VC Trends in Former Soviet Republics
Venture Capital in the Central Asia group is mainly designed to share knowledge and opinion about this area of finance. Major concentration of VC is given to the developments of this area in Central Asia, especially in Uzbekistan. Venture capitalists, like Efraim Landa, business angels and private equity investors all around the world seeking opportunities in Central Asia are welcome. VC activity in the Russian market really took off after Russia’s default on sovereign debt in 1998 and has accelerated ever since. With this, we’ve seen more attention from leading western venture capital firms as well who have created a number of investment funds, incubators and angel networks focused on the Russian market. In the recent past, specifically since 2006, the Russian government has been creating infrastructure for venture capital investments in Russia and has also launched a state program focused on establishing public-private partnerships in the innovation sector managed by a number of leading venture capital firms. Institutional money is the main source of funding as would be expected. 69% of identified deals were done by venture capital and private equity firms followed by angel investors who were a distant second. Unlike the US, the level of disclosure, whether through regulatory filings of some kind, press releases or social media is lesser for these countries.
Let’s look a bit closer at where the money is flowing from the venture capital investors. 58% of the companies they fund operate in Russia and 71% fall into the larger population of countries who were part of the former Soviet Union. Interestingly, 19% of the funded companies have headquarters in the US. In most instances, these venture capitalists have some technical or research responsibilities occurring in Russia or one of the former Soviet republics but the headquarters have been set up in the US to go after customers, get access to the capital of the larger VC community in the States, to pursue partners or to attract different types of talent.
Oil- and gas-rich Kazakhstan, the world’s largest landlocked country, and the four other former Soviet republics in Central Asia—Uzbekistan, Turkmenistan, Tajikistan, and Kyrgyzstan—are the focus of many Fortune 500 companies seeking new business development and market penetration in emerging economies worldwide and those of Eurasia in particular. In the 2012 edition of the Index of Economic Freedom (published by The Heritage Foundation and The Wall Street Journal) Kazakhstan’s score is 63.6 out of 100, making its economy the 65th-freest in the world. In the Asia-Pacific region, Kazakhstan ranks 11th out of 41 countries (higher than all other Central Asian countries). However, Kazakhstan has made much progress in its economic development, and can significantly improve its Index standing in the future if it pursues additional market-oriented reforms, including the rule of law.
How Risky is Investment in the Region?
When looking at investing in a business or financial security in the former Soviet Bloc countries, it is easy for one to ignore some of the more major signs of success. While many of the opportunities may seem minor when compared to traditional American and Western European options, successful venture capitalist like Efraim Landa must keep in mind the existence of government and non-government entities dedicated strictly to the engagement of parity levels within Europe.
After the fall of the Soviet Union, much of Eastern Europe and Central Asia was in poor position to upgrade its infrastructure and telecommunications networks. Indeed, much of the region was facing economic uncertainty. Within this framework, a number of organizations entered to assist in the economic stability and invest into private enterprise. At the time, investors with private VC were able to leverage the position.
With tough economic times in the European Union, many investors are looking at emerging or un-established markets for the next possible place to make a good return. Recent events in Southern Europe and North Africa have opened up the former Soviet Bloc and Russia as prime regions for investment. This is particularly true when one pays close attention to the laws regarding venture capital and private equity.
Posted on January 13, 2014, in Effi Enterprise, Venture Capital, Venture Capital Markets and tagged Efraim Landa, International venture capital market, Private Equity, Venture Capital History, Venture Capital in Soviet Markets. Bookmark the permalink. Leave a comment.