Dvorkovich in Kazan: ‘In Russia, people are pegged more to bank financing, not venture’
Russian Venture Forum kicked off in Tatarstan
Why does not the amount of venture investment in Russia grow and why did it stop at a 2019 level while the venture ecosystem itself crosses borders and there is capital traffic, there is a fight for teams? Moderator of the plenary session of Russian Venture Fund, Director of Tatarstan’s Investment and Venture Fund Aynur Adydeldinov wondered. Famous people involved in Russian venture investments were sitting in white soft armchairs: Skolkovo Foundation President Arkady Dvorkovich, Co-Founder of Noodome Ruben Vardanyan, Managing Director of Global Technology Capital Alexandra Johnson, First Vice Director General of the Russian Direct Investment Fund Anatoly Braverman. Answers were contradictory but similar. “Not one ‘black swan’ has arrived but a flock”, Ruben Vardanyan joked.
“What is 30-40 million rubles? It isn’t money”
The major annual meeting of investors and start-ups — Russian Venture Forum — opened at Kazan Expo on 8 April. Over 200 experts from Russia, the USA and China are participating in it, while over 50 companies have placed their stands in search of investors on the exhibition. 10 best teams will also become candidates for a victory in two contests for funding at once. The prize fund in 2021 will be 80 million rubles.
Before the opening of the forum, Tatarstan President Rustam Minnikhanov in company with Arkady Dvorkovich looked over a big exposition of technological entrepreneurship. He was said that over 350 applications had been submitted by innovation companies that want to enter international markets and, vice versa, those that want to be in the Russian market through Tatarstan. Primarily IT companies were exhibited that showed different services and platforms.
Participants in Startup Expo exhibition needed small starting investments, from $200,000 to $150 million. “What is 30-40 million rubles? It isn’t money,” Rustam Minnikhanov said later, “We can allocate a billion at times,” he noted.
But not money but the absence of managers’ interest is the main trouble of developments, the president thinks. “Here I am going, I am interested, while ministers are standing behind me, talking with each other. It isn’t interesting for them,” he complained about the apathy of sectoral executives. He added that ministers should be interested in the latest trends as generators of ideas, not because of their status and post. But it seems we don’t see it, which disappointed the president.
What prevents the venture market from growing
Meanwhile, the venture sphere has been something bigger than a business in the digital era. A technological breakthrough has taken place in the last five years, the focus is shifting towards telecommunications, medicine, educational technologies, artificial intelligence. While leading venture funds operate globally competing for minds and teams that can generate new products. As Aynur Aydeldinov noted, the market of venture investments has increased many times in the last decade, from $50 to $277bn, the number of deals is growing, but in Russia the amount of deals remains stable, from $150 to $200 million, while the market itself is assessed at $200-300 million. “What impedes the growth?” he asked key guest Arkady Dvorkovich.
The head of Skolkovo Foundation replied clearly enough: a liquid financial market hasn’t anyway formed over these years, while private investments are, in fact, quasi-public. For this reason, this capital can’t get to the venture ecosystem.
“I have seen the venture market from different angles: from the point of view of the government and inside, as the chairman of Skolkovo Foundation. The feelings are different,” he shared.
According to him hundreds of good start-ups have been created in Russia over these years, but the main thing hasn’t changed.
“A liquid financial market hasn’t appeared,” Dvorkovich reflected. “In Russia, people are pegged more to banking financing, not risky venture funding. Most investments are quasi-public and banned in risky projects, while the financial market itself considers them unsafe,” Dvorkovich claimed.
Talking about the activity of Skolkovo Foundation’s residents, he said that their revenue rose from 100 billion to 160 billion rubles in 2020, $20 billion investments were attracted. Later, Dvorkovich named another problem that impedes start-ups from developing: the state’s influence.
“7 in 10 educational online platforms were developed by Skolkovo Foundation residents. Then the state can say all of a sudden, more precisely, it has already said: ‘No, we will have the monopoly on online education. Our company will deal with it. And why then make private investments?’ he asked a rhetorical question.
According to him, now they are looking for foreign partners. And they don’t hope that the Russian market will be attractive. “And unfortunately, there can be a lot of tragedies of this kind,” Dvorkovich concluded.
“And to sell for a high price, it is necessary to explain what you are selling and pack it well”
Ruben Vardanyan, a co-founder of Noodome community, reminded the audience that his first venture deal was signed with Tatarstan when he managed Troika Dialogue company. “What qualities should a manager have? And how to sell a company for a high price?” Aynur Aydeldinov asked the guru of venture.
“To have a vision, team and continuity,” Vardanyan named key qualities. “And to sell for a high price, it is necessary to explain what you are selling and pack it well.”
Vardanyan also complained about the underdeveloped market and the absence of business culture. People have been talking about a venture business in Russia for nearly 20 years, but at the moment we wear child’s pants and cannot offer anything serious. And society is sceptical about it, it says: “Look, money is spent, the state is constantly said that it is very important, but where are the results?” While the result is not obvious now.
Flock of “black swans”
Managing Director of Global Technology Capital Alexandra Johnson shared her vision from Silicon Valley to the development of the venture market. “Have you read the book The Black Swan?” she asked the audience. “I say to those who haven’t that the black swan is unpredictable events that are inevitable. So 2020 is our black swan,” she said.
“Not one black swan but a flock of black swans have arrived,” Ruben Vardanyan added.
Alexandra Johnson explained how the USA went through this time. There was panic during the first three months. Investors called each other and asked what to do next. Investment portfolios were divided like in a COVID-19 hospital: these investments won’t survive, these investments will survive on their own, while these need help.
“Nobody has cancelled Darwin’s theory, but not those who were stronger survived but those who managed to adapt faster,” she said. She put an example the bird of a new big start-up — Zoom platform. In conclusion, she supported that investors should back tech entrepreneurs, their role in development is huge.