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Russian VC market - More stable, more mature but facing an uncertain future

0 31 March 2014

The Russian Internet Deal Book is an impressive resource put together by Andrey Kulikov, in partnership with FastLane Ventures. It provides a helpful outline of the venture industry in Russia since 2010, and includes a list of more than 600 deals completed in 2012 and 2013. You can access the whole book here, but if you haven’t got time for that here’s a quick summary. 

The boom is over

There was a small increase in the total number of deals and the total invested in 2013, compared to 2012. However, two years of comparatively sluggish growth suggest that the 2011 boom, when venture investment exploded into life, is over. 

In terms of the distribution of investment, there are no signs of a Series A crunch like the one in the US, and fears about a lack of seed money in Russia also seem unfounded. In fact, the Deal Book shows a relatively healthy distribution of deals across different investment stages. 

E-commerce dominates the Russian venture industry

Russia has proved itself a rather ‘unique’ internet market - producing its own versions of Google (Yandex), Facebook ( and Yahoo ( In fact, very few non-Russian projects have managed to dominate their sector in Russia. Instead, local copycat services have sought to fill niches. It is precisely these projects that fuelled the boom, in particular copycat startups in the e-commerce sector, in which no single company has managed to follow in Amazon’s footsteps. 

A glance over the list of deals worth more than $10m shows the dominance of the e-commerce sector during the past two years. 

Acquisitions have increased, but there still aren’t many of them

According to PwC’s recent report on the Russian Venture market a lack of willingness on the part of major corporations to acquire startups is one of the main obstacles to successful VC exits in the country. 

This is borne out by the list of acquisitions presented in the Deal Book. There were just 10 acquisitions worth more than $1 million in 2013, involving just 8 buyers. While this is an increase on the seven $1 million+ acquisitions in 2012, it remains a comparatively small figure. 

Yandex’s purchase of film database Kinopoisk was the biggest acquisition by some distance, while classified ads site Avito’s merger with rivals Slando and were the second and third largest. 

With the current political situation making it more difficult for Russian companies to hold IPOs on Western stock exchanges, achieving successful exits will continue to be a challenge for Russian investors. 

Who is investing?

It remains hard to know exactly who is making venture investments in Russia, because transparency is still low. While the situation has improved regarding larger deals (although even details of these often take a long time to become known), many early stage and seed investments remain undisclosed. 

What is clear is that foreign investment has remained quite stable during the past few years, both in terms of volume and strategy. Foreign investors were involved in around 30 deals in 2011, 2012 and 2013. However, although these represent just a small percentage of the total number of deals, they add up to almost 50% of total investment. This is due to foreign investors’ preference for later stage investments, which tend to be much bigger. 

What next?

While the first wave of Russian venture investment mostly targeted copycat services, it remains unclear what will come next. Due to the limited size of the Russian market and the low survival rate of copycats these investments are unlikely to deliver sound economic returns. 

A number of Russian investors have already turned their attention away from the domestic market and made investments in foreign projects. Yuri Milner’s DST, a major early investor in Russian projects, has been entirely oriented towards foreign startups since it raised “fund II”. Bright Capital, Runa Capital, Life.SREDA, Almaz Capital and others now also have foreign projects in their portfolios. 

There are signs that local investors now want to see projects that are capable of succeeding not only in Russia, but in CIS, European and even global markets, which indicates that the market is maturing. As it does, it is quite possible that there will be a slowdown in investment, but that deals made will deliver better returns. 

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