When David Jones worked in San Francisco, his home had a view of the bay; now his residence overlooks a car park in Moscow. It’s surprising that anyone would elect to make such a startling change in lifestyle or indeed climate. What is even more puzzling is that someone with over 20 years’ venture capital experience in the US would want to head a private-equity firm in Moscow, funding Russian start-ups.
For Jones, president and CEO of Delta Capital, the answer is simple: being a venture capitalist in Russia presents the most exciting opportunities, particularly to serve the vast untapped consumer market outside Moscow and St Petersburg. “In Silicon Valley, if someone said you had a guaranteed market and all you had to do was develop the product and secure distribution, that would be a dream,” he says. The scope is also far larger for Russia’s first generation of entrepreneurs. “A good management can build a national company,” he adds.
Delta Capital was set up to manage the investments of the US/Russia investment fund launched to help the Russian Federation in its transition to a market economy. So far, it has invested $200 million in Russian companies and focuses on financial services, telecoms, media and technology, and consumer goods distribution.
Before taking the job at Delta, Jones was president of Clarendon Capital, a US investment banking and consulting firm. Jones says that there are more similarities than differences between the Russian and US private-equity markets. “The biggest problem here is the economic, legal and judicial infrastructure. Understanding how you get things done is murky.”
Jones develops investment ideas by deciding on an attractive market and hunting down an entrepreneur to run it or finding an entrepreneur with a promising idea and helping to develop it. “I met a 30-year-old Russian who was fluent in English selling toothpaste and other toiletries from the back of his Volga from kiosk to kiosk. He had a great idea for developing retail distribution, so we helped him do it.”
Unafraid of risks
The Russian start-up market is not for the faint-hearted but Jones is not afraid of taking risks. In 1981 he left his job at Citicorp Venture Capital to co-found his own Silicon Valley venture capital firm, Dougery, Jones&Wilder, so he has experience of developing a successful start-up.
In any case, Delta Capital insists that its companies adhere to international standards of corporate governance. This sounds like a tall order, but Jones says that the most successful way of achieving transparency is to develop strong relationships. “In our companies, it’s quite usual for investors to require that the CEO reports to us,” he says. “You have to say what is the level of trust? It’s when people are afraid to expose things that it becomes problematic.”
A bigger challenge is overcoming Russian misgivings. “People are still not that comfortable with foreign funding – the population has a lack of information about economics and when we get involved in a well-known company the local press start writing stories about how we are getting involved to asset-strip. There is still a perception that capital is evil.”
Nevertheless, the strategy is working. Since the beginning of 2001, Delta has developed five companies sufficiently to sell them on. One of its biggest successes has been its own branded financial services companies – DeltaCredit, DeltaLeasing and DeltaBank. DeltaCredit pioneered mortgage lending to a population still starved of long-term consumer finance. “These will be sold in around two years,” says Jones. “There’s a limit to what you can do when it has become a national business.”
Jones has high hopes for Russian private-equity. “It’s becoming more sophisticated – a lot of money is coming out behind the scenes. It won’t look like western VC, it’s just from smart people who know the market.” However, he thinks that within four to five years half a dozen local and foreign firms will dominate. It’s likely that David Jones will be heading one of them.
