Two Venture Investors See Opportunities in Russia

Russian entrepreneurialism appears on the rise, yet the quality of young companies is uneven.

New laws promise a better market-oriented legal framework. Yet they may need another five years to mature. And while some venture investors see interesting investment opportunities, others complain they can’t transfer money out of the country.

Russia is a land of contrasts. This was my takeaway from last week’s Russian Innovation Week, held in Silicon Valley. Government officials hope to encourage creative entrepreneurs in a land of expanding Internet use and longstanding technology expertise. But an efficient marketplace with an appropriate legal foundation is a work in progress.

Despite this two-sided coin, several investors I ran into at the event said they saw opportunities. One was Alexander Galitsky, a managing partner at Almaz Capital Partners, who is raising a $200 million second fund. Almaz has done A and B rounds in the past. Now it will start funding seed deals.

Galitsky, an Internet and software investor, says entrepreneurial energy is rising. A year ago he would see six deals a day. Now the number is 10, with the quality of entrepreneurs on the upswing.

And prices are palatable. Valuations are typically 30% less than in Silicon Valley, he says.

To avoid liquidity transfer issues, Almaz structures portfolio companies as offshore entities. This better protects minority investors, enable companies to more easily use stock options and makes it simpler to realize profits from a deal.

Evgeny Zaytsev, general partner at Helix Ventures, says he hasn’t pulled the trigger, but is considering investing in Russia.

“I actually see a lot of opportunity in Russia to realize liquidity,” he told me. This includes potential M&A to Russian buyers. It also includes developing and selling biomedical products in the country.

Doing clinic work can be less complicated, he said. The regulatory environment is easier and the trial population is more concentrated. Fewer patients have had earlier treatments. And while costs are rising, they still are attractive, he added.

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