Episode 46 - from Tashkent to Termsheet with Victor Orlovsky

Speaker A: Hey, welcome everyone, to another episode of the Going VC podcast.

Speaker B: I'm JJ And I'm Asad. Uh, and we're super excited to bring you today's episode. As a quick reminder, our goal for this podcast, as always, is to discuss a variety of topics related to launching or accelerating your career in vc. So, jj, give us a quick rundown of what the listeners can expect today.

Speaker A: Yeah. So our guest today is Viktor Orlovsky, founding partner of R136. And in today's episode, we talked about Viktor's career origin story, the role community plays in venture the venture app. In today's episode, we talked about Victor's career origin story, the role community plays in the venture capital ecosystem, how R1136 earns its allocation, as well as his advice for emerging managers. Victor, thanks for coming on the podcast today. So we usually start all these episodes off with a brief career origin story. Uh, I think that's something that's one really interesting to our audience at Going vc, but also has been fun in the last sort of few dozen of these conversations. I don't know if anyone has really quite had the same answer twice. So would love it if before we kick things off here, if you could just introduce yourself to the listeners at home and give them kind of the backstory on how you ended up in VC, you know, as a managing partner at R1. Uh, hundred thirty six.

Speaker C: Yeah, thanks for having me here. Uh, it's amazing podcast and I really love the stories you tell with your guests. So just to start with, I was born and raised in a place which probably most of Americans don't know about, called Uzbekistan, Tashkent, which is a Central Asian state of former Soviet Union. Tasha. So eventually I was born and raised in Soviet Union in Uzbekistan, which later became an independent state when I was already 17. So basically I grew up in a Jewish family. There were a lot of Jews in this region. So my extended family, brothers and sisters who were much elder than I, moved to Israel earlier beginning of the 80s and I stayed in Uzbekistan with my parents, uh, because I was too young to travel on my own and parents didn't want to leave. So I was fascinated with technology. In very early age. I had my first computer, started programming. I think I was like age 14. And I think I was the only owner of Just IBM PC back in late 80s in Uzbekistan, most probably. Right. It was a very rare thing. So I was graduated with the computer, uh, science major. And the least I was thinking about is to start working for banks. But that what happened actually I joined the team of the bank called back then ABN Amra. It was like a large M international bank. Probably there were two or three like Citi and HSBC and Abraham competing on a global scale, building up this new wave of this globalization which started making uh. And I think that ABN Amrap do just became the first international bank in Uzbekistan. Um, and I in my age of 22 I think after my college just started working there as the only like IT guy. So I was a programmer, I was DevOps, whatever it was, right. All in one. And then I was named just because of that ahead of technology, right? There were 77 countries or so back then like ABN Amra family. It was a Dutch bank, it is still a Dutch bank. So in a nutshell I joined this like crowd of seven tech branch managers. And I was age of 22 and the youngest one after me was age 42, right. I was almost kind of a kid there, right. I mean it was a big position though. I mean though it was a small branch, still like a very big responsibility. So uh, they quickly recognized the kind of talents, brought me to headquarters. I worked for ABN Amer in headquarters and then they moved me to Moscow which was in the midst of the crisis 1998. They needed some tech support. So I came for a few days to Moscow to like chat certain things there, like fix some bugs in the systems. And I ended up working there. So they invited me as a uh, head of technology in their growing operations in Russia. Then I, in 2001 I joined a small bank which is called AlphaBank. Back then it was a small bank. So I was senior vice president in my age 27 I think. And actually I built an uh, exciting project there which was the first model bank which was yet a featured bank because there were no iPhones and Google phones back then, right. So we built it for influent customers because only affluent customers had this phones, right? Nobody else had, right. So we wanted to build it for affluent customers. So we started with mobile only thing and then we ended up serving so many people because mobile phone became kind of a uh, thing in every pocket, right? And that's how we built the first mobile bank. I think it was one of the first model based on the world back then. So we reached almost million consumers with that before iPhone era. So 2008 I joined the largest bank in Russia as chief technology and digital officer called SBR or SBIRBank and actually built one of the largest digital banks as cto, obviously There were a lot of other people building it up from different sites like operations, business, others. But I was solely in charge of technology and digital channels. So when I left the bank in pension 15 this was the uh, largest digital footprint outside of China which was I think 45 million monthly asset users which was bigger than Chase Manhattan, Citi and Wells Fargo and a Bank of America combined. Yeah it was like a real large bank, only digital footprint. We were the largest customer of Apple back then and well basically then I decided to change my course and stopped from my executive position in the bank and decided to move on because I wanted to do business and I was just a uh, corporate senior executive so I always wanted to do something on my own and I moved on to California with my family back then five kids and now we have six kids. Basically started up investing in venture right. In startups. Right. I wanted to do some like operators work maybe starting up a company but I didn't fall in love with any idea. So as I actually a joke, I started dating uh, instead of getting married and that's what I'm doing so far. Right. I'm helping companies with that and investing, advising, helping companies to grow and uh, doing this business for the last 10 years and I don't think I'm done. I want to continue doing this and I think that's really exciting. We manifesting myself in technology by helping so many different companies to thrive, build up their products, services and um, actually find talent and be very special. So yeah, that's my journey.

Speaker B: Absolutely love it. Vikir. Uh, that is truly a journey. I'd like to double click and really understand Your experience at Heart136 Ventures, you're currently managing 400 million AUM. You've backed companies like Uber, Etoro, Roofstock. I'm curious, I really want to understand what was your original version for when you started the firm and how has it evolved over time. You've been a serial investor. Walk me through that journey.

Speaker C: Yeah, that's a very good question. So what we actually started thinking like physicists and um, we spent a lot of time thinking what we're going to invest in. Right. So unlike so many other people I know who like started investing before really getting to like strategy level. Right. So we thought of first what we indeed want to invest in. So we have chosen as a core and this really looks funny now. AI and ML, right. It was well prior to all this large language models, right. But I was a big believer of automated decisioning right. When decisions are being made by algorithms. But not people. Right. And that was the built in bank. I mean it's Barebank and before that it's an alpha bank. We built a lot of algorithms into decision making, so and that was all analysis. So we put it in a core of our research, in a core of our actually test. And then you think of what is left and right to that. So left to that is marketplaces which are built on automated decisioning and right that is tools and business process automation. So we have this technology in the core and then we have marketplaces and business automation. And then we broke it into as we call it verticals or industries which is fintech and then um, marketing technology and productivity, human resource management, cybersecurity. We have pretty consistent for last 10 years. So everything we do falls into this basically matrix as we call it internally. So we thought of also our businesses where we can add value, where can we be special. Right. So I didn't really build to be like very special choosing like early stage seed stage companies. But the reason that I didn't really build anything outside the corporate world, right. So it's really hard for me to go from like presentation to like at first minimum viable product and to help. At least back then I thought like that it was like really difficult because everything I built was like built in companies. And it's like a different kind of mentality, right. Although we try to apply like the startup mentality mentality still it's like different. So we thought we would invest into early growth stage where companies have already built something, already tested big hypothesis and now are ready to scale. So we bypassed this process, product market, fit, risk. But we took on board the whole like scaling risk and why we thought we can really help with that. First we have uh, really good understanding on how to scale technology, right. I could not help but one or two or three engineers. But when you just needs to grow from five engineers to 50 engineers, you have to completely change the way you manage people, your engineering teams. And that part I really know how, how to do because I scaled up engineering teams up to 25,000 engineers. I don't think I have any startups now yet to achieve that splash number, right. I mean so 25,000 engineers, that's how many I managed. And I actually built it from relatively small team. And that what we can do really well, help founders, help CTOs to scale up technologies. Yes. Second, that was one of the largest buyers of technologies, all sorts of technologies, hardware, software, name it. My budget sometimes was like five, seven billion dollars annually, right. On all this Stuff and I'm very experienced buyer, so I know how to navigate B2B sales, right? So I know how to scale that into largest companies, how to lend and expand. So this is, I mean somebody lended and expanded within my firm, right? And I knew all these tweaks. I mean what people are checking how to get like your female manager, who is in charge, whom you have to sell, who is the decision maker in the company, right? How to navigate in the companies. Uh, last but not the least, knew a lot of, and know, of course now, a lot of, uh, companies. Because as CTO, I made exciting network, right? Through other companies, CTOs, right? I was talking on the conferences, I was recognized as one of the top CTOs by Oracle, IBM, name it. And obviously people know me, right? They knew me back then and I leveraged this focus, right? I could have made interest to Fortune 150 CTOs of Fortune 500 companies and I could have made interest to CTOs in Europe, in Asia, wherever you wanted, right? So that was a very big momentum. And the last was cat hunting, right? Talent. Since I built some team of over 20,000 people that were really very talented engineers who worked for me. Those engineers really trusted me, right? So I could have grabbed a few, if startup needs that, right? And get them on board. And I think I deployed that way, hundreds of engineers to our, uh, portfolio companies, which is like, um, I'm helping people and helping companies and that's how we leverage this particular advantage, right? And I think that that's why our founders love us, right? Because we are so well connected, but we are so also deep in technology. You know, in series B, when you invest like series B, you wouldn't expect a lot of unknowns in technology, right? But when I speak to CTO or co founder, series B company, they are getting like really surprised. I go like so much deep that they say, oh, we never even had the specialists before. Can you imagine? They got like series seats, Series a, series A1, A2, bunch of really great investors. Now they go series B. So they get to know me and I start asking questions and they, wow, are you really going to get this deep yourself without analysis? Right? So I can speak same language with ctos, which is very different from many investors in the Valley, by the way. I found it a completely interesting thing that so many investors really have no clue of what the technology is all about and could not really speak the same language with tech CEOs or CTOs in startups. So I think that that's a journey, right? And we are keeping this way.

Speaker A: Right.

Speaker C: We are very unique in that way. We are not very big compared to other firms, but we are very uniquely positioned to help startups from B round onwards to scale up their teams, technology teams, to scale up, um, their sales and to scale up, uh, their, uh, talent.

Speaker B: That's amazing. Honestly, of no words, you've managed 25,000. That is amazing. You're the first person I know who's managed so many, so many people in one go. That's amazing.

Speaker C: I don't know that many people who manage 25,000, but the bank was, when I started, I think it was over 500,000 people.

Speaker B: Wow, that's amazing.

Speaker C: And it was over 28,000 branches. So it was the second largest branch network in the world after, I think, Chinese construction bank or something.

Speaker B: Yeah, that is massive. And wow. Thank you for sharing that. That's absolutely fantastic. You know, this actually gets me more curious now, uh, because a question I love asking our guests in the podcast itself is fundraising is so important. Being a vc, and obviously with all this experience you brought in, all the investments you've made, I really would love to know your journey through fundraising. You know, are there any strategies or lessons that have stood out and that are essentially very critical when you're securing LP commitments?

Speaker C: Yeah, that's the thing, actually. That's what most of VCs do not understand. When VC managers start their venture firms, most of them don't have a clue on how to raise money. And obviously if I join like a large venture firm, name it, which is already in deep, historic fundraising journey, you don't need to work hard to secure your investors. Right. And I think that is something what new managers are missing. They think that fundraising is easy. If you ask me, I said, what's the least I love is in my job is fundraising. That's definitely not something I, uh, would have imagined. I would do close to 30% of my time. Time to time, it's up to 100% of my time. Right. When we aggressively raise, it gets to 100% because there are four partners now in the firm and I'm the one who is fundraising. So my first fund was easy. I raised $100 million mostly from my network, both corporate and private, because people knew me as cto and by the way, they never thought of me being an investor, right? But I ended up in this part, part of the world and they knew that I'm a good technology man, so they trusted me some money, right? And it was like not a professional fundraiser. If you Will, I just got my crowd and just raised some money, right? What was really difficult is to raise the second part because I mean you don't have yet results, right? It's a long journey, 10 years, right? I mean six, seven years before you get tangible results. Because before you got CPI and now you have to raise again. So obviously you could not go to the same people. If it is an institutional investor, probably you can, right? But most of my investors were not institutionals, but high net worth, right? Mostly like friends and family. And obviously you could never get to the same people saying, okay, now just give me another chunk of money, right? I haven't derived your trust, it's all going well. But yeah, you haven't got like any dollars now give me more dollars. And this is not the way it works, right? And I started doing like more professional fundraising work. So we were lucky because of the environment. So uh, we doubled down the fund size in 2017. So my first fund was like vintage of 2014 to 2015. My second fund was the vintage of 2017 to 2018. We raised 2x of fund one. We were struggling. We secured like uh, first closing, whatever was the threshold. And then we were unable to raise. And I was like going back and forth, spent hours, days in the plane, meetings, nothing. And occasionally we had a few exits in this second fund, not the first fund, but we had few exits. And it's held in the fund which we just raised in 2017. 18. We occasionally got some exits in the end of 2018. And these exits were unexpected, but they were so exciting that investors just looked at that. And those whom we spoke who didn't want to put money, they decided to put money. Some of our Fund 1 investors decided to top up and put money into fund two. And that's how we oversubscribed our second fund more or less like 25% in probably last two months before the end of the fundraise. And I was thinking, okay, I'm not going to raise like the second fund. It's not going to be even a half my first fund. So I mean I'm not a successful vc, right? I mean I could not raise more and obviously depend on management fee. When you're small, you really depend on that because you need to pay salaries. I had very standard like team, right? I mean imagine, I mean we uh, are managing 400 million. We are a team of four partners now, ten investment professionals. The size of this AUM, um, would like in the rarely would be like one or two people, right? No processes, no like the formal operations, we do it, uh, like we have it all right? We have a very reputable auditor, so we have to pay for all this and that. I mean, you need to raise for that, right? So I thought, okay, it's not going to happen. And then all of a sudden we have one exit and then another exit. And then people got so excited. So maybe I was lucky, right? But you just need, as a fund manager, you have to create some formal effect with investors, uh, in a good way, right? Uh, you should not scare them, right? You should not falsify your results or anything. But this is all about fear of missing out anyway, right? So I was lucky back then in fund two at the end of fundraise when we had this two occasional unexpected exits. So fund three was easier than fund two more or less because it was in 2020. 21. So 2021, when people got a lot of excitement about, uh, VC and investing in startups. You remember that time, right? And there was like a lot of demand for that, right? And then there is keep raising our fund to fund four story, which I can't speak much about because we are still in fundraising mode. So I could not really advertise doing any kind of statements here. But that was extremely difficult to work on. Uh, right, because it was forced crisis. It was in venture winter, then venture investors, traditional venture investors, didn't even want to think of investment in venture. I mean they were doing all sorts of things, secondaries, private credits, investment in stocks, whatever it is, but definitely not venture. So persistence and your commitment, understanding that this is a force, full time job for your partners and yourself is a key. Right? But what I learned over the time as well, that in these hard times, your core investors is your, uh, really core advantage. Right? We built so exciting connections with investors who trusted us in Fund 1 and Fund 2 that some of them even, that was not a tailwind for venture decided to top up, uh, and invest in our fund four. Ah. And the reasons for that is our full commitment and trust. Right? And we are trying to be, not only, I mean every fund is trying to be transparent, but we think of LPs as our clients. And these clients are not only financial investors, right? You have to entertain your LPs and entertain in a good way. What we do, we provide tons of research. We do like 6,000 webinars a year for our LPS. We speak of marketplaces, uh, evolution of AI, team, tech, marketing technologies. We do it for us of ourselves, right? We do a lot of research. I've told you that we have a big team. So we do a lot of inside research in order to find the best companies. Right. We need to first put behind it why think that this market is exciting. Why I think that this technology is exciting. And we decided to put it all into webinars for our fees. And you know like since I'm not working with institutional investors mostly these are uh, family offices. All these people, all these beneficiaries, they also have their own businesses. Right. They also want to know what's next. Right. And we help them. So my LP would call me and say Victor, I just need a new CTO in my business. Could you help? Yes sir. Victor, uh, we have this challenge now with technology. Would you look into this and help? Yes sir. And Victor, by the way, we are investing in this startup on our own or we have invested. Could you just help to consider what do next? Or we have a round in something like whatever it is. Right. They are all invest or we want to do it like a spin off like a great technology for the advice. And I do it all right. And my team does it immediately upon request. We consider it to be one of the most important pillars of our business, how we work with our piece. So I think that we over deliver maybe and I hope we will deliver in dpi. Right. But we definitely over deliver more than it is expected on all other fronts related to technology, to innovation, to transformation of companies. Uh, our beneficiaries deal with. And I think that that where we build real trust. So we think that it is the most important thing right. To establish trust through much deeper relationship than just providing solid returns. And uh, returns are obviously important but you have to build on top of that. And that's my advice to all emerging fund managers. Build up really deep trusted relationship like it as a family. Don't treat your investors as dummy fund providers, dollars providers. You can really really great in that. Yeah.

Speaker B: Victor, uh, I absolutely love it. You know I think one of your comments on raising your first fund, I love how you said raising $100 million is easy. It's the first time I've heard someone say that and I absolutely love it. So I think this was great advice. This is awesome. I absolutely love it. You know what, we were having our initial conversation when I was building out the story for this podcast. I know you mentioned that R136 has invested CO invested in 150 has AHCO invested with 150 institutional VCs. What really sets you apart in these competitive deals and how do you really demonstrate your Value to founders at the mid to late stage where you're investing.

Speaker C: Yeah. So we are ah still building up. It's a great question. We are building up a brand and brand is important, right. And I highly respect those great brands being built in DVC business like Agrissen, um, like Sequoia Greylock. Ah, these are exciting, really great brands and great people working for these firms. So we are on this journey but we are not yet there. So how to get to like best deals and obviously there are two core competences for every vc. First is deal flow. You have to get early to the best deals you want, right? In B rounds it's easier because you already have a known universe of companies, right? But how to get to these companies, how to convince them to think of you being an investor, right? When you have all these great names around, why should you take money from Araban 36 so first of all we decided not to take anybody's place. So we are usually third to fourth sometimes second largest attack in the round. But we don't pretend to be always a lead. So we can either call lead or we can follow. So I think that that's a strategy to follow was just a reasonable one in order to not to compete with those first tier brands. Second, we make our contacts very early and we tend to help founders very early, ah way before the round is being decided, right? So we contact those founders through our intelligence research, we do a lot of research and then we decide to go and see the founder, right? And obviously this crowd which you mentioned, over 150 investors we co invested with and our founders are uh, very good referral points to founders, right? So we get context. But so with that, so what? So we are there, right? So now we are talking to a founder so we try to understand what the founder's problem is. We ah are not asking what this founder is doing, right? We are not asking whatever like financial matters, right? We don't start with this, we start with what help do you need? Guess What? I think 10 out of 12 founders would say the following. We need customers, right? And we need talent. And that here we are, right? So we know exactly what you do already. So we come very prepared. We say why won't we have a look into this five customers of yours and the names we draw are ah, not known usually by startup, right? Because these are names out of Middle East, Asia, Eastern Europe. These are large companies. If it is B2B for example and we are mostly in B2B business, right? Intech and B2B there are some valued partners. And then we try to explain why this could be valued partners and valued companies. And obviously CEO, uh, is very opportunistic. Okay, if you just make an intro, let's try to do something right. So we sometimes secure deals for our startups away earlier than we invest. And we so far help to so many more startups than we managed to invest in. Because at the end we may consider not investing. Right? For example, we don't like Volition or something else. We pause on investing, we pass on the deal, but we already help the startup a lot. And second is talent.

Speaker B: Right?

Speaker C: So could you show me three of your, uh, most wanted positions? And then I can probably provide you with three or four names. Very warm pearls to people who may be really good in those tech positions. And that's how we build trust with founders, right. Even before we start investing or even going to a, uh, data room. There is no data room yet there. So when it comes to the pivotal moment of who to give allocation to, I think founders already know that we can help, right? We can deliver. And they come after us, they advocate, they ask lead investor, uh, even we don't know a lead investor to get our funds in. Right? Because of this unprecedented, I think, help and support we are delivering to most of the companies. And I can be proud of being really good friends with all those companies which we exited from. Right. Some of them were great exit for, uh, us. Some of them were very poor. Uh, not everything worked. But every founder can remember me and will say, I'm sure that this is a great fund Viktor and his team has made. Amazing job helping us with the journey. Right. And I'm sure that there are, uh, few founders at least, who would remember me even the day of me investing in the companies because we held even though we decided not to invest. So that's the journey and that's the competitive advantage we tried to build.

Speaker B: That is a great competitive advantage. And I love how you started by explaining it's about, uh, building your brand. And I think it's streamlined and I think it's very valuable for audience and emerging managers coming into market to really understand how they can scale and actually build their presence and their brand all around. I think that's fantastic. Victor, last question on my end and I'll pass it off to JJ with everything we've spoken, everything we've been through, you've had over 10 exits, you've built four unicorns. Can you share a specific investment or a few that best represent your thesis or the value Add approach that you've been talking about right now. This is also a great time to shout out some companies you've worked with that you really like.

Speaker C: Yeah, I think it's like babies, right? It's like asking me or whom I love more and you know I could never say who is my favorite among six kids and it's hard to say who is my favorite among 40 plus kids we invested in. But if you judge by performance and M results I would definitely think of Etoro. Etoro is uh, rival, uh, Roberts Boot rival. Not well known company in the US yet but I'm sure people will know about it. It's uh, a fantastic technology which combines floppy trading and investing into so many different assets across the globe. They started building now their footprint in the U.S. i'm sure that many of the U.S. consumers and institutional investors companies will get to know Etoro pretty soon. So Etora went public recently at Nasdaq and that was the first time I was at NASDAQ with the team and enjoyed like this ringing the bell and the stuff I was exciting. But this is not the most exciting thing, right? The most exciting thing was the journey. I met Yoni Asia who is CEO and co founder at Bit Oil and he was a CEO back then uh, too 2015. I met him in Israel. I was looking for something like that. I was looking for a company that would disrupt capital markets because of, I mean I saw how inefficient it was and it Torah really touched my imagination of uh, the vision. This was far from where the company is now. Obviously it was much smaller, not only by size but products they offered. This carpet rating was still growing and I really liked the notion. It was like Instagram for traders. So you can advertise your trading practice, portfolio businesses and get followers into your basically account. So it is transparent. So what you sell, what you buy, your portfolio is very transparent to the crowd. So everyone can copy you, right? And more people copy you and it's real time online copy. Right. So every second, every millisecond you do a trade forever copied. You can almost, not almost like doing the same thing, exactly the same thing, buying the same stock in the same proportion. So you can diversify your portfolio across so many managers. So imagine that Instagram users are just traders. So this is an Instagram for traders if you will. And it democratizes the knowledge of markets so tremendously and it gets people to invest in such an easy way. Unprecedented. So but mostly what I liked is the team of course. Yori uh, is amazing CEO I spoke to the team. Overall I got excited so I thought I would invest. The round as always was oversubscribed. So I brought Yoni to one of the regions I was very familiar with. I secured the deal. I think it was before the investment a deal like a very good deal for them, a joint, joint venture where they could have built at scale the winning the markets their customer base at a fraction of the cost. And um, I think even Yoni didn't think of that much of a success of this joint venture because after the first day of announcing the joint venture they got more customers in this region than in five years or so before. They started like exploring this region, invested heavily but they got less applications than in just one or two days after this joint venture was announced because of the brand of the integration we managed to do and stuff. So since then we became friends with Yoni, with the team and I feel that to be like my extended family, a good thing is that we managed to invest Almost I think 25% of our first fund into just one company. So we doubled down on that. We bought secondary shares, we bought and exercised our right of first refusal in every occasion up to recent uh, I think rounds, which was whatever like 20, 21, I think there was round. So we supported company through the journey. We supported it with advice, we supported it with money, we supported it with talent and we became really friends and family with the company. IPO moment was an exciting moment for sure and I think that the company will show up really great. Obviously I can't speak of any details but I am a um, great believer in the company, in the team and I think that they will be doing so well hopefully because they deserve it and it. So that's a good example of how we decide. Growing bold and we grow bold and I think that what we also repeatedly doing with other companies, uh, like you mentioned Roofstock or scale, which is one of our best companies in the portfolio in Plant 2 portfolio. We are excited about our recent uh, investment in Air Rolex which I'm very excited uh, to see the company doing what they're doing in B2B international fintech space or like mid sized companies. As I said, we only invest into what we really need to understand. Yeah, love it.

Speaker B: I think you've given a great example, you've clarified it. I think uh, it makes a lot of sense. Appreciate everything you're sharing Victor. It is so insightful and I love when our guests go into so much detail on everything. I think it's what really makes these Episodes. So exciting. But I won't take too much time. Jj, I'll pass it off to you.

Speaker A: Thanks, Asad. And yeah, Victor, echoing what Asad was just said, fantastic conversation so far. I really liked when you were talking about the, uh, engaging and treating your LPs like family and how it's not just about the financial returns. It reminds me a few years ago when a firm that I work at, we were just starting on our, just trying to put together our reporting for LPs. One of the kind of advice I got from a buddy that used to work for a big state pension fund is that his favorite reports uh, that he received and the ones that he honestly kind of paid most attention to were the ones that sort of put him as the lp. Put him as the lp, almost kind of in the GP seat. Make them, you know, make them feel like they're involved and tell them ways they can help out the portfolio and sort of whatnot. Versus the ones that, like you said, just kind of focus on the financial returns.

Speaker C: Indeed.

Speaker A: Yeah.

Speaker C: And actually we share a lot of, uh, like deal insights. Right. Sometimes we come up with like, why we looked into the company and why we decided not to invest. Right. Because I think that that's a way of educating people about our process. And we thought first that, uh, people will be bored, right? Why they should listen to this. Why should they care about why we haven't invested in company afb. Right. But we found out that people really love it. You know, they want to educate themselves on that front. They want to understand the logic behind our decisioning.

Speaker A: Yeah, exactly. Exactly. That's really cool. So we'd love to just circle back to one of the things that you and Assad, uh, were just talking about building, especially as a new manager, even kind of today, building your Persona, building your presence. So in addition to the roles you've talked about, I know you're also the co author of a book, From Rhino to Unicorns, talking about how corporates can evolve in the digital era. So I'd love to know what inspired you to write the book and maybe some of the key insights that you hope that I guess, both investors, operators and executives at corporates can take away.

Speaker C: Yeah, that's a very good question. And this book was just a, uh, journey I took with this innovation we built and the transformation we managed in this giant bank in Russia, which was, I think, Launched, incorporated in 1841. Right. You can imagine how deep history is, how deep roots that this bank have. And it was a giant bank, probably like in Soviet Union, it was the only bank for consumers because this was a plant economy, right? So there was no competition in banking. So if you're a student or a pensioner or employee, you could only have had an account at sbar. And then you can imagine a collapse of Soviet Union and everything fell apart. And there are uh, like banks from all over the places and newly created banks. So everybody would consider this bank to be a victim. And it was a victim. By the way. When I joined this bank in 2008, it was already four typhoon years. So this bank had no mobile bank whatsoever. But it's not even issued one single credit card. Can you imagine the bank which never ever issued a credit card before 2008? And when I, uh, was appointed CTO and that was just, I started looking into whom I'm managing, I just understood that there was no one there, right. Because there was no technology there. So we made an inventory of our systems of records. I told you that there were like 20,000, 28,000 branches or so. So each branch had like its own corporate ledger and consumer, uh, ledger, lending ledger. And everything was like on a single one, like per branch, per product, system of record. So we collected 350,000 or something. Systems of records of different kinds. Name it. Right? So now what to do? I mean, how we can build this all? I mean how can you just make it innovative? So we decided to m. Start from scratch and consider it as a greenfield. So we built, not on top of what was there. We built apart from that, like a separate bank more or less, and removed the entire customers. And most of them were people from Soviet era, pensioners mostly because all young, younger people, employees, they left the bank because this bank had no services whatsoever. So can I mention the bank that is closing doors four hours a day because two hours is their lunch. So people go for lunch, they close doors and then they have all the systems that need to like reboot hundreds of times. So only like people who really, uh, from the Soviet era, right, who trusted Sbarbank back then, were like customers. And now we have to convert it to cutting edge, right, to compete with all sorts of different banks in Russia back then, right. I think that we really built this journey, this transformation. So we hired new team, we made it all from scratch. And I think that what really inspired me to write this book, although I didn't give any single example from my past, because it was not appropriate, I think, to speak of my own experience. I was assessing why Google did it, right, why Amazon did it, why Walmart would make it, right? Why Walmart was witnessing whatever was going with Amazon and they were unable to compete. Why Google was witnessing what was going on with Facebook and they were unable to compete. Why Nokia was just witnessing and trying to fight what was going on with Apple, right? And was unable to compete. And you have to really get to some core of this, right? Why companies like Nokia, like Walmart, like even Google lose some of the competition to newcomers, right? What distinguishes those newcomers from those who like incumbents, who really do something good, something bad that they could not compete. And now what's happening, right? Google versus OpenAI. Obviously it's not decided yet, but my takeaway is that new companies will win against legacy. And um, indeed legacy companies are trying to learn lessons which I described in this book by the way. There's lessons, the straps of innovation, the straps of legacy companies, why they could not actually build up something new, why they always gravitate to what is there already, right? So my belief is that the entire innovation is happening in unicorns. When I speak of unicorn, it's not a company which gets to like 1 billion relations. So my description curve of unicorn is the unicorn is of blood of a company that makes innovation as a core of its business, right? And we look into for example Nvidia these days, right? They do understand that they will end up where great companies ended up in infrastructure like IBM, Intel, Cisco, right? If you return back to like the 90s, right? You would think of Cisco to be Nvidia today, right? Everybody would think of, okay, Cisco is going to make it, right? But Cisco just left where it was like an infrastructure play, right? It never jumped into something else. And Nvidia is trying hard, right? Whether they can do it or not depends on this if you will, DNA or innovation built as accountableization. That's the word I use in the book of your existing business. And it's hard to manage. So you need to kill your existing business in order to build something new. And I therefore think that it's really hard to get through this in your inner DNA, to innovate constantly and to build something new on uh, top of already what you have, right? And that big book is all about that. And that again, that was my personal experience of how difficult was it to transform the bank like that. And I think it's much more difficult than just to build a single startup, take a company out of Fortune 500 and make it all new again, right? Make it a kind of a new blood, right? And it's extremely difficult exercise. And the book was an attempt to understand what we need to do in order to actually make it happen. So I would advise reading this book like world CTOs, CDOs, chief digital officers, chief marketing officers and CEOs. Right. And I think that this book is still actual. It was written in 2019, published in 2020 and I think that sometimes many of examples there, many of lessons learned there are still very much up to date today.

Speaker A: That all sounds really interesting. We'll definitely make sure that's linked in the show notes and I'm actually looking forward to checking it out myself.

Speaker C: Thank you.

Speaker A: Changing gears a little bit. So you're also co founder of a group called the New Economy Investors Club alongside I believe a couple others. And one thing I think that's kind of interesting that's come up in these conversations before is to many people at least I think working in venture can feel like being alone in a crowd. There's a uh, lot of great talkers in the industry, lots of events, all that sort of thing. But a lot of people work at small funds and are often kind of siloed off and kind of work by themselves. Would be curious to double click on as a founder of a community like neic, how you see communities like that influencing the evolution of venture capital and compared to how the industries traditionally operated.

Speaker C: Yeah, thanks for this question. So this New economy investment club, we decided to make it with my friend and partner Ilya who is a uh professor at Stanford University and he dedicated his church career in Stanford to actually venture industry venture capital. And he's one of very few people who study venture capital professionally and got a lot of data on venture capital. And he is famously known for his exciting course in venture capital at Stanford Business School which is one of the most wanted courses. Most wanted classes over subscribed always because many of the students or many of students in Stanford Business School want to be uh, next generation venture capital managers. So they want to hear from Oya of course and learn from Oya. So it was back in 2020 when we were all sheltered and we lived and still lived like in the close proximity to each other. So you, without violating any norms rules you still can squeeze through like backyards to each other's home office. I was convincingly to make a short actually course on venture capital for crowds. Not Stanford students but online course and obviously in Stanford it is only offline so you have to apply and be admitted to Stanford Business School to listen to the uh, course you uh, can imagine the 3 whatever 2 3% of acceptance rate there. So I was trying to convince Oli ah to do a short course on venture capital. He was not too positive of this idea. But then he gave up and said, okay, let's go to speak to Stanford. Maybe they would, they would allow us to do it. And they occasionally allowed us to do it in any given language but English, they said English, uh, and Spanish prohibited. But other languages choose language and you can do it. Why? Because otherwise you're like competing with Stanford. So I mean, you just need to get like Stanford on board. And it was too difficult, it's too fastly. So, uh, we decided, okay, we'll do it any other language but English, Spanish. And that's how we started actually. But I thought of the very fourth course, maybe like half a day course. And the reason why I thought this course is important because so many people I spoke with, especially in those different parts of the globe, starting from Korea and Japan, Singapore and Dubai, Istanbul and Cairo, Murano and Paris and London and also United States, they really do not understand what the venture capital is all about. So there are a lot of misconceptions on the venture capital. People think of the venture capital. I put money in one company and then it gets me thousand tax with 5% probability. It's not the case, right? It's not thousand X with 5% probability, it's 10X with 0.0something percent probability. You need to manage portfolio and people get excited about startups, right? Without knowing how to manage it, how to manage the portfolio, dry powder and all this, right? And after numerous conversations through my fundraiser, I realized that people have no clue of what the venture capital is all about. So I decided to teach them. Basically I wanted to have a short course on that and provide it to my crowds to give them some sense and knowledge about the venture capital. But when you deal with, you could not do something, flourish with something high level. He is so deep, man. He is so deep expert and he contributes so much to everything he does. Like he's an, uh, expert in wine, but he's one of the. He's not a wine lover. He's one of the best experts in wine, I think globally, right? He's an expert in tea. And uh, because he loves tea. Like I uh, mean, do you love tea? I said, jj, you do, right? Probably, right? But he knows everything about tea, right? Every brand, every name, every term. That's how deep he goes and that's how deep he went to his most rough topic of venture capital. So he decided to make it a long journey. So we spent almost year and A half building up this course every day, like five, six hours a day overnight, right. It was like a lot of work. And we built a course which we tried to fit into nine weeks. And then we realized people could not learn it in nine weeks. So we made it extended, I think to 10 or 12 weeks. So it's a very comprehensive course. Basically it's the course which combines everything, what he teaches in Stanford and my practical knowledge. We got a lot of examples, a lot of term sheets, how to write term sheet, what's the price ground, um, what's liquidation preference. So we go to every term, we go to every aspect of venture capital management. And I think that this is the most comprehensive course in venture capital on the planet. This is my judgment. I've been through Berkeley, I've been to Stanford through corporate education. I got to Professor Stibble life course which is two weeks. I got through UC Berkeley course to I think Columbia course. There was nothing so deep what we delivered in new economics investment part. And then we decided, okay, I mean uh, if these people are going to complete the course, what next? Right? Okay, now they have knowledge. Let's get the community of that right? Let's build a community based on those people who now share the common knowledge. Now they speak the same language of the venture capital. Now they, they know the topic. And by the way, there were a few professional venture capital managers who completed this course and they got excited, they said this is really something up to like five, seven years of managing venture capital. They got this course and they say they, we got so much new from this course of how to manage the venture capital. That's exciting. So I think that that's one of the piece of really piece of learning teaching courses which is really great. Mostly due to my friends Ilya, because I would only make it half a day or my one day max. I never thought of making such a complicated comprehensive thing, but I think that we contributed to work with that to international development of knowledge base of the venture capital, to say the least.

Speaker A: That's really cool. People like that are fantastic. That sounds super fun.

Speaker C: Indeed.

Speaker A: Yeah, awesome. There's been so many fantastic tidbits of information and advice and whatnot here, but as we move towards the end of the episode, we'd just love to kind of recap if there's any advice for emerging managers that we haven't covered. We'll have to give you a chance to chat about that now.

Speaker C: Well, I think that for emerging managers, one point which I already said, one lesson learned through my career Fundraising never stops. You have to fundraise constantly. You don't think of fundraising to be having start in the um, end you have to constantly build up the relationship and fundraising is essential uh, part of your business. Second just you need to build deep relationship and trust with your, your lps. Third, you have to really find your way very competitive landscape. You need to be very much wanted by startup to invest in. Right. You have to find your niche where you are uh, way better than others. Right. Learn faster, you get deals faster and ah, you deliver something what others would not deliver. So think of that and I think uh, with that you will get a successful fund. So be patient, be persistent, stick to your strategy. All my bad deals and we do a lot of lessons learned right. With bad deals. Something we invested in and never happened. This was all because of two things. We underestimated people, right? You think of like serious B to be more products. Technology people are still very important. So sometimes we were not sure these people are the right people. But product and technology was great. It never worked. Right? If these are um, not right people, you feel like these people are not the one you wouldn't trust, would invest into. Don't do this. I think second thing is that you have to be patient, right? I think that most investors are impatient and would not really say no to so many different things. And that what I also learned through my career say no more often. Right than you think. You should also never do something what is not within your strategy. Don't get excited too early. Be patient for your best. Right. Best people. The one which you think you can add value to and then it will be an exciting exit.

Speaker A: That all makes sense. All good advice there. And last question that we asked all the guests on the podcast, favorite recent book that you've read and not required. But bonus points if it's not tech related.

Speaker C: It is not tech related. Yeah, it is not tech related. I'm fond of history and quantum physics and I uh, think that both well underestimated. I mean the influence of both on philosophical level for society. For every business you may think of the history lessons and quantum physics concepts are uh, well underestimated. So I unfortunately haven't read so much on quantum physics in the recent months. So there are two books which I would advise reading and they're very special and I know that I can predict that most of people I would name now the book never even heard of this man. It's a biography wrote by worldrum Seaman about the excited personality. His name is Metternich. So this person, Metternich, who is diplomat, who served Austrian empire in Napoleonic wars and who orchestrated first Paris, uh, treaty and then treaty of Vienna back In I think 15, 1821, who was one of the pioneers of united European mentality, cosmopolitan. He was the favorite character of Janu Kissinger, whom I personally knew. And he was one of this realpolitik advocate and person who actually brought this realpolitik life in 18th century. So why I like this book is about the first generation of Europeans, pan Europeans who thought of Europe to be a united nations. Maybe not a state yet, but united nations community, um, truly international, truly synergetic, who tried to build peace in Europe. And by large Europe was the center of the universe back then, right? So the United States was too young, China was too old back then. So Europe was the center of the world. And Metronik was one of these leaders who actually orchestrated this balance of powers in Europe and actually failed because nationalism took place in late 30s in 18th century and actually broke apart in revolution of 1840s when actually this multi state balance of power policy vision was broken and then reiterated back after the second World War. And I see so many parallels, interesting parallels on this wave of globalization which took place back then and wave of globalization which took place after the second World War. And it looks like we are in a uh, evolution of that. So it might break apart, right? Hopefully not. In a way it happens after this first attempt of building up this globalization in early 18th century. So that's my first book. My second book which I started reading is from Kyle Harper. It's called Fate of Rome. I'm really fascinated about Roman Empire and wants to know more about the collapse of the Roman Empire, right? Why it happened, what drove this empire to be over, right? To collapse. Some people like joke that the entire collapse of Roman Empire took longer than most of empires existed throughout last 2000 years. So it was a very robust uh, world built empire. And for some reason it collapsed. So I was like thinking, okay, I mean if this would not collapse, would Gagarin go to space or forever go to space like thousand years before, right? Because there would not be like the SAC Ages, right. Which uh, came after collapse of the Roman Empire. So I really think that we have to study history deep and most of history is written by winners, right? But those who won in battles. And I think that we have to study alternative history with deep understanding of what brought those great ideas and innovations of Metharnik or great Republic of Rome to collapse. And I hope that we will not repeat it. In the 21st century. Right. And I think that's a lot to learn about and understand to avoid those errors. So this two books, which I'm excited about and which I would advise you

Speaker A: to read, those books sound super fascinating. Definitely. Actually, definitely going to check those, uh, out as well. I've always found a fun hypothetical what if thought exercise conversation. What if the Roman Empire hadn't fallen? I know. I've read that they had toy steam engines if they had industrialized a thousand years plus before Britain.

Speaker C: Indeed. Indeed.

Speaker A: Awesome. I think we've come to the end.

Speaker C: Victor.

Speaker A: This has been a fantastic conversation. Thanks again for kind of taking the time and going a little over.

Speaker C: Thank you, jj. Thank you, Assad. Uh, I really loved the conversation and thanks for good questions.

Speaker B: If you enjoyed today's episode, please be sure to subscribe to our newsletter for more venture capital research by visiting goingdc.com and consider giving us the gift by rating the show and sharing the podcast with a friend. I Until next time, stay safe and stay healthy.