Since the war in Ukraine began a year ago, Russian techies are leaving the Motherland – whether employees or company founders packing their company’s bags. Some had no choice.
Most of the companies that have left are lying low. The on-background gist is that they are treated fine in their adopted homelands. Very few are taking the war out on them. They even get along with Ukrainian techies, so I hear. They’ll tell you that they are international companies first and foremost.
Russia might as well exist on another planet for some commercial partners, so they are ensuring they can continue doing business with their core markets by leaving.
The leaving continues, even as Russia’s economy handles sanctions and the pressures of war better than anyone had anticipated.
IT techies were one of the first to go. Video game developers were next. Their market is global. Operating that from Russia was becoming too much for some.
Vladimir Nikolsky co-founded one of four game developers that opted out of Russia. He founded My.Games about a decade ago, sold it to Mail.ru Group (best known as VK), and became an executive there. In September, VK sold My.Games to Cyprus-based venture capitalist Alexander Chachava, in a deal valued at $642 million.
Then, in December, My.Games joined game labs Playrix, Wargaming, Nexters and Belka Games – all gone from the country where their companies were born. My.Games has no legal home in Moscow anymore. Nikolsky is back at the helm, under new ownership, and runs it from offices in Amsterdam and another warmer office down south in Cyprus.
“We are now 100% focused on non-Russian markets,” says Nikolsky, adding that the Amsterdam move was being considered before war broke out in February 2022. Now the move looks somewhat genius.
One of their biggest console games is Skyforge for the X-Box and PlayStation systems. It was developed in collaboration with California-based Obsidian Entertainment in 2017.
It’s not the only collaboration My.Games has with large Western tech companies. The video game developer intends to launch its third season of GameDrive, an accelerator program it co-operates with Google
Russian tech guys are everywhere, but Russian publishers are mostly all tapped into the U.S. and China for the gaming industry. That’s their market.
My.Games’ main markets are the U.S., Germany and the U.K. More than 80% of its revenue came from outside Russia before the restructuring last year, and now it will no longer be earning any revenue from Russia.
If Russian companies and their entrepreneurial class want to grow beyond Russia’s borders, they will have a harder time doing so from Moscow and St. Pete.
The ever-increasing video game market is bigger outside of Russia. Staying inside keeps game companies vacuum sealed from the global gaming market.
Nikolsky says the company is considering setting up a regional hub in the Middle East, after already setting up regional coworking hubs of game developers in Turkey and Armenia.
According to Abu Dhabi-based Shorooq Partners, the whole Middle East region has nearly twice as many gamers as in the United States.
“We can grow by expanding into new markets and new business lines,” Nikolksy says. “We don’t need to buy companies just to add incremental EBITDA. But we will be reviewing interesting options from here in Europe, including M&A, if it can help us create the best video gaming experiences and creates an environment that facilitates the growth of our game developer teams that are all over the world, and have been since the pandemic started in 2020.”
Deloitte predicts that in 2023, mergers and acquisitions in the video game space will increase by 25% as companies seek to buy into already-developed audiences and acquire new intellectual property, copyrights (like game titles) and developer talent.
U.K-based asset management firm Goodbody recently wrote in an equity research note that “2022 was a year of normalization in video gaming as players had other alternatives post COVID lockdowns with the added impact of regulatory constraints (in China),” but added that they have a positive outlook for video game producers this year. Goodbody is forecasting 5% revenue growth for global game makers, most of it dominated by the big, A-list console games like Fortnite.
Nikolsky says My.Games beat the global video games market in terms of growth. He says they saw a double-digit compound annual growth rate over the last few years from Russia. “Great games will always be in demand regardless of market dynamics,” he says.
According to HackerRank, China and Russia have consistently produced the crème of the crop of video game developers and programmers.
Remote work will be the saving grace for some Russian companies.
“Remote work opens up a lot of opportunities for us,” says Nikolsky. “We’ve gained access to a large pool of talent across the globe.”
Russian game developers that wanted to leave Russia could leave. Still, those who wanted to stay and work for international companies find it more complicated than before the Ukraine war.
“Because of the sanction environment, global banks, vendors, and business partners are extremely careful in dealing with Russia-based or connected counterparts, and always ask a lot of questions,” says Neri Tollardo, a former Italian executive at Tinkoff Bank in Moscow, now setting up a new fintech company in Mexico after leaving Russia in mid-2022.
Tollardo said banks do not process or accept payments in and out of Russia, and often times global counterparts have self-imposed compliance standards that are stricter than existing sanctions laws.
“Russian companies and executives with international ambitions must do it from anywhere that is not Russia,” Tollardo says.
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