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Russian Venture Capital Market Overview 2Q2013

Russian Venture Capital Market Report 2Q2013

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Rye, Man & Gor Securities is pleased to present the first issue of the Russian Venture Capital Market Overview, which includes a rundown of Russia’s venture capital market and an industry focus dedicated to the cloud technology market.

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Page 1: Russian Venture Capital Market Report 2Q2013

Russian Venture Capital

Market Overview 2Q2013

Page 2: Russian Venture Capital Market Report 2Q2013

Contents

2

Introduction 3

About Rye, Man & Gor Securities 4

Russia’s venture capital market: the 2-minute tour 5

VC market overview 6

Deal focus 10

Methodology 12

Cloud solutions 13

Cloud CRM/ERP/SCM 18

Megaplan 24

MoySklad 26

amoCRM 28

Moe Delo 29

Miiix 30

BigBird 32

Conclusion 34

Acknowledgements 35

Contact information 36

Page 3: Russian Venture Capital Market Report 2Q2013

Dear friends,

We are pleased to present the first issue of the Russian Venture Capital Market Overview by Rye, Man &

Gor Securities. This first Report includes a rundown of Russia’s venture capital market for 2Q2013 and an

industry focus, in which we provide a detailed overview of the cloud technology market.

The primary goal of our project is to make Russia’s innovative sector more alluring for both foreign and

domestic investors and increase the efficiency of contacts between investors and innovative companies

seeking financing.

In our opinion, the main barrier to growth of Russia’s venture capital market is the lack of objective

information. Foreign and domestic investors do not have sufficient reliable data and analytical materials on

innovative markets and projects in Russia. This slows down the search for investment targets, makes

investment decisions more difficult, increases costs for project analysis and due diligence, and restricts the

size of the pool of potential venture investors.

We hope that our analytics will help bridge some information gaps in Russia’s venture capital market, make

it more transparent, and give investors a better idea of innovative markets and projects.

Page 4: Russian Venture Capital Market Report 2Q2013

About Rye, Man & Gor Securities

Rye, Man and Gor Securities (RMG) is an independent Russian investment company. RMG has

been on the market for 20 years, in which time it has earned an excellent reputation among both

clients and peers as a reliable partner.

RMG provides a wide range of services to Russian and foreign clients in the venture capital

market, including:

• search for promising target assets;

• capital raising through public or private offerings;

• search for strategic investors and M&A deal support;

• venture project support, including strategy development and measures to increase capital-

raising potential;

• advisory on deal structuring and financing, deal processing, negotiations, and target

company due diligence.

Rye, Man and Gor Securities is a member of M&A Worldwide, a cross-border M&A boutique

network, and of the National Alternative Investment Management Association.

4

Page 5: Russian Venture Capital Market Report 2Q2013

$87M Private funds

$44.9m

Public funds

$15.3m

eCommerce

$31.4m

Biotech

$6.3m

Other IT

$36.8m

Industrial tech

$5.2m

Mobile apps

$3.8m Cloud tech

$3.8m

$1.9m

$1.6m

2012

2Q2013

Average deal value

Seed

29

Startup

16

Growth

5

Expansion

3

$149m

$87m

1Q2013 2Q2013

Capital invested

-44.1%

Russia’s venture capital

market: the 2-minute tour

PPP

$13.9m

Business angels

$11.5m

Corporate funds

$1.6m

53

75

53

1Q2013 2Q2013

Deals closed

-29.3%

2Q2013

* Excluding deals over $100m (see Methodology)

*

Imag

e b

y I

co

nB

east

- http://w

ww

.iconbe

ast.com

/

Page 6: Russian Venture Capital Market Report 2Q2013

* Including deals with undisclosed values

VC market: overview

98

167

336

135 149

87

100 89

87 100

75

53

0

20

40

60

80

100

120

0

100

200

300

400

1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013

Russian venture capital deal flow

Capital invested, $million

Deals closed

According to our estimates, venture capital invested

in Russia in 2Q2013 totaled $87m, down by 41.3%

q-o-q and by 47.7% y-o-y. The number of deals

closed fell to 53.* Both total capital invested and

deals closed were at 6-quarter lows.

Russia’s negative trend in venture capital invested

and deal numbers matches global slowing of

economic growth in 1H2013, and a slight

contraction of VC markets was also registered in

Europe and the US. But a number of other specific

factors played a role in the Russian VC downturn.

Most importantly, transparency is not a

characteristic feature of the Russian VC market,

so that closed deals are often announced only after

several months. Also, the parties often prefer not to

disclose details, and expert estimates may vary

substantially. For these reasons, the actual

decrease in VC investments in 2Q2013 may not be

as substantial as our estimate suggests.

It should be noted that, for the purposes of this

report, total capital invested does not include

deals over $100m, exit deals (see table) and

investments in venture infrastructure (e.g. funds or

accelerators).

6

VC investments are stagnating

Sources: Rusbase, Venture Database, RMG

Company Investor Deal

value

Sector

Exits

B2B-Center Elbrus Capital $52m eCommerce

Zephyr Solutions Cloud4Auto n/a IT

Large deals

Lamoda Access Industries,

Summit Partners,

Tengelmann

$130m eCommerce

Sources: Rusbase, Venture Database, RMG

Large deals and exits, 2Q2013

Page 7: Russian Venture Capital Market Report 2Q2013

The q-o-q decrease in the number of deals closed in

2Q2013 was mainly due to a sharp decline in

venture financing for seed stage companies. There

was only a slight drop in the number of non-seed

companies financed (from 30 in 1Q to 24 in 2Q),

whereas only 29 companies currently at the seed

stage closed VC rounds, compared to 45 in 1Q.

Interestingly, the seed slump did not affect the

amount of capital invested in seed companies.

On the contrary, total investments into seed

companies grew by 9.3% q-o-q to $17.2m.

It is worth noticing that seed companies have

received less capital from private and joint funds in

2013 than in 2012. Private funds only invested

13.1% of all venture capital in 2Q2013, whereas

their contribution averaged 34% in 2012 and

reached 44.7% in 4Q2012. A similar trend is evident

in startup investments, which implies that young

companies are having to rely on state-backed

institutions for early-stage financing.

Numbers of growth-and-expansion VC deals are

much lower than seed and start-up (just 8 in

1Q2013 and as many in 2Q), suggesting that

Russian venture projects find it much harder to

finance further growth and expansion on VC

markets. However, although there were only a few

growth and expansion deals, they accounted for

53% of all venture capital invested in 2Q2013.

0

10

20

30

40

2Q2012 3Q2012 4Q2012 1Q2013 2Q2013

Private funds cut seed investments in 2013

Business angels Corporate funds Public funds

Private funds PPP

Investments at seed stage by investor type, $ million

Number of deals at the seed stage fell sharply

VC market: stages

73

10 3 3

51

26 7

3

69

27

3 1

45

22 7 1

29

16 5 3 0

20

40

60

80

Seed Startup Growth Expansion

VC deal flow by stage

2Q2012 3Q2012 4Q2012 1Q2013 2Q2013

Sources: Rusbase, Venture Database, RMG

7

Sources: Rusbase, Venture Database, RMG

Page 8: Russian Venture Capital Market Report 2Q2013

VC market: sectors

IT remains the most fertile soil for venture projects.

In 2Q2013, some 87% of all venture capital in

Russia was invested in IT firms (eCommerce,

Cloud, Mobile apps and others). Total investments

in industrial tech and biotech over the last 5 quarters

have been just 11% of total venture capital invested.

It is interesting to note a certain degree of sector

specialization: while IT venture projects are

mostly financed by private and corporate funds,

up to 90% of investments in industrial tech and

biotech firms come from state-funded institutions.

Dmitry Galperin, Investment Director at Runa

Capital, a Russian VC firm, told us that industrial

tech and biotech sectors are riskier than IT since

they need more investments and time to market.

Also, promising projects are more numerous in IT

than in biotech or industrial tech due to software

development expertise in Russia, and enthusiasm

for IT is supported by success stories from the US

and Europe.

eCommerce is the most popular IT subsector, with a

41.8% share of total venture capital invested over

the last 4 quarters. As much as 81.2% of all venture

capital invested went to eCommerce companies in

2Q2012 thanks to two large deals: Avito.ru, an

online classifieds site ($75m), and KupiVIP, a

shopping club ($38m). For comparison, the biggest

deal closed in the eCommerce subsector in 2Q2013

was only worth $10m: Media Capital, a VC firm

created in 2012, purchased a minority stake in a

domestic appliances e-store, Holodilnik.ru.

The share of venture capital invested in cloud

tech companies went sharply up to 4.3% in 2Q

from just 0.8% in 1Q, but investment in mobile apps

plunged from $41.3m (27.8% of total VC invested)

in 1Q to $3.8m (4.4%) in 2Q.

The average VC deal value was $1.65m in 2Q2013,

which is slightly less than in 1Q ($1.98m) and in

2012 ($1.96m).

1,9

3,9

1,4 2,0 1,6

0

1

2

3

4

5

2Q2012 3Q2012 4Q2012 1Q2013 2Q2013

Average VC deal values, $ million

8

2Q2013

1Q2013

4Q2012

3Q2012

2Q2012

0% 20% 40% 60% 80% 100%

Sector shares in VC investment

eCommerce

Cloud tech

Mobile apps

Other IT

Biotech

Industrial tech

IT still reigns supreme

Sources: Rusbase, Venture Database, RMG

Sources: Rusbase, Venture Database, RMG

Page 9: Russian Venture Capital Market Report 2Q2013

VC market: investors

0 10 20 30 40 50

PPP

Private funds

Public funds

Corporate funds

Business angels

Venture capital invested in 2Q2013 by sector and investor type, $ million

eCommerce

Cloud tech

Mobile apps

Other IT

Biotech

Industrial tech

9

Private funds are the most generous investors

0

10

20

30

40

50

Businessangels

Corporatefunds

Public funds Private funds PPP

Seed stage financing: state-backed VC funds are the only option

Seed Startup Growth Expansion

* According to PwC/NVCA MoneyTree™ Report based on Thomson Reuters data

Another distinctive feature of Russia’s venture capital market is

the extremely small role of corporate VC funds. They were

responsible for just 1.8% of total capital invested in 2Q2013, up

slightly from 1.5% in 2012. By contrast, corporate VC funds

contributed from 6.8% to 9.1% of all venture capital invested in

the US in each of the last 10 years.*

Sources: Rusbase, Venture Database, RMG

Sources: Rusbase, Venture Database, RMG

In 2Q2013, private VC firms invested

$44.9m (51.5% of total VC) in 16

projects, which makes them the most

active investors in the Russian market.

So private funds have retained

leadership, although both the amount

they invested and number of deals they

closed almost halved q-o-q: in 1Q,

private VC firms invested $88.5 in 32

projects.

Interestingly, investors in the

Russian VC market seem to be

sector-specialized. In 2Q2013, only

private VC firms and business angels

invested in eCommerce, while biotech

companies received all their financing

from public VC institutions. This may

reflect the fact that private VC firms are

generally less involved in early-stage

deals (most venture projects in biotech

and industrial tech are still at seed

stages). Also, unlike biotech and

industrial tech, IT offers private funds

attractive “copycat” projects based on

ideas already successfully

implemented in Europe or the US.

Venture capital invested in 2Q2013, $ million

Page 10: Russian Venture Capital Market Report 2Q2013

Deal focus

Company Description Sector Investor Deal

date

Deal

value

Stage Comments

B2B-Center Largest e-auction

marketplace in

Russia

eCommerce Elbrus Capital

Fund II

04/13 $52m. Expansion Elbrus Capital purchased

23% of company equity: one

part from Mail.ru Group

(15%), which completely

exited, and the remainder

from co-founder Alexander

Boyko (8%).

Game Insight Mobile games

developer

Mobile apps IMI.VC 02/13 $25m Growth The company had already

received financing from

IMI.VC in 2011 and 2012. A

large deal became possible

thanks to a $75m investment

in the fund by Mikhail Vinchel.

Ostrovok Online hotel

booking site

eCommerce Yuri Milner and

co-investors

03/13 $25m Expansion Another round of financing

may have been triggered in

response to rival Oktogo.ru

raising funds two weeks

before (see below). Ostrovok

cut staff by a third shortly

after the round in order to

focus on core projects.

Oktogo Online hotel

booking site

eCommerce Victor Sazhin

Group and co-

investors

03/13 $11m Growth The financing was raised to

strengthen the brand and

expand in Russian regions.

The company expects to

close another round of

financing in 2013.

WebMediaGroup A holding

company owning

Dostavka.ru,

Zoomby.ru,

Menu.ru, Bank.ru

etc.

Other IT Gazprombank,

Leader-

innovations,

Sergey

Kalugin

05/13 $10m Growth The company received $6m

from Gazprombank and

Leader-innovations in 2011.

A major chunk of the funds

raised will be spent on

expansion of Zoomby.ru, a

video hosting site.

Holodilnik.ru Home appliances

online store

eCommerce Media Capital 04/13 $10m Expansion First media-for-equity deal in

Russia: Media Capital will

conduct a major advertising

campaign for the e-store in

exchange for a minority

stake.

uBank Mobile payments

service

Mobile apps Runa Capital 02/13 $8m Startup Runa Capital’s largest deal.

uBank needed funds to

finance the development of

new mobile payments

technology and the launch of

a new product.

10

Page 11: Russian Venture Capital Market Report 2Q2013

Deal focus

Company Description Sector Investor Deal

date

Deal

value

Stage Comments

Esky Children’s

products e-store

eCommerce ru-Net II 03/13 $6m Growth The deal was based on a

valuation of $24m. The ru-

Net II fund fully owns Ivi.ru, a

video hosting service, and

holds stakes at IConText, an

online advertising agency,

Ozon.ru, an online store, and

Biglion, a discount service.

Travelata Travel booking

service

eCommerce Invia, MCI

Management

06/13 $5m Growth Poland-based MCI

Management invested

$500,000 in Travelata in

2012..

Integrator Interactive ad

management and

media planning

tool

Other

IT/Advertising

Bulvarnyoe

Koltso

02/13 $5m Startup Bulvarnoye Koltso has

exclusive advertising rights

on Moscow public transport.

Tartis-Aging Anti-aging

technology

development

Biotech Skolkovo

foundation

02/13 $5m Startup The company is included in

the portfolio of Bioprocess

Capital Ventures, a VC fund

of the state-backed Russian

Venture Company. The grant

will be used to start clinical

tests of the anti-aging

product.

Garpun Contextual and

targeted ad

management

system

Other

IT/Advertising

iTech Capital 04/13 $3,5m Startup Tech Capital fund has

already invested in a similar

project designed for smaller

clients. Garpun is an

investment aimed at the mid-

market sector.

YaKlass School education

portal

Other

IT/Education

Data Pro

Group, Nikita

Khalyavin,

Vesna

Investment

05/13 $2m Startup Nikita Khalyavin is the

founder of Professionali.ru

and Shopogoliq.ru. YaKlass

is planning to launch its

educational services on

English- and Spanish-

speaking markets.

11

Page 12: Russian Venture Capital Market Report 2Q2013

Methodology

This report is based on data provided by Rusbase,

Venture Database, Russian Venture Company and

Skolkovo Foundation, processed and aggregated by

RMG.

Only venture capital investments and grants by

business angels, corporations, corporate VC funds,

private VC firms and public VC institutions not

exceeding $100m in one round were included in the

venture capital market analysis.

For the purposes of this report, the term “venture

capital investments” stands for equity investments in

new or growing companies which operate in the IT,

industrial technology or bio technology fields. We

only included companies with main business in

Russia in the total venture capital market volume.

We did not include financing received from Russia-

based investors by companies oriented to foreign

markets.

We also included grant financing in the total VC

market size. Although grants are essentially a non-

repayable subsidy for research and development,

they were included in the total capital invested since

they are allocated on a competitive basis.

Exits and investments in market infrastructure were

not included in the total VC market size. The term

“investments in market infrastructure” stands for

investments in VC funds, business accelerators,

tech parks and other institutions which operate on

the VC market but are not venture projects. The

term “exit” refers to a VC deal in which one or more

investors exit a company’s equity.

We distinguish between 4 stages of venture project

life:

1. Seed: a project only exists on paper or as an

idea.

2. Startup: a company that is being set up or has

had operations for a short period of time without

any commercial sales.

3. Growth: a new product has been launched and

first commercial revenues have been

registered.

4. Expansion: revenues, market share, output,

office area, etc. are growing

This report distinguishes between three venture

project sectors: IT, industrial tech and biotech.

The information technology (IT) sector consists of

the following subsectors: eCommerce (including

travel booking sites), cloud technologies, mobile

apps, and other IT (IT companies not otherwise

specified, including telecoms, advertising

technologies, media projects, Internet media,

search and recommendation sites, etc.).

The industrial technology sector includes

companies designing equipment and technologies

for industrial use, including energy efficient and

clean equipment and technologies.

The biotech sector includes companies designing

medical equipment, medicines, and innovative

medical services and technologies.

We do not further divide biotech and industrial tech

into subsectors due to the low volume of VC

investments in these sectors in Russia.

12

Page 13: Russian Venture Capital Market Report 2Q2013

Cloud solutions

13

2 Cloud technology enables businesses to access inexpensive scalable IT resources without

incurring infrastructure costs

3 Russia’s cloud tech market is dominated by Infrastructure-as-a-Service (IaaS) solutions. But

this segment is characterized by high entry barriers that make it unsuitable for venture projects

4 The Software-as-a-Service (SaaS) segment has a slightly smaller share of the cloud market

than IaaS, but SaaS it is a much more suitable segment for venture projects

5 SaaS competes successfully with traditional software in providing solutions for businesses, and

the cloud tech penetration rate is highest in the CRM sub-segment

6 Most Russian venture SaaS projects target SMEs that have never used automation systems

before, so they are competing with Microsoft Excel rather than out-of-a-box software

7 There are numerous SaaS products in the Russian market, but solutions that integrate various

cloud systems within a single framework (cloud brokers) are only just arriving and represent

the most promising market niche

1 Cloud is the future of IT. The global cloud tech market is growing much faster than the IT

market as a whole

In this chapter, we present a review of Russia’s

cloud technology venture market. We believe that

cloud is the most promising area within IT and

recommend investors to take a closer look at it.

American and European cloud providers have

already shown the potential of this sector, and their

Russian peers should also fare well, since Russian

IT specialists have strong software development

expertise that makes their products competitive both

domestically and globally.

It should be noted that this review only deals with

venture projects in the cloud technology sector and

does not claim to offer a comprehensive overview of

the Russian cloud market.

Review of the cloud technology venture market

Page 14: Russian Venture Capital Market Report 2Q2013

Cloud solutions: market

In 2013, experts have no doubt that cloud

technologies will set the pace for the whole of

the global IT sector in the near future. The cloud

tech market is growing faster than other IT:

according to Gartner, the public cloud market will

grow by 18.5% y-o-y this year, whereas IT as a

whole will see 4.1% growth. The significance of

cloud computing is comparable to the arrival of the

first PCs some 30 years ago, since it offers both

large enterprises and SMEs access to practically

unlimited and easily scalable IT resources.

14

Scalable

• Users can rapidly change the amount of available resources without any penalties or limitations

Multi-tenant

• Numerous users can access the service simultaneously while retaining security and privacy

Pay-as-you-go

• Payment depends on actual use

Abstract

• Users do not and need not know about the actual location of data and infrastructure

Cloud solutions

110 131 155 181 210

0

100

200

300

2012 2013 2014 2015 2016

Global cloud tech market size, $ billion

Gartner forecasts that the global cloud tech market

will grow by an average of 17.5% a year in 2013-

2016 and reach $210b. But Gartner includes all

internet advertising in the cloud technologies

market. Other consultancies, which leave out

internet advertising, offer much lower forecasts.

Forrester expects the cloud tech market to expand

from $40b in 2012 to $100b in 2016, while IDC

estimates are $41b and $114b, respectively.

Orange Business Services estimate Russia’s cloud

market size at R4.5b ($145m) in 2012 and expect it

to expand at 44.1% CAGR to R19b ($612m at the

2012 average exchange rate) by 2016.

Advantages of cloud solutions

New opportunities for business

Cloud technologies help businesses reduce

costs and give them access to IT solutions

which were previously the exclusive preserve of

large corporations. Parallels estimated the cloud

services market for Russian SMEs at $466m in

2012, including spending on hosting and internet

advertising. The report by Parallels points out that

the market will be driven by growth of broadband

access in Russian regions and growing cloud

awareness among Russian SMEs: 47% of SMEs

which currently do not use cloud solutions say that

they will start using them within 3 years.

Source: Gartner

Page 15: Russian Venture Capital Market Report 2Q2013

Cloud solutions: categories

15

The cloud tech market is usually divided into three

major segments: infrastructure-as-a-service

(IaaS), platform-as-a-service (PaaS) and

software-as-a-service (SaaS). Cloud services can

be divided between the three depending on the

extent to which they are under the control of the

user (see the figure below).

According to IDC, IaaS dominated the Russian

public cloud market in 2011 with a share of 49.6%,

closely followed by SaaS (46.8%). PaaS trailed

behind with a mere 3.6%, but Orange Business

Services expect PaaS in Russia to grow fastest of

the three: by 70.1% per year in the next 4 years.

IaaS, PaaS, SaaS: from control to convenience

SaaS

Applications

PaaS

Operating system

Development environment

Applications deployment

Iaa

S

Servers

Data storage

Network components

Pro

vid

er-

ma

na

ge

d

Use

r-m

an

age

d

IaaS makes it

unnecessary for the

user to install, support

and update their own

infrastructure

PaaS providers offer a

cloud environment for

the development of

applications

SaaS solutions are

applications located on

the provider’s

infrastructure and need

not be installed on the

user’s machines

Specific features of each category make them more

or less attractive for venture capital. IaaS is by and

large a market for heavyweights since it requires

substantial investments in the installation and

support of infrastructure. The global IaaS market is

dominated by giants such as Amazon Web

Services, Terremark (a subsidiary of Verizon), IBM,

and AT&T. In Russia the category is still emerging

and remains immature, but it is dominated by

relatively large players such as CROC, I-Teco, and

Parking.ru. Orange Business Services estimate

Russia’s IaaS market at R3.4b ($110m) in 2013 and

forecast it to grow at a CAGR of 42.3% to R9.8b

($317m) in 2016.

Global demand for PaaS solutions is only just taking

off, but PaaS offer major advantages to

developers. According to Parallels, global PaaS

sales in 2013 will reach $1.5b, doubling by 2015.

PaaS is the youngest and least mature category of

cloud technologies, occupying only a marginal

share of both Russian and global cloud markets.

Specialized niche solutions by small providers

compete against PaaS products offered by

behemoths like Google, Microsoft and

Salesforce.com. Mikhail Oreshin, co-founder of the

Russian Cloud Computing Professional

Association, told us that the Russian PaaS market

is too shallow for small players, so that global

market orientation is the only promising option for

Russian PaaS projects.

Page 16: Russian Venture Capital Market Report 2Q2013

Estimates of Russia’s IaaS market size vary widely,

with Orange Business Services forecasting annual

growth by 42.3% from $81m in 2012, and a 2012

report by J’son & Partners predicting an 11.3%

growth rate from $32m in 2012. Both estimates

suggest a very modest role for Russia in global

terms, since, according to Gartner, the global IaaS

market will grow from $6b to $24b in 2012-2016.

J’son & Partners attribute 76% of Russian IaaS

sales in 2011 to the three largest players: CROC, I-

Teco and Parking.ru. Microsoft also entered the

Russian market in 2013. Since the entry barrier is

much higher in IaaS than in PaaS or SaaS, there

are only a few IaaS venture projects.

IaaS & PaaS

81 110

158

226

317

32 52 71 84 90

0

100

200

300

400

2012 2013 2014 2015 2016

Estimates of Russia’s IaaS market size, 2012-2016, $ million

OrangeBusinessServices

J'son &Partners

16

Sources: Orange Business Services, J’son & Partners,

RMG estimates

43%

23%

10%

3%

3%

18%

IaaS market shares in Russia, 2011

CROC

I-Teco

Parking.ru

Clodo

Oversun

Others

PaaS is an emerging and, according to experts, the

most promising cloud tech category. The main

target audience for PaaS products are web

developers. Globally, the most successful model

combines PaaS solutions with corresponding IaaS

and SaaS products. This model is used by Amazon

Web Services, the leader of the PaaS market. The

two main PaaS contenders globally are Microsoft

and Salesforce.com. Technavio recently published

an analytical report estimating the 2012 global PaaS

market at $1.3b and forecasting its growth by 49% a

year to $6.45b by 2016.

Russia’s PaaS market is very narrow at present, but

Orange Business Services expect it to grow by 70%

a year in the next 4-5 years.

At present, there are only a handful of successful

PaaS solutions “made in Russia”. The most notable

is Jelastic, a platform for Java and PHP

development, which won the Technology Leader

Awards from Oracle in 2012. The platform competes

against solutions backed by Microsoft and VMware,

citing no vendor lock-in and global reach as its

advantages.

IaaS: no place for small players

PaaS: ready, steady, grow

Source: J’son & Partners

Page 17: Russian Venture Capital Market Report 2Q2013

The software-as-a-service (SaaS) market is the

most mature of all cloud tech markets globally.

According to Gartner, SaaS sales were $16b in

2012 (more than PaaS or IaaS) and will grow at

CAGR of 19.5%. These figures only include public

cloud solutions for enterprises.

Unlike IaaS and PaaS, the SaaS model is

characterized by a great diversity of products,

with solutions available for automation of practically

any business process, from project collaboration to

enterprise resource planning. As mentioned above,

automation only became an option for most small

and medium enterprises recently, with the advent of

cloud technologies, so there is plenty of space in

the market for new cloud solutions. This view is

confirmed by Gartner, which found that cloud tech

penetration in business process automation is still

only 20%.

SaaS

16 20

24 28

33

0

10

20

30

40

2012 2013 2014 2015 2016

Global SaaS market size, $ billion

17

Source: Gartner

SaaS: rich potential

45 68

103

158

232

0

50

100

150

200

250

2012 2013 2014 2015 2016

SaaS market in Russia, $ million

Source: Orange Business Services

The SaaS market has only just taken shape in

Russia and Orange Business Services expect it to

grow at an average of 50% annually for the next

3-4 years. While SaaS dominates the global cloud

tech market, in Russia it trails behind IaaS.

Analysts do not expect this situation to change

any time soon: Russian SMEs are only testing

SaaS waters, so their cloud tech awareness and

trust levels are far short of global trends. But

experts point out that this is changing.

We have chosen SaaS-based CRM/ERP/SCM

solutions for detailed analysis. We see plenty

of promising venture projects in this field that

promise to become new niche leaders on the

growing Russian market. Our approach is

supported by Gartner figures, which show that

cloud tech makes particularly rapid progress in

the CRM/ERP/SCM segment worldwide.

Page 18: Russian Venture Capital Market Report 2Q2013

Cloud CRM/ERP/SCM: market

18

Global market: traditional business solutions under a cloud

According to Gartner, SaaS solutions accounted for

35% of all Customer Relations Management (CRM)

services in 2011, whereas 48% of CRM applications

will be cloud-based by 2016. Gartner forecasts the

SaaS penetration rate in the Supply Chain

Management (SCM) and Enterprise Resource

Planning (ERP) segments to reach 28% and 17%

by 2016, respectively. So cloud tech already

represents serious competition for traditional

business solutions and is bound to take more of

their market in the future.

Gartner estimates the global CRM/ERP/SCM

market at $56b in 2013 and expects it to reach

$84.5b by 2017. Based on these data, we estimate

the size of the global cloud CRM/ERP/SCM market

in 2012 at $11b, with CAGR of 21.7%.

0%

10%

20%

30%

40%

50%

60%

2011 2012 2013 2014 2015 2016

SaaS penetration rate

CRM

SCM

ERP

Source: Gartner

11,0 13,8

16,7

20,0

24,1

0

5

10

15

20

25

30

2012 2013 2014 2015 2016

Worldwide cloud CRM/ERP/SCM market, 2012-2016, $ million

SCM

ERP

CRM

Sources: Gartner, RMG estimates

In a survey by Gartner in 2012, respondents cited

lower total costs of ownership, faster and

cheaper deployment, and lower capex among

the main reasons for using SaaS rather than

traditional non-cloud solutions. When asked why

they hold back from cloud, CRM/ERP/SCM

respondents cited uncertainty whether cloud would

address their needs, satisfaction with existing on-

premise applications, no further requirements, and

being locked into their current solution with

expensive contractual requirements.

Current trends and attitudes of business support the

expert view that cloud-based business

applications are likely to dominate the market.

We believe that this trend is more articulate in the

small and medium business sector than for large

enterprises.

Page 19: Russian Venture Capital Market Report 2Q2013

Cloud CRM/ERP/SCM: market

19

Russian market: reaching for the clouds

Cloud solutions (particularly SaaS) are gaining

ground fast in Russia, but estimates of the current

state of play differ widely. In a recent study,

Parallels estimated the Russian cloud market for

SMEs at $174m, including CRM/ERP/SCM systems

as well as cloud file sharing, accounting,

collaboration, and phone and web conferencing

services (the share of CRM/ERP/SCM applications

in the forecast is not specified). According to

Parallels, the market will grow by CAGR of 29% to

$377m by 2015. However, Mikhail Smolyanov, CEO

at Megaplan, a leading Russian provider of SaaS-

based CRM and task management solutions,

believes that Russia’s cloud CRM/ERP/SCM

applications market is not worth more than $30m at

present, although his estimate only includes on-

demand (public) SaaS sales.

Description and assessment of the present state of

Russia’s cloud-based applications market is

particularly difficult because CRM, ERP and SCM

are still very young sciences for most Russian

SMEs, which often fail to distinguish between the

three and between the corresponding cloud

solutions.

In most cases SME needs, and therefore the

functionality of most SaaS solutions, cannot be

classified as pure CRM, ERP or SCM, primarily

because users themselves do not think within this

framework. We have therefore taken the liberty of

merging these three traditional segments into one

for the purposes of the present report.

An important point to remember for understanding

the Russian market is that, whereas large (and

some medium-sized) businesses were able to

introduce traditional business process automation

solutions before the arrival of cloud technologies,

automation has only become affordable for most

SMEs thanks to cloud-based products. This

distinctive feature has two important implications.

Firstly, market participants point out that needs of

companies for business process automation are

strongly prioritized: accounting is usually the first

function to be automated as it is compulsory for all

businesses to keep accounts and report to fiscal

authorities. So the economic gain of a cloud-based

solution in this sphere is felt as soon as it is

adopted.

174 225

291 377

0

100

200

300

400

2012 2013 2014 2015

SaaS-based business applications market in Russia, $ million

Sources: Parallels, RMG estimates

– The current potential

market for cloud CRM

systems for SMEs is about

$120 million. But it is only

less than 10% saturated now

Vladimir Gabriel, Head of sales at Delovaya Sreda

Page 20: Russian Venture Capital Market Report 2Q2013

Cloud CRM/ERP/SCM

20

The next steps towards automation are usually

made in the fields of CRM/ERP/SCM and

task/project management. But not all Russian

SMEs make these next steps. Mikhail Smolyanov

believes that SaaS penetration rates are low mainly

because Russian businesses are insufficiently

aware of the gains, which automation offers. A

survey by Parallels in 2012 found that only 5% of

SMEs surveyed were using a cloud-based CRM or

ERP solution, while a modest 11% of them were

planning to adopt a cloud solution for these tasks

within 3 years. Limited availability of broadband

connection in Russian regions may explain some of

this “technophobia”.

Secondly, due to market immaturity, cloud-based

CRM/ERP/SCM products compete against

Microsoft Excel and sometimes even pen-and-

paper ledgers rather than against each other.

SMEs are not well-aware of the availability and

advantages of cloud solutions for business, so any

marketing activity to promote a particular cloud-

based product promotes the idea of SaaS in

general, serving the interests of rival companies as

well as those of the advertiser.

Overall, despite the challenges, Russia’s cloud

CRM/ERP/SCM market has good prospects and

may grow at a CAGR of 50-70% in the next 4-5

years. Experts point out that awareness of cloud-

based business applications, however low, is on a

strong uptrend, both among SMEs and large

companies. At present, large and most medium-

sized enterprises tend to use SaaS-based

CRM/ERP/SCM solutions within the confines of

small company departments and sub-sections, but

SaaS providers have noted a positive shift in attitude

towards cloud tech.

We see the greatest potential in integration of

various cloud-based SaaS automation products

and also in the development of industry-specific

“niche” CRM/ERP solutions.

– We used to have to explain

what a cloud was, where data

were stored and how they

were protected. Now clients

are better prepared: we have

been receiving explicit

requests for SaaS solutions

Alexey Fitiskin, Head of sales at ASoft

– The concept of a cloud

broker, which has existed in

the West for some time now,

is still virtually inexistent in

Russia. This is where I see a

point of growth

Mikhail Oreshin, co-founder of Russian Cloud Computing

Professional Association

Accounting

CRM/ERP/SCM

Task/project management

Business process automation priorities

Page 21: Russian Venture Capital Market Report 2Q2013

The company held an IPO on the NYSE in 2004,

selling 10% of its equity for $110m. In September

2008, Salesforce stocks were included in the S&P

500 index. The company’s market cap grew by

1650% from January 31, 2005 to January 31, 2013.

Net losses in 2012-2013 after years of profits were

not due to a negative business trend, but reflect

income tax provisions of $142.7m, growth of

goodwill amortization by $88m and non-cash costs

of $379.4m in an option programme.

Salesforce has generated consistently positive cash

flows. In FY2013, the company registered free cash

flow of $557m.

The company’s average 2004-2013 P/E is 205 and

average EV/Sales for the same period is 7.76.

1,4 4,5 5,0 6,2

3,3

8,1

17,2 16,0

25,2

2005

2006

2007

2008

2009

2010

2011

2012

2013

Salesforce Inc. market cap*, $ billion

Success stories in the cloud

Total revenue of leading Russian cloud providers do

not exceed a few million dollars at present, and

Megaplan, one of the market leaders, was valued at

a mere $15m in a recent 1C deal. But Russian cloud

providers have much to aspire to: their global

counterparts now boast billion-dollar market caps,

although their revenues 10-12 years ago were those

of Russian cloud providers today.

In order to appreciate the potential, it is worth briefly

retelling the stories of Salesforce and Net Suite, two

of the world’s most successful cloud CRM/ERP

developers.

Salesforce Inc., the world’s leading cloud CRM

provider, was founded in 1999. Growth of its

revenues and customer base have been rocket-

propelled. Company revenue increased by 600

times in 2001-2013, with revenue CAGR amounting

to 51%.

The number of clients rose from 1500 as of January

31, 2001, to 104,000 by the end of July, 2011.

According to Gartner, Salesforce had a 14% share

of the world’s CRM market in 2012 (35% of the

cloud CRM market).

Source: Bloomberg

0

1000

2000

3000

4000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Revenue of Salesforce Inc., $ million

-400

-200

0

200

400

600

2006 2007 2008 2009 2010 2011 2012 2013

Salesforce Inc. free cash flow and net income, $ million

Free Cash Flow Net Income

Sources: Company data, Bloomberg

*Market cap figures are given for the financial year ending on

January 31.

Source: Bloomberg

Page 22: Russian Venture Capital Market Report 2Q2013

Net Suite Inc., founded in 1998, is one of the

world’s leading developers of cloud solutions for

business automation. The company is the world

leader by numbers of cloud ERP customers (more

than 16,000).

The company showed revenue CAGR of 59% in

2002-2012 from $3.1m in 2002 to $308.8m in

2012.

Net Suite held an IPO on the NYSE in 2007.

Although the stock suffered during the 2008 crisis,

its market cap grew by 108% from December 31,

2007, to December 31, 2012. Net Suite’s market

cap rose by a further 40.5% in 1H2013 to reach

$6.87b.

* At year-end.

A loss of $51m in 1H2013 was mainly due to

$35.5m non-cash expenses in an option

programme. The company started generating

positive cash flows in 2010, showing FCF of $60m

in 1H2013.

Average 2007-2012 EV/Sales equals 10.4**.

The success of Salesforce and Net Suite reflects

high growth rates of the cloud tech market in the

US. Russia looks set to emulate these growth rates

soon, so investors who make the right choice today

can expect substantial gains. We think that at least

some of the Russian cloud projects presented

below will be winners.

**Calculated from EV and Sales as of December 31 of each

year.

2,4

0,5 1,0

1,6

2,8

4,9

2007 2008 2009 2010 2011 2012

Net Suite Inc. market cap*, $ billion

Source: Bloomberg

0

100

200

300

400

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Net Suite Inc. revenue, $ million

-60

-40

-20

0

20

40

60

80

2006

2007

2008

2009

2010

2011

2012

2013

Net Suite Inc. free cash flow and net income, $ million

Net Income Free Cash Flow

Source: Bloomberg

Source: Bloomberg

Success stories in the cloud

Page 23: Russian Venture Capital Market Report 2Q2013

Cloud CRM/ERP/SCM: solutions

In this chapter, we will take a closer a look at cloud

CRM/ERP/SCM providers operating on the Russian

market. We contacted a large number of

companies, not all of which agreed to share detailed

information about their products and business. But,

we are confident that the data, which we have

collected will prove of use to both venture capitalists

and cloud entrepreneurs.

The Russian cloud market

Small but promising

According to expert estimates, Russia’s cloud

CRM/ERP/SCM market size was between $10m

and $30m in 2012. Market growth rates are

expected to be 50-100% a year over the next 3

years.

Little competition and high concentration

According to market players, the Russian cloud

CRM/ERP/SCM segment is characterized by a very

low level of competition as most new customers

previously used Excel or pen-and-paper book-

keeping rather than rival software.

Megaplan appears to be the overall market leader

with revenues of $5m, or 25% of the market.

MoySklad is the leader in the sales and inventory

management segment, with revenues of $2m in

2012, while amoCRM is the largest player in cloud

CRM for SMEs.

Foreign players are also present on the Russian

market. According to market participants, the most

popular non-Russian solutions include those of

Salesforce, Zoho and SugarCRM. However, experts

were unable to estimate their sales in Russia, only

specifying that their market share is very small.

Foreign cloud solutions are generally more

expensive than Russian ones and often require

lengthy and/or costly deployment procedures.

Low customer loyalty

Levels of customer loyalty to Russian cloud

providers are very low at present. The companies

which agreed to share their operational data

reported monthly churn rates of 5-7%, while, as

Maxim Krasnykh, Director for Russia and CIS at

Intel Capital, told us, 30% per year is considered a

normal churn for foreign companies. Maxim also

points out that Russian cloud companies’ ARPU is

3-5 times as low as that of their US peers. However,

acquisition cost is also much lower in Russia: it is

made up for after several months of paid usage

compared to 6-18 months in the US.

We also call attention to the cloud M&A activity of

1C, one of the leading companies on the Russian

software market, which acquired 51% of the capital

of MoySklad for $1.2m in 2011 and 51% of

Megaplan for $7.5m in 2012, thus taking control of 2

out of the 3 emerging market leaders.

Key takeouts

1. There is still plenty of room on the market and low

entry barriers improve the chances of success for

new projects. High market growth rates, low

competition levels and low cloud penetration rates

mean that new projects can achieve fast growth of

revenue and customer base.

2. As the market grows, local cloud providers are

likely to face stiff competition from foreign cloud

software developers, which can afford to spend

more on marketing and adopt aggressive pricing

policies to win market share. Low customer loyalty

aggravates this risk.

3. The marketing costs that are needed in order to

achieve a “critical mass” of customers will rise as

cloud CRM/ERP/SCM penetration rates grow.

4. New opportunities for cloud project exits are

likely to arise as leading Russian IT companies

such as 1C and Diasoft become increasingly

interested in SaaS solutions.

Page 24: Russian Venture Capital Market Report 2Q2013

Megaplan offers cloud solutions for customer

relations, sales, staff collaboration and accounting.

Megaplan won Russia’s Soft-2009 Most Promising

Startup of the Year Award.

Monetization

Freemium. A free trial version is offered for 30

days. Monthly subscription is R250-544 per user

per month, depending on functionality. The solution

with the narrowest functionality, “Collaboration”,

includes:

Task and project management

Corporate IM and email

Staff collaboration

CRM

The “Sales” solution (from R370 per user per

month) includes financial management and an

improved CRM system in addition to the above.

The more expensive “Business” solution allows the

service to be scaled across several offices

domestically and overseas.

The service was launched commercially in 2008.

Team

Mikhail Smolyanov, co-founder, CEO

Graduated from the Faculty of Mechanics and

Mathematics at Moscow State University in 2004.

From 2005 to 2006, Mikhail worked as managing

director at Eurovision LLC. Since 2010, he has

been the development director at StartupIndex.

Mikhail Ukolov, co-founder, managing partner

Graduated from Moscow State University of

Economics, Statistics and Informatics with a major

in management in 2004 and completed a PhD there

in 2007. From 2001 till 2004, he ran Virtual Art

Group studio. Since 2004, he has been a managing

partner at Utinet.ru.

Competition

Megaplan is the leading provider of cloud

CRM/ERP/SCM solutions in Russia. According to

various expert estimates, its share of the Russian

market is between 16% and 25%.

Megaplan management estimate the yearly churn at

40%, or 3.33% a month.

The customer lifetime value has increased from

R10,000 ($400) in 2008 to R40,000 ($1250).

Conversion rate 5-15%

Monthly churn 3.3%

ARPU R1350 ($41)

Customer acquisition cost Up to R13,500 ($410)

LTV R40,000 ($1250).

Sources: Vedomosti, SPARK, Rusbase, RMG estimates

Sources: Company data, RMG estimates

Rusbase reports that Megaplan received

financing of R1m ($31,500) in 2009. According to

SPARK, IQ One owned 23.11% of Megaplan’s

capital as of December 30, 2009, implying overall

company value of $4.3m.

On March 29, 2012, 1C, Russia’s leading

software developer, announced the acquisition of

a 51% share of Megaplan for about $7.5m,

valuing the company at $14-16m.

24

Operational records

2009

2012

Sources: Rusbase, SPARK, RMG estimates

4.3

Megaplan valuation in M&A deals, $ million

14-16

Cloud CRM/ERP/SCM: solutions

Page 25: Russian Venture Capital Market Report 2Q2013

2100

4000

6000

2011 2012 2013E

Revenues, $ thousand

The company’s 12-month revenue as of the end of

June 2013 was $5m. Megaplan has some 10,000

clients. We estimate 2012 revenue at $4m.

According to Mikhail Smolyanov, revenue grew by

70-90% y-o-y in 2012.

Future plans

The company plans further expansion in the

Russian market. It does not expect to enter foreign

markets in the foreseeable future.

Project strengths

High brand awareness helps cut marketing

costs, attracts larger clients and provides a

steady inflow of customers

Rich functionality within a single solution helps to

meet the needs of various clients

The team is experienced in project management

and capital raising

Project weaknesses/risk

Low customer loyalty: a high churn affects

customer acquisition costs. Also, the bulk of

customers are SMEs and self-employed

individuals, who are inherently exposed to

substantial financial risks.*

25

Sources: Company data, RMG estimates

* These risks are common to most cloud providers

Cloud CRM/ERP/SCM: solutions

Page 26: Russian Venture Capital Market Report 2Q2013

Cloud CRM/ERP/SCM: solutions

MoySklad (“MyWarehouse”) is a cloud solution for

sales and inventory management. Its functionality

also helps to manage purchases, customer

relations, orders and financial transactions. In 2013,

MoySklad launched “Accounting Online”, which is a

1C-based online accounting product.

Customer categories

Online stores

The service enables processing of orders received

by various e-stores within a single framework,

loading of product data in the Yandex.Market format

(.YML), management of courier delivery, including

order allocation, route and order list printing, and

courier/mail service accounts management.

Wholesale dealers

The solution makes it possible to bring together

several entities, branches, warehouses and/or sales

desks within a single framework without incurring

further infrastructure costs.

Physical retailers

MoySklad provides a full-scale salesperson’s

workplace with functionality ranging from sales

registration and refund management to barcode

scanning and shift closing. The service is available

both online and offline. Integration with a fiscal data

recorder is also possible.

Monetization

Freemium. A fully functional trial version is offered

free of charge for 14 days. Subscription fees range

from R240 ($7.5) to R6400 ($200) per month.

Subscription to Accounting Online costs from R870

($27) to R2060 ($64) per month.

Team

Askar Rakhimberdiev, co-founder, CEO. Has a

more-than-10-year experience in software

development. Askar was previously responsible for

SaaS development at Aspect Enterprise Solutions

and managed projects at Auriga, one of Russia’s

leading IT outsourcing companies.

Oleg Alexeyev is responsible for MoySklad’s

technical development. Before the start of

MoySklad, Oleg was a developer of distributed ERP

systems.

Dmitry Kabatov, co-founder, development director

Has more than 10 years IT experience. Dmitry was

in charge of the Moscow office of Exact Software,

an ERP vendor, for 5 years.

Competition

MoySklad is a leader in Russian cloud

CRM/ERP/SCM solutions for SMEs. According to

expert estimates, the company had 6-10% of the

market in 2012.

MoySklad’s direct rivals in cloud solutions for sales

and inventory management are BigBird and Karkas.

However, most new customers are using MoySklad

as their first business process automation system.

As the market is not saturated, MoySklad does not

have to persuade customers to switch from a rival

solution. Most customers who buy MoySklad

previously used MS Excel for the same purposes.

According to Askar Rakhimberdiev, 1C:Sales and

Warehouse, a cloud solution offered by 1C, targets

larger clients, so it is not a direct rival for MoySklad.

Capital invested

According to our information, Ambient Sound

Investments, an Estonia-based investment holding,

acquired about 20% of the company for over

$100,000 in 2008, valuing the whole company at

about $500,000 at the time.

26

Page 27: Russian Venture Capital Market Report 2Q2013

25000

64000

1500

3700

0

1000

2000

3000

4000

0

20000

40000

60000

80000

2011 2012

Revenue and number of customers

Revenue, R thousand Number of customers

In 2011, 1C bought out ASI’s share and a part of

other investors’ shares in MoySklad for $1.2m

(Rusbase estimates). According to SPARK, 1C

owns 51% of MoySklad’s capital as of August

2013, implying $2.35m total valuation. So the 1C

deal valued MoySklad 3.9 times more highly than

the ASI deal.

MoySklad launched its service in February 2008

and 100,000 users had registered on the

company’s website as of August 2013. Askar

Rakhimberdiev admits that customer loyalty is not

high, as shown by a churn rate of 5.5% per month.

The customer base grew by 140% y-o-y in 2012

and revenues increased by 153%.

Future plans

Management says that MoySklad has no plans to

expand beyond the domestic market. The company

expects its revenues and customer base to grow by

70-90% per year over the next few years.

Project strengths

Leading market position. Brand awareness

helps cut marketing costs and attract larger

clients

Successful history of venture capital raising

Strong development team

Broad functionality of the solution

Project weaknesses/risks

Low customer loyalty. High churn drives up

customer acquisition costs, and most customers

are SMEs and sole proprietorships, which are

often short of cash*

Low free-to-paid conversion (4%) suggests that

potential clients are insufficiently aware of the

advantages, which the product offers*

Conversion rate 4%

Monthly churn 5.5%

ARPU R1450 ($45)

Customer acquisition cost Up to R8700

($270)

LTV R26,000

($810)

Sources: Company data, RMG estimates

Sources: Company data, RMG estimates

*These risks are common to most cloud providers

27

2008

2011

Sources: Rusbase, SPARK, RMG estimates

600

MoySklad valuation in M&A deals, $ thousand

2350

Operational and financial records

Cloud CRM/ERP/SCM: solutions

Page 28: Russian Venture Capital Market Report 2Q2013

125 500

900

0

500

1000

2011 2012 2013E

Revenue, $ thousand

amoCRM is a cloud CRM solution with functionality

for creation or transfer of a customer database, task

management, collection and analysis of customer

and employee statistics, as well as bulk SMS and

email circulation.

The service was founded and is owned by Qsoft, a

company with offices in Moscow and the US.

amoCRM was launched in April 2010. According to

Mikhail Tokovinin, the co-owner of Qsoft, the

company has never raised external financing.

Monetization

Freemium. A free version is available with a

restriction on the number of users. Monthly

subscription fees range from R600 ($19) to R3000

($94) depending on the number of users, size of the

customer database and number of transactions.

Team

According to SPARK data, Qsoft was owned by

Mikhail Tokovinin and Denis Mitrofanov as of June

20, 2013. Mikhail declined to share any information

regarding the amoCRM team.

Competition

According to experts and company management,

amoCRM is the most popular Russian cloud CRM

system. We estimate amoCRM’s share of the

CRM/ERP/SCM market at 2-3%. The company’s

direct rivals include domestic Bitrix24, Asoft and

Terrasoft solutions as well as foreign Salesforcem

Zoho and SugarCRM systems.

Mikhail Tokovinin believes that the level of

competition is currently very low, and that the cloud

CRM market may grow exponentially (his is the

most optimistic estimate, which we encountered).

Most of the company’s customers are medium-sized

enterprises, but the product is also used by small

and large businesses.

Operational and financial records

We estimate 1000 customers as of late 2012 and

2012 revenue at $400-600,000. According to

management, revenues grew by 400% in 2012,

implying that the company earned $100-150,000

revenue in 2011. Based on estimated 1500

customers as of mid-2013, we forecast 2013

revenue between $800,000 and $1m.

The company has rather high churn, but it has

declined since the launch year, when up to 10% of

customers quit the service monthly. The company

does not provide data about customer acquisition

costs and free-to-paid conversion rates.

Monthly churn 6-7%

ARPU R1000-1500 ($31-47)

LTV R15-25,000 ($470-

780)

Sources: company data, RMG estimates

28

Future plans

Management priorities are integration with other

complementing SaaS solutions, such as cloud

accounting and collaboration systems.

Project strengths

Support from Qsoft, one of the leading Russian web

integrators with rich experience in SaaS: Qsoft

launched the qTrack, amoForms and Shoptus

products.

Project weaknesses/risks

Narrow functionality We cannot evaluate the team due to insufficient

information.

Cloud CRM/ERP/SCM: solutions

Page 29: Russian Venture Capital Market Report 2Q2013

200

1 000

2 800

2010 2011 2013E

Revenue, $ thousand

Moe Delo (“My Business”) is an online accounting

solution with some CRM functionality.*

The project was launched in 2009 and has been

selling since September 2010. In 2010, the

company won the Runet Economics and Business

Award and was a prize winner in the Google and

Forbes Business Project Award.

Monetization

Freemium. A short free trial period is offered.

Subscription fees range from R540 ($17) to R5069

($158) per month depending on functionality.

Team

Maxim Yaremko, co-founder, CEO. In 2006,

Maxim founded Savadi, a software development

company, which he ran until 2010.

Sergei Panov, co-founder, chairman of the board

of directors. Since 2001, Sergei has headed

several publishing houses focused on financial

media.

Competition

Moe Delo is one of Russia’s leading cloud

accounting solutions. Its major rivals include

1CFresh, 1C’s online accounting system, SKB

Kontur’s cloud solution, and Nebo.

Operational and financial records

In an interview with the leading Russian business

newspaper, Vedomosti, Sergei Panov estimated

the company’s customer base at 180,000 users as

of late 2011. In 2011, the customer base grew by

700%, and revenues rose by 400%, according to

Panov. Forbes estimates Moe Delo’s revenues in

2011 at $1m. Based on the rate of customer base

growth, we forecast 2013 revenue at $2.8m.

Investments

In 2012, Klever Internet Investments Ltd invested

$4m in Moe Delo. Based on 2011 revenue of $1m

as estimated by Forbes and P/S of 7.0-8.0x, Klever

could have acquired around 50% of the company,

implying $8m company valuation.

Project strengths

High brand awareness

Large customer base facilitates non-accounting

service sales

Project weaknesses/risks

Market saturation may lead to a slowdown in

growth rates

22 500

180 000 500 000

Number of customers

01.01.2011 31.12.2011 31.03.2013

* Although the product is positioned as an online accounting

solution, we have included it in this report as we believe that its

CRM functionality has much market potential.

Sources: Company data, RMG estimates

29

Cloud CRM/ERP/SCM: solutions

Page 30: Russian Venture Capital Market Report 2Q2013

Miiix helps online stores to obtain information on

their suppliers’ warehouse reserves and prices.

The service, launched in August 2012, currently

focuses on stores retailing vehicle tires and wheel

disks. In 2013, the company opened an ‘order

board’ that delivers purchase orders to suppliers,

receiving a commission from the supplier equal to

50% of the difference between the order price and

the supplier’s minimum price for the item.

Monetization

Freemium. The free version only includes a search

in the inventory database. Over 60% of revenues

are generated from commissions on deals through

the order board, while 35% are subscription fees;

and 5% are one-off payments for other services.

Team

Sergei Ryabov, co-founder, CEO

An Internet entrepreneur with more than 10 years

experience. Sergei had a stake in and managed

the shopping clubs, funppc.com and

elitistclub.com. In 2006, he co-founded a domain

name registration firm, ruler-domains.com. A year

later, Sergei sold elitistclub.com to a partner and

focused on the registration firm, which was sold to

a larger rival in 2010. Since 2008, he has launched

several e-stores and in 2009, he was part of the

team, which launched the recommendations

startup, deeep.me. The team transformed into

aller-design.ru, a web studio, which was then

bought out by a co-founder. In total, Sergei has

worked on 10 projects.

Dmitry Bereznitsky, co-founder, CTO

Dmitry started his Internet entrepreneurship career

in 2006, launching affiliate e-stores for Amazon. He

is the founder of Mosquito, an automated store

promotion service and was one of the co-founders

of ruler-domains.com. Later, Dmitry was co-

founder and CTO in deeep.me, aller-design.ru,

prestigewheels.ru and sportmanya.ru.

Competition

Potential rivals to Miix (with similar functionality) are

MarketMixer.net and Agora B2B (the latter is

currently only at the test stage – a beta version has

been launched). Analogues on developed markets

are tyre24.de, Order Motion and Merchantry.

Investments

In November 2012, Miiix sold a 15% stake to RSV

Venture Partners for $20,000, implying total

company valuation of $133.000.

In 2013, Miiix won the IT Startup Eurasia 2013

Award and received a $60,000 grant from Microsoft.

Operational and financial records

ARPU at the end of June 2013 was around $300.

Monthly revenue figures show distinct seasonality.

0

50

100

150

200

08/1

2

09/1

2

10/1

2

11/1

2

12/1

2

01/1

3

02/1

3

03/1

3

04/1

3

05/1

3

06/1

3

Miiix monthly revenues, R thousand

Source: company data

30

Cloud CRM/ERP/SCM: solutions

Page 31: Russian Venture Capital Market Report 2Q2013

Growth in the number of online stores operating in

Russia will be an obvious driver for growth of Miiix

business.

Miiix expects R2m ($60,600) revenues in 2013.

Project strengths

A team with strong Internet business expertise

High growth potential, provided that the business

model is applied to more eCommerce segments

and also to offline retail

Project weaknesses

Seasonality

Narrow focus: entering new segments may

require substantial development and marketing

costs

144 new users registered on the Miiix website

between August 2012 and June 2013, and the

average share of paying users was 24%.

The company was unable to provide objective data

on customer acquisition costs and average

revenue per customer from registration to the

present (or until the customer quits).

Future plans

The founders currently see two priorities for

company development:

1. Introducing new services to increase ARPU to

$500. As of August 2013, additional services only

account for 5% of revenues.

2. Entering new segments. According to Sergei

Ryabov, Miiix is planning to launch operations in

the sports equipment segment early in September.

New segments could accelerate customer base

and revenue growth. DataInsight estimates that the

car parts segment, to which Miiix is currently

limited, accounted for 10% of all online sales of

physical goods in Russia in 2012.

7500 10000 16000

25000

32500 39000

2008 2009 2010 2011 2012 2013E

Online stores on the Russian Internet

44%

13%

10%

7%

5%

4%

3%

3% 11%

Online physical goods sales structure in Russia, 2012

Electronics and appliances

Clothing and footwear

Auto parts

Home and furniture

Goods for children

Cosmetics and perfumes

Books and CDs

Foodstuffs

Other

25 36

46

73 88

100 109

117 127 133

144

3 10 14

20 22 23 26 30 34 34 35

0

40

80

120

160

08/1

2

09/1

2

10/1

2

11/1

2

12/1

2

01/1

3

02/1

3

03/1

3

04/1

3

05/1

3

06/1

3

Cumulative new users

Number of registrations on the site

Number of customers making first-time payments

Source: company data

Source: Data Insight

Source: InSales

31

Cloud CRM/ERP/SCM: solutions

Page 32: Russian Venture Capital Market Report 2Q2013

BigBird is a cloud system for management of sales

and inventory with functionality covering:

Sales, purchases and inventory management

Management of several current accounts and

cash operations

Create workflow and accounting databases

Document distribution, printing and emailing

Generate management accounts for analysis of

business results

BigBird is a product of Eteron, a Russian software

development company.

Monetization

Freemium. A free version with restricted functionality

is available. The product currently has a single tariff

of R590 ($18) per month (if prepaid for a year) or

R990 ($31) per month (if prepaid for one month).

There is also a free version of the product which will

be monetized by showing ads.

According to the founders, the project is currently at

the stage of creating a customer base. Work on

monetization is not yet fully underway, and numbers

of paying customers are low.

Team

Oleg Sidorenkov, co-founder, development director

and co-founder of Eteron. In 2004, Oleg set up a

franchisee of 1C that deployed, customized and

serviced 1C’s managerial accounting software for

SMEs. In 2006, he founded Formz.ru, an online

form-filling solution.

Igor Sidorenkov, project consultant. He previously

worked as a programmer for a US-based software

developer, Pricedrive. In 2001, Igor was Vice

President for system engineering and Head of IT at

CarsArrive Network, a startup later sold to Kar

Auction Services and ADESA. Igor is currently

working as an independent consultant for several IT

projects.

Competition

The product is designed for small enterprises and

self-employed individuals. Direct rivals include

MoySklad and Karkas.

BigBird has a number of distinctive features

compared to rivals:

System architecture

The kernel of the system is separated from the web

interface and interacts with the latter by means of

standard protocols, thus enabling use of alternative

interfaces and leaving space for integration with

other applications

Rich interface

The web application’s interface is similar to that of

desktop applications and thus is familiar to users.

Libraries used to create the interface are developed

by a major German hosting provider, which makes

the interface more user-friendly and facilitates the

development of a mobile version of the solution.

Investments

In 2011, Eteron, the owner of rights to Formz.ru and

BigBird, raised angel investments. The deal value

and the share acquired were not disclosed.

Cloud CRM/ERP/SCM: solutions

Page 33: Russian Venture Capital Market Report 2Q2013

Cloud CRM/ERP/SCM: solutions

Future plans

According to Oleg and Igor, development priorities

include integration with other systems, adding CRM

functionality, creating a version for mobile devices,

and additional services for organizations such as

registration of LLCs and obtaining incorporation

certificates.

The founders do not rule out entering foreign

markets but do not see it as a major priority.

Project strengths

Reduction of customer acquisition costs and

growth of the customer base can be achieved by

cooperation with Formz.ru (a free site providing

all types of official templates for business use),

which has 140,000 registered users, more than

600,000 visits per month and has provided

50,000 referrals to BigBird in 2013)

The team has rich experience in automation for

SMEs and fundraising

Project weaknesses/risks

Narrow functionality

33

Page 34: Russian Venture Capital Market Report 2Q2013

Conclusion

Venture capital market in 2Q2013

The amount of venture capital invested in Russia in 2Q2013 fell by 41.3% q-o-q and by 47.7% y-o-

y. The number of VC deals closed fell to 53, compared with 75 in 1Q and 87 in 2Q2012.

We have noticed a significant decline of VC investment in seed/startup companies by private

funds. Private funds provided only 13.1% of all venture capital invested in seed-stage deals in

2Q2013 compared with 34% over 4 quarters of 2012 and 44.7% in 4Q2012, and the trend was the

same for startups.

IT continued to dominate the venture capital market in 2Q2013, attracting 87% of all venture

capital invested in Russia over the period.

Market situation and outlook

Russia’s VC market remains non-transparent. Reliable information on deal values and shares of

capital acquired is difficult to obtain and venture companies are often unwilling to disclose their

financials and operational records. Experts and business leaders we have interviewed are fully

aware that an increase in transparency would benefit both investors and entrepreneurs. We are

hopeful for a more open market in the future.

We note growing interest from foreign corporate funds in the Russian venture capital market. VC

funds founded by the likes of SAP, IBM, 3M are considering investment in Russia.

More large American and European VC funds such as Accel Partners or Bessemer Venture

Partners, which have not previously been interested in Russia, are now becoming active on the

Russia VC market.

Private VC funds are being set up by founders of Russian projects who have successfully cashed

out during IPOs (such as Mail.ru and QIWI) or M&A deals.

The decline in capital invested by private funds in seed/startup companies is likely to continue.

Russian and foreign investors are unwilling to assume the large risks associated with these

projects. We believe that a major part of seed financing will come from state-backed funds.

The future of cloud technologies

According to experts and market leaders, Russia’s cloud tech market will grow faster than IT as a

whole, with CAGR of 44% up to 2016.

According to Parallels, almost 50% of SMEs not currently using cloud solutions are going to adopt

cloud technologies within 3 years.

Both Russian and foreign investors are interested in Russian cloud startups. We are confident that

Russia’s cloud tech market has substantial investment potential.

Page 35: Russian Venture Capital Market Report 2Q2013

Acknowledgements

We would like to thank the experts, creators of M&A databases and venture entrepreneurs, who have

contributed to our Report:

Andrei Dovgan

Head of General CRM

Terrasoft

Oleg Fateev

Director of Cloud Computing

Business Development

IBS Holding

Vladimir Gabriel

Head of Sales

Delovaya sreda

Dmitry Galperin

Director of Investments

Runa Capital

Victoria Gracheva

PR&IR Director

iTech Capital

Alexander Kotov

Co-founder, CEO

Venture DataBase

Maxim Krasnykh

Director for Russia/CIS

Intel Capital

Demid Kuznetsov

Financial Director

iTech Capital

Evgeny Nikolaev

CEO

IBS DataFort

Mikhail Oreshin

Co-founder

Russian Cloud Computing

Professional Association

Victor Osyka

Partner

Almaz Capital

Marusya Podlesnova

Co-founder, CEO

Rusbase

Askar Rakhimberdiev

Co-founder, CEO

MoySklad

Sergei Ryabov

Co-founder, CEO

Miiix

Oleg Sidorenkov

Co-founder, Head of Development

BigBird

Igor Sidorenkov

Project consultant

BigBird

Mikhail Smolyanov

Co-founder, CEO

Megaplan

Alexei Solovyov

Managing Director

Prostor Capital

Mikhail Tokovinin

Owner

Qsoft

Page 36: Russian Venture Capital Market Report 2Q2013

Contact information

We are greatly interested in the opinion of our readers, so if you are an investor, a venture

entrepreneur or otherwise interested in Russia’s venture capital market, we will be delighted to

receive any feedback from you that will help us improve our reports.

Please send your feedback to [email protected]

Authors:

Arseniy Dabbakh

Director, Corporate Finance

[email protected]

Boris Orlovetsky

Analyst

[email protected]

Sergei Pigarev

Analyst

[email protected]

Andrey Tretelnikov, CFA

Analyst

[email protected]

Page 37: Russian Venture Capital Market Report 2Q2013

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