Baring Vostok, Cisco say ‘da’ to Russia

Baring Vostok Capital Partners, a private equity firm focused on making investments in former Soviet countries, has raised $1 billion for its fourth fund—more than twice the size of its $413 million fund raised in 2005.

The Moscow-based firm invests across sectors and stages, backing tech startups such as search engine Yandex, light industrials such as bottled water company Borjomi, and heavy industrials such as Syktyvkar Forestry.

Baring Vostok typically looks to take a controlling stake in the companies it invests in.

Previous investors in Baring Vostok funds include the European Bank for Reconstruction and Development, the International Finance Corp., OPIC Investment Funds, and the Pennsylvania State Employees Retirement System, according to CapitalIQ.

“Russia and the CIS [Commonwealth of Independent States] remain challenging markets in many respects,” says Co-Managing Partner Michael Calvey. “But the returns on investment are very attractive and compare favorably with most other countries or regions.”

One of Baring Vostok’s newest investments is in eCommerce site Ozon.ru. The firm backed the startup, often called the Amazon.com of Russia, as part of a $18 million investment round led by Index Ventures, with participation by Cisco Systems and Holtzbrinck Ventures. Baring Vostok already had a controlling stake in the company, which posted revenue of $34 million last year.

Ozon has had to adapt its technology and business model to accommodate the Russian market. Index General Partner Giuseppe Zocco says the company has built a network of couriers to deliver online purchases—a necessity when the Russian post office can take forever. He says the company has also had to overcome the lack of credit card penetration. Most of the purchases made on the site now are cash on delivery. “You have to adapt the whole payment system and logistics to the local reality,” he says.

Baring Vostok shares some common limited partners with Index Ventures, Zocco says, although he would not go into detail. One of Index’s LPs is Ozon co-investor Cisco. The networking giant is looking to invest in Russia and Eastern Europe as a limited partner and as a direct investor (see March 12 PE Week, Page 1).

Cisco is evaluating funds with Eastern European expertise to potentially invest as a limited partner, says Hilton Romanski, Cisco’s corporate business development director who specializes in global ventures and acquisitions. Romanski notes that the company plans to finalize LP investment decisions later this year.

Cisco envisions investing about $130 million in Eastern Europe and the emerging economies of Central Europe over an unspecified time frame, Romanski says.