The digitized world has proven to be a gauntlet for ambitious startups. Around 90% of all startups fail, meaning that only the most innovative, scrappy, creative companies can make it to IPOs. Silicon Valley venture capital fund Runa Capital frequently makes tough calls like these and boasts an impressive portfolio of over 60 companies spanning 14 countries.
Benzinga spoke with General Partner Andre Bliznyuk to discuss Runa Capital's investment strategies and obtain an inside look at cyclically hot “special purpose acquisition company”, or SPAC, deals surrounding popular late-stage startups like DraftKings DKNG, Nikola NKLA, Virgin Galactic SPCE, Lordstown Motors and Hyliion.
Benzinga: What catches your eye when it comes to disruption and sector-related value, especially in the regulated markets?
Bliznyuk: Founders who are visionary enough to see the future five or 10 years ahead and build products to take them there, right through all of the industry pushback. We are looking for founders who understand the constraints of the spaces that they are operating in. Having the vision to say, “Even with these constraints, we think that there is a path forward that is going to benefit the consumer and change the user experience.”
BZ: Has the pandemic steered you towards speaking with companies emphasizing user experience, remote access, and other “stay-at-home” traits?
Bliznyuk: We adopted an approach to our own process in building the firm from the start. We had a very specific thesis, which was that industries will constantly shift towards the digital space. We identified three angles of digital transformation that we want to invest in: infrastructure, IT solutions for small and medium enterprises, and regulated industries.
You need new cloud infrastructure to be able to scale and operate efficiently. You also have new types of businesses that can benefit from being digitized, and I think one of the big areas that is overlooked is IT consumption for small businesses. We have spent a lot of time in the market for Software-as-a-Service for small and medium enterprises. We have seen a massive push into the space and are excited to see this opportunity grow.
The third angle is regulated industries; it takes longer for players in these industries to transform and adapt to new environments, but this change will inevitably happen.
BZ: What does a typical relationship between Runa Capital and a startup look like, from the moment of first contact to the exit strategy?
Bliznyuk: We do invest pretty early, as we are not a seed investor. If a company chooses to accept our investment, the partnership tends to be very long-term. The path to exit is long and convoluted, and our role in these conversations is as an advisor to the founders, like a board for the decision-making process. We try to help companies assess their options.
BZ: Why do you think we are seeing a surge in “special purpose acquisition company” popularity?
Bliznyuk: I think this is cyclical, relating to where the markets are in terms of appetite for deals and how quickly deals can be done. In terms of the SPAC sponsors, this is a great vehicle for them because they are ready to strike whenever an opportunity is found. Finding an acquisition target and executing a merger is just a much faster and more streamlined process than doing everything from scratch.
There has definitely been a change in the expectations of public market appetite between March to today. If there is a massive second wave of COVID-19, will there be more economic pressure? Will markets be as receptive as they are today? If an issuance window is open and the company is prepared, then that is great, but if not, then it makes sense to look at alternative structures like SPACs, which are great for addressing the specific situation whereas a traditional path would take much longer. Who knows when windows will be open or closed by then.
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