As a former official from Russia, developing a network of children's parks in the US

Ex-employee of the Ministry of Taxes and Levies of Russia Gevork Sargsyan together with partners successfully launched a children's “city of professions” in Moscow, and now he is developing the Mexican franchise of KidZania children's parks in four US cities at once. Forbes tells how the Russian managed to find influential partners in the US market?

Photo: Facebook kidzania

“If you don’t have friends here, your business is doomed,” says Gevorg Sargsyan, co-owner of KidZania’s children's park network in Russia, about the realities of the American market.

In the United States, a young entrepreneur cannot accidentally meet on the street the head of Bank of America, spontaneously present his project and receive investments.

Sargsyan knows what he is talking about: he has been developing the KidZania franchise in the States for 2,5. In the fall of 2019, the first park should open in Dallas, followed by facilities in New York, Los Angeles and Chicago. In total, $ 35 million has already been invested in the project.

From tax to startups

Sarkisyan worked for four years in the Ministry of Taxes and Duties of Russia, where he rose to the position of deputy head of the department of control of major taxpayers and pre-trial settlement, but left the civil service to fulfill his own business dream.

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A niche for business turned up by chance. Friends Armen Gasparyan, Georgy Chumburidze, Oleg Sambikin and Vasily Medvedev in 2006 decided to open Innova Systems to adapt foreign online games in Russia. Friends invited Sargsyan to the project

“It was a classic startup,” he recalls. “Friends gathered tens of thousands of dollars and started a business.”

Shares were divided on a parity basis.

The business was successful: in 2013, Forbes estimated the revenue of Innovation Systems at $ 50 million. But the partners gradually lost interest in the project.

“The online gaming market in Russia at that time was already saturated and began to fall,” explains Sargsyan.

Together with his partners, he drew attention to the franchise of KidZania amusement parks. Sargsyan accidentally found out about the “city of professions” for children created by 20 years ago by the Mexican businessman Javier Lopez Ancona in 2009.

“My friend from the gaming industry showed me a video about KidZania on YouTube. Since then, I could not think of anything else, ”he says.

For the Russian market, the concept of a mini-city for children from 4 to 14 years, where they can try themselves in different professions, was a novelty.

Photo: Facebook kidzania

Franchise competition

After three years of negotiations with owners of the Innova Systems franchise, they were able to purchase it in 2013.

“[At that time] we were not representatives of the industry and did not build such projects,” explains Gevorg Sargsyan’s lengthy nature of the deal.

Other Russian companies and foreign companies also wanted to get a license for the park. For example, with the franchise of the park, Alshaya Retail, a company based in Kuwait, developing KidZania in the Middle East wanted to enter the Russian market.

Innova Systems was determined more resolutely than competitors. Employees of the company even shot a short film about their own vision of the development of KidZania in Russia - professional script writers and directors worked on the project with a budget of 400 000 rubles (about $ 6 000). It was the creativity and willingness of partners to make amusement parks with their main business that impressed Ancona, Sargsyan is sure.

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The cost of the franchise and the amount of royalties are kept secret by the parties. Sargsyan merely clarifies that 5% of turnover goes to pay for a license a year. In 2010, Oleg Sambikin and Vasily Medvedev went out of business. And in 2012, Rodion Vyazalov, a former colleague in civil service, joined the project.

In search of a former minister

In 2015, the company’s partners were invited to the opening of KidZania in London. Among them was Gevorg Sargsyan. At a local restaurant, Javier Lopez Ancona told a Russian partner at breakfast that in two weeks he was announcing the opening of a franchise in America. Food stood up to Sargsyan in the throat: he had long dreamed of being realized as an entrepreneur in the American market. A few weeks later, a Russian found out that the Ancona transaction in the United States did not take place, and offered his candidacy to the Mexican franchisor.

“The assistant called me crazy and added that the license [in the USA] can only be given to a local businessman who knows the market,” he recalls.

Sargsyan personally flew to Mexico to convince the founder of KidZania the opposite. He promised Ancona that if he sells him a franchise in the United States, he will pick up influential local partners. Penny Pritzker was the first on his list of potential shareholders - the only public servant of 11 billionaires who are heirs of the Hyatt hotel chain: there is an entrepreneur in the administration of Barack Obama, whose fortune is Forbes valued at $ 2,7 billion, headed the Ministry of Commerce.

Ancon has attracted the prospect of such a partnership, but he made a condition: if Sarkisyan does not find a way out to Pritzker in three months, the deal will not take place. Businessmen shook hands and parted - and for the Russian began the most difficult period.

“I was not acquainted with Pritzker, and I myself didn’t fully believe that I could find a way out of it,” admits Sargsyan.

Albert Khudoyan, who was still in the middle of 1990's trying to gain a foothold in the American real estate market, was a necessary link in the chain of its ties. In New York, he met with local developer Keith Rubinstein.

“We became friends on the basis of professional interests, exchanged experiences,” says a Krasnodar entrepreneur.

He failed to conquer the US market, but the ties in the country remained.

“Our task was to build a network of business contacts in the USA in a very short time. And Rubinstein could help, ”explains Sargsyan.

The New York developer found access to Deborah Harmon - Pritzker’s partner in investment company Artemis Real Estate. At the business dinner, Sargsyan held a presentation for Harmon, and she agreed to fly to Mexico to see KidZania live and get to know Ancona. The Russian returned from Mexico with contracts that Ancona considered fulfilling the terms of the agreement on entering the former minister: "For Javier, partnership with Harmon meant the same thing as with Pritzker." Another American shareholder was Rubinstein. The distribution of shares in the American franchise and the amount of transactions Sargsyan does not disclose.

Photo: Facebook kidzania

American troubles

In addition to America, Sargsyan and his partners received a license for KidZania in France and Canada. For the development of new markets in 2016, they attracted investment from the Winter Capital Partners Fund (WCP). Sarkisyan established a new company, Innova Partners, to manage the business.

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“According to the agreements, Innova Partners, headed by Gevork, includes all shareholders of the franchise, including partners from the game Innova,” says Armen Gasparyan.

Albert Khudoyan went out of business in 2017 year, selling a stake in WCP. Parks in France and Canada will begin to build after launching in the US, where KidZania is developing four sites - in Dallas, Chicago, Los Angeles and New York. The geography is not accidental: businessmen were guided by the weather conditions of the state - in cold and hot weather, people spend most of their time in shopping centers. Partners will start with cheaper start-up businesses in Dallas and Chicago to fill the bumps and get out of Los Angeles and New York as prepared as possible.

“Malls in America are two-story buildings built by 30 and even 50 years ago,” says Sargsyan.

There is no place for a park in such objects, so KidZania decided to build separate boxes near the shopping center. In Dallas, at the Stonebriar shopping center, an area of ​​8 000 square. m is built on this model without collateral and bank guarantees. Sarkisian was able to negotiate the benefits with Sandipa Matrani, vice president of real estate at Brookfield Properties, which manages several shopping centers in America and Europe, including Stonebriar.

Without concessions from the owner of the shopping center, it would be hard for the Russians to admit: in the US, the pledge and the amount frozen in the bank account covering the construction budget are required to guarantee that the customer will fulfill obligations to contractors. Mathrani agreed to soften the conditions, since KidZania will allow Brookfield to compete with online stores and attract additional traffic.

“The entertainment and educational segment is a powerful magnet for visitors to the shopping center,” confirms Evgeny Khakberdiyev.

Innova Partners has invested $ 15 million in the Dalassian project. The partners do not disclose the cost of rent. According to them, such brands as Planeta Fitness, Texas Health Resources, BIC Group, Bimbo and others will become residents of the first American KidZania. In total, entrepreneurs are counting on cooperation with 40 companies, which will have to pay an entrance fee and the construction of their zones in the park. The advertising campaign is planned to start for 2-3 a month before the opening, its budget will be $ 1,5 million.

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In America, KidZania is facing high competition, although the entertainment and educational format is a new phenomenon for the local market, says Colliers International partner Anna Nikandrova. Sargsyan is ready to fight for the attention of the audience: the Russian hopes that the project will be made by word of mouth.

“The Mexican company, the Russian founders is an unreal story,” the entrepreneur concludes.

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