Our former compatriot ARTHUR BAGANOV, president of the investment and consulting company Baganov International Group and founder of the largest association of business angels in the United States, knows better than anyone how startups feel during a crisis. He shared this knowledge with BG correspondent SVETLANA RAGIMOVA.

BUSINESS GUIDE: Many consider the global financial crisis a favorable time for the development of startups - it’s not for nothing that Google appeared and grew precisely after the dot-com crash. Is there a connection between poor financial conditions and a company's chances of success?

ARTHUR BAGANOV: There are many examples of successful companies that emerged during the crisis. But many corporations were similarly born during a stable period, so I would not draw any logical connections here. On the other hand, interesting businesses can develop successfully during a crisis, because at such times there is a strong concentration of energy. Specialists lose their jobs, stop working “for someone else” and start doing something on their own, because there is no other choice. In addition, companies that appeared before the crisis are now actively mobilizing their forces. A crisis stimulates the brain well. An analogy can be drawn with Lent: people fast not to lose weight, but to direct energy instead of digesting food to some spiritual things. It’s the same during the fasting period in the economy - fat has decreased significantly, and brain activity is stimulated.

Of course, the current situation is not very good for startups. Each of them needs funding, and venture capital funds and business angels have become more tight-fisted. For most innovators, it is not possible to receive start-up capital, or they have to give up a larger share. However, in general, the crisis is an excellent stimulator for the breakthrough of unique technologies. Projects are selected more carefully, so there is time to sift through the chaff and search for nuggets. But times are bad for “average” startups: their valuations are falling.

BG: What do you mean by “average” startup?

A.B.: This means that a startup is neither good nor bad - it may have a potentially profitable business model, but not as attractive as projects with a higher return on investment. The US stock market fell by 30-40%, which means that many investors left the game. When wallets become thinner, you have to choose an investment object more carefully.

BG: And what happens next?

A.B.: Now the period of startup survival has come. Companies that want to receive investment must have a finished product, not just an idea with a good team. We need a working business model that brings in money. No one will now invest in a project that goes into the red; the rule “cash is king” applies. In addition, the product must be so in demand that consumers are willing to pay for it. A bad example is companies that sell luxury products such as diamonds, yachts or luxury real estate. Their business model can be as smart and profitable as they want, but the product is no longer vital. This means that such a company is of little interest to investors.

BG: So even strong teams with good ideas have no chance of getting investment?

A.B.: At the beginning of the year, I was in Stanford at a conference where business angels and representatives of global venture funds gathered, and we agreed that a good idea will find its investor at any time. If the technology, team and market are unique, then there will be people willing to invest money. The only question is that the degree of uniqueness must be very, very high!

BG: But now the flow of proposals has increased greatly, which means it has become more difficult to find a truly brilliant idea?

A.B.: For inexperienced investors, finding a good project in a flurry of proposals can really be difficult. But those who review 200-300 projects a year already have their hands full. The principle of due diligence allows you to effectively screen out projects. An increase in the flow of proposals is not scary, because the more “raw materials” there are, the greater the chances of finding nuggets.

BG: Do you currently have any projects in development in the queue for investment?

A.B.: Of course. I am one of the co-founders and serve on the board of directors of one of the largest investor associations in the United States, the Alliance of Angels. So last year we financed 36 projects, plus we had 5 successful withdrawals of capital with a profit - and this is more than any other investment networks in the USA! We also have certain hopes for this year.

BG: How far behind the United States is Russia in terms of venture capital investment?

A. B.: The difference is so significant that it is simply impossible to compare these countries. Of course, Russia has always had good ideas, developments and technologies. However, there is a huge gap between development and startup. Few people in Russia think about how possible it is to create a company based on this or that ingenious technology. A successful project requires not only a good product, but also a team capable of bringing it to market. And there’s a problem with this: there are many innovators, but few professional entrepreneurs and marketers.

However, over the past two or three years I have seen a lot of activity in this area. The state has invested in the construction of the venture industry, but the business angel movement is very late in development. The state began to build the house right from the second floor, but this was ineffective. There is now talk in the market about creating seed funds, and this could stabilize the multi-story building of investment flows. We need a mechanism for growing innovative projects at the earliest stages. After all, projects are first financed by seed funds and business angels, and only then are venture funds taken on.

BG: Could you say how successful Russia is at building an investment economy?

A.B.: All this fuss around the Russian Venture Company is very sad. It somewhat demoralized Russian and Western investors. I hope that the funds founded by RVC will still receive money, and good projects will be financed. And only in a year will it be possible to comment on whether the country is succeeding or not. Now we see a newborn child - how healthy and beautiful he will be depends on the conditions in which he will grow up.

"Crisis is good for stimulating the brain"