In October 2013 seed investment continued to dominate the Russian venture market, continuing a trend that started this summer. The most popular sector was digital and social media.
This trend is almost certainly connected with the Russian advertising market’s annual cycle. Every year social and digital media projects are launched in autumn, and spend a few months developing their product in order to attract advertising money when it is distributed in February and March.
The fastest growing sector was software and development, thanks in large part to the large number of hackathons that were held in Russia this summer, and also to the recently launched Internet Initiatives Development Fund (FRII), which welcomed a significant number of new projects to its incubator program.
As the end of the year draws closer the competition between funds to invest in projects has increased notably, and practically no syndicate deals were struck. We also saw investors start to express their support for projects at an earlier stage, and as a result a number of deals struck this month involved teams that had already secured commitments from different funds.
Below you can see an infographic analysis of the Russian venture market in September 2013, brought to life by GoVisual
Oleg Tinkoff's internet finance-company TCS-bank raised more than $1 billion in a London Stock Exchange IPO. From this sum, $175 million will go to the company, while the rest will be split between its major shareholders - Oleg Tinkoff, Goldman Sachs Group, Baring Vostok, Vostok Nafta, Horizon Capital and Altruco Trustees Limited.
The feverish demand for shares allowed the company’s valuation to rise to $3.2 billion. Although the firm was listed as a bank, Tinkoff portrayed his project to investors as a tech business (very similar to the US project Simple.com), which may have resulted in the high valuation of shares.
$10 million (estimated)
Russia’s main film encyclopedia Kinopoisk (Russian language equivalent of IMDb) was sold to Yandex for an undisclosed sum. It is known that Kinopoisk’s team were also in discussion with other investors, including Western publishing houses, but they ultimately chose to merge with Russia’s leading search engine.
Yandex is planning to use Kinopoisk’s database to improve its responses to film search requests and to create an aggregator for films on the net.
The world’s second most popular web server, which was created from 2002-2004 by a developer at Russian search engine Rambler in his spare time, raised a second round of investment from top US venture funds. Nginx is currently used by Dropbox, Facebook, Hulu, Instagram, Netflix, Pinterest, Zynga and Yandex. It recently entered the ADS-solutions market, offering a paid software alternative to expensive hardware application delivery controllers.
FUND OF THE MONTH
Impulse VC ($65 million)
Having sold their company to Roman Abramovich’s business structure, the founders of online advertising firm Sape.ru launched Impulse VC, an investment fund + incubator and accelerator.
The fund has already added 10 projects to its portfolio, including Retail Rocket, which received direct investment in October. The accelerator will serve up to 50 projects a year, offering $25k - $100k for a 7-15% shake, while the incubator will offer $500,000 for 25-35%.
PERSON OF THE MONTH
Communications Minister Nikolay Nikiforov, who, at 31, is Russia’s youngest minister, is possibly the most influential figure for the development in the IT and telecoms sectors in Russia. During the past year the Communications Ministry and related entities have actively facilitated closer interaction between Russian and foreign companies, investors and educational institutions, and also taken steps to improve regulation relating to startups. In October Nikiforov’s department organised a number of international investment events, and also announce that the second Russian Startup Tour is to start in the near future.
FAIL OF THE MONTH
Cost: Unknown ($400 million+)
The Skolkovo Foundation, a public-private partnership that oversees Russia’s attempt to create its own “Silicon Valley” on the outskirts of Moscow, has had a bad year. Skolkovo’s sorry state may explain why most new public-private partnerships in the innovation sector get called “New Skolkovos”. An already bad year hit a new low in October, with the publication of the Prosecutor General’s investigation into the Foundation’s activities. It accused the management of misspending huge sums and found examples of malpractice that put at risk further millions of dollars.
For example, the investigation found that projects directly related to Skolkovo President Victor Vekselberg had received millions of dollars without being properly appraised.
As a consequence, investigations into Skolkovo will continue, staff are likely to lose their jobs, international contracts are at risk and the reputation of startups that have received funding from the Skolkovo Foundation has been damaged.
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