Investments in startups in the Russian Federation have decreased tenfold

In the first half of 2023, the Russian venture market showed a record decline – the volume of investments in startups decreased more than tenfold, to $27 million, according to data from the Dsight platform. Experts explain that in the current situation, venture investments are not a priority: some funds, instead of investing money in projects, preferred to buy out foreign companies leaving the market at a large discount. In addition, now venture (by definition risk-prone) investors are showing unprecedented caution and prefer to invest only in mature startups. In this situation, corporations will have to commercialize new developments and bring them to the market on their own.

The decline of the venture capital market in the Russian Federation began in 2022 and by the end of the first half of 2023 it had already become a landslide. According to the Dsight platform (the most comprehensive database on venture capital), the volume of investments in this market decreased by more than ten times compared to the first half of 2022 – from $287 million to $27 million. The number of transactions decreased less significantly – by 21%, from 84 to 66. According to analysts, the decline will also be recorded in the second half of the year – a gradual recovery of the market is possible in 2024 if the geopolitical situation stabilizes.

The largest share of investments in the first half of the year came from private funds – $11 million, in annual terms this figure decreased by almost nine times. Investments from business angels amounted to $6.6 million, corporations and corporate funds – $6 million. The volume of funds from public investors amounted to only $2.5 million, having decreased in annual terms by 27 times. Foreign investments amounted to only $0.6 million. “In the current economic situation, venture investments are not a priority: some funds that invested in projects with a focus on the Russian market preferred to buy out foreign companies leaving the market at a large discount,” says the Dsight review .

Now venture (by definition risk-prone) investors are demonstrating unprecedented caution, experts say. They prefer to invest in mature startups, reducing support for “seed” (early stage) projects. Dsight suggests that instead of startups and vendors that have left the Russian market, corporations themselves will commercialize new products and developments and bring them to the market. The trend towards the development of corporate innovation will continue until the geopolitical situation improves, experts believe.

Against the background of such disappointing statistics of the venture market, officials and experts discussed the topic of investment in innovation on Friday at the “Made in Russia” export forum at the session “Unicorns in the markets of the future.” Let us be clear, we are talking about startups that, in no more than ten years from their founding, have reached a valuation of $1 billion, but have not gone public and remain at least three-quarters owned by their creators. There are no such “unicorn” companies in Russia. As First Deputy Prime Minister Andrei Belousov noted at the forum, the story of the foreign “unicorn” is “not even about how a technological Cinderella married a prince, it’s about how she became the king’s mother-in-law.” He explained that the environment required for a successful startup is not enough. The next step is also needed, when the company successfully conquers the market and creates a horizon for capitalization growth over several years.

According to him, the idea of ​​​​creating an ecosystem for startups, which appeared in mid-2021, has come to the fore since 2022. Some of its elements are yet to be created. For example, the metric (data on the basis of which one can judge the success of startups) is not yet ready; only the first step has been taken to create a mechanism for their identification – the law on small technology companies has been adopted. What is also needed, in the words of the First Deputy Prime Minister, is an “adequate” legal environment: protection of intellectual property rights and the circulation of the results of intellectual activity, as well as the provision of a legal right to risk. “In terms of budget legislation, failure to obtain the result of intellectual activity means misuse of budget funds, and this is already an article of the Criminal Code,” noted Andrei Belousov. Let us recall that earlier the White House took a step in this direction – it gave VEB.RF the right to take risks when investing in high-tech startups (see Kommersant on February 28).

Venera Petrova