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Conditions for investors

Source: Kommersant

Successful venture capital investments can generate multimillion-dollar profits, increase the country’s technological independence and form a modern competitive economy. However, the development of venture investment, as well as the emergence of high-tech enterprises in the traditional and new sectors of the economy require creating favorable conditions in the country. This conclusion was reached by the participants of “The Competitive Venture Investment Market in Russia” session held by Russian Venture Company (RVC) within the framework of the Russian Investment Forum in Sochi-2019.

The session, organized by RVC on February 15 at the Investment Forum in Sochi, brought together representatives of the Government, corporations and venture funds to discuss the prospects for the development of the venture industry in Russia, expanding the number of players and raising additional funds for this market. The experts talked, in particular, about possible measures of institutional and infrastructural support for the venture capital investment market participants, reducing restrictions for new participants and tax incentives for the industry.

One of the participants in the discussion, Deputy Minister of Economic Development Sergei Gorkov, said that now the state is actively operating on the Russian venture capital market. However, in order to increase the volume of this market, it is first of all necessary to stimulate the raising of “non-working” private money and develop angel financing.

“There are much more budget than private funds in the venture capital market, the situation needs to be changed,” he said.

According to him, now almost $ 50 billion lie dormant (in banks, on deposits) and in fact do not work; raising at least 1 billion of this amount to the venture capital market is a real challenge.

“The crowdfunding mechanism can be used for this. The relevant law has already been developed. Let’s see how much money flows out of the country — from $ 30 billion to $ 50 billion a year. Some of this money can stay in Russia,” the Deputy Minister of Economic Development said.

According to Mr. Gorkov, it is important to involve large corporations in venture (“so far their volume is low”) and pension funds.

One of the measures to support this sector of the economy was a joint project of the Ministry of Economic Development and RVC — the strategy for the development of the venture capital market until 2030. The strategy presented at the end of last year includes more than 40 initiatives aimed at lifting legislative restrictions and creating economic incentives for new classes of investors to enter the market, including non-state pension funds and insurance companies, which have a significant share in the global venture capital market.

According to the document, for example, non-state pension funds will be able to invest a certain amount of funds in venture funds in the format of an investment partnership agreement, which should increase the share of NPFs in the capital of venture funds in Russia to 10% by 2030.

In order to engage corporations in venture investment, the strategy proposes to reduce the tax base when calculating income tax when creating corporate venture funds, when corporations participate in venture funds as Limited Partners, and when large businesses invest in technology projects. The goal is to increase the volume of corporate capital in the venture capital market to 960 billion rubles by 2030. The personal income tax relief and an increase in the tax deduction limit should encourage private investors and business angels to invest in venture capital projects. One of the scenarios can also be a reduction of tariffs for social security contributions to 14% for small innovative companies.

As RVC General Director Alexander Pavalko told to “Kommersant”, the strategy was developed with the participation of venture capital investors and “sets very ambitious goals”.

“If everything that is written in the strategy turns into meaningful work and does not remain on paper, the Russian venture capital market will start to grow actively,” said Mr. Povalko.

During the session in Sochi, venture investor, founder of Universa Blockchain Platform Alexander Borodich also drew attention to the need to support business angels “through the crowdfunding mechanism.” According to him, we are talking about a thousand or so people who “risk money as much as possible for the sake of projects” and perform a “social function” helping entrepreneurs not to repeat their mistakes.

“Business angels invest their experience, knowledge, and money in projects. It is important to support them., Investments may not sprout without this help,” fears Mr. Borodich.

According to RVC’s Investment Director Aleksey Basov, it is possible to increase the motivation of private investors through a reduction in the tax burden. Thus, he proposed to take into account financial losses on other investment projects when calculating income taxes in order to reduce the risks of investments and partially offset the business angels’ costs. In addition, among the necessary tools for raising private investment, Alexey Basov mentioned the work of public investment sites, the crowdfunding liberalization and the introduction of an electronic notary to simplify the transaction procedures.

Summing up the session results, Alexander Povalko noted that blindly copying Western experience into our market will not lead to positive results — it is necessary to adapt all available tools to Russian realities. In addition, according to his observations, neither business angels, nor funds, nor pension funds like risk in Russia, therefore it is necessary to reduce the risks for managers, including in state corporations, to allow them to look at the world more widely. In general, according to RVC’s General Director, venture investments play an extremely important role.

“The function of a venture investor in a pseudo-capitalist market is to replace debt financing with other instruments. The more people are involved in this work, the more chances we have to improve this situation,” concluded Alexander Povalko.

Author: Kira Vasilyeva

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