Vladimir Pyrozhenko on E-commerce Exits, Scaling Startups & What Investors Really Want

Vladimir Pyrozhenko on E-commerce Exits, Scaling Startups & What Investors Really Want

Today, we take you to Kyiv, Ukraine, to hear from Vladimir Pyrozhenko.

Vlad is a seasoned entrepreneur, investor, consultant, and founding partner of Very Good Advisors.

Vlad has built and sold two startups with revenues exceeding $3 million, worked on M&A deals worth over $2 billion, and helped dozens of startups raise over $30 million in VC and angel funding. 

He has over 20 years of experience in corporate strategy, equity fundraising, mergers & acquisition (M&A), and financial modeling. 

Now, as the managing partner of Very Good Advisors, he works with startup founders to help them secure funding and drive growth. 

Every founder will gain valuable advice and insights from our discussion with Vlad below.

Tell us a little about yourself; how did you get started as an entrepreneur? 

I started my career at KPMG in 1998, where I worked in the Audit and Transaction Support Department.

After that, I joined the World Bank and devised strategies for Central & Eastern European banks (CEE), including those in Ukraine. 

After graduating from Kellogg School of Management (Northwestern University) with an MBA, I joined the KPMG Advisory Group.

We advised corporations and high-growth companies on strategy, operational improvement, and merger and acquisition (M&A) options. 

In 2006 (working with a former KPMG Advisory Group Partner), we established a boutique consulting firm specializing in strategy and M&A support.

I emerged from the corporate, consultancy, and financial sectors with loads of experience, but this was the first time I got a real taste of what it means to be an entrepreneur. 

Our firm advised Eastern European companies on a wide range of strategy development projects and I acted for the party involved in the acquisition of two Ukrainian banks.

As advisors and consultants, we also served on the Board of Directors of two holding companies: a sunflower oil production firm and an industrial multinational with manufacturing and minerals extraction divisions. 

In 2011, while I was still running my advisory firm, I launched an e-commerce shopping club and raised funding from VC investors.

Five years later, I sold the company to a group of e-commerce entrepreneurs. 

Since 2017, I have been advising startups and scaleups on strategy, raising investor funding from VCs and Angels, and business development projects in the regions where I have the most experience and a broad network: the USA, Southeast Asia, MENA, and CEE.

Also, as an angel investor, I have made several investments in promising startups and usually sit on the Board to advise the founders. 

How has the war in Ukraine impacted your ability to do business?

When the war started, I was working in Dubai. I flew to Ukraine’s capital, Kyiv, for a vacation.

I got home around 2 a.m. on 24 February 2022. A few hours later, a Russian missile hit a building 500 meters away from my house. 

For three weeks, I stayed with my family, sheltering from the bombs. 

Once the situation stabilized, I drove to Ukraine’s western border.

It took five days to drive 800 km — getting my wife safely to Poland and my daughter to Spain, where she attends university. 

It’s not been easy to keep working. Like everyone in Ukraine, I am doing my best under the circumstances.

There are Internet and power outages at times. For the most part, I’m either able to work from home or coffee shops. 

Life and work go on. 

Can you tell us about building and selling your first startup?

My startup journey began in 2011 when I knew it was time to move into the technology sector. 

Ukraine has a thriving tech sector and I wanted to be a part of it.

I started considering different ideas and looking for potential partners/co-founders.

When I discussed this with my tennis coach, he mentioned his younger sister, Olga. She is an entrepreneur who has already built two small startups.

I met with Olga and soon realized we had a similar way of thinking.

We considered different options and models and decided on a flash-sale discount e-commerce website that sold home and clothing products.

Olga recruited a CTO, Alex, and the three of us founded Hilt, an online shopping club. 

In the first few months, we invested our own money, expertise, and dedication.

Olga also provided a valuable customer database and a partnership with her other e-commerce startup. 

Only four months after our launch, we secured a $500,000 investment from a VC firm, allowing us to implement a high-growth marketing strategy, recruit a team of 50, and achieve profitability in our first year. 

It was an incredible journey, teaching me a lot about entrepreneurship and how to run a startup. 

In 2016, we sold the company to a group of private investors who took it further, rebranded it, and made it part of their profitable portfolio. 

What are the top 3 lessons you’ve learned as an entrepreneur? 

I have learned many lessons along the way, but here are 3 that are crucial for any startup founder to grasp — regardless of sector, niche, or whether you’re B2B or B2C. 

Lesson 1: Adjust your Ideal Customer Profile (ICP) based on real customers 

Your perception of your ideal customer profile (ICP) will probably not pass the reality test. 

At first, we imagined our ICP was middle-class professionals and couples with disposable income who wanted to decorate their homes with designer furniture and wear high-quality fashion brands. 

Unfortunately, we learned the hard way that this audience is expensive to reach and they don’t make fast purchasing decisions from e-commerce sites (or at least, they didn’t in 2011-12 in Ukraine and the CEE region). 

In the beginning, we didn’t make any sales. So, we had to try another approach.

We quickly overhauled our business model — also known as “pivoting.” 

Instead of discounting high-quality products, we stocked up on cheaper Chinese brands to offer quality at reasonable prices and with a discount. 

At the time, the markup for Chinese manufactured goods was around 200-300% so, even with a 50% discount on the retail price, that gave us a gross margin of 30%. 

After relaunching, we were soon overwhelmed with orders. That is when we hit our next growth bottleneck. 

Lesson 2: Focus on what you do best

Once sales started flooding in, we quickly signed contracts with several delivery services that serve Kyiv and the surrounding area.

It was a nightmare! 

Customers weren’t happy because their orders weren’t delivered on time, or, in some cases, at all. 

So, we decided to build a delivery team. 

In 4 months, we had a team of 30 couriers working across Kyiv city. 

Unfortunately, guaranteeing a quality service was even more of a challenge. We were constantly firefighting.

Deliveries were late, couriers didn’t show up and were unprofessional, and goods got lost or damaged. 

This soon showed us that e-commerce is what we did best. 

Not running a delivery service. 

I negotiated better deals with the most reliable courier services to ensure higher quality and reliability. 

Once those providers proved they could perform, we dismantled our service and refocused our energies on finding the best products at affordable price points and attracting more customers to our site. 

Lesson 3: Build and maintain strong and open relationships with investors 

Investor relationships are so important for startup founders. 

Our investors (Xevin Investments from Poland) were a great example of what “smart money” can do.

Firstly, they were friendly and helpful during the investment and negotiation process. 

Despite my M&A and finance experience, I knew little about how VC investments worked — such as how to structure the deal and what to watch out for. 

The Xevin team took the time to educate and assist us. It was an invaluable source of help, and the guidance I received from them I now pass on to those who seek investment through my consultancy. 

Secondly,  they had a partner marketing agency that implemented a carefully targeted campaign.

This meant our customer acquisition efforts turned out to be very successful.

Moreover, we benefited from discounts and a professional team that taught us everything we needed to know about digital marketing. 

Thirdly, a couple of times, we had cashflow gaps so the fund provided us with short-term loans that we successfully repaid. 

When you find the right investors, they bring more to the table than just money. 

At the same time, founders need to work to maintain that relationship, be honest with investors, and ensure they are aware of the ups and the downs — not just when things are going well. 

In your opinion, should founders always take equity (or debt) funding?

Despite my positive experience with investors, there are always upsides and downsides to taking any form of external funding. 

Downsides of investor or debt funding 

  • Fundraising takes time. It can take up to 6 months (or more) and at least one of the founders will have to step back from the operational side of things. That’s because 50% of their time could be absorbed with fundraising activities. 
  • During the negotiations and due diligence stage, founders might spend 100% of their time closing the deal.
  • Equity dilution is a problem too. After several successful funding rounds, founders will have less control of their business. And, if you achieve an exit event, investors usually get their money first. Depending on the preferential nature of the terms agreed, investors could make more money than the founders. 
  • In some cases, liquidation preferences or the vesting schedule mean that founders may end up with nothing — no meaningful financial return — after, say, 5-7 years of hard work. 

Despite these downsides, there are several upsides. In many ways, it entirely depends on the investors you find, what they bring to the table, and how investment deals are structured. 

Upsides of investor or debt funding 

  • Unlike bootstrapping, investors give founders the ability to inject rocket fuel into their early-stage businesses. You can quickly scale up marketing, sales, product development, and talent acquisition.
  • “Smart money” is the best type of investment — when investors open doors to new customers and partners and provide strategic and operational insights from entrepreneurs who have faced and overcome similar challenges. 
  • Having reputable and recognized investors on your Capitalization Table (cap table) attracts other investors — increasing the perceived valuation of the company. 
  • Founders in a stronger position — those already generating revenue and profitable — can negotiate for more money with less onerous terms. This ensures they retain more control of the company and will see serious monetary upsides if they achieve an exit event. 

However, there are many cases when entrepreneurs have bootstrapped their companies and were successful without outside investors, so equity or debt investment is not essential.

It’s one option and something to consider carefully before going that route. 

Before seeking investment, founders should make a roadmap of how they want to achieve their goals. 

That should involve asking these questions: 

  • What are my personal goals? 
  • Will this startup help me achieve those? 
  • Do I need investors to help me achieve this goal (e.g., to grow my business to X?) 
  • How do I see my life/startup balance (what kind of life do I want?) 
  • Who do I want to take on this journey (e.g., co-founders, life partners)
  • How much am I going to (or am I willing to) sacrifice?
  • If I’m successful and exit, what will I do next? 
  • Equally, it’s worth asking yourself, if I fail, will I cope? 

Founders who want more upsides than downsides from having investors need to make their startup as attractive as possible. This gives founders more leverage in any negotiation with investors. 

What 3 things could founders do to make their startups more attractive to investors? 

In my experience, there are three crucial things that founders can do to make their startups more attractive to investors. 

1. Focus on your unique selling proposition (USP) 

Your unique selling proposition (USP), or market offering, is key. 

Now, I’m sitting on the investor side of the table, I see hundreds of pitch decks where the value proposition is vague, unconvincing, and unclear. 

Investors will invest when they see a startup has a good chance of success. 

If you want to win customers and generate revenue, then you need a clear go-to-market strategy. To achieve this, you need a strong product-market fit or market alignment, with an attractive value proposition. 

Don’t spread your efforts too thin. 

Don’t add too many features, products, or services when you should focus on winning customers. 

2. Have a precise understanding of your finances, spending, projections, and growth metrics 

It’s a challenging time for founders to raise investment. 

We are in a down market. Layoffs are happening across the tech sector. 

Investors are more cautious. Valuations are depressed. 

Now more than ever, investors need to see revenue and profitability — or a route to achieving that quickly.

Even at the pre-seed and seed stages, founders must demonstrate a comprehensive understanding of their core metrics, targets, and finances (current and projected).

Figure these out:

Without knowing these numbers inside and out, and having a handle on your day-to-day, weekly, and monthly cashflow management, it’s very difficult to secure an investment deal.

3. Be honest and transparent with investors and board members 

Be open with investors about what you know and don’t know about your customers, competitors, future market dynamics, and growth potential. 

Talk about the obstacles you are trying to overcome. Tell them about the challenges you need help with and see what advice they can provide. 

Many times, I’ve seen founders try to oversell and overhype their startup’s potential, e.g., future revenue, number of users, level of organic traffic, etc. 

Smart investors see this a mile off, especially if they know the market. This is why founders can’t raise funding. 

What are the top 3 mistakes you’ve seen founders and startups make?

1. Cash (and careful cashflow management) is king

Founders often underestimate their burn rate, especially when they’ve hired a team, are developing a product, and they’re spending on marketing and sales activities. 

Often this comes from overly optimistic revenue projections, incorrect assumptions on customer acquisition costs, or false assumptions about when the next funding round will close (it always takes longer than you expect or hope). 

I fell into this trap when our first investor signed a term sheet and started investing in marketing.

We assumed we’d close the funding gap quite quickly. It took more time than expected. 

After 10 years of experience, I know that signed term sheets only convert into closed funding rounds 50% of the time. 

Cashflow management (and cash in the bank) is king!

Investment is never really secure until you’ve got money in your account. And your startup isn’t secure until you’ve achieved healthy profitability. 

2. Put co-founder agreements in place and pick your co-founder(s) carefully

Pick your co-founders carefully. 

Even when you’ve found the best co-founders possible, I would always advise you to sign a document and agree on terms with them. 

You don’t always have to worry about whether a co-founder team will stick together during difficult times.

In some cases, I’ve seen relationships deteriorate when a startup begins making real money. 

Co-founder agreement documents should include what happens if things go wrong. 

Have a co-founder exit strategy. Have one for yourself — a way of exiting the business without destroying it. 

Carefully worked out and reasonable founder agreements reduce stress, remove uncertainties, and help you sleep better at night. 

3. Be careful of overly optimistic startup valuations 

Now is the time for realistic valuations. 

A headline figure might look good in the media, but investors want you to achieve that valuation so they get their money back. 

Don’t benchmark your startup against larger, better-funded ones — even in the same sector.

This is especially relevant if you’re based in Europe and compare startup valuations to those in the US or to valuations from anywhere between 2010 and 2021. 

The funding market has changed, and valuations are much lower. Be realistic. Otherwise, investors won’t take you seriously and won’t invest.

Finally, is there anything else founders should know about scaling a startup? 

Know when it’s the right time to build a team and start delegating 

Founders often hesitate and delay delegating. 

It’s hard to let go and start trusting other people to take over some of your tasks. But once you begin to grow and scale, you can’t get bogged down in operations. 

Founders shouldn’t be running around doing hundreds of different jobs. You risk burning out and harming the growth of your startup. 

Founders need to focus on the strategic direction: growth, hiring, fundraising, managing, and mentoring. 

If there’s not enough time for these tasks, and you’ve got the budget, then it’s time to start recruiting a team. 

Maintain your focus on your core value proposition 

As your company grows, there’s the temptation to add additional services, go into different verticals, or even acquire new companies. 

I recommend ignoring those distractions and focusing on your core value proposition, products, or services.

In most cases, acquiring smaller companies, scaling product offerings too much, or entering too many markets at once, erodes company value.

Competing in two industries instead of one (with limited resources) often strains company resources and reduces profits.

Wrapping up

Vlad, thank you for your observations,  insights, and advice. 

Anyone currently building a startup (or about to begin their startup journey) will benefit from the lessons you’ve shared with us.

Three points stood out for me: 

  1. Focus on what you do best and be clear on your unique selling proposition (USP) 
  2. Don’t pitch for an overly optimistic and unrealistic startup valuation. The higher the valuation, the more money you have to make so your investors get the returns they want/expect. 
  3. Cashflow management is an essential skill. More often than not, startups fail because they run out of money. 

Given the current situation in Ukraine, I appreciate not only your time but also your work to support founders with fundraising and growing their businesses. 

I wish you well.

Photo of author

Dominic Tarn

Dominic is the Founder & CEO of Inbound Sales Content (ISC), a growth-focused B2B content marketing & SEO agency. ISC supports sales and marketing campaigns for market-leading SaaS firms, top-tier agencies, and Nasdaq-listed brands. He has a History BA from UCL, has lived in three countries in the last decade, and is now happily settled with a family and cat in the North East of England.

Start the conversation