By: Alexey Basov, Deputy General Director — Investment Director, RVC
Redistribution of the market, which gives rise to new technologies, allows young Russian investors to compete with veterans of the international venture industry.
Until recently, we were dominated by the paradigm that only middle-aged people in expensive suits who received special education should manage the assets. Today, the institution of investment management is undergoing a major transformation, like business itself, and players of a new wave are able to compete on an equal footing with certified specialists. For Russia, this process is a chance to multiply the competence and the presence on the global market of new technologies.
By historical standards, Russia is a newcomer to the venture market, which has been counting its years since the 1950s of the XX century. According to the National Venture Capital Association, only in the US in 2017 there were more than 1,500 active investment venture funds and about 900 management companies. This is a large mature industry, with academic schools, a mathematical apparatus, scientific and popular literature, legendary and slang.
It is obvious that at the start, our country did not have serious background either in investments or in business, and, nevertheless, it did not become an insurmountable obstacle. Today, start-ups from Russia are becoming "unicorns," and Russian investors serially prove their success on a global scale. We managed to be at the right time with the right baggage of knowledge: the technology revolution markedly shook, if not to say zeroed out the classical practices of doing business, and formed a new wave of investment experience. Thanks to this, the experience of our investors and managers, formed in a complex, bright, rapidly growing market, is applicable and competitive in the global arena.
Several “pioneers” started the era of the Russian venture literally. The first managers of venture funds in Russia, as a rule, became top managers and technology entrepreneurs, who became bored in a single business. They created the "core" of the market. You can remember, for example, ru-Net Holdings under the management of Leonid Boguslavsky — one of the first major investors in Yandex in the late 1990s, or DST Yuri Milner.
The latter began with a series of successful investments in Russian projects — HeadHunter, VKontakte, Odnoklassniki, and then invested in Facebook and Twitter and was one of the first to switch to the Chinese market by buying shares of Alibaba. Almaz Capital Partners — in 2008, its founder and managing partner was Alexander Galitsky — he collected in the portfolio such "star" projects as Parallels and Acronis, Yandex and CarPrice.
By 2010, with the funds built on the charisma of the founder and his business intuition, a whole range of new players and ecosystems began to compete. State development institutions and corporate platforms began to work, the number of funds has gone to dozens, the competition for projects, the specialization and extra-expertise have become much more important as an essential element of successful work.
At this stage, talented managers were rivalled by their managers yesterday, who grew to their own funds. I recall my colleague Dmitry Smirnov, ex Finam Global, and his Flint Capital. The Fund was formed in 2013 and focused on working with scalable projects focused on fast-growing markets. Now in his portfolio, there are more than 20 projects: service orders for YouDo services and works, solutions for protecting the industrial Internet CyberX, the system for working with big data and machine learning Epistema. Another example is Nikolai Davydov, who left the iTech Capital fund in 2015 and founded the Gagarin Capital fund with partner Mikhail Taver. And already in 2016, they entered the big league of investors, selling Facebook a Belarusian start-up MSQRD.
Today, we are entering a new stage in the development of the venture industry. In the Russian market, there are about two hundred funds (according to the RVCA survey in 2017, there are 194 venture funds and management teams in Russia, it is already possible to talk about the experience of serial launching of funds. We are faced with the task of forming a closed investment cycle where the project at any stage of maturity can find an investor through a developed chain of venture capital instruments: business angels, seed funds, growth stage funds, corporate funds, Pre-IPO funds, exits through IPOs and M & A.
Along with the development of the market, the formula of a successful management team matured and honed. The accumulated experience makes it possible to observe about what requirements the modern venture market poses to investment professionals.
The first observation is the right combination of competencies in the team. Its key element is technological entrepreneurs with operational management experience that can feel business at their fingertips. They are able to dive into any aspects: such as a product, technology, corporate culture, technical standards, market conditions, monitor diagonal of developers. Such a member of the team, as a rule, has gone from a start-up of three people to a large company worth millions of dollars, and understands that there are no trifles in business.
Alongside such entrepreneurs, there are always people with financial or corporate experience who are able to structure transactions and raise financing, as well as build syndicates. In the case of iTechRuna Capital, for example, it is Gleb Davidyuk, in the history with Finam — Victor Remsha. Inclusion in the investment and financial community, possession of legal instruments, negotiation culture — usually concentrate precisely within the framework of this role.
And, strangely enough, a huge role in the success of the team is played by the back office, all those who do not get on the covers after the bright deals: analysts and project managers. Their contribution to the transactions and the experience gained are so significant that it is this part of the team that is the main source of the emergence of new managers in the market or top managers who implement investment tools in corporations.
The second observation about the work of the management teams is that academic knowledge no longer works. Approaches, cases, market formulas become obsolete much faster than they get to Cambridge, turning into lectures and books written by professors. The model, when students get knowledge, grow up and become successful investors, is working worse and worse now. Market cycles are changing at such a speed, and the requirements for expertise are increased so intensively that the market becomes the best university, and the main textbook is the continuous practical experience.
The third condition for success is the mobility of the investment focus. Money, demand, opportunities can simply go from any sphere, and a new technology or scrapping of the market way can radically change it. So, the automobile industry, medicine, and education are being transformed before our eyes. Artificial intelligence, new materials, large data and alternative energy are redrawing the landscapes of a huge number of markets that were considered conservative and evolving evolutionarily.
The convergence of industries is pushing players to create unexpected alliances to capture the reshaping markets: Sberbank and Yandex create Russian Amazon, and Gazprombank, Rostekh and MegaFon plan to launch a large-scale multi-corporate product line in the field of business digitalization.
Such transactions are an example of business management in fundamentally new models, when mature companies are removed from the usual markets and technologies, creating a new asset quality. They are also proof that Russia is ready and able to use the window of opportunity, which opens up a change in the technological order.