Andrey Filon: “There is too little space for the second Zubr Capital in the market”

Zubr Capital investment director spoke about the lack of businesses to invest in, business models and a truly Belarusian IPO.

ItStarts! guest Andrei Filon is the investment director of the largest investment fund in Belarus Zubr Capital. Andrei spoke about his bold youth, work at Atlant-M and how Zubr Capital is going to earn on its portfolio of companies where are such companies like 21vek,, Softline, Mediacube, etc.

Diamonds for an investor

It all started with the Faculty of Applied Mathematics of BSU, I studied during the famous crisis of 2008. I received IT education, to my Belarusian grief. I did not like to do programming, but I wanted to apply the available mathematical knowledge to something from the world of finance. I was engaged in actuarial mathematics with the division of mathematics in financial markets — this is what studies the probabilities of various events in the financial world, and this is most often used in investments. Faculty of Applied Mathematics is cool in terms of programming, but not in terms of investment.

In Belarus, there is not a single faculty that would be really useful if you want to learn investment and finance.

Therefore, I wanted to understand and try it all in practice.

The investments I was engaged in are less about math and algorithms, but more about people. Any venture investor looks more at the managers and founders who run this business. As a result, you should have some kind of systemic thinking, the ability to build financial models, put it into business components, and see trends.

The main quality of any investor is to be able to evaluate the founders or team for their ability to implement the project they have conceived.

I wanted to work in the field of finances since childhood. I watched a lot of American films about brokers who shout something at the brokerages, guess something, buy and become millionaires. But to do this, the hero solves tricky or non-tricky puzzles. This is all very interesting because finance and investment are always some kinds of problem that needs to be solved.

Finding the diamond worth investing in is not so easy.

I came to BelVneshEconomBank at the university and asked for a non-paid practice. I got into the insurance department, and it was very boring. I went to the deputy chairman for a reception and asked to transfer me. I was young and daring, and I was probably appreciated by this audacity, and I was transferred to the treasury, which manages a basket of currencies. It was very cool but did not last long. In 2008, a crisis occurred, and problems like reducing staff began, so I was hired.

Work in Atlant-M and the realities of the Belarusian car market

After that, I got in Atlant-M, a very large and rapidly growing business at that time, which was hiring students, primarily technical professions, even to managerial positions. The idea was to build up a large corporate center at the Institute of Business Technologies, train people, and send them to dealerships from Tyumen to Brest. The specialists were really well trained there, and the financiers from Atlant-M were a direct sign of quality.

If an internal vacancy had appeared and students could be recruited for it, then the departments came to the Institute of Business Technologies and selected people. I got in the controlling department of Atlant-M, which was involved in evaluating budgets, plans, and development strategies for all auto centers and businesses within the company. Then, from the top managers of Atlant-M, Zubr Capital was created, where I moved and created the controlling department.

In Atlant-M, we worked with various data like regional revenues, sales of cars in a specific area, location of an auto center, etc. In Moscow, for example, there are a lot of auto dealerships, and on the map, it sometimes seems that two auto centers are nearby, literally a kilometer apart. It turns out that there is a railway between them, and to go around it, you need to make a circle of five kilometers. So, customers from one auto center will never go to another, because this is Moscow. The automotive business is pretty easy to analyze when you have a large holding and a lot of auto centers.

In 2009, for Atlant-M, the Ukrainian market dropped 5 times, Belarusian almost 2 times, and Russian more than 2 times. Personnel reserves were no longer needed. A large number of auto centers also became unnecessary. It became clear that the market would not reach the volumes of 2007 shortly.

Of course, we could not predict the crisis in 2008. We always looked at the number of cars per capita in the European, American, Chinese markets. And we were sure that Belarus, Russia, and Ukraine would go the same path. It was a fallacy. Now a new trend in the auto business is that it is no longer necessary to own a car because there are many alternative modes of transportation. Plus, Belarus began to buy cheap cars. If earlier you had a little money, then you bought a used vehicle, but the share of new ones kept growing. VW has Polo, the best-selling car in Belarus, and Passat, the best-selling car in 2003-2005. Passat now costs $ 40 thousand in a normal configuration, Polo costs $ 12 thousand.

We used to assume that people would a certain amount of cars, and this would be Passat, now they buy more cars, but this is Polo. Therefore, there was a strong redistribution of the market.

How does Zubr Capital work?

Zubr Capital is a company managing a fund in which external investors have been attracted. Currently, we have a $ 90 million fund that we invest in businesses. We do not attract all the money of investors at once, but we attract a promise from them. For example, he wants to invest $ 10 million in the fund, and we have 10 transactions, which means that the investor will transfer money for each transaction in proportion to his participation in the fund. The return on investment will also be phased. Each investor, until the fund needs money, manages it as he wants.

Within 5 years we must invest the entire fund, within 10 years we must quit all companies. We have about one and a half years left until the end of the investment period. We have already invested 60%, now we have 8 companies. We invest in those that have a clear business model and give them money for scaling.

We expect that the company in which we invest will grow 3-5 times in 5 years.

We have companies of different ages in our portfolio. For example, is already 18 y.o. Founder then entered the market, put up a kiosk and spoke in the evening to those merchants who did not have time to sell the cars, they say, let me put your ad in the newspaper first and then I’ll place it on the Internet. And this is how the business began. Now all classifications are transforming their business models, and the plus of is that it is the most recognizable car sales site in Belarus. The youngest company is MediaCube, which used to be engaged in video production, but recently received an affiliate program from YouTube. All our transactions are posted on the site, but we do not disclose the amount of investment.

In all transactions, we have a hybrid model cash-in + cash-out. It happened that in some transactions we bought out one shareholder, and he left the company.

We are shareholders, therefore we participate at a strategic level in the development of the company. But we try to help with those competencies that we can. The first is an internal club where founders or managers can share experiences. The second is that we, as heirs to Atlant-M, have gained good competencies in finance and HR. Dividends are highly dependent on the details of the transaction itself.

To cooperate with us, a company must be a working business. We even bring a little corporate governance into the business making the company mature. In Belarus, much rests on the entrepreneur himself. It is important that not a single strategic investor buys a controlling stake and does not let go of the founder if everything keeps on the founder. Therefore, we have to begin to form the second level of management under such strong founders, so that the business can work without a strong charismatic founder, who pulls everything upon himself.

Business Curators

I am primarily looking for those businesses in which Zubr can invest. And when we invested, then we begin to follow the companies, we look at how to build a business so that it can be sold expensive later. Of course, there are industry competencies, but there are also sales competencies. It very often happens that the founder wants to conduct business in many directions at once. It is very important to focus development on one thing.

Sometimes a strategy should not answer the question “what should be done?”, but the question “what should not be done?”.

I am directly involved in developing and adjusting the strategy, translating Zubr into the company in terms of finance and HR, and building a corporate governance system. And most importantly — the organization of the sale of a business. I participate in the supervision of several companies: I am the main leader in the team, and I am responsible for the development of Softline,, MediaCube.

Managing IT specialists taking into account the very competitive Belarusian market should be completely different. This is because we started as outsourcing companies that worked for the United States, where people who are naturally striving to achieve do not like to become programmers. In Belarus, on the contrary, there are a lot of people in IT who are striving to achieve and to be very productive people. They don’t go to IT because you won’t earn much. Therefore, a talented person who can work hard and reach goes to banks or law firms. And here, everyone who can do something understands that the only place where you can earn is the IT industry. These people need to be managed differently, they need to set very strict goals. And the key thing that will drive them is a good interesting job where they can achieve the result. Cookies, a beautiful office, and a comfortable chair do not matter for them. IT companies in the United States cannot attract active guys, so those who need such a calm, measured lifestyle come to IT, and their employers need to add some benefits to their offer. Our industry was created according to Western examples. I wouldn’t pamper our IT specialists, but we are already hostages because someone started to do it, then someone repeated it, and now a minimum social package is already a certain standard in the industry.

In Zubr, we did not work with such an approach. Anyway, there are a number of boilerplate things, for example, the concept of an employer’s brand, which is very important in IT. Sometimes it needs to be developed more than the brand of your product. And this is relatively systematic work, and no matter what industry we talk about.

The portfolio of projects

Any seller has a lack of customers. So far, practice shows that what you can invest in is a private company with significant revenue and the possibility of further growth by 5-10 times. There are few such businesses. But many businesses can raise venture capital investments, many businesses that do not need money (part of our IT). The largest part of the business that Zubr Capital cannot invest in is the one where we simply don’t see how they grow 3-5 times in 5 years. A lot of businesses are focused on the Belarusian market, whether it is production or service. Here you do not particularly grow and transmit competencies to another country, because the competition is even stronger there. Accordingly, we have almost no production, although we could invest in it (only the UNIFLEX company). Some companies focus on the Belarusian market (,, but these are completely new business models. We have already invested in e-commerce and car classifiers, so you will not invest in another classifier.

All about business models: from Onliner to cookie manufacturer

Online has a very unusual business model like almost no one in the world. First of all, this is the Catalog, to which the Baraholka market was attached in the form of the general classification. From a business point of view, the Catalog was able to grow and develop this way due to a large number of sole proprietors selling mobile phones or household appliances. All over the world, there are not so many small players who need to be exposed in such a format as the Catalog. As a rule, these are large players who sell household appliances because they have “the strength of the purchaser” and well-established business processes — that allows them to give a good price.

A sole proprietor has the opportunity to bring somewhere without VAT and some other preferences that allow him to give a good price.

There are many such examples, and all of them need resources, which Onliner actually is.

They, as far as I know, are now in search of some kind of new business model. The auto classifier, in turn, is a very clear concrete business model, operating from Russia to any country. As a rule, they have such a business that there is player number 1, who holds 60-70% of the market. The remaining players have very small shares.

I think there is no space for the second Zubr Capital on the market because such a company will not find a sufficient number of customers. After 2014-2015, sanctions were imposed on Russia, most strategists and most financial institutions that invest in funds like ours refused to invest in Russian funds. Therefore several Russian funds are looking for projects in Belarus. Russian funds are larger than ours because they need more projects. And for now, the only deal that has come out is Baring Vostok and Itransition. Baring Vostok is the largest fund in Russia with a capital of $ 1.5 billion. Its founder is under investigation now, but it seems like he will be released soon.

We almost do not compete with ventures because we interested in different stages of a business. If you are a venture fund, then you don’t look at the business that we are looking at, because the growth prospects are not so great.

The business now is all about technology. You may not produce cookies, but you may sell it well. If you as a manufacturer know how to develop a d-to-c model (direct to customer), this is a good business, but building it is much more difficult than building a cookie production. Therefore, you won’t earn much here, so it’s easier for a strategist to build a new plant than to acquire a company. Some exceptions are those products that are not profitable to import, such as our Uniflex. The packaging is good to sell within a radius of 500 km. If further, then transportation costs will increase significantly. Also, there must be a local presence to communicate with consumers. The most important question is how and to whom to sell the business, and then everything else.

The future of Belarus outsourcing and Zubr Capital IPO

In my opinion, we handle properly now. We have greatly liberalized the technology industry, and this is already beginning to give rise to certain companies. The main problem of the IT field is the lack of people. Recently, a couple of outsourcing companies collapsed. We at Zubr predicted that outsourcing business would be difficult to earn when the decree on HTP 2.0 was signed. Now, product companies, which have a different economy, will be more active in coming to Belarus and competing for the programmers with whom the outsourcing business works. Therefore, now the key direction that needs to be developed is to turn as many Belarusians into IT specialists as possible. It is not necessary to study at the university for 5 years to become a tolerable coder. We have these vocational schools, which prepare locksmiths (I do not want to offend anyone). The same technical education in IT could also begin to develop. Maybe this is something that would greatly increase the number of people and allow even more companies to start here.

An IPO of Zubr Capital is possible, but to launch an IPO of the Belarusian business is very difficult. There are three real IPOs in Belarus so far, but they took place in the format “we are not a Belarusian company, we just have the most employees in Belarus”. This is what happened with EPAM, Milavitsa, and ASBIS. So far, the international market is not ready to openly invest in Belarus.

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