Strategy for the Development of the Direct and Venture Capital Market to 2030

In December 2018, RVC, together with Russia’s Ministry of Economic Development, presented a draft Strategy for the Development of the Venture and Direct Capital Market to 2030.

The development of the strategy was envisaged by the action plan to stimulate Russia’s innovative development approved by an order of the Government of the Russian Federation in June 2017. At the request of Russia’s Ministry of Economic Development, the draft Venture Capital Market Development Strategy was produced by RVC in collaboration with PWC.

The goal of the Strategy is to realize Russia’s potential for innovation by developing a competitive venture market and creating a mature venture industry.

By 2030, the Venture Сapital Market Development Strategy anticipates:

Target quantitative indicators:

  • A thirtyfold increase in the annual volume of transactions in the Russian Venture Capital Market to  RUB 410 billion a year
  • A tenfold increase in the total supply of capital in the Venture Capital Market to  RUB 2.7 trillion
  • A twofold increase in the number of high-tech projects created annually to 40,000
  • A twofold expansion of the sales market for innovative products to  RUB  10 trillion

Target qualitative indicators:

  • A greater impact from state support
  • The organization of a venture ecosystem around leading technical institutions (universities)
  • Reinforcing the principle of the globalization of the venture and direct capital market and its participants
  • Concentrating efforts on the most competitive technological areas
  • A significant expansion of the current circle of investors
  • The existence of a multilevel ecosystem in the venture and direct capital market
  • Improving Russia’s investment attractiveness for venture and direct investment

The Strategy includes more than 40 initiatives aimed at eliminating key barriers to the development of the venture industry in Russia.

The Strategy identifies three types of investors as having the greatest investment potential for the Russian Venture Capital Market: non-state pension funds, corporations and individuals. These investors can, by 2030, increase the volume of capital supply in the venture market by  RUB 134 billion, RUB 950 billion and  RUB 1 trillion, respectively.

According to the proposals outlined in the Strategy, non-state pension funds may get an opportunity to invest a certain limited amount of funds in venture funds through investment partnership agreements. At the same time, the necessary adjustments would be made to approaches to risk assessment and the methodology used for stress testing. For the first non-state pension funds to enter the Russian Venture Capital Market, a pilot project has been proposed for the participation of non-state pension funds in state-backed investment funds. These funds will apply the principle of the asymmetric distribution of profit, which will allow non-state pension funds to earn higher returns.

In order to attract another important category of investors, i.e., corporations, to invest in the Venture Capital Market, the Strategy proposed a set of tax incentives. This would involve reducing the tax base for income-tax purposes upon the creation of corporate venture funds, the participation of corporations in venture funds as LPs or upon investments on the part of large businesses in technology projects.

Benefits in terms of personal income tax and an increase in the tax deduction limit are designed to stimulate investment in venture projects on the part of private investors and business angels. In addition, the Strategy provides for legislative amendments to allow the participation of individuals in investment partnership agreements, through which most venture funds are structured. In the field of tax regulation, it is also proposed that an initiative be considered to reduce tariffs on social security contributions to  14% for small innovative companies.

In order to increase the flow and quality of projects, the Strategy suggests measures to develop the infrastructure for supporting the technology business. Specifically, the launch of no fewer than 30 centers for the collective use of services for small innovative companies (including customs clearance services, intellectual property registration, joint procurement, etc.), as well as at least 30 testing and prototyping centers where projects will be able to use R&D infrastructure, get mentoring support, etc., is planned by 2030. Initiatives to develop the competencies of the venture community include the launch of educational programmes for technology entrepreneurs and venture capitalists together with global education centers.

For access to advanced international expertise, the Strategy suggests the possibility of tax incentives for foreign companies when they locate R&D centers in Russia and fulfil R&D localization requirements. A programme for the systematic investment of funds with state capital in global venture funds and foreign innovative companies is also planned for launch. For the accelerated entry of Russian companies into foreign markets, the creation of acceleration centers that provide a range of services for finding international partners and promoting products in target markets is proposed.

A separate group of initiatives is devoted to increasing the availability of exchange platforms as the main instrument for attracting investments for companies at later stages. The document proposes measures to revise the rules for fast-growing innovative companies to be listed on stock exchanges, and to create a special methodology to prepare them for listing securities and subsidizing related expenses. In addition, the Strategy proposes the subsidization of bond rates to increase the attractiveness of innovative companies’ tools for investors, as well as launching a programme for creating pre-IPO funds. to facilitate work with debt financing for mature companies, the Strategy envisages the introduction of lending mechanisms secured by intellectual property.

The Strategy sets the ambitious goal of radically transforming the landscape of the Russian venture industry, increasing the attractiveness and feel-good factors of our market for all categories of participants and being competitive on a global scale. The initiatives set out in the Strategy were developed by RVC in close cooperation and lively dialogue with representatives of private funds and investors, development institutions, government agencies and corporations. The result is a tool that can be used for the systemic and comprehensive development of the infrastructure of the venture capital market for the next five to ten years
Alexey Basov, RVC’s Deputy CEO and Investment Director