Kenes Rakishev’s mainstream business is built around the Central Asian metallurgical giant Sat&Company. His efforts to reclaim scattered assets of the BTA bank around the world are also part of his growth strategy. Kenes Rakishev is also a well-known venture investor. He invested in Fastline Ventures, Telegram’s ICO, blockchain-based Finney smartphone project and Net Element, an American payment processor. He gave an exceptionally informative interview to the well-known Russian “CNews” IT and tech magazine. Kenes Rakishev revealed a lot about the startup scene and his vision of it in particular.
CNews: What was the idea behind the Net Element investment. Why you are selling your share now?
Nasdaq-listed Net Element is maternal company for US payment processor Tot Payments, Russian payment processor PayOnline and Digital Provider service aggregator.
Kenes Rakishev: It should be noted that venture business is risky by definition. However, at the some point I’ve decided to invest in new technologies, to diversify my business. Net Element was one of the dozens of companies we were examining. It was some of my first experience with investing in public company.
I knew that my experience and business ties might be of use for Net Element development. There were some ideas for further growth. Not every plan was implemented though.
CNews: One of the Net Element’s shareholders was Igor Krutoy, then it seems to be retreated. Mark Zoi, the founder of the company, also sold his share. His shares were bought by Nurlan Abdulov, the head of Geographical Society of Kazakhstan. Then he also opted out of the project. What was the reasons for it?
Igor Krutoy is Russian composer, poet, producer and socialite, well known as an author of lyrics for Russian pop-music.
Kenes Rakishev: That’s exactly about the development. Igor has been invited to the company because of the music and video streaming plans. His expertize was needed. Then, when Net Element was merged with Unified Payments, the payment processing has become a priority. It was the time when Igor decided that he can’t put additional value to the company, as content streaming was not abandoned. And Igor Krutoy has asked us to buy his share. I asked my partners and they bought it.
CNews: Net Element is kind of a strange company. It posts net loss after the net loss and all seems to be as if it survives only because of new share emission. Those shares are sold to investors, and then they sell the shares. How long such company might exists?
Kenes Rakishev: As for now this question should be forwarded to the company’s CEO. The growth, development and the current operation is manager’s burden. From the shareholder perspective I see the following. The business is certainly growing but the profit margin is very low.
The strategic vision with which I came to the company is transformed. We pass the company to the other hands. I presume that could the investment were more intense and pointed towards the customer base growth we might reached the whole another level. Maybe if the company was purely American, without Russian funds invested, the accounting maybe changed. There are a lot of companies without the net profits, and even post loses, but they are judged by market by other rules. Let’s take Uber as an example. Of course it is another business and another scale, but the same principle.
CNews: there was a story with the Sputnik bank. It attempted to found a joint venture with Net Element in payment processing. But the Central Bank (of Russia) has not approved the deal.
Kenes Rakishev: All the world’s Central banks are closely monitoring everything connected to blockchain technology. Not because of the technology itself but because CB’s need to monitor the blockchain related investment projects. Because there is no set of regulations the permit can’t be issued. As for example, Telegram can’t issue its tokens because of US-imposed restrictions.
CNews: By the way what is your opinion on Gram, the Telegram crypto currency?
Kenes Rakishev: I am one of the investors in the Telegram’s ICO. I can describe the situation. The US court states that the platform owners may do what they want until there will be no Americans among investors. And because there are some of them the government prohibits Durov from launching the crypto currency. He need to return the funds to US citizens. There is somewhat around 450 of them among investors. Then Durov is free to go with the platform. But he will be deprived of the major part of the initial investment.
Now Durov’s team tries to overthrow the decision. Among Telegram ICO investors there are serious venture funds, such as Sequoia. They perform a comprehensive analysis before they invest. It is a sort of quality mark for the project.
CNews: How much have you invested in Telegram?
Kenes Rakishev: We’ve made a pool of five or six investors, because Telegram restricted the total count of the first round ICO participants. Altogether we’ve put $20 million in it. There are investors from UAE, Russia, Kazakhstan, Israel and US. Telegram has managed to attract a serious club of investors: $1.8 billion were invested worldwide.
CNews: What is your opinion about the Telegram Open Network? They make some revolutionary claims. They intend to build an own Internet with independent VPN and DNS systems.
Kenes Rakishev: This is a very important question. In a matter of fact, I don’t believe that there will be highly diverse universe of tokens circulating in the foreseeable future. When we hear calls to invest in some currencies we need to know how the system works. Let’s take Coin Market Cap. There are all established crypto’s there and let’s take five with the biggest capitalization. Today, the total cap of the bitcoin is $160 billion. One bitcoin is circa $8900 worth (at the time of the interview). $70-90 billions worth of transaction is performed daily. It’s quite a volume for the trade. The second place is occupied by Ethereum with $18 billion in daily transactions. And there is Ripple. It is one of the investment coins though, but professionals know that it is used in SWIFT-like system for the bank wires. 500 banks in USA use Ripple. It is the real blockchain which gives real sense to the technology.
Then I see, that the owners of popular messenger platform intend to build the real blockchain around it. Telegram is not just a messenger, it is a news source for many of its users. Telegram offers news channels, social network, independent VPN. It has a concept to implement it in blockchain. I’ll invest in this thing. I’ll rather stayed away if Telegram offered just another crypto currency.
CNews: By the way, you have your own project in the field – the crypto currency Finney smartphone from Sirin Labs. But you decided to finance it with crowdfunding, without putting your own money in it. Why you haven’t invested yourself?
Kenes Rakishev: I’ve invested and quite a lot. But for that time there was such opportunity to use the ICO tool. The company managed to attract a serious capital. We used ICO as a tool, and I suppose, successfully. We delivered a totally new product with the help of ICO.
As for today there is no easy way to start a new phone manufacturer. Samsung and Apple spend billions in R&D for their new phones. We managed to make one, based on Google Android OS. Our main know-how is a crypto wallet, built in and patented Cold Storage functionality.
It runs separated from the Android OS and protected by the code, it runs transactions in a bunch of crypto currencies. It will support Telegram tokens when Gram becomes available. I’ll underline it once again: it is an unique product which exists separated of the OS. We also implemented an AI of some kind which prevents the phone from leaking the data, 24 hours in a day. It is capable to prevent attacks and signal if there were some. It is capable to check Wi-Fi networks for vulnerabilities.
CNews: Some time ago the project of Russian high-security “Taigaphone” was closed. It is not a simple task to launch a new phone to the market.
Kenes Rakishev: Absolutely. We are working as a pure hardware company, which deals with the hardware, not a software. We manufacture phones and other hardware. There is a need for sales channels, marketing teams. We have to compete with giants!
We were approached by HTC and they offered to introduce our wallet to their phone. We signed the memorandum, but they made it on their own. Their wallet is somewhat different and slightly less secure than ours. Samsung too now offers such solution.
But the question is: how flexible the company will be, how well it will be positioned on the market. We intend to present our product not as crypto wallet enabled smartphone, this is an optional feature. We present the secure phone, because it is the product that is much desired. We’ve certified the phone according to the Russian data security standards, by the way.
CNews: What are your sales volumes?
Kenes Rakishev: In total there was 10,000 phones built. 95 percent of the batch is sold.
CNews: What was the capital amount attracted by the ICO?
Kenes Rakishev: It was $153 million attracted during the ICO. It was fifth-biggest ICO in the World.
CNews: Have you accepted only crypto as a payment or fiat money too?
Kenes Rakishev: We accepted both. In the said time bitcoin was rising and was highly desirable.
CNews: What people got back in exchange of the tokens?
Kenes Rakishev: At the very beginning we offered investors to exchange tokens for the phones. But there were few that wanted to do it, to our big surprise. The majority choose to hold our tokens. Some of investors sold them at crypto exchanges. SRN is listed on the major exchanges.
CNews: Is it correct to refer to you as a metal tycoon?
Kenes Rakishev: It’s more precise to call me an investor. Some time ago we bought one of the best gold mining company in Russia – the Petropavlovsk group. And then we sold it. We’ve invested when the share price was 5 pence. We’ve sold it as it has reached 11 pence. Now it is 12 or 13 pence. We’ve spent 1.5 years developing the company, tuning the production and the new equipment. It is only fair that after it a strategic investor was found. But we are still in the business as I believe that the gold market has excellent prospects.
We are negotiating for other projects. In Kazakhstan I am now into the cobalt project. It is much more technological than metallurgical by nature. It is about the cobalt sulphate which is used in car batteries. The pilot project is already launched. It is a mini-factory for underground cobalt ore processing. As a final stage the batteries are to be made.
CNews: But at some point you decided to diversify and invest in startups around the world?
Kenes Rakishev: I started to implement this plan in 2011-2012, when I created the Singulariteam investment fund. The first fund was $ 20 million dollars. We have invested in more than 20 companies, but three of them are big. First of all, it’s charging the batteries from StoreDot: in 30 seconds – a phone, and in a few minutes – a car. Some very large Russian businessmen, as well as Samsung and British Petroleum, have already invested in this startup. And now they are actually at the final stage: they have produced a product and are testing it. But the legislation requires quite a long test, strictly speaking, you need to charge the device several thousand times.
CNews: What other investments have you had lately?
Kenes Rakishev: A good investment is General Robotics. The direction of robotics was one of the most important for us.
General Robotics was able to build many products, including for defence purposes: the special-purpose robots, an anti-drone system. From the latter, we created artificial intelligence, with which the robots are controlled. This AI determines how to move the device, how to defend itself, which drones to prioritize. It sounds a little scary, but this is the right thing for today.
There is still a good company that works in the space industry – Effective Space. It is engaged in an almost sci-fi project: developing a mini-satellite that can recharge old satellites or space stations. Let’s assume a satellite’s life is 30-40 years. When its life cycle ends, it turns into garbage. But there is an alternative: we offer the owners of satellites – the countries or companies that launch them and spend hundreds of millions of dollars on the equipment and operation – to put our mini-station into orbit, connect it to the satellite, recharge it through the solar battery, and then send it back to the desired orbit. After that, the satellite will be able to work an extra two to three decades. It will save money for owners, and this enables to work with space debris quite efficiently.
CNews: What is the amount you invested in such venture projects?
Kenes Rakishev: The first Singulariteam fund was $ 20 million. In Singulariteam-2 it was already $ 150 million, but I am not the only investor in it, there are other partners, for example, the Chinese Ren-Ren. Of course, not all investments are successful. In total, these two companies invested in about 40 companies, but four or five of them would be successful.
CNews: Have you sold some of the startups?
Kenes Rakishev: Yes, we had several startup sales. Gettaxi bought our company Juno, which became the market leader in New York and New Jersey due to various technological advantages and then successfully it sold for $ 250 million.
CNews: Do you still own a share in the Fastlane Ventures fund?
Kenes Rakishev: Yes, but this is not a success story, mostly due to the fact that after 2014, the Russian Internet has become unattractive to global investors.
We did the right thing. For example, Fastlane was one of the first investors in the Mamba dating service. There was also a lively project in which I invested myself – “IQ-card” – one of the first projects of a virtual bank with a card linked to a food retailer. It enabled transactions without the bank. There was a share in Ozone, but we successfully sold it.
Ozon is a online retail shop, an Amazon clone. It is popular in Russia.
CNews: It turns out that the Russian Internet is no longer attractive to investors?
Kenes Rakishev: I believe that it is not the Russian Internet that is interesting, but the Russian technology. Look, today, in the issue of artificial intelligence, only three countries are successful – the USA, Russia and China. Perhaps Israel is catching up too.
I am currently following one amazing company – Cognitive Technologies. It is all about the drones. It’s very difficult to make such a technology from scratch. I liked the fact that they spent a lot of time on research first, and only then they approached a product prototyping. And the company made a product, maybe even better than Yandex. Now that Sberbank has invested in it, they will be capable to bring the product to the market. And there are few such companies in the world; Does it come to mind unless the Israeli Mobiline, which was recently sold to Intel for $ 15 billion.
CNews: In Kazakhstan, are you investing in something technological?
Kenes Rakishev: We had many different proposals, and we carefully examining. In addition, my wife and I have a Sabi charity foundation, which supports novice businessmen every year. Competition winners receive grants for seven years in the amount of $ 100 thousand for the first place, $ 50 thousand for the second, $ 30 thousand for the third, $ 20 thousand for the fourth. Here the idea is not to invest, but to help, and we have helped quite a lot of Kazakh companies without asking for anything in return.
Some facts about Kenes Rakishev
Kenes (also spelled as Kenges) Rakishev was born on July 14, 1979 in Alma-Ata. He graduated from the Kazakh State Law Academy (2000), Kazakh Economic University (2002), as well as the English Oxford Said Business School (2007).
His career began in 1998 at the Road Safety Fund under the Ministry of Internal Affairs of Kazakhstan, where he worked as an adviser. After that, he worked for several years at various positions at Bank Turan Alem, Kaztransgaz, Intergas Central Asia. In 2003, he became the first deputy general director for export at the Kazmunaigas Trading House company, after which he worked as the deputy general director for marketing at Kaztransgaz. Over the next years, he went from the position of CEO of Mercury to the position of head of the board of directors of SAT & Company, a member of the board of directors, and then chairman of Kazakhstan Petrochemical Industries, chairman of the board of directors of BTA Bank.
Since 2015 he is a Member of the Board of Directors and the Chairman of Kazkommertsbank.
Kenes Rakishev owns Fincraft Investment House (formerly BTA Securities), 97.85% of Fincraft Resources (formerly SAT & Company) through which he owns Aktau Bitumen, as well as Ertis Ferronickel Plant. In addition, the businessman owns 93.28% of BTA Bank, which since 2015 does not have a banking license, but owns the banks of the same name in Belarus and Ukraine. In June 2019, BTA Bank sold 93.21% of the shares of BTA Bank in Kyrgyzstan. ” In July 2019, Kenes Rakishev also sold 22.5% of the Russian gold mining company Petropavlovsk to Roman Trotsenko.
Kenes Rakishev and his startup companies
Kenes Rakishev owns the Singulariteam fund, which invests in high-tech startups. He also opened a second $ 150 million venture capital fund with Chinese partners whose interests are represented by Goldman Sachs China.
Over the years, Rakishev funds have invested about 50 projects in the field of artificial intelligence, robotics, telecommunications, nanotechnology, energy, etc. This is mainly about companies from Israel and the United States. With the participation of the fund, many projects were brought to the stage of industrial development or commercial implementation. Among them are startups sold to companies such as Gett, Snapchat, AID Partners and others.
The most widely known story about Rakishev at the market was a way out of the investment when Gett bought Juno, a New York taxi service for $ 200 million, in which Kenes and his partners invested $ 25 million.
Snap Corporation, the creator of Snapchat’s mobile app, acquired a $ 7.7 million patent for a Mobli startup’s geo-filter, which was part of Rakishev’s high-tech asset portfolio.
GeneSort’s medical start-up, specializing in molecular diagnostics in the field of cancer control, was sold to AID Partners Hong Kong Investment Fund for $ 23 million. The initial investment of Kenes Rakishev and his partners was $ 2.2 million.
In 2018, Kenes Rakishev invested $ 6-8 million in the creation of Space Drone unmanned refueling tanks. They are developed by Israeli Effective Space, in which the fund of a Kazakh businessman owns 30%. Another bright story was the investment of $ 2 million in the production of combat robots by the Israeli company General Robotics.
Kenes Rakishev is the chairman of the board of directors of the Swiss-Israeli company Sirin Labs, which created the world’s first Finney blockchain phone with a built-in crypto wallet with the money of ICO investors.
In recent years, Kenes Rakishev has invested over $ 90 million in various high-tech projects, including TriPlay, IQcard, Fastlane Ventures, Mobli, Net Element International, Radio Runt Inc and others.