Russian funds continued to invest in international startups

The invest-abroad trend among funds with Russian backers or managers, which began several years ago, continued or even accelerated in 2015.

While Russian investors initially targeted essentially US startups, virtually all regions were concerned last year — from Israel,to South-East Asia, to India, to Western Europe.

Among the largest deals announced in 2015 were the following:

  • In January, Buran Capital contributed $8.5 million to a Shazam funding round.
  • In July BitFury, a major Bitcoin Blockchain infrastructure provider and transaction processing company, secured $20 million in funding from Russia’s iTech Capital, Georgian Co-Investment Fund and DRW Venture Capital.
  • In December, Target Global, an international venture fund with Russian backers, spent $13 million to acquire a 0.65% stake in US food delivery startup Blue Apron.
  • Target Global’s previous investments in the USA, in June 2015, went to Prosper, a leading US peer-to-peer lending marketplace. Target Global also took part in a $2 million round for Nestpick, a German startup.
  • During the year, O1 Group — a Cyprus-based Russian holding company which had thus far made investments essentially in the Russian real estate and financial sectors — injected at least $20 million in foreign tech startups at the pre-IPO stage.

Other internationally active Russian funds, or funds with Russian backers, included Almaz Capital, Altair, Bright Capital, LifeSreda,Maxfield Capital, Runa Capital, TMT Investments, Vaizra Investments, and SBT Venture Capital, the venture arm of Russia’s national savings bank Sberbank. Several of these funds initially aimed to invest in Russia. They shifted their attention to the global market as exit prospects on the Russian startup scene became less obvious than a few years ago.

Serial entrepreneurs and business angel Pavel Cherkashin launched Vestor.in, an internationally-oriented fund with a $30 million target. “We’re not going to invest in Russian startups anymore. There are no exits possibilities in this country, even if you build a successful business,” not to mention the legal, currency and political risks, he stated.

Russian oligarchs also made notable moves on the international high tech scene. In April, Russian billionaire Roman Abramovichinvested $15 million in Israeli startup Music Messenger. A few months later, his company Ervington Investments led a $10 million funding round for Driveway Software, a Silicon Valley telematics startup, and a $21 million round for Israeli startup Anyclip Media, among other deals.

Two other Russian billionaires, Alisher Usmanov and Ziyavudin Magomedov, invested significant amounts in Uber, via their investment vehicles USM and Caspian VC, respectively. USM investment, which reportedly amounted to several dozens of million USD, was kept confidential until early 2016, when it was revealed by the Russian media.

Meanwhile Yury Milner’s DST, which pioneered Russian tech investment abroad, launched its fifth fund in August 2015 without Russian money.

The domestic venture market declined in quantitative terms but saw some unexpected positive developments

According to preliminary estimates by RMG Partners (see latest report), the number of deals and investor exits decreased in 2015, essentially due to the shrinking of government investment. In the meantime, angel investors and crowdfunding platforms continued to develop.

The Russian venture market in 2012–2015

Source: RMG

In early 2015, disconfirming the widespread view that Russian e-commerce market has lost any appeal to venture investors, luxury fashion retailer Aizel.ru received a capital injection of €2.5 million, the first tranche of an investment of up to €25 million over three years. The funds were provided by asset management firm Bonum Capital.

In July, after several quarters of decline of private investment, some optimism returned to the Russian venture market when CarPrice.ru, a major Russian online broker of used car, raised $40 million in a Series B funding round. The round was led by Baring Vostok Private Equity Fund V with the participation of Almaz Capital and other unnamed investors.

Other important deals involved mature companies. In October, Russian billionaire Alisher Usmanov announced an investment of “$100 million or more” in Virtus.pro via its holding USM. Launched in 2003, this popular e-sports resource organizes multiplayer video game competitions, particularly between professional players.

That same month, 2GIS secured $40 million from two major investment funds, Baring Vostok Capital Partners and Ru-Net. Launched in 1999, this Novisibirsk, Siberia-based company, is bold enough to compete with the mapping services of Yandex and Google. It is now developing across three continents.

Confirming that the Russian venture industry was far from agony, several venture funds were launched in 2015. Among them were B2B Lab, focusing on B2B, and Primer Capital, which specializes in medicine and biotech. Meanwhile, Dagestani oligarch Ziyavudin Magomedov announced his intention to invest “up to $300 million” in startups from Russia and other countries. His new fund, christened Caspian VC Partners (CVC), already invested in Uber, Uber China, Peek.com and Hyperloop.

Russian startups also received support from some corporations, as exemplified in Moscow by the launch of IKEA’s startup accelerator, Intel’s IoT Lab, and a startup-oriented restaurant business school. Meanwhile, Qiwi Ventures, the investment arm of Russian electronic payment giant Qiwi, launched a new acceleration program, chirstened ‘Universe 2.0.’

The article first appeared on East-West Digital News as a part of the 2015 in review series.

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