Russia Leads $700m Investment In Plastic Logic
By James Mawson
A consortium of Russian investors, led by a state-owned company, is to make one of the world’s largest venture capital investments, $700 million, in the controversial Plastic Logic Inc., a U.S.-based maker of semiconductors based on plastics rather than traditional silicon.
Georgy Kolpachev, managing director of the state-owned Russian Corporation of Nanotechnologies (Rusnano), said in a statement: “We are making an unprecedented investment of close to a billion dollars in the future of plastic electronics to help create one of the largest commercial centers for it in Russia.
“This investment signifies the potential that we see in the future of plastic electronics across a variety of commercial and consumer products.
“Flexible plastic electronic displays will provide another major milestone in how people process information. Entering this new disruptive segment at the stage of its inception gives Russia a chance to win a leading position in global market of future electronics.”
The Plastic Logic commitment will see Rusnano invest an initial $150m and provide partial guarantees for a further $100m of debt in order to have a fabrication plant of plastic electronics to be set up in Zelenograd, just outside Moscow, Russia.
Failed to launch the Que
Some of the money will go to pay off a $50m loan, which the company needed after it neared financial collapse following its failure to launch its first product, an electronic reader called the Que, in April. The Que was previewed to good reviews at the 2010 Consumer Electronics Show, but production difficulties at Plastic Logic’s factory in Dresden, Germany, and the success of Apple Inc.’s iPad mobile device forced a delay. The production difficulties, which involve reliability of the electronic displays being produced based on the plastic semiconductors and making enough effective transistors per batch, are being resolved, Plastic Logic said.
U.S.-based venture capital firm Oak Investment Partners is investing a further $50m. Oak led Plastic Logic’s previous public round of $100m in 2007 and still remains the largest shareholder in Plastic Logic with 52% and Rusnano 34%, deal sources said.
About half of the initial $300m debt and equity investment in the latest round will go on the Dresden factory and maintaining research and development in the U.K., where the company was founded in January 2000. The remainder of the money will go to start building the second factory in Russia, which is expected to start production in 2013 or 2014.
The round is the latest high-profile venture capital round for a U.S.-based company following the $950m raised by consumer discount coupon company Groupon by a consortium which included Russia-based investment company DST Global earlier in the month.
Rusnano fought off Chinese interest
Deal sources said Rusnano fought off Chinese interest in investing $200m to have the second factory built in the Beijing region because the Russian company had been interested longer and moved quicker. The terms were also seen as favourable to Plastic Logic given its need for funding, deal sources said.
Jonathan Stankler, a partner at KPMG LLP, who along with his colleague Robert Vartevanian at affiliate ZAO KPMG advised Plastic Logic on the round alongside U.S.-based investment bank JPMorgan, said: “Rusnano is a long-term investor so did not squeeze [Plastic Logic] for a typical private equity-style IRR [internal rate of return, or annual performance measure] over three years.”
In a statement, Richard Archuleta, chief executive of Plastic Logic, said: “We evaluated multiple locations and potential partners across the globe for our second factory. We determined Russia with Rusnano as an investment partner was the best fit for our business.”
He added in an interview with The Wall Street Journal, Europe: “For the round we had high interest everywhere but the state of the financial markets and the fact that commercialization requires a fair amount of capital to build clean rooms for transistors means it is very different from internet start-ups.
“So we found investors with a long-term view that share our vision for the next five to 20 years and have the resources to support us. These were sovereign or state-backed fund in the Middle East, China, Singapore and Russia and every group has their view but we think we found the best partner in Rusnano.
U.S. and west are not as serious as China or Russia
“I was not surprised the U.S. did not support [Plastic Logic setting up the second factory in America] given the political climate and election but it is a disappointment. Job creation is a hot topic but the U.S. is not able to develop a policy to encourage factories to be built in the U.S..
“The way the electorate and politicians are is hurting the long-term investment in factories in new areas. The U.S. and west are not as serious [in supporting innovation] as China or Russia or others.”
Rusnano is expected to invest $15bn by 2015 in supporting companies involved with manipulating materials at the atomic or molecular level and attracting them to Russia. The fund’s chief executive, Anatoly Chubais, is the former architect of a swathe of Russian privatizations in the 1990s after the country emerged from the Soviet Union and became a free-market democracy. He told U.S.-based venture capitalists in October that Rusnano had already approved $4.1bn for 93 projects.
At the start of last year, Rusnano signed a memorandum of cooperation with Gazprombank so the Russian bank would set up a R20bn ($665.4m) credit limit for the state investment company to draw upon and it also retains close ties with other credit insitutions in the country. Rusnano declined to comment on the size of its remaining commitment to Plastic Logic as part of the overall $700m funding round but deal sources said it could be about $70m in about 12 months.
James Mawson is the Founder of Global Corporate Venturing.