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"With both domestic and international appetite for Russian corporate assets growing all the time, the exit markets are now quite fluid, which is one of the most positive changes for private equity in Russia" Ulf Persson, Mint Capital

Lesser mortals might have caught the first plane home after such a start but Ulf Persson, managing partner and co-founder of Mint Capital, is clearly made of sterner stuff. Some seven years later he’s sitting in Mint Capital’s plush Moscow offices – all blond wood and understated Scandinavian designer furniture – and if not exactly laughing about the dark days of 2000, then at least managing to summon up a wry smile. Then again he can afford to. He has already got his teeth stuck into his second fund and is beginning to think about the possibility of raising a third in the coming 18 months.

Although private equity investment in Russia has not exactly become a no-brainer, it’s a lot easier than it was in 2000 when Persson raised $25 million for Mint Capital I. "It was a venture into the unknown," he says, conceding that at the time all the elements of the investment fund were viewed in a negative light – the country, the sector focus, the investment class. Thankfully, he’d garnered support from a number of investors who had already invested in Russia and so knew the potential pitfalls and rewards. Among those who had faith were the founders of Sweden’s Oriflame, for whom Mint co-founder Fredrik Ekman had built a $100 million business in Russia and Ukraine. Mint Capital also received backing from Boeing’s strategic venture financing arm, which has a specific technology focus and so was comfortable with the investment projects that Mint was weighing up. Other backers included a mix of high-net-worth individuals and small institutions, principally from Scandinavia.

Persson says it took nine months to scramble together what in today’s Russian private equity market looks like pocket change. At the time, though, Persson admits, it was an uphill struggle to convince potential investors of the merits of his project. As a long-time Moscow resident – he moved from Sweden to Russia in 1990 – Persson boasts a long track record of operating in the country, having worked from 1990 to 1995 for Swedish group Axel Johnson sourcing metals and raw materials throughout the former Soviet Union and then from 1996 to 2000 for the Brunswick Group, where he was latterly managing director of the $300 million AIG and Brunswick-sponsored Millennium private equity fund. His partner and fellow Swede, Fredrik Ekman, boasts an equally impressive track record in Russia. Having first come to Russia in 1989 to set up Tetra Pak’s Moscow office, he then spent the 1990s establishing Oriflame as a leading cosmetics brand across the former Soviet Union.

As a result, nobody could possibly accuse the pair of being suitcase bankers. Given the relatively modest size of Mint I it’s no surprise that the average investment in the firm’s pioneer fund was just $2 million, with a focus on small and mid-sized companies, some little more than start-ups, with annual sales turnover of up to $20 million. Investments include Gameland, a multimedia company encompassing print media, internet and TV services for fans of sports, movies, business, computer gaming and cars that has grown to become one of Russia top-10 publishing houses; Abbyy, a world-leading developer of document recognition and natural language processing software; 2V Studio, a Russian TV producer of Russian language soap operas, serials and entertainment shows; ParallelGraphics, a developer of virtual manuals for equipment manufacturers such as Airbus and Boeing, and JnetX, a pioneer in standard-based telecom application server platforms.

"Almost all the companies in the first fund were built on intangible assets," says Persson. "Gameland is a good example, for instance, of a strong brand name in a fast-growing market."

Common goals

Persson says that there are three basic themes to the companies Mint invests in: first, they were founded by owners with a strong entrepreneurial streak; second, they are operating in industry sectors that are benefiting from domestic growth, whether consumer or corporate: third, there needs to be a strong alignment of interest between the fund and the owners. "As minority shareholders we need to have a common goal with the owners," says Persson, adding that evaluating so-called partner risk is a major element of the investment equation. "We might talk to a company for a year before we sign a term sheet and it’s only when you actually get to work with a company that you really get to know them."

When it came to raising money for Mint II in 2005, Persson says that it was easier to sell in one sense – "Russia was back in vogue and we were looking at a broader focus sector-wise." But while there were no problems selling the idea to high-net-worth individuals, it was a harder slog with institutions. "Institutional money was still reluctant to commit to Russia in 2005," says Persson. Encouragingly, though, he adds: "A very large proportion of the investors in the first fund are in the second one too."

After seven or eight years of easy growth, Persson believes that the corporate environment in Russia is becoming much more competitive and that for companies to be successful they will have to be able to distinguish themselves through the quality of the products and services they offer. "We want to be part of that process," he says, adding that increasingly the fund is looking to identify companies that are market leaders and have well-established brands. Companies in Mint II include Maratex, a holder of exclusive franchises for several international fashion brands in Russia, Kazakhstan and Ukraine, including Esprit and Peacocks; and electronic payments operator Elecsnet, which has a network of 1,500 terminals that enable users to top up mobile phones and debit cards or pay bills electronically.