Community Spotlight. Serhii Khorunzhyi
Meet the debut of a new column featuring ICLUB Angel Investors
Hi to all our dear readers. I'm pleased to present you with the pilot issue of the article devoted to the main asset (forgive the jargon) of our club – those mysterious angel investors! We've been waiting for an opportunity to talk about their experiences for quite a bit but never got around to it. However, the time has come.
In the near future, we are aiming to publish a whole collection of materials about the heroes of modern venture investment. How do people become angels? How do they evaluate deals? Secrets of success and bitter mistakes? Well, our angels have a lot to tell.
Serhii Khorunzhyi, the founder of the educational company Atom, who joined the club in 2020, opens the chronicle. During this time, he has been involved in three deals and has already made a successful exit from the startup Qentnis. The conversation with him was frank, completely devoid of romance, and at the same time, completely breaking some common practices and stereotypes.
Portrait of an Investor. From sprinter to marathon runner
Some people have entrepreneurship in their blood. Serhii is a serial founder who began business at the age of 16. He is now 25, and it took him 23 failed attempts to form a booming company! But it was worth it. The already mentioned Atom is in the market for more than four years, has tens of thousands of graduates and, what is important, profits almost from the first day of work.
Serhii himself compares his entrepreneurial and investment history with the transformation of a sprinter into a marathon runner, which he has not been able to do for a long time. One of the key tenets of this journey is the search for reliable and sustainable business models capable of generating long-term profits.
Here, energy and perseverance are essential. Eight years of experience in martial arts, including Kyokushin and MMA, are a big part of that. Business is like a ring. It's vital to learn how to get back up and try again.
Each founder has his or her reasons for pursuing an entrepreneurial career. Some build companies just for money, while noble causes drive others. Serhii, on the other hand, has a passion for business, where process and experimentation are as crucial as a result in the form of numbers in the bank account.
However, no matter how good the business is, it remains a challenge to have a stable and predictable income. As a consequence., the battle with volatility pushed Serhii to the field of investing.
Traditional investment assets like real estate did not inspire much enthusiasm. Serhii wanted to invest in companies that were close to him in spirit and competence. It turned out that there were not that many such instruments. So here we are.
It all started with two investments in asset management funds. One was traditional, and the other was cryptocurrency related. Both ventures resulted in money loss. However, forever ignited the idea of investing somewhere. It turns out that money can work for you.
The next step was the stock market and shares. During that time, Serhii managed to participate in 141 IPOs, including such giants as Zoom and Pinterest. Looking at the industries’ behemoths kept him thinking about the early stages of these companies. He was curious to know what preceded their success and how to get a share long before the peak. And such an opportunity presented itself.
Serhii's acquaintance with the world of startups happened completely by accident. Ironically, it was helped by his own educational company, where he once took a course on venture capital investing with a lecturer from ICLUB. Now that is a useful product!
I couldn't keep up with the pitching, or Welcome to Venture
The deals’ presentation at the club was very impressive. As Serhii himself admits, it was difficult for him to keep up with the pitching of startups. Even years of experience in entrepreneurship and a dozen of deals in classical business could not save him. Startups turned out to be a completely different beast, requiring special knowledge.
Juggling with impenetrable terms, figures, and unit economics can depress both experienced professionals and beginners. As a result of his acquaintance with venture capital, Serhii came to the following conclusions.
First, to invest in startups, you do not need to be an entrepreneur yourself and know the inner life of a business. It is enough to understand how business works in general.
Second, you do not need a financial or economic background. All the necessary programs and materials are easily obtainable in the public domain.
But what venture capitalists really need to know is basic financial literacy. For example, how to deal with finances, what cash gaps are, and how PNL and risk management work. This also includes basic business performance metrics.
It is also important to be aware of and understand the macroeconomic processes and external factors that affect businesses in general and startups in particular. This goes a long way in assessing a company's chances of survival.
How to choose a winning deal?
If you stop a random investor on the street and ask what to look for when evaluating a startup, you will get the expected answer: the team, the market, and other obvious things. Serhii's approach, on the other hand, goes against such clichés.
In this regard, Serhii is guided by his stock market trading experience and by an approach borrowed from sports called Moneyball. Its essence is to take into account the level of excitement, interest, and attention of the deal participants. In other words, it's a kind of buzz among investors.
We often analyze the startup value from its potential buyers' point of view. This is actually a side issue. Your target audience is not the startup's customers, but other investors. After all, you are selling the company to them. Your main goal is to make an exit and cash out. And since that's the case, your first consideration is the sentiment of the people with money.
A good example would be the rate at which the allocation is filled, the number of influential players, and even the scuffles between them if there isn't enough room for everyone. When you're evaluating a startup, think immediately about the possibilities for future exit and its likelihood.
Besides, don't try to evaluate the company yourself, and trust the hive mind and consensus. There are always smarter people in the room than you, and it's silly to disregard their opinions.
Also, don't overthink it. If a startup looks like an outsider and isn't popular, don't get involved. In general, you don't have to be a rebel.
As Serhii says, he doesn’t always believe in startup products. But he is a firm believer in a successful exit. Don't look at startups in a vacuum. The characteristics of the deal participants play just as important a role as the metrics of the business and the product.
Invest in the best, not the math
Every investor knows the importance of a portfolio and its diversification. There is a lot of research on the topic, the meaning of which can be summed up in one sentence. Invest in a certain number of different assets, and some small portion of them will end up skyrocketing and outweighing all the costs. But what if it doesn't?
Serhii recommends the book “Zero to One” by the famous investor Peter Thiel, which greatly altered his view of portfolio management. Peter Thiel debunks one of the key tenets of modern investing – diversification per se.
Each of your investments should be able to outperform the others. Every deal must deliver the biggest payoff. Your portfolio should consist of the best projects you can find, not compromises and mediocrity.
Don't invest in statistics and be patient. If there are no super deals on the horizon, then just hold on to your money. Don't build a portfolio around a certain number of startups for a certain amount of money.
Do you have a dream?
Yes. I want to build universities, both in Ukraine and other countries. Not only virtual but real ones, too.
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