Interview with Ashot Arzumanyan
Hello everyone, hope you are all enjoying your Sunday. Continuing with our interview series, this past week I had the chance to chat with Ashot Arzumanyan from SmartGateVC. I have gotten to know Ashot over the past year or so. He is at the center of all things Armenian tech, and is based in Yerevan.
My interview with Ashot below…
HC: Thank you very much for taking the time Ashot, I really appreciate it. Maybe we could just start learning more about your background.
AA: I was born in Yerevan, Armenia. My background is finance and investments, and I used to be in management consulting and investment advisory before tapping into the world of startups and venture capital. I hold a PhD in Economics from the Yerevan State University.
HC: Tell us about how SmartGate came together. What was the impetus to launch the fund?
AA: Four years ago my partners Vazgen, Hambardzum, and myself came together around a dream about a venture capital fund that would empower Armenian entrepreneurs, Armenian companies disrupting industries, and a strong community supporting each other. All of us were actively involved in working with entrepreneurs and advising them, and SmartGate was the way to institutionalize that.
In 2017 our dream seemed very crazy to many, however we met investors who trusted us, and we kicked off in January 2018. Now we see our dream come true, day after day.
I should mention also the crucial role of the support from the team of EU Delegation to Armenia and GIZ. Our first fund was tiny, only $3mm, and there was practically no way for us to build and sustain operations of SmartGateVC and Hero House without the leap of faith and instrumental support from the European Union.
HC: What is your investment strategy? Where are you guys mostly focused in terms of industry verticals?
AA: We primarily invest in deep tech companies – everything around AI: AI infrastructure and tools, AI-enabled SAAS, AI-powered IoT, AI-based biotech. We invest at pre-seed usually being the first investor the company. Typically we invest up to $100k. That said our cash investment comes on the very last turn since we work with founders significantly earlier – even before the company is crystallized. We have built a solid infrastructure around our firm so we can identify capable teams in our pipeline and support the existing portfolio. That infrastructure is based on the network of the Hero Houses’ we have in Armenia and California and numerous programs and events we initiate together with the tech, scientific and business communities as well as public institutions. Our team is currently 13 people based in Armenia and California.
HC: Could you maybe talk to us about a portfolio company that has done exceptionally well? What did you see in the company?
AA: We met SuperAnnotate when it was two bright guys (both PhDs, brothers) and IP for the world’s fastest image annotation. We could see us working together and getting to the next level: transforming the IP into product and a company. We helped with putting together the team and the first steps, the company was working from the basement of Hero House in Yerevan. Today, when you visit their impressive office neat Republic Square in Yerevan, you can see the pics of those first days there. The company recently raised a $14.5mm Series A from Base10 and other leading venture capital firms.
HC: How about an investment that did not work out? What were the key learnings?
AA: Our firm’s motto is “Fund superhero teams - capable, unstoppable, unbreakable.” The overall hero theme is dominant in our culture and initiatives. Failures usually come when even one of the three constituents of hero lack. It’s either lack of exponential growth in the founders which is the lack of capability, or the founders are not dedicated enough to fight the obstacles (not unstoppable), or the founder team has a structural problem (leading to founder breaks). I am not aware of other reasons for failure. I summarized some of our learnings in an article titled “Did you cross the Rubicon?”. We invested in 22 companies since January 2018, and 2 companies failed.
HC: How would you describe the health of Armenia’s startup ecosystem?
AA: How would one measure health of a startup ecosystem? I think it’s the combination of the culture in the tech community and its access to capital and customers. The culture of mutual support in our community and unity around common goals are among the inspirations in my work and mission. At the end of the day, culture and power of the people around you are what make you happy and feel empowered. I feel myself truly blessed in that respect.
As for access to capital and customers, well, we like to say that Armenia is blessed with a small market. Our Small market makes entrepreneurs think global from the day 0. Therefore, the focus of Armenian startups is usually on the US market. It is the most challenging but also has the highest reward if you know how to navigate. A very tech-savvy diaspora is instrumental in enabling this. SmartGateVC along with Hero House (both in Yerevan and California) are on a mission to build that bridge.
HC: How can we help accelerate the ecosystem? What is lacking in the ecosystem?
AA: Our strengths and weaknesses are both in the same domain. We are strong with the “Armenian world”, and we are weak between various parts of our nation across the globe. Sometimes people ask me: “How do you source companies in Armenia?” I do not believe that is right question to ask. There is no Armenia, there is no diaspora, there is one Armenian world - powerful with its expertise, experience, and capital. The source of future great companies is inside the circulation of knowledge and networks. Hence, the strengthened circulation of knowledge and networks is the route for improvement, along with the oneness of us as a nation in general and tech community specifically.
HC: That is an interesting take. How about some advice for entrepreneurs. What would you you tell them?
AA: I have 3 pieces of advice: (1) tell a story, tell the vision, (2) talk data-driven and sharp, (3) be proactive. VCs invest in highly scalable businesses, so they look for $0 billion businesses and not $0 million businesses. That said, the VC/startup relationship building is a two-way street. Entrepreneurs should keep in mind that it’s not only the VC that chooses them, but they also choose the VC. As VCs do diligence on startups, entrepreneurs should be doing the diligence on VCs as well. It’s a long road together, so one should know who they are going to share the journey with.
HC: What’s the most challenging part of being a venture capitalist?
AA: Saying “no” to friends is the most challenging on a personal level. Managing the risk to miss a “loonshot” is the most challenging from a professional standpoint. As a VC you deal with many founders, but invest in very few. While you serve the entrepreneurs, we are managing money for our investors. This tension is overall very healthy and helps with picking priorities in the right way. However, missing a loonshot or even killing it because of the lack of faith and bad assessment sounds like a nightmare for me.
HC: In Armenia, what resources are available to help aspiring entrepreneurs get their ideas off the ground? How about for more established companies that are scaling?
AA: SmartGateVC has built comprehensive infrastructure to help. If you are just starting, we have Armenia Startup Academy Pre-Acceleration program. If you have some traction and want to raise $500k, we have Armenia Startup Academy Traction. If you are looking for a seed ($1mm+), we have Hero House Glendale Gateway program. If you have data and AI challenges, we have Hero House AI incubator. If you are a scientist with an invention, we have a network to help you with IP transfer. If you are a seasoned entrepreneur looking for the next big thing, we most probably have something interesting to share with you. Finally, we have the fund’s capital and Hero House Angel Network to back up the entrepreneurs financially.
HC: This was great, thank you Ashot. How can people get in touch if they are interested in learning more about SmartGate?
AA: I encourage everyone to follow our page on LinkedIn to hear about our more recent news. The best way to contact me is also on LinkedIn. Thank you.