Study: funds increased capitalization, but 2017 VC market fared below the mark
The Russian Venture Capital Association (RVCA), a not-for-profit bringing together VC market professionals and experts, has partnered with Russia’s Venture Investment Fund to put together a study of this country’s VC market in 2017 (Russian-only at this stage).
The key finding in the report: for the first time in four years positive dynamics was observed last year in the cumulative capitalization of domestic venture funds. RVCA watched it grow about 8%, or a noticeable $290m since 2013.
The overall trend remained downward, though. The volume of capital in private equity (PE) and venture capital (VC) funds combined shrank from $26.3bn in 2013 to $21.2bn in 2017, with the average investment amount nearly halved from $12.2m to $6.9m.
The authors of the study attribute the weaker investment activity primarily to “a relative inaccessibility of foreign capital as a result of the current foreign policy situation”—in other words, to the escalating Russia sanctions. The new areas of possible growth, such as blockchain, VR/AR and others, are too strongly linked to the international market for Russian VCs to keep their Russia focus; the funds keep going global.
The analysts believe the Russian VC market is poorly diversified. Last year, the lion’s share of investments came from two government-owned funds, the Russian Direct Investment Fund and the Internet Initiatives Development Fund (the latter widely known under its Russian abbreviation “FRII”).
VC funds that have government capital cut their investment amounts from $1.74bn in 2013 down to $888m in 2017. Considering that state-owned entities invest first and foremost in the Russian rubles, most of this decline can be attributed to the weakening of the national currency, RVCA and its partners point out.
Earlier this year another authoritative group of Russian investment analysts, RB Partners, published its own view of how the Russian VC market was faring in 2017. You can familiarize yourselves with their conclusions here.