Venture Market Navigator
PwC Technology and Innovation Center together with RVC present the fifth annual review of the Russian venture industry "MoneyTreeTM: Navigator of the Venture Market" for 2015
"MoneyTreeTM: Russia" was prepared by PwC with the support of the Russian Venture Company (RVC) on the basis of information provided by the Joint Analytical Group (OAG), created at the initiative of the Russian Venture Investment Association (RAVI) with the support of JSC RVC.
The data analysis took into account the actually received venture investments made by business angels, investment companies, private, corporate or state venture funds in the amount of no more than $100 million during one round of financing. If the company received investments as a result of two or more rounds, then each round was considered as a separate transaction. The study took into account transactions formally completed in the period from January 1, 2015 to December 31, 2015.
Venture investment refers to the acquisition of the share capital, authorized capital of new or growing companies, while the acquired share was less than the controlling stake. The invested funds are mainly used for business development, and not for the purchase of shares of existing shareholders (founders) of the company. This report examines companies operating in the field of information, biological or industrial technologies in the territory of the Russian Federation.
We would like to draw your attention to the fact that the presented report does not include information about transactions that are focused on the foreign market, but in which investors are representatives of Russian business.
This report contains information about the amount of grants allocated. A grant is understood as a gratuitous subsidy allocated to a company for conducting scientific or other research, development work. However, grants are non-market sources of financing and are not taken into account when determining the volume of the venture transactions market.
Within the framework of this report, transactions are also considered, as a result of which investors exit. However, similar to grants, they are not taken into account in the total volume of the venture transactions market.
According to the report, the Russian venture capital market in 2015 demonstrated a certain margin of safety. Indicators of the volume of venture transactions in dollar terms have decreased, but the observed decline in market volume is largely a consequence of a sharp drop in the average annual ruble exchange rate by 37% according to the Central Bank of the Russian Federation.
The market of venture transactions in dollar terms decreased in volume by 52% compared to 2014 and amounted to 232.6 million US dollars. The average transaction size decreased by 55% and amounted to 1.5 million US dollars. The number of venture deals concluded increased by 21% compared to last year, and the number of exits decreased by 13%, while the total cost of exits in 2015 more than doubled.
The industry structure of the market remained unchanged in 2015, the IT sector retained the leading role in terms of total investment and amounted to 88%, but the segments of industrial technologies and biotechnologies in 2015 showed steady growth and in total increased their share to 12%.
"The results of 2015 showed a continuation of the trends of the previous year in general," said Gulnara Bikkulova, Member of the Management Board of RVC. – This is most likely an indicator of a certain maturity of the venture ecosystem, which allowed the market to stand, and the efforts of the state to support those market segments where the participation of private investors is not enough. This concerns, first of all, the early stages of project development and support for developments in high-tech knowledge-intensive industries."
The number of venture transactions in the IT sector in 2015 decreased by 27% compared to the previous year and amounted to 97 transactions with a total value of US$ 205.9 million.
The e-commerce segment remained the leader among the IT subsectors in terms of the number of transactions and the amount of investments. In 2015, 17 transactions worth 73 million US dollars were made in this subsector. Cloud technologies and software took the second place in terms of the number of transactions – 11 transactions totaling $ 34.4 million were concluded in this segment, which is 2 transactions less than in 2014 (by 28% in monetary terms).
According to the average size of the transaction, the first and second places, respectively, were taken by the subsectors of advertising technologies and reference and recommendation services/social networks (US$ 5.5 million and US$ 5.4 million). The e-commerce subsector took the third place (4.3 million US dollars).
The biotechnology sector showed a significant increase in the number of transactions in 2015, showing an almost sevenfold increase in their number from 6 to 39 transactions. To a large extent in 2015, this indicator was formed by fund transactions involving RVC capital. The number of transactions in industrial projects has increased from 10 to 15. Despite this, the volume of investments in biotechnology in monetary terms decreased by 48% and amounted to 18.1 million US dollars against 35.1 million US dollars a year earlier. Investments in the industrial technology sector, on the contrary, increased by 65% and amounted to US$ 8.6 million compared to US$ 5.2 million in 2014.
Separately, the report examines large transactions with a volume of more than 100 million US dollars. The number of large transactions in 2015 remained at the same level: 2 transactions were made in the amount of 200 million US dollars, compared with the same number of transactions in the amount of 350 million US dollars in 2014. One of the deals was made in the games subsector – Alisher Usmanov's USM Holdings invested $ 100 million in the esports community Virtus.pro .
The number of investor exits in 2015 decreased slightly and amounted to 26 transactions, which is 4 transactions less than in 2014. At the same time, the total cost of exits in 2015 more than doubled and amounted to 1573.5 million US dollars compared to 731.5 million US dollars in 2014.
Also, in accordance with the research methodology, grants are considered separately in the report. According to the results of 2015, the number of grants issued amounted to 6074 grants. The total amount of grants amounted to $178.2 million in 2015. In ruble terms, the increase in the amount of grants issued turned out to be significantly higher than the growth of its dollar equivalent. A significant part of the grants were awarded to support projects in the industrial technology and biotechnology sectors. Traditionally, the bulk of the grants were issued by the Foundation for the Promotion of Small Forms of Enterprises in the Scientific and Technical Field (the Innovation Assistance Fund, or the Bortnik Foundation). The number of grants issued by the Foundation in 2015 amounted to 5,792 grants in the amount of US$ 155.4 million. The final number and amount of grants were influenced by the capitalization of the Fund in 2015, which allowed an additional 527 grants to be issued. The second place in terms of activity was taken by the Skolkovo Foundation, which in 2015 issued 256 grants in the amount of 21.3 million US dollars. According to the results of 2015, the increase in grant activity allowed to compensate to a certain extent for the decrease in the supply of money for early-stage projects.
"At first glance, the decline in the volume of the venture capital transactions market, which is the basis of this study, looks depressing. There was indeed a negative trend, but it is necessary to take into account the fact that we are talking about dollar indicators. On average, the ruble depreciated by 37% over the year (according to official data). It is impossible to single out the impact of the currency component in each transaction unambiguously, but it is obvious that the drop in the volume of the Russian market in rubles was much less than 50%. – notes Andrey Ekimenko, director of Corporate Finance at PwC in Russia – The market itself is gradually changing: new players are emerging who are still cautious and invest small amounts in understandable companies. As a result, investment activity, expressed in the number of transactions, increased, and the average transaction amount decreased. Here we are probably dealing with the natural development of the market at the current stage of its life cycle. Interestingly, the dynamics of a decrease in the share of investments in IT is becoming more and more clearly evident, but we should not expect drastic changes in the industry structure – in all countries where our study is published, we observe the dominant role of this segment"
Summing up the main trends in the development of the Russian venture industry in 2015, the study concludes that, despite the unstable macroeconomic situation, the Russian venture market has demonstrated a good margin of safety and further growth in the number of exits and the emergence of success stories are now significantly limited by the absence of a large number of interested strategic investors. In general, the level and dynamics of investment activity in the market allow us to form a cautiously optimistic forecast in the absence of serious external shocks.
You can download the study here.
For more information, please contact:
PwC
Marieta Khamkhoeva tel.: +7 (495) 9676000 ext. 2405,
e-mail: marieta.khamkhoeva@ru.pwc.com
RVC
Yulia Davydova phone: +7 (903)156-68-38,
e-mail: Davydova.yv@rusventure.ru
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