IT in the Russian Federation

Russia: IT Financing

Overview

The Russian’s have proven that they are growing there economy with 3 straight years of more than 20% growth.  “It’s a no-brainer, it’s a growth market.  VCs should get on the plane,” said Mark Sanor, a partner at Ernst & Young, who has spent the last seven years studying Russia’s blossoming tech market.

 “In general, prospects for new investments in Russia’s Net companies look bright as New Economy enthusiasm continues in Russia – despite recent market gyrations and start-up failures in the US and Western Europe.  Because there is no history of astronomical valuations attached to Russian Internet companies, a radical downward market adjustment has not been needed.” (– Net Start-ups in Russia Seek Business Smarts)

Capital Sources

There are several capital sources available to Russian tech companies including the Market-Based Commercialization Initaive and the US Import Export Bank which is initiating a lending program that will allow cities and regional governments to to obtain loans on US-Russian joint ventures.

One interesting note on the nature of US investments into the Russian economy is that Russian business people are just as interested in management expertise as they are the money.  “It’s very important to ask, not ‘Show me the money,’ but ‘Show me the strategy,’” says Andrei Vakulenko, general director of a Moscow start-up called Internet Incubator.  “If you don’t pick the right invest for you company, the 70% you retain in your company could be worth zero.  You need investors who can improve your strategy and share their contact networks.”  Esther Dyson, chairman of the New York investment firm EDventure Holdings, Inc. suggests that “for each $100,000 investors send to Russia, they should send 3 good managers as well.”

FDI into IT

Few US companies have actually made direct investments in to the Russian IT market.  Although the companies that have are reaping the rewards of first mover advantage.  Russia is a top performer for companies like Sun, Microsoft, and Intel. 

Technology IPOs

Investor exit opportunities are actually quite persuasive.  IPOs will gain importance over the medium term, and several have been successful so far:

  • Beeline Cellular Communications
    • 1996 NYSE Listed
  • Golden Telecom
    • 1999 NASDAQ Listed
  • MTC GSM
    • 2000 NYSE Listed
  • bp
    • 2003 NYSE Listed

The primary exit for investors so far has been trade sales.  Examples of these are as follows:

  • BP’s recently announced a US$ 6.75B investment for up to 50% of TNK (Truman Oil Company)
  • Heineken bought stake in Bravo for about US$ 400M
  • Nestle Waters bought stake in Saint Springs

 

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