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Never mind Putin, focus on the roubles

Political pundits have been whipped into a frenzy by Vladimir Putin’s declaration yesterday that he may become Russia's prime minister when his presidency ends next year. They are speculating that Mr Putin is manipulating the constitution to give himself a deciding role in Russian politics for life.

Investors in Russian assets, however, are largely unfazed – they have seen it all before. Instead, they are preoccupied by whether Russia will be the next economic phenomenon after China. While there have been several false starts for the Russia economy, the country has many attractions: fewer controls of the type that stymie many investment firms in China, but similarly endowed with a large population, plentiful natural resources and a highly educated workforce. On the debit side, there is uncertain intellectual property protection, unpredictable taxation and onerous business registration procedures. Not to mention the outside chance of sequestration of assets, Yukos-style.

Nevertheless, investors appear to be gaining confidence in Russia. Only last week, Draper Fisher Jurvetson, a US high-tech venture capital firm, announced a joint-venture with VTB, a Russian banking group, to launch a new Russian venture capital fund, DFJ-VTB Aurora. Tim Draper, founder of DFJ, is bullish on prospects for the fund. He says: “With the influx of institutional money, governmental support and the migration of management talent of Russian origin back to Russia, the ecosystem for technology start-ups is now emerging.”

The government support he mentions is considerable. The state set up Russian Venture last year to allocate R15bn ($600m) to early stage VC, with plans to invest 80 per cent in companies with sales under $6m. The government puts up 49 per cent of the capital and the balance comes from private sources. In May this year, the state-sponsored venture announced it would place R4bn ($160m) with three fund managers: VTB Asset Management, Bioprocess Capital, advised by West Coast VC Franklin Johnson, and a joint venture between a Russian direct equity group and Israel’s Tamir Fishman Group.

In mature economies, government support is often seen as a weakness, but the Russian scheme has inspired a degree of confidence in investors and experienced VCs are starting to pile in. Roel Pieper, based in the Netherlands, has set up a new fund primarily targeting Russian opportunities, including hydrogen technologies and light jets. Alexander Galitsky, a well-known Russian investor, is planning to launch a new Russia fund later this year, in partnership with Western venture capitalists. And in April, Boston-based OpenView Venture Partners decided to partner with Moscow-based ABRT Venture Fund. One or two of the best-known VC firms have also dipped a toe into Russian waters. Index Ventures, for one, took part in an $18m funding round in Ozon.ru, Russia’s answer to Amazon.

Some prefer to do business in Russia at one remove. Landbridge Capital, for instance, invests in US companies that bring Russian technologies to market. Landbridge is insulated should the fears of all Russia-watchers come to pass and there is a re-run of 1998 when government bonds defaulted and the local stock market tumbled by 90 per cent. But a repeat is surely unlikely? This time round, Russia has stronger leadership, improved economic controls and better developed capital and stock markets. All the same, unless they have a strong constitution VCs may find the Russian experience somewhat stomach-turning.

The Week's Deals

Volubill, the France-based provider of data charging, control and monitoring services to telecoms operators, has raised €10.5m from DVC Deutsche Venture Capital, Seventure Partners, Argo Global Capital (GSM Capital), Sofinnova Partners and Xange private equity. Volubill says its products and technologies are designed to address the key challenges facing both emerging and established operators, including how to charge for next generation data services and understanding in detail what users are doing. The capital raised will be used to fund an acquisition strategy designed to obtain technology that will provide applications on top of Volubill’s core products.

Purple Labs, the France-based supplier of embedded Linux products for the wireless industry, has raised $14.5m (€10.5m) from Earlybird Venture Capital, Partners Group and Sofinnova Partners. Purple Labs says it was among the first companies in the world to ship a Linux mobile phone fully approved by European network operators. The funding will allow the company to expand its business into new markets and to strengthen its position with existing partners.

JenaValve, the Germany-based medical device company developing minimally-invasive heart valve replacement systems, has raised €10m from Atlas Venture, Edmond de Rothschild Investment Partners and Neomed Management. JenaValve says it has now secured sufficient funds to complete the clinical phase of its first product, scheduled for mid 2009. The company says its systems feature several differentiators such as an auto positioning mechanism used to place the implant safely and accurately, an unrivaled fixation technique for attaching the aortic valve on the stent and a unique clip-based anchoring mechanism.

Octavian, the Israel-based provider of revenue management products for the wealth and investment management industry, has raised $10m (€7.1m) from Carmel Ventures, Gemini Israel Funds and Vertex Venture. Octavian’s products are designed to help the wealth management industry grow and collaborate with the servicing of managed account products. The company says that analysts predict the managed account industry will grow to $3tr in assets under management by 2011.

The Week's Exits

Cape Technologies, the Ireland-based provider of software and advisory services for the global telecommunications and content industries, has been acquired by Portugal-based WeDo Consulting for up to €20m. WeDo, which is a subsidiary of the Portugese telecoms firm Sonaecom, believes the acquisition will make it the world leader in the revenue assurance software integration market.

Sevenval, the Germany-based mobile applications developer, has been acquired by mobile marketing provider YOC for an undisclosed amount. Sevenval's clients include national and international mobile network operators, content providers, portal and community operators and banks.

People Moves

Coresonic, the Sweden-based provider of baseband processor IP technology, has appointed Rick Clucas as chief executive. Mr Clucas has more than 22 years experience in the markets for embedded software and chips. Most recently he was director at investment bank Beeson Gregory, chief executive of Ignios and a business consultant.

Scaleo chip, the French-based designer of ARM-based system-on-chips, has appointed Bruno Paucard as chief executive. Daniel Aufaure, former chief executive, will remain with the company as chairman of the board. Mr Paucard has 21 years experience in the semiconductor industry and 17 years of senior leadership experience in early stage companies.

QlikTech, the US and Sweden-based business intelligence software company, is to appoint current chief financial officer and chief operating officer Lars Björk as chief executive. Måns Hultman, who has been chief executive since 2000, will become chairman.

Movimento, the Sweden-based designer and manufacturer of tools for the automotive and transportation industry, has appointed Lars Bramstång as chief executive. Mr Bramstång succeeds Joachim Fritzson who will continue to work in the company as business development manager.

Most Accessed Companies

Novaled, the Germany-based developer of organic light-emitting diode (OLED) technologies, has attracted a lot of attention this week. OLEDs are solid-state devices composed of thin films of organic molecules that create light with the application of electricity. OLEDs can provide brighter, crisper displays on electronic devices and use less power than conventional light-emitting diodes or liquid crystal displays. Novaled, a spin-out from the Dresden University and the Fraunhofer Society, says it has attained the world record in power efficiency.

ChromoGenics Sweden, the Sweden-based developer and manufacturer of products based on electrochromism, has also received a lot of attention recently. ChromoGenics has developed an electrochromic plastic foil that changes its transparency to light through electric voltage, and has applications in the eyewear, window and semi-static display industries. Backers of the company include DuPont Ventures, Volvo Technology Transfer and Innovationsbron Uppsala.