Stepan Chernovetskyi is well-known not only for his household name but also for his great business ambitions. He started his career working at the father’s bank, and later on was promoted from head of the branch to the senior vice-president and member of the supervisory board of PRAVEX-Bank, in 2012 he set up his company - Chernovetskyi Investment Group (CIG), whose investment potential is estimated at $100 million. In the interview with Focus, Chernovetskyi told about the most interesting CIG investment projects and about the prospects of the IT sector in Ukraine.
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According to Focus, your fortune decreased by about a third in 2017 compared to the previous year. How would you rate the success of your business in the past year?
To be honest, I have just recently learned that my father and I were in the ratings of the richest people. This, of course, is a bit flattering, and I am not poor in general, but I think something is definitely exaggerated. This is probably my fault, since I have never been a public person in particular, and any inaccuracies could appear.
I do not know what formula determines the position in the rating; I can only say that the Fund lives, money is being invested, investments are returning, something is being written off as losses. In reply to your question, I am pleased with the results of last year. I think that the Fund together with the companies in which it invested are developing in the right direction.
Chernovetskyi Investment Group invests in various areas: from agriculture to healthcare. Which of the areas with which you work, bring the highest income?
I just want to clarify what "bring income" means.
I figuratively divide the income into an operating one — a certain profitable or relatively profitable business, which every month brings profit to its investors, and an investment one — associated with the growth of its capitalization and sales strategy.
So, I believe that really big money can be earned on the capitalization of the project that you are creating and developing. Look at the people who have appeared in the Forbes list over the past 10 years. Most of them have made their fortunes this way.
Chernovetskyi Investment Group has 3 main areas of investment.
The first and main is IT industry. This is particularly about capitalization. I would also like to mention scaling, without which it is difficult to capitalize on projects in this field.
I see a great potential in Ukrainian IT companies capable of entering international markets, which means increasing their estimated value and ensuring profitability for investors. And the Ukrainian market itself is at such a stage of its development that in many projects, as well as industries overall, the growth from year to year can be double-digit, and sometimes three-digit numbers.
The specificity of IT allows projects to scale without the limitations of, let's put it this way, offline projects. How to scale a constructed building? Basically, just constructing another building nearby. And for this, you need to be in the same place as the first building. And in this field, there is no such thing, it functions differently. For example, the work of one office of IT service can ensure its full growth, without the need to open regional offices, working thousands of kilometers from the place where the service is available to its user.
I believe in IT-projects, expecting that they can bring profit, calculated in hundreds of percent per annum. Of course, there are very big risks; this road is covered with thousands of projects that have not gone anywhere. But this is the way, this is the development, this is the technology, it does not work out in a different way. Somewhere one has to lose, somewhere there is an opportunity to earn.
In the portfolio of your investment company there are several projects related to the delivery of food. What, in your opinion, are the development prospects of this area in Ukraine? How do you assess the volume of the Ukrainian foodtech market in general?
In our portfolio there are indeed several foodtech projects, and all of them are successful.
For example, Zakaz.UA is the market leader in online product delivery, Ukrainian Instacart (the largest product delivery service from the USA). Zakaz.UA is the official partner of the largest retail chains in Ukraine, such as METRO, Auchan, Novus, and Fozzy. And the list of partners and cities of presence is constantly expanding. This is a leading project in this segment of the market. We work on the territory of all million-plus cities of Ukraine.
Over the past three years, the company's turnover has grown by 300 percent, and we expect that this indicator will continue to grow rapidly along with the market - a good example, which, by the way, demonstrates how much supply Ukrainian market has, and how projects can grow with it.
We assess the foodtech market of Ukraine (food delivery, ready meals, healthy food, etc.) at several billion UAH per year. I would not like to give a lot of numbers now; on our Facebook pages you can find analytics for this market segment prepared by our specialists.
The food delivery segment (both finished and common products) will continue to grow rapidly. By myself, I know that personal time is becoming increasingly valuable. No one wants to waste it, stuck in queues and traffic jams.
An evening in a restaurant with a loved one or a business lunch with a partner is both pleasant and useful. However, in order to have a quick bite or buy food home for a week, we will more and more often use the services of companies such as Zakaz.ua.
The creation of so-called dark-stores by retailers is now gaining momentum. These are, in fact, warehouses from which online orders are sent to customers). I see this as a great prospect.
Imagine that in the near future the mobile application, with which you make a purchase, will give you recommendations about what to buy, based on your preferences, diet, nutrients that your body needs, and also will make sure that you don’t overpay, and take advantage of the most profitable offer! It will not allow you to forget something really necessary, will save you from spontaneous/emotional purchases, thus saving money. And it will also allow you to spend time with your family, in the cinema or the gym, instead of walking around the hypermarket.
In my opinion, it sounds amazing, and this is a very near future!
Do you plan to scale up foodtech businesses?
At the moment, we are already scaling our portfolio food technology projects - both in the Ukrainian and in foreign markets, and soon we will definitely announce this.
Let's talk about agroprojects. In 2017, CIG invested in Kray Technologies, the drones company. Was it possible to start the production of aircrafts in Kyiv this year, as planned?
We have invested in a drones manufacturing company for spraying plant protection products, Kray Technologies. This year the company fully dedicated to the so-called R&D process, the development of new systems, their testing, and enhancement. Creating such a large-scale product takes time and considerable resources.
During this time, a platform for mass production of aircrafts was prepared.
In the coming weeks, the launch and final testing of a modified version of the drone will be carried out. After that, a demo day for interested parties will be held, and the company will begin mass production to supply drones to customers from the US and Canada for the new agricultural season.
You have already stated that this year you will probably continue to invest in the agro-industrial complex. Can you tell where exactly and how much you plan to invest?
We are looking at different projects of a different production cycle - from cultivation to processing and export. Meanwhile, we are interested in niche crops, including nuts, berries, honey etc. The volume of investments depends on the scale of the project and its needs. Yet in this sector, we focus on an incoming check of $ 5-10 million.
On the website of your investment company, it is stated that CIG is ready to invest in startups related to data protection. What kind of return, first of all, financial, do you expect?
Cyber security is widely known; this is one of the most priority technological directions for development.
At the moment we are still at the stage of studying the market. We understand that such a project will require serious investments. But the income from it can be hundreds of percent. The return depends on various factors, including the stage of investing in a project. If this is the so-called "seed stage", then the result, of course, will be more significant than the one that can be achieved by investing at later stages. At the same time, it is also connected with greater risks.
Today, the government officials are more and more frequently talking about the necessity to develop education in Ukraine. Are there, in your opinion, educational projects in Ukraine in which CIG could invest?
Education is an area that should not stop in development, and the state plays a key role in this. The quality of Ukrainian education, especially technical, cannot be called bad. A large number of IT-specialists and engineers are in demand in large foreign companies. But we profess the so-called IT patriotism - we want talented specialists to work not only on outsourcing, but also to create their own projects, to bring them to the international market and to manage them from Ukraine. To this end, we created a scholarship program called CIG R&D LAB, which, in parallel with general education, was designed to help students acquire the skills of commercializing ideas. Now the program includes the Odessa National Polytechnic University and Kharkov Polytechnic Institute. Over time, we are planning to attract other universities to cooperate.
This is neither an investment, nor a charitable initiative. We believe that in the end, it will be beneficial for everyone, including us. Let's just say, very, very indirect investment.
At the same time, we are planning to make direct investments in education. In particular, we are looking very attentively at projects related to higher education.
You had predicted earlier that in the next 5 years, Ukraine will have its own “unicorn” - an IT company with a capitalization of more than 1 billion euros. Are we talking about specific companies or directions in IT? Can any of the companies in the CIG portfolio achieve such value?
I do not want to try to predict which companies will be able to achieve an estimated value of more than 1 billion euros, but they certainly will! It is inevitable.
I will not lie, I want to believe that this will be one of our portfolio companies. Several of them have good chances to reach this level by 2023.
The IT sector in Ukraine began to actively develop several years ago - not at the best of times for the country's economy. How has the state investment climate changed now? Does an increase in the number of players in the investment market of Ukraine affect your business?
Ukraine is a good country with great potential. We are Europe, now we want to integrate into European political and economic institutions. We will succeed. By this time, they will probably not look like now, but it will happen.
Yes, there is a serious conflict in the east of Ukraine, and this cannot but affect our economy and the country as a whole, but Ukraine is moving in the right direction. Reforms are being introduced - slowly but successfully (retirement, health, NABU, "Prozorro", waste management reforms, etc.).
The country has returned to GDP growth, the national currency has stabilized. I personally constantly meet with European and American investors, funds, organizations that are interested in us. It can't but please.
During the 7 years of the company's existence, when was the work the hardest and why?
I cannot say that there were some particularly difficult moments. This is a business, these are people, there are always ups and downs. I think that over the past seven years there have been more important shifts and changes in Ukrainian society as a whole. These changes could not be achieved easily. We are a part of this society, we can’t imagine ourselves without it. It had to be reflected on me and on the team, we have been all going through this. I myself also rethought many things in my personal life and in business.
How can you comment on your appearance in the sanctions list of Russia against Ukraine, made public in early November? How does this affect you?
It is hard to say how the sanctions will affect a certain Stepan Mikhailovich Chernovetskyi, my namesake, whom I learned about for the first time.
But if no joke, then I find it hard to understand why my name and the name of my father were on this list. I hope it is not because I love Ukraine very much, and believe in its potential, which I have repeatedly mentioned. I do not think that this will somehow affect me, besides the fact that I will be asked how I got there.
In general, this conflict and all its manifestations is a very bad situation, it is a tragedy that has brought many troubles to a huge number of people for several years now.