Who does not take risks is not an angel
Business angels: risk everything to get a billion
Ekaterina Drobinina, BBC Business Correspondent, Moscow
Private investment in venture (risky and young) business projects in Russia is 10 times less than in Europe and 70 times less than in the USA.
Venture financing in Russia in half of cases is investment in information and communication technologies: software, Internet, telecommunications, TV and radio channels. Biotechnologies or energy efficiency, popular in the USA, have not yet aroused interest among Russian venture investors – such projects are many times more expensive than Internet business, experts explain, and the venture capital investment market in Russia still has a short history.
Private capital in venture projects usually comes in two forms: with a business angel, that is, a private investor who invests his money in projects at early stages, or with a venture fund that comes at later stages of business development and, as a rule, brings large sums.
The main difference between the investments of business angels and those of venture funds is that the fund manages the money it has attracted on the market, while the business angel does not delegate management to anyone and participates in the development of the business project itself. In both cases, the investor receives a share in the company in exchange for monetary investments, and in both cases he understands that he risks losing all the money invested.
For this reason, the state should not participate in venture projects and should not choose an investor, says Esther Dyson, a member of the board of directors of Yandex. A business angel should be ready to lose his investments, while the state cannot afford to lose taxpayers' money.
According to the European Association of Business Angels, in the European Union such investments amount to an average of 3-4 billion euros per year, and in the United States - 22.5 billion dollars.
According to Konstantin Fokin, President of the National Association of Business Angels, the volume of investments in Russia is $ 300 million per year.
A couple billion in a couple of yearsThere are no official statistics on how many projects become successful and how many end in failures.
Firstly, because no one likes to advertise unsuccessful deals. Secondly, of all the venture deals in Russia, it is the "angel" ones that are the most non–public, says Andrey Kulikov, an analyst at Fast Lane Ventures.
"Angels don't tell anyone about their deals: no one wants publicity, no one wants to tell how much they invested, and competitors don't have to know how much you invested, as this will attract additional players to the market who will decide to copy the idea by investing a little more money," the expert says.
Out of ten projects, two or three usually "die". One project becomes very successful, paying off ten times, and the rest just go to zero, experts say. These statistics, however, are not official and are based on several examples of investment portfolios.
Around the world, most venture investments are carried out in those projects that are growing rapidly, notes Evgeny Shadchnev, an intra-corporate entrepreneur at Forward Venture Partners.
"These are companies like Facebook, which may have 10,000 users this year, and 10 million users next year," says Shadchnev.
For example, at the end of 2004, Peter Tiel, a business angel and co-founder of the PayPal payment system, invested half a million dollars in Mark Zuckerberg's company – a little–known Facebook startup. In exchange, Tiel received a little more than 10% of the company's shares, although over time his share was diluted to 3%. According to unofficial estimates, Facebook is currently worth at least $ 100 billion, so the share of the Portfolio has increased in price 600 times in seven years.
"Some companies, on the contrary, must attract truly gigantic investments. For example, the company Groupon, which during its existence (and the company was founded in November 2008) attracted $ 1.2 billion in investments. At the same time, many investors still have no feeling that this money will return, because there are very big questions about the company's business model," says Evgeny Shadchnev.
Internet vs. ScienceCompared, for example, with American venture investors, Russian venture funds and business angels almost completely ignore investments in bio- or energy-efficient technologies.
In the last quarter of 2011 alone, according to a Moneytree report prepared by PwC and the National Venture Capital Association, $1.3 billion was invested in the biotechnology industry in the United States (almost 20% of the total investment in the last three months of the year).
For the whole of 2011, the total volume of venture capital investments in the United States amounted to $ 28.6 billion. The most popular industries were software ($6.7 billion), biotechnology ($4.7 billion) and energy efficiency ($3.5 billion).
According to the Russian Venture Investment Association, in Russia in 2010, the volume of investments of venture investors amounted to $ 2.5 billion. 42% of this money (more than $ 1 billion) falls on the telecommunications and computer industries.
Creating an Internet company does not require such funds as creating a company to develop new biotechnologies, explains Dmitry Chikhachev, managing partner of the Runa Capital venture fund, since companies do not invest in materials, equipment or developments.
"The size of one transaction is smaller, so investors go to this sector faster," says Chikhachev.
According to PwC, the average transaction size in the last quarter of 2011 in the United States in this industry was $ 7.4 million, and in the field of biotechnology – $ 11.5 million. The largest deals were made in the energy sector – $ 15.2 million.
The fast-growing market also attracts investors on the Internet, says Andrey Kulikov.
"The number of users and the intensity of Internet use – both mobile and stationary - are growing. This is a new attractive growing sector of the economy in all countries of the world," the expert says.
According to Fast Lane Ventures, $250 million was invested in young Internet companies in Russia in 2010, and $ 510 million in 2011. To already established companies (search engines Mail.ru and Yandex, Odnoklassniki and Vkontakte social networks and the Ozon online store) in 2010 and 2011, more than a billion and 1.6 billion dollars were invested, respectively.
"I don't think Russia has a bad investment climate"One of the reasons why venture capital investment is still developing slowly in Russia is shortcomings in legislative regulation, lawyers say.
"All transactions in the field of private direct investment are made under English law," says Dmitry Koronchik, head of the Pepelyaev Group's private direct investment group. – According to it, for example, it is possible to provide for the possibility to refuse or withdraw from the project if the investor is dissatisfied with the results of the legal review. According to Russian legislation, such an opportunity is not provided to the investor."
"Unlike foreign law, which helps to protect your investments, in Russia, for example, there is no concept of giving up rights, for example, the right to file a lawsuit," explains Koronchik.
"Moreover, there are certain difficulties, as there are restrictions when concluding transactions. That is, the occurrence of certain events – the purchase of shares, for example – can be put under certain conditions. According to English law, these conditions do not necessarily have to depend on the parties," the lawyer continues.
According to the Russian Civil Code, the parties cannot conclude a transaction under a condition, the fulfillment of which depends on the will of one of the parties.
"For example, if the acquisition of shares in a company requires the consent of the FAS, then, under Russian law, such a condition is not considered as a condition independent of the will of the parties. That is, the parties cannot conclude a contract and make its execution dependent on the receipt or non–receipt of consent," says Koronchik.
According to Dmitry Chikhachev, managing partner of the Runa Capital venture fund, working conditions in Russia for venture investors are not as scary as they are described.
"I don't think Russia has a bad business climate. In my opinion, this is some kind of horror story that is based on stories from the 90s," says Chikhachev. "Entrepreneurship has been around for the second decade, technological entrepreneurship has been around for literally a few years, and the venture industry has been around for three or four years."
Portal "Eternal youth" http://vechnayamolodost.ru25.04.2012