Trends in Venture Capital Market in 2018

The Russian Venture Capital Market showed a positive trend in 2018, nearly doubling in volume to USD 440.5 million, up from USD 243.7 million a year earlier. This significant increase (81%) was the result of the continuing improvement in Russia’s macroeconomic situation.

The trend in recent years is evidence of a resurgent interest in venture capital market. There were 260 venture funds as of the end of 2018, compared to 194 in 2017 and 177 in 2016. The number of transactions increased for the fourth consecutive year: there were 214 transactions in 2018, 205 in 2017, 184 in 2016 and 180 in 2015.

The average transaction amount also continued to increase, nearly doubling in 2018 to USD 2.7 million (compared to  USD 1.5 million in 2017 and  USD 1.1 million in 2016). Expansion-stage transactions led the way, with the average investment increasing by  120 % from USD 2.8 million to USD 6.1 million. The average size of transactions at the seed stage increased 60% from USD 0.5 million to USD 0.8 million, while increasing by 40% and at early stages from USD 0.8 million to USD 1.1 million. The average size of investments at the start-up stage remained the same at  USD 0.8 million in both 2017 and 2018.

The most popular projects among investors were those at a more mature stage of development. In 2018, 77% of all transactions were made at the expansion stage, while this stage accounted for 68% of total investment in 2017 and 53% in 2016.

The role of corporate venture investors has been gaining momentum: the volume of transactions made by corporate investors increased from USD 28.4 million in 2017 (12% of the market) to USD 86.2 million in 2018 (20% of the market). That said, there was only a slight increase in the number of transactions, up from 16 in 2017 to 18 in 2018. Sberbank, Yandex and MTS are the most active corporate investors.

Over the last three years , the market has not seen a single transaction valued at more than USD 100 million. The largest transaction in 2018 was an investment of USD 80 million in WayRay SA, a developer of augmented reality automotive displays, with backing from the RDIF and a consortium of sovereign funds.

The number of grants issued continued to decrease: 3,955 grants were issued in 2018, 4,558 in 2017 and 4,651 in 2016. In monetary terms, however, the volume of grants issued in 2018 increased to  USD 99.3 million, up from USD 88.5 million in 2017, but less than the USD 121.4 million issued in 2016.

The most active grant funds continue to be the Foundation for Small Business Support in the Science and Technology Sphere (the Innovation Support Fund or the Bortnik Fund) and the Skolkovo Foundation.

Venture Ecosystem Statistics on venture transactions were calculated using the database of the Russian Venture Capital Association (RVCA), taking into account additions and adjustments made in accordance with PWC’s methodology
2016 2017 2018
Number of transactions Amount of transactions, USD mln Number of transactions Amount of transactions, USD mln Number of transactions Amount of transactions, USD mln
Venture ecosystem, USD bn 0.41 0.41 0.65
Venture transactions 184Including 27 transactions for an unknown amount (not taken into account when calculating the amount of transactions). 165.2 205 Including 38 transactions for an unknown amount. 243.7 214 Including 51 transactions for an unknown amount. 440.5
Exits 30 120.0 15 79.9 19 111.3
Major transactions 0 0.0 0 0.0 0 0.0
Grants 4,651 121.4 4,558 88.5 3,955 99.3

Sources: RVC, RVCA, PWC

Market breakdown by sector

In 2018, investor activity was mainly concentrated in the information technology sector: transactions in this segment accounted for  86 % of the total number of transactions in the market and  95 % of the total amount of all transactions. Some 140 transactions were carried out (an increase of 11 % year-on-year ), while the total amount of funds invested increased by  105 % to  USD 420 million. The average transaction amount in the sector increased by 84 % compared to 2017, amounting to  USD 3.0 million.

The interest of market players in investments in Russian biotechnologies and industrial technologies is waning. While these sectors saw 11 and 30 transactions, respectively, in 2017, these figures decreased to 7 and 16 transactions, respectively, in 2018.

The volume of investments in the biotechnology sector decreased by  9% in 2018 to  USD 13.4 million. There was a significant decrease in the volume of investments in the field of industrial technologies of  USD 16.6 million, or 70 %, to  USD 7.1 million.

Distribution of venture investments by sector Not including 27 transactions in 2016, 38 transactions in 2017 and 51 transactions in 2018
2016 2017 2018
Number of transactions Amount of transactions, USD mln Number of transactions Amount of transactions, USD mln Number of transactions Amount of transactions, USD mln
IT 110 149.6 126 205.3 140 420.0
Industrial technology 21 6.1 30 23.7 16 7.1
Biotech 26 9.5 11 14.7 7 13.4
Total 157 165.2 167 243.7 163 440.5

Sources: RVC, RVCA, PWC

Major transactions

In 2018, there were six transactions worth more than USD 3 million:

  • Ticketland.ru
  • Ponominalu.ru
  • TimePad
  • Vist Group
  • Teleport
  • Kakprosto.ru and Justlady.ru

Investments in foreign assets

The volume of transactions by Russian investors involving foreign assets decreased by  20% in 2018, amounting to  USD 553.4 million. In 2017, on the other hand, this figure soared to  USD 695.8 million, up from USD 413.6 million in 2016. At the same time, the size of the average transaction in 2018 decreased 6% compared to the year before, from USD 8.7 million to USD 8.1 million. The number of transactions involving foreign start-ups decreased by 15% to 68 transactions.

The following changes could be observed in 2018 in terms of the preferences of investors in Western projects compared to 2017:

  • the share of transactions at the expansion stage increased in value terms to 88.5%, up from 67.7% a year earlier;
  • the share of transactions at the seed stage increased from 0.2% to 2.3%;
  • the share of transactions at early stages increased from 7.7% to 9.0%;
  • interest in investments at the start-up stage decreased significantly, with the share of transactions falling from 24.4% to 0.2%.

Investments in foreign projects were almost entirely concentrated in the information technology sector: in 2018, the share of investments in IT projects accounted for 95.2% of all investments (compared to 66.5% a year earlier).

Transactions on the part of Russian funds involving foreign start-ups, Excluding 7 transactions in 2016, 14 in 2017 and 7 in 2018 USD million
2016 2017 2018
Number of transactions Amount of transactions, USD mln Number of transactions Amount of transactions, USD mln Number of transactions Amount of transactions, USD mln
Biotech 1 0.2 4 28.6 3 5.5
ICT 70 295.5 68 462.5 60 526.6
Industrial technology 6 117.9 8 204.8 5 21.3
Total 77 413.6 80 695.8 68 553.4

Sources: RVC, RVCA, PWC