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понедельник, 27 октября 2014 г.

The Ukrainian-Russian conflict and European investments

In addition to my overview of the Ukrainian market for the first 9 months of 2014 (http://dennydov.blogspot.com/2014/10/what-has-happened-in-ukrainian-venture.html)

Here, I already covered the reasons why European investors do not wish to invest in Russia.

Let me remind you briefly:
1. The macroeconomic indexes are decreasing, which was obvious even before the sanctions.
2. The sanctions have influenced and will continue to negatively impact influence the economy.
Russian assets are now toxic. The majority of investors do not understand how to split off toxic and non-toxic assets.
3. The trend of state regulation of the network will rise and requirements for projects will tighten.
4. The possibility of withdrawing income from projects will be restricted.

European funds are observing Ukrainian startups for the following reasons:
1. Ukraine has chosen in favor of European integration and the long-term macroeconomic situation will improve.
2. The country is at the “bottom” and now is a good time to invest in its startups.
During the crisis, resources have become cheaper and, as a result, the same amount of money stretches further.
3. The traditional spheres of economic, which moved into “new” economic in USA and Europe long ago, are weak and they could be effectively attacked (first of all retail) (I don’t understand this sentence).
4. The state institutes “recommend” to support the Ukrainian economy (or this one).
5. The geographic focus of funds, proscribed in mandates, was very seldom formulated as “Russia.” Rather, it typically meant CSI, FSU, EE or CEE, which means that money that cannot be invested in Russia can be invested in other countries from the region. And Ukraine is one of the leaders within this group.

The following are three risk factors hindering investment:
1. War
2. Corruption
3. Winter (in view of relations with Russia and Gazprom)

Over the past 3 weeks, I have learned the following as a result of communication with 3 European funds:
1. There are no investments in the region. It is clear that money loves silence and here we find a poor investment climate, revolutions, sanctions and etc.
2. They only observe Ukrainian projects oriented towards the global market and they are typically ready to sponsor the startup team in a move to another country. They do not observe Russian projects at all.
3. Regardless of politics surrounding Ukrainian projects, they are ready to consider investments into Russia only as part of a follow-on round to existing deals.

Let me remind you that the majority of funds have currently ceased all investment deals with Russian startups. I am aware of only two cases when due diligence goes on, but the deal still requires approval from the investment committees of the funds and the representatives of these funds, so take this with a grain of salt when considering whether or not there will be a positive outcome.

Regarding Ukrainian projects, I see that European investors are actively working on 6 deals and visit Kyiv weekly.

Further, we have begun communication with two Russian startups searching for sponsorship to shift to or obtain legal status in Kyiv (or other Ukrainian cities) under pressure from potential (or existing) European investors. We are capable of doing this as a Ukrainian accelerator and there is a possibility to make it our separate line of business.


Do Ukrainians feel innocent for putting Russia in this position in international arena?’ That is the question from S. Glazyev, assistant to the president in an interview with radio station ‘Radonezh’.

Unfortunately, I have already found three European funds that have taken a very tough position towards Ukraine. These funds, which have earned a lot of money in Russia, are reluctant to lose out on the possibility of investing in Russian projects and are waiting for sanctions to be rescinded in order to return to the Russian market. Their irritation and tough position towards Ukraine relates to the conflict that has deprived them access to the biggest market in the region.

The current situation is a very sad one, as at least one of these funds is the European leader.

See more at: http://dennydov.blogspot.com/2014/10/blog-post_12.html

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