George Gogolev brings a wealth of venture capital experience to Severstal Ventures, having come from the ecosystem-focused Russian Venture Company (RVC), the state fund of funds that backs innovation across the country. There, he was the director of corporate innovation and technology transfer, before he joined Severstal as its head of disruptive innovation in February.
According to Gogolev, Severstal is “the most efficient steel company in the world”. That efficiency means further improvements are incremental for the parent company. Gogolev also highlighted the strong competition within the steel market, pointing to overproduction in most regions, and political obstacles.
He said: “Nowadays, you are going back to pre-World War Two conditions, where countries are raising import barriers and tariffs. That is why the World Trade Organisation’s predecessor was created. Severstal understands it needs to innovate on a bigger scale and engage with external invasions.
“The company decided to create this unit first of all to look for radical innovations, not to miss any huge opportunities or huge threats. We classify opportunities and threats as anything that can take away or generate 5% in any of our major sectors. Our major sectors are energy – piping and stuff for oil and gas – and construction. A 5% move in either of those markets is billions of dollars.”
Gogolev does not change his strategy in addressing either opportunities or threats – the latter should be turned into opportunities. “It depends on the business case and on the company. If it is a company with which we could engage, say, to produce goods for the Commonwealth of Independent States and Russian markets, to scaffold them, to do a joint venture, then it is no longer a threat. You turn a threat into an opportunity.”
Severstal Ventures has to be part of that process. “We want to do something around five deals a year, and I think we are going to start doing direct deals towards the end of this year, once we figure out the pain points and clarify the strategy within the company. We do not want any unpredicted strategic changes – when corporates abandon their investments it ruins the reputation of the corporate. We are doing a major strategic initiative within the corporation, talking to all the units, the middle managers, the senior managers.”
That exercise will inform Severstal Ventures’ decision-making process, from technologies to capital deployment. “We do not have a set fund size. When we have an asset, we are going to deploy $20m to $25m a year, but once we complete the strategy exercise we might adjust this.
“Some of the very disruptive technologies the units do not really care about or understand, so those decisions we are going to be taking independently. But if those technologies fall into current business lines, then they have to cover certain pain points, or if they have to be scaled, then we need buy-in from the unit.”
What are the business lines they are looking at? “Pillar one is materials, because we are a materials company. Bulk materials, materials for construction industries, for energy industries, for automotive and machines. The second focus is coatings, because there is a lot you can do with steel by employing different coatings. There are a lot of startups around the world developing coatings.”
Gogolev is also looking at production technologies, “especially large-scale steel 3D printing for construction”.
Severstal Ventures is also keeping a keen eye on technologies for mining and making steel. “If we could dramatically change the way steel is made, if we could take coal out of it, make it more environmental, that would be great. We look at companies that could deal with our waste streams, because any resource-producing company has major waste streams. They could be commercialised and cleaned up.”
What is Severstal Ventures not looking at? “We are not looking at IT. We are a very digitally advanced company in Russia. We are large clients of SAP for example, we have a chief digital officer, and we have the largest data lake in Russia. We are very conscious of collecting all the data, even that which we cannot analyse right now. We are very active in adopting various IT solutions, but usually we see no reason to invest in those sorts of companies.
“We are all very focused on delivering better returns to our shareholders, so my key performance indicators are financial. Whichever partnerships and joint ventures I bring, they have to create a sizeable cashflow.”
This is not straightforward given the typically long maturation period for materials startups. “A lot of companies I see have been spun out of universities and research labs, 15 or 20 years ago, and they are just getting into early revenue. For us, investing at the seed stage and waiting 20 years is too long. The early revenue companies on the other hand, you can scale fast, the technologies being proven and tested. We can deploy it on the market, with our manufacturing expertise and our marketing channels, and that way we can deliver a lot of value.”
At Severstal, things moved quickly, Gogolev said. “You would think that in such a large corporation it is impossible to get a decision through, but we did our first deal within two and half months of me coming into the company. Approvals take less than a week. We are extremely efficient in terms of making decisions.” For Gogolev, Severstal’s speed is a key feature to attract a potential startup. “There is no direct value to startups, but we hope to be lean and efficient, which makes interaction with us easier and faster. Our target is to create a culture of speed.”
It is easy to see why that efficiency is attractive to Gogolev, and why it is a recurrent theme for him. Softly-spoken and confident, he said his decision to leave RVC came as “I was tired of government work”. He added: “I wanted to do something practical. I personally invest as an angel. I like material stuff, anything hard. I have a drone investment and two materials investments, intellectual property-heavy things.
“Governments are extremely inefficient. Even though I worked for a government corporation, which is fairly independent of government, you occasionally hit certain political issues which you have to take up the command chain. That gets slower, especially if the government is trying to change a strategy that impacts what government corporations are doing. They are sometimes stranded and waiting for certain decisions from the government.
“It was not a tough transition because I worked in business before, but most of the companies I worked for were fairly small inefficient companies. This company has 50,000 employees and is huge. There are certain issues. You have to learn a company, you have to know who to communicate with, and where to send the right opportunities. I am still going through that learning curve. Severstal gave me a guy who was inside for a couple of years, so he knows the company very well. That is a huge help.”
That said, Gogolev is not as free to act as he might like. “We actually check off everything with our CEO and the chairman.” Would he like more autonomy? “I would prefer it if I had some autonomy, but the culture at Severstal is very centralised, and all major decisions are taken by the CEO and the chairman.” Despite that constraint, Gogolev is happy. “Originally, I thought being at Severstal Ventures would be very scary, when you go into a deal and you cannot get meetings for months, but that is not the case for this company.”
Gogolev is also excited. “I get paid to talk to a lot of smart people, which is great. We can discuss business models, help them grow, so that is a lot of fun. Plus scale – if you tweak a little thing within that corporation, that is millions of dollars, because the material and capital flows are so huge.”
Gogolev’s vision is not limited to Russia. Is he looking to tap into top universities like many other funds? “I am looking globally. There is a lot of interesting dealflow we are getting which is not originally connected to top universities, surprisingly. It is pretty decentralised in terms of materials science. In smaller countries, of course, you could go to top universities, but there is stuff you miss out on if you work only with them. Naturally, we try to establish connections with [good materials science] schools, but stuff coming out of universities is usually very early stage.”
Not every startup is as receptive as Gogolev might like. “Some people are now allergic to money from Russia, while some people, if not allergic, are cautious. All the deals we are discussing, everyone is running know-your-customer on us, so we disclose all the structures of all our companies. We are pretty transparent because we are a public company in the UK, and the majority of non-floated stock is owned by the chairman, Alexei Mordashov. He is a public figure, and he is not on any sanctions lists.”
With universities too much work for his small team, and Russian money held in suspicion, how is Gogolev building a network? He said: “Right now, we are going with a simple lane strategy. We are taking a number of fund positions, especially in funds which focus on materials. These guys have been on the market for 15 or 20 years, so they are known by startups, they have their own networks, and they source deals from all over the place. Pangaea Ventures, which is based in Canada, sees deals from Australia, so it is a small and transparent world.”