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Members of the Forum "Ecosystem of Innovations" define the development vector for the venture capital market

06.12.2017
Members of the Forum "Ecosystem of Innovations" define the development vector for the venture capital market

In the end of 2018, the Russian Government plans to present a strategy for the venture capital market development. It is being developed by the Ministry of Economic Development of the Russian Federation jointly with the RVC. The proposals to be included in the strategy were developed by the participants of the IV annual Forum "Ecosystem of Innovations" organized by RVC.

The key agenda of the Forum “Ecosystem of Innovations” in 2017 was to sum up the results of the passing year and identify the most relevant industry trends. Over 250 experts and investors invited by RVC to participate in a dialogue shaped their vision of the venture market strategy, which will be sent to the Ministry of Economic Development.

The main trend expected by all forum participants is involvement of corporations in the venture industry. The other important trends were increased interest in operation on international markets and increased expectations towards raising of institutional investors’ funds. One of the major issues is lack of quality projects and regulatory imbalances.

At the Forum plenary session Oleg Fomichev, State Secretary — Deputy Minister of Economic Development of Russian Federation, has set the goals, objectives and directions for the venture capital market development strategy to be implemented. The strategy’s objectives are to ensure affordability of venture capital and development of tools for venture support. The strategy will include three directions: creation of sustainable venture capital market institutions, expansion of venture capital offers, and development of technology entrepreneurship.

The goal of the unit in charge for building sustainable market institutions is to increase information transparency, improve the regulatory framework to make Russian jurisdiction more attractive and develop regulatory framework for new investment mechanisms (ICO, crowd-funding). These activities should result in public access to information about key players and market indicators, an increased number of small innovative companies in the Russian jurisdiction, more venture capital support for start-ups, including new investment mechanisms.

When it comes to extending the venture capital offer, the key objectives are to remove restrictions on venture investment for institutional investors, create prerequisites for inclusion of corporations in the venture capital industry and stimulate establishment of funds for A and B-stage projects. It is expected that annual investments based on % to GDP should reach figures comparable to those of the European countries, one will see a significant number of NPF-owned venture investments and the number of investments with foreign capital will increase.

Development of technology entrepreneurship will be premised on stimulation of industry-specific venture support instruments, better quality of accelerating instruments and support of regional programs. The important part will be development of "exit" mechanisms: pre-IPO, exchange market, involvement of corporations. The strategy should result in the emergence of new technological entrepreneurs, increased volume of investments in priority areas, which will cover at least 50% of the total venture investment, and increased number of successful start-ups IPO. Partnership with technology start-ups should become a significant source of innovation for corporations.

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Oleg Fomichev finds it important that strategy creation is initiated by the market, and the government is not supposed to play an active role in this matter: "The venture capital market strategy should be developed by the venture market itself. The strategy is the ambition of our venture investors to achieve certain amount of financing, profitability, number of deals and so on. The government expects us to give feedback on what regulation should be established for such companies, what barriers should be removed and what actions should be taken with regard to technological entrepreneurship, so that venture investors could offer projects worthy of venture investments. The primary goal of the government is to set the stage for realizing the existing potential."

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CEO of RVC Alexander Povalko commented: "Economic expectations from the venture capital market start to be growing, we see more transactions and new players coming to the market. There are several problem areas, in particular, lack of quality projects, lack of money, protectability in attracting foreign investors. Our task is to bridge these gaps as fully as possible. At the end of the first general discussion held at the Forum "Ecosystem of Innovations", the market participants have outlined the main barriers hindering the development of venture capital industry. Later on, in the course of the year, a strategy will be worked out. It will help to remove restrictions on use of capital, improve legal protection of companies and create more opportunities for sale of companies. "

The participants of "Ecosystem of Innovations" worked on several subjects. The main conclusion made during the discussion under the track "Investments": it is obvious that with corporations entering the market, it moved to a completely new development phase. The participants expect in near future to overcome the major gap of the Russian venture ecosystem, which is related to lack of strategic investors of start-ups that are corporations. According to experts, start-ups will have more exit opportunities and private venture capital funds will face serious competition after major businesses join the venture ecosystem.

The next important trend was the desire for globalization and cooperation on international markets. To expand their investment potential, Russian companies and VC funds should participate in a global venture ecosystem. It is important that in current situation the market should find an individual development model that would include both the export-oriented approach of the Israeli-Belarusian model, or China's approach to build a national pool of technologies and the globally-oriented approach of the United States.

One of the primary expectations of the participants is the emergence of additional funds in the form of non-public pension funds. In many countries their share in the capital structure of the venture market is about 20%. Once the barriers are removed, and mechanisms of efficient interaction with venture capital instruments are worked out, one will receive additional profit while maintaining risks at acceptable level.

Final conclusion on the track's activities: technological entrepreneurship and venture investor are still not fully reflected in regulation and law enforcement. Regulatory imbalances significantly constrain the VC market development.

The experts of "Regulatory restrictions" and "Intellectual property" tracks agreed at the end of the discussion that it is necessary to amend the legislation and adapt it to the specifics and interests of the Russian venture capital market. The main problems identified within this unit: insufficient awareness among entrepreneurs and investors about the advantages of new legal forms and their opportunities, legal illiteracy, inconsistent or missing legal practice and lack of opportunities to settle venture corporate disputes in arbitration courts. The Forum’s participants see the improvement of legislation as necessary and concerning all sectors and institutions. In particular, intellectual property and taxation, as well as areas of new mechanisms and tools that encourage the use of funds owned by non-public pension funds and insurance companies.

The participants of the "Projects and Technologies" track discussed measures to ensure the sufficient quantity and quality of venture ecosystem projects in terms of project suppliers, that is, universities and members of innovation infrastructure, and from the standpoint of project consumers — corporations. The most discussed was acceleration of start-ups in the market pull format (demand-driven innovation model) and creation of teams for solving industrial problems. The second popular measure was to increase the number of corporate business angels willing to invest money and experience alike. The main offers of market participants included: popularization of technology entrepreneurship among schoolchildren, synchronization of support elements in the regions, training of talented people by universities and development of private players in the field of project acceleration. The corporate representatives, in turn, outlined the main problem when dealing with small innovative businesses: start-ups often do not know what their customer needs and do not understand who exactly inside a company may be interested in the project. The entrepreneurs need to know their main stakeholder within the corporation and offer them a finished product.



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