Athletic + career excellence and VC in the Balkans - Pedja Predin, Fifth Quarter Ventures

Pedja is an INSEAD 14J and GP at Fifth Quarter Ventures, the first VC firm solely focused on Southeastern Europe. Pedja was on the Serbian National Water Polo team, and post-INSEAD scaled Gelato (a print-on-demand startup) into a unicorn my leading its expansion into emerging markets like India, China, and Russia. 

In this episode we discuss the types of founders Pedja likes to invest in, traits he looks for in investors and partners, how to build brands in emerging markets as a foreigner and much more. 

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Transcript

00:00:00 NICK LALL
Welcome to the INSEAD Emerging Markets Podcast. I'm your host, Nick Law, and I'm here today with Pedja Predin. He is Managing Director at Fifth Quarter Ventures which is a VC firm focused on Southeastern Europe. Pedja is an INSEAD 14J, and he is about as INSEAD as it gets. He's lived across seven countries. He was on the Serbian national water polo team. Post_INSEAD after working Microsoft, he joined a Print on demand startup named Gelato, and helped scale it into a unicorn, by leading its expansion into emerging market countries like the India, and South China, Africa. Russia, UAE, Ultimately, he has returned home to Serbia to launch one of the first VC firms solely focused on Southeastern Europe. So you've really lived an extraordinary life, and any one of your accomplishments would be considered exceptional by most people. I was wondering if you could start out by sharing a little bit about your childhood. Were there any indications at a young age that you might accomplish these sort of things or live such an international lifestyle? How did you get into Water Polo you if you just talk a little bit about your your origin story and then we can go from there perfect

00:01:09 PEDJA PREDIN
well first i need to correct you that i was not an olympic athlete i was a professional player but didn't get to that level i did play for the for the junior national team and super proud of that. But I was far away from the Olympics. Okay. I'll Well, edit that out.

00:01:31 PEDJA PREDIN
And in terms of the story, I so, I grew mean, up in a pretty normal family. My parents were relatively successful in their own ways. My dad was actually kind of like a GM of a small food processing company. And my mom was an engineer. But in addition to my that, dad was also a Vorepolo national team official. And Vorepolo was pretty much part of my home since I was a little kid. And when I was three or four years old, I really didn't have a choice which sport to choose. So I was pretty much pushed that way. And for it's me, also a big part of my life today. Just seeing kind of like how sport can really affect the future life decisions. I think that for me, starting to play at four years old, building kind of like this teamwork muscle and ability to work with different people and adapt to different cultural environments was a huge benefit that I was able to get at an early stage. And for me also, water polo was the main way how I ended up in the US and achieved a scholarship to play sports and also study for free, which at the time my parents really couldn't afford. So yeah, in a way, it really helped me come to where I am and play a big role. But I'm also super grateful for my parents for instilling the traditional family values inside myself at an early age. For sure.

00:02:54 NICK LALL
it's a really Yeah, interesting background.

00:03:05 NICK LALL
I mean, I was wondering, it seems that water polo and athletics has been such a big part of your life since you were young. I mean, since you were four years old. Even looking at your deck, I saw that your other partners, one of them was also an athlete, I think. And then you were saying even that you prefer some of your investors to be athletes as well. I was wondering what the reason for that is. What do you think athletic competition gives a person that allows them to succeed in other areas of life? gives a person that allows them to succeed in other areas of life.

00:03:24 PEDJA PREDIN
I think that one of the important elements is taking this extra mile and really doing things when no one is watching you. So building that discipline is crucial. And I mean, sports is not the only way to do it, but definitely is a good way to get that, I would say, skill. And then, you know, really having kind of like a vision and mission in life, which is not only monetary compensation, but really trying to build something big. And as an athlete, for me, kind of like winning the Olympic medal was always some big dream. And I see founders that think about kind of like building the company which is going to achieve the unicorn status as something very relevant or very similar. And I think that also our region is, I mean, Southeast Europe, where I'm from, is mostly known based on the great athletes that we have. I mean, Luka Modric in soccer from Croatia, Novak Djokovic in tennis, Nikola Jokic, Luka Doncic. And they were able to push themselves against the odds and really be successful. And not just for a short period, but really for a long period of life. So always having additional motivation to go to the next level. And that's why I think that that mentality for the founders can be really crucial.

00:04:45 NICK LALL
Definitely. I mean, if you look at the NBA for the last few decades, most of the top international players have come from that part of the world. So clearly there's something there, whether it's culture or discipline that's taught, it's led to a lot of world-class athletes.

00:04:59 PEDJA PREDIN
And it's only 20 million people living here, right? I mean, if you think about kind of like the former Yugoslavia all the way from slovenia to macedonia it's not a lot of people yeah definitely pretty

00:05:07 NICK LALL
definitely pretty amazing outsized success i definitely want to get more into southeastern europe and why you're investing in that region but maybe going back to your personal story i was wondering if you could talk a little bit about your own experience building a unicorn first of all could you talk a little bit more about joining the company what did you see in it that made you believe that it could go into something larger? And you especially were focused on going into emerging markets. So I'd also be curious why the focus on emerging markets and why the company decided that that was the strategy they wanted to pursue.

00:05:36 PEDJA PREDIN
wanted to pursue. Oh, great. And maybe kind of like, if you're okay, maybe we take a step back and kind of like we discussed the childhood. And then after that, I mentioned that I went to the U.S. to study for college. And I did stay in New York for a few more years after college to work in an executive search and leadership consulting company. But then, same as you did, I went to INSEAD for an MBA in 2013. And for me, that was the next step in building the global career. An amazing experience, one of the best years I had in my life. And during that year, I really decided I want to be in the technology sector and really focus on emerging markets in a way. So my first job was at Microsoft, where I was focused on the business management strategy for its operations across Central and Eastern Europe, which is pretty much if you put the line on the map, everything which is East from Germany. So starting from the Baltics, Poland, all the way until Greece. And I stayed there about two years and realized that I want to be building stuff almost from scratch and make an impact in a way. So I was recruited by a company called Gelato, which is in print-on-demand space, which was something that I didn't know much about. And also I thought that that was kind of like an old idea. I mean, what can you do? But they really had a unique value proposition, and they still have, that you can upload different PDF or JPG file. They have a proprietary software which is going to prepare that file for printing, so doing all of the pre-press work, and then routing it to the closest professional print house, which is in their partner network, routing it to the closest professional print which is in house, their partner network, which is going to be closest to your end address. So pretty much you upload and you don't worry. It's going to be prepared for printing. It's going to be produced and it's going to be shipped to the address wherever you want all across the world. So really the value was in this network. And Gelato has production partners in about 40 countries and they're able to ship to 200 countries plus. And a big part of my role was actually building that network. So I spent about six months in China. I set up partnerships in India, in South Africa, in Russia, in UAE. So in a way, all of the markets that no one else wanted to go. But for me, that was really a formative experience. So after INSEAD getting this great responsibility and also be part of the company, which is growing. So when I joined, a lot was, I would say, a serious A startup. And now it's a unicorn backed by SoftBank, Goldman Sachs and Insight Partners. So it was a great journey.

00:08:27 NICK LALL
Awesome. Can you talk a little bit more about that experience going to China, India, places like that? What were the challenges you faced? And I assume that you don't speak all those different languages. So what sort of research did you

00:08:33 PEDJA PREDIN
I assume

00:08:36 NICK LALL
of research did you go? First of all, going in there and then how did you convince people? I guess you were working with the people who were actually like your business partners who were printing but i guess there was also probably a lot of market development going on as well so given cultural differences languages differences how did you build relationships how did you build the brand in those company countries no i think

00:08:58 PEDJA PREDIN
it's a great question and you know from this, I probably have one answer, but at the time, I was thinking completely differently. I think that really INSEAD helped me a lot because my job was pretty much, we would decide which market to focus, and then I would fly in and try to build relationships. And INSEAD network in all of these places is quite strong. So you always have someone to call and ask for perspective, intro, some advice. So that was super helpful, especially when I went to China, when I went to Shanghai, where there is a huge alumni network and pretty much someone will know someone and that can open up the doors. And I think that element that I probably took for granted at the beginning was the importance of building strong relationships, especially in the Eastern markets where if you come from the West, you're part of a big, sexy startup, you need to treat them properly. I mean, they're going to look at you as someone who is an outsider, but there needs to be respect from both sides. And if that means going to a lot of dinners and spending a lot of time with them, meeting their families. You need to do it. And that's maybe something that in the Western world is not as common, but it really takes a lot of time to get to that stage and then make a deal that's going to work for both sides. And we also had a situation, for example, in China where we would actually sign an agreement with a partner, but the day after they would would say it doesn't mean anything we're not gonna do anything for you because we just don't trust you and but you did sign the agreement why do you do it they said you just just piece of paper it's nothing else so you need to overcome that you need to actually hit your head against the wall a couple of times in my case maybe even more than that to learn the local intricacies and nuances and be able to kind of like adequately respond and build a trust. But it was painful. I think it was a really amazing experience. There were a couple of times that I was super embarrassed that we were not able to achieve what I promised to the rest of the team. But at the end of the day, I think it actually provided a huge value to the company and it meant that my work was successful.

00:11:14 NICK LALL
Yeah, I mean, it definitely seems like it. And being able to do that in multiple countries is pretty amazing. I think people go to one country and it takes them a long time to really understand the culture and the customs. And that is what business really is about. It's about people at the end of the day. So if you're in a place like China, you really need to learn it, I think. But

00:11:28 PEDJA PREDIN
in a place

00:11:32 NICK LALL
NCN network definitely helps us. I've learned making this podcast. There are helpful people all over the world. So moving on from that, at what point did you decide to exit the unicorn and then get into VC? And if you could talk about the reasoning for that, why did you see VC as an opportunity?

00:11:49 PEDJA PREDIN
Well, from the moment I left Serbia, I was 19 years old and I spent about 13 to 14 years abroad at that time. And there were some private reasons, but also on the other side, I saw the opportunity in the market where I'm from. I mean, generally, people tend to have strong STEM, so science, technology, engineering, mathematics backgrounds, which is important in the technology sector. And I saw the early companies coming out and building interesting stories. And I was thinking, perhaps my scaling experience from Gelato and everything that I did on the commercial side can be quite complementary to these technical founders. At the same time, since the INSEAD days, when I was part of the P&VC club, I wanted to be on the investing side. So pretty much trying to get both those things in the equation, I actually started helping out an early stage startup in Serbia. They were going through the fundraise round and I met probably one of the only VCs in the region, actually the first VC, South Central Ventures. And we liked each other and they told me, why don't you come work for us? And that was the thing. So I started working for them in 2019 as an investment manager and stayed about two years before deciding that together with my partner now tico we should do something else and we should build a fund on our own what was the process of building

00:13:16 NICK LALL
was the process of building your own fund raising for it sounds like not necessarily the easiest thing to do but you clearly had the goal in mind i think you're talking about as a lot of these athletes from Serbia might, in terms of, you know, you want to do something that's exceptional and you clearly were able to do it. But I was just curious, what made you feel so strongly that it was time to start a VC firm that you're running in Serbia? What value did you think that you could add that made you think that you were the person to do it at that time?

00:13:44 PEDJA PREDIN
the person

00:13:46 PEDJA PREDIN
Well, I have to say that we came to an idea just before the markets collapsed and the war in Ukraine broke. So, you know, we had interesting honeymoon and then we got pretty depressed. But I think that we saw a couple of things happening and that really drew our attention on why we should do it right. So we saw a lot of the funds in a local market being more in a way bureaucratic or having more consulting and maybe finance backgrounds, while less being on the go-to-market side and really trying operationally

00:14:18 PEDJA PREDIN
being on the go-to-market side and really trying operationally to support the founders. So that was one of the key reasons why we thought we should have a unique value proposition. But the pure process of doing the fundraise for the first time in this difficult market was not easy. And it also took us a bit of time to get all of the regulatory permits because we had to set up the management company and then alternative investment fund, which is regulated by the local Security SEC, Exchange Commission. And that took a bit of management time. company and then alternative investment fund which is regulated by the local sec security exchange commission and that took a bit of time and then really what we are super proud of that half of our investor base is foreign coming from other us austria germany hong kong so we were able to get you know a new money into Serbia, which came from more developed markets. And we're super proud of it. But doing not just the fundraise, but also the regulatory element, and also the KYC with the banks, it was an interesting experience. Sure. I

00:15:19 NICK LALL
bet. And given that VC is still relatively new in the region, I'm sure a lot of those regulations are maybe new as well, or once it were difficult to navigate.

00:15:30 PEDJA PREDIN
Yeah, we're the first private fund in a way that is regulated by the local rules. So there were some funds that were set up by Luxembourg or Netherlands jurisdictions. So we're the only one here and it's kind of like a lot of education that needs to take place.

00:15:43 NICK LALL
So I guess you must have had to have meetings with the government and watch them do your plans and all that.

00:15:49 PEDJA PREDIN
Yeah. I can only say that in the first meeting, one of the regulators, and I cannot say, of course, which one asked us if we can provide net asset value calculations every day, but then we gave to them. So I'm still thinking how we could ask any startup to provide that. But that's kind of like the growing pains.

00:16:10 NICK LALL
No, definitely not easy. So I respect you for that. When you went to these international investors, what was the pitch that you made? What was it about Southeastern Europe that you were telling them that they need to get into this region and invest in it? What's the potential that you see? It's really kind

00:16:23 PEDJA PREDIN
really kind of like selling the region in a way. Especially it was obvious from the moment that everyone started working remotely and then during COVID it exploded. What we see from the madness is that you can really create global products while being located here in Southeast Europe. The model is as follows in a way. You keep the product and development locally. We talked about kind of the strong STEM education here. The costs are super low and there is good technical talent. While on the other side, you can keep the agile and sales and marketing team in global centers like New York, like London, like San Francisco, where the primary market is. And at that time, we saw the first unicorns coming out. In Croatia, we have Infobip, which is in kind of like the communication space. We have Remax, which is making supercars, electric supercars. And then in Romania, there was UiPath, which was the biggest IPO in Europe. So that's really convincing people that actually it's possible to make that happen here. And it made our pitch a bit easier. And then we added the second element that we do play the role of operator turned VC. So we really try to help these technical founders get that second side of the brain, or we help them expand the team, or we help them on the go-to-market or in the fundraise so they can have end-to-end capability to build a global food service.

00:17:59 NICK LALL
It makes a lot of sense. I think you've seen a lot of similar success stories of other small countries internationalizing like Israel or Singapore, Estonia. And I think over the last couple of decades, at least, it's been pretty common for U.S. companies to outsource a lot of their technical work to Southeastern European countries. So you may as well have that talent make money themselves and build companies in the region.

00:18:23 PEDJA PREDIN
Yeah, we also want to build IT here. That's the next level in the evolution. And also as a fund, we see ourselves trying to play the role that, for example, Index Ventures played in the UK a few decades ago, or Sequoia did in the Silicon Valley, or GGV did in China. So we're really trying to be that market maker and help the ecosystem get to the next level.

00:18:45 NICK LALL
Sure. I've seen on your deck that there's quite a large focus on AI. I was wondering why is there the focus on AI and why do you think that the Southeastern European region in particular is particularly well suited to build AI companies?

00:18:59 PEDJA PREDIN
Well, I mean, it's 2024. So I think in our industry, if we're not talking about AI, you're probably not in the right business. That being said, however, there is a lot of noise. There are a lot of things that I think are not going to survive. They're not going to really be relevant in a couple of years. And there are a couple of areas where we actually think that local founders can be successful. So they're probably on one side areas which are more capital intensive, require a large number of people or large costs on the servers. And I don't think that's where we can play the role. But there are elements of the AI infrastructure or development stack where we can find a global leader, which can be agile and nimble. It can come from here. And we believe in kind of like a strong technical talent, as I told you. And also universities are developing great type B. So the goal is really to leverage that and make something big.

00:20:03 NICK LALL
Are there any companies you've... For

00:20:05 PEDJA PREDIN
example, you see a lot of dev tools happening, coming out of Croatia in the past two years. And some of them are really playing bleeding roles in their respective verticals.

00:20:16 NICK LALL
Do you have any examples of particular companies that either you've seen in the region or you've invested in that you're most excited about? that either you've seen in the region or you've invested in that you're most excited about?

00:20:30 PEDJA PREDIN
we like the companies that have some roots Yeah, but already are global. here, So we also are betting on the diaspora angle where people like me or similar, maybe went abroad, got their degrees or went to work in Facebook or Google or similar companies, and then decided to come back. So one of the examples is a company called Talas, which is in the semiconductor space. It has a very unique proposition focused on the LLMs. And the founders are from Bosnia, Montenegro, and Serbia. It's a diverse team, and they all worked together for a long time. They worked together at AMD before, at NVIDIA. Then they set up a company called TenseTorrent, which is now Unicorn, and this is their latest venture. And we think that's potentially one of the companies that can be a global winner and has strong local roots.

00:21:24 NICK LALL
Sure, yeah. I had a quick look at TOS and it's pretty amazing because I think AI is all the rage now as we've been talking about, but there's a huge energy cost to it. And if their solution is actually feasible, it's pretty amazing that you won't need these huge servers to actually generate the...

00:21:43 PEDJA PREDIN
Well, we're in the game of financing risk. So I have my own hypothesis, but there are some things that need to happen in the future.

00:21:53 NICK LALL
For sure. You've also talked about there is a social impact to investing in Southeastern Europe. I was wondering if you could expand on that a little bit and talk about why it is helpful for these countries to have startups that are invested in by venture capital.

00:22:09 PEDJA PREDIN
Yeah, I think that it's important to say that there are a couple of things. I mean, as a venture capital investor, in addition to kind of like focusing on really returning the money to my LPs, we think that it's really helping the ecosystem in a way that it's providing global opportunities in terms of job being created this way. We're also bringing global technologies home and getting them adopted in a faster way than they were before. So we think that local economies can really leapfrog when it comes to specific segments, such as AI that we spoke about a bit earlier. And what we ultimately are about is providing a much needed much, social mobility tool.

00:22:58 PEDJA PREDIN
So trying to as we create, call the first them, flywheel effects in our respective countries.

00:23:05 PEDJA PREDIN
So we want to see people getting great jobs buying their first house then the second house then a great car being able to travel around the world and all of these things that we take for granted if we went to INSEAD but for a lot of people that grew up here and didn't have these opportunities it's really life-changing and we think that this way we can have the new generation of entrepreneurs that's going to even be more successful. As you know, we were for a long time a communist or let's say socialist country where you didn't have private enterprises until the late 80s. So it's actually like the generation ago. So it's still early innings. And that's why we see the big social impact here. I think

00:23:46 NICK LALL
there's a huge opportunity just to not only provide jobs that pay more than once people would have been getting otherwise, but also allow people to stay at home and not have to go to another country to be able to make the kind of money that they're capable of making. So it's a huge impact, I believe. What advice do you have for startup entrepreneurs in emerging markets or Southeast Europe in particular, who might be interested in raising VC funding? Where should they start? What would you look at in terms of eventually you might actually invest in? So

00:24:18 PEDJA PREDIN
I'll probably focus more on Eastern European founders here. And I think that this advice would be a bit more relevant to them, but maybe in some other regions it's going to be a similar story. But if you think about the stereotypes of founder profiles, you see two types here in Eastern Europe. So one, A, are the hustlers that are maybe stronger on the business side, but they really are about trying to make a good deal for themselves personally. And two, B, so the second type is technical founders. So traditionally, very introverted, most often really lacking business skills. So in a stereotype, typically Eastern European scientists that you see in movies. So we actually prefer to work with this type because we think they're coachable and we think there's a lot of value that they can provide. So in a way, there may be some similarities to A16Z strategy, but more focused on Eastern Europe. So what is our advice to them is they need to focus on their strengths. is our advice to them is they need to focus on their strengths.

00:25:29 PEDJA PREDIN
They really shouldn't focus too much attention you know, on, raising too intensely and trying to impress some people. They should be themselves. So do what's the best. Play it naturally. Don't try to pretend to something that you're not. Just be who you are. The right person will come in. The right investor will be there. It might not be us, but someone is going to be there and they'll help them get where they need to be much faster. So that's the advice. Just play it naturally, use your strengths, and good things will happen. It's good

00:25:59 NICK LALL
advice. And it is reflected in your investment strategy. I think most of them are very product- driven companies from what I was looking at when I saw your portfolio. And I think also just given your strategy of having sales teams in the US or more developed countries, it makes sense to have the more product focused people be based out of your region. Well, I think that covers it from my side. I was wondering if there are any other thoughts you might want to share or anything we didn't cover that you'd like to talk about.

00:26:29 PEDJA PREDIN
No, Nick, thank you for hosting me. And I think that you're doing a great job. I think we need to have more interesting stories from the emerging markets. I do hope there's going to be more stories from Eastern Europe, maybe some of these technical founders that we spoke about. But my pleasure to be here and also looking forward to your next episodes. wonderful. Sure, Yeah, always looking for introductions.

00:26:48 NICK LALL
wonderful. Sure, Yeah, always looking for introductions. So we'd love to have any of them on.

00:26:51 PEDJA PREDIN
of them on.