The technology business sees the crisis as not only a threat, but also an opportunity for growth. About a third of companies plan expansion — for example, projects in the field of medicine and logistics. Alexander Povalko, CEO of Russian Venture Company, told Rossiyskaya Gazeta about support measures that will compensate for some problems that have arisen and will help to support the expansion of companies.
Photo: Vladimir Trefilov / RIA Novosti
— What problems do technology companies face now and what kind of support measures do you offer?
— RVC forms a package of priority measures to support the technology business, which consists of two parts. The first is focused on the companies of the National Technological Initiative (NTI), the second — on high-tech companies of small and medium-sized businesses.
Many of the NTI companies now have a lack of resources to fulfill project indicators, in particular, to provide the required level of co-financing. In order not to stop projects on formal grounds, we suggest temporarily review requirements for them.
We also plan to highlight among the NTI projects those that have the potential to solve the problems associated with and around the pandemic. There are projects ready for launch that can work to fight the virus — for example, one of them can produce test systems, the other develops inhalers that provide targeted delivery of the medication to the respiratory tract. Our goal now is to support them with resources in order to get these companies out of the stage of testing and hypothesis testing on the market as soon as possible. Projects in which this period is more than 4–5 months are not priority now.
In addition to medical projects, the demand for remote life support services is growing very rapidly — from video conferencing to distance learning. Many faced with the fact that the systems are not designed for such a large increase in users and begin to experience overburden. They also need resources to make the infrastructure work steadily and cope with the increased load.
Another task is to reduce transaction costs for projects and reduce bureaucratic procedures to provide them with support. Now the reporting system is changing, as full-time monitoring is almost impossible. We expect to promptly approve new requirements for the description of projects that radically reduce the amount of information that needs to be provided.
— What measures are being developed for non-NTI technology companies?
— We want to offer resources to small and medium-sized high-tech companies to solve several problems. The first and most obvious, with which one way or another many are already working, is the preservation of teams. It is very important to prevent the loss of people and technologies. There is a big demand for this kind of support. In addition, we see that a significant part of companies — about a third of them — see the crisis as an opportunity to expand into new markets. Business activity is declining, some of more cautious companies and investors are leaving certain markets and niches. For others, this is an opportunity to take these markets and build new supply chains. This requires money — in particular, low-interest loans for the implementation of export and state contracts, instruments for compensating exchange rate differences when purchasing imported equipment, mechanisms for compensating costs of companies for developing and attracting new talents. As an investment institution, we can offer at this time much-needed liquidity for the technology business.
To support exports, we plan to offer a separate integrated product — low-interest loans, one-time grants and entry into equity, as a fair assessment. This combination, in our opinion, will make it possible to take a fair position with respect to companies that are ready to move forward. On the one hand, without addicting them to free resources, on the other hand, maintaining their investment attractiveness for future rounds of investments.
First of all, we focus on those who are able to attract investors — on syndicated projects. In various areas, these are many dozens of projects. The size of grants is discussed in the range of 50–100 million roubles per project. Low interest loans are supposed to be used for co-financing in the amount of up to 50% of the contract price.
— When will both parts of support measures work?
— As for the NTI projects, support measures will be submitted for approval by the NTI Interdepartmental Working Group in the near future. Those support measures, which are under RVC funds, will be discussed at the nearest board of directors meeting.
— In March, at the meeting of investors with the president, the possible creation of a new fund of funds was discussed — how good is the time for this now?
— I think it’s a good time for this. This will significantly increase the volume of venture capital in the country. The main role of the new fund is to create a system of investments aimed at projects of later stages. Recently, large corporations have become such investors. But in conditions of turbulence, it will become more difficult for them to make decisions, many will take the path of reducing costs — this is a common scenario in a crisis.
At the same time, corporate venture funds gained significant speed as early as last year. More than a hundred transactions were made, with the participation of production and financial holdings. Funds launched with participation of Rosatom, Gazprom Neft. Plans to create funds were announced by RZhD (Russian Railways) and GTLK. Quite a lot of time was spent on changing the thinking patterns of corporate giants.
Now it is important to see that the crisis is an opportunity to diversify business through investments in new projects. And assistance can be rendered to business with such solutions — for example, through tax incentives for corporate investors. We have proposed similar measures in the Venture Market Development Strategy. Benefits for corporations that participate in foundations as limited partners (limited partners responsibility — Ed.). This would be a significant incentive tool for them.
— Recently, the State Duma introduced a bill on the so-called “right to risk” for venture capital investments. What is its essence?
— Amendments to the law on science and scientific and technical activities were submitted to the State Duma by the Ministry of Economic Development. RVC was one of the authors of the document. The Right to Risk provides venture capital funds with regulatory and legislative guarantees related to the special nature of such investments. Venture projects are implemented with a wide range of potential risks, from technological to market ones. The inability of funds to return investor money is far from always related to the competencies of managers. Even the most successful of them have soaring and not soaring projects in portfolios. A venture project can break down at almost any stage. It may be a wonderful technology, but it does not find market demand. Or the product was brought to the market, but something has changed — coronavirus has come — and your product is no longer interesting. Previously, each such failure potentially created risks for investors. Amendments remove from the manager the burden of prove that he is innocent if the idea
The changes are correct, but this cannot be said to be finalization of all that could be done to develop the venture capital market. There are, for example, tax benefits that we talked about. Even a change in tax assessment will make the venture capital market more attractive. This is a very important task, especially now, when technology projects will need additional funds to survive and develop further.
— What role should development institutions play in this process? And how can the results of this work be measured? In February, the Chairman of the Federation Council, Valentina Matvienko, for example, criticized federal and regional development institutions for economic inefficiency and suggested that they should be revised.
— The activities of development institutions must be absolutely transparent for both government and society. It is important to fix specific performance indicators and give everyone an opportunity to quickly and clearly evaluate how they are being implemented.
The main focus of RVC today is the creation of venture capital funds together with private investors, including large domestic business. Funds, in their turn, invest in high-tech companies. It is the number of funds created and companies invested by these funds that are the main indicator of the effectiveness of RVC.
Today, 29 funds operate with the participation of RVC capital — in 2019, their capital increased by more than a third. The fund portfolio includes over 170 companies from various industries — medicine, energy, healthcare, and new materials. RVC annually invests about 30 projects. We regularly monitor the quality of the portfolio according to a whole set of criteria: potential growth in value, market demand for technologies, and export potential. There are still important “secondary” indicators — socio-economic effects received from investments. These include created results of intellectual activity, taxes paid to the budget, and new workplaces.
By the beginning of this year, about a thousand developments were created in the portfolio companies of RVC funds — RIA (results of intellectual activity).These companies paid to the budget more than 10 billion roubles in taxes and created five thousand workplaces. And not just hired five thousand additional employees, but attracted unique professionals to solve high-tech problems. Last year, the volume of export earnings of our portfolio companies amounted to about $ 100 million. Their products are in demand in Japan, China, the USA, and the UK. On an economic scale, numbers may seem inconsequential. However, the venture capital market in foreign countries also occupies only a fraction of a percent of GDP — 0.4% in the USA, 0.5% in China, 0.6% in Israel, and the role of the venture industry is huge. Developed technological economies understand this and maintain a focus on this area. About half of all modern companies listed on the stock market have passed the stage of venture financing. Almost all the technological giants are among them.
The gap in the volume of venture capital markets of Russia and Western countries is still large, but since 2006, the direct and venture investment market in Russia has grown more than eight times in rouble terms. Our long-term goal is to multiply by 2030 the share of the venture capital market in national GDP, to about 400 billion roubles a year. To get closer to its achievement, we, together with other development institutions, still have a lot of work to do to increase the quantity and quality of venture projects and create comfortable conditions for private capital to work.
By: Evgenia Noskova.