15 December 2014

In partnership with Slon.ru and with the support of RVC, Firrma, a venture media resource, has determined the 30 figures from the venture capital industry who are most respected in the startup sector. They are not the “editor’s picks” – to compile the list we asked around 60 young entrepreneurs, investors and experts to name their favorites in three categories: investors, entrepreneurs and pros – 10 in each group. Then we met with these “celebs” and put together a case study on each of them. Right up until December we will be introducing you to people who will have – and perhaps already have had – a hand in the emergence of Internet sensations that, with time, could grow into another Google or Facebook. Today we’re starting with one of the market’s most guarded and legendary investors: Igor Matsanyuk.

If someone had told me a couple of years ago that I would be heading to Lithuania to meet Igor Matsanyuk, I would have found it hard to believe. However, glancing at TripAdvisor the day before I set off, I discover that more than seventy of my investor and entrepreneur friends have visited Vilnius. Something tells me that the city’s clear popularity among venture capitalists is the work of one person. A couple of days later I am standing in the rain on Gediminas Avenue, Vilnius’s main street, waiting for Igor Matsanyuk, one of the most famous entrepreneurs in the Russian Internet business community. Admittedly, “Russian” is perhaps not totally accurate now.

“I guess that more than a hundred people from Moscow’s venture capital scene have come here in the past three months,” Igor says as he lets me into a large, airy house. He walks to a window looking out over the lake where he sometimes fishes and feeds the birds. “I’ve fallen in love with this country, even though I only moved here in June. You don’t feel caught up in the cycle of chasing money and expensive things here; you don’t eat up time sitting in traffic jams. Here you’re free just to breathe and live.” But if these musings make you think that Matsanyuk has retired, you’re mistaken. Farminers and IMI.VC, which he founded, are still considering applications from startups, but now the investor has an equally important aim – to make Vilnius one of Europe’s IT clusters. In October he held LiveMobile there, a conference for mobile developers, and, under his guidance, construction will soon begin on a tech park. “It’s all because I don’t feel the fatigue and negativity that hits you every evening in Moscow. And you realize that it isn’t apathy – it’s the way people live there,” Igor says, describing this new stage of his life.

A gamer’s journey

Igor first touched a computer keyboard in 1988 when his brother, who, like Matsanyuk himself was a student at the Murmansk State Technical University, began teaching computer courses. After lessons he would let Igor into the classroom, where Igor would sit for hours in front of a flight simulator on the then state-of-the-art i286. At the time he had no inkling that his passion and love for games would lead him to create a multimillion dollar business.

However, Matsanyuk’s interest in computer technology had already been sparked. When they finished their studies the brothers founded a company selling used cars and then a firm supplying spare auto parts – and they developed software for their own needs on both occasions. For example, computer systems to run statistics on purchases or select auto parts were far more convenient to use than electronic display boards, but at the time the Matsanyuks were still unaware that they were the first to make such a tool. “Moscow seemed like another world to us,” Igor recalls. “And then, when I started regularly traveling to the capital three years later, it turned out that we had been the only ones in Russia with those kinds of programs at that point. But we were based in Murmansk, and it never occurred to us to sell our software.” Back then, all the entrepreneurs’ communication with partners and collaborators was done through ICQ, and Igor himself would regularly join discussions on Internet forums.

The day before the 2002 New Year holidays began, one of Matsanyuk’s former classmates convinced him to sign up for Fight Club, a browser game that was growing in popularity at the time. Matsanyuk was so captivated by the city street fights, the shindigs for fight winners, and the continual chat that he pumped tens of thousands of real dollars into his character (Fight Club had its own internal currency). “It hooked me like crazy,” Matsanyuk admits. “There I was, the founder of a company in the auto business that was consistently bringing in several hundred thousand dollars of pure profit at the time, and I was flying to Moscow to meet other gamers, to have it out with them and take part in ‘clan wars.’”

A few months later the novelty had worn off as the game had become predictable, and Matsanyuk got bored. He decided to sell his character, who was equipped with the very best artifacts and a unique kit.  He was not prepared to settle for less than fifty thousand dollars for his Mobil-2. With difficulty, Igor got hold of the telephone numbers of Musorshik and Mirozdatel, Fight Club’s clandestine creators, in order to meet them, but the game’s owners would not make a deal. The next day, after a conversation that did not end on a particularly friendly note, Matsanyuk received the Dark Angel’s Amulet, the most powerful item in the game – and then he discovered that along with several others his character had been deleted from Fight Club. The purge affected a lot of strong clans in the game, including well-off people who had invested fifty to a hundred thousand dollars or even more to “pimp out” their characters. Six people who had been left without accounts – including Sergei Zhukov from the pop group Ruki Vverh – decided to team up to form the company IT Territory and create the equally popular clone game Territory. Igor monitored the Moscow scriptwriters’ and developers’ work from Murmansk for a while, but then he realized that working remotely didn’t fit the bill for a cool game, and he moved to the capital in 2003. He set about winning over Fight Club’s target audience. “We deliberately kept attention on the story and created an image of ourselves as people who had been treated badly by Musorshik and Mirozdatel,” Matsanyuk admits. “Since at the time there were loads of people who were annoyed at the game creators’ heavy-handedness, our story spread like wildfire – we were seen as martyrs. Even before the game was released, tens of thousands of people a day were coming onto the forum where the team was writing updates about their work. It’s no surprise that fifty thousand people signed up to the game on the day it was released.”

“I moved to Moscow hoping to earn thirty thousand dollars a month, but a year after Territory was released, by winter 2005, it was bringing us more than three hundred thousand dollars,” Matsanyuk recalls. For the first time after moving to the capital he thought about gaining experience in a market-leading Internet company; for example, he seriously considered taking a job at Rambler, but in the end he focused on developing Territory. “By the end of 2005 only Sergei Zhukov and I were left in the business, then Mail.ru bought Sergei’s share and we started with new games: Drive and Bugs. But they didn’t really take off,” Matsanyuk recalls.

Then history repeated itself: Matsanyuk’s gaming passion intensified once again, this time, his focus was a new project with tremendous popularity. In November 2004 Blizzard Entertainment released the cult World of Warcraft, which, by 2005, had captivated almost all Russian IT developers. Matsanyuk was no exception. In the game he was universally known as Dachnik, and his modus operandi was to assemble five or six high-level players and pay them gold to deal with all the monsters, while he waited on the sidelines, not getting his hands dirty. “I spent a lot of time in WoW, and at some point it became clear that it was better to pay money and save time,” says Igor.

Matsanyuk spent seven or eight months playing WoW heavily. When he escaped from the game’s grip, he had the same feeling as after his Fight Club experience: he wanted to recover the time and money he had spent. Now, though, Igor knew that the best way of achieving this was using the knowledge he had gained about the internal workings of the game in a new project. “Everything I had painstakingly learned in WoW was there, imprinted on my subconscious; I knew exactly why Blizzard had introduced a particular plot twist or made a certain artifact one way and not another. I needed to somehow bring that knowledge to the surface,” he says.

The result of these reflections was the suggestion to Alexander Vashchenko – then the company’s art director – to create a browser version of WoW. This caught Vashchenko’s imagination, and he made a prototype in one day. Then after four months, in September 2006, the new game Legend: Legacy of the Dragons was ready. “You couldn’t buy gold for real money in WoW,” Matsanyuk says, “you were banned for that. You could only agree with a player in advance and then transfer money to them via an Internet payment site. In our game we explicitly allowed all the players to do this; we organized an auction for trading artifacts and gave people the opportunity to fix the value of certain goods themselves. Our turnover was astronomical. During its lifespan Legend made, I guess, around three hundred fifty to four hundred million dollars. In terms of pure profit, it’s my most successful project.”

However, after Legend took off, it became clear to Igor that the age of browser games was drawing to a close. He discussed the trends in the gaming industry with Yuri Milner, the founder of Digital Sky Technology and main investor in Mail.ru. At the time, this fund was investing into the gaming companies Nival, TimeZero, Nikita.Online and DJ Games. But at the end of 2007 the gaming assets were merged into one company – Astrum Online Entertainment, which Matsanyuk headed. Then he converted his stake in Astrum into Mail.ru shares and around ten million dollars in cash, becoming vice president of the group in the process. “The merger was conflictual,” Matsanyuk admits. “In essence two different entities were amalgamated: Mail.ru was a sales vehicle, while Astrum was community-based. The companies had different target audiences, different operating principles, and products with different philosophies.” In the summer of 2010, Matsanyuk left the company ahead of the Mail.ru Group’s IPO; he sold all his shares in November, during the flotation. Igor explains the decision by his desire to take a time-out in order to strike out on his own as an investor.

 A well-rounded investor

“I saw that browser games were becoming obsolete, 3D games had only just been launched and were making little money, games in social networks had appeared, but we’d missed the boat with them,” Igor recalls. “But the market for mobile games as such did not exist then. So I was somewhat perplexed. I realized that major ventures that will bring in hundreds of millions of dollars a year take three to seven years to create, and you have to put all your resources into that exact product. I guess I was ready, but I didn’t see a clear trend that I could bet on. Ultimately I decided to take a break in order to think, to better understand the market.” This time period coincided with the non-competition agreement that Matsanyuk had signed when he left Mail.ru – he couldn’t work on games in the following year. However, by summer 2011, Igor had already realized what was coming next in the Russian and global gaming industry – the mobile era had arrived. He was able to test this hypothesis with Game Insight, a company founded by Alisa Chumachenko at the start of 2010. In January 2011 Google launched in-app purchases for Android Market apps, and Game Insight released Paradise Island, a business simulation game. The game was hugely successful: at the start it was bringing in six hundred thousand dollars a month, which quickly grew to more than 1.5 million. GI subsequently received investment from Matsanyuk.

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Matsanyuk realized that microtransactions in mobile games was the next big thing. By that point the non-competition clause that banned him from working on gaming projects had ended. “I decided to become a kind of strategic guy at Game Insight and make a wager on the growth of the mobile market,” Matsanyuk says. He simultaneously became a limited partner in the iTech Capital fund. And, although not part of its investment committee, he regularly consults for the iTech team if candidates from the gaming sector are being considered. In August 2011 he launched the investment company In Mobile Investments (IMI.VC). “By then I had already tested out investing into several foreign gaming companies – according to the non-competition agreement I wasn’t supposed to have anything to do with Russian ones – but those investments were nothing serious,” Matsanyuk recalls. “It had always been interesting for me to mess around with startups. I enjoyed working for the games companies, but I had a good deal of free time. And I saw that IT specialists had developed greatly. I was – and remain – certain that people who come after you can do many things a lot better and in a much more interesting way than you used to do them and than you can do them now. I wanted to work on business strategy and was happy to let people who loved ‘working with their hands’ take care of the graphics side.” In order to reap the market rewards, Matsanyuk launched the Farminers Startup Academy in September 2011: it was an incubator that invested up to one hundred fifty thousand dollars for a 40% stake in the company.

“Now I realize that we didn’t choose a completely correct strategy: we were investing even at the mere idea stage, and mollycoddling them like in kindergarten,” Matsanyuk acknowledges. “We should have used all our experience in marketing, strategic planning and understanding trends in the Internet market, taken on more mature projects, invested between $200 and $500 thousand in them and prepared them for participation in the first round of venture funding.” Nevertheless, since its inception, Farminers experts and Matsanyuk himself have analyzed more than 3.5 thousand applications and personally met with the founders of around 200 projects. In total 18 companies have received money. According to Matsanyuk’s estimate, five of them could reach valuations of more than $100 million in the next few years, and moreover, Matsanyuk has invested more than just Farminers’ initial check into many of them – the average sum for several startups has reached $1.5 million. “I was ready for a situation where I would have to ‘shoulder’ many companies I had invested in for longer than I wanted,” he assures me. “The problem is that in the venture market there is usually a cautious attitude to investing entrepreneurs – and ‘former’ entrepreneurs in particular – people don’t like investing with them. Then there’s all the scheming, the negative part of this sector, and that affected me too. On the whole, in Russia, if you invest $1 million, then you need to have $10 million behind you. Otherwise you’re risking going bust without financial support, without projects. I have often seen startups not be able to raise the next round of financing, although the guys were trying hard, were showing good results, and the company’s valuation was tangibly growing. In such situations I help the project; either I give bridge notes or increase my share in the company for an additional financial injection.” However, according to Igor, only the team’s eagerness and complete commitment to the work can inspire him to take such a step. “It’s not so much an idea or even its implementation that is important for success,” he says. “Most important is that the founders work as if they’ve got nothing in their lives except the new project. If the team doesn’t live and breathe the project, you can write off the investment.”

Through IMI.VC and as a business angel Matsanyuk has invested in almost 40 companies, out of which around 15 have now closed down. Igor doesn’t see this as a tragedy but would prefer that companies’ founders “were less big-headed.” According to Matsanyuk it is this – and the resulting unwillingness to listen to investors’ advice and a disdain for analytics – that usually leads to failure. “Entrepreneurs that overestimate themselves are not able to identify the window of opportunity. They don’t see the niches opening up in the market; they don’t contact investors; they miss the chance to get beneficial partnerships up and running,” he explains. “The majority of such incidents occur because the founders don’t keep their egos in check. Some people really think that if I write them a letter with a proposal, it means that I’m chasing after them and I ‘need’ the investment.”

Largely out of a reluctance to bother with overconfident and underqualified startups, Matsanyuk became the partner of another well-known investor: Igor Ryabenkiy, at the fund Altair Capital. “I suppose that Igor has more patience than me,” Matsanyuk admits.

He has now put his investments into Russian projects via IMI.VC and Farminers on hold; in view of the country’s worse overall economic situation and the appearance of government money in the early stages of investment in the Russian market, Matsanyuk wants to determine the regions that will have the maximum potential for searching for startup teams. “I can say without exaggeration that all the gaming projects that originate in Russia will sooner or later make their way to us,” Igor says. “But first and foremost we’re looking towards companies from the USA, Israel and Europe – I don’t particularly see any potential ‘stars’ in Russia.” It is unclear how long Matsanyuk’s new phase of investment activity will last, but even if he does participate in the financing of projects at the pre-seed and seed stages during it, this will only be via the support of seeding fund partners or business incubators.

Silicon Valley in Vilnius

“It’s no secret that almost every Russian businessman dreams of selling everything and leaving the country,” Matsanyuk says. “Some might daydream about emigrating to Monaco or Goa, but I settled on Vilnius. This doesn’t mean that I am ‘retired,’ not by a long shot, just that I feel an excellent working disposition here.”

Mind you, thanks to his work developing international companies, Igor stopped perceiving the world as a patchwork of nation states and himself as a resident of Russia alone a long time ago. “When you are scaling up projects horizontally, into many markets, then you realize that customs, countries’ borders and visa regulations are all just artificial constraints for the general public, while you live outside it all, in a global society. So I don’t see my move to Vilnius as a change of my place of residence,” he explains.

Matsanyuk moved to Lithuania at the start of June this year. And he almost immediately met Darius Zakaitis, co-founder of the Lithuanian business accelerator StartupHighway, and became his partner. Igor transferred the teams from several of IMI.VC’s most promising projects to local co-working space Rupert and is not ruling out investing into Lithuanian startups. “In three months’ worth of personal interaction I have realized that entrepreneurs here are very modest, simple and hard workers. Darius tells his friends that during the time I’ve been living here, he’s started loving Lithuania more – because I praise Lithuanians so often, which they’re totally not used to. The only serious difficulty – a typical problem for companies from small markets – is a lack of ambition. If in Russia the local market is enough to create a company with earnings in the hundreds of millions of dollars, then here startups are becoming leaders in their niche but are scared of entering the American market or the new European markets. If I do invest into projects in Lithuania, my aim will be to expand their horizons.”

Furthermore, a European “residence permit” is a valuable asset, and there is liquidity in Europe for companies, Matsanyuk believes. Moving Game Insight’s head office from Moscow to Vilnius was not a token move but a deliberate step to get closer to platform operators – Apple, Google, Facebook. “Vilnius is a far more comfortable city in terms of its prices and climate,” Igor says. “But the main thing is that I can go through an entire day here without negativity. Whereas in Moscow it’s war as soon as you leave your house. It is difficult to express the atmosphere of life in Lithuania in words. Almost everyone who asks me on Facebook why I moved here doesn’t get an answer. It’s simple, really. Come and experience it for yourselves.” Matsanyuk believes that Lithuania could serve as a launchpad for entering European markets. He discussed this idea with the City Mayor Arturas Zuokas, who Darius introduced him to. The mayor had also long wanted to meet Matsanyuk, after reading the news about GI’s move in the Lithuanian newspapers. “The conversation concerned IT campuses and successful examples of the creation of IT clusters; we talked a lot about Berlin and Silicon Valley,” Igor recalls. “I told him that after the press announced the transfer of GI’s office, we started receiving emails from Lithuanians who had moved to England, to Northern Europe, to the USA – they wanted to return and work for GI. In short, I vocalized the thought several times that Vilnius is a wonderful place to create a startup hub. Then we also took the decision to make the Vilnius tech park project a reality – it’ll be constructed in the very center, in one of the old buildings in the city’s hospital complex, in the Antakalnis district.”

Matsanyuk is not yet talking about the details of the future IT park’s work. All the formal documents regarding partnership with the city have already been signed, and Igor and Darius are seeking investors for the new project. Igor expects the first residents to move into the incubator’s premises as early as the end of 2015. Matsanyuk is hoping that the project’s creators will be able to invest in the resident companies in exchange for providing premises, access to IT infrastructure and a community of the accelerator’s experts and partner investors. He is not excluding the possibility that the incubator will finance projects or give “smart money,” and the residents will pay for the incubator’s running costs. All in all, the model is still being fine-tuned.


Igor Matsanyuk on life and business

On his new life in Vilnius

“I’ve gained four hours of free time a day since moving to Vilnius – there are no traffic jams at all here and, if I want to, I can pop home in the middle of the work day for lunch or to have a swim, for example.” He lives 15 minutes’ drive from the city center. “When I lived in Moscow and got an email suggesting a meeting, a meter used to click on in my head – the time in traffic jams, the cost of dinner in a restaurant – but here I just get in and drive off. By the way, in Moscow I never had business lunches or dinners, but here it has become a habit. I can meet in a small restaurant (there are plenty of them in the center of Vilnius, all within walking distance), have a tasty bite to eat and talk very constructively about plans for collaboration and new partnerships.  Everyone has a very positive outlook here.”

That said, I don’t exactly do much relaxing in Vilnius. I’m always working with GI, meeting with portfolio projects’ teams that have moved here; now there’s the venture with the tech park […] In my free time I play tennis or table tennis (I have a ‘robot’ who hits the ball back to me, so I don’t have to find a partner), I swim, ride a bike or simply go for a stroll. If I really want to unwind and ‘reboot’ I go to Tenerife; I have a house with a 60-foot swimming pool there, two Porsches in the garage and a yacht.”

On “visual navigation” for yachtsmen

“When I sold Astrum in 2009 I wanted to buy a yacht, equip it with professional cameras and do a Google Street View project for yachtsmen. It’s difficult for inexperienced yachtsmen to orient themselves purely by map, without ‘snaps’ of the area. I was even negotiating with European institutions about acquiring the status of a scientific expedition and was talking a lot about the venture – because I intended for other users to add their own images after our trip.  I didn’t have time to finish the project then, but I’m thinking about it again now.”