How Tech Companies Can Attract Investments: Insights from Alexey Bashkirov

Startups and established companies are competing not only for customer attention but also for investor interest. However, the competition for capital is becoming increasingly fierce. Alexey Bashkirov, private investor and founder of the Donum charitable foundation, with experience in tech investments across Southeast Asia, India, and Europe, shares his insights on how tech companies can become attractive to investors.

The Harsh Reality: Why Most Startups Fail

According to Moneyzine, 90% of startups fail, with 63% of failures occurring in the IT sector. Meanwhile, CB Insights reports that global funding for tech companies dropped by 61% between 2021 and 2023, making lack of capital one of the biggest reasons for startup closures.

However, financial struggles are just one part of the equation. Startups also fail due to:

• Internal conflicts within the team
• Expensive marketing strategies
• High competition
• Inefficient business models
• Monetization issues
• Poor strategic planning

Interestingly, 42% of startup failures happen because companies fail to define a truly challenging and relevant problem. Instead of addressing a market need at scale, they chase short-term user demands without deep strategic thinking.

A good example is Uber. It succeeded not because people wanted to order taxis via their smartphones, but because they needed a reliable way to solve transportation problems. The real value of a product lies in solving a fundamental issue, not just catering to user preferences.

The Importance of the "Extrapolation" Stage

One of the less obvious yet crucial aspects of a startup's success is knowing when to shift focus from rapid growth to profitability. This transition is known as the "extrapolation" stage, which is key to scaling a business and ensuring long-term stability.

Take SoundCloud, for example. The platform experienced explosive growth between 2012 and 2013, increasing its user base 15x--from 10 million to 150 million. However, while revenue grew by 50%, expenses surged by 75%, reaching EUR28.5 million. According to Alexey Bashkirov, the company never developed a scalable and profitable monetization strategy despite attracting a massive user base.

To successfully navigate this phase, founders must be flexible and willing to adjust their strategy, operations, and financial model. In some cases, restructuring the team, redefining company culture, or even implementing a pivot--a complete shift in business strategy--can be necessary. A well-executed pivot is a sign of strong strategic thinking, not weakness.

Key Questions for Founders at the Extrapolation Stage

1. What are your company's real, measurable goals?

• Example: If you aim to increase revenue 5x and operating margin 10x, you need to align your goals with market conditions, business model, and team ambitions.

2. What are the critical factors for achieving these goals?

• Example: To grow revenue 10x, you may need 5x more customers, each making twice as many purchasesas they currently do.

3. What are the biggest barriers to growth?

• Identify your top challenges, prioritize them, and analyze how successful companies have overcome similar obstacles.
• If no existing solutions apply, develop innovative business models and test hypotheses on a small scale before full implementation.

How Investors Evaluate Tech Companies

When analyzing investment opportunities, we conduct a detailed assessment of each company. However, not every project succeeds--and that's normal.

For example, out of nine investments we made in tech companies abroad:

• One was a complete failure
• Two significantly underperformed initial expectations
• Two (in FinTech & EdTech) became breakout successes
• The rest achieved solid, stable growth

The most important metric for investors is Unit Economics, which provides insights into a company's long-term potential over 3-5 years. Key metrics include:

• Lifetime Value (LTV): Total revenue generated per customer over their entire relationship with the company
• Customer Acquisition Cost (CAC): Cost of acquiring a new customer
• Payback Period: The time required to recoup acquisition costs

These metrics must be analyzed across different customer cohorts to understand a company's financial sustainability and profitability, says Alexey Bashkirov.

Understanding Unit Economics

Unit Economics evaluates the profitability of a single unit of a product or service and determines whether the business model is sustainable at scale.

For many tech companies, the biggest challenge is transitioning from hyper-growth fueled by external capital to sustainable growth funded by internal revenue.

Key components of Unit Economics:

• Revenue per unit: Income generated per product/service unit
• Cost per unit: Cost of producing/delivering one unit

Example: Uber's Unit Economics

Uber carefully tracks Unit Economics to measure trip profitability. If CAC (customer acquisition cost) exceeds LTV in certain cities, the company revises its customer acquisition strategy to improve long-term profitability.

LTV vs. CAC: The Golden Ratio

A healthy startup should have an LTV at least 4-5x higher than CAC. This ratio ensures that revenue covers marketing and acquisition costs, enabling sustainable growth.

Payback Period: Why It Matters

The Payback Period is the time required to recover CAC costs and break even. The shorter this period, the faster a company starts generating profits from new customers.

One hidden risk in startup economics is when the LTV/CAC ratio looks strong, but the Payback Period is too long. This means a company needs significantly more capital to scale than if it had a shorter Payback Period.

Example: EdTech Payback Period

If an EdTech startup's Payback Period is under a year, it can quickly reinvest profits into customer acquisition, enabling sustainable growth.

Cohort Analysis: The Key to Long-Term Success

Cohort analysis helps track customer behavior over time and reveals trends in customer retention and revenue.

Example: EdTech Cohort Analysis

Bashkirov Alexey stresses that one of EdTech investments revealed that each new customer cohort had increasing acquisition costs (CAC), while Lifetime Revenue (LTV) remained stagnant. This was a sign of market saturation, forcing the company to completely rethink its customer acquisition strategy.

Conclusion: The Investor's Perspective

For modern tech companies, securing capital for growth is increasingly difficult--especially in volatile market conditions.

To attract investors and ensure long-term success, startups must:

• Align with investor evaluation criteria
• Build a product that meets real market needs
• Demonstrate a clear path to profitability and sustainable growth

Ultimately, the ability to scale profitably--not just grow rapidly--determines a company's success in the eyes of investors.

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