FUNDS: Russia’s Almaz close to raising $300mn venture capital fund

FUNDS: Russia’s Almaz close to raising $300mn venture capital fund
By Jason Corcoran August 19, 2016

Almaz Capital, a Russian venture capital fund founded by US banker Charlie Ryan, is close to raising a third fund worth about $300mn amid a boom in fundraising, industry insiders tell bne IntelliNews.

The firm, which has offices in Moscow and Silicon Valley, was set up in 2008 after Ryan left Deutsche Bank, and had previously raised $162mn via Almaz 1 and Almaz 2. Those funds are believed to have been exhausted after making a combined 39 investments in 29 companies, according to the industry database CrunchBase.

The new fund will focus on investments in the fields of artificial intelligence and blockchain, a technology to trace transactions using cryptocurrencies. Pamela Mahoney and Irina Goryacheva, spokeswomen for Almaz, didn’t reply to emails seeking comment.

Investors in the two prior funds include US technology giant Cisco Systems, the European Bank for Reconstruction and Development (EBRD), and the International Finance Corporation (IFC), a subsidiary of the World Bank Group. It is believed that neither the EBRD nor the IFC has punted in the third Almaz fund after both institutions froze new lending to Russia two years ago.

Russian VC funds are raising an unprecedented amount of money to seed new investments as more traditional vehicles, such as public and buyout funds, are facing huge redemptions and a struggle to stay afloat.  

Moscow-based Inventure Partners is launching a second $150mn VC fund, raised from undisclosed limited partners with 10% of the capital being kicked in by partners Sergey Azatyan and Anton Inshutin, according to its website. Flint Capital, a firm with offices in Moscow, Tel Aviv and Silicon Valley, is in the throes of raising its second fund worth $100mn, industry sources informed bne IntelliNews. Flint Capital didn’t immediately reply to a request for comment.

Target Global, a Moscow-based VC fund, which has multiplied its assets from $20mn four years ago to $300m today, told bne IntelliNews in March that the firm is close to raising an early stage fund with 20 seed deals.

Uber Friendly Giant

Almaz was founded by Ryan and Alexander Galitsky, a Russian technology pioneer, to invest in early stage, capital efficient techn companies. Ryan has probably earned the biggest legal fortune of any foreign banker in Russia.

In 2004 Ryan sold 40% of the investment bank UFG for $70mn to Deutsche Bank. Deutsche Bank bought the remaining 60% from the US banker and his colleagues in 2006 for the mouth-watering sum of $600m in 2006. Ryan and his colleagues also sold the German bank parts of an investment business although he retained part and remains chairman of UFG Asset Management with responsibility for private equity. UFG was one of the first investors in Almaz.

The genesis for Almaz was the creation by Ryan in 1998 of Ru-net Holdings, in partnership with Michael Calvey of Baring Vostok, The pioneering fund’s first investments included Yandex, the Russian search engine, and Ozon, the “ of Russia”.

Ryan, Calvey and UFG were to make spectacular returns when Yandex listed in New York, with some estimates suggesting they made 500 times their initial punt. Almaz would also later make one of its first investments in Yandex.

Ryan, a Harvard graduate, spent 16 years living in Russia until he returned to the US to settle in Philadelphia in 2008, but he still travels back to Moscow nearly every month.

Ironically, many of these Russian VC funds are orienting their investment strategy far away from Russia as the money rolls in. The high-rollers who put their money in these firms are keen to diversify overseas – even as the Kremlin pushes for more wealth to come back onshore.  

Indeed, most of Almaz’s portfolio  is now located outside of Russia. Recent punts this year include two Californian startups, MakeTime and GridGain, as well Mynfo, a  media platform for marketers and consumers based in Tampa, Florida.

In a recent interview with Spears Russia magazine, Galitsky articulated the strategy as trying to create funds “to help people from Eastern Europe to implement their global ideas”.

Almaz was one the first firms to sign up for Skolkovo, the Kremlin's effort to clone Silicon Valley, and promised to spend $30mn on cloud computing there. However, the state-led project has been plagued with allegations of corruption and has failed to light up the investor world.

Almaz isn’t the only firm broadening its horizons away from Russia. Target is shifting its main office from Moscow to Berlin, where the fund’s principals are increasingly spending more of their time. “We are becoming less and less a Russian fund and a more international fund with a centre of gravity in Berlin,” partner Mike Lobanov told bne IntelliNews.

Many industry experts have become sceptical about the growth potential of Russian e-commerce, with the success of online search engine Yandex and classifieds website Avito being the exceptions.

“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,” said Target’s Lobanov.

With the stigma of sanctions limiting access to capital markets abroad and the Russian government tightening controls at home, more entrepreneurs and investors are recasting and looking increasingly overseas.

Many of Russia’s best startups and finest coder and developer brains have decamped in the past five years from Moscow to Silicon Valley and growing tech hubs in London, Frankfurt Singapore, Dublin and Dubai. Now, the Russian money is following the talent.

Herman Gref, chief executive of Russia’s largest lender Sberbank, has observed the trend, saying he has seen an increase in companies seeking applications for foreign-residence permits for their employees.

“In business, now the most popular application isn’t the one to set up a company but to get out,” Gref told an investor forum.

Gref is putting his money where his mouth is. Sberbank's VC unit SBT Venture 1 has co-invested with Almaz in Silicon Valley startups as well as taking a stake in Uber, the ride-sharing app valued at $66bn.