The bridge mentality of transatlantic expansion — an interview with Pavel Bogdanov

I sat down with a big cup of coffee in my favorite café in the center of Warsaw to dial into a call with Pavel (Pasha) Bogdanov, General Partner at Almaz Capital. Having been investing in startups for the past 13 years, Pasha has vast knowledge about the VC business. However, only a few minutes into our conversation, I realized that when it comes to making investment decisions, as important as his professional expertise is, his personal story and life lessons influence him just as much.

With investment from Cisco, Almaz Capital was set up in 2008, and Pasha was a part of the founding team. “Cisco instilled a bridge mentality in us — the understanding that we should combine the best of two worlds. They are the US market’s strength of marketing and sales talent, and the great tech minds from Europe,” Pasha explained.

“When you look at Europe, there is a split between large and small countries,” he continued. “In some ways, being from a small country makes it easier to grow a global startup because your domestic market is too small. For instance, if you are from Estonia, you are more likely to aim for global expansion early on, often with a focus on the US. These are the companies we are targeting.”

Estonia is an interesting example. In Europe, it is ranked third in terms of startups per capita, and first as far as unicorns per capita are concerned. Pasha believes that the entrepreneurial success of this little country boils down to three factors.

Firstly, they implemented governmental policies that support the global expansion of Estonian companies. Secondly, they boosted the startup ecosystem early on with their flagship success story, Skype. Lastly, the country has a broad network of expats in Silicon Valley who are willing to help Estonian startups with their American expansion.

Almaz Capital strengthens this transatlantic connection further. “We are trying to do deals where startups are supported by two people — one in Europe and one in the US. For startups, it means that they get twice as much attention, as they would typically get from a VC partner, and it helps us deliver on our strategy.”

When it comes to deep tech, Pasha strongly believes that winning the US market is crucial for success. “It is the function of where the most competitive ecosystem is,” he stated. “There are certain business areas in which the United States has allowed an oligopoly or monopoly to emerge, for instance, in the social media industry. In those cases, championing in other markets may suffice, but in most areas, America has the most competitive market. Unlike the European market, it is not limited by national boundaries.”

Once a startup proves its superiority over its competitors and manages to scale in a market the size of the United States, they will be able to compete on the global market.

“If you are successful in the US, you can be successful anywhere,” Pasha summed it up. “But it doesn’t work the other way round. If you are a small market champion, it does not mean that you will be successful in other markets.”

While Pasha is clear about the ways in which startups should try to scale and internationalize, he disapproves of group thinking in venture capital. “What bothers me is that VCs like to invest in similar things while neglecting other ideas,” he said. “I think VCs would make a great research subject for some social scientists — it’s fascinating to see how these mass beliefs form.”

Often the unwillingness to invest in specific ideas derives from investors’ previous experience. It is especially true in the case of those investors who have profound knowledge about a particular subject.

Pasha explained, “if you know that many great people tested a concept many times before and failed, you are more skeptical about a startup that offers it. Nonetheless, markets keep evolving, and something that didn’t work three, four years ago, suddenly becomes a huge success. We see it time and time again with various business models.”

Pasha’s affiliation to the United States comes from his experience as a teenager. In high school he took part in a student exchange program to the United States that turned out to be the most transformative experience of his life. He left for America as a citizen of the Soviet Union and came back to a transformed, much smaller homeland — Russia.

The transformation occurred in him as well. Pasha came to the realization that things tend to be more complex than they seem at face value. “When you grow up in one culture, you take some things for granted,” he said and went on to explain how in the Soviet Union, people would never drink ice-cold drinks for fear of falling with a cold. At the same time, in the United States, everyone would add a lot of ice to their beverages but never get sick. For Pasha, these simple but powerful realizations were eye-openers and major life lessons.

“I have become more critical in how I analyze things and how I think about certain problems. I often take a step back and look at a business idea from a different perspective. I analyze the underlying assumptions and only then try to determine to what extent the idea may become successful.”

A few years after his student exchange, Pascha came back to the United States and earned a Ph.D. in physics from Stanford University. He worked as a graduate research associate and post-doctoral fellow at Stanford University and Lawrence Berkeley National Lab (LBNL) at the University of California, Berkeley.

“The motivation that drove me to become a research scientist is similar to what makes being a VC a fun job for me. It is the curiosity and the desire to understand things,” he noted. In the long-term, however, the learning curve he experienced as a scholar was not steep enough for him.

“A great thing about venture capital is that the change in business is so fast. You never understand everything about a given problem, there are always new things to explore and you have to learn to deal with that uncertainty.”

The VC sector has been evolving rapidly in the last few years, and this change has only accelerated in the era of COVID-19. “Back in 2001 I heard from Don Valentine, founder of Sequoia Capital, that he would never invest in a startup if he had to travel more than an hour to get to their board meeting. We see that the mentality has changed completely, and VC funds, including Sequoia, invest worldwide,” Pasha said.

As the General Partner in Almaz Capital, he believes that the current crisis will create a wave of new, exciting startups in the next few years. “This is a great time for innovation, and, honestly, I am quite excited about being around and investing in some interesting opportunities that are about to emerge.”

My interview with Pasha devoured my attention completely. An hour felt like a few minutes, and only a cup of already cold, untouched coffee reminded me of the time passed. We said our goodbyes, I closed my laptop, and wished that all conversations in these unusual, socially-distanced times were that good.