Crunchbase and East-West Digital News are teaming up to cover key tech and venture trends from Russia and other countries of the former Soviet Union. This column, by EWDN chief editor Adrien Henni, highlights the most notable industry facts and trends of the past year. (The review for 2019 is available here).
In Russia
Battle of digital giants
In the course of 2020, the Russian digital landscape changed thoroughly as competition increased between the local leaders, NASDAQ-listed Yandex, LSE-listed Mail.ru Group, and state-controlled Sber (previously known as Sberbank).
Widely viewed in the past as an old-fashioned savings bank, Sber is now increasingly turning to tech after nearly a decade of accelerated digital transformation and acquisitions. The company’s moves in 2020, included:
- Acquisitions and investments, jointly with Mail.ru Group, in food delivery and mobility segments;
- New investments in Rambler, a major online media and entertainment group;
- Acquisition of Zvooq, one of the most established Russian music platforms;
- Acquisition of 2GIS, a leading mapping service 2GIS, at a $205 million valuation;
- Acquisition of Eapteka, a leading online pharmacy;
- Partnership with Merlion in the field of e-commerce, after Sber broke its alliance with Yandex in mid- 2020.
In September, Sber’s CEO Herman Gref unveiled a suite of new technology products in a Steve Job-esque show. These tech novelties include a new smart screen, speakers, a TV box, a new payment system similar to ApplePay, and a mini app store. Sber also has a “family” of virtual assistants like the Alexa smart home management system. A new subscription service, ‘SberPrime,’ will provide free delivery from the bank’s e-commerce arm, music and film streaming, cloud storage, and discounts on food delivery and taxis.
To support startups, Sber secured a partnership with 500 Startups. The third batch of their joint acceleration program started in December.
Left without financial ally, Yandex turned to capital markets to finance its e-commerce project: the company raised $460 million on the NASDAQ and closed a private placement of around $600 million. In September, Yandex also made an attempt to acquire Tinkoff, a major online bank – but the deal was ultimately rejected, triggering the stock of both companies to plunge on western exchanges.
Yandex and Uber agreed to spin off their self-driving vehicle business from Yandex.Taxi, the taxi-hailing and food tech joint venture they formed three years ago.
Yandex continuously displayed its innovation capacity – which matches or exceeds that of U.S. digital giants in certain fields. In the course of 2020, the company updated its intelligent search systems, launched a variety of AI-powered professional services, supported the publication of Russia’s first-ever AI-translated book, unveiled food delivery robots, and saw its self-driving cars break into the world’s top three. Yandex also invested in DNA testing company Genotek.
The other Russian digital leader, LSE-listed Mail.Ru Group, has a close, though fragile relationship with Sber. Their food delivery and mobility joint venture O2O received a new $160 million capital injection and made a series of acquisitions.
In the field of e-commerce, Mail.Ru backs AliExpress Russia – whose sales surged in 2020 due to the pandemic – in association with Alibaba, Russian telco MegaFon and sovereign wealth fund RDIF. Mail.Ru also invests relentlessly in edtech and gaming startups. Gaming accounts for nearly half of the group’s revenues: in November, Mail.Ru teamed up with Google to launch an international accelerator for video gaming developers.
Mail.Ru raised $600 million on the London Stock Exchange to support its aggressive acquisition strategy.
Domestic deals
On Russia’s tiny domestic venture scene (around $550 million in 2020, excluding exits, according to DSight’s preliminary data), not many deals exceeded $10 million during this year:
- Online education platform Uchi.ru got a major funding boost from Mail.ru Group (which brought $50 million), Russian sovereign wealth fund RDIF and Russia-China Investment Fund ;
- Online video platform ivi.ru secured a venture loan of $54 million from Alfa Bank;
- Russian game publisher 110 Industries closed a $20 million round from Russian investors including billionaire Roman Abramovich;
- Rostelecom took control of waste management solution provider Bolshaya Troika for $16.7 million;
- The RDIF and its Emirati peer Mubadala invested $13 million in NTechLab, the developer of a controversial face recognition technology;
- State-backed fund VEB Ventures agreed to inject $13.4 million in Zyfra, a company developing AI, IIoT-based solutions, and robotic mining equipment for the heavy industry.
- IntTerra, which brings data science to farmers, agreed an up to $10 million investment from a local business angel;
- Skyeng, a major edtech startup, received an undisclosed amount from Baring Vostok and Winter capital, two major Moscow-based investment firms.
Meanwhile, Alisher Usmanov – a Kremlin-connected oligarch and a Mail.ru Group shareholder – extended his tech empire to smart device manufacturing with the acquisition of notAnotherOne.
The sovereign wealth fund RDIF backed startups in the fields of food delivery, telemedicine and other tech sectors as well as well as a variety of anti-covid projects.
Russia’s venture activity was not too severely affected by the pandemic: according to DSight, the invested amount in the first half of the year fell to $182 million (down from $497 million in H1 2019) – but reached $368 million in the second half (up from $272 million in H2 2019).
However, the year was tarnished by the arrest of Alexander Povalko, the head of state-owned fund-of-funds Russian Venture Company (RVC). Several prominent investors publicly shared their concerns about the handling of this new criminal case on the Russian venture scene, as U.S. investor Michael Calvey was still under house arrest under controversial charges. in November 2020 – nearly two years after his arrest – Calvey was freed at last, even though his criminal case was not formally closed.
International investors in Russia
In March 2020, a spectacular foreign investment came from Princeville Capital. This U.S. venture firm contributed $50 million to a $150 million pre-IPO round of funding for Russian e-commerce major Ozon. It was the first notable U.S. investment in Russian tech since geopolitical tensions broke out in 2014.
Other foreign investment deals in Russian tech operating domestically were more modest. Noticeable ones included:
- Food delivery startup Elementaree.ru secured $5 million from French vegetable giant Bonduelle and Russia’s sovereign wealth fund RDIF;
- Edtech platform Intellectokids raised $3 million from U.S., Russian, Cypriot and Ukrainian funds;
- Online medical appointment service NaPopravku (“for cure”) was backed by Swedish, Malaysian, and French investors;
- Agritech startup Agro.club was backed by Austrian Raiffaiesenbank and Berlin-based SpeedInvest;
Russian tech stars abroad
Confirming a trend that began more than a decade ago, significant amounts were invested in startups with Russian roots but operating globally from the U.S. or Western Europe.
The year started with one of the most fantastic exits ever involving a tech company with Russian roots: Veeam Software, a global leader in cloud data management software, was sold for $5 billion to Insight Partners. Veeam’s founders Andrei Baronov and Ratmir Timashev are behind ABRT, a venture firm that has made nearly 30 investments and claims a 43.99% net IRR performance. Although they spend the better part of their time outside their native country, Forbes Russia counts Baronov and Timashev among Russia’s richest businessmen.
In April, Miro raised a $50 million Series B round involving Iconiq Capital, Accel, and several individual investors. Miro’s valuation was not disclosed, but an investor called it a ”soonicorn.” Previously known as RealtimeBoard, Miro was founded in Perm, Russia in 2011. Demand for its visual collaboration solutions has been skyrocketing amid the coronavirus pandemic.
In May, Ecwid, another startup headquartered in California but born in Russia, secured $42 million from Morgan Stanley and PeakSpan Capital. Launched 10 years ago, Ecwid quickly asserted itself as a global social commerce major. Its growth accelerated in 2020 as offline merchants can use these solutions to start selling online.
Also noteworthy was a $15 million deal for Bioniq, a biohacking startup operating from Luxembourg and the UK, which was co-founded by Russian-German entrepreneur Vadim Fedotov.
Smaller, but notable, international deals involved Gero, iFarm, Intento, Novakid, and Sumsub.
Meanwhile, two Russian digital companies made the news on the NASDAQ:
- In July, the capitalization of Russian job search platform HH.RU reached $1 billion as Goldman Sachs sold a 9.9% stake in the company for $101 million.
- In November, Ozon made a triumphant debut on the NASDAQ, where it raised nearly $1.3 billion – far from its initial $500 million target.
Yandex.Taxi, the ride-hailing joint venture of Yandex and Uber, was less lucky: struggling to remain profitable amidst the pandemic, the company conceded its IPO plans would be postponed.
Two rare cases of Russian acquisitions abroad in the field of IT are also noteworthy. In May, a Russian video publishing startup called Viqeo acquired a UK adtech startup. In December, Softline, a Moscow-based solution and service provider generating some $1.5 billion in global revenue each year, announced the acquisition of a majority stake in the almost eponymous German IT company Softline AG.
In Ukraine
Despite abundant tech talents, Ukraine’s startup ecosystem is still in the emerging phase. Thus, only small deals took place in 2020, usually involving three types of players:
- Emerging local startups before they get strong enough to go global: such were the cases of ABM Cloud, Elision, Esper Bionics, Power Now, Raccoon, Skyworker, to cite the most notable examples;
- Startups attracting local strategic investors: for instance, pharmaceutical major Farmak Group announced investments in Bicovery and ComeBack Mobility;
- Local e-commerce companies: perfume and cosmetics retailer Makeup, drug delivery platform Liki24, online grocery service Zakaz.ua raised $8 million, $5 million and $5 million, respectively. Meanwhile, fashion marketplace Love&Live secured an undisclosed amount from local investors; and OVO, a delivery company created during the spring lockdown with a $55 capital injection from its founders, managed to grow successfully and attract, in November, an investment from a local marketing agency.
Provided mostly by international funds, more substantial amounts were injected into internationalized startups with Ukrainian roots:
- Restream, an Austin-based video streaming startup, secured $50 million from a pool of Western and Russian investors;
- Mobalytics raised $11.25 million in California to build “the world’s best personal gaming assistant;”
- The tutoring platform Preply raised $10 million from Western European investors;
- California-based meal ordering service Allset secured $8.25 million in a round led by the EBRD;
- ClassTag, which manages parents-to-teachers communications, raised $5 million in Silicon Valley.
Smaller international deals involved AllRight.io ($5 million), DMarket ($6.5 million round), Influ2 ($3.4 million), LetyShop ($3 million), PromoRepublic ($1.5 million), Respeecher ($1.5 million round), and Retargetapp ($2.4 million), among others.
Several international acquisitions took place, including these ones:
- Sweden’s Embracer Group acquired 4A Games for up to $71 million:
- Onit, a U.S. leader in enterprise workflow automation, bought Axdraft;
- France’s Quadient acquired Yaypay;
- U.S. game publisher TinyBuild took control of Hologryph.
In the field IT services
The IT outsourcing and software development sector – which employs some 200,000 local programmers and generates nearly $5 billion yearly – attracted international and local investors through several deals, including these ones:
- Archer Software was acquired by American Cprime;
- Ciklum announced a strategic investment from a U.S. firm;
- S-Pro was backed by a regional fund.
Finally, the Ukrainian tech sector showed a certain resilience in this crisis year. “Most companies and sectors, including product startups and IT service companies, returned back to growth in Q3 and we saw a peak of tech investments in Q4. The last quarter of 2020 was the best ever for tech deals, and a number of companies are considering an accelerated path to IPO,” says Yevgen Sysoev of AVentures Capital, a figure of the local venture scene.
In Belarus
In this former Soviet republic stuck between Russia and the European Union, the second half of 2020 was marked by revolutionary unrests that aimed to overthrow President Alexander Lukashenko after his fraudulent re-election. These events had painful consequences for the emerging local IT sector, which was sometimes dubbed ‘the emerging Silicon Valley of Eastern Europe.’
The security of many IT people, be they politically active or not even involved in the events, was under threat. For example, several employees of PandaDoc were detained, and the company’s bank account was blocked, leaving 250 employees without salaries, and forcing the management to relocate the staff to other countries. PandaDoc, which offers document automation solutions, is one of the country’s most successful startups. It raised a $30 million Series B extension from Western investors just weeks before the unrest broke out.
Even foreign companies – such as Uber, Viber, and Yandex – were raided by the police, while Internet connections and international transactions were blocked or made difficult.
As a result, many IT professionals left Belarus. At least 1,2000 came to Ukraine – a visa-free and cheap destination – while the Latvian and Polish governments launched dedicated programs to relocate Belarusian IT programmers or startups.
Apart from PandaDoc, very few deals were made public in this troubled year. Among them, in May, was a $1.5 million seed funding round for Vochi, led by a Kyiv-based venture fund, Genesis Investments. Vochi is a Belarusian startup that developed an app for creative video editing.
New funds
Attracted by the region’s talented programmers and relatively cheap startups, several new funds were launched or announced in the course of the year:
- In September, The Untitled, an established Russian VC firm, announced plans to attract €50 million from international finance institutions and private LPs to invest across Eastern Europe;
- Almost simultaneously, the VC firm Fort Ross said it aimed to raise $100 million for investment across Russia and neighboring countries (see interview with General Partner Victor Orlovski);
- Pragmatech Ventures, a VC firm and startup studio, launched in Ukraine, targeting at first Eastern Europe;
- A Ukrainian investment group created a dedicated vehicle, dubbed QPDigital, to invest up to $100 million in startups from Ukraine or with Ukrainian founders:
- East-West Digital News learned that two prestigious international VC firms aim to launch an up to $100 million fund to back entrepreneurs from Eastern Europe.
Development finance institutions are also showing interest in the region. Germany’s DEG contributed €30 million to a new Da Vinci Capital fund focusing on Ukraine, Belarus, Kazakhstan and potentially Russia. On its side, the European Commission considers extending to Eastern partner countries a startup investment program called DISC, initially focused on Central European EU member states.
In Russia, Rostelecom, the national telecom operator reinvigorated startup fund IIDF with a $32 million capital injection. Meanwhile Rosnano, the Russian state-controlled nanotechnology corporation, announced the launch of a $53 million fund to invest in domestic digital technologies. Half of this amount came from state coffers as part of a national program to develop the country’s digital economy. More internationally-oriented initiatives came from the private sector, as exemplified by the launch of Digital Disrupt and S16 Angel Fund.
