Substance over form. Why LETA Capital invests in Eastern European startups
LETA Capital is a VC firm founded by serial IT entrepreneur Alex Chachava. We invest in post-revenue tech startups, founded by Russian-speaking entrepreneurs who build international IT businesses. In this post, you can read more details about our fund’s origin story, source of capital, value-add, criteria for investments, internal processes, what happens after an investment and more.
Early this week I was chatting to a friend who is an Investment Banker in London and while I was telling him about our activities at LETA, we ended up having a very interesting and productive conversation, which I feel is important to summarize in this blog post, as I keep hearing same questions and comments on and on from multiple parties whom I pitch LETA Capital investment strategy to.
..wait what?? Why would one choose to narrow oneself down to backing only Eastern European founders? (even those operating on the global markets) — asked my cosmopolitan friend whose mother is from Hong Kong, father is British, both grandparents are Australians, while his girlfriend is German.
First off, let’s define what we (at LETA) mean by “Eastern-European founders”:
- those, for whom the Russian language is native regardless of whether they are ethnic Russians or Belarusians, Latvians, Jews, Ukrainians or Kazakhs, etc. Also, we count those, for whom Russian is a primary language spoken at home.
Now coming back to the question. Firstly, we are excited about a vibrant Russian-speaking diaspora.
According to estimates, there is more than 40 million Russian-speaking population living outside of Russia & CIS constituting a very diverse and thriving diaspora (comparing to 146 million people living within Russia these days, for example). A good portion of those people emigrated right after the collapse of the Soviet Union in 1991, many of whom carried with them a rich legacy of excellent engineering education and work experience, obtained from “Mother Russia”.
Below are the countries with the most Russian-speaking population (as of 2019), incl. Russians, Ukrainians, Belorussians, Kazakhs, Jews and others.
Thus the first obvious opportunity for us as a Russian-origin VC (on top of domestic Russian & CIS markets) is to target the talented Russian-speaking startup founders who have moved to another country and built a tech company locally.
Sounds good, but why would they want to raise from you? It seems more obvious to raise from local investors in their country, isn’t it?..
That’s a great point. But if you think of it:
- Because from the mentality and socio-demographic perspective, they differ from the locals, also not every immigrant is able to properly assimilate — which prevents many of them to look reliable enough and make local investors entrust with their money.
- It’s all about trust — especially at the early-stage startup financing — and the trust should always go both ways. LETA Capital promotes the highest level of transparency and openness, anyone can review the detailed results of our investment activity throughout the history of the fund since 2012, check out our portfolio, spot the sources of our capital under management (no toxic money!) or explore the detailed background of LETA Capital’s Founder & Managing Partner Alex Chachava.
- Another important aspect is EQ (Emotional intelligence) — we invest in people, not spreadsheets or decks. Hence we’re looking for partners, whom we can support not only with required financing but also with emotional support, we are prepared to listen deeply and ready to pull out all the stops when necessary.
For many of our portfolio companies, we become their first institutional check, which helps them reach scalability on the foreign markets, after which they successfully raise further large investment rounds from the local late-stage VCs and growth investors.
..fair enough..but I still don’t get it — what exactly makes Russians different from others? (I kept correcting my friend reminding him that not everyone in Eastern Europe is Russian, and there are numerous other local ethnicities…without much success though)
In my opinion, it’s incredibly incorrect to generalize and judge different nations by some certain cultural clichés, however, when it comes to running a startup, I firmly believe that some nations are in theory better suited to tackle uncertainty over the others due to some cultural, historic and socio-economic peculiarities — but again, no generalization whatsoever. The main point here is to rather outline specific characteristics, which are set to help Russian-speaking founders be competitive on the international markets. Such as the following:
🎢 Equipped for volatile environment — being on the crossroads of Eurasian history for over 1000 years, Russians deal with plenty of random factors impacting their lives than most other people — comparing to cultures existing in more stable environments.
☔Survival mode activated — capable of finding a solution in any situation, incl. last-minute decisions even if under pressure.
💣 Last battle syndrome — ability to get out of really bad situations through extreme mobilization.
📚 Erudition is worshipped — knowledge is treated as something that all social strata should universally have both free access to and ability to master.
🙋 Natural networkers — it is necessary to know people in power to make things work, maintaining more friendships than an average Westerner. If you know the right people, you can arrange the most difficult things with little effort.
🗣 Gender roles — femininity is highly valued in women, masculinity, in men, up to insane levels of machismo at times; women hold high rank in the Russian working environment. When your Russian counterparts bring a female executive to wrestle on the other side of the table, you know you’re at the end of your runway.
⚡ Set to disrupt — Russian culture is not based on order (like, say, in Germany or Japan). Always thinking big, like exploring space or building largest this or that.
Therefore, the aforementioned traits can serve as the breeding ground for the next Sergey Brin or Pavel Durov to emerge.
But in fact, I’m not sure an impact of Eastern European entrepreneurship in general and Russian in particular is reasonably significant globally at the moment?
That depends on how you look at it. On the state level, the amount of new breakthrough consumer-noticeable inventions in the past decade originating from Eastern European countries might have indeed been less than during the times of industrial revolutions of the 18th/19th century or during the arms race between US and Soviet Union in the past century. But that’s not something we as a small VC firm can influence on a regional macro level. What we really care about is human capital — and we can see an inspiring trend of Russian-speaking software developers, engineers, students, scientists and other professionals being in demand by the international community and who eventually create successful global IT businesses, whereas we are prepared to support them via financial resources and expert advice.
..no offence, but isn’t being “Russian” or having “Russian roots” these days means being toxic on the West?
Without mixing politics and business, for such renown IT companies as Gradient, Revolut, Luxoft, Mirantis, Veeam, Nginx, Telegram, Cut the Rope, Badoo, ABBYY, Jetbrains, InDriver, etc — having Eastern European roots didn’t prevent them from becoming very successful international businesses. Therefore, we see a promising niche of partnering with the most talented startup founders originating from Eastern Europe who aim at building global IT businesses and by this way contribute to improving the preconceived notion about Russia-related founders. As Alex Chachava puts it, “For us, as a firm, it’s important to help cultivate an international perception of Russian-speaking IT professionals being not only hackers but rather specialists, who are capable of building world-class IT products. Most lucrative investment targets for any investor are yet underrated market niches and unobvious hypotheses — after all, if you are acting in line with others, how would you achieve significantly better results?”
Instead of a conclusion, I’d like to share examples of breakthrough inventions in Technology, Science, Military and Space, made by Russia-related innovators since the 18th century up until now — which showcases the importance and influence of Eastern Europeans on the world as we know it today.
At LETA Capital we invest in post-revenue IT & tech startups founded by Russian-speaking entrepreneurs, who operate internationally. We invest on average $500k up to $5M and look forward to hearing from you! Feel free to send us your deck to info@leta.vc or via the form on our website.
