Till July 1, the Government should develop a complex of measures to stimulate private investors for investing in the domestic high-tech projects of small and medium business at the early stages of their implementation. The Cabinet of Ministers will report every six months on the way such measures are planned to be implemented in future. Aleksey Basov, the Deputy General Director — Investment Director of the Russian Venture Company (RVC), told the RG about the barriers which hinder the development of business angels and the benefits they may gain.
What barriers are hindering the development of the private investment market?
Aleksey Basov: Imperfection of legislation that remains behind the international practices in many aspects irrespective of the efforts of the market regulators and participants. This makes it difficult for the international performers that appeared to be non-sensitive to sanctions to access the Russian market. One more barrier is also incomplete investment chain — disproportion of the available capital at the different stages of the venture cycle. For the companies that have had no stable financial flows yet, it is not difficult to raise financing through the grants, seed investment or acceleration.
The tools for support of growth stages are well represented in the market in the form of a dozen of active venture funds with the most diversified profiles and mandates. However, if a company gained a revenue of USD 1-2 bln per annum, there is practically no sources for it to attract financing. Bank financing is not available for the technological companies, and there is a lack of funds in the country that invest at the later stages, and they cannot satisfy a demand in the development of the large companies. This deficit of investors restricts the development of businesses that have proven their success and have an international potential.
Among the barriers, there is also a small market volume relative to the sizes of the Russian economy. We fall by times behind the developed countries form the point of view of proportion of the venture market that has not even a percent of the GDP, but is a jumping-off place providing fast-growing innovative companies to the economy. We see the corporations, private investors and pension funds as the main sources for a new capital. Each of them needs both stimulating actions and removing the clear legislative gaps.
What steps are planned to take for stimulating this segment and when?
Aleksey Basov: At the end of 2018, we presented a draft Venture and Direct Investment Market Development Strategy by 2030 including more than 40 initiatives aimed at elimination of key barriers for the venture industry development in Russia. Among them are deregulation and creation of economic incentives for new investors entering the market, including non-state pension funds and insurance companies occupying a significant share in the global venture capital market.
The allowances in the part of the personal income tax and increased tax deduction limit are intended for stimulating the private investors’ investments in the venture projects. In addition, the Strategy provides for amending the legislation to allow the individuals’ participation in the investment partnership agreements through which the most venture funds are structured. In the tax regulation, it is also offered to consider initiative concerning reduction in the rates of social insurance contributions to 14% for small innovative companies. Generally, these steps considering the offers of the market players and regulators, as well as a vast international experience will be able to force the system-based development of the venture field as an important driver of the innovative economy of the country.
Ta bill draft regulating the crowdfunding platform activities is under review of the State Duma of the RF. How will this make benefit for the private investors?
Aleksey Basov: For us, as a development institute, it is important to support system-based financial tools for innovative projects at the key stages of their life cycle. The current bill draft supposes simplification of procedure for deals, including the introduction of electronic notary system. Also it provides for limits of attracted monetary assets to mitigate the risks for unqualified investors.
Are the private investors ready to invest? If the comfortable conditions will be created for them, when the market sees the money of the private performers?
Aleksey Basov: Risk mitigation for private investors through tax compensation, launch of new comfortable venture investment tools will become the incentives for new performers in the venture market, and as a result — new innovative projects with global ambitions. According to our estimates, if to implement measures offered in the Venture Market Development Strategy, the offer of the venture private capital will grow from the current RUB 1.9 bln to RIB 820 bln per annum by 2030.
What industries can become the most in-demand among the new generation of private investors?
Aleksey Basov: In the nearest future, the main investment flow will be streamed to the “digital economy”, and the less digital industries have the highest potential. These are, first of all, the mining and heavy industry, energetics, transport, education, medicine, military-industrial complex, development, aerospace, agriculture. These are the segments our planned funds are primarily aimed at.
Author: Elena Berezina