Trending Topics is starting a series of interviews with venture capital, private equity, and angel investors from Bulgaria and Eastern Europe, to better understand their mindset, strategies, and put together a well-rounded picture of the industry as it is today. What should the region invest in, what have the EU funds for venture funds accomplished, are there any gaps, and what could be done better. In the next few months, we’ll interview one investor a week to collect as many perspectives as possible.
Nikola Stojanow is one of the main engines behind the blockchain 3.0 project æternity and is mostly recognized as the CEO of AE Ventures, formerly known as Æternity Ventures – a company that invests in blockchain projects. Recently we also found him among the partners at a brand new fund that is applying for finances from the Fund of Funds – Vitosha Venture Partners. We thought it would be interesting to meet the 32-years-old Stojanow and explore how the new generation investors see the world and the regional ecosystem.
Stojanow, who is a law graduate, grew up in Germany. His professional career started off in pharmaceutical business, where Stojanow worked for one of the largest pharmaceutical generic companies in Germany. For two years he was working in Germany, Serbia, the entire Balkan region and then moved to Hong Kong to operate in Dominican, Asia and Pacific region. In the end, he was Director of Business Development for the entire area.
Before entering the corporate world, Stojanow thought it was where he belonged. But after being stuck in the corporate work-frame, where “ pretty much the entire structure doesn’t allow you to do more,” he felt that he needed a change. He left Asia and decided to become an entrepreneur and moved to Berlin, where he worked in a couple of startups until a good friend of his from childhood came around. The rest is history and here it is:
Trending Topics: What led you to the VC and investment area? How did your journey with æternity start?
Nikola Stojanow: It has been an interesting journey which has allowed me to see the three sides of the business that we are currently operating in. Starting in corporate, going through entrepreneurship and now being an investor. It was a very gradual process, which helped me to get where I am today.
Back in 2016, I was living in Berlin and this is where we met with Yanislav Malahov, the founder of æternity Blockchain. He told me about his vision about the project and that was enough for me to start grasping what the Blockchain technology would be able to do in the future. I was so overwhelmed by it that we directly started brainstorming and on the next day, I became part of æternity, taking care of the business development, as the project was still in the idea and whitepaper stage back then.
In Q2 of 2018, we became a unicorn – the first based in Lichtenstein unicorn in the blockchain space. During the entire growth process, we realized the importance of having quality startups and projects that are going to use our infrastructure. We have built a strong technological base and infrastructure with the help of a solid team, including PhDs and Professors in Engineering and Computer Science. But then we were confronted with the next issue. Now we have to find people who are going to use the platform. We had a conversation with Yanislav and defined the need for a structure that can cater to this challenge. We envisioned a structure which would allow us to incubate and accelerate projects and in the latest stage invest in them. æternity Blockchain has a decentralized infrastructure therefore, the new structure needed to be a separate entity itself.
As I was born in Bulgaria and saw the growing potential and talent in the IT sector here, so it was a logical decision for me and Yanislav to build the new entity in Sofia. In 2017 we set up AE Ventures in Bulgaria. In May 2018 we organized the first Starfleet accelerator program, which today is running on four continents. Our team has been actively working toward creating a global ecosystem, where people can actively collaborate and partner.
The Starfleet program opened my eyes for the growing potential of the blockchain projects and I see a great need for funding but also for proper mentoring. There are a lot of ways to get your project funded, especially in Eastern Europe, but there is a lack of consistent mentoring.
So naturally, I wanted to do more, and I wanted to help the startup ecosystem in the best possible way. The decision to become a VC was the next logical step for me.
What’s the current state of the portfolio of AE Ventures?
Until today, we have invested around €2M in nearly 20 companies, and we were able to do it in a reasonably short amount of time. In 18 months we invested directly in companies that were already showing great progress like WeiDex, ReCheck and Comrade – all of them based in Bulgaria. Through the Starfleet Accelerator program, we additionally invested and mentored startups in an earlier development stage like : Noble Hire, Tradex Social and Homeport. In our portfolio you will also find strong projects from Africa, the Balkan countries and Central Europe.
What’s the philosophy and strategy of AE Ventures?
AE Ventures is an asset management company focused only on Blockchain projects. We work with co-investors and angels but don’t have LPs, like classical VC. It is a very new field. If you look at the majority of funds that actually are interested and investing in blockchain, you will find that they are still very risk-averse. Blockchain investments make up to 5-10% of their portfolio roughly, and not more.
One of the things that are of crucial importance for each startup is having access to an international network and this became one of the cornerstones of our strategy. Our team is internationally very well connected and positioned and we are able to support each project in our portfolio with a global network of investors, mentors and potential partners.
A project needs to show an impact on an ecosystem, business or our daily lives. We do not invest in projects that are not able to prove their significance and why there is a need for their product. In the last couple of years in the blockchain space, there were many projects that have raised money only on whitepapers but luckily this came to an end.
Last but not least, is supporting the growth of the blockchain ecosystem as a prerogative to move the technology forward and towards more adoption. We think that it is incredibly important to be able to serve the needs of different infrastructures. Blockchain projects.
So potentially you are going to invest in other projects that are not running on the æternity blockchain?
Potentially yes. I honestly like that idea, yet the focus of AE Ventures remains on æternity for the time being. It For me it comes down to one thing. I always say: Guys, you know with whom we are competing right now. Those are established companies with billions of dollars of revenue and, billions of users out there. Here we are, segmented in 100 different protocols, so why don’t we do something together. It simply makes more sense this way. Even though people still react strangely to this, I foresee that we are going to see the first mergers of blockchain protocols in Q2 of 2020.
When will AE Ventures first portfolio companies have any products that are ready for market?
The short answer is “very soon”.Several of the companies that we have invested in are currently doing their beta testing. They are ready to put their project on the market around Q3 2019. In September we are organising our first conference – æternity Universe One Conference in Prague and we have prepared a lot of exciting announcements from our teams.
How investing in blockchain is different from any other VC job?
I think investment in blockchain is still in its infancy if you compare it to classical VCs. We have seen an increased interest in the technology in the last couple of years and we have been through some exciting phases – the rise and fall of ICOs, the hype of regulations and the emerging ICO alternatives, up to today when we can see a more “stable and sober” way of investing.
One very important differentiator is that the technical aspect plays a very important part of the decision making the process. Our team analyses each potential investment in details- starting with the whitepaper and documentation on GitHub Inc. We also analyze how solid the actual need for the proposed technological solution is. Not every project necessarily needs blockchain technology. There are many cases where the blockchain technology has been implemented just to raise money, without the actual need of the technology. We want to prevent this from happening. Therefore solid due diligence is the main prerogative for such an investment.
Are there a lot of scammers applying?
In every ecosystem, you have people that are trying to do wrong and scam people. We had several projects that applied for the Starfleet, that once you have read through, you could see that they were clearly incentivized more by the financial aspects, rather than the technological one. Also, we have seen a number of different approaches that have been used to wrongfully approach people through email phishing, copying telegram profiles and direct approaches through absurd projects, so please always make sure to do your due diligence!
What’s the story with Vitosha Venture Partners?
The story with Vitosha Venture Partners is a very straightforward one. We have an amazing group of likeminded people with great international experience that got together. We wanted to make sure we have more good projects locally, and that those projects would be able to receive funding and mentorship so that they get the chance to not only grow internationally but to also shed some light on the Bulgarian Start-up ecosystem.
The structure and the partners of Vitosha Venture Partners are quite established. During the application process, we realized that all together we have more than a €140M in VC transactions and over 40 years of investment experience. We have six partners, with great team spirit that have already done a number of initiatives together, over the last 5 years, paving a strong basis for a good way forward
How did you end up being a partner there? Is there already a focus of the fund?
I am happy and thankful to have been invited to become part of this team. Working alongside people like Marin Iliev, Paul Weinberger, Maris Prii, Max Gurvits and Erik Anderson is a great opportunity and we are planning on doing our best to fund Bulgarian start-ups. I hope that my knowledge and experience in the blockchain and start-up space will add a lot of value to this dynamic. The fund itself would invest in a very wide variety of sectors. We will be looking for strong locally based teams and good ideas that show signs of international growth potential. The focus of the fund will be pre-seed and seed investments.
What’s your role there?
My role would focus on fintech and blockchain start-ups, in combination with the growth of these projects. We have identified these important areas, as the potential and interest are increasingly higher, and we have the advantage of a strong development in these sectors, which is happening here in Bulgaria.
What is your experience with the Fund of Funds and the application procedure so far?
The application requirements were incredibly detailed, strict and extensive. I would say it was complicated and though to assemble all the documentation from all the deals and experiences that the team were bringing along. After all, the team has over 120 investments and all of them had to be translated and gathered in one place.
In a nutshell, a very tough experience, but we also did learn a lot during the process. In all fairness, I must admit that I have not experienced such a hard application process until this moment, yet the Fund of Funds have also installed these requirements and processes, in order to make sure that the highest quality of applications get the chance to compete in the selection process.
How do you think the VC industry in Bulgaria has done in the past 5 years?
Focussing on the positive aspects of the growth and development for the last five years is a good starting point. Looking back at the people that set everything up, like Evgeny Angelov, who opened the doors for European funds to be invested into Bulgaria, veterans like Marin Iliev, Konstantin Petrov, Pavel Ezekiev, Vasil Terziev, Stephane Gantchev, Lyuben Belov and others, paved the way for everyone else. A large number of local projects are being funded and show tremendous results. Without all these people and their support for the ecosystem, we wouldn’t be able today to have such a vibrant and multinational start-up scene in Bulgaria.
However, there is space for even more investors and funds. Getting some fresh funds into the ecosystem would also change a little bit the perspective of how things are standing right now. In the past, if you needed an investment you would always go to the same people. Now more and more people and entities pop-up and provide an opportunity for funding.
It is a great thing that the ecosystem is growing, but the important thing is that people grow with it!
What could or should be improved?
I would like to see more angel investors from outside Bulgaria, join as investors in the country, so that we have a more financially attractive ecosystem by itself. It would also be great to emphasize on more cooperation between the players because I firmly believe in ecosystems and working together. This is something I would want to focus on – making sure that investments in Bulgaria are seen as attractive and opportunistic on a European and later on a global scale. This is something that we all need to work on!