How a Ukrainian Sold His Business In The USA For $10 Million
FIRST STARTUPRogynsky has a long story of business relationship with Lexalytics. From the start he worked for the company as a Demand Generation Director, later he launched his own startup Semantria, successfully sold it to the good old Lexalytics for 10 million US dollars and now joined the company again, at this time however as a member of Board of Directors responsible for sales.
It all started more than 10 years ago with a father’s question: "Do you have guts enough to enter a foreign university?”
At that time Oleg was graduating from a prestigious school with advanced English classes in Dnipropetrovsk and was thinking were to continue his studies after school. We chose the university literally at random, recalls Oleg. In early 2000s there was practically no information in Ukraine about higher education abroad. Finally, we chose political science and international relations at Boston University.
The father paid over 150 thousand dollars for his sin’s education but his monthly budget was dramatically cut to $300. Having this monthly budget, living in the US is not easy. Rogynsky, who had been admiring computers from his childhood, started making some money by repairing electronics for students and later on he gathered a team of guys who provided repair services. Money did not seem to be a problem anymore.
In 2004 Oleg together with two more students Dan Stone and Clay Camardo launched a joint venture. At that time Facebook was at it’s initial launch stage and Boston University was the second one after Harvard where students could start using the social network. The three guys created a prototype of today’s tags - an application which lets you mark a person on a picture on Facebook and then click the link to get to that person’s profile.
They invested 150 thousand dollars into business promotion.
"I was a poor student and had no personal savings to invest. Costs were invested by my two partners since they were from a very well-off families and then there also were two more external investors", - Rogynsky explains the source of income.
With that money the guys were able to hire photographers who shot parties, placed pictures on Facebook and using their own technology tagged people on the pictures. Later on the project was printed under the name “No Comments”.
But then all of a sudden Facebook introduced a new option, which let users tag people on their photos.
"In one night, all our business vanished into thin air. We lost all our money, fought with each other, and did not communicate for half a year." - tells Oleg.
Businessmen could only get a thousand dollars from a liquor advertisement.
Good bye, America!
Oleg’s education finished soon and together with that his American visa was coming to an end. "I was depressed, already prepared myself for coming back home and thought: the academic year will end and I will have to return to Ukraine", - Oleg shares his memories. However at that time his father received a residence permit for his all family in Canada - his sister had just entered a local university.
Rogynsky left for Montreal and joined Nstein Technologies startup. Technology they invented could “go through” information in Online-Media and automatically place tags and links.
Among their customers were: New York Times, The Economist, The Hearst Corporation. By the summer of 2008 the startup was already estimated at 100 million dollars, yet got almost three times as cheap after financial crisis and was sold.
After that Oleg started working at Canadian office of Boston Company Lexalytics, who were engaged in text analytics. Their software analyzed contents of news, blogs, and comments and showed what customers say about any brand or product on the Internet. For instance, new Microsoft Office has an option of leaving feedbacks about the quality of program usage. Microsoft receives about a million of such feedbacks every month. All of those are processed by Lexalytics soft and as a result the sift produces pretty charts reflecting customer’s attitude to a new Microsoft product.
There was one issue about software by Lexalytics worth 100 thousand dollars - it had to be stored on powerful servers. The price for servers together with installation and maintaining services could reach 400 thousand dollars. "So, in order to be able to use this technology, we needed to spend half a million dollars", - confessed Rogynsky, who was Sales Director in the company at that moment. Among customers who could afford such an expensive pleasure were Microsoft, Oracle, HP. Revenue of Lexalytics grew five times as much - up to 5 million dollars from 2010 till 2011.
"I like building. I can come to a place with no process, establish it, bring together the right technical products, place the right people on key positions and reach a stage where process optimizes itself ”, - says Rogynsky with no fake modesty and frankly claims that when Lexalytics was optimized to go like clockwork and the income significantly increased, he got bored.
The idea of what to do next came to me right at my working place. "People came to us saying: “your technology is cool but spending half a million just to start using it – that is too much", - Rogynsky recollects. Then he thought of keeping software on cloud data storages instead of servers, which would considerably cut the expenses for analysis. The so-called “cloud” – is an online storage, a unique virtual server actually consisting of a number of servers across the network provided by a third party.
With this idea in mind Rogynsky came to meet Jeff Catlin, CEO of Lexalytics.
Catlin could not foresee perspectives in that intention, however he let Rogynsky use the company’s software in order to develop the cloud technology. Lexalytics got 21% in the new company of Rogynsky called Semantria.
"At first Semantria should have been called Lexicloud, but the company was very unsure about success of the new project and did not want the startup name to have any relation to their brand. So I invented new name – Semantria, which is derived from word ‘semantics’ – tells Rogynsky.
Then Oleg started looking for people who could tackle all the technical work. He explains:
"I am not a technical guy, I never wrote codes and never will. That is why I needed people able to develop the technology".
Yuriy Baranov from Kherson who is the owner of Postindustria Company was the first to join the project. He offered his programmers and also brought Georgiy Kozlov to the project, who eventually became IT Director of Semantria and completely projected and developed the technology. Startup aimed at “B2B” ("Business to business"), where company intended to sell its product to other companies.
"Oleg asked me: are we able to create such a product? Will you be the one responsible for the outcome? I said “yes” – Georgiy Kozlov recalls his first steps in the project.
Thus, in February 2011, Oleg Rogynsky, Yuriy Baranov and Georgiy Kozlov became co-owners of Semantria. Rogynsky owned 44%, Lexalytics - 21%, 35% were left to Baranov and Kozlov.
A word worth its weight in gold
In a year the cloud solution was complete. “The first version left much to be desired, still it worked ", -Kozlov describes results of his work. Rogynsky started engaging customers. The first customer was Dachis Group, who do brand benchmarketing – a comparative analysis of a business efficiency. In the beginning they planned to buy the technology from Lexalytics, however the cloud solution by Semantria impressed them more.
The only doubts were about the incomplete features in the technology. Rogynsky promised to return the money in case they are unsatisfied with the service.
"We launched it, would fix our faults at night when they had difficulties using the service. Yet, we managed to build a great relationship with them. They understood that our technology was not perfect and that we would stay awake the whole nights to do everything. I still remember they paid us 3,500 dollars per month. We used that money to build a team in Kherson" - Rogynsky shares his recollections.
The boys decided to improve the development and made their technology able to recognize the context a word is used in. For instance, in the English language "windows" may mean both an element of architecture and operating system. Not considering polysemy of a word, analysis for Microsoft Company, for example, will contain tons of trash and so will not be adequate. Semantria solved this problem. Using their own algorithm they created a web of all the words listed in Wikipedia and traced the connections of words among each other. After that, the system would analyze which words in a news post or a comment the analyzed notion resembled and defined the meaning that word was used in as well as its emotional rate.
"Now that was really tough. Microsoft said we solved their biggest problem. Now they were able to conduct the supervision of their brands on a very high level. The thing is that all their products have very common names: Office, Word, Exchange, Communicator. The only brand that did not cause any difficulties was “Power Point", - Rogynsky smiles.
Semantria obtained major customers - Microsoft, Cisco, Hewlett-Packard. There was practically no competition at the market. “Besides absolutely perfect cloud solutions, they are extremely customer-focused and always consider requirements of their customers to be the most important factor", - said Eric Huddleston in his interview to Forbes. Eric is one of the company’s loyal customers who used to be the СЕО at Dachis Group, and now is the СЕО at TrendKite.
A millionaire from Dnipropetrovsk
In February 2013 Semantria gained their first million and started blocking Lexalytics at the market of text analysis. "Our technology was just the same, yet our expenses were 10 times cheaper", - explains Rogysnky. The rate of growth at Semantria 3 times exceeded the growth rate at Lexalytics, adds Georgiy Kozlov.
"Lexalytics owned only one fifth of Semantria. All our infrastructure was built upon it. We realized that we were making money using them. And Oleg managed to make the contract between us in such a way that they could take it away from us for at least 3-4 coming years", - tells Kozlov.
Former employers of Rogynsky were worried. Only in summer of 2013 Lexalytics expressed an intention to purchase the company founded by Rogynsky at the price of 2 million USD but the parties could not agree on the price at that time. Oleg was so with such a low price that he doubled the sales volume of his product in autumn. He got another offer. Negotiations in Boston were extremely intense. The price discussed was 3 million dollars. Oleg faced obvious pressure. "Lexalytics brought their bankers who started pushing: why would you need so much money? You are still a kid anyway. I got up and left”, - tells Rogynsky.
Then it all went according to the good old scheme. I got furious - announced a New Year discount - increased sales. Within a month after the negotiations the company’s income grew by 33%. In February 2014 they earned their first 5 million.
At the same time Lexalytics set up another round of negotiations about the purchase. That time Rogynsky tripled the price and in Summer 2014 the agreement was finally concluded. Lexalytics bought Semantria for 10 million dollars, in fact having turned the company into their Canadian office. Rogynsky became a member of board of directors at Lexalytics and is now in charge of the company’s sales volumes.
Was it worth selling Semantria so soon considering it had just made a steady growth? This question still gives no rest to the co-founders. "I have done everything using my own budget by now. Until February 2014 my debt stood at 100 thousand according to my credit accounts. Now, this is what my parents will be surprised to hear, by the way. I did not pay any salary to myself at that time, I lived off my loans”, - Rogynsky confesses. That is why he simply needed money. His decision to sell the start-up was also influenced by the fact that the girl he was dating as just entered Stanford University and Oleg planned to move to Silicon Valley with her.
"Now we could probably gain a a two or even tree times bigger amount. I guess, the company was sold too soon”, - says Georgiy Kozlov.
Today, living in Kherson he works as a Vice President of cloud solution development at Lexalytics.
Rogynsky is already thinking about new start-up development, only he hasn’t decided which one exactly.
"Good ideas don’t just hit your mind every day. I had thousands of ideas but I need to test how durable they are. Unfortunately none of them has passed my own tests yet”, - says Oleg.
He planned to pick a few Ukrainian start-ups in order to invest in them but he couldn’t find anything interesting for him. So, now together with his associates he created a project called UA50 - a special community of prosperous Ukrainian entrepreneurs who achieved success in the United States and are ready to help start-ups from Ukraine enter the global market. Oleg hopes that owing to their assistance there will be much more Ukrainian millionaires in the USA.
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