Non-resource ambitions: why the Evraz president's son preferred venture investments to metals

Alexander Frolov did not follow in the footsteps of his father and preferred international start-ups and online services to Russian metals and coal. What has Frolov Jr. already achieved? 
Origin source
In 2011, within the framework of St. Petersburg International Economic Forum of Philips and "Rosatom" we agreed on the localization of production scanners that can detect cancer in its early stages. Financing the Dutch were ready to take over, but on condition that the company orders. During the year, the project has not moved from the dead point, stalled in interagency coordination. Officials little interest in the establishment of high-tech production in Russia, but worried about the choice of Philips as the sole partner. They can be understood - it was then that began the prosecution of officials of the Presidential Administration Department for the "case of scanners" which resold hospitals three times more expensive than the market value.

The project with the scanners in the "Rosatom" Alexander Frolov worked Jr. He was full of enthusiasm, I wanted to do business in the real sector, and the work in the "Rosatom" in the field of nuclear medicine at first answered his expectations. A graduate of the Higher School of Economics Frolov wanted to show themselves and to succeed - he actedand activities on the free English negotiated with foreign partners. Starting from a leading specialist positions Program "Radiation Technologies", eight months later, he became director of the department "Nuclear Medicine".

After a failed project with Philips Frolov was a hope to solve another serious problem - to reorient the "Rosatom" with the export of medical isotopes to release them from domestic radiopharmaceuticals. Russia exported more than 90% of the isotopes as a raw material, but their products hardly produces.

But here in front of the son of the head of "Eurasia" appeared insurmountable barrier associated with the officials: there was no demand on the part of Russian pharmacists. Doctors are not subscribed radiopharmaceuticals as public health facilities do not allocate funds to support expensive radionuclide laboratories.

The second time leaning into the state bureaucracy, in 2012 Frolov gave up nuclear experiments and left to receive an MBA from the London Business School, and after learning decided to gain experience, to arrangeshis to the position of associate in the English venture capital fund DFJ Esprit. Before "Rosatom" Frolov has worked in the financial sector, he practiced for about a year in the company of his father, and then the same amount was an analyst for telecoms and IT-sector in the UK "Troika Dialog".

After seeing how the Western Venture market, Frolov in 2012 decided to create a fund and took other partners, Mikhail Lobanov, manages the assets of wealthy clients in multi-family office «Alfa Capital". They studied together at the School of Economics and worked in "Eurasia" and "Rosatom".

Friends organized a company Target Ventures (currently renamed to Target Global). The company with a capital of tens of millions of dollars from the beginning of the venture capital investments in Russia. The first transaction in the same year was online confectionery MixVille (in 2015, Target sold it), which invested about $ 1 million. In June 2013 a $ 2 million was invested in children online shop Babadu, and in 2014, Target has invested in the bulletin board property cyan and bought 49% of the service to organize events TimePad in the combined company "Afisha-Rambler-SUP», invested another $ 1 million. out of the Russians difficult projects. According to a source, the deal with Target to sell one of the Russian assets has resisted American technology company. The reason was the negative background because of the imposed in 2014 against Russian officials and sanctions companies. However, Frolov said that the current sanctions are not always stop factor for investment in Russia. In the near future it promises to announce several deals in the Russian venture capital market, which is interesting now because of the devaluation of the ruble - the difference in the evaluation of local start-ups in the B2C sector and counterparts in Europe can be three or four times.
Shipping Heroes

"There is one Fund of Russia, with whom it is precisely possible to take an example - it's DST Global. Partly, we like - at least called. It remains to be similar yield. We are working on it every day, "- said Frolov partner Lobanov. To achieve this goal, in 2013, Target has decided to make a sharp turn to the West and to reduce activity in Russia.

Investors have entrusted Frolov Lobanov and hundreds of millions of dollars. The site Target reported that currently have $ 300 millionod management. Names in the Target not disclosed, but according to Lobanov, they work with the family office and means of Russian and foreign investors. Venture capital managers, of Forbes surveyed believe that a significant portion of the company's assets may be shareholders' equity "Eurasia" (it does not comment in both companies). The main shareholders of "Eurasia" in addition to the father of Alexander Frolov's Forbes list of participants are Alexander Abramov and Roman Abramovich.

The attitude of Europeans to the little-known venture funds in Russia and to the sanctions was dismissive, but lucky Frolov. He was familiar with the managing director of Kite Ventures and former Director of Strategic Development SUP Edward Shenderovich, who worked for a long time with a successful venture incubator Team Europe in Germany and invested in his company. In late 2013 Shenderovich suggested Frolov invest in European aggregator for the delivery of food from cafes and restaurants Delivery Hero. "When there was an opportunity, we brought in the projects of our partners: first, ru-Net [Leonid Boguslavsky 57], then Target», - says Edward Shenderovich.

DeliveryHero had not been stellar company, although estimated at several hundred million dollars. Target money to her urgently need to campaign for Christmas. Frolov has decided to buy the company's debt of several million dollars, convertible into its shares. Since Target investments in German start-up company has grown through acquisitions - with her now operates 200,000 restaurants in 34 countries. At the last round of investment evaluation Delivery Hero was more than $ 3 billion, and this year the company planned to conduct IPO.

Getting to know the founders of Delivery Hero opened to Target market of German start-ups, and the company subsequently invested in them, together with Dmitry Falkovich Phenomen Ventures and Kite Ventures Shenderovich.

Frolov said that Target has invested in ventures natives of Delivery Hero. "This is a typical situation in the European market, where there are relations with the team, but in Russia this is practically no", - said Frolov. One of these transactions was the advertising service in mobile games Fyber. Venture capitalists have invested in the company about € 10 million, and as a result earned on the resale of the service companies RNTS € 150 million. Target received a yield of about 200%.

The company has already invested in two dozen startups in the B2C sector. One of the major projects (invested € 20 million) - an online service booking Dreamlines that is connected to more than 300 cruise companies from around the world. In addition to his fund invested in a platform for insurance Clark and rental housing Nestpick, online real estate agency MrMakler, cleaning service Book a tiger, travel planner Goeuro, video service SmartFrog. Among other projects - the American company Blue Apron, delivery ingredients for restaurant quality dishes (put $ 13 million), kraudfandingovaya marketplace for buying Realty Mogul property, two Israeli service - sale of gift cards Zeek and beauty-service MissBeez, as well as the club online store sector Discount luxury Achica.

Overall Target has invested more than $ 100 million in venture capital firms and continues to expand. The company has already opened offices in the United States, Germany and Israel. In Frolov and Lobanov, new partners - former Knesset Shmuel Shafets and Yaron Valler, both previously worked in the venture capital fund Hasso Plattner coosnovatelya SAP. Plattner Foundation, as well as Target, invested in Delivery Hero, Dreamlines and Fyber. According to Lobanov, with new partners the company will close a few deals in the field of financial technology - payment service in Israel and the British company, which allows customers to brokers receive a percentage of securities lending (repo).

American credit

Each partner is responsible for the area where it is most competent. More than 50% Target portfolio hold services at the aggregation and sale of goods and services (marketpleysy). A quarter of the investment represented fintehom, and the rest - software (SaaS) business. Frolov is mainly engaged marketpleysami, Waller and Shafets - and even of SaaS, and Lobanov - fintehom. Target is looking for companies that are growing at 100% per year and invests in rounds B, C and up from $ 1 million to $ 30 million and $ 200 000-500 000 for the seed stage and rounds A.

Apart from Europe and Israel, the company has big plans for expansion in the US, especially in the market of unsecured loans between physical persons (P2P-lending). According to Lobanov, American credit market is $ 2-3 trillion, and P2P-lending -. Only $ 18-20 billion, he believes that this market moa rise of 10, as the rates are lower than in banks, due to technology, lack of offices and lower staff costs.

Target has invested $ 13 million in one of the leaders of the American P2P-lending - Prosper, issued approximately $ 3.7 billion of loans. She also became a shareholder of the American management company Prime Meridian Capital Management, which manages several funds, engaged in P2P-lending ($ 130 million assets).

Runs joint project with Blackmoon Financial Group (BFG), the creators of which were former Vice President "VKontakte" Ilya Perekop and the ex-partner of venture fund Flint Capital Oleg Seydak, who previously worked finteh c-Victor Remsha projects in the "Finam".

BFG is a special service for P2P-lending market, which will be connected to Target customer accounts. Service examines applications for loans to non-bank lending markets, whereupon the platform at the expense of customers Target buys debt of American and European customers. Lobanov says it is a unique product that they want to get all the big investors - similar fixed income, but with incomeawn more than 10% in foreign currency and without the Russian risk. Seydak calls this product "purified Colombian financial asset" - BFG system configured successfully reduce default risks in the repayment of loans borrowers. The yield after commissions of more than 12% in euros.

This project will lead the company Target Asset Management, which is separate from the business venture. It plans to bring on managed accounts (management accounts) $ 100 million and take 1% for management and 10% of success. Now she is engaged in the business of algorithmic trading, which revolve millions of dollars. According to Lobanov, this business brought them more than 50% per annum in 2014, 2010 and 2013 - 30% and in 2015 - 15%.

In any case, the results and Target Asset Management business prospects look better than the performance of "Eurasia", the debt which is owed to banks and bondholders on the basis of 2015 amounted to $ 6.9 billion, revenue fell by 32.9%, to $ 8.8 billion at loss of $ 719 million, and the company has been working since 2011 with no net profit. "Evraz" reduces staff and capital costs. If it goes on, then maybe biznes Frolova Jr. may be more successful than his father's business. However, in contrast to Frolov, Sr. He had no problems with the initial capital.