2021 December-January Analysis

$50 million for Georgian startups – Catapult VC fund puts boots on the ground in Tbilisi

Catapult VC made Georgian history this month as the first ever venture capital fund to open offices in the country. Officially ‘Catapult Georgia I, L.P.,’ the fund is aiming to raise $50 million. It will collaborate with USMAC and Startup Grind Tbilisi to provide both capital and mentorship to approximately 50 Georgian startups over the next ten years. Investor.ge sat down with the fund’s managing partner, Jonathan Tower, to find out more about the fund and why it has chosen Tbilisi as the location for its new regional hub.

Catapult VC General Partner Jonathan Tower

The introduction of a $50 million investment fund will be a transformative development for Georgia’s startup ecosystem. Why have you decided to put boots on the ground in Georgia now?

The main thesis of our Catapult, as a firm, is that geography and capital have now been decoupled in the post-pandemic world, and this has accrued to the benefit of emerging tech ecosystems around the world, especially in the Caucasus. Our aim at Catapult here is to establish a physical presence in Georgia as the first Silicon Valley-based venture capital fund, where we can build a critical bridge between Georgian startups and Silicon Valley to make them globally competitive.

We think that the Caucasus represents an important emerging tech market. But when you look at what makes a tech ecosystem work, you need more than just smart people. It’s a combination of lifestyle, climate, capital, infrastructure, a compliant regulatory environment, and a stable currency and stable government. Within the Caucasus, Tbilisi is the most obvious place that has those elements.

And it’s not just the Caucasus that are developing, but the broader Central Asia region, too, and [founders there] are interested in Georgia as well. We’re hearing people there saying “We’d love to be in Georgia.” It’s early days, but we’ve always had this vision of having a constellation of funds across the broader region. Today, we are establishing a Georgia fund, but maybe 3-5 years from now, we’ll have a Ukraine fund, a Central Asia fund focusing on the ‘Stan’ countries, and possibly a broader Eurasia fund covering the Baltics and parts of Eastern Europe – all around the same Catapult strategy but with more tools and capital to really support the best companies from the region and help them achieve global scale.

How did Catapult get its start?

In 2016 and 2017, my partners and I did a deep dive into our portfolio and noticed some key macro trends. The first thing we noticed was that we were performing quite well by investing in smaller markets. We had deals like Dollar Shave Club in LA and Freshly coming out of Scottsdale, Arizona. The pattern was that my partners and I were getting in early, and because we’d been investing in Silicon Valley for so long, we had a very good relationship network established and were very credible with other top investors in Silicon Valley. We could make a fairly modest initial investment in one of those companies coming out of a smaller market and then leverage our network when that company was ready for the next round.

Because firms in Silicon Valley were typically getting larger with every fund cycle, many soon became multi-billion-dollar funds. For obvious reasons, if you’re managing a multi-billion-dollar fund, it’s hard for you to write a $25,000 check in an early stage company in a geography many times zones away – it just doesn’t make sense. So those firms began moving further up the value chain and seizing opportunities from firms like ours that had already built a really good track record as a feeder fund for them. And because we had good brand equity with those firms, if we made an investment, it sent a positive signal for them to take a look at the deals.

We also noticed that startups were moving further from Silicon Valley and we were seeing the beginnings of what we now call the remote workforce revolution. For 40 years, if you wanted to build a global technology company it was very hard to do it outside of a 100-mile radius of Silicon Valley. It was very hard up until about 10 years ago to build a great company without having very deep networks in the Valley because that’s where everything was: talent, capital, patrons, partners, mentors, etc. It was like being in Florence during the Renaissance.

Around 2016, we really noticed remote collaboration occurring in the startup world. We had companies pitching us that had a CEO based in San Francisco but a development team in Kansas City, a call center in Ukraine, and so forth. They were already distributed, which was not only cheaper, but also led to a constant development cycle across time zones.

At that time, we felt venture capital was still stuck in a 1990s mindset. Some Silicon Valley venture capitalists still prefer to only invest within a two-hour drive from their offices, which we thought was incredibly dated given the boom in emerging tech ecosystems. We realized that we needed to keep pace with these changes. And we now had the technology to do it. With remote working tools like Zoom, Slack or Trello, we can now access all this talent in emerging tech hubs and it’s not limited by geographic location.

What types of startups will you be looking to invest in?

Our fund will focus its investments in three core sectors: consumer, enterprise, and frontier tech. In the consumer space, we will largely focus on e-commerce, marketplaces, digitally native brands – areas where we’ve been enormously successful. The second core sector is focused on the post-pandemic digital transformation we are now all experiencing, including remote workforce tools and SaaS. Frontier tech would focus on AI, AgTech, and machine learning, IoT, fintech, – kind of a catch-all for ‘deep’ tech developments. These categories will probably make up 90% of all of the investments we will do.

You mentioned the ‘post-pandemic digital transformation.’ Can you explain what that means for you?

The pandemic has really taken trends that we observed five to six years ago and accelerated them by an order of magnitude. I think we’re in a unique moment where the world has fundamentally changed following the pandemic. Many of the trends I just mentioned have accelerated by 20 years in the course of two years.

I think all of that growth that we’re seeing now is just the beginning. We don’t think this is a bubble. The pandemic has accelerated these changes in every sector, whether it’s education, healthcare, finance, retail – it’s all being massively transformed and driven by tech. All of these industries are scrambling to stay relevant in an entirely new environment.

What is the involvement of USMAC and Startup Grind Tbilisi in the fund?

For quite a few years now, USMAC has been retained to come to Georgia to run an accelerator program with GITA. It’s an 8-to-10-week boot camp that takes hundreds of startups and drills into them all the things they need to do. How to get your pitch deck together, how to think about going to market – all these mechanics. At the end of that program, experienced venture investors like myself come into town and do the final review. We then select the top 20 startups, and GITA gives those winners a government grant. USMAC has now been doing this twice a year for four-five years in Georgia.

We’re collaborating with them because they approached us almost a year ago, and asked whether we were interested in launching a fund in Georgia because they’d been running this program with GITA, seen everything coming out of Georgia but had no way of supporting the companies financially after the accelerator program ended. USMAC felt that being unable to back the best companies that came through the program was a lost opportunity for them and a lost opportunity for the companies. The co-founder of USMAC, Chris Burry, has now moved to Tbilisi full time, which demonstrates USMAC’s commitment to Georgia and to being our ‘boots on the ground’ for deal curation and mentorship.

Meanwhile, Startup Grind Tbilisi and its chapter head Colin Donohue will be our additional support on the ground by running education programs with the angel community and local founders here and organizing various events throughout the year.

That’s how the fund has come together. We have this 8-10 week accelerator of mentors and other support networks working with every startup hand by hand through the program, and at the end of it, we have the ability to skim the cream off the top and invest in the very best startups. By virtue of the fund’s network in Silicon Valley, we can build a bridge to the Valley in the next round and keep the cycle going.

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