The venture capital market in Russia is rather young - it began its formation in the nineties. The history of this market is one of temporary periods of growth, followed by crises, which each time set it back.
The 90s: where it all began
The first systemic steps towards the formation of a venture capital market in Russia were taken in the mid-90s, more than twenty years late from the West, and were started by Western investors who gained access to the Russian market through the process of privatization of industrial enterprises and the reduction of trade and financial barriers.
In 1994-1996, the European Bank for Reconstruction and Development established 11 regional venture capital funds with a capital of 10-30 million dollars to support the Russian economy. These funds did not invest in technology development, but invested in medium-sized enterprises producing consumer goods and services, but at great risk.
At the same time, the International Finance Corporation (IFC), a member of the World Bank Group that focused on investments in developing countries, launched a Russian-American program in Russia. As part of this program, the U.S.-Russia Investment Fund ($440 million) was created.
According to Financial Times estimates, by the end of 1997, 26 investment funds with a total capital of about $1.5 billion were operating in Russia.
The beginning of the 2000s in the world is characterized by crisis reconstruction, a boom in investment and a global boom of Internet companies, which will reach Russia with a late arrival. Yandex, Rambler, and Ozon were the first leaders of the Russian Internet industry to attract investment.
The government is beginning to play a major role in the development of the innovation economy and the venture capital market. Between 2004 and 2009, the government created state development institutions RBK, Rusnano and the Skolkovo Foundation, which worked to generate interest in technological business.
An important event that illustrated the government's recognition of the venture capital industry was the Resolution of the Federal Commission for Securities Market of Russia dated August 14, 2002 N31/ps "Regulations on the Composition and Structure of Assets of Joint-Stock Investment Funds and Assets of Unit Investment Funds".
For the first time it mentions "venture capital" funds among other investment institutions and defines requirements to the composition and structure of assets of venture capital funds.
After overcoming the crisis in 2008-2009 the market has again entered the phase of steady growth.
Rusnano Corporation from 2007 to 2012 has invested in more than 100 projects worth more than 130 billion rubles. The Skolkovo Foundation from 2010 to 2014 issued 150 grants to technology companies for 9.9 billion rubles.
In 2013, a number of incentives were implemented in the field of legislation and taxation: special tax status for Skolkovo residents, software licensing benefits, reduction of social fees for IT companies.
By 2013, Russia ranked 4th in Europe in terms of high-tech investments. The Wall Street Journal wrote about the boom in venture capital investment in startups in Russia. Russia has become one of the fastest growing venture capital markets, ranked among the top five in Europe by foreign experts.
At the same time, 2013 was a record year not only in terms of investment volumes, but also in the capitalization of venture capital funds.
In the same years, the largest Russian companies Mail.Ru Group, Yandex, Qiwi, Luxoft, Tinkoff Bank and others entered the international stock exchange.
In 2014-2016, the market sentiment was pessimistic - the most mentioned factors affecting the market were the crisis and sanctions.
However, year on year, participants continued to increase investment volumes and the number of deals.
In 2017 and 2018, the number of deals was about the same 302 (2017) and 299 (2018), but the total investment volume increased significantly: from $471 million (2017) to $714 million (2018).
While investors continued to be concerned about Russia's growing isolation and new sanctions, they noted a recovery in the venture capital market as a whole at the end of 2019.
Political and economic events impacted many sectors, with consequences including foreign investors withdrawing from the Russian market, difficulties in raising capital from foreign investors, entering new markets and scaling companies. The crises, the fall of the ruble, and sanctions all set the industry back, followed by two to three years of recovery.
With the advent of the Coronacrisis, uncertainty is weighing heavily on investors, because in some niches businesses have sagged.
In some segments, such as online education, food delivery and not only food, projects have shown rapid growth, but this does not mean that they will maintain the same performance.
The Russian venture capital market is still small compared to the international one. However, in total, over the last 20 years it has managed to do a lot for its development and formation. The need for innovation is realized by the government and corporations, which have become prominent players in the industry in the last two years, both in the role of direct investors and venture funds.