Venture capital funds and startups in crisis conditions Lilly Drumeva-O’Reilly interviews Rumen Iliev on Darik Radio

January 5 th , 2023

Rumen Iliev is a venture capital fund partner at LauncHub Ventures and he invests in technological
companies. He is also a strategic advisor for the Bulgarian Entrepreneurship Center Foundation,
where he supports IT and education projects. Rumen has a Master’s degree in finance from the
Prague University of Economics. He entered the venture capital world in 2012. His objective is to help
entrepreneurs reach theirs.

Lilly Drumeva (LD): Two years ago you and I marked the start of “New Horizons with Lilly” during one of our conversations. How did 2022 go for you and the fund?
Rumen Iliev(RI): Thank you for having me. In 2022 everything started in a very positive light on account of the end of the COVID pandemic, but ended on a much darker note because of the ongoing war in Ukraine. The technological world also peaked at the start of the year, then global stock markets declined sharply
and recession is expected. A dynamic year full of hopes and anxiety.

LD: How do young entrepreneurs handle this situation?
RI: This is very interesting for middle-aged people, like us. The 2008 crisis is still fresh on our minds, but
people who are 30 now were 16 at that time, they weren’t inside the economic scene and it makes
sense that they do not fully comprehend what’s happening now. Many young entrepreneurs could not
understand why investing became difficult and why everything takes so long. It takes time for people
to adapt to the new reality.

LD: How was last year for your fund, which were the most successful companies in your
RI: The year was successful investment-wise. We added six new investments, not all are Bulgarian,
we’re a regional fund. My role is to work with startups and to help them. We leave the PR part of
these investments to them, we do not announce who and what we invest in unless we have explicit

LD: What are your selection criteria when it comes to startups, how do you discover them,
what is the process like, what do you teach them?
RI: Our role is to become a partner; our average investment is about 2 million euros. We invest in tech,
startups that strive to achieve something big. Usually these are companies that also lose a lot of money, because they aren’t looking for profit at the start but for a market share and this is where venture capital comes in. We look for significant results out of these investments. The risks for these companies, especially at the early stages, are numerous. That is why we try to invest in what has the potential to turn into something really big and in teams that are capable of realizing this vision. We are also careful about the moment that we invest at. Everything has its time. If the time for a tech idea is past or not yet upon us, that is very rarely a wise investment. However, it is often difficult to judge and that’s why the whole process is riddled with countless variables and boils down to luck to some extent.

LD: Apart from inflation, the COVID pandemic, the war in Ukraine, recession… companies
are experiencing logistics difficulties now too. Is this valid for the tech sector as well?
RI: For example, closed Chinese seaports or blocked routes through Ukraine? What influences tech businesses is a little different. Stock market declines lead to decreased capabilities of larger companies to acquire startups. Startups themselves can’t get capital from IPOs easily on account of the bad economic situation. As a result, their businesses get a reduced rating from investors. Inflation is an issue for businesses which need to buy tangible assets that will increase in value over time.

LD: How is artificial intelligence developing in the mean time? Has anything dramatic
RI: Yes, in this year everyone can get a feel for AI. I can give an example of this – Open AI offers a chat
and maybe some of you have already used it. I myself used it before our conversation and asked it
how to prepare and it told me “Listen to what you are being asked, if you do not understand
something, ask them to repeat, let the host lead you”; it gave me valuable advice and generally this AI
does very well when talking to a real live human. We expect to see AI storming into our lives in 2023.
Currently it can be used to prepare a radio show, lectures, emails, students can have it do their
homework or write an essay. Computers and artificial intelligence add a lot more than before to our

LD: Let us go back to venture capital funds and startups in crisis conditions. Which phase is most affected by the slowdown of world economy – seed, A-level or businesses that are already developed?
RI: This is a very interesting question. The seed and pre-seed effects are not felt that much in the earliest
stages. At the start, investors and businesses are interested in acquiring a market share and it is difficult to foresee exactly how much an investment can develop at that early stage. That is why company ratings aren’t that different. But everything changes as the business goes forward and so does the need for financing. That is, if А-rounds (the ones after seed) were at levels of 50-70 mil ratings last year, currently the levels are 30-50 mil. B-rounds hardly ever happen now and only with well-developed companies. The higher the round, the worse the company is affected, and not just by the current crisis, which is more of a theoretical concept, but by the expectations of long-lasting recession. This also affects entrepreneurs’ plans, who have a resource that they need to spend. If this resource used to be enough for 12-18 months until the new investment came, currently the money companies have needs to be enough for 24 months or more, because it will be difficult and expensive to attract venture capital in the next 12 months.

LD: And what kind of companies are you looking for as a venture capital fund in the current conditions? I suppose – ones that do not deal with tangible assets in order to avoid risk?
RI: Yes, most of the work for people like us in recent months was to act as partners and advisers to entrepreneurs, while the latter didn’t necessarily need to listen to us as we do not, after all, govern
their companies – we guide them to whatever we see as the future of world economic development.
Regrettably, conversations surrounding most funds have shifted from goals achieved and how great
results are to how customers buy less, how goals are not achieved, and how budgets need to change
and how people have to be made redundant, since the resources of technological startups are limited
and when the access to capital is limited, they find themselves in danger, unlike a business that is stable and profitable.

LD: What do you expect from 2023 and what do you wish for?
RI: I wish for myself, entrepreneurs and the audience to be braver when taking difficult decisions and I
wish for good luck, because a lot of the things are not up to us. I wish for these people to look for new
business opportunities that can appear in crisis conditions. Some of the biggest tech companies were
set up during the last economic recession. As strange as it may sound, firing people can lead to the
creation of new businesses, entrepreneurs and opportunities, so I wish them good luck in noticing
these opportunities in time and taking advantage of them.

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