Gulnara Bikkulova, Member of the Board, Director of RVC Innovation Markets Department
In any country, the venture market lives in cycles: investment bubbles deflate and are followed by periods of decline and then by periods of rise again. During the periods of recession the industry usually consolidates, the number of funds and transactions is reduced by about half.
After five years of rapid growth, almost all parameters of the Russian venture industry show lower results than a year ago. The natural investment cycle is under the influence of macroeconomic instability, changes in the political situation and the growth of distrust in public institutions.
This is the first cycle for the young Russian venture industry. The industry was created in almost incubation conditions, with the active participation of the state, when development institutions close all market gaps that prevent the balanced establishment of the market. These include the lack of quality projects for investment, difficulties in investment at early stages, sectoral imbalances in favor of investments in Internet projects.
While experts argue curiously how quickly the young Russian venture industry will go to the next cycle, how long the recession will be - one, two or ten years, I would like to note the trends, due to which the venture world will never be the same again.
Professionals and amateurs. The rapid growth of the venture capital market and the state's efforts to promote the industry have led to appearance of a large number of investors at different stages. Most investors are professionals from the financial and banking sectors and have little or no experience with technology assets. However, private investors are still not interested in projects at very risky early stages in complex high-tech industries, so the state still remains quite active. Thus, in the next few years, the Russian venture industry will be a hybrid of public and private financial instruments mixed with new forms of financing of projects. Grants, crowdfunding, bank loans, venture capital funds with "smart" and not so smart money, corporate investment which will begin to work more actively in the market, etc. will become the basis for a new Russian venture industry.
Syndication and various forms of cooperation. More and more transactions are carried out syndicatedly at all stages it means that several investors invest in one project. For young markets, which include the Russian one, it is also a tool for new investors to learn how to work with technology assets cooperating with more experienced colleagues. It would seem that this approach has only advantages. In difficult times of reduction of liquidity in the market, for example, it provides many investors with an opportunity to invest less money in more projects. In practice, this leads to the opposite effect. A "group mind" invests bigger sums in those projects that are obvious leaders in their segment, which reduces the opportunity to attract investment for less bright start-ups. By the way, this trend can be traced not only in Russia. In general, in the world, especially in the USA, the year 2014 was quite successful in terms of creating new funds, i.e. the amount of funds available for investment increased, while the number of transactions is decreasing everywhere.
Globalization or closure of the market. The venture capital industry is global by its nature. There is a constant exchange of experience, information; joint transactions of investors from different countries are being closed. In the current situation, the number of projects with traditional partners has decreased, but there appeared offers from BRIC partners. In the coming year, polarization of the industry will obviously happen. Investors who invest in projects with international potential, will actively build a network of their representative offices abroad to promote their portfolio companies in international markets. In the hope of interest in Russian start-ups by Russian companies heated by the state and macroeconomic conditions, some funds will focus on the Russian market.
Lack of personnel. Perhaps, this is the greatest challenge that faces the Russian venture industry. It has several causes. Firstly, now most of the funds that have completed an active investment cycle focus on increase in portfolio capitalization. This implies engagement of specialists with experience in managing fast-growing technology companies not only in Russia. Secondly, Russian corporations driven by competition, import substitution and the state will actively introduce innovative programs (corporate venture funds, corporate accelerators and incubators, etc.). Traditionally, venture capital market experts are engaged to introduce such corporate programs. Finally, new funds appearing in Russia are mainly established by specialists from the private equity industry having little experience in working with technology assets. This will be compensated by engagement of specialized analysts, the lack of whom is felt in the market right now.