Crunchbase and East-West Digital News are teaming up to cover key tech and venture trends from Russia and neighboring countries in Eastern Europe and Central Asia. This monthly column by EWDN chief editor Adrien Henni highlights the most notable industry facts and trends from these regions, as well as promising tech innovations in fields such as artificial intelligence, the blockchain, computer vision and much more. Here is the review for February. Linked here is a look back for January 2019.
Top US investor arrested in Moscow: the business community under shock
With the arrest of Baring Vostok’s top management, including US citizen Michael Calvey and French Philippe Delpal, last month could remain in history as a landmark moment in the deterioration of the Russian investment climate.
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The news of the arrests, on February 15, put the investor and tech community under shock. Calvey had been doing business in Russia for more than twenty years with an excellent professional reputation, running one the largest local private equity firms. Baring Vostok’s funds invested in some of Russia’s best tech companies; notably Yandex, the Russian search giant, Ozon, a leading online retailer, at their very early stages, as well as in classifieds leader Avito and enterprise software giant 1C.
More recently, the PE firm funded a range of other Russian tech firms, including 2GIS, Doc+, Busfor and SkyEng, as well as Blablacar, the French unicorn. In total, since 1994, Baring Vostok has invested nearly $2.8 billion in a variety of sectors across the former Soviet Union, bringing a contribution to the economic development of these countries.
The arrest of Calvey and his colleagues for “large-scale fraud” came as a result of a lawsuit initiated by a Russian businessman, Artem Avetisyan. Calvey and he were involved in a shareholder conflict around Vostochny Express Bank, a Baring Vostok portfolio company.
Avetisyan’s connections with an array of government-related organizations – including Russia’s secret service FSB and the Prosecutor General’s office – fueled concerns that the matter could have implications far beyond the shareholder dispute.
As Calvey and his colleagues maintained their innocence, numerous Russian businessmen, including high-profile, government-connected executives, publicly expressed their support of the US investor.
However, appeals against the pre-trial detentions, which Calvey’s supporters believe rest on weak legal grounds, were in vain. This was little surprise as President Putin – who awarded Avetisyan the “Services to the Motherland” medal in 2015 – knew about the case and virtually endorsed the arrests in closed-doors comments.
The Baring Vostok case is coming as yet another blow to investors’ confidence in the Russian market. Among the misfortunate events that affected the country’s attractiveness under Putin’s rule were, notably, the Khodorkovsky case in the mid-2000s, the Browder and Magnitsky affair around ten years ago, and the international sanctions which followed the Ukrainian crisis five years ago – not to mention a continuous feeling that Russia’s legal system is corrupt or inefficient.
“There is no later-stage venture market in Russia anymore, [Baring Vostok] being the latest big investor here by world standards,” commented Russian VC Konstantin Sinyushin in statements which appeared in Forbes Russia among other pessimistic investor interviews.
The Baring Vostok arrests may be interpreted specifically as a signal sent to Western investors. “Since 2014 [when Russia’s dispute with the West started in relation with the Ukrainian conflict], the Kremlin has been considering Russia as being in a pre-war situation, exposed to growing threats from the USA,” noted Valery Solovei, an independent-minded pundit who regularly comments on international affairs.
In this context, Russian leaders see with suspicion any “American eyes or ears” on Russian soil. They are showing “Russia doesn’t care about Western investments while facing a tense international situation,” Solovei said.
The US and French mentors in Moscow
Amid these gloomy times, the national savings bank Sberbank and 500 Startups announced the completion of the first phase of their new joint acceleration program. Thirty Russian startups enjoyed the support of 25 American business mentors who made the trip to the Russian capital. The best startups are going through a final four-week program in Silicon Valley.
The terms of the partnership between the Russian bank and the US accelerator were not disclosed, but Sberbank is said to have disbursed huge amounts to attract the 500 Startups mentors. The bank also injects capital is the participating startups.
The only other international acceleration program available locally to Russian startups is managed by a French team. Winno Moscow, previously known as NUMA Moscow, is preparing its fourth season this year, selecting and investing in some 10 projects. After a four-month acceleration process, the startups will benefit from a one-week business trip in Paris, including a visit to Vivatech, France’s largest tech event, in May this year. `
Main deals in Russia, Ukraine, and Belarus
In contrast with the previous month, which saw the completion of M&A deals of up to $2 billion and the creation of funds of up to $200 million, no major transactions took place in February in the region.
In Russia, however, the following deals were noteworthy:
- Rusnano, the Russian state-owned nanotech corporation, exited US Wi-Fi chipset provider Quantenna “with high return;”
- LSE-listed Mail.Ru Group acquired an online IT education platform;
- A Siberian startup, Personal Medication & Health Management (PM&HM), raised $4.5 million for alternative tuberculosis, cancer, and HIV treatment technology;
- B2B-Export, a Russian B2B export marketplace, secured $4 million from a top African businessman;
- Roistat, a Russian business analytics startup, raised $4 million to expand internationally;
- Gazprom Media and US investor Bill Franke backed a catering startup from Moscow.
In Ukraine, several moves illustrated the attractiveness of local IT outsourcing sector:
- Core Value was acquired by IT Kontrakt, a Polish company backed by US firm Oaktree Capital Management and Polish Cornerstone Partners;
- Local funds Dragon Capital and AVentures Capital invested in software engineering company Ciklum;
- Amazon subsidiary Ring opened a new R&D office in Western Ukraine. (The first R&D facility, launched in 2016 with just three employees, now has a team of 900 specialists.)
Meanwhile, Ukrainian tech investor Oleksii Vitchenko acquired Translate.com, a US-based publisher of enterprise translation solutions.
No significant deals took place last month in Belarus, but Gismart announced plans to invest in mobile startups. This British-Belarusian developer and publisher of music apps and games are ready to put “up to $1 million” in each project.
New tech-friendly initiatives in Kazakhstan
In the Central Asian republic of Kazakhstan, the government announced a new program to support 15 of the best local startups with grants of up to $130,000 (50 million tenges).
In Turkistan, a city in the south of the country, the authorities launched “Turkestan Hub,” a new space intended for tech entrepreneurs and investors, and an IT training program for young people from 14 years of age.
Electronic government is also progressing with 8.6 million citizens – nearly half of the country’s total population – having registered on the eGov.kz portal.
