Leta Capital eyes “17,000 Russian-speaking tech entrepreneurs” based in the West

Leta Capital eyes “17,000 Russian-speaking tech entrepreneurs” based in the West
Leta Capital argues that Russian-born entrepreneurs working in the West are amongst the best in the world and regularly outperform their peers, so the fund is targeting them for investments.
By East West Digital News in Moscow June 30, 2021

The Russian VC firm Leta Capital aims to invest in Russian-speaking tech entrepreneurs across the world. This is a huge pool of talents who left their home countries including Russia, Ukraine, Belarus and some other former Soviet republics to establish themselves in Western Europe, the USA and other geographies, reports East-West Digital News (EWDN).

According to Leta Capital’s in-house research, “more than 17,000 Russian-speaking and Eastern European IT entrepreneurs and start-ups are active in the UK, Europe and the USA.”

“These entrepreneurs are among the most dynamic and technically skilled in the world,” says Leta Capital and their startups “often generate significant cash when it comes to ARR.”

As reported regularly by East-West Digital News, there are already dozens of VC firms with Russian-speaking founders who are eyeing this vibrant international entrepreneur community. These VC firms include Almaz Capital, Gagarin Capital Partners, LVL1, Runa Capital and Target Global, to name just a few big names with Russian roots, as well as AVentures Capital and TA Ventures, which are based in Ukraine.

These investors, however, do not focus exclusively on globalised Russian-speaking tech entrepreneurs. A brand new fund, NRG Ventures (‘New Russian Generation’), targets specifically Russian-speaking startup entrepreneurs operating in foreign jurisdictions, especially the USA and the EU. As reported this spring, NRG plans to invest $500,000 on average in some 50 companies, from pre-seed to Series A.

Leta Capital’s initiative suggests there is still room for new investors in this space. Russia-speaking entrepreneurs are still “under-valued and overlooked for funding,” says the Moscow-based VC firm.

Investing globally without an office

To tap into these opportunities, Leta Capital is attracting $100mn for a dedicated vehicle, registered in the Cayman Islands, with operations starting in Q4 2021. Hard commitments covering a “substantial fraction” of the target amount have already been received, Leta Capital Partner Sergey Toporov told EWDN.

Alex Chachava, who founded the Leta IT company and the Leta Capital venture firm, is among the main limited partners.

The new fund will focus, in particular, on entrepreneurs living in London and New York. Its sweet spots will be “disruptive software, IT and internet technologies” typically those involving business intelligence, Big Data analysis and artificial intelligence to address issues in various industries.

The fund will target early growth stages (from late Seed stage, to Series A and B and follow-ons). The investment criteria include “an established user base, proven product and some consistent monthly revenues,” among other KPIs.

Chachava told TechCrunch the venture team will operate online, “since a physical office is no longer needed in our times: the last two years, we have not been not traveling too much, our work has been downgraded to Zoom calls. I don’t think we need space anymore in our modern world,” the investor believes.  

This is the third fund of the firm, following a $50mn vehicle launched in 2018 and an initial fund launched in 2012. In total, Leta Capital has invested over $45mn, creating a portfolio of about 30 tech companies. Leta Capital claims “a number of successful exits, with international companies and investors acquiring successful start-ups” in several cases.

These success stories included Bright Box HK, sold to Zurich Insurance Group in 2017, and sales & marketing platform Unomy, acquired by WeWork.

Low capital needs, high exits

Leta Capital shared with East-West Digital News some insights from its research:

  • In 2019 alone, companies founded by Russian-speaking entrepreneurs were sold to US entities for more than $10.5bn. Leta Capital cites the cases of Veeam Software (sold to Insight Partners from $5bn), MagicLab (sold to Blackstone for $3bn) and Luxoft (sold to DXC Technology for $2bn).
  • Where they have been successful and raised seed, round A or round B funding, Russian-speaking entrepreneurs are on average raising 65% less than their US peers and over 40% less than UK and EU entrepreneurs.
  • In terms of funding per employee, these startups raise almost twice less than the US and UK average.
  • The ratio of acquisition events for these companies is around 5%, compared with 17% and 20% for US and EU companies respectively.

Leta Capital did not provide further details about its research, but these insights are consistent with the findings of a recent EU4Digital study. Conducted by EY and EWDN across Ukraine, Belarus, Armenia and other Eastern Partnership countries, this study highlighted the fact that the most successful startups with roots in these Russian-speaking countries operate in the USA or other Western jurisdictions. They tend to focus on digital technologies that do not require considerable capital injections; hence their rounds of funding generally involve small amounts until the late stage or even exit.

This article first appeared in East-West Digital News (EWDN), a bne IntelliNews partner publication.