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The Russian venture capital market has sharply decreased
At the end of 2022, investments in developing Russian IT companies fell sharply: a total of 128 transactions were concluded, whereas a year earlier – 291. Investments in startups fell by 57%, to $ 1.1 billion, primarily due to hostilities in Ukraine, sanctions and the relocation of many projects abroad. Moreover, if you exclude large transactions with American funds made before the outbreak of hostilities, you can see a drop in the market by more than an order of magnitude. In 2023, given such a low base, investments may begin to grow, experts say, considering the replacement of foreign IT solutions a promising direction.
“Kommersant” got acquainted with the data of the portal Venture Guide at the end of 2022 in the Russian market of IT startups.
The total volume of investments in projects amounted to $ 1.1 billion, falling year-on-year by 57%. The number of transactions decreased by 56%, to 128.
Dsight, which participated in the data collection, clarifies that the statistics include information on open transactions in all rounds for the year, with the exception of those concluded with players who left Russia, such as Miro (it platform for collaboration). The venture fund “Voskhod” “Kommersant” confirmed the relevance of the data.
Among the market niches leading in terms of investment in 2022 were the development of software for business (Business Software) – investments amounted to $ 449.35 million, HR & WorkTech (segment of technologies for HR) – $ 425.67 million, cybersecurity – $ 251.5 million and telecommunications – $ 192.6 million In the first category, transactions were concluded, for example, with the developer of the designer of information systems FIS (more than $ 5 million), among HR & WorkTech – with the recruiting chatbot platform XOR ($ 2 million).
The results of 2022 turned out to be “more complicated than could be expected,” says Pavel Fedosov, Director for Strategic Projects of the Zyfra Group: of the total $ 1.1 billion, about $ 900 million of investments were made in January 2022, including two transactions with American funds (Accel, BlackRock) for a total of $ 650 million.
That is, if we exclude foreign investments made before the outbreak of hostilities, there will be a drop of almost an order of magnitude, Mr. Fedosov emphasizes.
In 2022, according to estimates, according to Leta Capital “Kommersant-FM” on January 1, about 70% of startups left the country, a significant part of the outflow occurred in October, after the announcement of partial mobilization. First of all, the projects moved to Kazakhstan, Georgia, Armenia and Turkey, but “from there they are trying to move to locations with a more developed venture capital market”: Spain, Holland, Germany and the UK. According to Dsight, in the first half of the year alone, more than 1,000 companies relocated the business.
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Among the key events that affected the market are military operations and the subsequent outflow of personnel, the rupture of logistics chains, sanctions (both currency and exports of high-tech products), confirms Artur Martirosov, investment director of Voskhod Management Company: “In the second and third quarters, there was extremely low activity in the market for new transactions, funds were engaged in projects of the current portfolio.” Also, according to him, the funds focused on investments in import substitution projects and start-ups in “friendly jurisdictions” – in the Middle East and Latin America.
Anton Shulga, partner of the drt financial advisory department, believes that many transactions that were planned to be closed in the first half of 2022 were put on pause, as estimates began to deteriorate sharply: “Startups that could afford not to attract investment postponed this until better times.”
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In this regard, Mr. Shulga expects, in 2023 investments will show growth: “Now the certainty is higher than last year.”
The most promising areas for investments will be import substitution of software for corporate clients, Artur Martirosov believes. Medicine and biotechnology, as well as industrial projects, remain attractive, he adds. According to Pavel Fedosov, now the state is becoming the main investor in the market de facto, but the emergence of “specialized private funds that compensate for the departed foreign venture capital” is also possible.