In late 2020, Chinese Internet giant Tencent has acquired a blocking share in “4A Games Ukraine”, a computer game developer, for more than $10 million. The deal was organized by Soul Partners, a young investment company created in February 2018 by Igor Verhogliad, 34, and Vitaliy Provotorov, 37.
This is not the only success of Soul Partners. The firm assisted the IT company Creatio in attracting financing in the amount of $68 million and organized the sale of LeBoutique marketplace to DCH group, Alexander Yaroslavsky.
"Penetration into this market by own means is a serious achievement, - says SMRK Venture Fund Managing Partner - Andrei Dovzhenko. - The guys were able to do so, which means they are doing something that others can’t do.”
Verhogliad came to Concorde Capital from Ernst & Young, while Provotorov came from Deloitte. “The Big Four” is a good base, - Provotorov says. - But our main school was Concorde”. The partners speak of Igor Mazepa, the founder of Concorde Capital, with respect. “Igor cultivated the understanding that “the impossible is possible”, - says Verhogliad. - Each Concorde employee acted like an entrepreneur who can sell his idea to the boss and implement it."
Verhogliad and Provotorov worked in Concorde investment banking department for about eight years. Verhogliad specialized in agriculture sector and FMCG, Provotorov - in IT, engineering and energy sector.
One day they went out for a beer and found out they were both thinking about their own business. "I wondered if I could do the same, but without the support of a big organization", - Verhogliad recalls. Provotorov didn’t know where to get the money to stay afloat until the closing of the first deals.
By joining together, the colleagues shared the costs of setting up the company. Each one became the owner of 50% share. "We invested a couple of hundred thousand dollars," says Verhogliad. The partners took Iryna Dzhus and Yuri Sachenok from Concorde Capital with them. "Everyone took an assistant", - says Verhogliad. Dzhus is still working in the team, while Sachenok left to “4A Games Ukraine” in December 2020.
The partners considered medium and large companies from agriculture, machine-building and IT sectors as their customers. "We didn't plan to lure Concorde Capital's clients, we had enough of our own contacts," says Verhogliad. – After leaving Concord we were completing the projects we started there and even received bonuses for them”.
Mazepa refused to comment on the business of his former employees. "Concorde doesn't have a partnership culture like, for instance, Dragon Capital" says former Concorde employee Evgeny Sysoyev. That's why employees are striking out on their own. Sysoyev, who manages the AVentures Capital fund, recalled seven investment companies founded by descendants from Concorde.
For the first two years, Soul Partners were getting the hard knocks. "There was no profit, - Verhogliad says. - We were recruiting, working hard, and learning from our own mistakes." According to him, the company usually takes on deals worth more than $5 million. "The benchmark for revenue is at least $100,000 per project", - he explains. Investment bankers can count on 3% from the transaction amount on average. If several investment companies are involved in the transaction, the commission is divided among all of them.
Austrian energy company RP Global engaged Soul Partners as an exclusive buy-side adviser to find interesting projects in the Ukrainian wind energy sector. The partners conducted more than 30 interviews with project owners, compiled a list of potential targets, and even started a development of joint venture with one of the Ukrainian companies. But due to payment crisis RP Global refused to enter the Ukrainian market. Time and efforts were wasted.
Another failure example was the investor attraction for the wind farm construction by Eco-Optima Group. At the last moment the client cancelled the deal. "We were hoping to make a lot of money because the amount of the deal was supposed to exceed $70 million,- Provotorov recalls. - It was a hard blow. It took me a long time to gather wits."
Cooperation with seafood delivery service Seadora by Andrei Drogobitsky's was positive, although not very profitable. In 2019, Seadora, whose financial partner was Soul Partners, raised seed round from venture capital fund SMRK. The amount of the investment was not disclosed, but the fund's average check is $0.75 million. "At the seed stage, reputation plays a big role, since there are only numbers, models, and ideas, - Drogobitsky says. - Vitaly [Provotorov] has recommended us to several venture capital funds”. The investor remained satisfied as well. "Soul Partners team has shown themselves from a good side, - says Dovzhenko from SMRK. - I am ready to recommend them”.
Provotorov met Drogobitsky when he approached Vitaliy to obtain a consultation regarding LeBoutique marketplace. "It was a funny story, - Provotorov recalls. – I was recommended to Andrei, and Igor was recommended to Roman Onishchenko (LeBoutique's second co-founder. - Forbes)". The first meeting with the founders took place in March 2018 and sell of 100% of LeBoutique to Yaroslavsky's DCH Group took place in late 2020.
“The investment banking business is a long-term play, - Provotorov says. - We approached this project several times. Along the way, we managed to help to attract investments for Drogobitsky's startup”.
The amount of LeBoutique deal was not disclosed. Yaroslavsky is trying to buy distressed assets in order to breathe a new life into them and sell them at a higher price. A source which is aware of the deal terms says anonymously, that transaction amount exceeds $2 million.
Sergei Chuikin, managing director of Concorde Capital's investment banking department, thinks the deal is overpriced. "The company was stressed, with no working capital, incurring losses, with no own warehouse or other tangible assets, - says Chuikin. - The only thing there for sale was the online platform, technical solution. It was a great luck to find an investor under such circumstances”.
Success in quarantine
The light at the end of the tunnel appeared on the third year.
In 2020, Soul Partners acted as an advisor to one of the shareholders of the software company Creatio. The lead investor in the deal was American Volition Capital and co-investor was Horizon Capital. How did the young firm get on the radar? AVentures Capital investment fund participated in the deal. Its head, Evgeny Sysoyev, recommended that parties to a transaction take a look at several investment companies. “After the interviews we were selected, - Provotorov says. - It was a cool project”. The guys are quick learners, Sysoyev briefly comments on his proteges.
Soul Partners became a partner of USAID Project “Eastern Ukraine Economic Support”. The goal of the project is to facilitate development of small and medium-sized companies in the region. The firm has signed agreements on investment attraction with four companies. "This is not a super-profitable project, but rather a reputation-building story, - Provotorov says. - Cooperation with USAID is an indicator of the quality and reliability of the company”.
The investment size for a single company is $0.5 to $1 million. USAID covers most of the Soul Partners' services cost. The firm will also receive 2% success fee in case of closing the deals. "We're in the middle of the way, - Provotorov says. - The next step is to present the companies to potential investors and creditors”.
One of the most notable deals of Soul Partners was strategic investor attraction - the world's largest game publisher Tencent with a capitalisation of $670 billion for "4A Games Ukraine". Starting from 2019, Tencent is investing in game studios around the world. In the first half of 2021 Chinese company invested in 62 game studios.
4A Games has been releasing the series of games called Metro since 2010. In 2014, the company has split into two parts: one remained in Ukraine, and the other one moved to Malta. In 2020, Maltese 4A Games was bought by the Swedish Embracer Group for the consideration of $36 million. "Classic takeover of a game studio with a development team by publisher.", – says Verhogliad.
The owners of "4A Games Ukraine", father and son Vladimir and Dmitry Lymar, decided to find an investor for the development of a new triple-A game and sell him part of the company. "We were approached by the Company after it came in contact with Tencent, but there were no specific agreements, - says Verhogliad. - There was a desire to speed up and structure the process”. "We contacted other investment banks as well, - says Dmitry Lymar. - Soul Partners showed that they understand the gaming industry well, and they were ready to handle the project right away”.
The deal was closed at the end of 2020. The amount is not disclosed. According to Verhogliad, we are talking about more than $ 10 million. According to AMCU, Tencent Holdings Limited, registered in the Cayman Islands, acquired shares of Cyprus Moonthunder Limited, that owns 100% of LLC "4A Games Ukraine". "We're not ready to disclose the exact share that was sold, but it's more than 25% and less than 50%", - Lymar says. "This is a unique situation, - Verhogliad thinks. - The Ukrainian founders kept a controlling stake and the rights to the product, but have attracted investment enough to create a new game”. By the end of the summer, 4A Games should get a new name.
At the beginning, Soul Partners had five small deals in the pipeline. Three years later, the company has 15 projects worth more than $100 million.
"It's hard to say which of these deals will be closed, but as number of projects grows, our team grows respectively”, - Verhoglyad says. "We want to be the first company that comes to mind when thinking of quality investment banking", - Provotorov dreams.