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The drop in VC enthusiasm and risk tolerance seems to be continuing into 2024. Crunchbase points out that early-stage startup funding decreased again in 2023. For many venture-funded startups it’s been a frustrating time. Nervous funders who were enthusiastic earlier in the year are now pressing cost reductions, driving layoffs, threatening competitors, and leading fire sales or business closures. Patience is thin on both sides, with many founders choosing to bootstrap rather than pursue additional investment. In fact, the Human Cloud Freelance Trend Tracker points out that only a small minority of founders in the freelance space are seeking VC investment in 2024.
Despite the turmoil of an uncertain economic environment, some VCs like Big Sky Capital believe Warren Buffet’s advice: “Be greedy when others are fearful.” The next subject of this series of interviews with outstanding VCs is Big Sky, an up-and-coming early-stage investor with a particular interest and insight into the startup scene in Kazakhstan. Jahn Karsybaev, one of the firm’s co-founders and general partners, made time to share their vision, investment approach, successes, and the “helpful failures” that made them VC of the Year in Kazakhstan.
Jahn, you’ve had quite a career: Ivy Podcast founder, Harvard Business School alumnus, serial entrepreneur, and Board Member of many companies, and now General Partner with Adil of Big Sky Capital. What’s the ambition or vision that knits these roles together?
“The entrepreneurial journey is the core of my career and my partner in Big Sky, Adil Nurgozhin. We’re the product of several “helpful failures.” Building a significant, successful, business is tough, and our shared experience of building businesses enables us to empathize with founders. That creates a special bond. We have each launched and exited startups ourselves and now we’re on the other side of the table, as very early-stage business investors and “midwives”. Our lessons learned have really helped us to develop a clear vision: identifying and supporting underrepresented, overlooked, and hugely talented immigrant founders.”
You recently won VC of the Year award by the Digital Bridge 2023 (Astana Hub), which is unusual for a new team. What made it possible for Big Sky to stand out given the very competitive landscape of Venture Capital?
“We’re thankful to Astana Hub. The Digital Bridge Conference brings investors, entrepreneurs and thought leaders together and over 20,000 people attended in Astana, Kazakhstan this fall. We love the respect of the founder community; after all, they’re our customer. Our “Founder First” mentality helps us stand out in a very competitive landscape because it’s not a slogan, it’s how we work. For example, in each introductory call with potential founders, we encourage reference calls with our portfolio companies. Action and results speak louder than words.”
What investment verticals most interest Big Sky? Why those categories?
“AI has been all the buzz, but there is no AI without data. Data warehousing and infrastructure solutions are very interesting to us. Cybersecurity will always be there as the risks associated with AI only increase. CrediLinq, bringing AI to embedded credit, is another amazing new company we’re very proud to support. A very recent investment is Key Caliber, a management platform that eliminates blind spots across cloud, security and IT operations and massively reduces risk. Healthcare and MedTech, and solutions in healthcare delivery are also areas we like. Housing is an important part of every economy, and our recent investment in Pippin Title shows how technology significantly drive time and cost savings in property acquisition.”
Some VCs lead investments while others participate and spread their risk. Where does Big Sky fit and why?
“We invest at very early stage, mostly Pre-Seed. We look for SLC (Simple, Lovable, Complete) and Product-Market-Fit (PMF). We recently led funding rounds for Cerebra, Kwaaka and Hero’s Journey, but for most rounds, we participate at a check size of $250-$500k. We tend to focus on very early stages. Identifying and demonstrating PMF, attracting top talent, and building scalable technology at very early stages is complex and we have the expertise and resources to help our Founders avoid or minimize unforced errors. It’s in everyone’s interest to close the round as fast as possible so founders can go back to building their company and, with that in mind, we often bring other VCs into our rounds and make it easier for them to decide quickly whether to co-invest or pass. We view that as a high value task that makes a significant impact for our Founders.”
There’s been a real slowdown in VC investments, but Big Sky has led several investment rounds in the past few months alone. Why have you been so active in making investments and deploying capital this year?
“We’ve all seen a significant drop in VC activity this year. We are a new company, so finding exceptional deals is our priority until we develop a longer track record. We don’t succeed by sitting on the sidelines. This year we’ve invested into 16 companies. Our goal is a portfolio of 30 companies in our first Fund.”
What’s the broader relationship between Big Sky and a given portfolio company? Let’s use the example of Cerebra, an impressive startup. How does Big Sky help beyond just providing money?
“First, do we believe in the founders and their vision? Second: can we help this team achieve their potential? If we see synergies, we keep moving forward. Cerebra is a great example of a funding round we led. We understood the complexities of their healthtech solution and the difficulties as well as the importance of introducing them to the US market. What’s made the difference for them is our strong support helping them form a robust Advisory Board and building critical relationships.”
What is it about the VC role and goals that founders often misunderstand or don’t realize?
“We have two clients: investors and founders. Investors want a return, and founders are looking for funding and support in company building. Like founders we fundraise by engaging Limited Partners that back our vision. We are judged on how well we deploy the fund and how quickly. As we invest and work with founders, we’re also planning the next round. That means we’re spending a lot of time in conversations with industry peers, reinforcing and expanding our network and targeting areas of investment.”
How has your experience as a founder made you a better VC?
“We’re serial entrepreneurs with several ventures under our belt, including the ‘helpful failures’ I mentioned. Expertise is what makes a VC great, and expertise in this field is hard-won and rare. Our job is to help our founders make good decisions and reduce ‘unforced errors’ by sharing our experience, advice, connections, and resources. We understand its challenging and lonely to be the CEO. We’ve been there.”
What advice would you give founders looking for funding? Are the rookie mistakes that otherwise brilliant founders make when deciding whether and when to seek funding and deciding on a VC?
“It’s more difficult to fundraise these days than a year ago. That’s healthy: companies are operating leaner and investors are less attracted by FOMO. Founders who fundraise now must be on top of their finances. They need to speak clearly about their basic financial metrics. I’d also suggest that founders pre-qualify a VC. Founders should do their homework, looking over VCs portfolios and investment track records, talk to their founders, and assess the fit.”
Last question: You are leveraging your fund’s success to raise a significantly larger Fund II. Will the investment emphasis be different from the first fund?
“Our Fund II target is $75 – $100M. The investment emphasis hasn’t changed. The new fund will support the best companies in our current portfolio and help us compete for great startups at Seed+ and Series A. Our target investment partners are institutional investors, family offices and high net-worth individuals. We think our portfolio speaks for itself but, like the founders we invest in, investors will always take a close look at our performance, brand, and deal flow strength and uniqueness. That’s a challenge we take on happily. We plan to be around for some time to come.”
Viva la revolution!
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