Foreign investment and the indifference of the authorities: trends in Russian venture

The Untitled Ventures fund, together with the Russian Venture telegram channel, conducted a study of the Russian venture capital market over the past 12 months.

In 2021, the Russian venture capital market grew almost 3.5 times, from ₽24.9 billion to ₽85.2 billion. At the same time, the number of transactions increased not so impressively: from 203 to 221. The market growth was due to an increase in the average ticket in the segments “foreign investors”, “private funds” and “corporate investors”.

The most significant growth was demonstrated by the foreign investment sector. It accounted for ₽44 billion — just over half of the entire market. However, many experts are not inclined to perceive the research data too optimistically.

“I would not be deluded by the growth of the Russian venture capital market revealed in the study, since the early stages in the Russian jurisdiction continue to decline. Most of the large transactions with startups of Russian origin are made in foreign jurisdictions. The deal analysis also confirms that a large portion of the venture capital market is comprised of several very large late-stage deals. The only really good news is that there has been an increase in early stage deals in foreign jurisdictions with startups / investors of Russian origin, ”says Konstantin Sinyushin, managing partner of the Untitled Ventures.

As the founder of baza.vc Alexei Mosolov notes, the growth of the venture capital market is a global trend in 2021: “According to Crunchbase, the global market grew by about 89% on a quarterly basis. The trend is classic — low interest rates and high stock prices motivate investors to rush from the stock market to the private equity and venture capital market. I associate the increased activity of private managers, first of all, with the entry into the active investment phase of their new funds — most of the investments were made by funds that did not invest last year. “

Below are the main trends that can be seen from the statistics of transactions over the past 12 months.

Trend 1. Foreign investors are more willing to invest in Russian startups

The phenomenal growth in investments from foreign funds is associated not only with several large transactions for our market (for example, $ 298 million in the TradingView financial information service from Tiger Global or $ 150 million invested in the online car ordering service inDrive), but also with an increase in the average check in this category several times. Moreover, for the first time in the past few years, the volume of foreign investments exceeded the volume of funds invested in startups in the domestic market (₽44.5 billion versus ₽40.8 billion in investments from Russian players).

If a few years ago many Russian funds succeeded in “going abroad” and becoming full-fledged members of the investor community there, now a noticeable number of startups launched in the Russian Federation have become international and have attracted the attention of the largest venture capital funds.

Trend 2. Activity of private funds doubled

The outgoing 2021 has been a busy year for private foundations. Their activity has approximately doubled, and the volume of investments has increased more than six times. It is known about 48 deals totaling ₽23.8 billion. The Winter Capital Partners fund was especially active, with Vladimir Potanin as an anchor investor. The fund has become a participant in two of the largest deals at once involving the educational startup GetCourse (worth ₽3.7 billion) and the BestDoctor InsurTech project (worth ₽1.9 billion). However, the leader in terms of the closed round was RedSeed Capital of ex-Odnoklassniki CEO Ilya Shirokov, who, with the participation of the Ukrainian Flyer One Ventures fund and the London-based North Wall Capital fund, invested ₽12.5 billion in e-commerce company Accel Club.

Venture investor, founder of the investment company A.Partners Alexey Soloviev considers the results of private funds to be expected. In his opinion, there are four main reasons for such a pleasant statistic.

On the market appeared (or rather appeared, since they have always been, but remained in the shadows, only gaining momentum) players capable of making deals for $ 10 million or more.

Increasingly, Russian-speaking foundations began to participate in huge rounds. For example, the deal with the English language school NovaKid, in which Russian-born funds took part together with such giants as American venture capital funds Owl Capital and Learn Start.

Many key market players are serial venture capital firms, whose track record (profitability figures) allows them to increase the rate of capital deployment, that is, the amount of capital per unit of time (for example, per year).
Grown checks in the market. A typical “check” for each stage (pre-seed, seed, Series-A) has grown 2–3 times in five years.

Trend 3. Corporate funds and corporations showed significant growth

Growth almost twofold — in terms of volume and number of transactions — is observed among corporate funds. 41 deals were closed for ₽11.5 billion.

If in 2020 the growth of this segment was due to one transaction — a venture loan of ₽3.8 billion from Alfa-Bank to the online cinema ivi, then in 2021 several large transactions were closed at once. For example, VTB-Capital invested ₽5.5 billion in the Delimobil car-sharing service. Another VTB structure, VTB Capital Pre-IPiO Fund and Otkritie Capital, invested RUB1.8 billion in kicksharing startup Woosh. And the Russian startup “Tochno”, which connects craftsmen who decorate apartments with developers, attracted ₽735 million from a fund, one of the participants of which is O1 Properties.

One of the most active was the 5 billion rubles Sistema Smart Tech venture fund, launched in early 2021 by AFK Sistema. Among the fund’s most notable transactions are investments in the Urent electric scooter rental service, the Checkbox delivery service and in a startup for vocational guidance of schoolchildren, Profilum.

It seems that many corporations and their funds over the past years have “tasted” startups, understood how they can be useful to large companies, and decided to settle in the venture capital market for a long time.

Trend 4. The segment of private investors remains the most opaque

Private investment remains the grayest area. Participants in such transactions often prefer anonymity, they are not inclined to disclose the volume of investments, the assessment of startups. For example, from the pool of investors who invested ₽310 million in the Russian private space company Success Rockets, only one name is known to Anton Nemkin (who later became a State Duma deputy). In total, in the past year, 61 transactions were closed for a total amount of RUB3 billion (for the same previous period, it became known about 60 transactions for a total amount of RUB3.7 billion).

Bogdan Leonov, Valery Ivanov, Alla Merman and Alexander Kabatov became the investors of the largest round. They invested ₽431 million in the “Take charge!” Sharing project.

Trend 5. Activity of state funds has noticeably decreased

Investors representing the government segment became less active in 2021. This direction has noticeably sagged in terms of the volume of closed rounds. The number of transactions has not grown either. It is known about 29 transactions for a total amount of ₽2.3 billion against ₽3.9 billion a year earlier.

Obviously, the decline in the activity of state funds in 2021 is the result of a large-scale reform of development institutions. In April of this year, a bill was approved on the transfer of powers to manage development institutions to VEB. We are talking about the SME Corporation, the Russian Export Center, EXIAR, the Industrial Development Fund, the Bortnik Fund, the Skolkovo Fund, Rusnano and the Fund for Infrastructure and Educational Programs.

Also, a negative imprint was left by the criminal case against the former general director of RVC Alexander Povalko, who is still under house arrest. He is accused of abuse of office while investing in overseas projects.

It looks like the authorities’ interest in the venture capital market has seriously weakened. Many state funds continue to work, since their commitments are still valid. At the same time, new funds with state participation were almost never launched in 2021. The most notable deals on the venture capital market were transactions involving Moscow Seed Fund, IIDF and Skolkovo Ventures. The largest investments were made by VEB Ventures in the b2b platform for organizing cargo transportation Deliver for half a billion rubles and the transaction between the NTI fund and neurotech startup Neiry for ₽360 million.

Read more on RBC (Russian).