Russia’s Growth Leads Yuri Milner Back As Ostrovok Takes $25M From General Catalyst, Accel and Others

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It’s often difficult to discern the mind of Yuri Milner. Despite building his investments out of Russia initially, he hasn’t invested in a startup there for over three years. What’s luring him back? No doubt the enormous growth and potential of the market there. So it’s not a huge surprise that he’s invested in one of Russia’s hottest startups today — hotels booking service Ostrovok.ru, which has pulled in a $25 million Series B round. Ostrovok may now be the best funded startup in Russia. However, putting boots on the ground to build up the hotels inventory – which is really only just coming online in Russia – is a very capital-intensive business.

Milner joins lead investor General Catalyst Partners, Frontier Ventures, Accel Partners, and Eric Blachfor, the former CEO of Expedia, as well as high-profile investor Shervin Pishevar, and the former head of UBS Russia, Edward Kaufman. Ostrovok even got $2 million from the founders themselves, they are so confident. Formerly, Founders Fund and Atomico invested $13.6 million in the Series A round two years ago. For context, two weeks ago Internet travel agency Oktogo.ru raised $11 million.

Founded in 2010 by former Google and Slide employees Serge Faguet and Kirill Makharinsky, Moscow-based Ostrovok aims to become the Hotels.com / Priceline / Booking.com for Russia. They told me they intend to turn Ostrovok into a “multi-billion dollar company.”

Online sales are growing at a clip. Russia has Europe’s largest Internet market, ahead of former leader Germany, with 60 million users and counting. Ostrovok has 1 million unique visitors a month, 25,000 hotels in the database, 200 employees and API partnerships with Yandex, Google, Megafon and Russian airline systems.

However, it’s the signal that Yuri Milner’s involvement indicates that is perhaps most interesting. Because many of his investments in Russia – Mail.ru among them – add up to around 70% of the actual page views in Russia, he is in a position to influence where that traffic is directed. Point it vaguely in the direction of a startup like Ostrovok and away, as they say, you go.

As Serge Faguet told me: “In most emerging markets, the local players have won the market. Russians love travelling and spending money so it’s a great market.”

“Russians spend $60 billion a year on travel and $20 billion on hotels. The online share of that is small, 8% of the total market. In the US the comparable number is 40%. In China it is 30%.”

And what of Shervin Pishevar? Will we see Uber come to the streets of Moscow I wonder out loud to Faguet? “I have no idea but I would love it if it did,” he says. Watch this space perhaps.