You once said that you were in love with Russia. Please explain!
To be in love means to believe and to be committed. We believe in Russia, in its entrepreneurs who are hungry for success. Some of them are very bold, like Oskar Hartmann (founder of leading online private shopping club KupiVIP.ru), Nikita Sherman (founder and CEO of social games developer Drimmi, and formerly president of major social network Odnoklassniki.ru and dating service Mamba.ru), Maria Kolesnik (founder and CEO of hotel booking site Oktogo.ru), and Vitaly Petrov from Formula 1, to name just a few.
We also believe in the Russian market. Russia is already the first mobile market in Europe, based on the number of subscribers, and will soon become the first Internet market (in Europe). There is huge growth potential lying there.
Russia produces brilliant scientists and technologies. Russian engineers have played a key role in a number of super successful global companies. The world knows about this.
On the other hand, good COOs and CMOs are rare in Russia. They are just emerging from the current generation of startups. The Russians’ appetite for success, their tremendous energy, however, can compensate for a lack of particular skills.
That being said, you need a strong local commitment to seize or create opportunities. Good projects come from good networks. You need to be in the country, to travel through it, to understand and penetrate its ecosystems. This requires time and patience.
We’ve been operating in Russia for five years already, in two manners: through our investment activities and through our involvement in Formula 1 (Mangrove is associated with the Lotus Renault F1 racing team).
As a foreign fund in Russia, did you meet with more, fewer, or the same amount of difficulties in developing your investment activities, as compared with other countries?
There is the same kind of difference between a good and a bad idea everywhere in the world. Our fund is committed to the markets it operates in — Germany, Israel, Russia, Scandinavia, Spain — in roughly the same way in each.
Russia is not more difficult, on the condition that you invest enough time. And once you are in the ecosystem, people in Russia are willing to cooperate not less than in other countries, and sometimes even more.
Generally legal and setup costs are higher in Russia. Some typical investment terms are not applicable or are not applicable in a satisfactory way in Russian law. This is why many Russian companies register in Cyprus, the U.S., or elsewhere. But the Russian legal system is evolving very fast to make the country easier to operate in.
If developing investment activities in Russia is not so different from developing them in other countries, why do relatively few foreign investors do business in Russia?
There is a weak knowledge of Russia in general around the world. Some think that the BRIC countries do not include Russia, that the first two letters correspond to BRazil!
But Russia, which was neglected by international investors only a couple of years ago, has started to arouse interest. DST’s investment in the world’s leading Internet companies and Yuri Milner’s interviews in Western media did much to change the perceptions. Big projects like Rusnano and Skolkovo also make Russia’s modern face more visible.
So things are changing for the best. KupiVIP raised $55 million last month. Then Eric Schmidt’s fund announced an initiative in Moscow (TomorrowVentures signed a partnership with Digital October, a startup incubator, as well as with prominent Russian businessmen). Russia is starting to attract nice money.
Russia needs to show these success stories, to talk about people like Sherman and Hartmann. They should be the poster boys of the Russian economy.
I took part in the recent visit of 25 European VCs (to Moscow and Kazan). It is a pity that the international press didn’t give much echo to it. Russia’s big challenge is to make such initatives more visible.
You invested in Drimmi (social games). What is your analysis of this industry in Russia?
The social gaming market is a pretty attractive market. Russian users are more and more active in social networks; they’re even the most engaged audience in the world (with 9.8 hours per visitor/month spent on social networking sites, according to Comscore, Oct. 2010). The audience is also accustomed to micropayments. All this — not to mention the personality of Nikita Sherman — creates adequate conditions for developing a leading gaming business.
Two months ago you withdrew from Quintura, a developer of search applications. Can you tell us why?
Quintura truly develops excellent solutions, like this kids-friendly search application they just launched, to name just one example. But search technologies are complex and require important, long-term investment. Quintura’s management offered to buy back our shares, which we accepted, so that they can develop the project more ambitiously and with national partners. (This move allowed Quintura to position itself in a state-supported project to create a national search engine.)
What further plans do you have for Russia? Can you disclose an amount that you are considering investing in this country in the next few years?
We look at Russia as a key investment market for us, and we are definitely committed to it. We have no particular figure in mind; as an international fund, we do not split our investment capacity by countries but by projects, regardless of the country.
In Russia as elsewhere, we generally intervene at early stage — a pre-product and pre-revenue stage.
Our strongest specialties are e-commerce, mobile businesses, and automotive software, but we are also open to all “weird/disruptive” ideas, whatever the segment.
Russia is now building great things. The country’s true value creation and ultimate success will come from entrepreneurs who turn their dreams into reality. Our Russian startups already count over 1,000 employees. We are building a part of this country’s future and intend to continue doing so.
• At Mangrove, David Waroquier is involved in both enterprise and internet consumer businesses. He strongly believes in the power of consumer communities, and spends part of his time looking for new content and ecommerce models through greater Europe. David also spends a significant portion of his time travelling in Russia scouting for the successes of tomorrow and is a board member at several of Mangrove’s portfolio companies in Europe and Russia. Among others, he is a director at KupiVIP, Drimmi and Oktogo.
