Peculiarities of investments into Russian innovation projects

In Moscow on 27th of October 2011 III Russian Congress “Private Equity” was held. Its participants discussed some peculiarities of investments made into Russian innovation projects. What is special about the market of private investments into innovation companies? What does concern local and foreign investors? And how does hi-tech industry feel itself?

Problems of private investments in Russia

In Moscow on 27^th of October 2011 information agency Cbonds and the portal PREQVECA held third annual conference “Russian congress Private Equity”. This event has become a traditional meeting place of representatives of the fund Private Equity (private investments) and venture funds, institutional investors (LPs/GPs), the companies of the real sector and investment banks of leading consulting companies.  

Judging by quantity and volumes of funds, created for the first 9 months, the situation with private investments in Russia is quite positive, - noted CEO of Cbonds Sergey Lyalin. However while doing more thorough analysis a number of problems arises:

1. The share of government participation in the industry of Private Equity is growing. The majority of all new funds represent some government initiatives. Will government money push forward this industry?

2. Today in Russia in the sphere of Private Equity there is no shortage of money, there is shortage of projects. Russian economy doesn’t generate new interesting projects. All fund directors of Private Equity say that the situation is practically catastrophic.

3. The process of mass IPOs of the Russian companies has not been started. For the majority of funds the way out is through sales to strategic investor.

The only solution for creation of investment ladder is a convergence of Private Equity and venture financing and also attraction of funds of Private Equity to technological projects, - noted director of projects and programs department at “The Russian venture company”, Andrey Vvedensky. In Russia in the sector of IP and telecommunications the industry of private investments has been formed. Now it is necessary to attract these investments into the sectors of biopharmaceuticals, cleantech, projects in the area of new materials, technologies and engineering.

Government participation in innovation projects

Government participation in innovation projects is more a rule – said a managing partner Almaz Capital. So, for example, in USA state investments into the companies of Silicon Valley in 1970 were 4,5 billion dollars, in 2009 – 5 billion. Stable government supported this direction in order for Silicon Valley to be established at first and then – to exist. Private investments into the project of Silicon Valley in 1970 were 100 million dollars, in 2009 – 32 billion. The role of the government in the development of innovation economy is quite important.

Peculiarities of IT-sector in Russia

Russian IT-companies should think about entering the American market – because in USA there is the biggest consumption market of IT-projects – 45% of global sales volume (in Russia this indicator is 1-3% of the global). That is why IT-companies are often invisible for Russian investors, - explains Alexander Galitsky. Moreover, these companies prefer to use the money of private investors and not of the government. The advantages of IT-sector in Russia are that the market from the point of view of the Internet and the mobile market is becoming more attractive and reaches more than 200 million real consumers considering also the CIS countries. Foreign investors buy IT-companies “with Russian roots”.

In Russia venture IT-projects are focused on the Internet, because it is less capital-intensive sphere.

Engineering

According to Alexander Galitsky, there is no shortage of projects. Very often venture projects are created by venture companies. These projects are synthesized from the point of view of what direction is more interesting. In Russia engineering sector is the most interesting, because in this sphere the share of consumption of our country on the world market is higher than in the sphere of IT, it is about 5-6-1-% of the global.

However in Russia there are no technologies, to which investments can come. After the breakup of the Soviet Union the process of knowledge accumulation stopped, industrial research institutes disappeared. This problem should be resolved. One of the ways is to open our market for innovation companies of Europe. For this it is necessary to carry out special policy, also the government should do it too.

Manpower shortage

Another problem is shortage of personnel. In Russia still there is good basic education, but current graduates are in fact half-taught people and they are not prepared for work in manufacturing. It is also necessary to teach them how to develop the product so that it could enter the market.

Besides this, our country lacks specialists in venture industry, which could work with the company on all stages of its development. In order to get such experience Russian funds invest into foreign funds on conditions that Russian specialists within 2-3-4-5 years will be training in these funds to study complete cycle of transactions’ development.

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