Take a helping of Russian genius, add a portion of risk appetite and stir in a lot of patience, and you have the recipe for the resounding success of search engine Yandex's U.S. stock market float.
The Nasdaq listing values Russia's leading internet search engine at $8 billion, an eye-popping 500 times its worth when private equity investors bought into the company in 2000.
That year the business, founded in 1997 by mathematician Arkady Volozh and geophysicist Ilya Segalovich, had revenues of just $72,000 and lost $2 million.
Eyeing a long-term prospect, Yelena Ivashentseva of private equity fund Baring Vostok Capital Partners put together an investor group that bought a 36 percent stake in Yandex for just over $5 million.
Talks to buy into Yandex lasted seven months, Ivashentseva said recently, recalling the horror of the fund's backers over the deal.
It was really difficult to explain this to our investors, who en masse demanded that we get rid of the stake, she told Forbes magazine's Russian edition.
It turned out to be the only round of fund-raising that the company did until its initial public offering (IPO), which featured a slug of new shares. Investors who came into Yandex in recent years bought stock from existing shareholders.
Yandex went on to richly reward its investors, with the algorithm driving its search engine -- conceived to scan the Bible, Russian classical literature and patent texts -- proving superior to that of rival Google, whose co-founder, Sergey Brin, was born in Russia.
The company's home site yandex.ru has a market share of 65 percent in Russia, compared with Google's 22 percent, capitalizing on a boom in online advertising to generate sales of $445 million last year, up 43 percent, while earnings rose 90 percent to $135 million.
DIAMONDS IN THE SKY
Volozh is a slight man with a quiet manner and, since the earliest days of the Internet boom, a wry skepticism about the millions, then billions of dollars flooding into his industry.
We used to be very conservative, until we started meeting so many excited people, Volozh joked in 2000.
He resisted the overtures of suitors dangling the prospect of a huge payday, telling Reuters in 2005 that bankers are promising us a golden future, diamonds in the sky, if we do an
Sergei Belousov, founder of Russian IT firms Parallels and Acronis, and venture fund Runa, praised Volozh as responsive, direct and honest -- perhaps more honest than he really could allow himself to be in the cut-throat internet business.
He creates the impression of a very confident person, not easily scared or de-railed, Belousov told Reuters. Google does not scare him, even though he seems to be awake and sane about the threat.
Bankers say plans for a long-awaited float were prepared in 2008, only to be derailed by the global financial crisis.
The company's core investors decided to sit out the crash and Yandex, bucking an 8 percent contraction in the Russian economy in 2009, delivered top-line growth that year although earnings shrank by 17 percent.
The investors waited for long enough and this strategy was successful. They weren't trying to push Yandex into an IPO as soon as possible, said Anna Lepetukhina, an analyst at Moscow brokerage Troika Dialog.
There were rumors that they were going to do an IPO in 2008. Then the crisis came and they were prepared to wait. They got a good return on that investment.
For the investors, the Yandex story might suggest that Russia's investment climate is by no means as hostile as many say.
Baring Vostok, which retains a 26 percent stake as Yandex's largest shareholder, abides by a few golden rules to avoid the pitfalls that others have fallen into, founding partner Michael Calvey told Reuters on Tuesday.
The fund's 19-firm portfolio is weighted toward services, avoids industries where it might clash with state firms and relies on equity funding, not debt, to shield its investments against Russia's often vicious business cycle.
Calvey, an American who founded Baring Vostok in 1994, said in an interview that the fund's strategy had enabled it to ride out the 2008-09 crash without having to make any disposals.
We don't expect there to be any fatalities in our portfolio as a result of the crisis, Calvey said. He declined to comment on the Yandex IPO, citing regulatory restrictions.
(Additional reporting by Melissa Akin and Anastasia Teterevleva; Editing by Erica Billingham and David Cowell)