounts of Cypriot banks (and saved it eventually), to helping with hiring for key personnel, standing at the exhibitions, making financial models and many more.

Whom do we invest into

1. We invest in international technology startups with Eastrern European entrepreneurs among the founding team.
2. No matter which country the team is based in, what really matters is traction, historic sales and paying customers in any of the major global markets such as Western Europe, Asia, the Americas or Africa.
3. We invest in IT startups, which sell software-based products and/or services based on a strong IT solution. Approximately 70% of our portfolio is comprised of B2B startups, the rest are B2C. We prefer to invest in companies operating under the subscription model, who have a distinct competitive advantage and target growing markets. At the same time we’re open to any business model that better fits the market of the potential investment opportunity.
4. We pay special attention to companies operating in B2B SaaS, EdTech, AdTech, VR/AR/XR; we are excited about startups in business analytics, big data analysis, machine learning, and artificial intelligence. We prefer companies which are optimizing legacy businesses, improving or replacing inefficient business processes and automating them. We prioritize deals where software products are tailored to corporate or private customers, generating at least US$30,000/monthly net revenue and beyond, growing rapidly and solving real problems.
5. We use a data-driven approach when selecting investment-attractive companies and making investment decisions based on historic results, thus it is advisable to get to know us early on and send quarterly updates. Those companies whom we know well from the very first sales have much better chances to strike a deal with us and streamline an investment process.

Our process

1. We review all inbound applications. You need to send us a short pitch deck and a business model. If you don’t trust the forms on the websites (ours works well!), you can send your deck to our Senior Investment Analyst Anton Shardin or Analyst Alex Glukhov. It’s better not to reach out to me or the second Partner of the firm Sergey Toporov in the first place, as our analysts should become “internal champions” for your company first so that we can move your deal down the line.
2. We always reply to all adequate emails with either of the following: immediate rejection; suggestion to revert to us at a later stage of the business; or an offer to set up a meeting/conf call with an analyst.
3. The project is logged into our CRM and then passes through several stages of internal discussions. High-quality pitch decks and detailed financial models usually speed up considerably a decision-making process. Following internal analysis, we come back with additional questions and clarifications.
4. As a next step, we set up a follow-up meeting/conf call between thefounders and the Investment Committee of the fund. During this call, we usually talk about the team, the motivation of the founders, the basic parameters of the business, the product and the customers. Afterwards, we deep dive into the opportunity, will likely ask additional questions and, given serious interest, will organize another meeting/conf call in order to discuss a broader vision, strategy, values and the route to success.
5. The whole process of such back and forth discussions rarely takes more than 4 weeks. In the end, we might want to hold off and monitor the dynamics of the business, especially with companies at the earliest stages, where most hypotheses have not yet been confirmed.
6. In case the investment committee makes a positive decision, we come back with an offer. Our goal is to invest US$1–5 million in the first stage. Sometimes we don’t take the whole round and suggest finding a suitable co-investor. Most often, we lead the rounds. We prefer to make priced equity investments, but we are also open to alternative deal structures, including convertible loans.
7. Following a full subscription of the round, we launch the due diligence process and start drafting the closing documents, which normally takes 2–4 weeks. Therefore, the entire process takes roughly 2 months, given none of the parties took a pause in communication. We try to make all deal terms close to NVCA guidelines, keeping in mind that it is better to incorporate the company in the most suitable country for doing business of that specific Company.

HOW TO MAKE VC INVESTOR SAY “YES” TO YOUR STARTUP

Our investment decision-making and financial targets

1. Each decision to invest in a company is made by the investment committee, which is held on a weekly basis on average.
2. Among the most crucial criteria that impact our decisions are the following: company traction and historic results, growth potential, a sustainable business model with high margins, motivation and professionalism of the team.
3. Regarding investment terms, we target a minority share ownership in the company in the range of 10–30%. We don’t expect to intervene in day-to-day operations, founders stay in charge of running the company. When coming up with a certain valuation, we factor in the forecast of the return on investment. For successful venture deals, the return for our fund is anticipated to be at least 10x on our investment. This will allow us to reach the target return of 3x for an entire fund, as we are well aware that not all of our investments will end up being successful.
4. We rate highly the chemistry between the fund and the startup founders, the founder’s leadership skills, his or her ambition to build a massive company, as well as mutual comfort in the transaction. It is also difficult to overestimate the importance of the founders’ motivation, values that they instil in their teams, what they are willing to sacrifice on the altar of success, how many years they plan to stay in this business and what their genuine goals are.

Reverse Due Diligence. Get to know your investor

After the deal was signed and we became partners

1. You need to adhere to proper financial reporting. If you want to build a large organization, raise sizable funding rounds and deal with corporates, it is mandatory to have at least 2–3 years of audit reports and financial planning, which means you need to start forming them now.
2. We will communicate on a regular basis, not just at the Board of Directors. We will ask you to systematically provide us with the results of the key indicators of your business. If you don’t track them automatically yet, it’s a good reason to start doing so. Our communication format won’t be like “you report, and we listen like smarty-pants”, instead, we fully participate in the discussion. Within the framework of the Board of Directors, our representative is ready to participate in the relevant committee and act fully as a member of the Board of Directors.
3. It is particularly important to understand that we will concentrate on working with the most successful portfolio companies because it is they who will bring us the main returns. Rocket to growing by 50% MoM, and you will get the maximum of our attention and additional investment if needed.
4. If problems arise, we won’t turn away and will still try to help, but only under the condition that the team themselves are willing to fight. If there is a high commitment and tremendous confidence in success, despite temporary difficulties, we will be here for you ready to help. But if the founders shift their problems to us, then we can hardly help, as we have other projects to concentrate our resources and time on.
5. We shall always remember that the founder and an investor are sitting in the same boat and rowing in the same direction. Along the way there might be many opportunities to squeeze each other out and act unfairly, taking advantage of circumstances. Think twice before acting so as circumstances tend to change, trustworthy and genuine relationships are always more rewarding over a long distance, and, in the end, will bring more positive feelings and money.

Never lie or be afraid. How to communicate with an investor

You have read circa 1,900 words above, which quite fully described our investment approach, motivation and methods of work. We adhere to transparency and integrity in working with our partners and portfolio companies, hence we decided to portray everything as is.

We push the world forward by investing in talented entrepreneurs. Our goal is to inspire you and help you build a great company. Let’s achieve success together!

Contact LETA Capital!

p.s. Yes. We are actually reviewing inbound applications from our website.