As Russia stumbles, entrepreneurs are flocking to fast-growing Southeast Asia

(Update September/30/2015: One paragraph of this article has been updated to reflect the fact there is no connection between the Skolkovo Foundation and HaxAsia, an international hardware accelerator program.)

I’ve been bumping into the occasional Russian person at our Tech in Asia conferences for a while now. And back in March, Russian VC firm Life.Sreda decided to move its headquarters to Singapore, which was when I realized it’s not a handful of people doing this – it’s a trend. Russian entrepreneurs and VCs are drawn to Southeast Asia.

This has been on the cards for years. You only had to follow the moves of legendary Russian VC Yuri Milner to see where he believes the music’s playing. Up until mid-2011, Millner’s VC firm DST Global invested only in Russia, Europe and the US. Then, in August 2011, Milner’s interest shifted. He didn’t start small, either: DST participated in a US$1.6 billion investment round in China’s Alibaba. Other major investments in China and India followed, including stakes in Flipkart, Xiaomi, Didi Kuaidi, and Ola. About half of DST’s global investments are in China, one of DST’s partners said in 2013.

The Russian brain drain is real

The obvious factor driving Russian big-ticket venture capital east is the business opportunity in mega-economies like China and India.

However, business alone doesn’t explain the growing Russian presence in Southeast Asia’s tech ecosystems, with distinct hubs emerging in Singapore and Vietnam.

It’s the recent political crisis in Crimea, a declining Russian economy, and the lack of opportunities for entrepreneurs that’s driving Russians away from their country. To startups and smaller sized funds, up-and-coming Southeast Asia is starting to look pretty attractive. It has a fast-growing population of roughly 600 million inhabitants, low living costs – and a warmer climate.

“This year, due to well known geopolitical and macro events, [the] Russian economy is experiencing a contraction, although the tech sector is affected less than other sectors of the economy […] Some investors and employees are looking at other opportunities globally,” says Dmitry Alimov of Frontier Ventures.

Frontier Ventures, along with Life.Sreda, are Russian-owned VC firms that recently turned to Southeast Asia. Sreda is looking specifically at fintech, having made its first Southeast Asian investment in Fastacash this year. Frontier’s first bet was on restaurant management tool Chope earlier this year.

Other funds with Russian VC involvement are DMP and Simile Ventures. They have both been active in the region for some years. DMP’s focus is broad and covers investments in fashion, adtech, and fintech. Simile invests globally in emerging markets and looks at digital media, mobile and consumer internet. It became an investor in Tech in Asia in 2012.

Russian venture capital has permeated the Southeast Asian tech industry across all verticals, and Russian startups may follow soon. Tatiana Kim from Simile Ventures says she doesn’t see a major trend of Russian entrepreneurs coming to Southeast Asia yet – they prefer the US or Europe – but that opportunities to raise money inside Russia are becoming scarcer. “There is less Western capital available […] the appetite has decreased.”

Russia’s new influence

Tech diplomacy

Russian diaspora