Nikita Ryauzov: Young people are indifferent to luxury brands
In April 2021, the Russian startup Capsula, whose specialization is defined as “personal online stylist with delivery,” announced the attraction of $ 600,000 in investments from Expo Capital and other investors. We talk with Nikita Ryauzov, managing partner of the ExpoCapital investment fund, about why startups of this kind seem promising and about the main trends in the venture capital market.
- My first question is related to a recent event - a deal with a startup Capsula. Why did you choose this project? Why do you think it is promising?
- We consider the direction of clothing trade to be promising, since, in our opinion, there are several interesting trends in it.
First, the younger generation is rather indifferent to luxury brands. In the 90s, we felt the temptations of expensive things: Gucci, Louis Vuitton. But young people 15+ are rather indifferent to them. They have their own youth brands that are little known to an older audience and carry less prestige.
Secondly, almost all goods are now sold via delivery. This trend started with food delivery services. If food is brought to your home, you begin to wonder why then go for things or medicines. The expectation that everyone is brought home comes to the clothing market as well.
Thirdly, more and more people, and not only young people, do not want to bother with the selection of clothes. In principle, the priority of this task - to come to the store yourself, pick up, try on - is greatly reduced. In addition, nowadays young people spend more and more time at the computer, in front of the web-camera. Accordingly, there are fewer requirements for a "luxury" statement about yourself.
Finally, it is important that clothing is a high-margin product. All these trends and circumstances indicate that Capsula is quite an interesting company. We like the fact that the box format that is brought to your home fits very well in the Internet audience. Now popular are videos on YouTube, where a blogger reveals something: "Let's see what's in my backpack" or "I'm unpacking a new purchase." Therefore, it seems to us that Capsula and similar clothing trade formats will occupy their niche. I'm not saying that they will completely block offline stores, but their popularity will definitely grow.
- Has the last year made you, as the head of a venture capital fund, reconsider your views on promising investment directions?
- I would say it is not so pronounced. All the same, investors are betting on the new economy, companies that are changing established business models. Foundations like ours are trying to make money with companies that are growing rapidly by redefining paradigms. In the overwhelming majority of cases, changes are somehow tied to IT technologies. Lockdown has only accelerated the mass adoption of Internet solutions. It can be repeated for the thousandth time: travel, restaurants, coworking spaces, places where people gathered, suffered. But this is a fairly small segment. I would say that 10-15% of the total volume of venture capital investments were in the affected area. But the beneficiary was medicine, distance learning.
How to monetize artificial intelligence?
- What interesting things have happened in your fund over the past six months or a year?
- Here you can continue talking about medicine. We are one of the investors in Botkin.AI. The company develops artificial intelligence that diagnoses pathologies from medical images . Even before the coronavirus, they underwent CT diagnostics of lung cancer. It is clear that during the COVID-19 period there was a serious rise in the demand for tomography. Some regions began to simultaneously diagnose people who had CT scans for coronavirus for the presence of lung cancer.
Since, against the backdrop of what is happening, the state continues to support the development of AI in medicine, our company was the first in Russia to receive a registration certificate for a medical device for artificial intelligence in its field. With such registration, Botkin.AI and those who follow in her footsteps will be able to receive payments from the balance of medical institutions for a certain item of expenditure. Until this registration certificate was available, only the richest clinics and regions could launch grant programs and pay for AI services.
- Why do you read so much that here or there some startup is developing artificial intelligence for diagnostics, and you hear so little that a patient has come to the hospital and the artificial intelligence has diagnosed him?
- Today, neural networks have become a commodity, that is, a simple solution. Quite a lot of datasets have appeared on the market, that is, marked pictures, verified by doctors, on the basis of which a neural network can be trained. A product that detects cancer with a 99.9% chance is actually not that hard to make. But only ours and a few other companies monetize the product, they can be counted on the fingers of one hand. First, the technology must be integrated into a user-friendly version for the doctor-user. It should be a familiar interface for the doctor, fully integrated with his workplace. Secondly, the image and the equipment that makes it come in different qualities. At one time, the company, where we are investors, generally thought to make equipment diagnostics based on images. That is, when the software does not see a person's pathology, but the errors that the hardware itself generates. The main task now is not so much to create a neural network that will find something, but to make a completely turnkey instrument for a doctor.
- And on this you are working now?
- This has already been implemented to one degree or another. But even here there is no limit to perfection, not to mention immersion in new nosologies, be it breast cancer or work with the brain. The task is to make more and more integrated medical solutions, to increase the speed of analysis. This is also a KPI: one grid looks for 20 seconds, the other for 2 seconds. Speed matters. Another important point that should be noted here is that the product is useful for large flows of information. That is, if you come to an expensive private clinic, where the doctor has one patient per hour and the doctor is qualified enough, the product will not add much value. Such a doctor has a lot of time, he will look at everything calmly, his eyes are trained. And when CT scans of people from all over Moscow arrive every minute, who are not at all about oncology, the product becomes a very relevant solution.
Venture funds and the Russian investment climate
- The fact that many people were remotely, and some remain on it to this day, influenced the growth in the number of applications to investment funds from project initiators?
- I think in the first half of last year, when the pandemic began, there was such an effect. Some foundations said: "We were overwhelmed with projects, give us money." We have not seen this. Because the projects also froze. They did not understand how to communicate with funds remotely. And the foundations did not understand how to evaluate the project remotely, because, especially in the early stages, it is important to feel the energy of the founder and the team, their chemistry, how much their worldview coincides with yours. It was very unusual on video calls. In addition, the degree of uncertainty around the world has increased, and it has become more difficult to predict risks. Therefore, our fund did not make deals in the second and third quarters of last year. Then everything got better, it became more familiar. And the projects got their hands on, and the funds learned to feel the energy and predict risks.
- All reports on the Russian venture capital industry say that its main problem is the lack of exits and a small number of strategic buyers. What do you think of it? And how do you get out of the situation?
“I think it's true. But, fortunately, it is beginning to change. More and more large companies are beginning to understand that buying some projects is not so scary and better than doing it yourself from scratch. It is clear that the pioneers and benchmarks of the industry are Sberbank, Ozon, perhaps Avito, HeadHunter, that is, large companies that largely shape the venture industry. Sberbank is especially active in shaping this ideology; they have Sberbank 500. Gradually, other companies are catching up as buyers. Many large companies have started making corporate venture funds. Our fund operates in the paradigm that it is possible to sell something in Russia, relatively speaking, for $ 20-30 million, but for $ 200-300 it is already very difficult. Therefore, we work in the segment of relatively inexpensive projects. We try to go to a company that is assessed, relatively speaking,
- To stay in a range with a lot of buyers?
- Yes, that's right. When a project comes to us in Russia that estimates itself at $ 40 million, we probably simply refuse, if we do not see a close potential for business development abroad, where the range of buyers is wider. By the way, we had our first exit this year. We left the Auto1 company, it held an IPO. The company trades in used cars throughout Europe and is headquartered in Germany. We made good enough money there, so the fund pays part of the collected money to our investors. We are launching a second fund, where we expect to raise two to three times more money than we currently manage. In general, we are growing slowly. And our investors, I hope, are happy with the results we are showing.
Interviewed by Konstantin Frumkin
You can learn more about the ExpoCapital investment fund in last year's interview with Nikita Ryauzov