Interview with Marat Tolibayev on Activat VC's Strategy

In May 2024, news broke of an exit by Activat VC from the Tajik startup ZYPL.AI. The venture company entered the project at the end of 2021 at a valuation of $6 million. Two and a half years later, it sold its stake at a valuation of $25 million, multiplying its initial investment fourfold. Digital Business met with Activat VC founder Marat Tolibayev to learn the details of the deal and discuss the venture company's plans for the near future.

“It takes no more than 1.5 months to go from meeting a good startup to investing in it”

— Marat, to start the interview, I'd like to go back to 2021, when the news of the ZYPL.AI deal came out. Why did you decide to invest in this startup?

— Three or four years ago, we at Activat VC realized that we were already hitting the ceiling of Kazakhstan's startup market: at every event where founders pitched their projects, we knew almost everyone by sight. The same was true of the inbound requests logged in our CRM. So we decided to deliberately expand our presence across all of Central Asia and the South Caucasus. That is when startups from Tajikistan, Uzbekistan and other countries came onto Activat VC's radar.

As for ZYPL.AI specifically, in my view it is a good and instructive story for other startups. The project's founder, Azizjon Azimi, reached out to one of our team members on LinkedIn, caught our attention and made it all the way to an investment.

Digital Business note. zypl.ai's SaaS solution enables banks and microfinance organizations to instantly and accurately assess whether to issue loans to clients with limited or no credit history.

— What won you over about Azizjon's project?

— Venture investors most often choose a startup to invest in based on the personal qualities of the founder and their team. First, Azizjon is a very charismatic, inspired and driven entrepreneur. He has a superb background: he studied at Stanford and Harvard. Second, he has surrounded himself with equally strong and committed specialists.

Plus, he has a promising and highly relevant product — AI for data analysis and credit scoring in fintech. At the time, it was a very hot topic, and the AI market itself was growing and seemed limitless, so everything came together — and we invested in the startup.

— How much time passed from first contact to closing the deal?

— Activat VC is considered one of the fastest venture companies in Central Asia, so it didn't take long. Typically, advanced negotiations with a potentially interesting startup begin no more than a week after we first meet, and a deal takes no more than a month and a half. In other words, decisions are made quickly. It was roughly the same with ZYPL.AI.

“Activat VC never takes control of a startup”

— Let's look at the deal through the eyes of other startup founders. In the Central Asian market, there is a fear that even when working with a founder-friendly venture investor, the investor may take control of the startup's operations. So I'm curious: how did you define your area of responsibility with Azizjon?

— You're right. This is one of the hottest and most sensitive questions for startups. Probably the most pressing one after the size of the investor's stake in the company.
Our firm position is that we never, under any circumstances, interfere in day-to-day operations.

First, it is simply beyond our capacity. Taking part in the operations of all 26 startups in our portfolio is just not realistic. Second, it is wrong. As we see it, the founder is the driving force and engine of the project. Responsibility for the result rests with them, so they must be more invested than anyone else, must run like a hamster on a wheel and stay up at night when needed. We act only as advisors and experts, nothing more.

— So Activat VC's job is to provide money at the right time and then step aside so as not to get in the way of the founder achieving results?

— Not exactly step aside. Rather, not to impose ourselves or give orders, but to advise and help. If the founder needs us, we will of course come to help. As soon as Activat VC invests in a startup, the full range of our expertise becomes available to the new partner:

• Marketing. Our specialists will help with understanding the market, its trends, the competition, the USP, etc.;
• Product. Experienced product managers can assess the strengths and weaknesses of the existing product and suggest directions for its development;
• Finance. Our finance experts will advise on a sound financial model.
• Legal. Our lawyers will help draw up a proper Cap Table and navigate the legal and tax regimes of different jurisdictions.
• Team. Activat VC experts will help allocate roles and equity in the company properly and choose co-founders.

For the first 2 months after investing, we are in intensive contact with the startup — about once a week. Then, once our team has passed on the core knowledge and expertise, we step further back from the startup and hold meetings once a month. After that, it is at the founder's request. A typical example: a founder writes in the shared chat, “I'm preparing for negotiations with an investor for the next round and have put together a pitch. Let's meet so you can evaluate it from the other side of the table.” We meet right away and advise them on how best to present themselves to an investor at this stage of development.

“Our strategy is early in, early out”

— I'd assume that when you invested in ZYPL.AI, you had a specific strategy and discussed the conditions under which you would exit. Is that right?

— We really do work that way now and set specific goals. But in 2021, I admit, that approach had not yet taken shape. Back then, our vision extended only a few steps ahead — find a startup with great potential and invest in it. Figuratively speaking, buy a ticket for a good train. But where it would go and where we, as investors, would get off — we didn't think about that at the time.

Now the strategy is clearly defined — early in, early out. Why? A startup can make a powerful leap in valuation of 10-15x (not in revenue or profit, but specifically in valuation) at the very beginning of its journey. Then, if the startup makes it through the valley of death, it reaches a plateau of smoother growth, where we can only talk about a 2-3x increase in valuation.

We have deliberately chosen the early stage, with high risks but also the potential for 10-15x growth. Then we hand the startup over to our colleagues — later-stage investors who buy our stake in a startup that has already proven its viability — while Activat VC invests the proceeds in young startups. And so on, again and again.

This strategy took shape in part thanks to our successful experience with ZYPL.AI. We are more deliberate now. Whereas we used to invest simply because we liked a startup, now we immediately think about how and to whom we will be able to sell our stake in the future.

— Let's talk about possible moments of stress. The story of ZYPL.AI's success and international expansion is well known in the market, but surely there were times when the project ran into difficulties or stalled… I'd like to understand your reaction and course of action as one of the project's investors.

— ZYPL.AI turned out to be a rare case where everything went well for the project: no downturns or crises, only steady growth and positive momentum.

Setting this case aside, I can share how we view such situations. We at Activat VC believe that we really should help a startup grow. For that, our money, experience and connections are at its disposal. But we will never do the founder's work with our own hands or solve problems for them when the startup is under stress or in crisis.

If a founder comes to us with requests like “Sales aren't happening, find me a client,” that is definitely not our thing. If someone is confused and doesn't know what to do next, we will hold brainstorming sessions and offer some suggestions. But we will always say that the final decision and responsibility rest solely with the startup's founder.

“Activat VC will soon become a venture fund”

— Why did you decide to exit now? Yes, 4x is a good result. But perhaps you could have waited longer to earn more.

— First, that would have gone beyond our “early in, early out” strategy, which I mentioned a bit earlier. We got a good result. Now, to keep growing, we need to look for new startups to invest in that can at least repeat ZYPL.AI's path.

Second, a successful case here and now was important to us. To be honest, we have been working since 2014 — and in all that time we had not yet had a successful case. We wanted to prove to ourselves and to other players in the venture market that success stories are possible here. Besides, this was important for Activat VC because we are now preparing to transform from a venture company into a venture fund.

The difference between a fund and a company lies in the source of investment capital. A company manages its own money, while a fund is a pool of money from various people and organizations that is managed by a company. Over 10 years in the market, Activat VC has learned to work with its own finances — and now, to achieve multifold growth and to give other investors the opportunity to earn alongside us, we are preparing to raise capital from a large number of private investors.

The interview and photos are from https://digitalbusiness.kz/