The Skolkovo Foundation's Venture Council has held a meeting at which the results of the year's activity were discussed. In a speech marking the opening of the Council assembly, the Skolkovo Foundation's senior vice-president for innovations, Vasily Belov, emphasized that one of the key objectives of the meeting was to discuss and draw up measures, in conjunction with the state, designed to encourage the growth of seed investment in Russia.
The preliminary results of investment activity in 2013 have been positive and point to a positive trend
The Skolkovo Foundation has seen a positive trend in investment in 2013, with its resident companies receiving significantly more investment - far more than was invested during the equivalent period last year. It is worth noting that co-investment exceeded the amounts raised by grant financing; and the proportion of external investment in the share capital of Skolkovo's resident companies amounted to 73%. In absolute terms, the amount put into the Foundation's resident companies as an investment resource was approximately 7 billion roubles.
The Head of the Investment Office at the Skolkovo Foundation, Eduard Kanalosh, gave precise figures for the contribution made by accredited investors. Over 20 of these investors - the ones who had been most actively involved over the course of the year - were present at the Council assembly. Eduard Kanalosh noted, in particular, that the accredited venture investors had, according to official letters received by the Skolkovo Foundation from venture funds, invested over 1.12 billion roubles (in hard commitments). Soft commitment investment amounted to over 24 billion roubles. Hard commitment investment therefore exceeded expectations by 120 million roubles. Expectations were also exceeded in terms of the number of deals involving accredited investors: 16 deals have already been done this year, whilst the expectation was that there would only be 12. After a word of welcome from Edward Kanalosh, the directors and senior managers of the Foundation's clusters spoke to the venture investors, providing those present at the meeting with in-depth information about the results of the past year and outlining what is keeping their clusters going at the moment and what their plans are for the foreseeable future.
The problems associated with securing investment during the early stages of a start-up's development point to the need to come up with measures that stimulate investment.
After hearing about the positive results of the past year of investment, the accredited venture investors decided to discuss the problems which are currently top of the agenda, and to spend a little bit of time discussing those aspects that are currently going wrong, and those things which, according to the Foundation's senior management, the investment community needs to take into consideration. Consequently, the discussions focused on the hot topic of the day. It was unanimously agreed that the time had come to take decisive measures to stimulate initiatives involving business angels and other investors operating at the seed stage. As Eduard Kanalosh emphasized, this is the most serious problem at the moment. The essence of the problem can be expressed by one simple fact: the overwhelming majority of investors want to work with those teams that are already on the market. The lack of proportion has become too big, and so immediately apparent that the need to come up with mechanisms for stimulating seed investment has become the most pressing problem for the investment community.
Alexander Galitsky, a managing partner at Almaz Capital Partners, believes that one of the reasons for this situation is the fact that there is a lack of detailed legislation specifically regulating issues related to bankruptcy among start-ups. According to data that he cited, only five out of every hundred start-ups ultimately achieve success, and this statistic can't help but have a disheartening effect on those private investors who have decided to become business-angels. But this is merely part of the problem. Venture investors feel that the decaying M&A market can also be seen as presenting obstacles, and this is linked to the notorious problem of the lack of sufficient opportunities to withdraw from a project. Moreover, there has long been a need to create a court of arbitration specializing in the start-up sector. It has been suggested that such an institution could be housed at Skolkovo.
The opinion of the Ministry of Economic Development
Sergei Leschenko, the deputy director of the Department of Innovative Development at the RF Ministry of Economic Development, was present at the Council meeting. He underlined that the Ministry is currently actively involved in the seed stage, and the systemic flaws that are being observed in this issue can and must be resolved only by joining forces, and working alongside the development institutes and the investment community. In an interview that he gave to Sk.ru, he noted that the current dialogue is a continuation of the discussions regarding possible ways forward for seed investment, which has already been taking place for about a year and a half. Sergei Leschenko said: "For me, the fact that we had some foreign investors here in Skolkovo was a positive thing, and in my view it indicates that they too are interested in the development of this market, and are prepared to work with us on this issue." He noted the particular importance of the initiatives which were discussed at Skolkovo, underlining that the Foundation is currently going through some extremely dramatic changes, the aim of which is "to get involved in the new technological progress that is being made all over the world."
Initiatives and proposals
In response to questions from the investors, Eduard Kanalosh pointed out that the Skolkovo Foundation was working actively in such fields as issues related to setting up special corporate funds within major corporations, including state ones. Focused on working with start-ups, in the long-run they could facilitate a solution to the problem Russia faces, as venture investors and business angels head for the exit. In conjunction with the regulator, the Council discussed a whole range of important proposals from members, aimed at stimulating business angels' initiatives (taking into account many of the best practices used around the world) by means of the tax system. It is important that this joint, entirely open and professional debate with the state authorities has been continued, and in the short-term it is likely to lead to a range of specific practical measures designed to encourage investment by business-angels at the seed stage.
The speakers at the meeting also said that the creation of the Skolkovo Business Angels Club (SCBA) tool was a timely measure that was very significant, and that it ought to function not only as a machine for organizing meetings but also as a mechanism for putting together deals. The SCBA, which was set up in the summer, will enable enthusiasts to be converted into professional business-angels. The SCBA's director, Yevgeny Taubkin, also spoke to the assembled Council members. He announced a further initiative on the part of the club: the creation of 'academies', where mentors will be able to share their expertise with those taking their first steps as investors, and called on venture gurus to get involved in this initiative. SCBA is planning to expand its membership of the club to 200 business-angels, who will be shown 150 start-ups (120 business-angels attended the SCBA this year, and they saw presentations by a total of 60 teams). The active involvement of venture investors, including mentors, could help those who are 'wavering' - those members of the SCBA who are thinking about becoming business-angels, and are having a look at the other options. Moreover, the fact that business-angels are going to have closer contact with the 'venture' investors - all the more so if they know that the venture fund might get on board for the next stage of the project, is bound to give them a boost of confidence. In summary, what is required is to perfect mechanisms that will encourage investment in technological start-ups when they are in the embryonic stage. It could be said that the discussion of this issue was one of the key outcomes of this meeting of the Skolkovo Foundation's Venture Council.
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