Tuesday, October 9, 2007

Investing in Russian IT Companies - Useful Tips From Experts

Due to relatively low competition, the interest of investors in Russian software and innovation companies is growing despite the potential risks and the reason is simple: the return on investment (ROI) could be quite outstanding. Many analysts believe that presently the Russian market lacks local companies with original developments, while those which have unique products or services are already acquired. As CRN reports , the growing demand for IT products in Russia from small businesses and ordinary people substantiates rapid development of the Russian IT sector.

Here are some common principles that are crucial for investors success:

If you are a potential investor, it will be very important for you to look at some existing cases and make conclusions as to which filters or criteria you would use to identify strong cases. Venture fund gurus, like Mr. Martinson of MartinsonTrigon identified a few problems on the IT segment of the market in his interview for a CRN article , including:

-- While Russias foreign investors mainly look into mature and profitable companies, Russian companies do not necessarily understand that a good investor is not about money, but rather a complex deal when it can provide some real assistance and support.

-- There is a tight competition among VCs in Russia for the best companies. Therefore, it may seem that in the Russian IT industry there is extra capital floating. In reality, on the contrary there is a deficit. Today the investors choose where they want to invest and not otherwise.

-- There is a need for investments to the second and third echelon companies, which would facilitate the development of the industry sector.

-- Another problem is poor preparedness of the companies themselves for receiving the investments. A majority of the companies have huge confusion in accounting and bookkeeping.

-- In the next two years almost all of the IT sector will be developing fast, but the most probable investment segment should be Internet technologies and services, mobile services and software export. The venture investment turnover in Russia may reach USD 100-150 million per annum. This will be a good growth compared to an average USD 50 million investments in 2005.

Notes from History:

Put field Marshall KUTUZOVs strategy to work: go for a long-term investment, rely on your partisans (local partners), endure some bumps in the road, and you will defeat the Napoleon of doubts and pessimistic media critics. Or, as Ivan Andreyevich Krylov, Russias own Aesop of the 19th century, put it in one of his tremendously popular fables of the time, a Vaska slushaet da est - (The cat Vaska is listening, yet still eating). He refers to a smart cat that listened to the cries of the chef who found him devouring a nice piece of meat from the kitchen, but kept eating anyway. So, listen to the critique critically, even give some unhappy interviews if you wish, but keep the meat!

Find out more about investments to Russia in my upcoming book "Riding the Russian Technology Boom" (www.russia.futuretext.com).

Dr. Andrey Gidaspov has over ten years of experience in business consulting in the IT and telecom (ICT) fields in Russia, CIS and Asia. Andrey has sealed deals for hundreds of American companies with Russian and CIS partners, ranging from start-up businesses to large multi-national corporations throughout Eurasia. His past clients include well-known technology leaders such as Motorola, Harris, Tekelec, Oracle, Corning, Tellabs, Qualcomm, Net2Phone, Nortel, Andrew and many others.

In September 2004 Andrey opened his own consulting business, Gidabyte (www.gidabyte.com), based in Hong Kong, China. The company provides a wide range of business consulting in the ICT sector for international companies in Eurasia and Asia Pacific. GidaByte's bi-monthly newsletter "GidaScope" has become an instant success (www.gidabyte.com/newsletter) among various businesses interested in doing business in Russia. Andrey recently authored his first book - "Riding the Russian Technology Boom" - which will soon be available on Amazon. See more info about the book at: http://www.russia.futuretext.com