How difficult is Russia as an investment destination for an international investor? Acclimation, at least, is not a problem, according to Intel Capital’s President Arvind Sodhani who celebrated the fund’s ten years of activity in Russia earlier this month. “I imagine Moscow as a city covered by 10 feet of snow, but every time I come here I find the weather is more like California’s,” he said before revealing that, over these ten years, Intel Capital had invested in 13 Russian companies – “more than any other foreign [high-tech] investor.”
In a separate chat with East-West Digital News’ chief editor Adrien Henni, Sodhani and Strategic Investments Director Marcin Hejka shared their vision of the Russian market and specified their criteria for further investment in the country.
Your invested in Russia for the first time in 2003 – in Yandex. Could you tell us the vision of Intel Capital regarding emerging markets in general and Russia in particular?
Intel Capital has expanded its non-U.S. investing over the years. International investing increased from less than five percent of Intel Capital’s investment dollars in 1998 to about 57% in 2012. Last year our investments (in dollars) were divided regionally as follows: 17% in Asia Pacific, 7% in China, 17% in Western Europe & Israel, 10% in Middle East, Central & Eastern Europe, & Russia, 6% in Latin America/ Mexico, and 43% in North America.
Russia stands by itself as a big country, and I’m not going to try to put it in the context of any other region. We started looking at the Russian market in the late 1990s, and the Yandex deal was a great experience and, as you know, a huge success [Russia’s search giant went public in New York in 2011]. Now we have a two-person team in Russia located in Moscow.
We are clearly accelerating. Of the 13 deals so far in Russia, eight happened in the last three years, which makes us the most active foreign venture investor in the country. Russia combines a dynamically growing domestic demand with very high skills that can create innovations. These skills may be applied globally as in Yandex, which is expanding internationally, or Parallels, which is another international success.
As you know, a lot of Russians are highly educated in mathematics and the sciences and so software development is a natural thing in Russia.
Intel Capital’s Strategic Investments Director Marcin Hejka and Intel Capital’s President Arvind Sodhani (center) celebrated the fund’s 10 years of activity in Russia with local investment directors Maxim Krasnykh (left) and Igor Taber (right)
E-commerce is a promising market in Russia, but developing companies in this industry is far from easy…
In Russia, as in many other countries, the infrastructure is not ready, or insufficiently developed, for e-commerce. E-commerce requires discretionary consumer income, which exists and is growing in Russia, but also efficient payment systems and delivery infrastructure. As far as physical goods are concerned, Russian e-retailers rely on cash on delivery, which can severely hamper their profitability. Developing a delivery infrastructure – which many e-commerce companies have set up on their own – is extremely expensive.
One thing Russia could do to help its e-commerce companies is to change its regulations regarding private imports. It’s cheaper for individuals to import something from outside of the country than for companies. Individuals can order from any e-commerce shop in London, or from Amazon, and they pay no taxes, while the e-commerce companies that import products have to pay import taxes, VAT, etc., which puts them at an extreme disadvantage.
What are your investment criteria?
The kind of things we are looking at in Russia are e-commerce and software companies in particular. In this region, we focus more on market development investments to help accelerate technology adoption. The consumer Internet sector and e-commerce are examples of segments that foster technology adoption in the broader IT ecosystem. We also focus on strengthening the technology infrastructure, mainly via the open data center and cloud area.
What are your quantitative targets for investing in Russia?
We don’t have any target number. In Russia, as in Africa or Turkey, our position depends on finding the right opportunities. If we find five appropriate opportunities, we will invest in all five as fast as we can. The only question is what we can find.
Do you still feel as a pioneer in investing in Russia? Or do you perceive more enthusiasm toward this country in the mainstream western venture investment community?
You know, Western investors have certain perceptions about Russia, some of which are true and some of which are not. Any investor will have to sort out rules from perceptions. With our 10-year local presence and our strong local team, we’ve been able to identify rules, understand them, and get comfortable with them, but some investors still don’t feel comfortable investing and operating in Russia.
Intel Capital says it invests in people. What differences do you see between different types of entrepreneurs? For example, in emerging countries, are startups created by expats run in the same way as those run by locals?
With over 1,300 investments across the world we have a very big set of data on this subject. We have attentively studied this subject and noticed the following trend. When a startup is run entirely by expats, it tends to be less successful, but when someone goes back to his country [after spending years abroad], this another story. We have many such examples of Chinese companies that were created by Chinese people who had received education in the USA. They know the Chinese culture very well, and these kinds of startups are usually a success.
Click here to view Arvind Sodhani’s video interview during Intel Capital’s celebration event at Digital October.
Intel Capital in Russia:
- Personal service aggregator Eruditor (Series A, October 2012)
- Geolocated social network AlterGeo (Series B, June 2011)
- Footwear online retailer Sapato.ru (Series B, June 2011)
- Rock Flow Dynamics, a developer of high performance modeling software for dynamic simulations of hydrocarbon underground reservoirs. (Series A, Nov. 2010)
In addition to leading the above investments, Intel Capital participated in investment rounds in KupiVIP Holding, one of the largest fashion e-commerce websites in Russia (Series D, June 2012), in Speaktoit, a natural language processing company (Series A, May 2012), and in Russian-American software developer Mirantis (Series A, Jan. 2013).
Intel Capital also has stakes in Akella, Electro-Com, Infinet Wireless, Ozon, Parallels, and Yandex.
Sources: EWDN.COM, Intel Capital’s press service
Intel Capital in Brazil:
- A team of 4 Investors based in Sao Paulo
- More than 25 investments since 1999
- Currently 14 portfolio companies (Automatos, Certisign, InfoSERVER, Neovia, boo-box, TecTotal, Coquelux, Fanhion.me, Pixeon Medical Systems, Minha Vida, Elike, PagPop, WebRadar, and Geofusion)
- Exits include Yavox, Sonda, Sysgold, Digitron, Ativi
Source: Intel Capital’s press service
Intel Capital in the Asia-Pacific region:
- Started investing in 1998
- Now over 20 investment professionals based in China, India, Japan, Korea, Taiwan, and other countries of South-East Asia
- Investee companies in Australia, Bangladesh, China, India, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan, and Vietnam (Focus areas: mobile computing, consumer Internet, cloud computing, Ultrabook, Smart Phone, Tablet, software & services, semiconductor design & manufacturing)
- More than 60 companies have been acquired or gone public.
Source: Intel Capital’s press service
