Venture Capital Investments — 2020: Market Leaders’ Forecasts
9 января 2020

In 2019, the majority of private venture funds investing in projects at advanced stages hardly considered any projects which focus entirely on the Russian market. These projects were able to raise money from accelerators, seed funds, and business angels, mainly at the start-up stages. Mail.ru, Vnesheconombank, and MTS strengthened their market dominance in the venture capital investment sector. RBC discussed the trends expected to shape the start-up investment market next year with the market players.

“The size of an average investment per project will rise”

Ruslan Sarkisov, CEO of the Far East High Technology Fund

Projected market growth: Transition into the active investment phase by the corporate and state-run venture funds created in 2018–2019 is an important factor that will drive the venture capital market next year. This means that we will see more deals, especially in the b2b segment. I expect the size of an average investment per project to rise. This is bound to have an affect the innovation environment, as it will make it possible for company founders to focus on their core business, instead of thinking about raising funds for the next stage, and it will give companies more stability. On the other hand, the appearance of new investors on the scene will not equate to an increase in the number of high-quality projects, and therefore, we expect competition will intensify for these projects. And as a consequence, entry valuation multipliers will be inflated.

Besides, the market is waiting for decisions to be taken concerning acceptable cases and non-recovery of government venture capital investments in hi-tech companies. Vladimir Putin has said this issue has to be explored in October. The government is expected to present its proposals by June 2020 together with the Accounts Chamber, Agency for Strategic Initiatives, and General Prosecutor’s Office. This is an important topic, as a major proportion of venture capital investments being made in the Russian Federation today (including RVC funds) are at the expense of public funds in one way or another.

Russia’s National Strategy of Artificial Intelligence Development which was adopted in October is an important benchmark for investors. This means that the government will allocate more funds to artificial intelligence projects, which will in turn see an influx of venture capital into this sector.

The simplified fintech implementation opportunities which were introduced recently contribute to positive results being obtained from the regulatory effort in 2020. In this context, we need to wait for decisions to be made regarding the bill On Experimental Legal Frameworks for Digital Innovations drafted by the Ministry of Economic Development and the draft law On Digital Financial Assets, which will be discussed extensively in 2020.

Company plans: We are planning to launch a seed fund to invest in start-up projects in the Russian Far East with a tentative size of RUB 1.5 bln. This financial instrument is necessary to shape the region’s venture capital system. We are also exploring the option of attracting new investors to the fund (total investments: RUB 5 bln). After we launch the start-up fund and increase the size of the authorized capital at hand, we will be able to invest at all core venture rounds, from seed stages up to the scaling stage.

The current size of an average investment made by the fund is RUB 100–200 mln. If we increase the authorized capital, we will be able to enter deals worth RUB 500–700 mln per project in addition to the current size of the projects. There are no changes in our plans form the point of view of our mandate: we are investing in the Far Eastern projects and the localization of projects in the Russian Far East. As for the sectors that are new to the fund, we are focusing on MedTech and EdTech in particular.

“Mastering IPO practices will become an important vector for companies”

Alexey Basov, Deputy CEO, Investment Director of

Corporate investments: Mastering the venture toolkit will be the key development area of the venture capital market for both state-run and private corporations next year and in the years to come. Mechanisms such as acceleration, corporate venture funds, mergers and acquisitions, spin-offs (demergers of new companies under restructuring — RBC) will be important in transforming the entire landscape of the venture capital market. Establishing a fundamentally new type of player will provide the market with a new source of capital and liquidity.

IPO: Mastering IPO practices will be the second important vector for mature companies, both on international and Russian platforms. Quite a number of companies have entered the current venture capital market period with revenue, potential, and a corporate structure that meet the requirements of public platforms and public investors. The business community’s call for transparent rules for the game in investment relations with the government have finally been heard, and the Russian President has ordered for them to be developed accordingly, which will serve as another market driver.

Company’s plans: We will continue our efforts to create integrated innovation cycle platforms for corporations and entire sectors. We will also launch an action plan to verify and professionalize market players using learning mechanisms and certification models. The third major vector will be the work to align international investment vehicles geared towards transferring technologies to Russia, and scaling successful Russian companies to the global market.

“AI technologies will become available to a broader spectrum of companies”

Viktor Orlovsky, founder and partner of Fort Ross Ventures

The sectors that will be promising: Up until now, it has been internet technologies and ultra-modern processors that have changed the way we consume goods, services, and information, but they have had little effect on the products we consume. Over the decade to come, instead of seeing changes in the method of consuming products and services, we will be seeing changes in the actual products and services, which will be evolving at a constantly accelerating pace.

Internet will become available to everyone on the planet. Satellite Internet access will become available to people living in rural parts of Asia and Africa for the first time. These kinds of projects are already being implemented by the British company Open Web and the US space operator SpaceX. The commercial production of artificial meat will be take off. As early as next year in certain parts of the world, we will be able to try in vitro meat, produced from a single cell.

High-performance computing and artificial intelligence technologies will become available to both major companies and to large and medium-sized businesses. This will mean that even medium-sized businesses will be able to use supercomputer resources without having to create an expensive data center — everything will be done through cloud computing. Artificial intelligence platforms will also become far more accessible.

Advanced home assistants will be able to integrate different household electronics we use in our homes — from washing machines to fridges and smart door locks — into one single system. Low-speed drones will deliver food and other packages. These delivery services will first debut in university campuses and mega-cities.

We will see commercial-scale use of blockchain — in payment systems and banking services. We will see the first major instances where blockchain technologies and smart contacts will be used as the fundamental basis for digital currencies, payment systems, international payments, and other financial instruments.

“Negative developments are due to the economic and political situation”

Alexey Solovyov, founder of A.Partners investment company, venture partner of Skolkovo Ventures

Market conditions: According to the latest Venture Barometer, over a half of investors (59%) have increased their investments this year. Next year, 76% of investors are planning to increase the total amount of investments. An increase in investment activity could be facilitated by a number of factors:

Greater activity by corporations in various formats, including as direct project investors and buyers. Public venture: This segment is making the most significant contribution to market development. Worth noting are the activities of funds such as Skolkovo Ventures, New Industry Ventures, and VEB Ventures, which has updated its mandate and is planning to play an active role in market development. RVC has established a few funds that are either operating on the market already or are expected to launch their operations next year. Major deals: According to investors, the list of positive developments that have affected the venture capital market this year includes HeadHunter’s IPO and other major entries including Acronis, inDriver, Vocord, Miro, and Playrix. All of these deals are encouraging for the market and have a positive effect on its growth, as they attest to the viability of the venture capital investment model in Russia. Negative developments are due to the economic and political situation on a whole. These are signals such as the arrest of Michael John Calvey, criminal cases, and actions taken by inspection bodies. There are still gaps in the legislation that make it harder to use traditional investment vehicles in the venture capital market such as convertible loans. Filling these gaps may bring about significant changes.

As for examples of positive steps on taken by the government, I should mention the Skolkovo angel investment support program, which enables business angels to secure tax credits.

Company’s plans: In 2020, we are planning one or two major withdrawals from Prostor Capital’s portfolio. I am also planning to develop A. Partners investment company, whose project portfolio includes Round A. This project is intended to develop the market for direct investments in small and medium-sized projects that do not qualify as ventures, but have a strong investment potential. We are aware of this new trend in promoting entrepreneurship and investments in Russia, and we would like to be directly involved.

“It is faster and more cost-effective for us to create our own projects”

Maxim Volokhov, Director of Admitad Projects start-up studio

Market conditions: The current situation for emerging companies is as follows: you can create a project and raise a couple of investment rounds. In contrast, the scenario of launching and developing a bigger project or starting investments on your own is virtually impossible. Without this cycle, all other factors are secondary and unlikely to make any significant difference in the situation at hand.

Company’s plans: We have narrowed down the range of companies we view as potential venture vehicles for investment and acquisition even further. We will not consider any projects unless we have a clear understanding that they will definitely benefit our core business right after the deal, not hypothetically or in the future.

We devote the most attention to creating our own start-up studio as a venture builder (a company that creates its own projects from scratch to be sold later on — RBC), as the market is not overflowing with interesting projects that meet our criteria, and therefore, it is more cost-effective and less time-consuming for us to create our own projects than searching for projects that have grown up on their own.

“We do not expect any major change”

Alexander Korchevsky, Partner of I2BF Global Ventures

Market context: We do not expect any major change in the Russian market. On the contrary, we think that the recent trends where private venture funds are increasingly striving to invest their money in the companies that have already entered or are planning to enter the other geographic markets (US, Europe, etc.) are highly likely to persist. The projects focusing on the Russian market or offering sophisticated hi-tech products have to rely on business angels or work with government and quasi-government funds to raise investments.

Company’s plans: I2BF will invest out of I2BF Digital, focusing on the US market. We are open to founders from all over the world, but we mostly welcome companies with the potential to enter the US market in particular, where we can create added value for our portfolio companies on top of the money invested.

By: Dmitry Varlamov

Read more on RBC: https://pro.rbc.ru/news/5dfa4d7b9a79472b341ae1c3

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