Russian Venture

Industry

Team #3

Yulia Rusinova

Kirill Yatsushko

Davit Seropyan

Alex Demachev

Kirill Medvedev

Daniil Gagarin

2 Introduction

Market overview

Key participants, market size, history

of development

Efficiency valuation

Initiatives on State Fund’s

performance evaluation

Legislative framework

The initiatives on legislative

framework improvement

Potential partners

Potential partners in Russian Venture

Industry: funds, accelerators,

universities etc

Fiscal framework

The initiatives on fiscal framework

improvement : tax exemptions and

new solutions

Strategy for 2015-2020

Prospects of the Russian Venture

Industry sector

Investment proposal

Projects, efficiency analysis,

alternative investments

Our complex analysis of Russian Venture Industry includes:

3 I. Executive Summary

• National – BRIC and Israel

• Local, B2B - funds, universities,

accelerators.

Cooperation

Should focus on creation of innovative

culture by stimulating it in entrepreneurs

and intellectual property protections

Government

Funds should focus on development of

unified efficiency reporting standards.

Reporting efficiency We propose

• tax indulgence for small innovative

companies

• fiduciary responsibility and clear laws

that will protect venture enterprises.

Legal

Venture investors switch to Seed and

StartUp stage financing and reduce the

amounts of Expansion stage deals

Projects stage

Funds might seek greater projects

quality due to current crisis and lack of

capital

Project quality

4 Market overview

1.98

2.89

1.69

2012 2013 2014

Market value in 2104 is $1,69 bln. and has a

26% decrease since 2013 due to political risks

Venture deals; 480.9; 28%

Big deals; 350; 21%

Exits; 731.5; 43%

Grants; 127.3; 8%

Exits comprise 43% of MV and has a 51%

increase from 2013*

*excl. TKC and Vkontakte in 2013

Average deal

$ 3.3 bln.

0

100

200

300

400

500

600

2012 2013 2014

Seed

StartUp

Early stage

Expansion

Late stage

Venture investors switch to Seed and StartUp stage financing

and reduce the amounts of Expansion stage deals

145

102.8 127.3

2012 2013 2014

The number of grants has increased by 55% due to Skolkovo

and Bortnik fund’s activities

1693 702 2619

Number of

deals

Ma

rke

t va

lue

, $b

ln

Gra

nts

dis

trib

utio

n,

$m

ln

The MV has decreased by 26%. Investors focus on earlier stages M

V d

istr

ibu

tio

n

20

14

, $

mln

Ve

ntu

re d

ea

ls

dis

trib

utio

n,

$m

ln

5 Market overview Market players

State development institutes The most active venture funds*

Accelerators and incubators Education

*http://www.kommersant.ru

6 Market overview History of venture industry in Russia: main stages and market size

7 Potential partners

At the national level Russia can build strong relationships

in the sphere of venture technologies with BRICS

countries and innovative Israel National level

There are almost no difficulties in building business

relationships with funds, universities and organizations

from the most innovative parts of the world. B2B level

Cooperation is possible at the National and B2B level

Top 5 deals in the VC 8

$860 million

2013

An IPO Oleg Tinkoff TCS Bank

$700 million

2013

Durov sale of its share of UCP PE

Fund II

$244 million

2013

IPO payment service QIWI

$175 million

2014

"Yandex" has invested in Auto.ru

$150 million

2014 AFK "System" and MTS invested in

Ozon.ru

Legal initiatives

Legislative and fiscal framework The initiatives on legal and tax improvement

Tax initiatives

Improvement of the existing laws instead of the creation of the Federal Law

Clear definition of the rules of the rights to the results of scientific and

technological activities obtained wholly or partly at the expense of the

federal budget

To amend the civil laws that restrict the right to freedom of coming out party of

a LLC

Introduction of fiduciary responsibility

Adoption of legislation to protect the rights of venture financier

Release of ten years from the payment of VAT, income tax and property of

residents of the Institute for Development

Set the reduced rates of insurance premiums to the Pension Fund

Exempt from paying contributions to the Social Insurance Fund and Health

Insurance Fund

RVC

ROSNANO

SKOLKOVO

IIDF

I. Increasing of innovations financing volume

II. Infrastructure development

Initiatives:

• Development of unified efficiency reporting

• Accounting for amount of budget financing

• ROE, IRR disclosure

• Creation of integrated base with efficiency ratios for Development institutes

Fund’s Quality

Results

Effectiveness

Disadvantages:

• Do not account for financing volume

• IRR is not applied

Basic KPI:

• Private investments share,

• Investing in portfolio companies/funds

• Revenue from invested companies

Basic KPI:

• Invested volume

• Number of invested projects

• Attracted private investment volume

Disadvantages:

• No unified format of reports

• Difficulties of funds’ comparison

• No quality valuation

Implementation of the efficiency valuation standards would drive the venture investments

development and improve the efficiency of expenditure of budget funds

Efficiency evaluation 10

Current crisis Current crisis has a positive influence

on venture industry in Russia

Increased longevity of

each project

Reduced amount of

investments available

for problematic

projects

Smart Money

Private funds will

become more cautious

in choosing projects

Project quality will

increase

Increased project

competition

Government

Government influence

in venture industry will

continue to increase

via its companies

(RVK, Rosnano, etc).

Scope for improvement There are various problems in Russian

venture industry today that are

expected to be solved in near feature.

People

Low level of competence

and innovation of

entrepreneurs

Bureaucracy

Lack of tax stimulus

for innovation

industry

Patents

Low level of

intellectual property

protection

Government

Imperfection of

public

procurement

If government targets these problems, the share of

innovation sector will rise from current 11-15% to 30%

and Russia will stand in line with developed countries.

Strategy for 2015-2020 Prospects of the Russian Venture Industry sector

11

12 II. Investment proposal Traditional investment ideas are not appropriate for the investor due to their low IRR

Deposit IRR 8.2%

Micex IRR 10.34%

RTS IRR -43.19%

Therefore, we

should invest into

venture projects

13 Portfolio summary We propose investing in IT, Biomed, Hi-tech companies

IRR ~ 90%,

Investment Horizon = 5 years,

Number of projects = 16,

Well-diversified

IT 40%

Biomed 30%

Hi-tech 30%

Investment volume - $145 mln

14 Portfolio overview We propose investing in IT, Biomed, Hi-tech companies

IT Hi-tech

Biomed

ООО «КвазиКристаллы»

15

Attachments Certain projects description

Clusters & Companies Investments IT $ mln Vezet Vsem 15 Big data 10 MoneyMan 10 Fresh Office 10 Pay Me 6 Forecast Now 3 MiiiX 4 Hi-tech Megador 14,5 Cardiwear 14,5 Kvazikristalli 14,5 Biomed G-Derm 14,5 Precious Electronix 14,5 Lex Quantrum 14,5 Total 145

First Russian online payday

loan provider.

Series A investments: $3m.

We suggest: investing $10

million

According to research of Prostor Capital the most promising IT investments are BigData, financial

solutions and “internet of things”

Wonga – UK comparable (NI growth of 300%)

B2B service that allows card

payments.

Annual turnover: $7,2m.

Initial investments: $0,4m.

We suggest: investing $6

million Classic acquiring in Russia

Double Data targets banks and other financial institutions who need

to improve their performance for a variety of processes – from

customer acquisition and assessment to debt collection.

Skolkovo resident.

Series A investments: $3m.

We suggest: investing $10 million.

31.7% - Annual

growth of Big data

market

$23 800 mln – Big

data market value in

2016 (IDC)

Value

IRR (years) 127%

Breakeven 9 months

Payback 23 months

ROI 10,6х

System inventory management of commercial enterprises Forecast

NOW! allows to predict demand for products based on various

factors, to automate the procurement process, and to analyze the

efficiency of the warehouse.

Technology: neural networks and genetic algorithms.

We suggest: investing $3 million.