Press about RVC

The best Fund: the State and Firms Will Invest in Russian Startups

Source: Izvestiya

Photo: Izvestiya/Aleksey Maishev

The Fund of advanced industrial technology funds will be launched in February. Its main task will be to provide venture financing for innovative projects. The agreement on participation in the Fund was signed by eight large Russian companies. The list of the fund's projects will be put together by private investors, but at first the investments will come from the state. Details are in the material of “Izvestiya”.

The idea of creating a Fund of funds working in the innovation sector arose in March at a meeting of Russian President Vladimir Putin with major investors. The idea was put forward by the founder of Almaz Capital Partners, Aleksandr Galitskiy. According to him, leading corporations are not ready to invest directly in high-risk startups created from scratch. The solution may be to create an intermediary when companies, pension funds or insurers create a structure that invests in venture funds that work directly with new emerging businesses. This idea was confirmed at the RUIE Congress in October.

Later, eight investors signed an agreement to establish the Fund. Among them were AEON, UST, Interros, Polyus, Renova, TMK and Sinara, Uralchem and Uralkali, and PhosAgro. The investment partnership agreement, in which the state and private investors will act as partners-investors, was chosen as the model for the functioning of the Fund. The functions of the managing partner were assumed by The Russian Direct Investment Fund. The issue of the Fund’s management bodies is planned to be finally resolved next week.

Photo: Izvestiya /Pavel Bednyakov

It is assumed that at the first stage the investment will come from the state — as Deputy Prime Minister Andrei Belousov said, the budget has already allocated more than 14 billion rubles for this purpose — and then the investment activity will be borne by the private sector. Moreover, according to the plan, state investments should not suffer from the failure to invest in one project or another.

The form of Fund of funds is very popular in investing. Their main task is to achieve high diversification of investments, thereby reducing risks. Such structures can be very diverse — some invest in hedge funds, others in mutual funds. There are also venture capital funds of funds.

— Funds of funds have a significant role in the formation of developed venture markets, — investment Director of the Russian Venture Company (RVC) Aleksey Basov said in an interview with “Izvestiya”. — In Israel, an example of such an instrument is Yozma, in Europe — the European Investment Fund, in China more than 200 funds of funds with the participation of state capital have been created.

Photo: Izvestiya / Aleksandr Kazakov

Negative properties of this kind of investment may be a large commission on the part of the managing investment company.

— The Fund of funds, as conceived by the authors of the project, does not invest directly in companies, — said the Director of the Center for research of financial technologies and digital economy of Skolkovo-RES Oleg Shibanov. — He transfers money to strong Fund managers who have proven their ability to select effective projects so that they can already invest in promising companies. This allows you to reduce the risks of investment, although sometimes it may cost extra fees to the end investor. In this case, the Commission will be divided into several investors and thus minimized for each of them.

Photo: REUTERS/Brendan McDermid

Venture investments in principle involve risk, but at the same time they are characterized by a higher rate of return. According to Shibanov, such a rule generally depends on the conservatism and attitude to risk of a particular Fund.

— The average US direct investment Fund earns usually 3 percentage points more than the US equity market. We are talking about more than 10% in dollars, but with a fairly significant risk.

— The rate of return for such investments depends on the stage of investment. If it's early, the expected rate of return can be around 70% per annum," explained Teimuraz Vashakmadze, associate professor of business and management strategy at the Institute of Business and Business Administration (IBBA) of the Russian Presidential Academy of National Economy and Public Administration. — And then it goes down to 25%. Below 25%, as a rule, it makes no sense for venture capital and private equity funds to invest in a project.

In Russia in the second half of the 2010s, the venture capital market was developing quite intensively. By the end of 2019, the total volume of accumulated investments was estimated by Dsight at $868 million, of which about one tenth was accounted for by state funds. However, 2020 was not the most successful year. According to the Russian Venture Capital Association (RVCA), at the end of 11 months, the number and volume of investment agreements decreased by 30% — in total deals were concluded for $ 80 million. At the same time in the methodology of RVCA did not take into account some major deals, such as: the attraction of $150 million one of the largest Russian online retailers Ozon. In any case, in such a situation, public-private partnership can seriously support the venture market in the crisis.

According to Oleg Shibanov, the success of this Fund will depend on the number of promising domestic projects, so the question is ultimately in the ideas.

— This is a strengthening of the venture capital market in Russia, so one can only welcome another player. At the same time, the answer to the question of whether there will be enough interesting projects on the Russian market is still unclear. 20 billion rubles is a large amount for our market, so only time will tell what returns will be achieved. The important thing is that it develops infrastructure, and therefore is definitely useful for Russia.

Author: Dmitry Migunov.

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