Baring Vostok founder under arrest: The Russian tech investment community under shock

Editor’s note: This article from East-West Digital News was syndicated with permission.

US citizen Michael Calvey, a figure of the Russian private equity scene, was detained Friday in Moscow as part of a large-scale fraud investigation.

The news has put the Russian investor and tech community under shock. Calvey is the founder of Baring Vostok Capital Partners, one of the most established Russian private equity firms, which invested in some of Russia’s best tech companies.

Notably, Baring Vostok’s funds invested in Yandex, the Russian search giant, Ozon, a leading online retailer, at very early stages, as well as in classifieds leader Avito and enterprise software giant 1C. More recently Baring Vostok participated in funding deals for such important Russian tech firms as  2GIS,  Doc+BusforSkyEng, as well as French unicorn Blablacar.

In total, since 1994, Baring Vostok has put several billions of US dollars in more than 70 projects across a variety of sectors in Russia and other former Soviet republics. The firm has generally abstained from getting involved directly in Russian state-controlled businesses.

The other suspects in the case are French citizen Philippe Delpal, Baring Vostok’s Operational Partner for Financial Services, as well as Russian citizens Alexey Kordichev, Maxim Vladimirov and Ivan Zyuzin.

Confirming in a statement the arrest of Calvey, Delpal and two other employees, Baring Vostok specified the firm and “all the portfolio companies, including Vostochny Express Bank, continue to operate as usual.”

Deep Kremlin connections

The arrests revolve around Vostochny Express Bank (Orient Bank), a Baring Vostok portfolio company of which the US businessman is board chairman and owns the majority of voting rights, as reported by Bloomberg. A conflict emerged last year between Calvey and Artem Avetisyan, another shareholder, over control of the bank and its board.

Avetisyan is president of the Leaders’ Club, a non-profit association of “successful businessmen from all sectors across 40 regions of Russia.”

In 2011, President Putin appointed Avetisyan to head the “New Business” department of the Agency for Strategic Initiatives (ASI), a powerful body launched that same year to “improve the investment climate” and “foster new production technologies.” In 2015, he was awarded the “Services to the Motherland” medal by President Putin for his work at the ASI.

Illustrating his ties to the inner circles of Russian power, Avetisyan also heads the Russian (South-)Korean Business and Investment Council and is a member of an array of government-related organizations. These include the Russian Government Expert Council, the Public Council of the Federal Tax Service, the Public Council of the Federal Security Service, as well as the working group “for the protection of entrepreneurs’ rights” of the Prosecutor General of Russia.

Risks of business and image damages

These circumstances – combined with the excellent business reputation of Calvey and his firm – have fuelled speculations that Calvey’s detention may have behind-the-scenes implications beyond the shareholder dispute and alleged fraud. They have also triggered fears that the case could put another blow to Russia’s reputation in international business circles.

“There is no later-stage venture market in Russia any more, [Baring Vostok] being the latest big investor here by world standards,” commented Russian VC Konstantin Sinyushin in statements which appeared in Forbes Russia among other pessimistic investor interviews.

Calvey and Delpal have maintained their innocence, while Baring Vostok stated that the accusations against the firm’s employees “have no merit.” However, Kordichev, a former adviser to Vostochny Bank’s chairman of the board, has testified against the other suspects.

When learning about Calvey’s detention, Kirill Dmitriev, CEO of Russian sovereign fund RDIF and an adviser to President Putin, said: “I know Michael Calvey and his team at Baring Vostok as highly professional investors committed to the highest ethical standards. I am ready to personally vouch for Michael Calvey and believe that he has done a lot for attracting foreign investors to Russia and helped many Russian companies grow and mature.”

Image credit: RFE/RL

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