Russian conglomerate Sistema is looking to launch a second Asia fund in 2020, building on the knowledge gleaned from investing in India’s booming venture capital market.
Sistema, which has interests ranging from Russia’s largest mobile telephone operator MTS to children's goods retailer Detsky Mir, is looking to scale its Asian investment business.
It is targeting $1 billion of assets under management within five years, Vsevolod Rozanov, the chairman of Sistema Asia Capital, Sistema’s VC arm in Asia, told FinanceAsia in an interview.
Sistema Asia Capital focuses on minority investments in mid-stage consumer and enterprise tech startups in India and Southeast Asia. Its first $120 million Asian fund has already deployed more than $60 million across 11 deals including in dark kitchen startup Rebel Foods.
Sistema’s debut Asia fund made its first exit in March after selling a stake in Bangalore-based gift card company Qwikcilver, making around two times its money within three years of its investment, Rozanov said.
Sistema is now gearing up to launch a slightly larger second fund of $150 million to $170 million.
“The tiger is getting ready to jump,” said Rozanov smiling when asked if Sistema has any deals lined up for its second fund.
Amassing capital for the second fund is likely to be easier given the successful exit of Qwikcilver. The first fund has a current IRR of 24%.
Funds for Sistema’s new Asian funds will likely come more from within the Asian region said Rozanov. When Sistema marketed its first Asian fund the team found that interest in Asian venture capital was limited among Russian investors.
“Russian interest in Asian investments is only emerging,” said Rozanov during the interview at Sistema’s Moscow headquarters
Generally, he found that Russian investors don’t have an appetite for lengthy lock-ups and want to see a faster turnaround on their capital than VC funds commonly offer. Sistema’s first fund had a lock-up of around a decade, which was still aggressive compared with other Indian funds of around 12 years.
BET ON ASIA’S MIDDLE CLASS
Sistema, which groups the assets of Russian billionaire Vladimir Yevtushenkov, made its initial foray into the Indian telecoms market through a joint venture with Shyam Group which was relatively unsuccessful. Sistema merged its Indian telecoms business with Reliance Communications in 2017.
The Russian firm, however, made valuable contacts among Indian entrepreneurs who are building companies looking to cater to the country’s burgeoning middle class.
“These ideas are not scalable outside India, but India is such a big market and the middle class is growing so fast that it actually makes sense to cultivate these companies,” said Rozanov, who was previously a senior executive at MTS and Bain.
He thinks that the market will withstand the impact of trade wars. “The growth of the middle class is mostly related to internal demand,” he added.
To capitalise on its knowledge of the Indian market, the group set up Sistema Asia Capital in 2015, initially as a proprietary fund, then gradually bringing in co-investors from India and Russia.
In August, Sistema’s Asia Fund announced its third investment in Indian lending startup LendingKart. The fund also participated in a $30 million fundraising round by online meat and seafood purveyor Licious, its second investment in the company, and speech recognition software firm Uniphore.
“[The remaining companies in the first fund] all have prospects, and at this stage, we're not discussing exiting,” said Rozanov.
Looking to consolidate its position in India, Sistema opened an office in Banglore – India’s Silicon Valley – earlier this year. The firm also has a Delhi office.
Sistema is now looking to expand in Southeast Asia. Sistema Asia Capital registered with Singapore’s Monetary Authority in 2015.
It is also helping other Russian companies market their products in Singapore and help Singaporean companies navigate Russia. In September, it signed a four-way partnership agreement with MTS, Enterprise Singapore Agency and Skolkovo Foundation to introduce technological solutions offered by startups into the Russian and Singapore markets.
“We are able to become a bridge,” said Rozanov. Sistema will have the rights to co-invest alongside these companies as they enter new markets.
With assistance from Elizabeth Utley and Xinlan Zeng