Why are Russian innovative companies rarely becoming “unicorns”? Who buys technology start-ups in Russia? And which areas are now the most promising for young innovators? The Chief editor of Business FM Ilya Kopelevich discussed these and other issues with the General Director and Chairman of the board of Russian Venture Company JSC Alexander Povalko.
— Speaking about the results of the work of any development institute, the main goal is for large technology and innovative companies to appear. They are called “unicorn” if they are billions in dollars. There are such companies in RVC's portfolio, how many are there?
— Individual portfolio companies were indeed sold for hundreds of millions of dollars, but in the traditional view, “unicorn” is what quickly and decisively grew to a capitalization of more than a billion. There are very few such companies in the country.
— I know just two in the country, if you do not take Yandex and VKontakte, which took place before the process began.
— Recently, there was a HeadHunter placement.
— And OCSiAl, which is without placement, however, ...
— Yes, OCSiAl, into which the last investor entered according to an estimate of more than a billion. There are such companies, but, like any fairy-tale beast, they are very rare. They are very rare in the world and very rare in our country.
— And this is generally a problem, an indicator, an occasion to think about something, and if so, about what?
— This is a problem, first of all, of underestimation of technology companies, which means that you have substantially less resources in the high-tech market.
— That is, there is no one to sell, there is no buyer for these companies?
— There is no buyer for these companies on such a scale. If we take comparable companies in China and in our country (comparable in terms of technology, revenue, EBITDA), then the multiplier will vary five to seven times. This is monstrous because it immediately affects the speed of development of these companies.
— Accordingly, the motivation of those who create them changes if they do not see the opportunity to reach a wide circle of investors who will create a large inflow of capital.
— A wide range of investors, large markets, a game with significantly higher stakes than what is being done now.
— These are some conditions in which we are. But we understand why we do not have this wide circle of investors. And it is likely that he will not appear in the conditions in which we are.
— When we say that we are in some specific conditions and begin the phrase with the words “we understand everything,” nothing can be done at this moment, everything has already taken place at that moment.
— We can conclude that it will be so, and proceeding from this, build a model for the development of technology companies, realizing that there are very few investors. As a result, corporations, not the market, buy start-ups from us.
— In the end, they buy corporations with, from my point of view, a significantly lower rating than they could buy. Corporate behaviour is absolutely pragmatic and logical. They manage to achieve their goals, this is normal. On the other hand, if start-up owners are selling, obviously they are also ready for this type of deal.
— Let's give examples, because here they are. Our large corporations that bought technology companies at the stage when they created clear, applicable technology. Tell us about examples, then we will see the practical result of this growth.
— Sberbank is now very actively buying technology companies, including they bought the company MDG (Centre for Speech Technology). I did not look at analogues, but at close Chinese companies, and their valuation is $5–7 billion. This is a different assessment. I’m not ready to say how much they bought the MDGs, but the amount is much more calm.
— This topic was recently formulated by other venture investors. They say: there is no light on the Russian market at the end of the tunnel. To find, enter so that the market would buy — no. Accordingly, another behaviour model of technological start-ups: they make the workshop technology, and either it remains small or a large corporation buys it. We know Sberbank. Who else is active in this market, who else creates demand for ready-made technological solutions?
— Now, according to our estimates, about 30 large corporations are active.
— Probably to a very different degree. If you compare Sberbank and everyone else?
— This is a difficult question. We estimated, according to general estimates, last year there were about 80 transactions for the acquisition of shares or technology companies. For example, we, together with Gazprom Neft have created a venture fund, and there was concern at some point that it would be a fund to finance Gazprom Neft’s internal development. No, nothing like that. This is a fully working structure. And Gazprom Neft most likely sees itself as a training ground, as the first opportunity to quickly test and increase the capitalization of these companies. Very correct and economically meaningful behaviour.
— Still, the goal of any large corporation is to buy technology for yourself, keep it at home, and not scale it to the entire potential market.
— Differently. I disagree with you. There are several types of behaviour, types of action. The first is to buy, integrate into your technological scheme, and then it will develop as an element of the company's technology. The second is the formation of a new line of products that complement, expand what the company has. For example, we with Russian Railways have now signed an agreement to create a venture fund, even two funds. And Oleg Belozerov (General Director — the Chairman of the Board of Russian Railways JSC. — Business FM) the logic is exactly like this: we manage the railway well, but it’s categorically insufficient for us to use the opportunities that this wild flow of cargo and passengers gives, we can build up a whole network of systems and services, auxiliary, related businesses from above that will significantly increase our capitalization, and profitability. And it is true. This is the second model of behaviour.
— All the same, this is not what they bought and are developing as an independent business that will grow and cover the whole world with the sale of its products. One way or another, they work for themselves.
— We will see. They bought Instagram, but it has not gone.
— The fact is that the same company bought Instagram.
— This is what I’m talking about.
— Let's go down one level, where RVC works, these are much earlier stages of company support. What is now in short supply: venture money or venture offers, projects. Are investors looking for projects that are more suitable or more projects than investors?
— I would say that they are still looking for projects.
— Is there money, not enough projects?
— There is always not enough money; it is a normal thing.
— There is always not enough money, because it is not given without a reason. But who the number of those who wants to find a project is bigger, are they and are there many of them?
— There is a large number of active players who systematically look for projects and strive not only to give out money (there are almost none left), but seek to find projects in which to invest money. There are few such projects. They also need to be convinced that they take this money. Good projects are not very willing to give up their share.
— This is a struggle between the best and the good. When there is a good project, good money and they are traded for evaluation.
— Now there is already a stratum of people who are meaningfully approaching transactions. They understand that you can sell now, or you can grow more, and then they will be bought, but more expensive.
— Just a couple of years ago, the concept of a venture investor, a venture capitalist in Russia was theoretical to me. Now I already know such people by name, but not very much. In your opinion, has something fundamentally changed, have we got a layer of these entrepreneurs with money who are willing to professionally engage in venture investments, look for projects, feed them, give them growth?
— I can say about those with whom I communicate. I see that we have people who are doing this in series. Some of the teams with which RVC interacted on the first investment cycle are now returning with proposals to make the following funds. This is good, it just allows us to hope that our situation will change.
— There are two problems that I know of from successful start-ups, about infrastructure, about the general situation. Ilya Chekh, the founder of Motorika, the entrepreneur of the year according to EY, is certainly successful, told us that he was lucky when they came up with a prosthesis: his partner had a 3D printer, they could immediately make a prototype for free at night, that is, spend money only on supplies. For most, this is what becomes a problem. They have a layout, but an investor — at least a venture, at least a larger one — is ready to talk only when he sees, as they say, in metal. And there is nowhere to do it in metal, money is needed for this, but it is not there yet. And he said, this is a massive problem that is slowing down.
— It’s hard for me to argue with him, if he says so, obviously he faced this problem and knows people who faced the same problems. For my part, I can say that we are having more and more points where you can quickly make a prototype, starting from very simple fab lab systems — fabrication laboratory. Although on the go - but it is OK. And ending with the centres of competence of the National Technological Initiative (NTI) and the centres of collective use in various kinds of scientific and educational institutions.
— Maybe, we should look at it in general? .. Since Soviet times, there were experimental workshops, pilot production, but it was in factories.
— It has not recovered. What was massive, did not recover massively. There is such a problem, but this is not a dead end. There is an opportunity as in the Bortnik fund (the Fund for the Promotion of the Development of Small Forms of Enterprises in the Scientific and Technical Field. — Business FM) take minimal money. A total of 3 million can be taken to the start, just to study the prototype. This is small, but still money.
— Here at the forum, you said that they give money faster to those who contributed something of their own, for example, they sold an apartment. Seriously, do you know about cases when someone sold their apartment?
— I know.
— Who is left without an apartment as a result, too?
— Usually people who talk about it later bought a much better apartment. They love to share this as a vivid episode of their life: I spent the night at the station, and all the money went to buy a 3D printer. And those who could not get out ... somehow live differently.
— Unfortunately. Let's talk about the innovative landscape. In your opinion, in which niches, in which areas is the greatest demand now? And on the other hand, in which niches and in which directions are start-ups created the most? This, perhaps, is not the same thing, it is necessary to orient people that it is worthwhile to deal with some new industries.
— it's a difficult question.
— It is clear that no one knows the future, but nevertheless we can say that now there are customers, there are end-to-end technologies, and there are road maps.
— We have adopted the logic of end-to-end technologies for ourselves. We are quite actively engaged in applied developments in the field of artificial intelligence. But there are terribly not enough people and solutions that would be brought to market.
— That is, almost no one has entered the market yet, right?
— They has. A famous story with NtechLab is a face recognition system. It was bought by Rostec. Now one of our funds has entered the Botkin.AI project: it is a system for recognizing medical images and supporting medical decisions. That is, there are quite a few projects, but they are about the same class: these are applied solutions of various recognition systems. The same MDG that Sberbank bought is a speech recognition and synthesis system.
— In general, these are mainly the rudiments of artificial intelligence.
— These are different technologies of machine learning, primarily neural networks, and semantics. This, of course, has a very weak relation to intelligence.
— While these systems are learning to speak and recognize.
— Yes, but they do very well this little piece that is connected with intellectual activity. Can it be argued that in this area we are developing on an equal footing with world leaders? Alexander Povalko: It can be argued that we have solutions that are willingly bought.
— But for now, by our own corporations.
— But why? Huawei is not our corporation. And they bought our portfolio company Vokord.
— And what are the free niches where young beginners should aim at?
— Biotech and specifically genomics, it will now grow wildly. And it is growing.