Born in Soviet Kazakhstan, Oskar Hartmann emigrated to Germany as he was still a child. In 2008, at the age of 27, he moved to Russia with the aim to launch his first business. He founded KupiVIP, Russia’s first flash-sales fashion site. Supported by international investors, and taking advantage of the opportunities of the Russian consumer Internet at its early days, the site became one of Russia’s most notable online success stories. Hartmann subsequently involved himself in a variety of new projects, asserting himself as a top figure of the Russian tech entrepreneurship scene.
In this interview — an excerpt from EWDN’s latest study covering startup and VC activity in Central and Eastern Europe — the German businessman recalls his Russian experience from the early days. He remains confident about the country’s prospects in the field of innovation and entrepreneurship: even the international sanctions, he says, have had a positive effect in that they let a big number of new businesses emerge onthe domestic scene.
Back in 2008, why did you decide to launch a startup in Russia — rather than Germany where you came from, for instance?
The main reason for moving to Russia was that I was so happy in Russia, I love Russia so much, so I wanted to live in Russia. The question of what I should do in Russia came second. I wanted to build a business where I live, as I became a father, so I decided to build a business in Russia.
How did the Russian and the German ecosystems compare when you arrived in Russia — and now?
When I came to Russia, my first big kind of insight was that Russia was about let’s say 7-8 years behind Germany in the development in almost all the things related to the Internet. It was very easy to predict the future because my basic assumption was that Russia would do the next 5-10 years exactly the development stages which Germany had gone through from 2000 to 2007.
So, basically, for example, if you take the online fashion market in 2007, the entire German e-commerce market amounted to €16 billion euros with fashion accounting for 25% of it — €4 billion!
At that time, the entire Russian e-commerce market didn’t even reach €4billion, and fashion was zero — just like in Germany ten years before. Then my assumption was: in the next five years, maximum ten, the Russian e-commerce will reach the same size as the German, and fashion will be also 25% of the e-commerce market. Everybody was saying: maybe Russia is special, people won’t buy fashion online. But for me the picture was clear — in China, the fashion was already growing; so why not in Russia?
Now, if you look at the 2016 numbers, the Russian e-commerce market reached around €16 billion, of which fashion accounted for €4 billion (in spite of the ruble’s huge depreciation in 2014). So, basically, Russia is now at the same point as Germany was in 2008. Further, if we consider that the German e-commerce market is now around €50 billion euros, we can predict what will happen in Russia in the next five years.
We may say the same about other segments: other e-commerce segments, dating, services… By number of users, Russia became the biggest Internet market in Europe in the early 2010s; and since the average age of Internet usage is growing, Russian e-commerce can expect a bright future.
Aren’t there any differences between Russia and other markets?
I didn’t focus on what is different in Russia, I focused on what is the same. Because focusing on what is different gives you no opportunities. But if you think Russia will be the same as Europe, you have a lot of opportunities.
Take another example, Blablacar. While it was already very successful in France, everybody believed this business model would never work in Russia, because Russia is this or that, but now Russia is becoming the biggest market for Blablacar.
And if you look at the top 100 business models in Russia — you have classifieds, mobile classifieds, car classifieds, real estate — these are basically the same as in Germany, France, the UK and Spain. Conversely, you can see that there is no really unique business in Russia that is successful there but would not exist anywhere else.
I was able to build many businesses because of the assumption that everything would be the same in Russia, just a little bit later. This assumption made investment decisions relatively easy.
Overall, I think Russia has been very resilient to the sanctions. An amazing number of new companies have been created to produce locally, be it in food production or other segments.
How do you envision the future of the Russian startup industry?
I believe that Russia is perfectly positioned for the future. Historically, Russia was not strong in mass production. So, in the last industrial revolution Russia wasn’t among the biggest winners. But in the current industrial revolution, what was historically the weak sides of Russia is now being replaced by robots and computers.
Meanwhile, Russia has plenty of strong sides to leverage in this new revolution – from IT, to mathematics, to data science and creative problem solving. The Russians are absolutely amazing in these fields. There’s here an absolutely crazy number of teams and startups. The ecosystem is very healthy, not only in Moscow but in virtually all regions and all cities – even small ones. In such important fields as AI, you have absolutely the best infrastructure in the world to find talent.
Has the new international context since 2014 with the sanctions and counter-sanctions affected the Russian startup industry?
In the Internet sector, which has not been targeted by the sanctions, business operations haven’t been affected. Nothing has changed in building a business, attracting customers, solving problems, etc.
The only difference is access to capital. Basically, people are afraid to invest in Russia. Since there is no capital coming to Russia due to the sanctions, capital has become scarce and very expensive. What investors can get in terms of shares and rights is much-much higher than in Western Europe. And the return on capital is much-much higher in Russia. So, capital is very valuable.
Meanwhile, the quality of the businesses which are being created now is superior than in the past – and not only because entrepreneurs need to be cautious about capital. People used to believe that they could build a business and then sell it to Western European and US companies. So a lot of companies were built to be sold.
But this is no longer a good strategy, as acquisitions to enter the Russian market have become rare. So now companies are created to be developed independently, to become real businesses.
- Read the full version of this interview in EWDN’s latest study “Startup Innovation & Investment in Emerging Europe” (free download)
