In 2020, the world was turned upside down, and yet from the chaos, emerged opportunity. New patterns, with consumers moving to online, causing many brick and mortar businesses to close. Everything online became de rigeur, from education to healthcare, to work and entertainment. In 2021, what does it take to found and establish a successful startup? We spoke to the founders of Digital Disrupt, a quite unique investing club, which allows its members to decide on the projects to jointly invest in. Digital Disrupt is ahead of its time, in the respect of the themes it invests in. We spoke to Andrey Belozerov and Artem Ermolaev to learn more about investing in the future.
Artem Ermolaev and Andrey Belozerov, Image Source: Digital Disrupt VC
How has Covid changed the startup market?
Obviously, with the onset of the pandemic, startups that support online interaction and remote work have come to the fore. For example, the Tilli children’s education platform for preparing children for school has grown 25 times in 2020.
However, the loss of position for startups providing offline services was short-lived. Now we can see the return of “offline life”. Realizing this, we, for example, invest in projects such as mobile app Carusel for sharing electric scooters in Moscow and car-sharing platform The Mashin.
What are the big themes going forward into the next 5 years?
We think it’s worth keeping a close eye on e-health. The pandemic has greatly accelerated the growth of the industry, which began even before it. Remote counseling, patient care, etc. Large investments are being made in this, and so far they are not expected to decrease.
What sectors are you heavily invested in?
At first, some people were frightened by the fact that we were Russians. But when they find out what exactly we have done, the type of projects we have implemented, these concerns quickly disappear. Real professionals look primarily at your professional component. This has led to the fact that now Digital Disrupt is actively cooperating with partners around the world. Among them are such international venture funds as Mindrock Capital, Starta Ventures and 13 Ventures, and others.
Entering international markets, we were initially flexible in terms of partnerships, alliances and joint strategies – which allowed us to accelerate and optimize global expansion. Therefore, Digital Disrupt today is a wide network of startups around the world. From space industrialization company Momentus from the USA, to an educational startup HIPPO FRED from Kenya. From the recruiting project PitchMe from the UK, to the educational platform for learning music MUSICO from Israel, etc. We will continue to gain experience and expand the geography of investments.
How was Digital Disrupt born?
Work on the first investment projects began back in 2019. However, by 2020 the real work began of bringing our projects under the somewhat unique umbrella of the investment club, Digital Disrupt. The club’s first major investment was Tetrika, an online platform for exam preparation for students, which was later acquired in early 2020, by Mail.ru Group, the largest IT holding in Russia. This was the step that made it possible to reinvest capital and obtain new resources for the growth of supported projects.
Yes, 2020 was a difficult year for the whole world, but in our case, the pandemic had a somewhat positive effect, since our target markets were the technology and digital services sector, so we doubled our portfolio in 2020. The trend continued into 2021. For example, we added an educational platform for learning music MUSICO to our portfolio and joined our club. This remarkable company trod new ground by helping to digitize the music education space, and thus transforming relationships between teachers and students. Also, Aripix Robotics has since joined our investment club too. A technology company engaged in development, production, implementation of industrial robots for a wide range of industries. As we expected, the epidemic has accelerated the transition from offline to online, increased interest in technology projects, and this trend continues even as the situation with the pandemic starts to stabilize.
Do startups normally approach you or do you approach them?
It works both ways. We are always open to cooperation and are ready to consider any proposals and projects. For example, once we had an unplanned meeting with an entrepreneur from Europe who lived in Kenya for a couple of years. He developed financial services for local residents and knew the specifics of the local audience and local business communications. So, we decided to cooperate. Together we assessed the market, set up a local office and launched the educational startup HIPPO FRED. So, an unplanned meeting led to the creation of an app that helps children in Africa learn math.
We do not have formal procedures, we believe in people and, first of all, we look at the commonality of interests. Therefore, as we can approach startups, they approach us, usually through LinkedIn or via email.
What do you look for in a startup?
We look for projects that could support positive changes in the world, by changing people’s behaviour, increasing accessibility of goods and services, and helping to break the boundaries. Therefore, our portfolio includes, for example, both the educational platform for children, Tilli and on the extreme other hand, a world known space industrialization company Momentus.
We are attracted by viable projects that meet the existing demand or create a new one. Therefore, for example, as a club we invest in the on-demand insurance service VseVPoryadke. It is extremely important that the principles, competencies and vision of further development of the startup and Digital Disrupt coincide. Only if there is a match, can we talk about fruitful further cooperation.
Also, it is very important for us that founders and managers of startups are experts in their field and clearly understand what they are doing. An example is OpenFace, a personalized skin care service based on big data. The team consists of people deeply immersed in the industry and understanding what they are doing.
In addition, we are very interested in projects that have the potential for globalization, which either already have sales in foreign markets, or are aiming to expand there. From a professional point of view, it is interesting for us to see how development takes place in different countries, and how the solution of the same problems requires different approaches.
What 5 tips would you give a startup looking to grow?
1. Maintain and develop expertise, if it is enough at this stage of development, it is not at all necessary that it will be enough when you start to expand
2. Build a strong network of partnerships in the field of capital, science, technology and digital
3. Don’t lose the big picture of your business. It’s easy to focus on improving one aspect of your business while forgetting about others. The main thing is balance
4. Don’t be lazy and use your time efficiently – this is the most precious thing you have
5. Don’t be afraid to take risks. Even if he plays negatively, you will have valuable experience. Digital Disrupt pays attention to whether the founders had a bad experience. If yes, then they are hardened fighters, they do not stop when difficulties arise. If not, it remains to be seen how they will behave
What can a digital VC bring to startups, other than monetary investment?
It is extremely important to develop a valuable project that meets the existing demand or creates new demand. At the same time, one that calls to some basic human needs. The success of such projects can be seen immediately, they differ from their competitors, and clearly understand their essence. Whether for example the need for comfortable music education, which is covered by the MUSICO project, or the need for ease of work, which is covered by Aripix Robotics.
What will help a startup stand out from the competitors/attract a VC?
We are confident that a VC should not be limited to monetary investments only. A VC must become something more, supporting startups with all available resources. For example, at Digital Disrupt, we don’t just provide startups with money, our investment club provides a flexible individual approach and expertise, as well as a large network of contacts. Digital Disrupt brings together a multitude of dedicated professionals ready to help when you need it. Thus, we provide legal advice and expert assessment, help to find an investment package for the implementation of a pilot project, and also open the most promising teams the opportunity to participate in club meetings held in a closed circle of the professional community.
How does entering international markets change the work of a VC?
Digital Disrupt actively invests in e-learning projects: the educational platform for children Tilli and educational startup in Africa HIPPO FRED. Also, we see great potential in the MUSICO project, which helps to change the usual view of education in the music industry. We especially love the benefits these startups bring by making learning much easier.
We are extremely interested in digital on-demand services. Moreover, these projects can be in completely different industries. This is why Digital Disrupt invests in projects like self-storage on demand by subscription QB Box, big data-based personalized skincare service Openface.
Now you see the growing popularity of high-tech startups: from robotics to the space industry. It is difficult to overestimate the prospects of such projects. Digital Disrupt is very interested in startups like this. That’s why you would find in our portfolio Momentus – a world known space industrialization company. In addition, in 2021 we started working with Aripix Robotics. The company is engaged in the development, production and implementation of industrial robots. This is especially interesting, because according to forecasts in 2019-2022, 2 million new industrial robots will be installed in factories around the world. And this number will only grow. Therefore, we believe in high-tech startups that help to discover new facets of the unknown, bringing us closer to a technological future.
Bottom Line
Some investors look at startups that are focused on solving real world problems, and a VC like Digital Disrupt looks at solving problems you didn’t even know existed, while changing consumer behaviour along the way. The future of technology is thrilling and it spans as far as our imagination can take us.
