“The Secret of the Firm”: Venture Funds Run From Russia

The publication “The Secret of the Firm” published a material entitled “Emergency Exit: Venture Funds Run From Russia”.

The note discusses the reasons for which venture investors and funds are winding up their activities in Russia and reorienting to foreign markets, primarily in Southeast Asia.

How did it happen that since 2012, when the Russian Federation ranked fourth in Europe in terms of investments in high-tech industries, the market decreased by 26% in 2014 alone, and the value of companies in portfolios fell, according to various estimates, from 30 to 100%?
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"Megamind" leads the most interesting excerpts of the article.

For Russian companies, the funds are now wary. “Previously, we entered the project when we knew that we would disperse it, some kind of partner fund would come and report more money. Now we are afraid to do that, ”says Igor Ryabenky, a partner at Altair Capital.

The goal of any fund is to exit the project with a profit, that is, to sell its share at the highest price. Now it’s almost impossible to do this with Russian projects - the cost of investments that the funds made in dollars has doubled due to the devaluation, and the valuation of companies has decreased. “This is for us a blow from the victims, because we cannot implement any exits. The project has grown to our estimates, and then the fall of the ruble has had an impact on it, ”says Ryabenky. Now investors are taking a wait-and-see attitude - hoping for improvements in the situation or development of projects in foreign markets, which can allow companies to grow in price and turn the interest of other investors on themselves.

This year almost none of the venture funds invested in Russian companies. Runa Capital, ABRT, The Untitled Ventures and others, although they state that they are not leaving Russia, last year reoriented to foreign markets.

“First of all, this is Israel, where there are a lot of global projects, the second is Silicon Valley, the third is Southeast Asia, and Singapore is the most convenient point of presence,” said Konstantin Sinyushin, partner of The Untitled Ventures Foundation.

The head of Life.SREDA, Vladislav Solodky, says that after the news about the release of their Lifepay portfolio project to Asia got into the Asian media, representatives of the Government of Hong Kong and Singapore contacted the fund - offered their support, for example, a 70% discount on rental in the first year and 50% in the next three years. Plus tax breaks, visa assistance and co-investment. Companies that are supported by the government live in a separate area of ​​Singapore: the famous INSEAD business school is located in high skyscrapers, and ministries, research agencies and technology companies are located nearby. “We have long been mentally abroad. But if it is possible to work with Moscow, British or American startups from Moscow, it’s difficult with Asian companies, ”says Solodkiy.

Dmitry Alimov, a partner of the Frontier Ventures fund, is also opening an office in Singapore - last year the company “decided to expand the geography of investments”. They traveled around the world for a year and studied various markets, eventually they realized that Southeast Asia would be a priority.

“All this is not related to what the political system is like,” said Belousov, who spends almost all his time in Singapore. “In Singapore, in fact, it is not exactly democracy, there is a well-organized authoritarian system in which everyone however votes, and there it’s very good to do business and huge investments. Or China, for example, there is definitely no democracy there - although there is no dictatorship and certain elections there, it is very closed, access to Youtube, Facebook, Twitter is forbidden, there are no free elections and so on. Nevertheless, there are so many startups, innovations and international investments. Where does Alibaba's capitalization come from? This is international capitalization. Basically, because there is stability there, there is almost no outwardly political aggression and there is a long-term plan. ”

Since the beginning of this year, the law on deofshorization entered into force. This was another incentive for venture investors to abandon work in Russia. The law introduces the concept of "controlled foreign company" - entrepreneurs have the obligation to notify the tax of their participation in foreign companies.

It was assumed that the deadline for submitting notifications would be limited on April 1, but it was extended until June 15. Now companies with capital from Russian companies or residents become accountable to Russian law. Alexander Turkot, partner of Maxfield Capital, is sure that the law on de-offshorization pushes funds to leave the country: “For foundations, this story is hard, because if it is invested in Silicon Valley or in Argentina, more than 10% in the US or any other company then this company along the chain may fall under Russian regulation. ”

Some funds are subject to investment agreements in Russia. Almaz Capital in 2013 received investments from the EBRD for investments in Russian projects and the CIS. There are funds that are focused only on Russian projects, for example, in Prostor Capital (in the portfolio of Dnevnik.ru, Umi and others), “Secret” was told that they would look for niches in the existing market. The fund plans to consolidate a part of assets within various segments and to launch individual projects on international markets.

Partially offset by the departure of venture funds will be able to large companies that create investment units and invest in third-party projects. In Russia, Sberbank is working in this direction, and Qiwi has created a Qiwi Venture fund, which is invested in financial start-ups.