Egor Savvin on How To Bounce Back Stronger in Business
Egor Savvin is a Partner at Alfin Ventures, and knows, from first-hand experience, what it takes to face business challenges and bounce back stronger. Egor took some time out to share his insights with The Industry Leaders.
Can you start by telling us a bit about your journey as an entrepreneur, focusing particularly on your experiences with setbacks and challenges? How has this shaped your understanding and mastery of resilience in business?
I am an investor with over 12 years of experience in private equity and venture capital. Throughout my career, I have had several successful exits, and spearheaded over ten deals worth more than $500 million, including transactions involving unicorns and groundbreaking startups. My expertise spans across diverse sectors, especially high tech, natural resources, infrastructure, and renewables. In these sectors, on the private equity side, I have led complex M&A transactions,as well as responsible for structuring, fundraising, and executing greenfield projects. In addition to this, I have also had the opportunity of advising high-net-worth and Forbes-listed individuals.
In 2020, I became the Head of private equity and venture capital at Alfin Asset Management. My responsibilities included establishing the firm’s alternative investment arm, which I built from the ground up. I developed a comprehensive investment thesis and capital allocation strategy, brought together a team of experienced professionals to start running and making investments. This included negotiations both with institutional investors (from sovereign wealth funds to insurers) and ultra HNWIs, and resulted in a $100 million portfolio which I am still responsible for. In addition to this, we, together with my partner, have launched a new venture capital fund called Alfin Ventures, which backs innovative companies across a wide array of industries.
One of my main lessons from these experiences and after navigating the financial markets for an extended period of time, is that in the business world, we often need to make decisions with a limited amount of time. For example, several times I had to make investment decisions in a short time, when it was simply impossible to make a full-fledged, in-depth analysis. In such cases, you rely on the information you have, as well as on your intuition and educated guess. Naturally, in such conditions, not all solutions can be successful.
By adopting this approach, I have also learned how to capitalize on every mistake and extract the lessons that can be obtained from it. This has helped me hone my investment-related decision-making skills, and develop a more comprehensive system to effectively weigh risks and benefits, especially when making a decision under pressure.
Each mistake developed in me the ability to more effectively weigh the risks and benefits of making a decision under pressure. I have learned that early planning helps me to reduce uncertainty when making a decision, because I have more time to calculate the risk-and-reward ratio for any potential opportunity and determine whether the investment opportunity’s inherent risk is something I can manage. I always ask myself, “What is the worst case scenario, and what can I do if it happens?”
However, I have also learned that there are things that I cannot control, and that even if, in hindsight, I made the right decision, I need to carefully analyze the factors behind that decision in order to incorporate them into my framework. This enhances my probabilities of success and reduces the role that “luck” plays in the context of capital allocation choices.
In the world of entrepreneurship, failure is often seen as a stepping stone rather than a dead-end. How do you perceive failure, and can you share an instance where a failure led to an unexpected growth or success in your business?
Over time, I have learned to perceive failure (error) as an opportunity to learn how to do something new that I didn't know how to do before. Of course, whenever possible, it is always better to learn from other people’s mistakes, but those of us who are entrepreneurs and investors by nature know that that is not always possible. VC investors often face the failure of their own portfolio companies, and that is intrinsically factored in the business model. We know that some of the startups we back will become unicorns, we will exit at decent multiples either through an IPO or an acquisition. However, given that the startup failure rate stands at 90% (vs 1% of those who become unicorns), we also know that some companies we invest in will struggle and likely will fold. At the same time, one of the scenarios is not a bankruptcy, but a pivot, for example, to another business model or another monetization model. Instead of simply sitting back and letting the startup fail, we at Alfin Ventures work with our founders to help them increase the odds that their startup will survive.
For example, we had the case of a portfolio company that had raised a $3 million early-stage round. However, the company’s cash burn rate was high, and eventually, they ran out of leeway. The capital reserves were exhausted, however, it had a high-quality product and a strong team. Working together, we changed their business model, and also targeted different geographical markets that could be more receptive to what we had to offer. By doing this, we were able to find a better product-market fit, help the company reach the break-even point, and survive the crisis. Now, the startup is showing stable growth, and it is on its way to success after finding a niche where its product is selling successfully, all because we were willing to look at a failure as an opportunity, and also, assess the potential risk that we would incur on by attempting to capitalize on this opportunity. The second question is the question of the price of such an error, but in our case the price was not critical and it was compatible with our intentions to extend the life of the project.
What strategies have you employed to cultivate a culture of resilience within your organization? How have these strategies made your team more adaptable and innovative, especially during trying times?
First and foremost, we have developed a proprietary and very thorough risk management methodology that is the pillar behind our investment decisions and ensures that we stay in alignment with our investment thesis. By effectively using this methodology, we reduce the risk of human error, which is why we also apply this model to the way we manage our portfolio companies. In addition, we try to make key decisions at several levels – at least involving the investment committee and advisory board at least. This also reduces the risk of error. To further strengthen our model, we are incorporating the latest, cutting-edge technologies. One of them is AI. For instance, there are platforms powered by AI like data aggregators, forecasting models, and LLM models, which we use to minimize information asymmetry in our decision-making processes. By using these tools, it reduces the probability of an error, and whenever mistakes happen, the error itself is most likely not the result of unscrupulous work of the team, but rather, it is some kind of outlier. This gives us some peace of mind that we have done as much as possible to prevent a mistake. However, we are not immune, and when mistakes do happen, this prompts us to revise our framework, once again, and see those areas in which we need to upgrade it or adapt it to prevent a similar issue from happening again.
You've spoken about bouncing back from failure, but I'm curious to know if there is a methodology you follow to analyze what went wrong and how to correct it. Could you describe your process for assessing and learning from mistakes?
Whenever we make a mistake, we first need to accept that we were wrong. If we can admit that despite our ego, we are, already, 50% of the way to capitalizing on that mistake and learning from it. Having said that, analyzing what went wrong and integrating the learnings into our processes is a key part of our work.
Then, there are two stages in working on errors (failures). The first is to fix it fast, meaning a short-term remedy to continue the company's work, if possible, without stopping the processes. The long-term goal, however, involves a careful analysis of the causes and consequences, and developing ways to avoid this mistake in the future. To do this, we always sit down with the team and repeat, out loud, the whole sequence – what led to the error (failure) and what needs to be done so that this error (failure) does not happen again. This is a very effective way that helps to fix the key points and to clearly identify a better course of action for similar situations in the future.
It is also important to be transparent and share the results of this analysis with other members of the team, so that they also incorporate the learnings from the mistakes we made. This prevents such errors from happening again in the future. In general, we try to cultivate the personal development of each employee, and working on everyone’s mistakes is part of it. Just as a customer's complaint is an opportunity for a company to become better, a mistake is an opportunity for the whole team to improve their personal development.
Many entrepreneurs fear failure to the point that it paralyzes them. How do you balance taking calculated risks with the fear of failure? What advice would you offer to other entrepreneurs who struggle with this?
I must say that there are people who are prone to taking risks and people who do not accept risk. Because of this, it is difficult to give a one-size-fits-all piece of advice here. However, personally, I have adopted a risk management approach that borrows concepts from the banking industry and the financial markets. For example, when managing a portfolio, there is a concept called VaR, which stands for Value at Risk. Basically, this indicator shows how much of a portfolio can be lost under normal market conditions, and the probability that this happens. Based on this, we can estimate what the worst case scenario is for any given day, and understand whether we are prepared to handle losses if they happen. In finance, the key question would be, “Do we have the assets to cover those losses?” Looking directly at the potential worst-case scenario helps us know whether we have it in us to take on the risk.
At the same time, another concept from the banking sector that can help provide more visibility here is the expected loss from error. Simplifying the picture, this could be calculated by multiplying the probability of default (PD) times the financial institution’s exposure at default (EAD). Of course, these indicators can be subjectively estimated based on the company’s commercial and reputational aspects and financial situation, but the idea is that these give us some clarity as to how much we could potentially lose. Then, it is up to us, as the decision-maker, whether we are ready to accept a potential loss or not.
Last, but not least, I would like to point out that with very rare exceptions, I do not consider it appropriate to put everything we have at stake, because in our model, this significantly increases our exposure at default–or in the startup’s case, failure–and can lead to irreparable damage to our portfolio, which will further complicate our efforts of raising a new fund in the future.
Sometimes, resilience requires knowing when to pivot or even walk away from an idea. How do you recognize the difference between a challenge that requires persistence and a situation that necessitates a change in direction?
First and foremost, we need to take a hard look at whether our strategy is working or not, and we need to be open to accepting the real answer. Many companies fail because they are not able to accept that they are struggling. To do this, we consider metrics like revenue or customer base dynamics and customer feedback, and aspects like technological improvements implementation. For example, if we are dealing with a SaaS business model, we look at metrics like the customer life time value to customer acquisition cost and the churn rate. If we identify negative patterns or see that the company is stagnating, then we consider it is time to change our strategy.
In this process of strategic decision-making, it is key to regularly involve mentors and advisors who are far more experienced in the industry that we are dealing with. Founders also need to be aware that they need to be open to receiving feedback. This is because especially at the early stages, the team usually consists of a limited number of people, and, unless they have extensive prior experience in the sector, they usually lack the knowledge that can only be acquired by doing and being immersed in the industry for a long time. Therefore, the presence of mentors and advisors is critically important for the project to succeed.
When deciding on a change of strategy, it is crucial to consider the availability of resources that the company and the team possesses.The decision to change the direction of development should only be made after taking into account these factors. If you have sufficient funds, and the team is properly motivated, then the pivot will succeed without major pain.
External factors such as market conditions, new technologies, and evolving competitors also impact our decision on whether to pivot or not. If we see that a new technology has appeared in the market, or that the market dynamics have changed for some reason, or new, stronger players have appeared in the field, it makes sense for us to think about our own market strategy, and see how we can adapt to the changing landscape.
Also, intuition is very important. Every entrepreneur, especially during the early stage of building a company,experiences lots of uncertainties. Entrepreneurs are often forced to make decisions facing information asymmetry between industry players, and here intuition plays a pivotal role in their decision-making process.
In any case, an entrepreneur should always look around and constantly apply an agile approach to test different hypotheses, and be ready for changes when needed in order to make the most effective decisions.
The global economic landscape is always changing, and recent years have seen some extraordinary disruptions. How have you adapted your business to overcome unexpected global challenges? What were the key factors in your successful navigation of these waters?
Since the pandemic and the ensuing accelerated digital transition, we have learned to work remotely. This has been very helpful because at Alfin Ventures, our employees and advisors are located in four countries, and we have learned how to communicate effectively and harness the positive aspects of remote work to keep our internal processes flowing seamlessly. When it comes to our portfolio companies, we recommend to follow the principle of diversification in all aspects of their business. This applies to revenue flows, sources of financing, supply chains structures, etc. By doing this, we are mitigating the counterparty risks. Even if the macroeconomic situation does not affect our project directly, it can still cause trouble if it negatively affects our only customer or only supplier, and this can be fatal for the whole project. There are several examples of such negative situations in our portfolio.
An example of our proactive approach is that since the SVB bankruptcy case, we actively monitor how our portfolio companies manage their finances, ensure that they have at least three different bank accounts and use risk hedging practices for cash management. We also recommend that our portfolio companies exercise prudence when spending money. This is especially relevant in the era of high interest rates, as startups may struggle to find new financing.
Resilience in the face of failure is often linked to personal growth as well. How have your business experiences shaped you personally? Can you share a moment where your professional resilience translated into a personal transformation?
First of all, resistance to professional problems and challenges has helped me develop my ability to manage my own emotions. In business, I learned to look for solutions to problems instead of responding emotionally to them, and I transferred the same approach to everyday life.
At the same time, I transferred business risk management practices to my daily life, and this has helped mitigate the possible negative impact of mistakes regarding family budget management, career planning, and more. As a result, this has increased my confidence at making decisions in conditions of uncertainty, when instead of being afraid of making a mistake, I calmly weigh the probabilities of success or failure, evaluate value at risk, and make a decision based on this.