The Eastern European Paradox: How a Troubled Region Generates Unicorns and Decacorns

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Crunchbase and East-West Digital News are teaming up to cover key tech and venture trends from Russia, Ukraine and Belarus. In this column, EWDN Chief Editor Adrien Henni highlights the most notable industry facts and trends of the past year and outlines the foreseeable evolutions. (The previous, Q3 2021, column is available here.)

With Russia and Belarus digging themselves into domestic authoritarianism and international confrontation, a looming potential war between Russia and Ukraine, and an actual war between Armenia and Azerbaijan, news from Eastern Europe was depressing last year. However, at the same time, the region generated directly or indirectly a record number of unicorns, or even decacorns, and kept appealing to tech investors.

An impressive number of Eastern European tech entrepreneurs triumphed in the West in 2021. Miro agreed to a $400 million funding round with top U.S. investors, bringing its valuation to $17.5 billion. Now headquartered in California, this visual collaboration startup was born in Perm, Russia, a decade ago. 

Several other companies with roots in Russia, Ukraine or Belarus asserted a valuation above $1 billion: 

 

Less for more

What do these successes tell us? First, that Eastern Europe has generated a brilliant generation of tech entrepreneurs whose companies are now reaching maturity. Recent studies suggest these entrepreneurs tend to follow a specific development path. Many of them focus on digital technologies that do not require considerable capital injections; they tend to raise less, and later, than their Western peers.

Second, in almost all cases, Eastern European founders relocate their companies to Western jurisdictions as they begin growing internationally. Eastern Europe is the place of birth, and often provides further R&D support—but it is rarely the place from where these startups scale up. 

Arrival, Revolut, Telegram, Veeam Software, Wrike and many others had even tinier links with Eastern Europe. Their founders were born there, but the companies operated from other jurisdictions from the very beginning, and not all of them even have R&D teams in Eastern Europe. 

It is no surprise that Eastern European founders attract increased attention from venture capitalists. Several funds emerged lately with a specific focus on these entrepreneurs, wherever they operate from. Among these funds:  

An older generation of VC firms have also made funding available to Eastern-European tech founders globally—but without an exclusive focus on them. These firms include Almaz Capital, FlashpointGagarin Capital Partners, LVL1, Runa Capital and Target Global, to name just a few big names with Russian roots, as well as AVentures Capital and TA Ventures, which are based in Ukraine. 

Some Western investors are fully aware of the value of Eastern Europe. Among them is Acrobator Ventures, co-founded by Bas Godska, an early investor in Miro. Luxembourg-based Mangrove Capital Partners backed Flo, a femtech startup from Belarus, which mostly relocated to London, and raised $50 million in September 2021.

U.S. tech investors are rarely seen on Russian soil—where they may end up behind bars, if judging by the recent Calvey and Meyer cases. But in Silicon Valley, a growing number of VC firms are showing interest in Russian émigrés. 

“A flow of US VCs regularly come to us to inquire about interesting projects involving such entrepreneurs — which wasn’t the case just a few years ago,” said Denis Efremov in a recent exchange with Forbes Russia

Efremov is principal at Fort Ross Ventures, a Russia-connected VC firm operating in Silicon Valley. He said Russian-speaking entrepreneurs have become the third-largest “ethnic business community” in the USA. 

 

Russian tech disruptors across the world

Russians established in the West asserted themselves last year as chief disruptors in the food delivery industry, fulfilling orders in around 15 minutes.

A plethora of such startups now operate in the U.S. (e.g. Buyk, Cartwheel, FoodRocket, Fridge No More), Canada (Tiggy), Germany (Getfaster.io), the U.K. (Jiffy) and other geographies, some of them raising considerable amounts (Buyk and Jiffy).

Meanwhile Yandex, the Nasdaq-listed Russian search company, launched its own food delivery services in Israel, Paris and London under the Yango Deli brand. Another Yandex affiliate, Yandex Self-Driving Group, agreed to a partnership with GrubHub to develop driverless food deliveries on college campuses in the U.S. 

Bold Russian tech entrepreneurs are penetrating other segments: International delivery service Borzo (previously known as Dostavista) acquired Indian bike taxi startup Now after raising $35 million; Moscow-based drone-maker UVL Robotics announced an air delivery service in Oman, after Turkey; and e-scooter startup Whoosh, which secured nearly $26 million from Russian banks, is preparing to land in several countries outside Russia. 

Fura, a Moscow startup offering high-tech services to truck drivers, intends to become a unicorn. In 2021, it entered the U.S. market, where it claims to have already generated around $20 million in revenue. It just raised $7.75 million in a round led by Fort Ross Ventures

Russia, where e-commerce is growing by 40 percent or more per year, is also home to a vibrant retail tech community. Some of these startups have gone global, as exemplified by Brandquad, which moved to France. This company, which helps large brands manage product experience on the digital shelf, raised 2.5 million euros in September. 

 

Russian domestic deals

Major deals took place last year in Russia. Here are notable ones:

Some deals involved foreign investors. Alongside Moscow-based Baring Vostok and Winter Capital, Goldman Sachs took part in a $50 million funding round for online education company GetCourse. There was $26 million injected by Russian, Austrian and Swedish investors into insuretech leader BestDoctor.ru. And HelloFresh, the global meal kit delivery giant, invested several million euros in its Russian counterpart Chefmarket.ru.

To cite smaller examples, Tencent invested in a game studio to recreate a “robotized Soviet atmosphere;” Sweden’s Embracer Group fully acquired Bytex, a quality assurance studio; while Dutch and Greek investors injected $5 million into Agro.Club.

Much larger amounts came to Russian tech companies via international capital markets:

Delimobil, at the same time, postponed its IPO.

In early 2021, 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.

 

In Ukraine

GitLab, Grammarly and People.ai were not the only Ukraine-founded tech companies to shine in the West. Throughout the year, impressive investment or acquisition deals involved airSlate, Creatio, Depositphotos, Preply, Revenue Grid and a few other companies established abroad. 

Domestic deals were far more modest in size. For example, ComeBack Mobility, which develops smart crutch tips, raised $1 million, while Effa, a startup that creates nature-friendly toothbrushes, and cloud platform Onlizer, each received $500,000.  

A series of equity-free funding deals involved the state-backed Ukrainian Startup Fund.

In April 2021, the French carpooling giant BlaBlaCar acquired Octobus, a Ukrainian tech firm that develops software for bus operators, while Kazakhstani Kaspi Pay, in July, took control of online payment major Portmone. Playrix, a global Russian-founded gaming giant, bought Boolat Games in March.

 

In Belarus

Since August 2020, unrestrained political repression has led to massive IT emigration and accelerated the pre-existing startup relocation trend. In 2021, Flo raised funds and hired in London while PandaDoc, headquartered in San Francisco, moved its staff to Ukraine and Poland. A more modest startup, EduDo, moved to Ukraine where it raised $300,000 from Ukrainian and Russian investors. 

Capital.com and Currency.com, two other ex-Belarusian startups, now have their employees scattered across Eastern Europe, the U.K., Cyprus, Gibraltar, the U.S. and Australia. Viktor Prokopenya, a figure of the Belarusian business scene, bought out the shares of Russian billionaire Said Gutseriev in these companies for a considerable amount—reportedly in the range of $150 million. 

A few deals still took place domestically in 2021, but they were very small. For example, in April, Russian investment firm GEM Capital invested $1.4 million in Minsk-based gaming studio Weappy

Almost simultaneously, 2GIS, a leading mapping service owned by Russia’s Sber, announced the acquisition of RocketData, a successful geomarketing startup. 

The news was tarnished by the arrest of RocketData’s CEO Daria Danilova, just weeks later, due to her links with Tut.by—an independent portal which had just been shut down by the local authorities.

 

What to expect next? 

The beginning of 2022 looks as gloomy in Eastern Europe as last year. There is little hope that political repression will ease in Russia and Belarus—and the authorities might well block access to international platforms like YouTube, Facebook or TikTok, putting a final end to the power struggle they engaged in recently.

A war between Russia and Ukraine, potentially escalating to other countries in the region or beyond, is possible. Any improvement in Russia’s relations with the West looks unlikely.

At the same time, Eastern European entrepreneurs will not stop building great startups—in their home countries or in other jurisdictions, as startup drain is set to continue—and investors will continue betting on them.

Forbes recently identified 10 “future unicorns” with Russian roots. Other potential unicorns from the region are mentioned in this column. The better part of these companies have already relocated to the West. 


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 Henni at editor@ewdn.com.