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Russia’s Competitive Venture Investment Market
15 February 2019
12:00—13:15
KEY CONCLUSIONS
Advanced venture investment market as an instrument for increasing economy’s competitive ability

Venture market, although quite modest in terms of raw numbers, is the core of innovative and technological development of any country and especially of a country that claims leadership in a range of areas. Therefore, we want to find a new class of investors and understand what prevents them from operating on the market with a fundamentally different efficiency and on a fundamentally different scale. This is the case that we were mostly solving while working on the strategy — Alexey Basov, Deputy General Director, Investment Director, Member of the Management Board, RVC JSC.

Involvement of large corporations is crucial, since so far the amount of engagement of these corporations in our funds is not very substantial. <…> Only less than ten companies are actively participating in the market, which indicates its huge untapped potential — Sergey Gorkov, Deputy Minister of Economic Development of the Russian Federation .

Draft strategy for venture market development has been designed in Russia

Late last year a draft for the Strategy for venture market development in Russia was created. Currently the total venture market volume relative to the gross product is around 0.02% <…> The Strategy aims at making the existing market a prospective one or even a model one by 2030 — Alexander Povalko, Chairman of the Management Board of RVC.

The Strategy includes a long list of detailed initiatives, over 50, aimed at modernization of the set of conditions and parameters that have impact on the market or restrain it as a whole — Alexey Basov, Deputy General Director, Investment Director, Member of the Management Board, RVC JSC.

ISSUES
Legal restrictions for potential venture investors

There are around one trillion roubles that could work but they do not. For the economy to get this money we need a law that is going to be adopted shortly. <…> As for this law <…> there is a problem with advertising, we have a tight restriction for the way companies can advertise attracting funds to themselves. <…> This would interfere with the market development and can strongly constrain it — Konstantin Shabalin, Chief Executive Officer, StartTrack.

Today we own around 20% of internal debt and 30% of regional debt. In fact, we are financing cash deficiency rather than investment into the economy. The situation can change if we are going to consider impact investment, sociable responsible investment as a kind of state policy — Evgeny Yakushev, Executive Director for Public and Government Relations, SAFMAR.

The National pension fund is a capital protective fund from the point of view of internal management systems. And the key problem is that the regulator is not ready to see it like this due to historical reasons, and it requires that the fund is not capital protective as a whole, rather for each separate instrument. Until we at least partially overcome this trend, we cannot expect a substantial cash flow from pension funds — Sergey Kerber, Head of the Directorate of Investment Projects and Programs - Managing Director, Leader Management Company.

Underdevelopment of venture investment infrastructure and instruments

We have very few business angels; although now it is over 1,000, in America there are 300,000, in Europe – 35,000 of them. The difference is in several orders. But these 1,000 business angels are the first growth points that take largest risks investing their own savings into projects with minimal or even near-zero possibility to get them back — Alexander Borodich, Founder, Universa Blockchain Platform; Founder, Child Tech.

There is a huge amount of money that does not work, kept as deposits. One of characteristics of our market is the total absence of the funding chain. All we have in our country is bank financing, but we lack funds as well as endowment — Konstantin Shabalin, Chief Executive Officer, StartTrack.

There is no serious track record of local Russian market showing an appropriate risk-return ratio. We are talking about venture investment, <…> relying on historical data of a different market — Sergey Kerber, Head of the Directorate of Investment Projects and Programs - Managing Director, Leader Management Company.

SOLUTIONS
Creation of a transparent system of institutional and infrastructural support

The amount of venture money in the country is tiny, and this is mostly the state funds. <…> There are several sources to attract this money from. <…> One of the goals is to develop angel funding. <…> We have drafted a law on crowdfunding, and I hope it will be adopted this year. <…> The second direction that I would definitely want to emphasize <…> is further bringing in private funds — Sergey Gorkov, Deputy Minister of Economic Development of the Russian Federation .

In the Rostec structure there are special organizations that deal with investment on different stages; there is a separate venture fund through which we have tried to open a new door for the start-ups that have already gone through the RVC (Russian Venture Company — Ed.). <…> When drafting a strategy, we need to understand what internal innovations are, what external innovations are, how they are structured in a certain corporation and how to put this all together into a system — Elena Rakhimova, Deputy Director for Special Commissions, Rostec.

Development of market instruments for venture investment

Currently it is important to add right instruments to this Strategy and make sure they are ambitious. <…> Real technological breakthroughs <…> are mostly the technologies that banks cannot finance because of clearly high risks — Sergey Gorkov, Deputy Minister of Economic Development of the Russian Federation .

Business angels, private investors willing to finance technological companies, need more standardized instruments, for example, public platforms, the barrier to entry to which, in our opinion, should be reduced in order to increase the liquidity of the venture market and facilitate access to such companies through the access to traditional instruments, first of all, stock instruments. Also, we advocate liberalization of crowdfunding — Alexey Basov, Deputy General Director, Investment Director, Member of the Management Board, RVC JSC.

The material was prepared by the Russian news agency TASS