The volume of investments in IT startups has almost halved

In 2023, the Russian venture market began to recover in terms of the number of transactions, but not in their volume: in monetary terms, investments in IT startups, on the contrary, fell by another 83%. Analysts explain the multidirectional dynamics by the growth of business angel activity and collective investments of investors in one project. In 2024, investments in IT developments may be positively affected by the strengthening of the local IPO market, experts say, but they doubt that it will be able to compensate for the negative impact of political factors.

Kommersant got acquainted with the data of the investment platform Dsight, according to which in 2023, 158 deals were concluded with IT startups totaling $71 million (only public agreements with young teams are taken into account). This is 15% more in terms of the number of transactions than in 2022, but 83% less in terms of their volume in money. The average investment check was only $0.46 million. “The development of microchecks was affected by uncertainty in the market as a whole,” Dsight believes.

The most popular areas of investment were business software: it accounted for 22% of the total volume of transactions and 15% of the quantity; educational technologies (edtech) – 10% by number and 5% by volume; financial technology solutions (fintech) – 10% and 11%, respectively.

Almost a third (32%) of transactions were secured by government funds and corporations. Another 35% of transactions in 2023 were concluded by private funds, and 27% by business angels, which increased activity compared to last year, Dsight clarified.

The main distinguishing feature of 2023 was the “high caution” of venture investors in the process of selecting companies for investment, analysts say. Only projects with an established business model received relatively large investments. But about 75% of the deals were with seed and pre-seed stage startups, “which typically don’t receive large investments.”

Among the notable corporate deals with young players in 2023 was the acquisition by the Astra group in the field of business software of 26% of the platform for working with GitFlic code; investments amounted to about $320 thousand (see “Kommersant” dated August 28, 2023). The Venture Guide service calls another corporate transaction the entry into the capital of Sense Machine (“Candy Flip Robots”) of the VimpelCom structure of Hive LLC (see “Kommersant” dated November 25, 2023). The company is developing software in the field of analyzing people’s emotional responses using neural networks; according to the service, investments amounted to $331.8 thousand.

The developer of the platform for accelerated drug development, Biotechnology Development, received larger investments – the company received $1.7 million in investments from the Syndicate venture club and Alfa Investments.

According to MTS Director of Innovation and Investment Dmitry Kurin, “the real number of transactions is two to three times higher than what appears in the reports.” He also notes that 14–16 new investment funds were opened over the year and the number of syndicated transactions (conducted by a group of investors or business angels) is growing. “This trend seems to be stable,” Mr. Kurin believes.

In 2024, Russia will continue to see an influx of individuals into the venture investment market, especially at later stages, such as pre-IPO, according to the Voskhod investment fund. “We also expect an increase in the number of new funds, including those with funds from individuals—qualified investors,” they note.

The growth of the public offering market as a whole will stimulate interest in investments in the technology sector, Voskhod adds (in 2023, eight IPOs took place in Russia versus just one in 2022, and in 2024, according to VTB forecast, ten more may take place) .

At the same time, Elena Ivanova, editor-in-chief of Russian Venture, emphasizes that the decline of the Russian venture market, which continued in 2023, “is largely due to political reasons and there are no objective prerequisites that they will be resolved in the near future.” Therefore, Ms. Ivanova believes, “it’s also not worth expecting a restoration of the domestic venture industry yet.”

Tatiana Isakova