Venturing to Russia With Funds
According to the president of the MartinsonTrigon ventures fund, Allan Martinson: “There are a lot of ideas on the Russian IT market, but very little capital.”
Mar 23, 2006
The Russian IT market has begun to attract the interest of foreign investors. When the Baltic state ventures fund MartinsonTrigon became a co-owner of St. Petersburg’s Reksoft, which specializes in software outsourcing and business integration, many regarded this as a landmark event for the local market. Venture capitalists on the Russian market are few and far between, and the big news on this front usually comes from Moscow. The fact that such a major deal had taken place in St. Petersburg created extra interest, though analysts warned that the deal should not necessarily be seen as venture capitalism, as Reksoft is already a well-established company. A founder of the MartinsonTrigon fund and its president, Allan Martinson spoke to The St. Petersburg Times about plans for the development in Russia.
What is MartinsonTrigon and how was it formed?
MartinsonTrigon was organized by an investment bank in Central and Eastern Europe, Trigon Capital (it has offices in Warsaw, Tallinn, Riga, Vilnius and St. Petersburg) and myself in the summer of 2005. The fund’s resources come from private investors in Northern Europe — for the most part Finland — who account for 60 percent of the capital. The fund is managed by AS Martinson Trigon Venture Partners. The main recipients of the investments are telecommunications and IT companies. The head office of our organization is in Tallinn.
What kind of companies attract your funds – offshore centers, system integrators, on-line projects, developers of new technologies?
We’re interested in TMT – telecoms, media and technology. In terms of priorities, we’re looking at service IT companies, programmers and telecommunications companies working in innovative spheres – for the most part that means wireless and media projects. As far as our ongoing activities are concerned, in the space of about a year and a half we’ve looked at about 200 companies, and we’re now actively working with about 10. We’ve already signed three agreements, and we’ll be announcing another two in the summer. We’re defining our investments as venture undertakings – we work with individual companies for a maximum of 5-7 years.
Your fund is based in the Baltic states. What is your interest in Russia? After all, one of your first major undertakings was an agreement with a Russian company.
In principle, we’re positioning ourselves as a Baltic-Russian fund – we’re planning to invest in these countries. We spoke about that in our first official announcements, which covered not only Reksoft but also the Estonian companies Microlink and TVCorp. Microlink is a computer services company and a leading player on the market in the Baltic states which I took a direct part in creating. TVCorp is the local branch of the MTV Corporation in Estonia. We’re planning on "taking in" another five to seven companies, after which, according to our calculations, we’ll have used up all our resources for this stage of the process.
What do the IT markets in Russia and the Baltic states have in common and how do they differ? What’s your take on the investment potential of the Russian IT market?
Overall, the IT markets in Russia and the Baltic states can be described as developed and fairly large. Of course, Russia is bigger in terms of territory and in certain other ways, but in hard figures the Baltics are also fairly big. They’re also united by the fact that they have a lot of potential, but you need a lot of capital to open them up. A difference is that service companies are highly developed in the Baltics, whereas it’s the technological sphere that is more highly developed in Russia. You can’t overlook another big difference – the companies in the Baltic states are more ordered, which makes working with them a lot easier. In Russia, you have to be prepared for the fact that, in order to get the company into a decent state from financial, legal and other points of view, you have to have a significant amount of money ready to put into an audit, and that can amount to tens of thousands of dollars.
Recently there have been reports from the IT markets of interest being shown by new major investors, such as the Russian company Renova. Do you see yourselves as being in competition with other investors?
Yes, we can definitely see that process at work. There’s no doubt that there are strategic investors on the Russian market who can boast of possessing key assets in spheres that interest us. For the most part however, and in the regions in particular, it’s private business that’s working in the IT sector. Often, money is coming from companies that work in more traditional sectors of the economy – trade, real estate, and so on. It’s not a fact that these investments will work effectively – the people behind them don’t have the expertise or the contacts and so, often, an innovative business doesn’t have any additional value, which can result in it leaving the marketplace. There’s another tendency which shouldn’t be overlooked. As we know, the major western companies are actively working to open software development centers in Russia – Motorola, Sun Microsystems and the like. We can also see that as being part of the investment process. These players usually buy up a 100 percent stake in Russian enterprises or create them from scratch.
What do you think of the Russian government’s idea of creating technology parks and special economic zones? Will they help the Russian IT market? What are the prospects for development?
In view of the growing competition on the global IT market, the Russian government definitely had to do something. Technology parks are an effective tool which have proved their value in many countries. The way it’s all being implemented raises some questions though. As far as I can see, a specific characteristic of the Russian project is that firms will get benefits within certain geographical zones, which is to say certain links will be built in. In my view, that contradicts the whole essence of IT, which is free of all those conditions – at the end of the day, the programmer could be working from home, using the internet. And that’s without even mentioning the fact that these zones will attract firms looking for benefits that have nothing to do with IT. Companies should get benefits, but they shouldn’t be dependant on their geographical location. We should note another initiative from the Russian government – the creation of venture funds. Their appearance was unavoidable, as such initiatives have been undertaken in almost all the countries of Europe, and Russia just had to keep up. But its effectiveness will be directly dependant on the people that manage it and there really aren’t that many experts in this sphere in Russia.
What is MartinsonTrigon and how was it formed?
MartinsonTrigon was organized by an investment bank in Central and Eastern Europe, Trigon Capital (it has offices in Warsaw, Tallinn, Riga, Vilnius and St. Petersburg) and myself in the summer of 2005. The fund’s resources come from private investors in Northern Europe — for the most part Finland — who account for 60 percent of the capital. The fund is managed by AS Martinson Trigon Venture Partners. The main recipients of the investments are telecommunications and IT companies. The head office of our organization is in Tallinn.
What kind of companies attract your funds – offshore centers, system integrators, on-line projects, developers of new technologies?
We’re interested in TMT – telecoms, media and technology. In terms of priorities, we’re looking at service IT companies, programmers and telecommunications companies working in innovative spheres – for the most part that means wireless and media projects. As far as our ongoing activities are concerned, in the space of about a year and a half we’ve looked at about 200 companies, and we’re now actively working with about 10. We’ve already signed three agreements, and we’ll be announcing another two in the summer. We’re defining our investments as venture undertakings – we work with individual companies for a maximum of 5-7 years.
Your fund is based in the Baltic states. What is your interest in Russia? After all, one of your first major undertakings was an agreement with a Russian company.
In principle, we’re positioning ourselves as a Baltic-Russian fund – we’re planning to invest in these countries. We spoke about that in our first official announcements, which covered not only Reksoft but also the Estonian companies Microlink and TVCorp. Microlink is a computer services company and a leading player on the market in the Baltic states which I took a direct part in creating. TVCorp is the local branch of the MTV Corporation in Estonia. We’re planning on "taking in" another five to seven companies, after which, according to our calculations, we’ll have used up all our resources for this stage of the process.
What do the IT markets in Russia and the Baltic states have in common and how do they differ? What’s your take on the investment potential of the Russian IT market?
Overall, the IT markets in Russia and the Baltic states can be described as developed and fairly large. Of course, Russia is bigger in terms of territory and in certain other ways, but in hard figures the Baltics are also fairly big. They’re also united by the fact that they have a lot of potential, but you need a lot of capital to open them up. A difference is that service companies are highly developed in the Baltics, whereas it’s the technological sphere that is more highly developed in Russia. You can’t overlook another big difference – the companies in the Baltic states are more ordered, which makes working with them a lot easier. In Russia, you have to be prepared for the fact that, in order to get the company into a decent state from financial, legal and other points of view, you have to have a significant amount of money ready to put into an audit, and that can amount to tens of thousands of dollars.
Recently there have been reports from the IT markets of interest being shown by new major investors, such as the Russian company Renova. Do you see yourselves as being in competition with other investors?
Yes, we can definitely see that process at work. There’s no doubt that there are strategic investors on the Russian market who can boast of possessing key assets in spheres that interest us. For the most part however, and in the regions in particular, it’s private business that’s working in the IT sector. Often, money is coming from companies that work in more traditional sectors of the economy – trade, real estate, and so on. It’s not a fact that these investments will work effectively – the people behind them don’t have the expertise or the contacts and so, often, an innovative business doesn’t have any additional value, which can result in it leaving the marketplace. There’s another tendency which shouldn’t be overlooked. As we know, the major western companies are actively working to open software development centers in Russia – Motorola, Sun Microsystems and the like. We can also see that as being part of the investment process. These players usually buy up a 100 percent stake in Russian enterprises or create them from scratch.
What do you think of the Russian government’s idea of creating technology parks and special economic zones? Will they help the Russian IT market? What are the prospects for development?
In view of the growing competition on the global IT market, the Russian government definitely had to do something. Technology parks are an effective tool which have proved their value in many countries. The way it’s all being implemented raises some questions though. As far as I can see, a specific characteristic of the Russian project is that firms will get benefits within certain geographical zones, which is to say certain links will be built in. In my view, that contradicts the whole essence of IT, which is free of all those conditions – at the end of the day, the programmer could be working from home, using the internet. And that’s without even mentioning the fact that these zones will attract firms looking for benefits that have nothing to do with IT. Companies should get benefits, but they shouldn’t be dependant on their geographical location. We should note another initiative from the Russian government – the creation of venture funds. Their appearance was unavoidable, as such initiatives have been undertaken in almost all the countries of Europe, and Russia just had to keep up. But its effectiveness will be directly dependant on the people that manage it and there really aren’t that many experts in this sphere in Russia.