Community Spotlight. Yuri Frayman
ICLUB Angel Investor Stories
In today's edition, we meet CIS investor and entrepreneur legend Yuri Frayman, the Founder of CAST AI, a leading Kubernetes automation platform that reduces cloud costs for AWS, Azure, and GCP customers. Yuri is well known for his machine learning and artificial intelligence expertise, but that may be an understatement of his contributions to the sector. He was the first person in the post-Soviet era to successfully start and exit a company that originated in the CIS to Google.
Artificial Intelligence and deep learning may be fashionable now, but at that time this terminology was considered taboo and generally not taken seriously. Nevertheless, Yuri was a trailblazer in the industry and navigated strong headwinds of what was once an industry bias against deep learning.
His vision led to the development of a facial recognition search platform, relying on an advanced reference database, in the unlikely location of the CIS, not Silicon Valley. Due to his prescient sense of industry needs and trends, as well as a keen eye for raw talent, this technology now plays an important role in Google’s image and face recognition capabilities.
Yuri rarely gives interviews and remains a low-profile, while resolutely focused on the mission of his current venture. It was a great honor and fortune to sit down and talk with him.
Breaking Into the Limelight
Yuri’s journey began in Odesa, Ukraine, where he was born and spent a large portion of his early years. As a child during the Soviet Union, he moved with his family to Israel and from there to the USA, where he now continues to live in Miami. Yuri’s education is as a financial expert, but he quickly pivoted to programming, following his gut instinct, which set in motion the future path.
Yuri has been an entrepreneur since 1989, gaining decades of experience in AI & ML. As he recalls, artificial intelligence was called anything in those early days, as few people knew much about it.
“It wasn't always technically correct, but it sounded cool. Can’t say that about machine learning”
Despite all the core education and early experience, anyone who has had the opportunity to work closely will always say that his greatest strength is simply his intuition. Yuri has indefatigable acumen for identifying the gaps in innovation. Then, he is looking for solutions to target these needs while aligning with the trajectory of trends that would support commercially viable companies to develop and commercialize applicable technologies.
Yuri's first successful exit was from LegalKey, a leading legal compliance software, to Hummingbird. While at Hummingbird, Yuri oversaw the integration of the LegalKey platform and also ran the legal department, managing sales, marketing, business development, and R&D.
This experience helped him launch the project that would make him famous: Viewdle, a facial recognition platform.
From the outset, Yuri knew what he wanted and understood the idea of the future product, but there could only be a product with the right people. In the post-Soviet space of the early 2000s, it took a lot to find qualified specialists with a blend of experience and innovative abilities. Many of them fall victim to the fleeting technology trends of the moment rather than maintaining focus on scalable and commercially viable product development.
Yuri looked for talent in several countries but settled on his native Ukraine. “It was easier to cover,” he recalls.
After consulting with people he knew, Yuri met Professor Michail Schlesinger of the International Research and Training Centre for Information Technologies and Systems under NAS and MED of Ukraine. Securing his support, together with other local professionals, they managed to create a highly innovative product capable of competing with and surpassing Western designs.
Viewdle was recognized as a TechCrunch Disrupt Finalist and quickly received numerous accolades and awards from some of the most prestigious forums in the industry.
It was widely regarded as the single leading facial recognition technology of its time, offering capabilities in video and photo recognition, just before the founding of Instagram and the popularity of user-generated content surged.
Yuri saw the market maturing exactly in this way, at least 4 years before its time. Viewdle was built to prepare for the arrival of that market. The timing could not have been better.
In 2012, Viewdle was bought by Google, abandoning the rival Intel solution in favor of Ukrainian engineering. The amount of the deal is not disclosed, but the precedent was truly extraordinary.
“This event put Ukraine in the spotlight and got a lot of locals involved in the industry”
Today, Yuri has five successful venture capital investments and exits across multiple industries, but all leaders in their respective categories. With a track record of unflinching success, what drives Yuri? “The search for answers and solutions to intractable problems. That is how the future is built,” he says.
Choosing a Winning Deal
Yuri does not consider himself a professional venture investor, so he cuts the industry some slack. To pitch a product to him, there is no need to juggle specific terminology and draw a fancy pitch deck. Some of the best ideas he has developed were on the back of a napkin at a café. Nevertheless, Yuri's investment approach is profoundly precise to the point that it is an art form. Despite the surface commercial and technological differences between his companies, they all have a few consistent features.
First, Yuri only invests in areas where he has strict expertise: Deep Tech, Security, and IT Infrastructure. Second, Yuri only invests in companies where he can be involved, either as an advisor or directly in management. Being a passive investor isn’t appealing. He would rather invest in 5 great companies with personal involvement in shaping the venture’s destiny than put money in 50 of them where all you can do is hope for a good outcome.
“The compounding effect of having been involved in a company’s development pays dividends not simply in terms of equity return, but in the longer-term knowledge base it affords you to apply to a future venture”
In the middle of our interview, one of Yuri's portfolio companies was losing ground. The reason was that the startup team had waited too long to launch the product. A core tenet of Yuri’s investment and management style is his belief that one of the key characteristics of a successful business is a timely market entry or go-to-market strategy.
Yuri has a keen understanding that an idea is only as good as it is timely. The sooner customers see your creations, the sooner you can capture them. Startups love to polish their products endlessly, waiting for the perfect conditions. Yuri is convinced that this is a fundamentally flawed approach that can kill a company before it even has a chance to live.
But that doesn't mean your product should break down. If you rush things, you might as well lose your reputation. So startup teams need to find the right balance.
“An inferior product on the market is better than none at all”
The market is also an essential consideration. The bigger, the better. There may be exceptions, but in most cases, a large market significantly increases a startup's chances of success. One of the first questions Yuri will ask the startup is how widespread the problem to solve is, not how big it may be.
Yuri is wary of niches. Is it possible to capitalize on them? Yes, but it may be too difficult and risky. Fundamentally, a large market increases a company's valuation and vice versa.
Lastly, Yuri will never understate the value of the team, as no great idea can materialize without the right people to shepherd its execution. This success is usually incremental, not immediate, and Yuri seeks a team with the wherewithal to be patient and relentless in their commitment to product development.
Key staff should work full-time and devote as much effort as possible to the company. Trying to sit on several chairs only leads to musical chairs. Yuri values concentration as the cornerstone of success. Part-time, in his case, is a red flag.
“Founders should go to bed thinking about the company and wake up with the same mindset”
In addition, the team must have a deep understanding of the industry and relevant expertise. In complex industries such as deep tech, this is decisive: outsourcing and marketing will not get you very far.
A good grasp of the chosen industry helps not only to build a product but to stop in time and take it to market. As Yuri says, “Innovations never end, and if you dig too deep, you may miss that very sweet spot.”
How to Exit
According to Yuri, the optimal exit period is 3–4 years, while M&A is the preferred exit option.
After getting his hands on a pitch deck, the first thing Yuri looks for in a product is innovation. If the answer is positive, the startup is asked how long it will take to implement the solution.
Big companies have to constantly update their products to stay afloat. Typically, major overhauls happen every three years. However, due to bureaucracy and huge customer bases, large enterprises find it difficult to innovate.
“Look for companies that have found a gap in the competitor's offering”
Startups play a role in coming to the rescue where large companies have innovation constraints or outright gaps. It is easier for giants to buy another company than to reorganize themselves and create whole departments. Yuri’s deep understanding of this principle underlies his recommendation: investors should focus on teams that offer a solution to a very specific problem, rather than those who casually use the term “disrupt” and try to solve every problem for everyone.
The absence of dead weight and focus on narrow industry issues attracts sluggish large-scale businesses. Coupled with speed and the right timing, the startup has a good chance of exiting in the foreseeable future.
“Proper timings and go-to-market strategy win any tech”
One of Yuri’s greatest first principles for achieving a successful exit is to seek quality customers. Major corporate clients pay consistently and are less prone to financial volatility. These customers provide foundational and recurring revenue stability, which consistently yields higher multiples from acquiring companies looking at the startup from the perspective of a 10-year growth outlook.
The Machine Wars
At the end of the interview, we discussed the subject of AI, which Yuri knows first-hand. The industry has been at the forefront of investor attention in recent years, and it will continue to inform crucial capital allocations going forward. It could be argued that the sector is oversaturated and the most interesting investment opportunities have already been funded. Yuri takes a different and more nuanced view.
According to him, most of the big problems have been solved, but there are still a lot of specialized tasks to be done that, in aggregate, represent a substantial opportunity.
“Big companies solve big challenges, small companies solve small ones”
In cybersecurity, for example, the main tendency is AI against other AI, so the search for AI & ML-based solutions continues. In other words, there is a focus on the battle of one robot against another, each offering different knowledge bases and tools for solving a similar fundamental issue. Critically, Yuri also believes that modern AI is AI and not something less. There was nothing like it before, and the progress is evident to the naked eye.
“A key recent breakthrough in AI is its ability to reason”
Finally, a question from the realm of fiction (or is it?): will AI be the cause of the disaster that pop culture loves to talk about and make films around? Yuri's answer is clear — yes, something like that is likely to happen. Everything is to blame for the AI race, which will not stop for geopolitical reasons. “Only governments are capable of controlling it. There’s a catch, though. Even if one country agrees to regulate AI, where is the guarantee that the rest will do the same?”, he concluded.
Novice Investor Recommendations
For beginners, Yuri’s advice is simple: make useful connections with tech advisors who can help you understand startup products. Despite all possible experiences, you cannot keep up with everything that is happening in the tech world. Trust your gut, but listen to the experts to validate the decision.
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