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Nov
25
2015

Rubylight: Investing what money cannot buy in B2C startups

We talked to Aija Perta about Rubylight, one of the few tech investors in Latvia founded by hands-on entrepreneurs and focusing on B2C startups.

1. What are you doing?

We are an investment company with tech talent. At Rubylight, we help startups accelerate growth and scale their technology. We are technical partners and investors. In some cases we are quite hands on, in others we only act as passive investors. The level of our involvement very much depends on the stage of growth that each particular startup is at. We let founders determine when and how they would like us to help, and we are always standing by ready to jump in.

As entrepreneurs ourselves, we know all too well that once you experience hockeystick B2C growth and your tech is not ready to sustain it, no one in the world can save you. This is where Rubylight comes in. We can help to prevent crashes, as we predict them long before they happen. This is part of our investment package: we invest real money and provide smart assets that help practically develop the product.

 2. At what stage do you partner with startups?

Usually we join early on, as soon as a company is showing exponential growth prospects. Our experience allows us to perform high quality technical due diligence with the service. We can foresee future technical problems and bottlenecks that may not be visible at the moment but will make or break the startup as soon as user growth surges.

Upon finalizing the deal, we use our technical expertise to make sure they can accommodate hockeystick growth when it comes. We also help the startup to recruit their own talent. Because Rubylight tech team has their back for a while, the founders can look around, breathe and take their time to recruit the best, not just the most readily available team members. We train, we mentor, we help until we see that their own internal team is ready to assume all the technology.

If needed, we also assist with things like drawing an efficient and operational shareholders agreement, which simplifies future cooperation between investors, founders and employees. Sometimes we also help with product development, but in most cases it is not necessary.

3. What is your investment strategy?

Very straightforward: invest where we can help and not pretend to know what we don’t. We are very specific about the types of companies we invest in, as our background is only helpful in particular cases. We work with B2C ideas related to user-generated content, usually with a social element. We have defined 4 focus areas: (1) social media, (2) crowdsourcing, (3) content sharing and (4) communication. We have recently started to explore blockchain as well, seeing some nascent but exciting innovation coming from there.

We don’t do B2B, hardware or chemical compounds. Not because we do not see the potential upside but because we cannot provide much non-monetary value to such companies. This is one crucial aspect to keep in mind - being rejected by an investor does not necessarily mean your business has no future. It may just as well mean that you have not approached the right investor. The ultimate proof of whether or not you are on to something is the number of users that find your product worth their time and money.

4. Who is on your team and what’s their experience?

Founding partners have huge experience in building scalable B2C businesses with a notable user-generated-content component.  We are entrepreneurs who are now investing their money and experience in startups. Some of us have technical background, some have business background. Most of our 14 partners work together for over a decade. We also have a few newcomers: brilliant hires who went on to become partners.

Our founders’ first venture was a local social network one.lv started back in 2000. After it took off in Latvia, the concept was expanded to one.lt, which was even more successful as Lithuania did not have any social networks at the time. The project was part of Forticom, who became one of the first investors in Russia’s second biggest social network Odnoklasssniki (now ok.ru).  Most of Odnoklassniki still runs on the solutions that we provided as technical partners at the time. 

Besides successful technical scalability, One.lv was also the first monetization success. Internet ads were still not common back then and we monetized with microservices to users such as virtual gifts, extra gallery space and others. This success let us attract 2 globally known investors to Forticom - Tiger Global and Yuri Milner’s DST Fund.

Around 2008 we successfully repeated the approach from OK.ru and acquired NaszaKlasa.pl (NK.pl) in Poland. We helped them with technology, the network grew and we had another successfully scaled project.

Later on in 2009 the shareholders of Forticom agreed that OK.ru will become a public company as a part of Mail.ru group. Founders of Forticom fully exited and founded Rubylight. This is how we arrived at what we are doing now.

We have survived hockeystick growth several times, both as founders and as investors. We know the technology that exponentially growing B2C startups need. We understand them. We are focused on business success and not on immediate financial results. The most important metric for us are user results – the ultimate proof that the service is needed.

We see that the greatest challenge for rapidly growing B2C startups is overcoming technical bottlenecks. Sometimes just a good investor with money and connections cannot help, particularly with uncontrollable surge of user-generated content that you must urgently accommodate to survive. We have solved these sorts of problems first-hand and have built variations of proven software modules that we make available to our portfolio companies.

5. Who is in your portfolio and what are some success stories?

Currently we have 10 investments in our portfolio, not all of which we have announced publicly yet. Among them are Ask.fm – questions and answers social network, Taxify - anti-uber taxi calling company rapidly growing in Central and Eastern Europe, Peerby - social shared economy startup out of Netherlands, Likealocal - social and crowdsourced unique traveling experiences, Drugvokrug - WeChat of Russia that is trying to expand to other countries and more.

Ask.fm is a good example. They showed a pattern of growing user numbers and limited technological capacity when we first saw them. Despite the site being down regularly, users kept coming back and were showing huge interest. However, their technology was not ready to accept these users. We identified bottlenecks that limited growth and fixed them. We decreased downtime 9x, made the site load 2x faster, and reduced server cost 4x. All of this resulted in hockeystick growth, 12x increase in users in just 12 months.

It was important that founders also understood the problem and were ready to cooperate. When we learned about Ask.fm we did not know where they came from. Only later did we find out that we were, in fact, sitting a few blocks from each other in the same city. So location was definitely not the reason we decided to invest, though it helped to have faster communication later on.

 6. How can companies best reach you?

We are a very hands-on team and we hate bureaucracy. If you check our page, you will see one short contact form, where we only ask 3 things:

  1. Your company must be within our focus: B2C in either (1) content sharing, (2) social media, (3) communication, (4) crowdsourcing, (5) blockchain
  2. Give us a link to your service
  3. Provide most recent usage numbers

What we do ask, though, is that you take each of these points seriously. We do not invest before there is a product. We do not invest in startups without users. We do not understand B2B, hardware and advanced science. We focus on what we do best, please take a moment to check if that applies to you. Also, even though we are very focused in terms of products we invest in, we are very open geographically, so no restrictions here.

Even though we do not do seed rounds, we can be the first investors in a company, if it shows traction: it does not have to be millions, even a few thousand users will do if they are coming back daily, love your service and invite their friends.

We also visit startup events and conferences and post on our Twitter account where you can meet us.

7. How do you decide whether to invest?

We are very practical and data-driven. A snapshot from or access to Google Analytics or any other statistical tool illustrating user behaviour is the main thing we need. We do not have board councils and elaborate decision-making schemes. We sit down, look at the info you send us through the contact form on our site and decide whether this is a project that we can work on together.

We have a few big NO’s that are also clearly outlined on our webpage. We don’t do B2B, hardware or anything else that is not B2C. We do not invest before there is a product validated by users. We do not need huge presentations.

Then we reply and arrange a conversation with the team to get to know them better. If we both see value in mutual cooperation, we sign the agreement and start growing the business.

8. Would you invest in a service that pitches to kill Facebook, Twitter or Google?

Ambition is good and we are not biased. We would look at stats, just like for any other pitch. If the claim is backed up by a growing number of excited and engaged users, we will not decline the pitch just because it is audacious.

9. How do you work with your portfolio companies?

We are quite human in our relationships with startups and act as partners. We do not do board of directors, supervisory board etc. corporate stuff that is common for other growth companies. We meet up or have calls regularly, focus on solving problems and reaching commonly set milestones. Our guideline is that financial success comes after user success. We focus on making the business attractive to users, not later-stage investors. At the end of the day, the single most important metric any investor cares about are engaged and excited users.

10. What would be your advice for foreign investors looking at Latvian/Baltic/CEE startup scene?

Most importantly: do not underestimate the quality of people and technology in this region. Latvia and the Baltics have already shown that they can host head offices of globally successful IT companies. I suggest to be more open-minded about offices here – why not? The IT specialists are good, the cost/quality ratio is definitely a clear advantage. The quality of internet connection is topping global charts.

It may be different for B2B companies that need to have offices closer to their clients, but for B2C this is definitely no problem, to an extent even an advantage. Ask.fm is a good example – even after the acquisition their American shareholders still keep Ask.fm office in Riga.

So, my biggest advice would be not to confuse the size of home country with the size of company’s global market potential. Startups usually reach out to investors. If somebody, especially from B2C sector, with great traction reaches out to you, their location should be at the bottom of your priorities.

11. We have just been to Slush and SV2B, both full of B2B investors. Any tips for B2C startups surrounded by an ocean of B2B funders?

Reach out to Rubylight! But even more importantly: do NOT think about your business in terms of “How do I attract investment?” Rather, think: “How do I solve this problem for my users?” Then everything will fall into place. Whether it is B2B or B2C that your customers need to solve the problem, go ahead and build it. Everything else, including the right investors, will come to you after that. 

12. Lastly, what is Rubylight looking for and how to reach you?

We are always looking for B2C startups with excited and engaged users. Fill in the contact form on our webpage to get in touch.

We are always looking for talented people to join our team. Only few of our people are non-technical. Everyone else has hands-on tech background.

We are always looking for dealflow and syndicates. We are open to cooperation with other investors as technical partners to their B2C deals within our area of expertise. Anything and anyone who can act as a source of dealflow is always welcome.

 Reach out to Rubylight here.