December 19, 2022
It is beyond exciting to witness the Startup Studio ecosystem not only growing in numbers but also expanding geographically. We are happy to welcome Technovate as a new member of our community. We recently discovered their story from Farid Ismayilzada, Founder of Technovate, an early-stage investment firm and venture studio, established in Sacramento, California.
Technovate, while its headquarters are in the US, has offices also in Azerbaijan (Baku), Georgia (Tbilisi), and a presence in Central Asia. The startup ideas, the prototyping process, and the software and hardware engineers come from that region. When the prototyping is done, the startups get registered in the US, founders and important team members move to Sacramento and that’s when additional funding is raised and go-to-market starts.
There has been a lot of engagement in innovation and digitalization advancements in the region of former CIS countries in recent years. And now we have a fellow studio joining the Startup Studio worldwide community. Reflecting on the specifics of the region Farid shared valuable insights into their journey and vision which might serve as motivation and a source of learning for peers and especially those who are aiming to start a Studio.
Let’s deep dive into the Technovate, we promise it may facilitate an interesting discussion...
It all started after I exited from companies I have founded in my native country of Azerbaijan. I worked for a year at a very large telecom company as Chief Innovation Officer and within that one year, I realized I had to work with startups since I was not a corporate person. So I decided to help startups with global potential in my country. A couple of startups came to me after I made an announcement in the media. The first startup I decided to work with was Spinal. Spinal was trying to solve a global problem: a better posture for everyone. I quickly got invested in the problem as I remembered from almost all of my childhood, my mom telling me to sit up straight.
While helping Spinal, I was also looking at various models to work with Startups. Due to my limited financial capabilities at that time and my desire to work with startups hands-on, I picked up the Startup Studio Model. I didn't want to give inexperienced young entrepreneurs money and hope they would figure everything out themselves. I wanted to be involved with how they were going to do it.
After that, I knew that since Spinal is a global project, it would make sense to be registered and to operate in the United States after we had a prototype in hand. That’s when we moved to the United States and registered a company called “Smart Spinal Solutions, Inc”. A little later with a similar process, I brought with me another startup to the United States as soon as they had completed their prototype stage in Azerbaijan.
We raised additional pre-seed funds for them here. We chose Sacramento as a landing point as it was advised to me by my long-term friend and mentor Ingrid Rosten. She is part of the Technovate team now. Sacramento is an up-and-coming startup ecosystem. The city is close enough to the Bay Area but also far enough that the rent and cost of living are 5 times cheaper. After these 2 startups, the idea for Woooz came up to me, so I added it to my studio as well. Woooz is the only project that, we generated internally. In 2021 ToyzTalk and then Georgian startup Elven joined Technovate. And now suddenly we have 5 startups from 2 different countries. We are becoming more and more active in Central Asia nowadays and actively looking for startups with global potential from there.
Today's education system is global. So you don't have to be a Stanford, Berkeley, or Harvard graduate to have a global idea. You can learn a lot from the internet. Technology makes it possible to be a special talent, even if you come from a village in Georgia, Azerbaijan, Kazakhstan, or any other neighboring country. Of course, when you have Stanford and Berkeley graduates, you have the smartest people in one location but still, people with global ideas can be anywhere. In small developing countries like ours, we would have one or two ideas per year in the best case that are disruptive and truly global. And guess what, usually those ideas come from technical people. Literally, 4 out of 5 business ideas in our portfolio come from technical people. They need an entrepreneurial co-founder or a partner.
I think the Startup Studio model is perfect for those ideas. A studio founded by a former tech entrepreneur can support those startups in a very effective way. It is not just money, it is also about being involved and directing the idea to success. Countries from Caucasia and Central Asia are copying the incubator and accelerator models a lot. Unfortunately, I don’t believe in those models for our countries. Incubator and Accelerator models are applicable in countries where there are thousands of ideas coming, and if you have a 5-10% success rate, it is still good enough. As you know, the global rate of success for the Startup studio model is significantly high. I think many startups in developing countries would have had much better results if they had an entrepreneurial partner.
In small developing countries like ours, we would have one or two ideas per year in the best case that are disruptive and truly global. And guess what, usually those ideas come from technical people.
I think the Startup Studio model is perfect for those ideas. A studio founded by a former tech entrepreneur can support those startups in a very effective way. It is not just money, it is also about being involved and directing the idea to success.
I love what I am doing so much that I am not sure if anything can be considered a challenge. The least enjoyable activity I would say is fundraising. It takes my and the founders' attention away from the actual business. In the end, I know fundraising is just a matter of time.
We do fundraising for each of our portfolio companies separately. I like to compare the process of driving a car with a manual shift.
We start with first gear, we talk to our closest network firsthand. And usually, it would be great if you could raise the money that startups need from first gear.
If we can’t raise, we switch to the second gear. We need to go through databases, understand how many VCs are engaged in specific industries, and how to get to them, and so on. This process is so time-consuming that instead of focusing on the product and the process and building the company, we are focusing on raising funds. It takes a lot of effort and a lot of energy. You're getting hundreds of rejections for 1 investment. But the success factor of any venture including the Startup Studio is never giving up, believing in your products, refining them, validating, and always moving forward.
We never had issues with finding the right team and I can explain why.
We have three types of startups at Technovate. We have 2 fully invention-based startups, 2 are mixes of hardware and software startups, and 1 is totally a software startup. The invention-based startups, they are all about R&D. You are trying to improve your invention constantly and the business model is to license the technology rather than trying to build your own product. You don't need hundreds of software or hardware engineers there. You don't have servers. You don't have a marketing team. It is usually an inventor or inventing team with assistants. Sometimes you might need some ad-hoc contractors for certain services and that’s it.
Smart Spinal Solutions and ToyzTalk are half hardware and half software projects. So they have a mobile app, but also have the hardware. Those startups require approximately 10-20 people at this stage. They are hardware and software engineers and it's easy to find them in Azerbaijan. It is relatively cheaper to have an engineering team outside the USA. At the moment, we don’t need hundreds of developers for those projects. One day, when we will need it, I guess, we will have to think about opening development offices in countries such as India, Ukraine, Belarus, and so on. For now, Azerbaijan and Georgia can handle our workload.
For Woooz, which is our fully internal project, the situation is similar to Spinal and ToyzTalk. We have enough engineers for now.
The global potential is the only big criteria we have at our studio. What I mean by global is that the problem the idea is solving must be a problem regardless of the country. If you look at our projects, we have, for example, Spinal. Posture problems are an issue for Americans, Germans, Moroccans, and Japanese. It doesn't really matter where the person is from, right?
Again, maybe it sounds like a simple formula, but we look for funding through networking, platforms, and word of mouth. As I said before, firstly (in the first gear) I talk with people I know and people they know. Then, I search if people in my contacts know investors I’m interested in talking to.
We have 5 of them now. One of them is in stealth mode. I wouldn’t like to talk about it. The other 4 are as follows:
Our focus at the moment is to have successful products and consequently good exits from current startups in our portfolio. The fact that we work with global projects only is already a good filter for potential new startups, and to be honest, we are not getting many of them. This is letting us fully concentrate on what we have. By the way, in the beginning, I was some sort of interim CEO at those startups and now, all of them have their C-level managers and I am only supporting them operationally. We would like to get a good exit from them and then use that money to expand to other developing countries. In a few years, we plan to create a fund, not just for Technovate, but also to help new Startup Studios in developing countries.
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