25 April 2003

In Search of Russia�s Great White Hope

An interesting week; whether it is spring in the air or just the natural course of things but since I last put fingers to the keyboard the world seems to be picking up (whilst at the same time the opportunities for raising funds seem to be further and further away.) It always a good week when the number of investment opportunities in the inbox that get you excited is greater than 2 � and 3 is 50% more than 2.

Also added to the pile this week is the latest contender for Great White Hope in Russia�s tech world. Russia�s tech world, whilst undoubtedly intriguing, is lacking the one or two home runs that will bring the cash to the market that will allow the market to further develop. A virtuous circle; or which came first�.

One of the principal reasons for this is the lack of management expertise in Russia. Indeed it could be said that even those tech entrepreneurs who acknowledged that what they don�t know would be a good start. Thus we are all looking for the poster child that can be shown off to the investing public. There have not been many pretenders to the crown and most have proven to be flawed. Flaws can be forgiven if it returns are stellar. In these more straightened days a manager who builds a good tech company that offers real value will do.

The latest poster child will have to remain nameless for the time being � I want to invest in his company. As many England football managers have found being built up by the press, in this case the cognoscenti, is a forerunner of being torn apart by them (or sleeping with Ulrika Johnson.)

19 April 2003

FT.com Home Global - Yushenkov Murdered

I spend my life telling people its safe to invest in Russia, and then this. Odds on that its linked to FSB are deeply involved and even more likely that neither the killers or, more importantly the people who ordered the killing will ever be brought to justice.

18 April 2003

So much for not having too many days between blogs - one month later:

The snow has finally melted and the outside temperature has finally risen above zero for a week on the trot. Maybe that is the driving reason behind what feels like a wave of investment tourism � at least for Russia. The ubiquitous Esther Dyson is in town meeting morning, noon and night. The daughter-in-law of one of the founding fathers of US VC investing is looking to see if her Russian roots and Californian location can drag something out of Russian tech that has evaded the rest of us so far. Meanwhile, the founder of Flintstone Technology (a real tech transfer incubator) is back in Moscow working out how not to invest in tech but take advantage of the booming retail sector. Those in the know believe that it is down to boredom with a very dull rest of the world.

My conviction that excellent and cheap Russian technical assets (scientists and programmers) really do make a difference to returns is starting to be borne out. I am looking at a deal that requires $8mn to get to break even � that�s a lot of expensive European management � if the R&D centre was moved out of Russia you could add a another $4mn (minimum) to the bill. The minimum post-money (fully-diluted) is going to be $12mn, more realistically $20mn (options are expensive in return dilution.) Assume that a VC expects a minimum of 5x cash-on-cash � that�s a minimum exit valuation of $100mn. The VC world remains fixated by finding the next $1bn company, the reality however is that investors returns come from a range of reasonably successful companies and not too many failures � there aren�t that many VC-backed companies being sold for in excess of $100mn today.

Still the question remains are there enough Russian tech companies to build a portfolio of $100mn companies?

25 April 2003

In Search of Russia�s Great White Hope

An interesting week; whether it is spring in the air or just the natural course of things but since I last put fingers to the keyboard the world seems to be picking up (whilst at the same time the opportunities for raising funds seem to be further and further away.) It always a good week when the number of investment opportunities in the inbox that get you excited is greater than 2 � and 3 is 50% more than 2.

Also added to the pile this week is the latest contender for Great White Hope in Russia�s tech world. Russia�s tech world, whilst undoubtedly intriguing, is lacking the one or two home runs that will bring the cash to the market that will allow the market to further develop. A virtuous circle; or which came first�.

One of the principal reasons for this is the lack of management expertise in Russia. Indeed it could be said that even those tech entrepreneurs who acknowledged that what they don�t know would be a good start. Thus we are all looking for the poster child that can be shown off to the investing public. There have not been many pretenders to the crown and most have proven to be flawed. Flaws can be forgiven if it returns are stellar. In these more straightened days a manager who builds a good tech company that offers real value will do.

The latest poster child will have to remain nameless for the time being � I want to invest in his company. As many England football managers have found being built up by the press, in this case the cognoscenti, is a forerunner of being torn apart by them (or sleeping with Ulrika Johnson.)

19 April 2003

FT.com Home Global - Yushenkov Murdered

I spend my life telling people its safe to invest in Russia, and then this. Odds on that its linked to FSB are deeply involved and even more likely that neither the killers or, more importantly the people who ordered the killing will ever be brought to justice.

18 April 2003

So much for not having too many days between blogs - one month later:

The snow has finally melted and the outside temperature has finally risen above zero for a week on the trot. Maybe that is the driving reason behind what feels like a wave of investment tourism � at least for Russia. The ubiquitous Esther Dyson is in town meeting morning, noon and night. The daughter-in-law of one of the founding fathers of US VC investing is looking to see if her Russian roots and Californian location can drag something out of Russian tech that has evaded the rest of us so far. Meanwhile, the founder of Flintstone Technology (a real tech transfer incubator) is back in Moscow working out how not to invest in tech but take advantage of the booming retail sector. Those in the know believe that it is down to boredom with a very dull rest of the world.

My conviction that excellent and cheap Russian technical assets (scientists and programmers) really do make a difference to returns is starting to be borne out. I am looking at a deal that requires $8mn to get to break even � that�s a lot of expensive European management � if the R&D centre was moved out of Russia you could add a another $4mn (minimum) to the bill. The minimum post-money (fully-diluted) is going to be $12mn, more realistically $20mn (options are expensive in return dilution.) Assume that a VC expects a minimum of 5x cash-on-cash � that�s a minimum exit valuation of $100mn. The VC world remains fixated by finding the next $1bn company, the reality however is that investors returns come from a range of reasonably successful companies and not too many failures � there aren�t that many VC-backed companies being sold for in excess of $100mn today.

Still the question remains are there enough Russian tech companies to build a portfolio of $100mn companies?