Alexey Gubarev: “Cyprus could become the technological center of Europe.”

In addition, as a member of the TechIsland Association he also shares his views on how transforming the tech space across Cyprus will lead to innovation the entire country could benefit from.

The office where Alexey strategized most of his discussions on venture capital projects is like an extension of himself: Located on the Oval building in Limassol, with a view of a vast sea expanse on which many giant cruise and cargo ships lie at anchor, this location inspires Alexey to think creatively about current and future projects.

From Cloud Hosting to Venture Capital to Co-Founder

As a 22-year-old Russian immigrant, Gubarev moved his wife and daughter to Cyprus as he could see few opportunities in Russia for entrepreneurs. The move to Cyprus enabled Gubarev to create the businesses he had always dreamed of.

In 2005, Gubarev launched XBT Holding. The company offers web development and cloud hosting services. XBT Holding has seven subsidiaries owning 30,000 servers based in five data centres across three continents.

In time, Gubarev and Yuri Gurski – a Belorussian IT entrepreneur – created a joint capital firm called Haxus. It is a Cyprus-based venture capital company investing in pre-seed and seed-stage technology companies. Haxus focuses on digital platforms, mobile applications, health tracking, and augmented reality. One of the popular projects is Prisma Labs, a mobile app that uses AI and neural networks to apply artistic effects to transform images.

Haxus went through a significant transformation just before COVID-19. The company distanced itself from venture capital and instead implemented a co-founding model. Upon rebranding, Haxus became Palta. Gubarev and Gurski could see that the traditional approach to VC funding was no longer fit for purpose.

The VC marketplace has many critics. Often traditional VC funding can stifle innovation. The drive to expand a company to repay the investments made can override the founders’ vision for their companies. For Gubarev and Gurski there had to be a better way to use VC funding yet become more engaging and agile. The vibrant start-up ecosystem across Cyprus was the perfect testing ground for their ideas.

Gubarev explains that their decision to move to a co-founding model was also based on their appraisal that the VC market had become saturated with players.

“The traditional model had become overrated. Palta isn’t just investing in start-ups; we’re working closely with them to discuss strategies, having weekly calls, and engaging with a marketing team that gets the word out. We work as hard as a founder.”

The company’s family of start-ups can also tap into Palta Brain – an advanced analytical platform. The benefit of the co-founding model is that early-stage start-ups have access to a robust infrastructure that allows their ideas to grow. The idea is velocity equals success. Palta has experienced tenfold growth since its transformation from Haxus – solid evidence that the model is working.

Another benefit of working in a tech company is that many talented people work under the same roof. This close association leads to a continuous transfer of knowledge to find fast solutions to a company’s current challenges.

The shift to the new company structure also meant making brave decisions, including removing most of the start-ups Haxus had supported. This was a critical move to enable Palta to start with a firm foundation and a clearly defined development strategy in the health and wellness apps sector. Gubarev succinctly commented: “It ended up being a wise decision.”

That’s quite an understatement. Palta’s new portfolio houses Flo; the top downloaded App Store health app by women. It has become the number 1 menstruation tracking app in the US; in 2021, it closed a US$50 funding round 2021 at US$800 million.

Is Enough Being Done to Support the Tech Hub in Cyprus?

It has been 20 years since Gubarev travelled to Cyprus from Russia. As one of the founding members of the TechIsland Association founding members, Gubarev has watched the Association – a non-profit that brings together 140 Cyprus-based tech companies – grow to become the force it is today across the Cyprus tech sector.

A more robust tech market will undoubtedly be excellent for the Cyprus economy — and it will convince investors that Cyprus has a vibrant and expanding tech sector they can make sound investments within.

In late 2021, Finance Minister Constantinos Petrides led an open-door event to which only the Cyprus’ tech scene leaders were invited. The minister announced a new plan to make investing and growth easier for companies across the country, focusing on the chronic shortage of talent businesses need to succeed. The plan was to fill Cyprus’ talent gap by shortening the naturalization period to five years. It also includes introducing a digital nomad visa and abolishing the embargo on the spouses of non-European nationals joining the labour force.

“Cyprus is losing the game,” Petrides stated. “Sure, companies are moving here. But because the market isn’t strong enough, they’re only bringing 20-30 employees.”

Gubarev and Palta are also reacting to global changes in the flow of workers. The war in Ukraine is something Palta could react to. The company has decided to create a space in Cyprus for 128 of its people who were previously working in Ukraine, Belarus, and Russia.

 Education Prospects

Another key component of business that Gubarev focuses on is education. Why aren’t Cyprus students choosing tech tracks at university? It’s simple: the country doesn’t offer enough opportunities. If the tech market were to accelerate, there would likely be far more ICT undergraduates.

Even if the tech market was stronger, Cyprus universities wouldn’t be able to fulfil the industry’s needs. They can only take on so many students per year and certainly can’t produce enough tech specialists for an industry that could add several percentage points to the country’s GDP.

“A realistic target might need to be 100,000 tech specialists in the market within ten years. Feasible, yes, but easy, not easy at all,” — Gubarev comments.

Cyprus doesn’t have the necessary infrastructure to support a large tech market — there aren’t enough lifestyle options or private schools, and even bad waste management can be a turnoff.

Feet on the Ground. Head in the Clouds

For Gubarev, there are no challenges that can’t be resolved. Palta raised US$100 million in August 2021 as part of a Series B round led by Target Global, VNV Global, and existing investors.

The money was raised for health and wellness apps — including an AI fitness app, Zing, and a fasting app with more than seven million installs. Palta is not resting on its success. The company is constantly innovating with new and exciting products coming soon to a wellness and fitness tech sector that shows no sign of slowing its growth.

Of course, the overall tech industry in Cyprus has a greater number of moving parts than one single company. But if we draw parallels between Palta’s experience and the Cyprus tech industry, it’s clear that supporting innovation, creating spaces for people to collaborate, and building next-generation educational opportunities in the future of the tech sector across Cyprus is something Gubarev has played a pivotal role in making a reality.