Meet Target Global, a Moscow-based venture capital fund which has multiplied its assets from $20mn four years ago to $300mn by investing in companies mostly located outside of Russia.

The firm, which has crept up under the radar, is now expanding fast. Target opened new offices in San Francisco, Berlin and Tel Aviv last year, and is making more and more bets on both early stage start-ups and growth businesses as the industry and co-investors acknowledge their growing stature.

Target’s initial four bets on Russian e-commerce start-ups largely misfired. One investment in the online confectioner Mixville has since been sold at a loss. Online events website Timepad is not expected to be a hit, while bets on a real estate classifieds website and childrens’ e-commerce firm are now turning a profit.  But it was only after they secured their first international deal with German-based Delivery Hero in late 2013 that things started turning around. “We were getting into Runet because we couldn’t get in anything else,” Mikhail Lobanov, the 27-year-old partner of Target, tells bne IntelliNews in a Moscow interview. “We didn’t have any choice, because it was the only market we knew."

Its punt on Delivery Hero, the online food-ordering website which now has a valuation of $3.1bn, changed everything. Co-founding partner Alexander Frolov had previously worked for a network owned by iconic US venture capitalist Tim Draper. That relationship with Draper Venture Network “opened doors in New York and London” and got them access to Delivery Hero, which has since gone global. “Delivery Hero had a huge boost in valuation right after we entered,” says Lobanov. “It was perfect timing and a perfect investment and we gained a lot and it made attracting capital much easier for us.”

Target’s investors are family offices from Russia and Eastern Europe. The firm doesn’t have any funds from sanctioned individuals nor from the government, according to Lobanov.

Having Delivery Hero in the portfolio as a unicorn (a startup that grows to over a $1bn) impressed investors and allowed them to grow their asset base 15 times. “Not a lot of Russian VCs can say we have unicorns in the portfolio and now we have four,” Lobanov says. “Some of these we entered when they had already reached $1bn valuation, but getting in showed our access.”

Other unicorns include the US peer-to-peer lending platform Prosper and US online ready meals supplier Blue Apron. Target is expected to announce a new unicorn investment in European consumer internet shortly, plus a seed investment in a UK securities lending company.

Like most VCs, Lobanov is coy about the fund’s return rate or the profits from their three exits. He doesn’t think any of the portfolio’s unicorns will IPO this year, but Target may create an exit through a trade sale. “A healthy mix in a portfolio of 15 companies would be to three to four write-offs, three to four doing fairly well, three to four that do 2- to 5-times money, and one or two home runs, which provides you with 30% IRR [Internal rate of return],” he says.

Lobanov said the firm tries to put money in the bank for investee companies in three to four weeks from the time of the original request. “We are newcomers to the market and we try to differentiate from the competition by being super fast,” he says.  

Berlin base

The firm is shifting its main office from Moscow to Berlin, where Lobanov is increasingly spending more of his time. Target is in the process of launching an early stage fund with 20 seed deals and is optimistic about attracting investors from Europe and Israel. “We are becoming less and less a Russian fund and a more international fund with a centre of gravity in Berlin,” he says.

Lobanov previously worked at Alfa Capital’s multi-family office unit, which served the group’s wealthy clients who needed $10mn to sign up. In 2009, the start-up had just one client, which grew to about a dozen by 2011 with assets under management of about $125mn. Lobanov and Alfa were investing in equities, bonds, futures, hedges, currencies and structured products on behalf of their clients.

Target actually originally started out doing public equities and retains a small unit Target Asset Management focused on alternative assets and algorithmic trading. “We don’t do plain vanilla public equities, because how can we can compete with guys like Alfa?” he says. “We might focus on peer-to-peer investing, where we already have an edge.”

Lobanov’s role model is the Russian billionaire Yuri Milner, who parlayed a $200mn bet on Facebook in 2009 into a fortune and a portfolio of similarly well-timed investments in other hot internet companies such as Twitter, Spotfiy and Alibaba.

Milner’s relationship with Facebook founder Mark Zuckerberg granted him the golden key to Silicon Valley, which remains largely closed to Russian investors and its VCs. Russian technology fund Leta Capital tried to crack the US market, but has seemingly abandoned the idea after one investment.

There are signs of grudging acceptance of Russian investors following billionaire Mikhail Fridman’s $200mn investment in February in the US ride-sharing service Uber. In October, it was announced businessman Boris Mints had invested $20mn in US and European start-ups through his O1 Group investment vehicle. However, industry insiders says Russian investors or oligarchs typically overpay to get a slice of a hot unicorn. 

Domestically, Lobanov is sceptical about the growth potential of Russian e-commerce and says the success of online search engine Yandex and classifieds website Avito are the exceptions to the rule. “In 2012, we raised a very small amount of capital with the great idea of investing in Russian start-ups and the Russian ecosystem, but were very lucky to realise that this wasn’t the best strategy to be successful,” he says.

A decline in consumer demand and the activity of small and medium-sized businesses, coupled with the weak ruble, is a concern for Russian e-commerce growth, according to a UralSib report published on March 29.

The firm steers clear of online media or social networks, which are increasingly coming under the microscope of the Russian security apparatuses. It hasn’t given up entirely on Russia and plans to make several small $200,000 to $500,000 investments in seed companies this year. “It’s very hard to do business in Russia,” he says. “If we can do it in Berlin, why do it in Moscow?”

“It’s very hard to educate and explain to founders all the time about what VC is about and veto rights and board seats. The market is also too small and you always struggle with funding in Russia – even in good years.”