What’s wrong with the Russian venture market

Experienced entrepreneurs think a situation is quite natural. It fits in the context of venture capital investment, which a priori high risk. Co-founder and owner of a large Fund of Andreessen Horowitz Marc Andreessen noticed that 15% of all funded projects, their investors 95% profit. But to pinpoint them at the start, no one can. Of course, many try but not all succeed.

Investors don’t seem to see serious prospects in the homeland: activity funds remains the same (number of transactions in the 2016 and 2017 years practically has not changed). Most of them, if comes to a project, mainly in the later stages (early funded only 10% of projects). The investors give preference to projects in the field of IT (90% of total transactions), and increasingly parentalidade to foreign markets. In turn, Western business accelerators come here with the aim of attracting investors from Russia.

American investors are investing in the founder, not in startup

The flight of venture capital from Russia is connected with many factors. For example, one of the reasons is the shortage of quality start-UPS. Only one question remains – how to assess this quality at the start? The story of how the young entrepreneurs receive a check from an investor only because we managed three minutes in the Elevator to generate interest in your project, real only in movies. In fact, for many investors and startups, it still remains a pleasant and motivating imagination.

For according to the same PwC in the third quarter of 2017 companies from around the world received from venture capital funds of $ 42 billion But only one in ten of these projects were successful. It is hardly a coincidence, rather the General trend. However, this does not prevent the venture capital investment to grow on a global scale. Since 2013 the volume of global venture capital funding increased more than twice.

A remarkable story of one of the most influential Silicon valley funds Kleiner Perkins, which invested $ 38 million in Segway. In the annual report the company recognized these investments ineffective. Then a couple of rounds invested in the Fisker electric cars, which, however, did not help the company to arrange the production, due to financial problems had to reduce the number of employees. It is interesting that even after a series of unsuccessful investments, the Fund has not ceased to support hardware startups.

The problem of Russian venture investors in that they want quick money and evaluate the project solely on the basis of financial indicators of profitability, while for startups it is always very conditional numbers that can be verified over time. Sometimes in projects of benefit, especially in the first stage, it’s not always Finance and profit. Benefit can be a benefit to society, a unique solution that will bring financial benefits.

American investors see startups more than bare figures. If you analyze the most successful companies, each of them is a team of people who gave up their dream years. That is, some venture capitalists are genuinely trying to understand not only the financial but also the human potential of companies.

To fall is not to die

A startup by nature is an experiment with an unknown outcome, which is held in the face of uncertainty. American investors to invest not so much in the project itself, as its founder. They understand that even a bad experience will be useful. Much more than the number of losses, they are interested in how the entrepreneur experienced. More important than the fact of error – the experience and the ability to correct these errors. This is called “survivorship bias”. For better understanding you can give an example from history. During the Second world war, nine out of ten aircraft sent on a mission, shot down, and only one in ten returned to their base.

The pilots have strengthened those areas in which shot. But the planes still falling. This continued until, until one American mathematician advised me to strengthen the damaged part of the Germans, and those maintaining that the plane could still fly to the base. In other words, if a startup made a mistake and learned your lesson, it will enhance your “plane” so that he can stay in the air even with the “attack”. And it is this experience trying to see venture investors in Silicon valley.

The failures happen at all, and we know a lot of textbook examples for business it became the ladder to success. If startups were able to overcome the psychological barrier and to take after the failure of a new project with an interesting idea, without attention of investors, he will not.

Russian investor wants quick money

Way of thinking Russian investor fundamentally different. Usually this manifests itself in the choice model of investment behavior – to invest in the company without getting in it a controlling stake, uninteresting. The rigidity in this matter is questionable, because the motivation of the founder, drives the entire project. But what kind of motivation can there be when the founder loses control. It is hard to imagine that the Russian investor will invest in a startup, the purpose of which is not monetization, and more ambitious task is to change the mindset of society, approach to business. An example of this startup founder who has dedicated his life to check working conditions in the factories of major international brands in countries such as Malaysia, to identify violations of ethical norms. Therefore, it aims to shout to society, to fundamentally change consumption patterns. It is much more than just business.
Another key point is the principle of selection of companies. Long-term projects of Russian investors are deterred. Investing money, they will certainly and as quickly as possible, you want to make. So ready to spend time only on those startups who have a portfolio of very successful projects. The caveat is that these entrepreneurs very little: negative experience (failure or closure of business) have 64% of the Russian founders.

In the end, with the venture investing emerges we have a not very good picture. A study of FRII and EY showed that only 29% of Russian start-UPS secured external funding, the rest of the launch projects with his own money.

Thus, the market of venture deals in Russia hinder investors, not wanting to move away from the stereotypes in the construction of forecasts. However, every year in Russia comes a lot of startups that could potentially be successful. In the Russian market and interested international accelerators, taking under his “wing” domestic projects. Perhaps, over time and in our country will have its own Silicon valley, in which there will be effective interaction between investors and startups. The background to this is now. Calendar of business events is full of different forums and conferences, where the team can face to face with the businessmen, ready to invest. It remains only to first learn how to present your project, and the second is to try to see it human potential.

One thought on “What’s wrong with the Russian venture market

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