Creation of an infrastructure for high-risk investments in high technology in Russia may, according to the Russian Industry and Science Ministry, attract up to $200 mln a year to this sector. Private investors say it is not a problem to raise money if there are projects. Yet it is impossible to select such projects without proper infrastructure, so they welcome the Ministry’s initiative.
Yesterday, the Ministry’s Board approved a venture capital investments concept. The paper discusses an array of measures, including tax incentives, which, according to officials, will create an infrastructure of venture capital investments into small research enterprises. Research centers and technological parks in place in Russia develop new technologies, but they are generally unable to market them. To resolve this fundamental issue the Ministry suggests that the state should provide its support – both on the setting up and financial side – in establishing agencies engaged in technologies transfer. Such agencies’ function will be to propose business plan stage projects to venture capital funds.
In addition, the Ministry will support the venture funds themselves. The Ministry suggests to provide them with financial support from the state innovative fund which is being set up now – the government intends to allocate 100 mln Rubles after 2000. Assuming the state investments of about 1 bln Rubles ($30 mln) a year the total volume of high technology investments may reach $200 mln beginning from 2004, say the concept authors. The Ministry also speaks in favor of elimination of double taxation as the capital flows from an investor through a management company to a project. Neither the Ministry of Finance nor the Ministry of Taxes and Duties have seen the concept of the Industry and Science Ministry.
Experts and investors believe that the Ministry’s initiative is useful. Igor Makarov, Partner of Baker & McKenzie, thinks that the state should encourage small high-tech enterprises a little at least. This boosted the venture business in many countries (in Israel, for example) that are high technology leaders now.
Vladimir Burenkov, Russian Venture Capital Association, says that on the high technology side investors could be interested in electronics, biotechnologies, and some technologies developed by defense companies. Nowadays, it is not high technology where investors earn money: they are mostly interested in the food industry, retail, packaging. Valentin Levitsky, Investments Manger, Russian Technologies Fund (RTF), says the reason is that it is much more risky to work with inventors before there is a commercial product, than with a later stage business.
Nikolai Arzamastsev, Head of the Innovations and Technologies Commercialization Department, Russian Industry and Science Ministry, says that there are about 40 venture capital funds in Russia that have raised $1.5 bln to their projects. According to his estimate, Russian high-tech industry accounts for only 5% of the amount (compared to 30% abroad). Mr. Levitsky, RTF (the only high technology investment fund), says that his fund with the capital of $5.3 mln is based exclusively on foreign money.
According to Zare Aroutunyan, Director, Venture Capital Center, Base Element, it is much easier to raise money for venture projects in Russia than to select such projects. Mr. Aroutunyan hopes that by creating the infrastructure the Government will help to bring investors and inventors together.
RUSSIAN INDUSTRY AND SCIENCE MINISTRY PROMISES WONDERS: Andrey Fursenko, Deputy Minister, estimates that as soon as the concept is approved additional 3,000-5,000 small research and technical companies will emerge each year after a short term. According to Mr. Arzamastsev, over the last 20 years the United States have spent $13 bln on the venture capital business, while the companies that emerged through state investments paid over $100 bln in taxes. Mr. Fursenko says that venture capital will help to create at least 150,000 jobs in the high-tech industry and arrange conditions to bring back the fled capital.
