Shakhzod Ismoilov - Entrepreneur | VC Associate

Welcome to another VC Wisdom podcast. We have Shakhzad Izmailov with us today. He's an entrepreneur and a VC associate in Tashkent, Uzbekistan. We're going to talk about Yoshlar Ventures today. Shakhzad's interesting. He studied at the University of Winnipeg but came back to his native Uzbekistan to help run the fund, which is a Special Fund, first time I hear about that structure. So Shaikh Zad, welcome to the pod. Tell us a bit more about yourself and what you're up to.

Exciting, exciting. Thank you so much, Charles, for having me. It's a great pleasure. So yeah, indeed, it's a different time in Uzbekistan. It's a great opportunity for entrepreneurs, for start-uppers, and it's a great time to start your own business. A little bit about myself. So I, you know, fresh teenager, like 18, 17 years old, almost 18. I went to Canada, studied there, University of Winnipeg, Manitoba. People who know Canada, like Manitoba is one of the coldest places in North America. I went to like, hey, you know, one of the prestigious jobs at the time was, you know, for students getting into the Big Four, especially kind of for accounting. So we did a little bit of PwC experience, was a great eye-opening, working with the businesses. And I thought, you know what? In the future, if I wanna take a pass and understand how the businesses operate, and at some point, if I wanna really help them, I need to have that business experience. And Manitoba was cold, I was done with university, I went to Vancouver, and I was networking with a lot of people. I met amazing individuals who later became angel investors, and my co-founders who did that manufacturing, And the manufacturing is like, it's a make it or break it. It was a really hard point, but thank God a lot of things worked out. Even the cases when the clients saved us in a way. One sales ticket basically helped us to survive the bankruptcy. Later on, we did an M&A. And then at the time, one of the beginning points for me, like getting into the startup and venture ecosystem was my roommate. A guy was working for the, you know, a vertical SaaS project for the finance. And then, you know, at the time only GPT was existing, it's like 2021, 2020. He was like using ChatGPT and like doing Reddit when I started slowly getting into AI. So that was a fascinating opening point. And that I'm not a tech background, right? I'm like, things became very slowly easier for me to understand. And now like, oh my God, we have so many vibe coding, so many platforms that you can in a way like get your product off the ground and start tasting, validating ideas. Which is amazing. And then, the main reason I came back to Uzbekistan was, you know, 8 years I didn't visit back. So, like, I was all by myself, the family's here, and I came back, my girlfriend at the time was waiting for me, we got married, didn't work for 8 months, like, just, you know, doing online working, managing my own company. And then, a great opportunity came by, and then, One of the national banks in Uzbekistan offered me a position. And first project that we got there was creating a joint venture between 7 companies. And that is more like a purpose state-driven venture capital. It is United Ventures. And then basically the whole concept is like, hey, startups are a very interesting concept for the government to boost and the government is creating a lot of initiatives. While working on the venture, I got to learn how the venture system works, all the fancy words. At the time, they were completely unknown for me, like LP, GPs, like the fancy ROI metrics, but the risk-taking is completely different. So it was like, you know what? I can't be, again, I can't be sitting here and trying to create a venture without a background and getting hands-on experience of running the venture or working in the venture. And that's why, that's when I approached Yozhda Ventures. In a way, it's Yozhda Venture from Uzbek to English, it's Youth Ventures, venture capital that predominantly focuses on startups created by youth. And amazing part of it is this is venture capital money backed by the government. So the government is basically saying, hey, there's like $10 million, $20 million, $30 million for you guys to invest into startups. And one of the key things here to mention is like this venture fund is under the US Affairs Agency, and run by the senator. And being under the hands and the wings of the senator, it creates a very good opportunity to push forward new ideas, new things, developed new opportunities for the whole ecosystem. If you go back to 2021, it was especially COVID times, the venture starts slowly entering the country. It wasn't much of a startup, but man, over the 5 years, even like quantity, everybody's following Anthropic, everybody's following the YCs, the topics, what's going to be next big hit. People are trying to build and especially with the entry of, like, uh, Cursora or Open Cloud, people are testing ideas really, really fast. Which is a really good opportunity. And even us, we're doing a lot of hackathons, right? Just to get the people engaging and building products. So when the hackathon is off, like they can go and test their products. And on the, like, you know, it's a very interesting perspective because we are engaging all the people from the age of 9 to unlimited, like schools, hey, we're doing hackathons, teaching startups what it is, how it's done. And then at the corporate level, so we're like, hey, take a time off, here's a problem. Do you try to solve the problem by yourself? You've been inside of it, which is a great thing. And this is a very good vehicle to boost the ecosystem of the startups.

Is there a brain drain happening in Uzbekistan, generally speaking? And I mean, you said that, yeah, your girlfriend brought you back, but I guess a lot of Uzbek is like, yeah, I'm just gonna stay in Canada or stay in US if I have a green card, for example. So do you feel there's still some of that? Happening, or is there some pride also and some traction in the tech sector that makes coming back to the country something attractive?

That's amazing. Um, you know what, I would like to connect that point with one of the government incentives that was established back in the days. Um, basically, uh, government would support you paying your tuition if you get accepted to top 100 universities. And, uh, there was a lot of, you know, the thoughts like, hey, how is it going to affect the economy? How is it going to affect the country? And now we've seen a lot of talents are actually coming back, which is surprisingly interesting. And one of the reasons why is because, hey, you got the knowledge, now the country's ready to support you. Number one, capital. Number two, the opportunities. If you're saying coming back and trying to create something, the government itself is pushing and incentivizing the corporates, the government institutions to work with tech, to work with AIs, to work with, you know, the startup founders. And number three is definitely the One of the reasons a lot of brands are coming to Uzbekistan is the tax incentives. If you're a startup founder, like going to Series A, like you get a 1% tax, you pay 1% tax, which is a crazy opportunity. Something, you know, coming from Canada where I almost ended up like depending on a tax bracket, 50%, 45%, this is a golden opportunity. Even those ones that are still in, you know, abroad, They're highly helping us, like being a bridge between local talents and connecting the big techs. The reason is, in cases like a lady who's NSF connected me with one of the founding members of the Cornell Tech Runway, which is something we're working on, or another one connecting with the Founders Institute. So even though they are not in Uzbekistan, they are still contributing on a, on a very high level to the growth of the country.

What have been examples of success stories that we've seen in Uzbek and some startups that have gone potentially international?

This is a great question. I'll share with you one of the very recent news. An Uzbek founder got accepted to YC. Which is one of the biggest things. He's working on a data gathering right now, basically for humanizing the robots. It's one of the fancy ways I call it. If you watch the cartoon anime, The Big Five, so he's trying to create a Big Five for the nursing homes, which is a fascinating thought for a 20-year-old kid coming from Uzbekistan. To US and getting backed by YC. And he almost finished closing the rounds. And another case is more in the private sector. An angel investor backed, almost $200K invested as angel to the logistics startups. And now I think they closed the seed round and on the way for Series A, which is a fascinating opportunity for them. And if you kind of skip the West part and go to what's happening in Central Asia and like MENA regions. We see that even in Europe, a guy, a startup founder, was able to raise €1.5 million from European funds, and he's doing a massive entry to Turkey, which is, you know, a very good chance for them to expand on that side. So they're definitely been creating a lot of the hero cases, and, but I'm still waiting, and there's a couple ones that we are hopefully waiting to get accepted to Anthropic as a speedrun Sorry, for the a16z speedrun program and another couple of them going to a16z. And one commonality I've seen a lot of them is like not being scared to try out and they're open about it and they can justify how they feel like they're going to try this out. And then honestly, man, that speed is crazy. Like they act on the testing. It's the velocity of deploying and managing and coming back. It's amazing.

Right. And your role specifically, that VC is like government-based, which is quite interesting. Have you seen that model in other countries? And what's your specific role in the venture cap firm? Is it mostly on the event side? Do you filter deals? Do you help founders? Tell me a bit more.

Absolutely, yeah. So when we say like backed by the government, we're talking about only capital, right? We still operate as more or less as a private venture fund, Our thesis, like I've said, it's predominantly focused, hey, shifting the world by the use of investing in them today. And our role is not just being a key investor, but— Uzbekistan has been actively investing into the startups. And we see that the quality of startups has increased tremendously. And something we are very closely working on is working on the quality of them. When I say quality is like, hey, I don't just have an idea, I wanna try it out, invest in me. It's like, I found a problem and I'll have to solve it. This is like a reason A, B, C, F, I'm gonna do it, and then investing in them. And also a lot of founders nowadays, I've seen that they have a more of a technical background, which is amazing thing, but also, you know, in a startup, it is great to have a business perspective too, right? So we see that, we, in a way, lacked scalable programs to create the founders or bridge the founders between the business of a startup and then just creating a product. So that is why, as a part of our job evolving the ecosystem and happening in this, we created our own pre-accelerator program. It's called Oozecombinator. It's a lot of ways inspired because YC is doing a fantastic job. And we did a first batch and One of the crazy things is that we almost invested $1 million into the startups. It's 31 startups and we invested in 17. And one of them is doing a phenomenal job and we get to invest is that he's a dropout from Dropbox as he worked as a staff engineer. And now he'll be returning from Germany tomorrow. He's bringing a couple of guys from Google to start a company in Uzbekistan on something very, very huge scale and then trying to solve the the problem of the entire world was facing. So we see a lot of cases like that, and it's our job to not also being like evolving mechanism, but also being the bridge between what we have here and what the rest of the world has to offer to them. On that part, I'd like to note that we are working with a lot closer with SF. Yeah.

And what's your specific role in the fund and what's the structure of the fund like? If, yeah, is there like GPs? Do you also raise capital externally or is it just the government? Tell us about the structure.

Absolutely, yeah. I would say our GP is the government. My position in it is that it's more of a venture associate, being able to invest in a startup, scouting them and helping them to grow. In my case right now, I have 6 startups in my portfolio. One of them is working with the big sharks in Uzbekistan. And I think the government has put a lot of trust in us. So we, at the moment, we are getting a commitment from them, an official commitment of raising the fund size from $10 million to $20 million by this year, and then next year increasing to $30 million. So we, in a way, it might seem like on a global standard, it's a small amount, But as we are the early stage investors, mostly all the verticals, we see that being able to invest in smaller checks and doing follow-ons, it's good enough for us now. But lately I've seen, even though industry agnostic, a lot of startups that we're seeing and having a phase in has been AI-backed, AI-native, or AI-agent-driven projects.

Interesting. So what's next for Uzbek on the startup scene? What's next for the fund? For example, how big is it, right? The government, what do they give you on a yearly basis? Is it tens of millions? Is it gonna increase? Is this gonna become a priority? Tell me a bit more.

Absolutely, yeah. The whole Uzbekistan has the mission we have to create 400 global startups. And that mission puts us on a path of creating new talents, creating new heroes. So that is going to be our goal for next 3 to 4 years till 2030. And I think the capital is not scarce. There's always capital. It's not just the Aushtay Ventures, right? There are other ventures like $40 million, $20 million. I think we have over $400 million right now in the venture system in general in Uzbekistan. But also I've seen, and what I love is continuing to grow is a private market getting interested in. I see a lot of angel investors, not just like businessmen of Uzbekistan, but entrepreneurs from the, you know, the Belzer family offices coming from different countries and starting investing. As we speak right now, I've been getting messages from A16z scout. He's in Uzbekistan. He brought a phenomenal guy who's running the funds of a big guy from the NBA. And he's like, "Oh my God, I love Uzbekistan. I think the big talents come from here too." So I'm meeting them. So what I want to say is I don't think the capital will be any more problem in Uzbekistan, it is mostly like our, another half part of the job of helping to boost, helping to create more startups, helping them to integrate to corporates, giving them pilot opportunities, and helping them to network, being the bridge. That will be the main guideline for us to help us to grow economy and the venture ecosystem.

Interesting. And what's next for you? Well, do you stay in the fund for a while? Do you want to make a career out of VC? You told me you ran a manufacturing company before. Do you want to go back in the entrepreneurial world or?

You really brought up my pain point. Every time I sit in the meetings and talk to the startups, I'm like, "Man, I wanna get back to the business." But I have a, in a way, I really think that the, venture capitals, decision-making is really tough. You're betting on a founder, especially on the early stage. And that is giving me a lot of opportunity to learn, connect, and see the mistakes from other parts. And something I found on myself was lately on the business, I've really been working in the business and less on the business. So that is kind of giving me a chance to grow. So personally, I think I do have two options down the line. Most likely either raising my own fund or starting my startup, one of the two. But still, the mission of Yoshla Ventures is still on the table. We have a lot yet to do. But if I miss out on one of the opportunities, I think it will be one of the biggest mistakes in my life. So we'll see. We have to see.

Well, thanks for being on today, Shakhzad. Where can people find out more about you?

Absolutely. Yeah. If you guys are interested in Yaukstah Ventures and learning about it, you can definitely check out our website, say yaukstahadventures.us. And if you guys are willing to connect with me, I have a LinkedIn. You can type me Shakzod Ismailov from Tashkent, Uzbekistan, drop a connect, willing to explore connections, see how we can be mutually beneficial to each other. Always happy to meet new people.

It was Shakzod and Charles Cormier for another VC Wisdom Podcast.