Startups do not start – Newspaper Kommersant No. 172 (7373) of 09/19/2022

Russian venture funds have repeatedly reduced their interest in domestic IT startups. It falls, if we exclude especially large transactions that stand out from the sample, and the lower investment threshold: if in 2021 the average bill for a project was 300–500 million rubles, now it has dropped to 20–30 million rubles. Experts note that at the same time, the number of M&A transactions in the technology market is growing – with the help of acquisitions of small projects, large companies close the shortage of qualified IT personnel.

From January to August 2022, Russian investment funds concluded only 31 deals with IT startups against 121 deals for the same period last year, Kommersant was told in the investment A.Partners. The company clarified that now there is one investor per round, while last year there were two.

The average bill for one project at the same time increased from $10.5 million (630 million rubles at the exchange rate of the Central Bank on September 16) in 2021 to $14 million (840 million rubles) in 2022. Thus, the market fell sharply in terms of the number of transactions with an increase in the average check. “However, a significant share in the statistics is made up of venture deals by institutional and large industry investors, and if we take them out of the brackets, then the average check drops significantly,” Andrey Sharlay, investment analyst at A.Partners, clarifies.

A number of investment funds have indeed lowered the lower limit of the average check, sometimes by dozens of times. If earlier the average bill for an investment in an IT startup was about 300–500 million rubles, and investment rounds of B2C projects reached 2 billion rubles, now the market is based on investments with an average bill of 20–30 million rubles, confirmed “ Kommersant is an interlocutor in a large investment fund.

The MTS venture fund also says that the number of investment transactions has significantly decreased over the six months, in particular due to the fact that “the opportunity to earn money with their help has become less obvious.” “Funds from a number of large corporate-public investors have become high-risk, and the number of strategists who are ready to buy at good multipliers (coefficients characterizing the ratio of cost to revenue.— “b”), has become smaller,” explained Islam Midov, head of the fund.

At the same time, the MTS fund itself keeps the lower investment threshold at $0.5 million (29.8 million rubles), raising the upper one to $5 million (298.1 million rubles) from $2 million (191.2 million rubles) in the past year. MTS is also shifting its focus towards companies in the round A + / B stage (the stage when a startup has already passed the first rounds of investments), while it previously considered projects at an earlier stage – round A. In RDIF and the Skolkovo fund, which also traditionally invest in IT startups did not respond to inquiries.

Pavel Fedosov, Director of Strategic Projects at Tsifra Group, notes that the problem now is not only in lowering the investment threshold, but in general in their absence. “Many companies rely on grants, including from private foundations, but while the money is reluctant to allocate, the market has stalled,” he says.

After the outbreak of hostilities in Ukraine, foreign venture funds also stopped working with Russian startups. In particular, Harvard Business Services sent out a letter to its clients, in which it said that it could not work with a company where at least one of the founders was Russian (see Kommersant dated August 16). “If in the spring someone else considered the possibility of investing in Russian startups, now any asset from the Russian Federation looks extremely unattractive,” says Alexander Matveev, managing partner of Red Sharks Ventures.

However, the Russian venture capital market “will not stop,” Pavel Fedosov is sure. “There will be a transformation of general IT funds into sectoral ones with competence in a specific area,” he notes. This will be a new investment model, according to which, among other things, it will be possible to evaluate not only the startup itself, but also the human resource involved in it, the expert believes.

According to Kommersant’s interlocutor in a large investment fund, the outflow of technical specialists also indirectly affects the investment climate: it will be restored by large companies through M&A deals. “Small technology companies will absorb large players not only for the sake of development, but also because of human capital,” the Kommersant’s interlocutor believes. The trend is confirmed by Islam Midov: “Free money tends towards M&A, as many assets have become available for redemption.”

Tatyana Isakova