Pitch Johnson, one of the fathers of U.S. venture capital and an early proponent of Russian investing, has withdrawn his personal support from
Johnson says he pulled out because, “They didn’t want to do anything I’d call venture capital.”
Bioprocess Capital was one of three partnerships to receive financing from the Russian government through an economic stimulus plan called the
The RVC was set up in September 2006 to be a 49% stake holder in funds established to invest in Russian technology startups and was designed to mimic a stimulus program in Israel known as “Yozma” from several decades prior. The Russian government committed $500 million to the program in 2006, but upped its commitment to $1.2 billion in 2007. Johnson had a hand in shaping the program.
A separate venture fund that won backing from the RVC last year is still raising funds. The partnership between Russian bank VTB and
However, many investors lately have reconsidered their commitments to Russia. The country’s stock market is down 43.2% since the beginning of the year, due primarily to the drop in oil and natural gas commodity prices. The country also sustained bad press for its response to Georgia’s incursion into South Ossetia in August. But neither factor was an influence in Johnson’s decision to pull out of the Bioprocess Capital fund, he says.
“As the fund finally shaped up, with VEB in control, venture capital for startups and young companies was not high on the agenda, and investments in existing companies would be the primary activity,” Johnson says. “While we Westerners were listed as ‘experts’ in the application [to receive funds from the RVC], our venture skills are not being utilized and I don’t expect any further involvement.”
Bioprocess is still a going concern, but has certainly suffered a blow from Johnson’s pullout—or at least it would be if the firm were looking to do venture investing.
Johnson was an influential force in Russia’s development of a venture industry and had talked about the benefits of VC in the country as early as 1990. That year, Johnson gave a talk about entrepreneurship to the Leningrad City Council. Johnson recalls that sitting in the audience that day was City Councilman Vladimir Putin, who is now prime minister.
This is not the first time a foreign venture firm has pulled out of its participation in the RVC program. Israeli VC firm
Fishman pared back when Oleg Shvartsman, one of the Russian partners of Finance Trust, told a reporter that he used ties to government security officers to force private business owners to sell their companies below their market value. It reinforced the worst fears of foreign investors, namely that Russia was a lawless place to do business.
Fishman returned to Russia with a new partner in June 2008. It launched Tamir Fishman Russia as a $100 million fund with help from Central Invest Group, a Russian investment bank.
Johnson stresses that the people he worked with in Russia were “square guys and on the ‘up and up.’”