Ziyaudin Magomedov invested in the hottest startups in Silicon Valley. How will this help his core business?

September 2013. Winner of three Grammy awards, Briton Seal performed several songs, put down his guitar and turned his gaze to the Caucasus Mountains. “I understand what your secret is, Ziyaudin! You are imbued with the energy of these mountains,” one of the participants in a private event in the Dagestan village of Shotota recalls the singer’s words. It was the second day of celebrations marking the opening of a representative office of the American startup incubator Plug & Play in Makhachkala, whose main sponsor was Ziyaudin Magomedov (No. 116 on the Forbes list, net worth $800 million). Shotota is Magomedov’s ancestral village. The opening was attended by the President of Dagestan Ramazan Abdulatipov, the head of the Ministry of Telecom and Mass Communications Nikolai Nikiforov, venture investors, including the founder of Californian Plug & Play Said Amidi, journalists and friends of Magomedov, including his longtime acquaintance Ruben Vardanyan.

Ziyaudin Magomedov made his fortune in the real sector. The Summa group, which he owns together with his older brother Magomed, is involved in logistics, oil trading, construction, telecommunications, and agriculture. But the Magomedovs became widely known when they began reconstructing the Bolshoi Theater. Ziyaudin has always been considered a businessman close to Dmitry Medvedev; it was during his presidential term that the Magomedovs’ business grew. But Ziyaudin also appears in political news reports under Vladimir Putin. At the end of August, opposition leader Alexei Navalny named Magomedov as one of the sponsors of the wedding of presidential press secretary Dmitry Peskov - Magomedov allegedly paid for a luxury yacht. Magomedov himself does not confirm this. But Peskova does not deny the fact of his son’s friendship with his daughter.

In the fall of 2015, Ziyaudin Magomedov again attracted the attention of the press by announcing investments in two of the most sensational technology startups of recent times - the online taxi service Uber and the high-speed transport Hyperloop. The businessman claims that he wants to import technologies popular in the West to Russia.

Ziyaudin Magomedov says that since childhood he was interested in technology, read “Technology for Youth” and discussed with the boys the differences between Soviet and American aircraft. “In my youth, there was a craving for inventions and innovation, but it so happened that in the 1990s we were passionate about creating a business,” recalls Magomedov. Like his older brother, winner of the All-Union Mathematics Olympiad, Ziyaudin entered the Faculty of Economics of Moscow State University and immediately plunged into big business.

The brothers and their cousin Akhmed Bilalov made their first money on domestic foreign currency loan bonds. In 1995, they became the main owners of Diamant Bank, and in the early 2000s, they became co-owners of the port of Primorsk in the Leningrad Region and partners of Transneft. Dagestan businessmen took part in the construction of the ESPO oil pipeline, and in 2010 they became co-owners of the Novorossiysk commercial sea port. Summa’s turnover then approached $1 billion.

In 2011, Ziyaudin Magomedov joined the APEC Business Advisory Council, which helped shape the agenda for the leaders of countries for the summit. It also included Oleg Deripaska and the head of VTB Andrei Kostin. “There were a lot of discussions about the WTO article on copyright and intellectual rights to technology. We wanted to make technology transfer simpler,” says Magomedov. This idea was never strictly spelled out in the final documents, but Magomedov was hooked.

In 2012, he went to Silicon Valley to study the strategies of successful venture capital firms like Accel Partners, Sequoia and Kleiner Perkins. He was most impressed by his meeting with PayPal founder and Facebook's first major investor, Peter Thiel. He invited Magomedov to his home in San Francisco, and they discussed the future of technology for several hours. “He's a real visionary. Even then, he outlined the main trends - artificial intelligence, voice recognition and robotics,” recalls Magomedov. Forbes was unable to contact Thiel, but private investor Igor Shoifot, who lives in San Francisco, claims that he is a very open and communicative person. “We all try to be open. Although it’s quite difficult to just come and get through to top managers. But if you have great success or wealth, the chances are much higher,” explains Shoifot. According to Magomedov, he still communicates with Thiel and attends meetings of venture investors, which he traditionally organizes in March and August.

In October 2011, Said Amidi, whom Magomedov met in California, came on a return visit to Moscow. PayPal and Dropbox once started in his business incubator. Amidi opened a Plug & Play dealership a five-minute walk from the White House. At the opening were IT entrepreneurs Andrey Romanenko (Qiwi), Sergey Belousov (Parallels) and David Yan (ABBYY). The partner of Moscow Plug & Play was the Global Venture Alliance, little known on the Russian venture market, a project of Magomed Musaev, the former general director of VDNKh and the son-in-law of the President of Dagestan. As Musaev told Forbes, he and Magomedov traveled to Silicon Valley together.

“It wasn’t just a sign, we really worked closely with Plug & Play and sent Russian startups to California,” Arkady Moreinis, who headed the incubator until April 2013, tells Forbes. He explains his departure not by conflict, but by disappointment in the operating model of traditional incubators. In the same 2013, the Moscow Plug & Play closed, Musaev continued working with startups, opening the GVA Launch Gurus Academy, where experts invited from the United States teach Russians how to create a business.

But the Plug & Play brand appeared in Makhachkala. Are there many startups in Dagestan? “The people there are enterprising and there are a lot of talented young people, but the environment is somewhat toxic,” explains Magomedov. According to him, he wanted to shake up young guys by directing their energy into the high-tech industry; this project had nothing to do with the Moscow one. The incubator was located on the territory of the Dagestan State Technical University (DSTU), and its head was Muscovite Mikhail Blank, who previously worked in PR at the Internet agency “Dalee”. “I was amazed that he almost immediately agreed to go to Makhachkala,” says Magomedov.

Magomedov does not disclose the amount of investment in the business incubator. For him, this is more of a charity - the project is supervised by Magomedov’s private charitable foundation “PERI”. “I am glad that such projects are being launched in the regions. This is very important for young people, there are opportunities for development not only in Moscow, but also in other cities of the country,” says Ruben Vardanyan, who has known Ziyaudin since 1988, when he came out of the army (Vardanyan was Magomedov Sr.’s dorm roommate ).

By October 2015, Plug & Play Dagestan had studied 500 applications, 30 startups became residents. As Blank says, applications come not only from DSTU students, but also from two other Makhachkala universities, from scientists and entrepreneurs. Startups from neighboring regions are also applying for places in the incubator. What projects are included in the incubator? Most of the applications come from Internet projects related to e-commerce, social networks and geopositioning, but there are also other business ideas. “In Stavropol they came up with a syringe that can be folded like an accordion. And local academics figured out how to get energy from algae,” says Blank.

There are also projects with local flavor. For example, Eldar Klychev’s project - a touch mat for prayer, which helps not to lose count of rakats (elements of prayer) during prayer, was approved by Sheikh Abdulkerim, one of the commission members of the Standing Committee on Scientific Research and Economic Affairs of Saudi Arabia. And recently, a startup team from Kazan, which makes a marketplace for halal goods, stayed in Makhachkala for two months. “There are interesting projects there. They can definitely get their audience, especially in the region,” Lyubov Simonova, senior analyst at the Almaz Capital fund, shares her impressions of the trip to Dagestan.

Venture investors and IT experts often visit the incubator and give lectures to residents. “We are not chasing investments. We understand that most of our projects cannot yet compete on equal terms for the attention of investors with startups from Moscow. For now, this is rather an educational project,” explains Blank. In June 2014, seven Makhachkala startupers went on an internship to California. There were more invitations from Plug & Play, but some entrepreneurs had problems with visas. A new tour is now being prepared. “We are also working on a backup option. If we can’t get US visas, we’ll go to China,” says Blank. Plug & Play is no longer the main partner of the incubator; since March 2015 it has been called “PERI Innovations”. As Magomedov explains, the sign was changed in order to be able to work with other accelerators. Blank adds that early on it was important to have access to experts, but now “we can bring them in ourselves.” If an interesting project appears in the incubator, Magomedov is ready to invest in it himself through his venture fund Caspian VC Partners.

The fund has existed for a year, but it became known only in September 2015. Coincidentally, a couple of weeks after the story with the yacht for Peskov.

The fund is ready to spend up to $300 million on startups; Magomedov assures that all the money in the fund is his. The businessman admits that, as a venture investor, he does not have a success story behind him to take on partners’ money under management.

The fund is managed by William Shore, who was previously responsible for technology in the Summa group. Before that, he worked in several banks and funds, for example, he was involved in investments with Viktor Vekselberg’s Renova. According to Shor, both he and Magomedov made personal investments in startups even before the formation of Caspian - this is how they made acquaintances among venture capitalists. “This is a business that is based on personal relationships and contacts. The networking effect is very important here,” explains Shore. For example, the first investment of the Caspian fund was the Peek service, through which you can order excursion or sports tours. The founder of the TPG fund, David Bonderman, offered to participate in the next round. “We invested together with him. He highly recommended the team that makes this startup,” says Shore. According to Crunchbase, Bonderman participated in a round in April 2013, when the startup raised $500,000 from several investors, including Twitter co-founder Jack Dorsey and Eric Schmidt, chairman of Google. A Caspian representative says they invested at the end of 2014. Magomedov does not disclose the amount of investment in this company, but claims that his share is now worth several times more.

In addition to Shor, Caspian currently employs two analysts. As Shor says, all projects go through an investment committee and decisions on investments are made collectively. Magomedov has the right of veto, but so far he has never used it.

The main task, like any venture investor, is to catch a unicorn (as in Silicon Valley they call companies that quickly grow to a valuation above $1 billion).

Among the projects in which he has invested, there is, for example, the Californian manufacturer of synthetic diamonds Diamond Foundry. “I was at their production site. They take a diamond, cut it, build it up. These are not artificial diamonds. De Beers has a similar project, but here both the technology and the prospects are more interesting,” says Magomedov. He also liked the founder, German Martin Roscheisen, who sold his previous startup for $720 million. The company wants to concentrate on diamonds of 1-2 carats. According to Magomedov, this opens up a gigantic market for her - in China and India, few people can afford larger diamonds. In addition, synthetic diamonds can be used in industry.

Caspian also invested in the most sensational startup in Silicon Valley - the online taxi service Uber, as well as in Uber China, where the main owner is the Chinese search engine Baidu.

The fund does not disclose the volume of investments in Uber. “I was offered to invest in Uber when it was worth another $2.5 billion, but we didn’t invest then,” says Magomedov himself. He invested in the first half of 2015, when Uber’s valuation exceeded $40 billion. Uber representatives told Forbes that there were no direct investments from Summa, but they found it difficult to answer about Caspian’s investments. As Pavel Cherkashin, managing partner of the Vestor.in Partners fund, explains, you can invest in Uber with a capital of $50,000 through syndicates, and the founders may not even know their investors. “This is what many funds do at the start, “buying” their reputation through participation in high-profile projects, albeit with scanty returns,” says Cherkashin.

Ziyaudin Magomedov celebrated his birthday in September 2015 in Makhachkala: he held a robot ball, talked with young entrepreneurs, and gave each participant in the event a book about Elon Musk, the main ideologist of Tesla and SpaceX. He spoke with Musk personally for only 10 minutes. But he invested in his new project - the development of ultra-high-speed transport Hyperloop. If the technology is implemented, loads will be able to move in a vacuum tube at a speed of 1000 km/h. “This will definitely kill cargo and air transportation at a minimum,” Magomedov says admiringly about the project.

Another Uber investor, Shervin Pishevar, founder of the Sherpa Capital fund, suggested that Magomedov invest in Hyperloop. In February 2015, Caspian, together with Sherpa Capital and Zhenfund, invested $11.1 million in Musk’s project. “We have a significant stake in Hyperloop, but we will continue to increase it,” says Magomedov. Hyperloop is currently raising a new round of investment worth $80 million, and Caspian intends to participate.

Why invest in a project whose description borders on science fiction? The businessman assures that he wants to bring technology to Russia. In addition, the Fesco group, part of Summa, specializes in logistics. Magomedov draws prospects: only 1% of global cargo traffic transits through Russia, and using Hyperloop technology, it will be possible to deliver containers from Asia to Europe literally overnight. “This story will reshape the role and participation of seaports in cargo transportation,” explains the businessman.

So far, most intercontinental cargo transportation takes place by water, and prices for such services have fallen significantly - according to Magomedov, delivering a container from Asia to Europe costs $800–900. “Through Hyperloop it will be somewhere around $2,000. And very few goods transported in containers require such speed of delivery,” he admits. The Hyperloop test section near Los Angeles, 6 km long, should be built by 2017. “The project includes a cost of $12 million per kilometer. This is much cheaper than the Adler-Krasnaya Polyana railway,” says the businessman.

Magomedov will have a place to test the technology. Over the past few years, he has been actively involved in the development of the Far East - he is building a port there, sponsoring a local hockey club, and intends to open a business incubator, like in Dagestan.

He has already received a bonus from participating in the Hyperloop project: it is now easier for him to explain who he is to investors in Silicon Valley. And new friends are new investments.

Transportation of technologies