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Russian Venture Transactions Surge by 48% From Previous Year
November 13, 2018
According to PwC and the Russian Venture Company (RVC)'s latest look at the Russian venture capital industry, the market for venture transactions was up for the first time in years -- and by 48% to reach US $243.7 million compared to the previous year's $165.2 million.
As in 2016, the total size of the venture capital ecosystem amounted to USD 410 million.
This analysis is outlined in the seventh annual joint PwC-RVC review of the Russian venture industry, MoneyTree™: Venture Market Navigator (MoneyTree™: Russia), for 2017 and the first half of 2018.
During the period in which venture transactions went up by 48%, the number of individual transactions also increased by 21 over the previous year, to reach a total of 205. These dynamics demonstrate that there has been a slight increase in investment activity on the Russian market. In the first half of 2018, a total of 97 transactions amounting to USD 93.4 million were conducted.
The average transaction size also increased, from USD 1.1 million in 2016 to USD 1.5 million in 2017. This growth demonstrates the positive attitude of investors towards venture assets in the context of improving macroeconomic conditions. In the first half of 2018, the average transaction size stood at USD 1.3 million. In 2017, the largest increase in average investment size in the transactions segment was observed at the seed stage (a 2.2-fold increase from USD 0.24 million to USD 0.53 million).
Information technology remains the leading sector in terms of both the number of transactions and the size of investments. In 2017, transactions in this sector accounted for 75% of all transactions and 84% of the total volume. The volumes recorded for the industrial and biotechnology segments amounted to 10% and 6%, respectively.
According to the report, the average transaction size at the start-up stage has also increased (by 49%, from 0.56 million to 0.83 million USD). At the same time, the average investment size at the early stage and at the expansion stage has remained virtually unchanged (from USD 0.83 million to USD 0.82 million at the early stage, and from USD 2.81 million to USD 2.77 million at the expansion stage, respectively). In the first half of 2018, the market experienced two-fold growth in the average transaction size at the seed stage (from 0.53 million USD to 0.90 million USD) and a 61% increase in investment at the start-up stage (from USD 0.83 million to USD 1.33 million). Over the same period, at the expansion stage, the average transaction size decreased by 29% (from USD 2.77 million to USD 1.96 million).
Investor performance fell sharply in 2017 with a total of just 15 transactions (compared with 30 in 2016). The total value of transactions also fell, by 33% to USD 79.9 million, compared with USD 120 million in 2016. Although only a small number of transactions (six) were completed in the first half of 2018, the total value (USD 68.5 million) is already comparable to the final figure for all of 2017.
"After many years of stagnation, the venture market is now at last growing, both in terms of the volume and number of transactions. This demonstrates a gradual change in investor sentiment and adaptation of the market to new conditions. The key question is whether it is possible to transform these currently unstable dynamics into a long-term trend. The venture capital market strategic plan now being developed by the RVC in cooperation with the Ministry of Economic Development and Trade should eliminate the most difficult constraints on the growth of the industry. The most important factors include attracting institutional investors and corporate strategists to the venture capital market, balancing the various stages of the investment cycle and creating a comfortable legal environment for investment."-Alexander Povalko, CEO, RVC.
"According to data on the first half of 2018, the total size of the venture capital ecosystem stood at USD 200 million and the total volume of exit transactions amounted to USD 69 million, which is comparable with the data for all of 2017. This indicates a recovery in demand for venture capital companies in the later stages. Russian venture funds demonstrate high involvement in the global venture capital system. In 2017, the volume of transactions involving Russian funds in foreign projects amounted to USD 696 million, almost three times more than investment in Russian projects over the same period." -Oleg Malyshev, Transaction Services Leader, PwC Russia.
In 2017, the number of grants issued fell to 4,558 and amounted in total to USD 88.5 million. In 2016, by comparison, 4,651 grants were issued and amounted in total to USD 121.4 million. In the first half of 2018, 2,266 grants were issued, amounting in total to USD 37.1 million. As in the preceding year, the most active grant funds were The Foundation for Assistance to Small Innovative Enterprises in Science and Technology (Innovation Assistance Foundation, or the Bortnik Fund) and the Skolkovo Foundation.