The Ukrainian online programming school GoIT attracted investment from Growth Fund IV – a new Horizon Capital fund. The parties do not disclose the exact amount and details of the agreement, but, as AIN.UA found out, it may be a check in the region of $10-15 million for a minority stake of 25%.
We recorded a short conversation with both parties about this deal: Senior Partner Vasyl Tofan and Investment Director Bohdan Svyridov from Horizon Capital, and GoIT Founder Roman Korytskyi and Project CEO Anton Chorny.
What is the amount and details of the agreement with GoIT?
Vasyl Tofan: We do not disclose the details of the deal, but our fund has already collected about $300 million. The standard investment of this fund is from $10 to $30 million for minority shares. If you take the midpoint of the corridor I mentioned, or just below it, and the average minority stake of 20-30%, that will give you a basic idea of the parameters of the deal.
Earlier, you announced plans to invest in three to five portfolio companies by the end of the year. Are they stored?
Vasyl Tofan: Yes, so far we are in the budget, we plan to close at least three investments by the end of 2023. And maybe even more. GoIT is the fund's second investment and three more are in the final phase.
GoIT wants to direct the raised funds to two things: global expansion and integration into an artificial intelligence product. Share the details.
Roman Korytskyi: We plan to actively expand in those markets where we are already present – these are Poland and Romania, as well as Colombia and Southeast Asia. We will also test new markets, for example, Turkey, where we are already conducting a pilot project. We are also interested in Chile, Mexico and Vietnam.
Anton Chornyi: I would like to add that we will also expand our product lines in these markets. For example, we will scale up the children's STEM education project GoITeens. This year we also launched the Neoversity online master's degree. It's important to understand that although GoIT started out as programming courses for adults, we are now a very diversified company: non-technical majors, children's education, postgraduates make up a large part of our business. The share of international markets is significant and growing rapidly.
Regarding the use of AI, in our segment, the main constraint to growth is checking students' homework. It is very important that, along with the increase in the number of students, we have a sufficient number of mentors who check homework. It is about thousands of homework every day. GoIT promises that every homework will be checked within 24 hours maximum. This is important for the quality of education. And even during large-scale blackouts in Ukraine, we checked 99% of homework on time.
To speed up this process, we're integrating ChatGPT to check the main course's DV. Our engineering team has written a large number of prompts for each homework. The chatbot performs a check in 20 seconds and gives feedback on what needs to be changed or improved. After ChatGPT, the work is already checked by the mentor.
In addition to expansion and AI, we are looking closely at the formal education segment – we are already considering the possibility of acquiring a partner online children's school and the development of higher education.
In your opinion, how does the investment market of Ukraine feel now?
Bohdan Svyridov: We see healthy interest from investors in Ukrainian companies that are actively entering foreign markets and have great prospects there.
Companies that focus exclusively on the local market are, of course, not as interesting to both Ukrainian and foreign investors as they were before the war, and this is logical. The main advantage of our market for investors is a high-quality labor force in the IT industry, at the same time it is not as expensive as in other countries.
Vasyl Tofan: We have been investing in the Ukrainian market for almost 30 years. It is clear that there were many economic cycles. And in our opinion, now is a good time for investment. There is a famous phrase of [American investor Warren] Buffett: “Be fearful when others are greedy and greedy when others are fearful” [from English. Be afraid when others are greedy, and be greedy when others are afraid – ed.].
Of course, this position may seem controversial, but in our case it works. We are sure that the 2022, 2023 and 2024 vintages will probably be the best.
It is clear that the risk factors after the start of a full-scale invasion of the Russian Federation and the associated limitations from the point of view of mobilization play an important role. But in my subjective opinion, the factor of global tech meltdown [crisis in the technological sphere – ed.] is more important.
If you look at it from a scientific point of view, then you need to conduct a controlled experiment. Take a company that has a presence in Ukraine and a company from the same industry, but already without a presence here. For example, EPAM, which is traded on exchanges, and Thoughtworks or Endava. And just compare their sales. And we will see that, say, Thoughtworks' sales this year will fall by 12%, EPAM by 3%, and Endava will be flat.
And it will become clear that the risk factors in Ukraine are not in the first place here. I can compare our 2017 vintage stock with the current one. And now there are much more opportunities than six years ago. There are simply more large and successful companies now, despite very bad macro conditions. So we are optimistic.
Why are we happy to invest in GoIT? The world education market is about $6 trillion. It is one of the largest markets in the world, accounting for approximately 6% of global GDP. And the share of EdTech is still small, also about 4%, but according to forecasts of Morgan Staley, by 2030 its share in the entire educational sphere will grow to almost 8%.
It is clear that the education market needs to be changed – it is currently too unproductive, expensive, there are not enough teachers, etc.. We are in for a paradigm shift in how we teach and how we learn. The model, when a person spends a conditional 12 years in school, at least four more years in university, then goes to expensive master's degrees, after which people are left with huge debts, is unsustainable.
GoIT's success lies precisely in the fact that their training model is faster, more economical in terms of financial resources and takes into account the current needs of employers. Their turnover has increased 12 times over the past three years. This is a super result.
Can you name the 3 most promising areas for investment right now?
Vasyl Tofan: We are interested in service IT, even though the shares of major players have fallen. Globally, the demand for software developers will grow. The second is the education sector I mentioned. But the fact that we previously invested in Preply and now in GoIT is not that we specialize in educational projects. Horizon Capital looks at successful, fast-growing companies with a good product. This fits into the strategy of efficiency improvement – to do more for less.
At the same time, it is important to add that we are not a venture fund, we do not “seed” 20 companies, two of which will survive and return the money for the remaining 18. We invest in mature, stable companies, this is a fundamental approach.