Eastern Europe Industry Review: Local Startups Escape Political Turmoil, Major Deals Secured Abroad

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 first quarter of this year (the previous column is available here). 


Eastern European tech companies and entrepreneurs shine in the West

While almost no major local deals took place in the beginning of this year, Eastern European tech companies continued asserting themselves on the global scene. 

In March, a new Russian tech billionaire emerged on the Nasdaq with the SPAC-enabled IPO of Arrival, a company touted as a game-changer in the electric car industry. Arrival’s founder, Denis Sverdlov, is a Russian serial entrepreneur born in the Soviet republic of Georgia. He co-founded Yota, an LTE pioneer of the late 2000s and early 2010s, before briefly serving as Russia’s deputy minister of communications. Like many other top Russian tech entrepreneurs, Sverdlov found his way abroad to a larger fortune: He moved to London in 2015, where he launched a $500 million tech fund and founded two companies, including Arrival. 

No less remarkable were Andrew Filev’s international successes. This techie from St. Petersburg moved to Silicon Valley in the mid-2000s “with just a small travel bag, laptop and a bunch of ideas in [his] head.” He founded or was involved in several companies – including Wrike, a publisher of collaborative work management software, as well as Murano Software, Ditto.com and Appulate. In 2018, U.S. investment firm Vista Equity Partners acquired a majority stake in Wrike, and in January 2021, the company was sold for $2.25 billion to software giant Citrix

Telegram, the instant messenger founded by Russian Pavel Durov, made the news again in March – raising $1 billion in bonds from international investors. A large fraction of this amount will be used to refund the investors of Ton, Telegram’s failed blockchain project, following a settlement agreed to last year with the U.S. Securities and Exchange Commission. The messenger now aims to go public, most likely in 2023 on an Asian stock exchange – given that 40 percent of the messenger’s users are in Asia.

In late February, another bond issuance brought $750 million to Ozon. It was not fully expected that this Russian e-commerce company would need to secure such an amount just three months after raising $1.2 billion on the Nasdaq (twice as much as expected). The company’s appetite was explained by the need to “retain a certain strategic flexibility” as it aims to further develop fintech products, new added-value services, and new verticals. 

 

Companies with Ukrainian roots made big moves

Companies with Ukrainian roots have also made big moves in 2021. In early January, airSlate (formerly known as pdfFiller), a Boston-based publisher of business automation software, closed a $40 million Series B round from major U.S. funds. Just weeks later, the company secured a $50 million loan from Silicon Valley Bank. In total, the no-code solution provider has raised $130 million in capital to date.

Another successful company with Ukrainian founders is Creatio, the developer of a low-code process management and CRM solution. In February, it secured $68 million in its first-ever round of equity funding. The money came from the U.S.’ Volition Capital and Ukraine’s Horizon Capital, which have become minority shareholders.

Almost simultaneously, Preply, one of the brightest Ukraine startups that’s emerged in the past decade, raised $35 million “for blitzscaling.” This platform connects those learning a foreign language to online tutors, using machine learning to achieve the best match. Thirteen funds and business angels – from the U.S. and Western and Eastern Europe – took part in this Series B round

Smaller, but noticeable international deals involving companies with Eastern European founders included:

 

Russian investors in the global game

Russians were also active as investors. The gaming branch of Mail.ru Group – a Russian internet major provider listed in London and Moscow – continued its international buying spree, from the Netherlands to the U.S. Meanwhile Dating Group, a Russian-founded international dating leader, acquired French slow-dating app Once for $18 million. 

Several venture firms with Russian roots – but fully integrated to the global venture market – participated in deals across the world. Among these investors are: Runa Capital, with a $10 million investment in San Francisco-based AnyRoad; RTP Global, which launched a $15 million VC fund in India; and Sistema Asia, which is affiliated with Moscow-based conglomerate Sistema with a $100 million round for Mumbai-based unicorn Infra.Market.

Domestic deals

On Russia’s tiny domestic venture scene — $702 million in 2020 — several deals involved large local high-tech companies. In particular:

Venture funding also went to smartphone charging service Zaryad ($5.6 million), high-tech prosthetic startup Motorica ($4 million), online banking startup APIBank ($1.6 million), and neurotech productivity software company Wikium (undisclosed amount), among other deals. 

Foreign investors were virtually absent. The only noticeable moves involved two Chinese players: Tencent, which invested in a game studio to recreate a “robotized Soviet atmosphere,” and the  Russian Chinese Technology Investment Fund, which teamed up with Russian oligarch-backed Winter Capital, to support a brilliant online school of programming called Algorithmics

Meanwhile, the Russian PE/VC firm Elbrus Capital closed a new fund involving major international LPs. These included international finance institutions from the UAE and the EU, as well as family offices and private funds. Russia’s geopolitical situation is complicated, conceded Elbrus Capital; but even though international investments have been affected, investors put their attention on potential returns in Russia’s fast-growing digital space, rather than politics.

 

Startup resilience amid political turmoil

The first months of the year were marked by constant political turmoil in Eastern Europe. In Belarus, as the intensity of the revolutionary unrest – which began in August 2020 against the authoritarian rule of President Alexander Lukashenko – tended to diminish, the startup ecosystem entered an uncertain process of recovery. 

Political repression continued, as exemplified in March by the police raid into Imaguru, one of the country’s main startup hubs – followed in April by the unexplained termination of their office lease contract.

“Until the second half of 2020, the startup ecosystem was rapidly developing. By the end of the year, existing startups could no longer work productively, and new ones could hardly emerge. In the first months of 2021, the industry adapted, startups took protective measures [moving headquarters abroad but often keeping IT teams in Belarus] and resumed development outside Belarus,” explains Andrei Avsievich of Bulba Ventures, a key local VC firm.

Some of these startups raised funding abroad from local or international investors, Avsievich added, citing a few undisclosed deals of “up to several millions of U.S. dollars” in the first quarter of 2021. 

While not expecting the local startup ecosystem to grow rapidly anytime soon, Avsievich sees “a tremendous number of creative, energetic people in Belarus,” and is willing to “support Belarusian founders, regardless of where they are.”

In Russia, the turmoil around Alexey Navalny – a fierce opponent to Vladimir Putin who survived a poisoning attempt last year and was sent to jail in January 2021 – did not have major visible consequences on startup or venture activity. However, these events ignited a digital rebellion on TikTok, which in turn triggered the authorities to restrain the activity of Twitter and other social networks in Russia

The latest Russian military concentration near the Ukraine border and the subsequent diplomatic tension with Western powers did nothing to ease the atmosphere. “If the political climate in the region continues to deteriorate, we could well end up financing the evacuation of talented teams to more favorable jurisdictions,” a venture capitalist said with mixed cynicism and sadness. 


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