Eastern Europe and Central Asia Tech Investment Overview for January 2019

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 will highlight the most notable deals in these regions, as well as promising tech innovations in fields such as artificial intelligence, the blockchain, computer vision and much more. Here is the inaugural review for January.

Major international acquisitions in Eastern Europe

A few high-profile acquisitions made the news in Eastern Europe in early 2019. US-based IT giant DXC announced a $2 billion deal – still subject to regulatory approvals – to buy Luxoft, a leading IT outsourcing and software development company with roots in the region.

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Headquartered in Zug, Switzerland, Luxoft started in 1995 in Moscow as a development center of IBS, a Russian IT service company, before being incorporated as a separate company in 2000. In 2013, the company listed its shares on the New York Stock Exchange. Although it moved a part of the staff to other countries following the Ukrainian events of 2014, Luxoft still has seven delivery centers in Russia and Ukraine, employing thousands of local IT specialists out of a global total of 12,700 employees.

In another spectacular move, Naspers spent $1.16 billion for the full acquisition of Avito.ru, Russia’s leading classifieds site, at a $3.85 billion valuation. The South-African e-commerce and media group had already in acquired a controlling stake in 2015, valuing Avito at some $2.7 billion. This was one of the largest European VC-backed company exits ever, with Kinnevik, Accel Partner and Northzone fully exiting the business.

January 2019 also saw Mail.ru Group subsidiary ESforce sell an eSports club, SK Gaming, to Daimler and football club FC Köln (FC Cologne). The acquisition was presented as a major step in Mercedes-Benz’s involvement in eSports, in which the carmaker sees “the spearhead of global youth culture.”

On its side, BeMyEye, a UK-based provider of “crowdsourced perfect store data,” acquired StreetBee, a Russian startup which has developed fast data collection and processing solutions for retail. StreetBee’s entire team (50 people), IP and technology have been purchased. Illustrating Eastern European excellence in this field, StreetBee’s technology uses convolutional neural networks to analyze shelves in retail outlets “at high speed and accuracy.”

Giant funds in Russia and Ukraine

No major venture deals took place in the region this month – putting aside a $3 million capital injection into Russian Get Transfer at a $60 million valuation – but two major new funds were announced.

RVC, the Russian state fund-of-funds dedicated to innovation, announced a $900 million pre-IPO fund to support Russian-founded tech startups with global activity. Having contributed a quarter of the capital, RVC is holding discussions with unnamed Asian institutional funds to reach the target. Christened the ‘Da Vinci Pre-IPO Tech Fund,’ the new fund is managed by Da Vinci Capital, a major EBRD-backed Russian private equity firm.

Horizon Capital, a US-registered, Kiev-based fund manager, closed a new private equity fund, the ‘Emerging Europe Growth Fund III’ (EEGF III). Having attracted $200 million, the new fund surpassed its $150 million target, breaking a record in Ukrainian private equity fundraising. Seventy percent of total capital raised was contributed by the US and Europe-based investors, including the EBRD and IFC. The new fund, which targets Ukrainian fast-growing, export-oriented Ukrainian companies, already made six investments to date. The portfolio companies operate in the fields of information technologies, light manufacturing, food, and agro sectors.

Fake AI accusations in Ukraine

Much ado was made recently in the media about Ring, a US startup acquired by Amazon in 2018 which develops outdoor home-security solutions. According to The Information and The Intercept, the company made customer video feeds accessible to its Ukrainian R&D team in a bid to simplify their work. To reduce costs, Ring allegedly did not encrypt them, which “would amount to an enormous list of highly sensitive files that could be easily browsed and viewed,” wrote The Intercept.

Making things worse, the images from security cameras pointed at home entrances around the world that the Ukrainian team, which was also provided with the corresponding database, could trace back to individual customers.

The Intercept also asserted that Ring used its Ukrainian so-called ‘data operators’ for “manually tagging and labeling objects in a given video as part of a ‘training’ process,” hoping that the software “might be able to detect such things on its own in the near future.” Thus, “behind all the computer sophistication was a team of people drawing boxes around strangers, day in and day out, as they struggled to grant some semblance of human judgment to an algorithm.”

In late January, however, an investigation from Ukrainian tech blog AIN attributed the accusations against Ring to disgruntled employees. Ring’s current procedures are secure, AIN found, but whether or not these procedures were applied from the very beginning remains unclear. Besides, a technical expert interviewed by AIN did not endorse the claim that Ring’s system was based on manual operations rather than true AI technology. The process of training a neural network on video streams may take up to two years, the expert argued, which may explain why Ring’s Ukrainian team is apparently busy at manual tasks.

Pioneering tokenization platform in Belarus

In mid-January, this IT-friendly country stuck between Russia and Poland saw the launch of “the world’s first regulated tokenized securities exchange.” Currency.com allows traders to exchange cryptocurrencies and fiat money, invest in and trade tokenized securities. Providing access to 150 different securities at the start, the platform aims to encompass 10,000 ones by the end of 2019.

This and other Belarusian high-tech projects benefit from a favorable legal framework, including tax exemptions, following a December 2017 law and new regulations adopted in late 2018. 

Burgeoning innovation in Kazakhstan

In this Central Asian republic, efforts to develop tech innovation are bringing their first results. Just weeks after the launch of Astana Hub, a tech innovation center headed by US tech entrepreneur Joseph Ziegler, several cities announced achievements in the field of smart cities.

Thus, in the north of the country, Akkol is already fully covered by a LoRaWan network and has deployed an AI-powered video surveillance system, among other initiatives. This 15,000-inhabitant city claims to be on the way to full digitization.

The startup scene in the region is still embryonic, however. The largest investment deal in January was a $200,000 capital injection in Antidolg, a Kazakhstani startup that develops an online debt mediation platform.

Adrien Henni is the chief editor at East-West Digital News (EWDN.COM, UADN.NET), an international news and consulting agency dedicated to tech innovation in Eastern Europe. With nearly 20 years of experience in the high-tech and venture businesses, he advises a variety of startups, investors and other organizations. He is a regular contributor to industry publications and speaks at conferences in Western and Eastern Europe, Asia, and America. Contact Adrien at editor@ewdn.com

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  • Originally published February 8, 2019, updated April 26, 2023