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The Russian market of private equity and venture investments showed a decline in the first 9 months of the year 2015

10.12.2015

The Russian market of private equity and venture investments showed a decline in the first 9 months of the year 2015

Russian Venture Capital Association (RVCA), with the support of RVC presented the annual report " Market survey on private equity and venture capital investments for the first 9 months of 2015" at the Forum on the development of regional innovation infrastructure "Innovation ecosystem", which was held in Sochi, 10-11 December. This survey was prepared on the basis of methods of collecting and analysing the basic parameters of Russian venture capital funds so as to ensure comparable results of research into Russian market of direct and venture investments. The methods were developed by the Joint analysis group, initiated by RVCA and RVC. Altogether, the survey reflected the data on more than 300 funds, which are included in the RVCA-initiated expert database of Russian venture market.

The study authors noted that shortly after 2012 (when Russian market of private equity and venture investment demonstrated the highest growth ever recorded) its growth rate has been declining ever since.

More research into Russian market of private equity and venture investment show deterioration of key indicators in the first 9 months of 2015. Thus, the total capital of existing private equity and venture investments in the first 9 months of 2015 decreased by $ 2.4 billion as compared with the same period in 2014 and constituted 26.8 billion dollars.

In contrast with recent years, the growth rate of total capital of venture funds decreased considerably and reached in the first 9 months of 2015 the lowest values ever recorded — minus 6.9% (for comparison, in 2013 — 22%). The decrease of these indicators has been significantly impacted by the devaluation of the national currency and the "overheating" of venture capital market in 2012, when there was a rapid increase in the number and volume of funds which came on the market. Similarly, shortages of available capital for the set-up of new funds, primarily, on foreign markets influenced on the loss of growth rate. In 2015, lots of global investment institutions have suspended or ceased their activities on Russian market At the same time the pace with which the capital is raised to found new venture funds on key international markets is formidable — the volume of raised money in the US market in the first 9 months of 2015 has amounted to more than $ 23 billion, which is 150 % of the level reached in 2014.

In Russia the number of funds of private equity and venture investments has increased insignificantly - only by 3.5 % as compared to the level of last year. Moreover, this slight achievement was possible largely because new venture funds were created. For comparison: the growth of this indicator in 2014 was 8.1 %, in 2013 — 20.6 %, in 2012 — 46.7 %. Today Russia can boast of having 360 active funds of direct and venture investments.

In absolute terms, the number of new venture capital funds in the first 9 months of 2015 was quite high (16 funds versus 31 in 2014) . The total volume of new venture funds reached 294 million dollars. The authors note that the newly founded venture funds are largely dominated by state capital — it accounts for two-thirds of their volume. Similarly, the RVC funds have been involved to create new funds in 2014-2015 in the form of investment partnership agreement.

Decline in investment activity has also become apparent. In the first 9 months overall 405 million USD was invested, which amounted only to 31 % as compared to the same period of 2014. In the meantime, the average check size decreased from 21.14 million dollars in 2012 to 2.62 mln in 2015.

The total of investments in the first 9 months of 2015 amounted to 66 % of the level of 2014 — 155 deals against 234 in 2014. The category of venture deals included 146 investment deals, a third of which was ensured by publicly owned funds.

Domestic venture capital investors retain their sectoral preferences. IT sector has been enjoying increased attention: its projects account for 78 % of investment volume and 71 % of the total number of deals. The projects in "high-tech" industries (biotechnology, medicine/health care, industrial machinery, chemical materials, environment, energy) accounted for 19 % of the total and 21 % of total deals.

Meanwhile, since 2012 there has been a gradual alignment of the phasic disproportions in the volume of venture capital investments. The authors believe that this correction largely results from the intensification of seed funds, established with the state share.

Overall, in the first 9 months of 2015 20 companies effected private equity and venture investing into complete exit deals (50% off the level of 2014). The resulted number of exits should be viewed as an achievement amidst the crisis in the industry. However, it should be noted that the activities related to exit deals obviously stem from the experience of previous years.

"The results of the report are hardly surprising, since the situation on venture capital market depends on the general economic situation of the country, noted Gulnara Bikkulova, the director of innovation markets and member of the RVC Board. — However, the current situation is creating trends which are supposed to ensure the market stability in the long term. They include an increased number of exits via tacticians, an increased number of syndicated deals and alignment of the sectoral deal structure in favour of high technology projects ."

The full version of the report can be found on the RVC website in the section .



Information

RVC OJSC is a state fund of funds, development institution of the Russian Federation, and one of the key tools of the state in creating national innovation system. The authorized capital of RVC is more than 30 billion rubles. RVC's capital is owned in full by the Russian Federation represented by the Federal Agency for State Property Management of the Russian Federation (Rosimushestvo). The total number of RVC funds has reached 22 with their total size of RUB 30.3 bn. The share of RVC is RUB 19.3 bn. The number of innovative companies approved for investment by RVC funds reached 184. The total volume of approved investments is RUB 17 bn. Since 2015, RVC OJSC has been defined as a project office for implementation of the National Technology Initiative (NTI) — the long-term strategy of the country's technological development, aimed at formation of new global markets by 2035.

Russian Venture Capital Association (RVCA) is the professional organization which unites representatives of private equity and venture capital. The RVCA activities are aimed at formation and development of the Russian private equity and venture capital market as well as creation of the environment necessary for its growth.


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