Michal Tománek for the Faktor S weekly

What technologies are your responsibility in your capacity at KKCG?

My responsibilities include various projects and investment ventures that we've executed in the several recent years. There are three branches; the first one involves investments into IT startups, which is overseen by the Springtide Ventures fund. The second consists of investments into biotechnologies, where we have Medicem and Smart Brain and will probably add others in the future, and the third branch is centered on infrastructure and includes data centers and call centers. This structure is very logical because each of the sectors requires a different management dynamics.

As far as big data, you have two data centers, one near Hodonín and a second is being built in Prague. How much have you invested and when do you expect to recoup your investment?

The facilities are medium-sized data centers into which we've invested hundreds of millions of crowns. The return curve is entirely different from startups. Data centers are infrastructure projects built on a greenfield basis, and their payback period is therefore much longer. They are somewhat similar to investments into real estate. We believe that having a certain amount of infrastructure assets within the group is positive for a number of our other activities. Because they serve as a foundation on top of which numerous other layers can be built, which involve startups as opposed to infrastructure. For instance, we have now moved the Cleerio geoinformation group to the Hodonín-based data center, and we are trying to harness synergies that would allow the data center to specialize, for example, in geoinformation services. We not only think that it's interesting from the business viewpoint, but we also believe that there are many other synergic effects in the framework of activities we carry out now and will continue to in the future.

Do you plan to focus on the big data industry in more specific a way?

Big data is certainly an interesting topic. There is a large amount of data in the world, and this field presents a great opportunity to work with them. From our viewpoint as investors, it is attractive to invest into companies that specialize in processing big data and are able to use them productively. Nonetheless, the main thing for us now is that data need a place to stay, so to speak, and they stay in data centers. That's why demand for data centers will continue to grow. The dynamics in this segment are interesting and open up room for investment opportunities.

Are you saying that companies have too much data and ultimately lack space where to store them?

There are two interrelated trends: on the one hand, there are more and more data in the world, and on the other hand, companies are beginning to transfer data from internal systems into cloud storage, which is shared space at various external data centers. These trends feed off one another and generate demand for data centers. I think that there is not a shortage of data centers at the present time, but demand for their services clearly exists and is growing. We expect that there will be an increase in activities conducted by Asian companies and that they will be looking for data storage capacity. We want to offer them the data center in Prague, which we are building together with Foxconn.

Looking at investments into data centers and IT startup projects, both sectors are financially demanding and, as you said, the payback period lasts a number of years …

The risks and dynamics of investing into startups are different from the traditional investments we normally make, but we believe that the two complement one another in a mutually beneficial way. Return on investment is never instantaneous. We are investors, which means that we assess return possibilities, the degree of risk, and wait for the outcome as opposed to focusing on making fast money. Investments into the previously mentioned segments are smaller than the amount of money spent on the lottery license that we're applying for in Italy. They do not account for the main part of KKCG's investment portfolio.

Why do you only invest into startups from the IT sector? Why don't you invest, for example, into agriculture?

We invest into situations that offer the prospect of making profit. Growth opportunities emerge on markets that are either entirely new or go through a radical change. And such changes are usually brought about by disruptive technologies. We invest into IT and biotechnologies because they are closest to our specialization. There might be something interesting happening in the agricultural sector, but it is probably not the most liquid market, and it is not a field we are familiar with.

In choosing potential IT projects, you focus on Central Europe and Israel. Have you considered areas that are more distant?

In part, our strategy reflects the distance. We can't invest into a company on the other side of the world and fly there twice a year to check it out. At the same time, we are better familiar with the local environment. Another reason why our region is interesting is its relatively high fragmentation. The domestic markets in the Czech Republic, Slovakia, and Hungary are too small for a company to operate on the local market only. Firms face no choice but to expand into other territories, which suits us fine. Our goal is to find local companies with global potential and help them succeed on the international scale. It's similar in Israel; plus, there are a lot of smart technology-oriented people, especially in the IT and security sectors. In short, there is a lot to choose from, and Israel is exceptional in this regard.

Your main competitors in search for startups are J&T and Rockaway. How do you differ from them?

We don't have a policy of differentiating ourselves from other investors. We have our internal criteria based on which we invest. In some areas, our strategies coincide with those pursued by other startup investors; in others, we are different. One of our criteria is the size of an investment, where we aim at a sum somewhere between three to five million euros. Secondly, we make investments in the previously mentioned regions, and thirdly, we want the company to not only focus on the local market, but also to have the potential and ambition to operate on a global scale. These are our three investment rules, which we try to fulfill. On top of that, we have secondary requirements, such as specialization in certain fields that are close to our business, for example gaming.

What sectors does KKCG want to invest into in the future?

KKCG's business relies on three main pillars. Since our beginnings, we have specialized in crude oil and natural gas production and related activities as well as on mechanical engineering. In the past three years, the lottery industry has become an increasingly important as the second pillar of our operations. We also develop other segments, such as technologies and real estate. As far as other segments and investments into them, I would mention biotechnologies. To some extent, we are already present in this segment. We believe that it has a high potential, and we want to get involved in it to a larger extent.