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Eastern Europe industry review: Battle of digital titans in Russia, Belarusian IT exodus, acquisitions in Ukraine

Crunchbase and East-West Digital News are teaming up to cover key tech and venture trends from Russia, Ukraine, and Belarus. This column by EWDN chief editor, Adrien Henni, highlights the most notable industry facts and trends in the third quarter of this year (the Q2 column is available here).

The battle of the Russian digital titans

The Russian digital landscape changed fast over the past months with the increasingly open confrontation of two local leaders, NASDAQ-listed Yandex and state-controlled Sberbank. These companies – which were allies just a couple of years ago – are now either competing directly against each other, or through their subsidiaries and joint ventures, in diverse areas such as banking and fintech, ridesharing, driverless cars, artificial intelligence, food delivery, virtual assistants, media streaming, online medicine, and cloud data services.

Sberbank is increasingly turning to tech after nearly a decade of accelerated digital transformation and acquisitions. In July, the company increased its hold on Rambler, a major online media and entertainment group. In September came the acquisition of Zvooq, one of the most established Russian music platforms. Just days after, the company’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. Sberbank also has a “family” of virtual assistants looking 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.

The state-controlled lender also dropped the word “bank” from its new corporate branding — becoming ‘Sber’ — as it stressed the company should no longer be seen merely as a finance company. 

To measure itself against Sberbank in the field of finance, Yandex has just made an attempt to acquire Tinkoff, a major online banking and financial services company owned by Russian billionaire Oleg Tinkov. The deal could have been a win-win for both companies, but was ultimately rejected by Tinkov – triggering the stock of both companies to plunge on western exchanges.

The other Russian digital leader, LSE-listed Mail.Ru Group, is an ally of Sber. Over the past few months, the two partners continued investing in food delivery (SamokatLocal Kitchen) through their joint venture O2O. A direct competitor to Yandex, this JV received from its backers a new $160 million capital injection

Mail.Ru also invested massively in gaming – which accounts for nearly half of its revenues – with three deals in just three weeks

To finance these and other moves, Mail.Ru has just raised $600 million on the London Stock Exchange. Among the buyers were Russian sovereign wealth fund RDIF, China’s Tencent, and Prosus, a part of the Naspers Group. 

Russian unicorn emerges on the NASDAQ 

Among the other news from the Russian digital scene this past quarter: 

Meanwhile, several new funds were announced. The VC firm Fort Ross seeks to raise $100 million for investment across Russia and neighboring countries. Sber, its historic backer, is already committed to provide nearly a quarter of this amount.

Also targeting the region, its talented programmers and relatively cheap startups, Russia’s The Untitled plans to attract €50 million from international finance institutions and private LPs. 

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.

Belarus: From revolution to IT exodus

Since mid-August, the revolutionary unrest in Belarus – whose president Alexander Lukashenko has been ruling the country for a record 26 years – has had painful consequences for the local IT sector.  

This industry emerged recently, leveraging on solid engineering assets and growing international integration. Sometimes dubbed ‘the emerging SIlicon Valley of Eastern Europe,’ this country of 10 million inhabitants is home to nearly 60,000 IT professionals (+10% per year). They work in some 1,500 companies of all sizes, including 60% of IT service companies and several hundreds of tech startups. 

Some of these startups have asserted themselves successfully abroad. A famous example is MSQRD, which was acquired by Facebook a few years ago. Other cases include AIMatter, which was acquired by Google; Gurtam, whose GPS tracking and IoT solutions are used in 130 countries; and PandaDoc, which has thus far raised more than $51 million from Western VCs to develop its software solutions for sales teams. 

The security of many IT people, be they politically active or not even involved in the events, is now under threat. It has also been reported that several IT companies – including such foreign ones as Uber, Viber and Yandex – were raided by the police, while Internet connections and international transactions were blocked or made difficult. 

As violence and raids became common practice, many IT professionals left Belarus. An estimated 4,500 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. 

International acquisitions in Ukraine

Several transactions witnessed the international appeal of Ukrainian tech assets:

  • Swedish Embracer Group announced the purchase of Ukrainian 4A Games – among other acquisitions – for $36 million plus a potential additional earn-out amount. This famous game developer and publisher is behind the popular Metro series launched in 2010;
  • French Quadient acquired YayPay, a fintech startup with Ukrainian roots, in a full-cash transaction which reportedly amounted to more than €17 million;
  • AB Capital Group, the German owner of international affiliate network Admitad, announced an investment of $3 million in Ukrainian cashback service company LetyShops.

Following an established pattern, several startups born in Ukraine or with Ukrainian founders, but now headquartered in the USA, completed big rounds of funding: 

The main domestic deals brought $5 million to drug delivery startup Liki24 and $3.4 million to adtech startup Influ2, while Esper Bionics, an innovative prosthesis maker, and HR tech startup Hurma System received undisclosed amounts from their investors. Hurma was backed by Pragmatech Ventures, a newly created VC firm and startup studio which focuses on the B2B SaaS and marketplace segments.

In early July, the European Investment Bank (EIB) announced a €50 million loan to UNIT.City, illustrating the European Union’s commitment to support the Ukrainian startup ecosystem. The funding will go to the construction of an innovation campus in this leading tech park in the Ukrainian capital.

Jake Cordell of The Moscow Times contributed to this article.


Adrien Henni is 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