Fort Ross Ventures looks like a typical venture capital firm. It was created about seven years ago in Silicon Valley with a focus on funding young companies. The founders named it after the first Russian settlement in the U.S., a nod to their heritage and to one of the firm's largest backers, Moscow-based Sberbank PJSC.
Today, Russia is waging an unpopular war against Ukraine, and Sberbank is subject to crippling sanctions by Western nations. The other investors whose money is tied up in Fort Ross Ventures are, naturally, “very concerned,” said Victor Orlovski, a founder and managing partner at the firm.
Investors “are calling and asking, ‘Victor, what do we do?’” Orlovski said. “My answer is simple: If an investor becomes toxic, we will immediately isolate them from the other pool of investors.”
In recent weeks, global businesses have rushed to dump Russian holdings, and are ceasing operations in the region. But for venture firms that have accepted funds from Russian investors, de-linking from the country is a thornier imperative. Rubles may be part of a much larger fund, and in some cases, may already have been committed to startups. And because so many family offices of Russia's wealthy are based offshore, it’s not immediately obvious what cash came from an oligarch. Many VCs aren't required to disclose who their investors are, so it’s hard to know which investors and startups are awash in Russian money.
Aside from handing out cash to venture firms, Russian investors last year also poured $9 billion directly into startups across 232 deals, the vast majority of them taking place outside of Russia, according to data collected by research firm PitchBook. That total is triple the amount Russian investors spent in 2020.
Recipients of that money may now find themselves uncomfortably exposed to the country. Since the breakout of the war, some startups and VC firms are turning down deals with Russia-linked investors and companies. Meanwhile, in the opaque world of startups and venture capital, previously undisclosed ties now seem problematic.
When it comes to Russian investments in tech, “my guess is there’s a lot out there,” said Jeffrey Stein of financial crimes research service Deep Discovery. The norm has long been that if a Russian investor is “not on the sanctions list, it’s all go ahead,” he said.
Some links between Russian investors and U.S. businesses date back to early in the Obama administration, during a more optimistic time for relations between the two superpowers. For example, in Obama’s first term, Silicon Valley firm DCM accepted backing from Russian Venture Capital, an arm of the Moscow-based Russian Venture Company. Around the same time, Bay Area-based venture firm IVP also took an investment from Russian Venture Capital.
Now, the Russian Venture Company is subject to the strictest form of U.S. sanctions. A spokeswoman for DCM declined to comment. A spokeswoman for IVP said the Russian firm invested in two of its funds, both times committing less than 1% of the total capital of the fund. She also said that IVP is consulting lawyers about how to abide by all applicable sanctions and regulations.
To avoid the reputational and financial risks of having a business partner wind up on a sanctioned entities list, some VC firms are now steering clear of Russian money even when they’re not required to. “As far as Russia is concerned, we are taking steps beyond simply complying with all international sanctions,” Index Ventures, with offices in London and California, said in a recent statement. “We are therefore committing not to make any investments in Russia until further notice.” The firm also said it would not take on any Russian investors and that it would support its portfolio companies trying to cut ties with the country.