Research on Russian VC market: not quite bubbly, but far from moribund
7 Dec '16
In spite of all current problems and adverse external conditions, the Russian VC market is holding the fort, showing investment activity and looking forward to outshining its own 2015 performance (with Q4 forecasts taken into account). The market keeps bringing in fresh blood; in January-September 2016, 13 new venture funds were set up, of which 12 are privately owned. Corporate investing is on the rise, with corporates accentuating their focus on early-stage investments, both in terms of numbers and moneys. With the VC market looking bullish enough under the circumstances, Russia’s PE market, on the contrary, is nearly stagnant as investors shun any risky activity. These are the key conclusions the Russian Venture Capital Association (RVCA) and partners from RVC, Russia’s fund of funds for innovation, made in their joint research published earlier this week. Please take a quick look at these and other key facts in more detail.
The authors of the Russian-language “Market Overview: PE and VC Investing in the Nine Months of 2016” report maintain that with Q4 2016 taken into consideration Russia’s venture capital market is quite capable of outshining in investment activity its own performance last year. In the three quarters of 2016, 145 deals were clinched and a total of $105m invested (74% and 71% on the entire 2015 level, respectively).
In this period, 13 new VC funds were launched, a result just 30% lower than in 2015. The share of government-initiated funds was nearly negligible this time: out of the 13, 12 are privately owned.
Corporate investing has been on the rise; notably, in the reporting period corporate funds announced an increased number of early-stage investments, with each of these valued at a higher level than before. Such deals in January-September accounted for 21% vs. 13% in the entire year 2015; the average per-transaction investment grew 8% from last year, accounting for 22% in January-September vs. 14% in 2015.
VC market exits were also quite active, reaching 85% of the 2015 level (29 exits in January-September vs. 34 in the 12 months of 2015), the researchers found. This has been identified as a legacy of the past: 65% of VC exits in the reporting period were announced by funds with government capital (44% in 2015) which had dominated the fledgling Russian VC market back in 2006-2010 as its prime catalyst.
Sector preferences continue to bring certain misbalance in venture investing. Most VC investors traditionally looked at IT and telecom projects, shelling out for the sector about 74% of the total number of investments and 77% of the total investment value. Outside of the IT and telecom sector, government-initiated funds ruled (more than 50% of non-IT investments).
While the VC market in Russia looks relatively upbeat, the PE market appears nearly stagnant. According to experts polled, investors tend to lie in wait and recoil from any risky projects. In the nine months of this year, the PE investment number barely topped 30% of the 2015 results, with the average investment amount accounting for just 45%.
“Negative trends are far from prevailing in the market. They much rather reflect the overall economic downfall and as such could be looked at as footholds for developing new trends that would correct the vector of market growth,” said Albina Nikkonen, the RVCA executive director, in a comment to the research findings.
“We can see the market in transition and the market model changing. The market used to grow on companies that emerged in the 1990’s and 2000’s, with growth-stage and expansion-stage funds popping up fast to cream off the best part of what that flow of businesses could offer. However, by 2013-2014 the model could bring no more yield, and a shortage of potential investees was alarming. We have confidence that in two-to-four years the market will pick up steam both in numbers and per-investment amounts, driven by the new generation of companies,” concluded Evgeny Kuznetsov, the acting CEO at RVC.