While several international investors have suspended or reduced activities in Russia, MCI, a major Polish fund, is continuing to invest in the country, among others. Its current Russia portfolio includes KupiVIP, Travelata and Oktogo.
In this exchange with East-West Digital News, the fund’s managing partner Tomasz (Janusz) Czechowicz shares his vision of the Russian digital market, and why this market fits its fund’s strategy.
Please explain your fund’s strategy and the reasons why you are interested in the Russian market.
MCI Management is the most experienced private equity group in emerging Europe with a focus on digital transformation. We specialized in growth-stage investments in the CEE region, DACH countries (Germany, Austria and Switzerland), Russia and Turkey. MCI’s investment strategy is based on three growth pillars:
- Digital disruption investments: These are investments in pure-play Internet business models. We believe that the strongest growth will be recorded in the fields of digital media, e-commerce, marketplaces, fintech, Internet of Things, Software as a Service, cloud computing, mobile Internet and digital entertainment.
- Digital ecosystem investments target companies operating on the Internet infrastructure, such as telecoms and data storage centers.
- Digital adaptation investments are intended to support companies which, being already well established in the traditional economy, aspire to become European- and global-level players using opportunities offered by the Internet.
We believe that the Russian digital market – in particular, in the field of e-commerce – has a lot to offer regarding good quality companies at the growth stage with the potential to become national champions covering this hub e-commerce market.
Thus we already invested in three companies: KupiVIP in the field of fashion as well as Travelata and Oktogo in the travel segment.
What has been the impact of the recent international tensions on your Russia strategy? Do you still consider investing in the country?
We are still interested in the Russian market and we will continue searching for investment opportunities. Our strategy is to have about 10% of all assets located in Russia.
What are your investment criteria?
We are interested in healthy businesses. These are characterized by a high growth potential, a high-level management team, and perspectives to become a national or even global champion.
In 2012, you invested $12 million in KupiVip. Why did you do so at that time? What are the positive and the negative points with KupiVip, in your view?
The level of managing team and its track record hugely impressed us. Equally impressive were the investors who had already backed this company. We are very happy with this investment; the company’s current performance is very impressive – not only to us.
A couple of years ago, KupiVIP’s founder Oskar Hartmann envisioned a Western IPO. Is this perspective still valid?
At this particular moment we do not think that IPOs or full exits are the best solutions for shareholders in leading online and tech companies in Russia. We believe it’s a time to buy and build.
Tell us a bit about your other Russian portfolio companies Travelata and Oktogo. Why did you invest in them? What is so attractive in the Russian online travel market, in your view?
We started to invest in online travel in 1999. We had a very positive experience from companies like TravelPlanet in Poland and Invia in the Czech Republic. Both companies delivered close to 10-times returns from initial investment. This is why we are so bullish about online travel. Russia is a huge consumer market and Russians are definitely “travelers.” As simple as that!
Oktogo is our latest investment in Russia. The total investment round amounted to more than $5 million with MCI and current shareholders converting a part of the debt into equity. Taking part in this round MCI invested in Oktogo $4 million with another $3 million as an option for the future. This will depend on the future results of the company.
In our opinion, Oktogo is a very healthy and well-run company. It grows by more than 100% every year, and we believe its valuation should be somewhere at twice of the run-rate of gross revenues.
Travelata provides a convenient service for buying package tours online or over the phone. If offers tours from more than 120 major Russian tour operators to all popular touristic destinations.
In July 2014, we announced that MCI and the European Bank for Reconstruction and Development invested a total of $7 million in a Series B round for this startup. The funding is being used to enhance online services and customer experience as well as for expansion across Russia. We strongly believe in the the Russian e-travel market and in Travelata’s growth potential. So far our total investment in the company has exceeded $4.5 million.
