KUNA CAPITAL, A NEWLY FORMED RUSSIAN VC FIRM, RAISES $10 MILLION TO MAKE VC INVESTMENTS IN RUSSIA A REALITY

The Russian government has big visions of creating a technology capital that rivals Silicon Valley. But it will need some investors who think small to make that happen.

That’s where Runa Capital comes in. The venture firm has seeded the first of what it says will be more than two dozen investments in its quest to commercialize innovation across the country.

“I have warm words for my investors,” said Andrey Vasilevsky, the serial entrepreneur who scored Runa’s first $2 million investment for his newest venture, OnAir3G. The 10-person Moscow company will provide a service for smartphone users that will use VoIP, global positioning and some elements of social networking. OnAir3G will use the money to hire another 20 employees and launch during the second quarter of 2011.

The funding is significant for OnAir3G, as well as for Runa - this is the first of several funds the firm hopes to raise - and for the crusade launched by Russian President Dimitry Medvedev earlier this year to establish technology as an economic engine for the country.

Medvedev hopes to replicate Silicon Valley in Skolkovo, a suburb of Moscow, and is crafting plans now to combine that potent cocktail of innovation, business expertise and funding that has created so many tech titans in the U.S. Runa partner Alexander Galitsky is also on the Skolkovo advisory board and has discussed Runa opening and operating a tech incubator in Skolkovo, according to Runa Managing Partner Dmitry Chikhachev.

The effort by Medvedev is seen as a shift away from Russia’s oil and gas economy, which has taken a hit in recent years, and back toward the country’s traditional strengths of science, technology and mathematics.

“Russia has a great culture of innovation and technological mastery. Our technology is very competitive,” said Chikhachev. “The problem is Russia is heavily underrepresented in the seed and early-stage areas. It’s difficult to get institutional investors. It is too risky for them; there is venture risk, country risk and the risk of the first fund.”

That’s why Runa Capital, at least for now, is more like a band of super angels than a traditional VC firm.

Chikhachev, a serial entrepreneur and business executive who carries Masters degrees from both the Moscow Institute of Physics & Technology and the American Institute of Business and Economics, began working to form Runa in October 2009. He connected with a handful of serial entrepreneurs and technology veterans, raising most of the fund’s initial $10 million.

Just as importantly, he convinced top Russian talent including Serguei Beloussov, who has founded 10 start-ups including Rolsen Electronics Inc., Parallels Inc. and Acronis Inc., and Alexander “Sasha” Galitsky, an investor, serial entrepreneur and former head of digital communications for several Soviet space programs, to lend their expertise to entrepreneurs along with their cash.

Chikhachev said he has another $10 million in soft commitments to Runa’s first fund from other investors and expects to raise an additional $30 million before closing. He aims to invest $1 million to $2 million in roughly 25, early-stage, pre-revenue tech companies between now and the end of 2012.

“Hopefully, this will go well. We want to demonstrate a 10x return, build a good team and have a good track record,” said Chikhachev, adding he will explore raising another fund in three to four years.

Although Runa will focus exclusively on Russian technology - the company tagline is “Globalizing Russian Innovation Potential”   the companies it backs can be based anywhere.

It has seven companies in its pipeline that it is looking at now, four of which Chikhachev said have a 90% chance of being funded.

COMMENTARY:  Runa Capital is small-time bananas when compared to Blue Sky Technologies, the Russian VC firm that has planked $200 million into Facebook, and thinking of planking down even more.  

I have no way of gauging who well Runa will do in the future, $10 million is not a large enough war chest.  They just invested $2 million into OnAir3G, so this leaves $ 8 million.  Kuna's founder does offer that they might raise another $30 million in "soft" investment for their fund.  

Russian startups have far too long turned to the West for funding, but their crooked system of government, including kickbacks and bribery, the Russian mafia, not withstanding, has made it difficult for U.S. VC firms to have sufficient confidence to make investments over there.  The risk is just too high.  

I was surprised that the U.S. Department of State actually sent a delegation of American investors to Russia, joined by California's Governator to evaluate investment opportunities.  From what I read, this was one huge waste of time due to political in fighting between two Russian organizations to lead the investment mission.  

Courtesy of an article dated November 27, 2010 appearing in The Wall Street Journal's Venture Capital Dispatch

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