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Alexander Galitsky, the veteran of Russian venture investment, is raising a new fund. Almaz Capital, the growth stage venture fund focusing on technology companies in Russia where Galitsky is the founder and managing partner has invested most of its current fund and aims at $150-200 million for the next one.
The Almaz Capital’s portfolio companies include Yandex, Russa’s leading search engine, now a public company listed on New York Stock Exchange; Parallels, the virtualisation software company that is expected to go public in 2012; Qik, a mobile video sharing platform that was sold to Skype; Acumatica, a cloud-based ERP software company; and Alawar Entertainment, Russia’s leading publisher and distributor of casual games; and other companies.
Galitsky’s deep knowledge of technology and experience in building successful technology businesses are at the heart of the venture fund’s stellar performance. By 1991 he had already pioneered the development of WiFi technologies in collaboration with Sun Microsystems, not to mention his subsequent achievements (full list). Prior to that he was, well, a rocket scientist.
Technology, digital media and communications industries are high on Almaz’s agenda, which focuses on early- and expansion-stage companies. Galitsky and his partners are strict in their selection approach. “We do not aim to invest in Russian ‘clones’, the copycats of successful Western companies. We search for technology companies with a unique value proposition and a global ambition,” explains Galitsky.
This is unusual, as the ‘clones’ offer the least risky return on venture investment in Russia; once the business model and a client need has been confirmed by another company, replicating this business in Russia requires only technology development, finances and a solid team. All of those components are available in Russia, particularly since the complexity of building global companies based on untested business models is no longer an issue with clones: they have to adopt the business model which works elsewhere to the Russian market.
Only last year Elena Masolova, the founder of a Groupon clone in Russia, made headlines, as she sold Darberry to Groupon for an alleged $50 million only after 6 months of operation. She has already launched her next clone project Pixonic, the Russian version of Zynga.
Vkontakte, the Russian version of Facebook, did not disguise its ‘clone’ origins when copying the layout and design of the world’s largest social network. Now Vkontakte is worth $1.5 billion (source). Despite the “purist” approach, Almaz does have a clone in its portfolio: it is Altergeo, a Russian version of FourSquare.
Finding the right investment opportunities in Russia is not easy. On one hand there is a large pipeline of potential projects, but according to Galitsky these are not of high quality. At the same time, experienced entrepreneurs are not eager to sell stakes in their companies. “It is difficult to attract experienced entrepreneurs,” admits Galitsky. “If they have managed to bootstrap their company so far, they want to continue this process,” he adds.
Venture capitalists have to remain active on the market in order to find technology companies with a high growth potential. To add value to their investee companies beyond technological and business expertise, Almaz Capital has established a representative office in Silicon Valley to help their portfolio companies grow on a global scale.
Unlike many venture funds in CEE (Central and Eastern Europe) and CIS (ex-USSR) regions, limited partners in Almaz Capital are corporations, such as Cisco and EBRD. Their objectives are to profitably foster innovation in Russia, Ukraine, Kazakhstan and a number of other CIS countries. Hence the Almaz Capital mandate is to invest in the companies based in or originated from the region.
At the same time, the definition of what constitutes such a company varies. “We have restrictions set by our limited partners as to what geographies we invest in. We would invest in a company formed by Russian founders but physically based, say, in Czech Republic, if their main R&D office was in Russia. We have also invested in Flirtic, the dating site, whose founders are Estonians, but the business is targeted at the Russian market,” explains Galitsky.
Definitions, it seems, might be tweaked for the right company. At least Russian entrepreneurs can be sure the venture capital from Almaz will not chase stakes at Facebook and Twitter, as Yuri Millner’s DST Global fund has done so far, but will support unique Russian technology businesses.
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