Late last week the head of Russian Venture Company (RVC), Alexander Povalko, was arrested then placed by a Moscow court under house arrest for 45 days. The FSB (Federal Security Service) and police officers ransacked his home.
It is the latest high-profile legal case to have rocked the Russian investment world — and market players have been quick to raise their concerns yet again.
Established by the Russian government in 2006, RVC is a major player on the country’s innovation scene. It acts as a fund of funds and supports a variety of programs, from startup accelerators to industry research and events.
The RVC management is now suspected of misusing millions of dollars, wrote Kommersant, citing unnamed sources. The investigation alleges that RVC money may have been invested in personal projects of its top managers. So far, the case is about $600,000 but the amount may grow to $3 million, noted the business daily.
According to RVC, the investigation is studying the activities of the RVC I LP fund – in particular, the reinvestment of part of the proceeds from the sale of the funds of portfolio company Soft Machines Inc. to another portfolio company, US company Alion.
RVC stated they are “confident in the complete innocence of Alexander Borisovich Povalko.” While Povalko is under arrest, the management of the company has been transferred to his deputy, Anna Romanenko.
Shockwave in the investor community
Several prominent investors came out in support of Povalko, publicly sharing their concerns about yet another high-profile arrest from within the Russian venture scene.
“Why a pre-trial detention?,” asked Kirill Varlamov on his Facebook page. “I don’t know whether or not the accusations against Povalko are founded, but why arrest a man and place him under house arrest before establishing his guilt?”
The CEO of IIDF (FRII), the country’s largest startup fund set up in 2013 with government support, Varlamov called to “freeze” the activity of state-connected development agencies, stopping investments in new projects.
QIWI co-founder Sergey Solonin is “horrified by the environment that was built for businesses in the country” and sees in the latest events a deadly threat to the Russian state fund ecosystem.
“I invested in RVC projects in the past but, given what just happened, I’m unlikely to do so again,” he wrote on Facebook. He called on his peers to “stand up and not stay silent” – what is at stake being no less than “whether we want to live here and build a modern country.”
Meanwhile, a Russian investor who requested not to be named told East-West Digital News: “Some players feel that a part of the RVC team lacks integrity and professionalism, and that the management tended to neglect certain associated risks. This poses the question of the functioning of Russian development agencies, which sometimes fail to deliver the expected results.”
“The work of these organizations has been made even more challenging recently due to the Western sanctions and low liquidity on the Russian venture market. Logically, this affects their ability to attract and retain strong business-oriented leaders,” said this investor.
Top Russian investors under arrest
Povalko’s arrest is the latest of a dramatic series of cases involving high-profile tech businessmen in Russia.
- In June 2018, former Bright Capital Managing Partner Mikhail Chuchkevich and RVC top manager Yan Ryazantsev were arrested in relation with the Alion deal. They were freed last year.
- In March 2019, former Open Government minister Mikhail Abyzov was detained in Moscow, also due to his involvement in Alion. Abyzov was active in the venture business in the early 2010s.
- That same month – March 2019 – saw the arrest of Vsevolod Opanasenko, director general and founder of the Russian supercomputer company T-Platforms, for abuse of office.
Arguably the most shocking arrest was that of US citizen Michael Calvey, the founder of Baring Vostok Capital Partners, under controversial charges, in February 2019. One of the most established Russian private equity firms, Baring Vostok invested in top Russian tech companies.
Calvey and his colleagues, including French banker Philippe Delpal, have maintained their innocence, but they are still under house arrest or in pre-trial detention.
This article also appeared in The Moscow Times, a syndication partner of East-West Digital News.
