We are talking with the founder and CEO of N1 investment Fund Nykyta Izmaylov on Zoom for this interview. He is in Europe at Web Summit, like thousands of Ukrainians who went to Europe’s main technology conference. Izmaylov is sure that attending of such events is extremely useful. “You can see the experience of others, gain expertise, knowledge, contacts, and get with all this back to your home country, Ukraine, to implement locally,” the investor claims.

In the pragmatic view of the N1 founder, “the import of foreign experience” will help Ukraine to recover faster and, most importantly, more efficiently after the full-scale war.

The Editor of AIN.UA questioned N1 about how the fund is doing overall, how its projects went through the nine months of the war, and what are its plans for the future.

The publication was prepared in partnership withN1
What does it mean?

The N1 fund has a specific focus on fintech startups.

Right now, 90% of its portfolio is centred around the following projects:

• sportbank mobile bank,
• Asquad payment system,
• TRANSENIX, a Tap2Phone technology-based service that turns a smartphone into a payment terminal,
• Money4YOU, a microloan service.

The fund’s total amount of investments exceeds $10 million. At the beginning of 2022, it was planned that N1 would make at least 4-5 more investments for a total amount of about $5 million, doubling the portfolio.

“It’s funny to remember now, but we even wrote an unusual description of the projects that we are interested in. One of them we called ‘quite a catch’,” Izmaylov jokes. If no kidding, N1 is targeting projects that are already generating cash flow, and need funding and support for scaling.

After February 24, the N1 plans as the plans of all Ukrainians, to put it mildly, went to hell. For the first two months, there was no work at all, the fund’s employees were engaged in volunteering and helping the Ukrainian Armed Forces and refugees abroad as much as they could. Closer to the summer, it became clear that it could not last so long, and we began returning to work. We started with developing a strategy.

What did the fund started with?

First, we focused on the projects we have already invested in. They all kept the team, continued to work and grow. So that was the N1 number one task.

At the same time, we did not drop the idea of ​​developing the fund, so we returned to the search for projects. To be honest, practically no new startups appeared during the war. This is probably due to the fact that now, during martial law, even those who had ideas to implement their own business are in a situation where they do not understand where to start. But we had certain lead specialists with whom we managed to get to know by February 24, so we worked with them.

Are there any chances N1 will close the deals before the end of the year?

Yes, there are high chances that we will close some deals. They will be not pure fintechs, but rather  businesses where a fintech component can be added. For example, specialized marketplaces, which we seriously consider as our investment goals, but it is in them a fintech component is absent. That is why we are considering bringing our expertise to those projects as one of the ways to invest. But, as I said, they are not fintech in their pure form.

Another vector of our development is Web3.

In a conversation with AIN.UA, Izmaylov explained that the work of the fund had to be reshaped because a problem arose during its development. The fund simultaneously helped to build startups, such as sportbank, and operated as an investor, as in the case of Money4YOU. Here comes the problem: the same team member analyzes investment proposals (how to invest funds) and thinks about how to develop the current projects. So it was decided to divide these directions into the following:

• N1 as an investment fund operating as a venture fund,
• N1 as a venture builder or a company that creates and helps startups to create companies from the idea stage to its full implementation,
• N1 as an investor in crypto projects.

The first two points are clear, but the crypto looks like a new story for N1. Why did you decide to draw attention to it?

These days, I had an opportunity to talk with large funds, such as BlackRock or Morgan Stanley. It became clear that a crypto component is a must-have for fintech. In a year or two, if your company doesn’t deal with crypto or blockchain in any way, or somehow doesn’t use tokens or NFTs — it means you’re kind of old-school, you’re not using all the possibilities. Startups that have something to do with the blockchain, at least for 1%, will be able to raise investments with more ease.

Therefore, I decided that my fund will also look for startups in this area and build expertise gradually. A lot of Ukrainians I know are deeply rooted in this subject. NEAR Protocol, for instance. In addition, the crypto market has in fact been legalized in Ukraine.

That is why N1 plans include crypto.

This is a promising vector, and I am already looking for a team to develop it. The team will be up to 10 people who are only engaged in the crypto market.

Is Ukraine also among the focuses?

Cryptohistory was created so as not to be limited to one country. That is why we follow both Ukraine directly and all of Europe at the same time.

Ukraine remains an important market for N1. Nykyta repeatedly emphasized this during our conversation — the N1 office in Kyiv continues to work, the team is in place, as are the projects.

To confirm, a few weeks before speaking to Izmaylov, the editorial staff of AIN.UA interviewed Denis Saprykin, the head of one of the N1 portfolio companies, the sportbank mobile bank. He did not hide, things are not going easily, but the bank continues to develop and increase its growth metrics. But all plans still came to naught, because of the full-scale invasion, Izmaylov states without smiling.

How is the flagship of your portfolio doing?

By February 24, sportbank’s goals were the following:

• one million customers by the end of 2022,
• investment payback by the end of 2022,
• loan portfolio of 1.5 billion hryvnias,
• deposit portfolio of about 1 billion hryvnias.

After February 24, everything has changed. Now the goals include about 650,000 customers by the end of the year, loan portfolio amounted to 700 million hryvnias, and 300 million hryvnias in deposits.

How do you think, will you succeed in achieving the previous goals by the end of 2023?

This is unlikely to happen. The economy fell by about 35%. We will increase by 5%, maximum 10%, every next year. Yes, by 10% each year is an upward trend, and we are a young team with a young product, and that will allow us to grow. But I don’t believe that the economy and society in general will grow at such a rate that we will catch up to the level we had before the full-scale war. I think, we will be able to return to these indicators in 2024-2025.

What do I mean? The number of clients and the nominal value of the portfolio itself — we will absolutely reach these numbers. We will reach the mark of 1 million clients, that is clear, but the value that we will be able to generate from each client will be much less than what we could generate before the full-scale war. There is a question about this, and it is based on several things.

First, the purchasing power of the hryvnia has dropped. The second is that the cost of the resource has increased and will remain expensive for several more years. The discount rate is 25% now, and I think it will stay at this level for the next 2-3 years. Would it be 20% or 18%, it will directly affect the profitability of this business. Because even if you attract resources from the people in the form of deposits, these deposits are expensive, and you still need to promise the market that you will pay 16-17% for each one. The other side of this process is issuing loans, where the rate will be effective somewhere up to 45-50%. Given the default and other overhead costs, this puts the business at the edge of standard profitability.

Even if it turns out that our customer base will be 2 and then 3 million, it will still be difficult to achieve pre-war strategic indicators. Because, unfortunately, our country itself has become poorer, and it will take 3-4 years for it to reach the pre-war level of population wealth. It is normal, we do understand the state of things, it’s just force majeure circumstances that basically reset us to zero.

It may seem that Nykyta evaluates the situation very soberly. He himself looks at it differently and describes his approach as pragmatic. “I would rather be wrong, and we will recover in 1 year, than talk about the positive just for a story,” he clarifies. In his forecasts, he tries to rely on a long-term strategy that allows assessing risks and not waiting for quick results.

The other three companies also have problems.

• Asquad, the Ukrainian analogue of Stripe, planned to enter the market in March-April. The war made its adjustments. The startup’s development slowed down for half a year, full-fledged work resumed in fact only in October 2022. Now we have to catch up, adapting to the conditions of the market, which is not aimed to develop, but to survive. The focus for 2023 is the European market, the volume of which is larger and the state is better.
• TRANSENIX fully became part of the N1 portfolio already during the full-scale war. The deal was closed in the summer. It is a complex product, the success of which is achieved due to many components. Cool technology — available, Visa and MasterCard licenses — received, local team — available, partner banks — in process. Earlier, another company from Belarus tried to enter the market, but Ukraine was not their main market, so the attempts were not successful. We are sure that we will be able to create a high-quality and demanded product in this direction, so our nearest plan is to cover Ukraine as much as possible.
• For Money4YOU, the market has tightened a lot — its volume decreased by three times.

It might seem that the situation is worse than anywhere else. But Nykyta keeps his chin up and speaks with such a confident, as if he knows for sure that the situation will improve very soon.

When you see such results, it is very difficult. How do you deal with it?

As I said above, I analyze events pragmatically. Yes, there is enough positive. First, I see that Ukrainians really want to return to Ukraine and rebuild it. Many people who have left the country absorb the demand, the experience, they absorb the new vision, they generate new ideas that they have seen in the countries of their current presence. And when those Ukrainians will return home, and they will surely do so, they will come with new ideas and begin to develop them here. Some of them will create new companies that we can invest in.

Secondly, after talking with large investors and investment funds, I understand that there is currently no high demand for Ukrainian companies and Ukrainian startups. But there is one important thing. Ukraine has expressed itself to the whole world as a strong brand. And now, even those investors from large funds who mentioned Ukraine maybe once a year or once every 10 years, now they know exactly where our country is, what its territory is, and what its strengths and weaknesses are. A kind of SEO optimization of Ukraine as a country, as a future investment hub.

Our prospects are good.

The main thing now is the victory.

We will definitely rebuild and recreate everything else.

Read in Russian

In 2012, the financier Nykyta Izmaylov started working at Parimatch, where he became a shareholder and earned his first million in a few years. Today he focuses on his own investment firm, N1. His portfolio includes sportbank, a mobile bank for people who enjoy sports and active lifestyles, Asquad, an innovative payment ecosystem that uses Corezoid technology, and other fintech startups. Besides, Nykyta is the owner of Eat Easy, a producer of organic beverages such as kombucha and tibicos. 

Nykyta  gave a lengthy interview to the Point G YouTube channel dedicated to IT business. We have handpicked the highlights of the interview in this text version: what challenges he faced being the CFO at Parimatch, how big money affected his life, why sportbank turned out to be $10 million more expensive than expected, and how he sees his future.

Material prepared with the support of N1

What does it mean?

The first money he had earned

My first serious job was selling plastic windows. I studied at the Academy of Banking in Sumy and created a small distribution network. I borrowed money from my parents, set up promotional stalls, printed flyers. The idea of the business was to offer passers-by to make measurements and find out the preliminary price of windows. After that, the factory’s expert measurer would visit the customers.

At first, I stood behind the stall. Later, I invited friends from the university. It was quite a profitable business: student work costs a penny, and income was 10% of the order.

Then I launched a student newspaper called “Sumka” [Editor’s note: Sumka is a bag in English]. We have published about 15 issues with a circulation of 10,000 copies. We placed advertisements there and were able to recoup the project. But later, I realized that I couldn’t make a lot of money and build a business on that.

In my fourth year, I switched to the distance learning and moved to Kyiv. I wanted to get a job in a large international company. It required improving knowledge: employers demanded much more than we were given at the university.

At first, I found a temporary job and was selling furniture. While riding the subway for 40 minutes at each end, I read international accounting standards. Six months later, I was able to land a job as an auditor at KPMG. In 2.5 years, I grew to the position of supervisor.

Job at Parimatch

In 2012, I met Serhey Portnov, co-founder of Parimatch. We were introduced by a mutual friend, Ilia Strah, former CMO, now a company shareholder. I didn’t know anything about Parimatch at that time. But Serhey convinced me that developing a business from the inside is much more interesting than auditing someone else’s.

I was offered the position of CFO. I still wonder why I agreed. In terms of money, the difference was minimal, approximately $500. But, apparently, I felt a synergy with the team. I thought that with these guys, you could really achieve something.

At Parimatch, I created a legal structure from scratch: initially, we had only one almost closed Ukrainian limited liability company. So the task was to develop a methodology, algorithms, licensing responsibilities, with what and how we would work.

I also introduced online payments so that users could place bets and withdraw their winnings both at cash desks and through our website. Ukrainian banks had almost no understanding of how card payments should be made at that time. So we focused on the European experience, adapting it to Ukrainian realities. I spent three or four years on these tasks.

Our competitors did not use technologies as we did. For example, they began accepting deposit payments by card one and a half or two years later. And we have gained a critical mass of online users during this time, and in 2015-2016, we became the flagship in the e-commerce industry not only in Ukraine but also in nearby countries.

The biggest fuckup

Things never go without any hitch. Once, the guys from the payment department ran over to me with puzzled looks, “We are missing a quarter of a million. What do we do?”. It turned out that due to technical errors, the same withdrawal was made dozens of times, and the user received $250,000 instead of $25.

In such situations, the only way out is to negotiate with the person to get the money back. It is almost impossible to solve the problem otherwise. Of course, you can try to deny the transaction, but it is problematic.

That client returned $250,000. So we gave him $10,000 as a thank you.

Becoming a shareholder of Parimatch and leaving the company

In 2015-2016, I became a shareholder of Parimatch. When I first started working for the company, I didn’t even think about it, and it seemed unattainable. But Serhey Portnov believed that two or three C-level executives should receive a stock option for their contribution to the business. And I was one of them.

From 2012 to 2017, I grew rapidly as CFO. We entered new markets, created companies, received licenses, negotiated. But gradually, it turned into a routine. For example, I had to explain to banks every invoice: in addition to the contract for advertising services, they asked for screenshots from the sites to justify why we advertise at such and such price with such and such supplier.

Eventually, I realized that it was not for me. I felt a slight burnout. It began to affect my work: I became more passive in my duties; I lost the spark in my eyes. So, I decided to resign as CFO.

Now the guys and I meet every month for unofficial P&L reports. I get dividends. I do not participate in operational activities. But I’m constantly monitoring the opportunities for Parimatch: if I see that a company might get a new contract, it will definitely get it.

Background of sportbank idea

In 2017, when I left the position of CFO, I became interested in monobank, still a startup at that time. They were actively growing; their operational model looked promising.

I reached out to Dmytro Dubilet, one of the founders of monobank, and offered to collaborate — to introduce our payment methods, Parimatch co-brands, to launch cards associated with us. But the guys at that time were focused on developing their own business, so they refused.

However, the idea stuck around. I found a group of like-minded people and co-investors, and we launched our own mobile bank, sportbank. It took two years to develop the platform and create the brand. Finally, we broke out from the MVP in October 2019.

Parimatch integrated our product as a payment method. Users pay a fee for withdrawing money to cards of other banks while withdrawing winnings to the sportbank card is free. It is a nice bonus for Parimatch regulars. 

However, as I understand it now, this was too weak a motivation for people to download and use our app. Clients need a full-fledged bank featuring deposits, installment loans, the ability to open a foreign currency account in Ukraine and abroad. And we had very limited functionality at that time. Therefore, the conversion of Parimatch users to sportbank was less than 5%.

Sportbank investments: a $10M miscount

We upgraded the product, added new features, and in 2020 launched an extensive advertising campaign with Andriy Pyatov. We covered the entire city. Our advertising materials were present across all metro stations. It helped us attract 150,000 new customers.

We also launched a referral program, offering customers UAH 50 (about $2) for attracting new users. But we had poor control for the program: it turned out that some even profiteered off inflating the number of new installations. We had to remove fake clients from the database.

However, the main problem was that the advertising campaign brought us mostly debit users: we could issue them a card but could not provide a credit limit. It isn’t easy to make money on such users. Our business model envisaged 40% of credit users while we had half as much in reality. That’s why in the beginning we expected to invest $5 million in sportbank, but we have already invested $15 million.

Currently have issued about 350,000 cards, and the portfolio has already exceeded UAH 600 million. We attract over 700-800 users a day, and half of them are credit users. So it is a good indicator for us. We have almost reached a break-even point with $1 million left to go. Then it will take another year and a half to return the investments.

Hence, today I estimate the value of sportbank at $60 million. I do not rule out selling the project in the future, but first, I want to make an operating profit. Teddy Sagi, an Israeli billionaire, wanted to buy the bank, but I refused. The inner ego says, “Boy, make a profit, let it start paying dividends. After that, the project will be worth much more, and you will praise yourself for having what it takes.

First $1,000,000 and life changes

I earned my first really big money in 2016 after receiving Parimatch shareholder status and the first dividends. The amount was ten times higher than the salary. Somewhere at that stage, I accumulated the first million. But I don’t keep money in cash, and I don’t have $1 million in my account. The money always moves.

All in all, I would not say that it has drastically changed my lifestyle. I still spend most of my time at work.

However, big money brought more opportunities, like traveling and buying big “toys”: a speedboat, a motorboat for wakesurfing. I spent money on entertainment for some time, which was always lacking in my student years, like nightclubs, parties, and more. It kind of balanced things out. It lasted two or three years, then it stopped.

In those two or three years, I overindulged in alcohol and gained weight. Finally, when I turned 30, I realized that something was wrong. I tried different things to make changes: tarot, numerology, gym, and physical activity like gymnastics. 

I found the answer in nutrition. First, I eliminated meat from my diet and got rid of the excess energy that had previously been extinguished by alcohol. Then I gave up alcohol altogether. I discovered long-distance running. I run marathons quite often. During the run, you are alone with your thoughts for four or five hours, and many of the questions inside get processed on their own.

I have been feeling its impact for three years: I wake up in the morning, I have no pain, I can form a clear plan for today in five seconds after waking up. It is of great value. I recently took a body test; my biological age is 26 years, eight years less than my physical age.

Why do I make money

In 2017, my partners and I launched the JKR Foun. It focuses on projects in the field of entertainment: gambling, gaming, etc. Initially, it also included fintech startups, but still, these areas require too many different ways of management.

Then in 2018, I suggested we take fintech projects into a separate structure. We got paid according to our shares, and I founded my own N1 fund. I have recruited former CEOs and network managers of large payment systems and banking, as well as consultants who in the past have helped startups get investments.

Our goal is to help fintech companies and startups get back on their feet so that after that, they give us dividends. In total, I have invested about $10 million in N1, and the estimated value of all the fund’s projects to date is $40 million. 

I believe that the fintech market has great potential. For example, the value of monobank is over $1 billion, and I share the view that Ukraine can accommodate five or six mobile banks. Therefore, there will be enough users and profits for everyone.

Parimatch and participation in technological payment systems form my monthly income. Some startups also make money, but I use this profit to develop other businesses.

I suffer from the fear of missing out. For example, someone succeeds and goes public with a billion-dollar estimated value, and it makes me think: “Why didn’t I do it?” It drives me and forces me to get up and move forward, launch projects, fund things. I get a kick from doing something new.

I had the opportunity to live and work in London and Cyprus, but I decided that my focus was Ukraine for the next five years. I must get a foothold here, set up a few projects that generate profit, and then move on.

Why do I earn? To have the resources to play high-stakes games with a capital of $100 million or more.

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“Bankers from all over the globe became anxious. American bankers are more anxious, while bankers from such countries as Ukraine are less anxious. Unfortunately, it is unlikely that Apple will launch their banking product in Ukraine in less than five years from now,” notes the co-founder of Fintech Band and one of the monobank project managers Dmitriy Dubilet.

He and his colleague from Fintech Band and monobank projects Oleg Gorokhovskiy provided three reasons as to why Apple Card won’t come to Ukraine, or at least in the foreseeable future.

Ukraine without Apple Card

1. Customer identification on Ukrainian banking market and, accordingly, the absence of the possibility to open an account without visiting a bank. “Unlike in the West, in Ukraine, it is mandatory for banks to meet a client in person to open an account. Clearly, all these problems can be solved, but in the nearest future Apple and Google are going to pursue other priorities,” notes Dubilet.
2. Another reason is a solid monopoly of a single player on the banking market, which can seriously limit the payment infrastructure. For instance, 70% of the infrastructure of POS terminals belongs to “PrivatBank”. Will Apple Card be able to utilize it? “I did not understand this point from the presentation. I think that there’s going to be a model where a client would get a card in Europe and replenish it from a Ukrainian card. Same way they replenish Apple Store account,” comments Gorokhovskiy.
3. Gorokhovskiy further notes that Apple still views Ukraine as a market with low purchasing power. Corruption and nontransparent regulatory framework do not do it any good either.

Undoubtedly, sooner or later global consolidation of banking sector, just like taxi, is bound to occur. However, launching a banking product on a new market is a monumental challenge. Each country has its own licensing process in place, own KYC/AML processes, own payment systems and credit reference bureau.”

It’s a win-win for everybody. Except for banks

Nonetheless, according to Dubilet, Ukrainians will also benefit from yesterday’s announcement. “Apple showed that Visa/Mastercard can bend their rules here and there to allow the issue of cards without any number, CVV or expiration date. We are already preparing papers addressed to these payment systems requesting their approval for monobank to provide their clients with the same option,” he announced.

All in all, Gorokhovskiy believes that yesterday’s announcement sends an important message to the entire banking sector. “In their model of the world (Apple – ed.), there’s no place for banks and other intermediaries in retail transactions. Banks would be left with KYC (identification and figuring out sources of funds), loans and capital management,” he notes.

In addition, loans could also be under question: considering the amount of cash on the company’s accounts, Apple could easily engage in issue of retail and medium loans for entrepreneurs.

“There are no local playgrounds, everything is global and no one should take it easy. But they are sending this signal all the time. Apple Pay is also a signal.”