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Serguei Beloussov Shares Investment Theories from Runa Capital in TechCrunch Guest Post

by Liam Eagle

In a guest post on tech startup news site TechCrunch Tuesday, Serguei Beloussov, former CEO (and current executive chair) of hosting software firm Parallels and one of the founders and directors of Runa Capital, shared some of his philosophy on venture capital, which understandably represents a good part of the philosophy of Runa Capital itself.

Read the post: “Why the Source of Venture Capital is as Important as the Money Itself”

One of the key distinctions Beloussov makes in his post is between “smart” money and “not so smart” money, referring to what an investor can bring to the table besides money in an early-stage investment, as well as the kind of negative impact an uninformed investor can have on a project at that time.

Beloussov relates an example from his own experience at Parallels with a “prominent but conventional” potential investor who didn’t really understand a software company’s business model. He compared Parallels’ request for a 20x EBIDTA valuation to a 5x EBITDA valuation on a hotel investment, ignoring the differences in margins, fixed costs, scalability and the capital cost of expansion.

    His flawed comparison set off alarm bells.  Ultimately, we couldn’t reach an agreement, as I realized that while this person could bring money to the company, I would have had to constantly explain and spoon-feed every aspect of the business to him, whenever there would be a change, which is in the fast growth business is actually almost constantly, and so the trade-offs were not worth the effort.

Entrepreneurs that place the emphasis entirely on the dollar value of an investment, says Beloussov, miss out on many of the advantages that can come with a smaller amount from an investor with more expertise in their particular business. Obviously that includes sage advice and direction on business decisions, but there are other advantages the right investors can provide in terms of how they represent your business.

    There is an important advantage to an association with superior investors: It gives you the ability to recruit the best employees, partners and suppliers, as well as best future investors.  Potential partners and top-level employees don’t have the resources to conduct the sort of due diligence executed by relevant VCs or private equity investors. If your early round of funding comes from top-notch sources, this signals to potential partners and sought-after employees that there’s a good deal of knowledgable confidence in your company’s business model and potential for future success.

The philosophy, established in the process of building Parallels into a very large software company in the hosting space, is part of what drive’s Runa today, says Beloussov. The investment firm looks for projects in the fields it understands best – most frequently dealing with companies that could benefit from using hosting providers as a channel for distributing their services (shopping cart software Ecwid, platform-as-a-service cloud software company Jelastic, website security firm StopTheHacker and cloud telephony firm Infratel are a few examples).

Infratel announced its investment from Runa Capital in August of this year.

Runa Capital’s Dimitry Chikhachev explained its involvement in a few of the aforementioned companies back in February at the Parallels conference in Orlando, Florida.

Beloussov describes Runa’s investment objectives in the TechCrunch post:

    Runa takes a very active part in the daily life of a startup, including consultation and hands on help, if needed, on operations, engineering, business development, strategy and planning the liquidity event of next round of financing. Runa makes introductions to key potential partners in a startup’s relevant market, assisting with talent recruitment, providing guidance on obtaining patents and protecting IP, and even marketing advice and searching for future investors.

Part of that process has meant working to incubate new ideas relevant to the hosting business. In February, Runa partnered with Parallels in a software accelerator program to provide financial and marketing support for software companies building their tools around the Application Packaging Standard.

And In July, Runa partnered with hosting provider ServInt (a key partner of Jelastic) in a program to provide support for Runa’s portfolio companies.

Talk back: have you had experiences with investment or potential investment from people who didn’t understand your business? Have you had a positive experience with a “smart” investor who really got it? Are you interested in the focus Runa Capital is giving the hosting industry? Let us know in the comments.

Wednesday, Sep 5th, 2012