Yesterday, Andrey Fursenko, Deputy Minister of Industry and Science, visited the European Business Club where he discussed situation of the venture capital market in Russia. As it turned out, Russian high technologies have so far failed to win their investor. In Russia, preference is given to developed industries. The word “venture” means a “risky undertaking”. It is the high risk that differs venture capital investing, which emerged in the 1950s in the United States, from common financing vehicles: there is no pledge or another guarantee to protect an investor from the loss of his/her money. Typical compensation is in the form of some level of ownership or stock in the company. Venture capital investment is mainly about funding innovative projects: investments into new research projects are regarded to be most risky.
Yesterday, Andrey Fursenko told members of the European Business Club the history of the venture capital market formation in Russia. Venture capital funds came into existence in the early 1990s, while the first venture capital investments were made in 1995. The 1998 crisis undermined the venture capital business, though, according to Mr. Fursenko, investors shouldn’t have fled Russia, but should have rather purchased Russian companies cheap.
Today, Mr. Fursenko says, Russia has about 40 venture capital funds with the total capital of $4 bln, however, they invested only $580 mln in 250 projects in 1994-2001. At the same time the weighted average return on such projects is 16%, which is one of the best indicators in the emerging markets.
Explanation to the success is simple: venture capital in Russia does not flow into high technology as it happens abroad, it is invested Russian-style – into projects which pay back in a short term. For example, 27% of money held by venture funds operating in Russia was invested into food industry, 9% - into medical services and pharmaceuticals, 5% - into packaging, and only 25% - into the highly technological sphere of telecommunications. The Industry and Science Ministry seeks consolation in the fact that in Russia it would take a long while to find a commercial stage research project. ‘To cook a rabbit stew one needs at least a cat,’ Andrey Fursenko sadly joked. ‘And we can hardly find a cat, not to mention a rabbit,’ he says. On the other hand, new materials production projects have come to light in Ekaterinburg, for example. ‘We should review the issue of whether we should establish a free economic area or a technological park in the Urals,’ dreams the deputy minister.
Meanwhile, the majority of large Russian corporations have been already advancing along a path of setting up their own venture funds. YUKOS is running its own fund; Base Element and LUKoil will soon have theirs. Yet the world experience demonstrates that it is small companies such as today’s giants Intel, Apple and Microsoft that produce the highest revenues in this field.
By Alena Kornysheva, Kommersant
