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The wealth and poverty of seed investments in E-Commerce and Media

0 July 2013

RUSBASE's OPINION

The month of July 2013 opened the second half of the growth in both market transactions and pre-seed investment rounds. For the first time, almost half of the start-ups received an average amount of $100,000-500,000. This is certainly not a standard for the domestic industry, and can by explained by the fact that amateur investors have begun investing in e-commerce and media projects.

We will only be able to judge the extent to which these deals will bring benefits to both parties in about a year's time, but for now we note that in July there was a second and final wave of interest towards the segment of "education" and "finance". In the next 3-6 months, Russian investors are predicted to focus more on other IT niches, particularly medicine and software development. Crowd-investing will also become a more common phenomenon. Formally speaking, the market will continue to produce a few dozen new start-ups each month in the field of e-commerce and media but these will no longer meet investor expectations in terms of returns. This is because in Russia it is not viable to build a business-model based on advertising, but models based on the sales of goods or services do not always earn enough profits to be self-sustainable even when backed by investors.  

July 2013 has shown that the most attractive startup niches for investments are once again E-Commerce and Media, but interest is also growing for software and finance, which have so far remained less explored. A small circle of investors focused on search technology and education, but the highly specialised IT sectors are expected to boom starting this fall. Lastly, the increase in the total number of deals is mostly due to the activity of investors during pre-seed rounds, investing up to $ 500.000.

Below you can see an infographic analysis of the Russian venture market in March 2013, brought to life by GoVisual




SIGNIFICANT DEALS


DeliveryHero

$ 30 million 

Investors: Phenomen Ventures (with the participation of existing partners, including Kite Ventures)

Why: This follow-up round D investment, funded by Phenomen Ventures and others who previously invested $50 million in the same service, was one of the first deals of the month. DeliveryHero's positioning is already very strong in Europe and Russia, but whilst at home it competes against the likes of JustEat and FoodPanda, in Russia it has fewer competitors.

The company's total turnover has reached $ 400 million, and investors have noticed the growth of its economic indicators and its efforts to make profit. The latest investment will be used to increase presence in the current markets and to start new projects.

Bay.ru

$ 4 million

investors: Business-angels (unknown)

Why: Bay.ru, the service for the delivery of goods from foreign online companies, attracted a $4 million investment. The investors participating in this third round were from Russia, the U.S and Europe. Although their names have not been disclosed, we know that they are all business-angels and that the funds will be directed towards the development of the technological marketing and operations of the company.

Bay.ru is among the 10 largest "intermediaries" for the delivery of goods from eBay, Amazon and other foreign e-stores in Russia. As the management of the project has pointed out, they are aiming to continue to grow their customer base and to test new sales channels. In addition, Bay.ru is actively investing in the development of related businesses: during July for example, they invested $ 700,000 in Dostami.Express, an independent courier mail.

CIAN.ru

$ 8 million (estimate) 

Investor: Media3

Why: Cian.ru, the Russian "Craigslist" for real-estate advertising, was acquired  by the holding Media3 (owned by the Ananevy brothers). The controlling stake of Cian.ru was sold for an undisclosed amount, that could be $ 8 million. The management company IQOne planned acquiring it for this sum two years ago, in an attempt to strengthen their E-Commerce-direction. Media3, now employing the former executive of IQOne Vadim Tarasov, is planning to merge CIAN.ru with Realty.dmir.ru, an analog of the British Rightmove.co.uk or the American Trulia.com 

Currently, CIAN.ru has an audience of 1.5 million people (on the base of 500,000 ads), that rent or purchase housing in the Moscow region; Realty.dmir.ru counts 1.7 million visitors and 800,000 ads. Compared to its foreign equivalents, which have much higher figures and in some cases are also quoted on the stock exchange (Rightmove.co.uk), these numbers are still very small. Recently, the Russian project DomGeo undertaken by FLV, which also aimed to provide this same type of service, proved unsuccessful and was shut down, writing-off an investment for several million.

 


FUND OF THE MONTH


Novstream Internet Advisors

WhyMichael Frolkin, creator of HeadHunter.ru and one of the top managers of the service until it was sold to DST, created a venture capital fund last year, focused on supporting novice Internet companies. His portfolio currently counts the service to find domestic staff Pomogatel.ru, the Vietnamese search engine Coccoc.vn, developed by the founders of the search engine Nigma.ru, and the open source backup system Bacula. Since July 2013, it also counts the service WeStudy.in, helping Russian students apply to foreign universities.


PERSON OF THE MONTH


Vladislav Surkov

Former Deputy Prime Minister of the Cabinet during Dmitry Medvedev's government Vladislav Surkov plans to get involved in the venture capital business. We know that he has consulted experienced investors, including the founder of Almaz Capital, Alexander Galitsky. As of yet, the terms on the creation of the fund, its focus and orientation are unknown.

FAIL OF THE MONTH 


The Old Reader

200 thousand $ (estimate)

Why: Established in the Ukraine, this RSS-reader was closed. Its executives Bulygina Elena and Dmitry Krasnouhov explained that the closure was due to the company's inability to maintain operating due to the increasing number of users (following the closure of Google Reader). Consequently, the administration decided to suspend the service desk and only allow those who registered before March 2013 (approximately 10,000) to use it. Support for The Old Reader will also be decreased, as the creators are planning to engage in other projects.


DISCLAIMER



The data provided in the current document is gathered both from public and private sources. RusBase's analysts produce these reports based on current coverage of deals in the media, social networks and blogs. Some information is also obtained via tips from industry insiders.

These analytics (including open source data) should not be the sole source of information used for making investment decisions, securing rounds or dealing with any other issues without further clarification from the business owners or general managers. You may purchase verified data for deal-books and market insights, produced especially upon a client's request (see more details below). If you have any additional questions, comments or require any explanation, please feel free to contact us at analytics@startupafisha.ru.

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