Collection output:
VENTURE BUSINESS IN RUSSIA AND ABROAD
Khmelev Igor Borisovich
Ph.D. econ. Sciences, Associate Professor department World Economy, Moscow State University of Economics, Statistics and Informatics, Moscow
VENTURE BUSINESS IN RUSSIA AND ABROAD
Khmelev Igor
Ph.D., Assoc. Department. The global economy of the Moscow State University of Economics, Statistics and Informatics, Moscow
ANNOTATION
The article focuses on the fact that one of the promising and interesting methods of development Russian economy is an investment based on venture capital. The concept of venture financing is revealed in more detail. Next comes short review Russian and foreign experience.
ABSTRACT
The article focuses on the fact that one of the most promising and interesting methods of development of the Russian economy is to invest through venture capital. More detail reveals the concept of venture capital financing. Here's an overview of the Russian and foreign experience.
Keywords: venture business, venture firm
Keywords: venture business, venture firm
The history of the world economy throughout its development has strived, on the one hand, for unification and general globalization, and on the other, for a general division of labor, which ultimately led to the global distribution of labor and resources. In the modern world, all countries of the world belong to one region or another. It largely determines the prospects for the further development of the country. As a result, it is very important to understand what you can bet on in order to make a rapid economic leap, which is very important for our country.
The Russian Federation is the largest country in the world, thanks to which it has a huge reserve of raw materials. At the same time, despite the gradual development of the domestic economy, its pace leaves much to be desired, for which new ways and methods of economic development should be found. One of the promising and quite interesting methods of actively injecting new investments into the Russian economy is venture capital, which has its own characteristics and advantages.
Venture financing is an active investment of small and medium-sized businesses, in which there is a fairly high risk of non-return of the funds spent. The name itself comes from the English “venture”, which translates as a risky enterprise, so this type of investment has its own specifics, which, accordingly, gives it its own characteristics. At the same time, venture financing has its own history, as well as experience, which should be considered in more detail. This will allow us to identify all its advantages and disadvantages, making a conclusion about the possibility of using this method in Russia.
Financing based on venture capital consists of the implementation of proposals for the development of commercial, industrial, economic or other activities that the region needs for its successful development. It is important to note that as a result of such investment, funds can be used both to support and qualitatively transform existing enterprises, and to create new production capacities. At the same time, an investor or sponsor is usually well aware of the fact that the probability of non-return on invested funds is quite high, since the investment goes into obviously risky industries.
It is interesting that the objects of venture financing are often commercial ideas, as well as various projects that imply their immediate implementation in the very near future. The main components of a venture financing fund are:
· determination of the territory and scope of activity, including the collection of data on the economic situation, the formation of a specific bank of required objects, as well as the search for new investment projects;
·formation of an effective and reliable system for replenishing monetary and other resources necessary for the implementation of venture investment in projects and their implementation;
·organizational activity, which consists of analyzing the market, conducting a number of examinations to evaluate it, and searching for profitable ideas and projects.
It is important to note that at the center of the investment project there is usually a specific entrepreneur, so all interaction does not take place from the position of “capitalist - entrepreneur”, but rather as “entrepreneur-entrepreneur”. The owners of venture capital usually simply pour funds into certain projects, but control over their rational and successful use falls on special elected officials. At the same time, one must always remember about the great risk on the part of the investor, which he always takes consciously and sometimes even with a certain amount of adventurism.
If we start with the United States of America, then from the very beginning of its inception, which is the 50-60s of the twentieth century, venture investment has developed unevenly. The founders of this business are considered to be American capitalists Tom Perkinson, Frank Cofield, Brooke Byers and Eugene Kleiner. It was they who developed the main concepts of venture financing, where the work was carried out on a specific partnership agreement, providing for the rights, obligations, as well as possible risks from the enterprise. A venture capital institution can be founded either as a separate company or as a limited partnership, and there is always a parent company, which is entitled to an annual compensation of 2.5-3% of the initial obligations of its investor. In addition, such a company counts on the so-called carried interest - a fixed percentage of profits (about 20%).
It is noteworthy that, despite the great risk, the number of investors is currently not decreasing at all. Moreover, if you carefully analyze the formation of global capital, then in many ways it was venture financing that contributed to scientific and technological progress and the rapid development of information and computer technologies. The following example is very illustrative. In 1957, engineer Eugene Kleiner invented the silicon transistor, for which he was awarded the Nobel Prize. At the same time, his boss William Shockley was not very happy with the invention and did not understand all its prospects. Investor Arthur Rock became interested in the new device and, with the assistance of a number of other influential people from Wall Street, met with the inventor and invited him to found his own company in southern California. A total of about $1.5 million was allocated for the project. A few years later, the small company turned into a large corporation, Fairchild Semiconductors, which became the first in the territory of today's famous Silicon Valley.
Another successful example of venture capital financing in the United States is the founding of the famous company Hewlett-Packard, which became possible only because one of the employees, Tom Perkins, the inventor of the gas-pumped laser, decided to invest $10,000 in a new home, and to founding his own company. As a result, today we see one of the successful and steadily growing world-class corporations.
The most promising sectors for investment in the Russian economy can be considered wood processing, production of dairy and sour-milk products, wholesale trade, fish and meat processing, motor transport, production of building materials, tailoring, as well as the chemical industry (production of plastic, packaging, etc. Further). In general, there are 32 main types of activities into which venture capital is pouring most actively. The average investment size is approximately $2 million, with fluctuations ranging from $0.5-$4.5 million. It is important to note that venture capital consistently gravitates towards the more industrially developed northwestern region of our country.
An important feature of Russian venture capital is that their main shareholder is the EBRD, through which all financial investments pass. At the same time, our economy currently has a rather specific structure, which indicates the strengthening of large national companies through the absorption of medium-sized businesses.
Considering all of the above, investing money in the economy of the Russian Federation is quite risky, so many investments in this direction are classified as venture capital. At the same time, few deny that our country has enormous scientific and technical potential. With proper financing, as well as competent management, it can bring considerable profit to the investor. Huge reserves of ore materials, oil and gas, virtually inexhaustible forest reserves, as well as vast territories attract potential investors: they are not afraid to take risks and invest in the domestic economy.
To summarize the above, it should be said that venture capital very often became the main impetus for the rapid development of existing production processes, as well as the emergence of new ones. The main example of this is modern information technology. Their colossal capabilities would have been difficult to imagine 25 years ago. So the Russian economy is today a fairly attractive field for enterprising Western investors. It is thanks to them that the country has the opportunity to make a qualitative economic leap and once again become a powerful Eurasian power.
Bibliography:
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SCIENTIFIC AND EDUCATIONAL MATERIALS
COLLECTION BY THEME
"Venture business"
Composition of the scientific and educational team:
1. Aleksakhina Yu.V., Ph.D., Head. department – team leader
2. Skorobogatov V.S., Ph.D., prof.
3. Gorshkova E.A., Art. teacher
4. Rylkova L.S., Art. teacher
Moscow 2011
Introduction........................................................ ........................................................ ...
1. Venture business and its development in Russia…………………………………
1.1. The place of venture financing in project financing……
1.2. The role of venture financing…………………………………………………………….
1.3. Objectives of the private equity investment industry…….
2. Theoretical basis venture investment………………………………..
2.1. The concept of venture capital………………………………………………………
2.2. History of venture capital and investments ....................................................................
2.3. Typical legal forms used in
Central and Eastern Europe……………………………………………………………..
3. Features of the functioning of venture capital in Russia……………
3.1. The general macroeconomic situation in Russia as potential for
development of the risk capital industry………………………………………………………………
3.2. Sources and general mechanism of venture investments in the Russian Federation……………….
3.3. The main problems of the functioning of venture funds in Russia...
4. State support for venture capital in the Russian Federation…………………….
Conclusion…………………………………………………………………………….
Bibliography……………………………………………………………………..
The modern economy is developing so rapidly that not a single technology, not a single project can wait - money for business development, as a rule, is needed either immediately or never. Venture capital is precisely a mechanism that reduces the time it takes for money to appear for the development of companies, and therefore, the study of risky investments is becoming increasingly relevant as in developed countries, and in Russia.
Like any other innovation, venture financing is beginning to attract more and more interest. The relevance of this topic is confirmed by the following two important trends that emerged in the innovation sphere of leading developed countries in the 1990s. First, the leading role in funding research and development is shifting from the public to the private sector. Second, maximizing profits in R&D does not imply institutional investors who are passive, aloof, and technologically incompetent. On the contrary, there is a growing number of intermediaries specializing in the analysis, selection and management of technological innovation projects. At the same time, everyone's attention is directed to venture capitalists, since they play the most important role among such intermediaries.
Currently, Russia faces economic problems that are associated with the lack of an established system for financing innovation activities in the country. In this regard, the study and analysis of non-traditional sources of investment, one of which is venture capital, are beginning to become increasingly relevant in our country.
Using methods of comparisons and analogies, an analysis of venture investment in Russia was carried out, the study of which is the object of analysis in this work. At the same time, the flow of venture capital money directed to Russian funds should be considered as a subject of analysis. It is necessary to analyze the volumes in which these funds were received over a certain period, as well as their dynamics and the factors determining it.
This paper sets such analysis tasks as a theoretical consideration of the concept of venture capital and the history of its emergence in developed countries and Russia. Also, the theoretical significance of the project lies in substantiating the existence of prerequisites for the development and successful functioning of the venture industry within the current macroeconomic situation in our country. Further tasks include studying the sources of venture capital money in Russia and the specifics of the operation of this mechanism. Particular attention is paid to the analysis of the obstacles that arise in the formation and functioning of venture funds in the Russian Federation today, and ways to overcome them, which characterizes the practical significance of the project. Finally, the role of the state in the development of the venture capital market is revealed.
The purpose of this project can be formulated as a study and analysis of the situation on the venture capital market in Russia, indicating the obstacles that have arisen and developing ways to eliminate them.
This goal will be achieved by considering the following main tasks:
1. Analysis of the theoretical basis for venture investment,
2. Considerations of the main features of venture investment in Russia,
3. Study of state support for venture capital in the Russian Federation.
Despite the growing interest in risky investments, in Russia this type of financing is in its infancy. In this connection, in my opinion, it is advisable to make comparisons in the course of work in the functioning of risk capital in Russia and in Western countries, where the venture industry has long justified its existence by rewarding its investors with astronomical profits.
1. Venture business and its development in Russia
The point of a venture (risky) business is to provide funds to companies that do not have other sources of financing in exchange for part of a block of shares, which the venture investor sells several years after entering the business for a price many times greater than the initial investment. Selling shares is called an "exit."
A venture business can bring enormous profits - or end in failure. The American and European economies owe much of their growth at the end of the 20th century to the rise of the venture capital business.
A political and business climate favorable for venture and direct investment is gradually emerging in our country. A number of steps taken by the venture industry community and government agencies at various levels contribute to the development of small and medium-sized businesses (in particular, in the high-tech sector), which, in turn, can give impetus to the development of the Russian economy as a whole.
With the support of the state, the private sector and international organizations, structures of the market-type research sector were created, such as technology parks, innovation and technology centers, legal and consulting companies.
New tools and mechanisms were also created related to the functioning of budgetary and extra-budgetary funds for supporting fundamental and applied research and development, their competitive financing, and protection of rights to objects intellectual property.
One of the main economic instruments that has ensured the innovative development of the leading industrial countries of the West over the past decades is the mechanism of venture (risk) financing.
The basic ideas underlying this mechanism in its modern understanding were first successfully tested in the USA in the late 40s and early 50s. Subsequently, interest in risk financing increased for three reasons. Firstly, in a number of cases, investors received real income that was many times greater than the possible income from traditional financial transactions.
Secondly, the specifics of financing objects - high-risk entrepreneurial projects - gave impetus to the development of special management methods that help minimize investment risks. Thirdly (and, apparently, the most important thing from an economic point of view), the venture mechanism provided a practical opportunity to finance new innovative ideas and developments at the initial stages of their implementation.
With the support of venture capital investors, many of the largest radical and improving innovations of the 20th century, associated with microprocessor technology, personal computers, the Internet, genetic engineering, etc., found their way to the market. Venture capital played a significant role in the formation of such well-known today flagships of knowledge-intensive business as Microsoft, Apple, Digital Equipment Corporation, Compak, Sun Microsystems, Lotus, Federal Express, Genentech, Yahoo, Netscape and many others.
The problem of developing venture financing mechanisms has attracted Russian researchers and management specialists for more than 15 years. In 1985, when at the beginning of perestroika the task of intensifying scientific and technological progress to bring the USSR economy out of the crisis was set at the highest level, the economic and political conditions necessary for the use of venture capital financing for innovations were completely absent.
Since 1988, certain hopes have been placed on the first commercial banks (few people today remember that they were created then as financial structures to support innovative activities and some of them still retain the letter combination “in” from the word “innovative” in their names). However, they were not destined to come true.
The share of innovative projects in the portfolio of such investors rarely exceeded 5%, which was caused by objective economic reasons. The author noted at that time that the created innovative banks would not be viable if they did not begin to engage in traditional commercial lending for the sake of self-preservation6. The further course of events confirmed the validity of this conclusion.
The radical economic reform that began in 1992 opened the way for development entrepreneurial initiative, but a civilized stock market did not yet exist. In addition, inflation, which at times exceeded the 20% mark per month, made any investment for more than a few weeks economically senseless.
Nevertheless, the privatization carried out at an “accelerating pace” attracted the attention of foreign venture capital investors, but not in the field of financing innovative innovative entrepreneurial projects, but in the direction of getting out of the crisis and increasing the efficiency of privatized enterprises (which is also one of the traditional directions of the venture business). At the initiative of the European Bank for Reconstruction and Development, 11 regional venture funds were created in Russia, which specialized mainly in acquiring stakes in small and medium-sized privatized enterprises in order to provide them with the necessary assistance in adapting to the conditions of the transition economy. It was assumed that after some time the purchased shares could be sold at a higher price.
In March 1997, the pioneers of the venture business in Russia united into the Russian Association of Venture Investment (RAVI). There have been reports of the creation of the first venture funds, relying on funds from large Russian banks and diversified holding companies.
However, the emerging progress was stopped by the financial crisis that broke out in August 1998, which exacerbated the problem of liquidity of risky investments and delayed the spread of the venture capital mechanism in Russia for at least several years. One of its negative consequences was the loss of trust among the general public in stock market institutions.
Under these conditions, the state took the initiative to develop the venture industry into its own hands. On March 10, 2000, the government issued a decree on the establishment of a venture innovation fund - a non-profit organization to form the organizational structure of the venture investment system.
One of the goals of this organization is to promote the creation of industry and regional venture funds through equity participation in their authorized capital.
Since 2000, venture fairs have been regularly held to help attract investment to finance promising projects of Russian entrepreneurs (60 innovative enterprises participated in the third fair, held in October 2002 in St. Petersburg).
According to official data from the Ministry of Industry and Science of the Russian Federation, over the past 10 years, venture capital investments in Russia totaled about 1.5 billion euros and were used to finance more than 250 enterprises. To date, there are about 30 venture capital funds, most of which represent foreign investors.
The contribution of small enterprises to the Russian economy is growing every year. According to the State Statistics Committee, the number of small enterprises as of January 1, 2003 amounted to 882.3 thousand, which is 4.7% higher than the corresponding figure for last year. Number individual entrepreneurs without the formation of a legal entity increased by 2.7% and covers 4.6 million people.
Investments in fixed capital of small enterprises increased by 14.4%, including in industry by 28.3%. The volume of products (works, services) produced by small enterprises increased by 36% and amounted to 1159.9 billion rubles. Tax revenues from small businesses also increased by 11% and amounted to 28.4 billion rubles.
To obtain more complete data on entrepreneurs without the formation of a legal entity, the State Statistics Committee of Russia and the MAP of Russia on the territory of the Russian Federation in April 2004 will conduct a comprehensive statistical survey of individual entrepreneurs based on the results of work for 2003.
Obviously, these indicators do not yet compare with the scale of the venture capital market in the United States and other industrialized countries.
The development of the venture industry in Russia today is hampered by the following factors:
* poor development of infrastructure that ensures a fruitful symbiosis of venture capital with small and medium-sized innovative businesses;
* lack of noticeable Russian sources venture capital;
* low liquidity of risky investments, lack of the necessary market mechanism (special stock market);
* insufficient economic incentives to attract venture capital to the implementation of knowledge-intensive projects;
* low prestige of entrepreneurial activity in the field of small knowledge-intensive businesses;
* weak information support for venture business;
* lack of qualified managers of innovative projects, including those carried out with the involvement of venture capital;
* problems with registering venture funds, etc.
To correct this situation, the Ministry of Industry and Science of the Russian Federation developed and at the end of 2002 submitted for consideration a draft Concept for the development of the venture industry in Russia, which is, in fact, a state system for stimulating venture investments. According to this Concept, in 2003-2004. it is planned to establish 10 regional and industry venture funds with government participation. In addition, the state will take on a significant part of the efforts to create the infrastructure necessary for the successful development of venture business, create a favorable economic environment for attracting venture investments in the innovative sector of the economy, ensure the liquidity of risky investments, and increase the prestige of entrepreneurial activity in the field of small and medium-sized businesses.
It is expected that the implementation of these measures will make it possible to attract up to 1 billion rubles annually starting from 2004. private investments in newly created venture funds.
Will the global downturn in the risk capital market affect the creation of a venture capital industry in Russia? It is difficult to answer this question unequivocally today. If this crisis ends in the coming years, the successful implementation of the planned Concept will contribute to the formation of private venture capital of Russian origin, without which it is difficult to count on the development of small innovative businesses in the country. If the recession drags on for a longer period, then the infrastructure formed with the assistance of the state can, in our opinion, be used to attract the accumulated last years There is a large reserve of venture capital abroad, which today is looking for new areas of application outside of their countries.
However, in this case, the state will be forced to find additional ways to maintain market liquidity (for example, by allocating additional financial resources from the budget or by providing investment tax credits to large industrial investors).
1.1. The place of venture financing in project financing
* It is traditional to distinguish four methods of project financing:
1. Debt financing (including leasing)
2. Equity Investments
3. Financing from the company’s own funds
4. Financing from government sources
* Without dwelling on the question of how successful the division into methods of project financing is, we will determine the place of venture financing among these four methods. This is primarily an investment in equity capital.
* Venture financing in varying proportions may include debt financing, as well as financing in the form of leasing and partially financing from government sources. However, the main emphasis is on equity investment and some participation in the project.
* Shareholder investments, as you know, can be of two types: exchange-traded (or portfolio) and over-the-counter (or direct).
* Exchange (portfolio) financing through investments in equity capital is carried out by various investment funds, such as Mutual Investment Funds (MIFs) and the more recent Common Funds of Bank Management (BMFs), which make portfolio investments in the shares of listed enterprises.
*In some cases, portfolio investors (eg insurance companies) may invest in the equity of businesses in the over-the-counter market (ie small and medium enterprises). In such cases, we can talk about high-risk direct investments, very similar to venture investments.
* In general, “business angels” annually invest in the United States, according to some estimates, an order of magnitude more than all formal venture investors combined (about 30-40 billion dollars).
1.2. The Role of Venture Capital
* Direct financing (“direct equity” or “private equity”) and its variety venture financing (“venture capital”) today are most developed in countries with precedent systems, primarily in the USA, Great Britain, Canada, and Austria.
* Of greatest interest to Russia is the unique experience of developing venture capital financing in the United States, where the largest venture capital market is today.
* In 1970, the venture capital market in the United States was practically absent; in 1980, the entire total venture capital in the United States did not exceed $1 billion, and by the mid-90s, the managed venture capital market in this country was at the level of 35 billion dollars, of which about 4 billion dollars. has been invested.
* If these 4 billion dollars. USA compare with 30-40 billion dollars. US, which were received from the sale of shares on the stock market, then the venture capital market will look very modest. However, the role of venture financing is not limited to just an additional $4 billion. CTAs annually invested in the economy of this country.
* Small and medium-sized businesses, which are primarily targeted for venture investment, are practically deprived of other opportunities to receive long-term (3-6 years) investments without collateral, especially in the absence of a “credit history.” Meanwhile, it is small and medium-sized businesses that are able to develop most dynamically, creating jobs.
1.3. Objectives of the Private Equity Investment Industry
* It took some time for the private equity investment industry to understand that different stakeholders in the investment process have different goals. Over time, it was possible to roughly determine what these goals were for: invested companies, investors, fund managers.
1.3.1. Invested companies
* In Europe, 21.5% of all investments consist of 100% sale of the company to a venture capitalist along with the transfer of management to him.
* The remaining investments take the form of acquiring more or less than half the shares of the company at an early or later stage for the purpose of its development or expansion
* In the case of a 100% sale, the goals of the seller (whether it is a corporation selling its division or an individual selling what he created or inherited) are a combination of price, continuation (or remaining independent) of the business, and the desire to preserve jobs for managers and staff etc.
* For managers of a company undergoing a change of ownership, the overall goal remains to achieve a financing and structure that will provide the company with long-term growth, while carefully balancing what must be paid back to creditors from profits and capital gains.
* Managers at management buyout of the company are usually very sensitive to their own share of capital gains.
* When deciding to what extent managers will participate in equity capital, the venture capitalist must not forget that at any stage of the company's development he may find himself in competition with other sources of financial resources that managers may find more attractive, as, for example, in the following cases
1.3.1.1. Opportunities for raising funds for development
1.3.1.1.1. Organized stock market
* In the US, organized stock markets are a good source of funds even for early-stage companies that have suffered significant losses. Stock markets in Europe require demonstration previous achievements, they are expensive to list and are more concerned with protecting investors than encouraging them to choose their risk profile and invest in the appropriate companies. The same reasons have limited the access of more mature businesses in Europe to new capital for expansion/development.
* A recent attempt to overcome this is AIM (Alternative Investment Market) in the UK, which raised over $600 million in “new” money in its first 15 months of operation. Time will tell how consistent this source of investment will be in the future. Recently appeared trading system EASDAC, on which hopes are pinned that it will soon provide Europeans with liquidity close to that which their American counterparts have enjoyed for a long time
* It is often the case that venture capital serves as an ideal bridge to the entry of an early or later stage company into the stock market, because it allows you to use the investment of venture fund managers, being outside the restrictions of the stock market, and also to maximize the price of the company at the time of its listing on the market
* However, if entering the stock market is largely determined by the desire to boast on occasion that your company is an open joint-stock company, then the prospects for obtaining venture financing are small
1.3.1.1.2. Banks
* Historically, banks have been the most important source of financing for industrial growth in most countries, especially at the tail end of the early stage
* Some economies rely too much on this source - for example Germany, where the ratio of direct investment to the volume of loans issued is less than 19% (equity/debt ratio)
* Bank loans look quite cheap compared to internal rate of return(hereinafter referred to as IRR or IRR ), which venture capitalists focus on
*This approach does not take into account the “hidden cost” bank financing, which includes its cyclical nature, insurance requirements, insufficient strategic involvement, pressure exerted by the bank in difficult times for the company, the requirement of annual payments regardless of cycles cash flow etc.
* All this can be smoothed out by the use of direct investment at least at a certain stage of financing the production development process
* Given the differing interests of the banks themselves, they can be made excellent partners for the venture capital industry, for example in buyout deals, where they can provide less risky (less expensive) loans, while the venture capitalist takes on the riskier and less liquid component direct investment
1.3.1.1.3. Government
*Government funding often has mixed goals, among which making profits may be subordinated to the goals of creating new jobs, new technologies and new industries
* Public funding is an important factor in the economy, but in EEC industry its importance has fallen over the past ten years from 20.5% of funds collected to 3.1%, although it remains an important source of direct investment in some countries, such as Spain
* For companies, such financing is beneficial because it is cheap, long-term and not designed for large profits at the end - venture fund managers will not agree to finance on such terms. However, this rather “passive” money can be a useful addition to venture capital investments at the end of the seed stage.
1.3.1.1.4. Others
* There are other structures on the market that specialize in investments, for the most part they are engaged in consulting, such as investment and trading banks, brokers and corporate finance specialists. They are very important for organizing the investment process, but they rarely invest themselves.
* In general, it should be emphasized that investee companies can use direct investment for different purposes at different stages of their development, along with other sources of financing
* For those seeking to sell their business, venture capital is an attractive alternative to other buyers in their industry (strategic buyer), if the latter do not demonstrate a desire to acquire new production facilities or when, in addition to the issue of price, other aspects are also important
* In situations where capital is needed to develop operations, venture capital is a very attractive source when cheaper and more passive sources of financing are no longer available to the company, or, more importantly, when the active skill of a venture manager is required to create and/or maximize enterprise value
1.3.2. Investors
*The goals of those making direct equity investments are as varied as the sources of that money.
* In the US, 70% of this money comes from pension funds, insurance companies or endowments, which expect a premium of about 4% over what they would receive from investing in more liquid types of assets, such as buying stocks on the stock exchange
* In Europe, 30% of direct equity investment comes from the same sources and with the same calculation. Approximately 40-50% of funds come from banks, and although “strategic investments” (for example, to support issued loans) still occur, these institutions also have to somehow justify channeling funds into direct investment
*In the private equity investment industry, profit has become increasingly important. “Feed the winners, starve the vanquished” is a completely natural consequence of such goals
* What is the focus of attention internal rate of return (IRR or IRR) with an emphasis on the efficient use of funds over time, rather than simply multiplying investments, has important implications for the private equity investment industry, both in terms of continuing those investments that are consistent with these objectives, as well as stopping investments and using mechanisms to reallocate investment directions
1.3.3. Fund managers
* If we accept that “survival” is a natural instinct (including among fund managers), then from the previous section it becomes clear that direct equity investment is focused on capital growth
* To achieve acceptable returns, you need to ensure capital growth within your investment portfolio
*Beyond these limits, depending on the income distribution rules adopted in a particular fund, the goals of members of the fund management team called carid interest(i.e. income that goes to the fund itself rather than to investors)
*Provided that the size carid interest carefully and fairly calculated, these goals can be very important both in ensuring that managers are properly motivated to closely monitor the performance of their portfolio companies during their period of growth, and in retaining an experienced team
* In theory Achieving capital gains in venture investing is very simple. It's just price/earnings (p/e) multiple between the start of investment and exit from the project, multiplied by the increase in profitability during the investment period (how many times does it increase, if at all, leverage, If speak about leveraged buy out or buy out management)
* As salespeople gain more experience in venture investing (which, alas, they do!), differential p /e the multiple decreases. And if we take into account the restrictions that were in force in Europe in the 90s on leverage, The goal of fund managers is increasingly becoming, in one way or another, the capitalization of the invested company, sharply increasing its profitability
* Therefore, achieving capital gains in practice is somewhat more difficult than in theory, as we will see later, especially if fund managers are trying to solve their problems only through smart financial engineering
1.3.4. Objectives of the Private Equity Investment Industry
* There is no doubt that the interests of all participants in the venture process are united around the concept of capital gains and internal rate of return. The only exception is the case when the company or shareholders sell 100% of their business, while setting themselves simpler or more complex goals and objectives than those described above
2. Theoretical foundations of venture investing
2.1. Concept of venture capital
The term “venture” itself comes from the English “venture”, i.e. "a risky venture or undertaking." The concept of capital can be defined as the main property, the value that brings surplus value. That is, capital is value in the form of money and goods, which is used to obtain its additional growth or profit. As can be seen from the above definitions, in the modern interpretation, the concept of capital is associated, first of all, with the ability to bring economic benefits. Therefore, this type of capital as venture capital, in my opinion, can be characterized as a certain economic instrument used to finance the commissioning of a company, its development, takeover or buyout by an investor during property restructuring. The most common definition of venture investment is the financing of a project by private entrepreneurial capital, the successful implementation of which is not guaranteed.
Venture capital is risk capital invested in order to make a quick profit. In a modern market economy, project owners, entrepreneurs and managers of young companies are interested in such a rapid and powerful influx of third-party funds. If you are late, even the largest investments may become useless, because competitors may have a similar idea. The investor also cannot wait. If the idea is not financed on time, it will float away from the investor in the same way as from the hands of its creators. But classical capitalism implied gradual accumulation. The main reason why the classical scheme does not work in the modern economy is time. In general, the modern technological revolution, one of the elements of which is the development of network business, means that strong brands are formed in a matter of months, and not over decades. In fact, only the money of venture investors makes it possible to finance a nascent project in the short term. In my opinion, it is the high rate of capital turnover that is the main reason for the formation of an investment market intended for start-up businesses and business projects. Appendix 1 schematically presents the general structure of the venture capital market.
As a rule, venture investment is carried out in small and medium-sized businesses, as well as in enterprises whose shares are not traded on the stock market. Due to the high risk associated with venture investments, their illiquidity and long-term exit period, as well as the significant size of the minimum investment, venture capital funds are not available to small and medium-sized investors. It should be noted that venture investments are provided without any collateral or guarantees.
The process of forming a venture fund is called “fundraising.” For investors to decide whether to invest in a venture fund, they would like to receive an answer to the following question: why does it make sense to invest in this particular fund? (It is assumed that these people have no shortage of offers of this kind.) To provide them detailed information, the founders of the funds at the initial stage issue a memorandum that describes in detail the goals and objectives of the fund, the specific conditions of its organization and preferences. As an example, Appendix 2 contains excerpts from a memorandum of the Russian Technology Foundation issued during the fundraising period.
Typically, capital investment is carried out by purchasing part of the shares of the client company or by providing loans to it (including the right to convert these loans into shares). That is, the venture investor does not seek to acquire a controlling stake in the company receiving financial investments. This is his fundamental difference from a “strategic” investor, whose goal is to establish complete control over the enterprise.
Without acquiring a controlling stake, the venture investor hopes that the company's managers (and in small and medium-sized businesses, they are usually the owners) will use the funds received as financial leverage for faster growth and development of their business.
Next, having collected the target amount, the venture capital firm closes the subscription to the fund, moving on to investing it. To minimize risk, venture capitalists typically spread their funds across multiple projects, while multiple investors may back a single project. For this purpose, venture financing uses a phased allocation of resources in the form of small portions (tranches) or, as they say among venture businessmen, through a “drip”, when each subsequent stage of enterprise development is financed depending on the success of the previous one.
And finally, the owners of venture capital, directing investments where banks (by charter or out of caution) do not dare to invest, not only receive ordinary or preferred shares, but also stipulate a condition (in the case of purchasing preferred shares) according to which the investor has the right at a critical moment to exchange them for simple ones in order to thereby acquire control over a “limping” company and try to save it from bankruptcy by changing the development strategy.
Since for the profitable implementation of investments made in venture enterprises, it is necessary for a new high-tech company to enter the stock market to sell shares, the owner of the funds invested in the company is not interested in dividends, as already noted, but in the increase in capital itself. Typically, venture capitalists, when investing in venture capital, want to increase their capital by at least 5-10 times in 7 years. Moreover, since a venture enterprise can enter the stock market for the first time in best case scenario 3-5 years after investment, the venture capitalist does not expect to make a profit before this period. Due to the increased risk, venture capital is provided at a higher interest rate than a loan, usually at the rate of 25-35% per annum (the exact rate is determined when detailing the investment).
And so, the venture capitalist cooperates with the invested company until it not only gets back on its feet, but also becomes attractive to potential buyers. From this moment on, yesterday’s owner of the invested funds, and now who has become the owner of a package of popular shares, considers his functions exhausted and exits the investment, freeing up capital “frozen” for several years and receiving a long-awaited profit.
To do this, the venture capitalist has two fundamentally possible options: either the sale of shares on the stock market, which is preceded by an initial public offering of shares; or a direct sale of the company or its part to a buyer who is ready to purchase it at a price that provides the investor with the amount of profit he has planned. After which the venture capitalist leaves the company forever or temporarily.
Since venture investments are high-risk, and in the event of unsuccessful development of the company, the investor loses all the invested funds, then, in my opinion, the role of the investor in the successful development of a new company is not limited to the timely provision of venture capital. It also includes simultaneously investing one’s experience in business and, of course, business connections that contribute to the expansion of the company’s activities, the emergence of new contacts, partners and markets. Therefore, venture capitalists seek to directly participate in the management of the enterprise by serving on the Board of Directors. This also explains the fact that they are often directly involved in the selection of objects for investment, as well as the fact that they always simultaneously carry out several venture operations, that is, they work with new, existing, and prepared for sale companies.
So, the mechanism of venture investments, as a rule, is not always clearly defined and has application options for each specific case. If in classical capitalism the time factor was often not taken into account, then at the present stage of economic development the main thing is time, which has a decisive influence on the functioning mechanism of venture capital.
There are three main types of venture investments (Fig. No. 1.1), although in reality there are much more of them, and the main types are not completely independent. In essence, they represent the stages of implementation of the entire project, from the idea to the mass production of the final product.
Rice. 1.1. Types of venture investments.
1. Financing at an early stage of development is the most risky form of investment for an investor, since upon completion, about 70% of new projects that previously seemed commercially profitable do not find confirmation of their profitability. This type of investment is divided into two subgroups – pre-start and start-up financing. Pre-start-up capital is allocated before the actual formation of the enterprise. That is, at the stage when the company is a team of like-minded people and an unmaterialized idea. An example would be the financing of work to create a prototype of a new product and its patent protection, analysis of the sales market or provision of services, legal support for profitable franchise agreements and sales contracts, as well as the formation of a business plan, the selection of managers and the formation of a company until the moment when can you move on to seed funding? Start-up capital is used for financing before introducing a product to the market, that is, to prepare the company for production on a commercial scale. The funds are used for product development and primary marketing. The risk in this case is high, and investments are unlikely to pay off earlier than in 5-10 years, but the rate of return on investments at this stage is 39 - 63%.
2. Funding for the expansion stage is divided into three stages: in the first stage, funds are allocated for the company to begin full-scale production and commercial sales; at the second stage, the purpose of financing is to support the activities of a company that needs significant working capital; the third stage involves the allocation of funds to enterprises with existing production that have great potential for expansion, for example, through the commissioning of a new production line or the creation of a distribution network in new territories. The risk of such investments is much less than in previous cases, and their payback period is much shorter (approximately 2 - 5 years). In my opinion, venture capital can be considered as an alternative to classic lending. The company has approached the breakeven point.
3. There is also financing of a certain operation, which is carried out as a one-time act. As a rule, funds are allocated for a very short period (for example, two years). For example, financing the acquisition of enterprises: funds are allocated for the acquisition of another company. High-yield bonds or bank loans can also be used for this purpose. Buyout financing: Funds are provided to a group of managers to acquire the business of a public or private company through the repurchase of its shares. This type of financing also includes intermediate investments that ensure the company’s activities in the period between other types of investments.
A clear separation of the above types allows a venture investor to significantly reduce the risk of their investments.
There are other types of venture capital that do not fall into any of the groups listed above. These include: rescue financing, which provides for the allocation of funds for the implementation of measures to ensure the revival of a potentially bankrupt enterprise; replacement financing, intended to replace part of the firm's external resources with its own capital; financing operations related to the company's entry into the securities market.
A very important factor is that venture capital is, first of all, people, the venture capitalists themselves. The venture business is probably the most “human” business known, and the success of investment companies depends solely on the talent, intuition and knowledge of the venture capitalists themselves. Contacts with entrepreneurs, analysis of companies, decision-making - all these processes are difficult to formalize and remain extremely personal. If there is a certain system or structure behind investment transactions on the stock market or behind bank loans, then behind each venture there are specific people. For example, veteran venture capitalist John Doerr invested in companies such as Sun Microsystems, Netscape, Lotus, Amazon, and Compaq. Profitability in the venture business can be the most fantastic, so it is often non-standard and bold, “human” decisions that make a business. For example, in 1987, when he invested in Cisco, Don Valentino of Sequoia Capital went against the opinions of many of his colleagues. However, today the 2.3 million invested in Cisco is worth 166 billion.
The human factor is also so important because venture funding is focused on new companies that create demand for something new. For example, in the 80s of the last century, the CD craze began, and immediately venture capitalists began to readily invest large amounts of money in this industry on favorable terms for companies. Then this fashion began to fade, and the influx of investment dried up. The same picture was observed when the craze for mobile phones appeared.
New markets are being created. Thus, venture financing contributes to the formation of new proposals, the development of innovations and creates serious competitive advantages not only for companies, but also for the national economy.
Also, the fact of receiving investments from venture capitalists will certainly create an image for the company: other services will immediately become available to it. "Venture lawyers" agree to work almost for free, in the hope of high income in the future. Accounting firms work with new small firms at low rates. And even traditional bankers are increasing the credit ratings of such firms. Even after a venture capitalist sells his stake, he continues to play an active role in the management of the firm for many years.
Thus, the concept of venture capital consists of not only economic, but also social and even psychological components. It is the personalities of the investor and the investee that play a decisive role, along with the very idea of future production.
Venture capital has such characteristics as long-termism, risk, and the expectation of high profits after registering company shares on the stock exchange. We can say that the main goal of venture financing is that the monetary capital of some entrepreneurs and the intellectual capabilities of others (original ideas or technologies) are combined in the real sector of the economy in order to bring profit to both entrepreneurs in a new company.
2.2. History of venture capital and investment
The idea of venture capital investments appeared during the Second World War in England and the United States. It was associated mainly with government military orders. But gradually the state withdrew from this sphere of investment - and this capital turned into absolutely private capital.
The first private venture project was the personal fund of Arthur Rock (a former employee of a Wall Street investment firm), created by him in 1957. Rock received a letter from Eugene Kleiner, an engineer at Shokley Semiconductor Laboratories in Palo Alto. Kleiner proposed to finance the production of a brand new silicon transistor, and the technology was completely different from that supported by the company's owner, William Shockley (1957 Nobel Prize winner). Rock initiated the creation of the first venture fund. Everything was built on the trust that arose when people met. It was decided to create a specialized company with an equity capital of 1.5 million US dollars for the project. In search of the necessary money, I had to go around about three dozen investment companies. Everyone expressed interest, but no one sought to participate in the fund, since this was the first experience of creating a special company for a completely new idea, moreover, in the form of financing a theoretical project. The necessary funds were provided by Sherman Fairchild, founder and owner of Fairchild Semiconductors, the first American semiconductor company. The project turned out to be successful.
In 1961, Arthur Rock founded the first venture fund, which itself began to search for and finance projects and young companies. The size of the fund was only $5 million, but there were very few large US venture investors at that time. The results of the Arthur Rock Foundation were stunning: they collected 5 million and spent 3, and after just two years they returned 90.
The fastest growth of venture capital in the United States occurred in the mid-1970s, when the government allowed pension funds to use up to 5% of their assets for “risky investments.”
Thus, the process of recognizing rapid investment in young companies took twenty years. As a result, a sustainable mechanism for raising funds for the development of firms began to emerge in the United States.
In Europe, the venture business appeared in the late 70s. In Great Britain. In 1979, British investors invested 20 million British pounds in the development of promising technologies. But by 1987, the total amount of venture capital in the country exceeded 6 billion pounds. The UK, which accounts for almost 50% of all venture capital investments, is currently the undisputed leader in Europe in terms of the scale of the venture capital industry.
Today, in 20 European countries, there are over 500 specialized venture funds and companies, which have invested about $46 billion in the continent’s economy over the last decade alone.
Thus, the history of venture capital, going back just over fifty years, has evolved from purely public sources to private ones.
In Russia, venture capital is still in its infancy, however, as in developed countries, it is potentially one of the main sources of financing for the commercialization of scientific and technical developments. In general, the starting point for the venture industry in Russia should be considered 1993, when at the Tokyo summit between the governments of the G8 (at that time G7) countries and the European Union, an Agreement was adopted on the support of newly privatized enterprises under the State Mass Privatization Program , in which about 15,000 small and medium-sized enterprises were transferred into the hands of owners.
“We have committed to provide funds,” said the final memorandum on further plans to support reforms in Russia, “to create a $300 million Small and Medium Enterprises Fund in close cooperation with the EBRD. We recognize the importance of improving market access for the development of economic reforms in Russia...” This was recorded at the said meeting of state ministers.
At the final press conference held after the meeting of the G8 ministers, then Russian President B. N. Yeltsin expressed his attitude towards the initiative of the leaders of Western countries: “This (financial) package must be paid by the end of this year or the beginning of 1994 True, it’s only $300 million. Of course, it’s not enough, but over time there will be more.”
Fulfilling the decision made at the Tokyo summit to use the allocated $300 million, the EBRD launched a program of regional venture funds (RVF). A year after the summit, on July 7, 1994, the bank announced the creation of the first of thirteen regional venture funds, which became the Smolensk Regional Venture Fund, managed by Siparex Gestion et Finance (SIGEFI). The purpose of this and subsequent funds was defined as “to help strengthen privatized companies through direct equity investment.”
Each regional venture fund served its assigned geographical territory of Russia, each had a capital of about $30 million, to which was additionally added $20 million in technical assistance funds intended to cover the costs associated with the functioning of management companies and the preparation of selected responsible firms to receive investment . These additional funds allocated by the government of the country where the management company or consortium, made up of companies from a particular region, came from.
Each fund was required to make investments ranging from $240,000 to $2.4 million in companies with between 200 and 5,000 employees that were privatized in accordance with the Russian government's mass privatization program
The created Funds paid special attention to companies focused on local markets for consumer goods, mainly food or related products (packaging, after-sales service, etc.), but not the scientific and technological sector.
The first investment was made in 1995. However, the investment process was complicated due to the following factors:
Early stage of development of a market economy.
Direct investment mechanisms have not been developed and understanding of the process is limited. Company managers were wary of outside investors.
Fund managers were not adapted to Russian conditions, and the creation of management teams was slow.
Lack of direct contacts between Fund managers, their disunity.
The created situation led to the creation of the Russian Association of Venture Investment (RAVI) in 1997 by the Regional Venture Funds.
The following tasks were set for RAVI (Fig. No. 1.2.).
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Rice. 1.2.Objectives of the Russian Association of Venture Investment (RAVI)
2.3. Typical legal forms used in Central and Eastern Europe
2.3.1. Resident structure
* Regardless of whether the legal form of a transparent or opaque structure is used, it is very important that the fund does not operate in the country in which it invests through a resident structure if the presence of a resident structure in the country of investment would result in such taxation, which cannot be reduced by means of a double tax treaty
* In such cases, the fund must be managed externally - from a country where the presence of a resident structure will not entail unfavorable taxation
* Such countries can be not only the Channel Islands and Cyprus, but also Great Britain or Holland
* In these conditions, a management team operating in one of the CIS countries will only advise the foreign management company, and decisions on investment and divestment will be accepted in the country of which the management company is resident, just as investment agreements and divestment
* This aspect requires special care and consultation with local specialists.
2.3.2. Transparent structure
2.3.2.1. Limited partnership. The main transparent structure is a limited partnership, which can be created under the laws of England, the English Channel Islands, the State of Delaware and various offshore companies like the Cayman Islands or Bermuda
These are extremely flexible legal forms, especially suitable for creating funds with a limited lifespan
A limited partnership fund is not recognized as tax transparent in some countries and cannot (at least without significant problems) be listed on the stock market
2.3.3. Opaque structures
2.3.3.1. British investment trust. It is an investment company registered in the UK and its shares are listed on the stock exchange.
* It enjoys an exemption from UK capital gains tax, subject to certain requirements for such companies
2.3.3.2. Jersey Companies. Companies in many other offshore zones fall into this category.
* Such companies can be used and can be listed on the stock exchange. The main problem with them is that such companies do not provide the opportunity to use double tax treaties. Therefore, when investing in Eastern European countries, if you want to avoid local taxation, such companies have to act through intermediaries
2.3.3.3. Cyprus companies. Cyprus is a country where taxes are low and at the same time you can take advantage of double tax treaties
2.3.3.4. Dutch BV. The Dutch BV company allows you to enjoy the following benefit: the company does not pay taxes in Holland if it owns more than 5% of the shares of the invested companies. However, in the case of distribution of income to investors outside the Netherlands, tax is withheld. Distributions of income (even on liquidation) are treated as profits rather than capital gains
2.3.3.5. Other. The main opaque structures are described above, but legal forms existing in Malta, Madera or Luxembourg may also be of interest
2.3.4. American investors
2.3.4.1. Partnership.
2.3.4.2. Employees' Income Insurance Law. In cases where pension funds The US participates in a fund in which the share of pension funds (including foreign ones) is more than 25%, the fund must satisfy the requirements for a “venture capital management company”
* To do this, the fund must have management rights in at least 50% (at the purchase price) of its investments
*If the fund has the right to appoint a director to the board of directors of the investee company, then this may be sufficient
* However, other rights may also constitute the necessary scope of management rights for these purposes
2.3.4.3. Taxable income not from the main activity.(Unrelated Business Taxable Income - UBTI). Tax-exempt investors in the US ensure that the fund does not have UBTI
So, if the fund directly receives income from purchases and sales, and not just investment income, then this may be considered UBTI
*Another (though not obvious) way UBTI could appear is that if a fund invests with debt, then under certain circumstances, dividends and income from such investments may be treated as UBTI
2.3.4.4. Investment Company Act. Detailed disclosures of certain information will be required for both US investors and other fund participants.
2.3.4.5. Controlled Foreign Corporation (CFC). If the share of fund participants from the United States is more than 50%, then such a fund may be considered a CFC
* In the event that such a fund has a majority interest in the investee company, the latter is also treated as a CFC, which will subject US investors to certain registration and tax requirements.
* A significant proportion of investment funds in Central and Eastern Europe are aimed at US investors, many of whom are tax exempt
* Such US investors must satisfy a number of requirements, including the following:
2.3.4.6. Partnership. If the investment is made through a partnership, it is very important that it qualifies as a partnership for US tax purposes. These requirements are becoming increasingly easier to satisfy and generally require the general partner to have an ownership interest in the fund of approximately 1% of the fund size, although certain other requirements may need to be checked.
3. Features of the functioning of venture capital in Russia
3.1. The general macroeconomic situation in Russia as potential for the development of the risk capital industry
To understand the place and role of venture capital in Russia, it is very important to assess the overall macroeconomic situation in the country. The economic upheavals of the 80-90s confronted Russia with the need for radical structural transformations and required a transition to a new model of economic growth, where technological, product, organizational and managerial social innovations should play a qualitatively transformative role. To ensure annual GDP growth of at least 4-5% for 20-25 years, Russia must restructure its economy on a modern technological basis. The issue of investments directed into the innovation sphere is especially acute due to the fact that the crisis has severely affected industries operating in the domestic market and, to a much lesser extent, export-oriented (resource-extracting industries). At the heart of this transition are intensive forms of use of venture capital.
Today in Russia there are the necessary prerequisites for creating a venture investment system focused on attracting capital (mainly national) into the innovation sector of the Russian economy
(Figure No. 2.1.).
Rice. 2.1. Favorable trends for the development of venture investment in the Russian Federation
The private sector in Russia has become very influential. The role of small enterprises in the national economy is given much greater importance than before. In 2003, total industrial production was estimated to be 4.2% higher than in 2002, while output from large enterprises was down 2.8% from the previous year. This means that small businesses got back on their feet much faster than large ones managed to fall apart. There was significant growth in the production of consumer goods (7.8%). The services market experienced growth of approximately 1.5% per month. In these two sectors, small businesses play a major role. But venture funds focused on small businesses are more dynamic in their development, just as the object of their interest is more dynamic.
The favorable situation for small business funds today is determined by the colossal need for investments for almost all enterprises, so there is no shortage in choosing a recipient (for example, the St. Petersburg fund for equity participation in small enterprises has considered more than 1000 applications for investments since its inception). It is obvious that in such a mass of proposals there are necessarily 1 - 2% of high-profit, low-risk projects. It can also be assumed, for the same reasons, that the first “exits” of venture capital will occur in small businesses.
The corresponding scientific and technical potential, despite the difficulties of the transition period, has been preserved, which serves as the basis for the successful implementation of venture investments. There are 70 technology parks and about 50 thousand small technology firms, which employ 200 thousand people. The total sales volume of the latter is 30 billion.
A network of regional innovation and technology centers is being created. Now there are 18 of them (uniting 250 small firms), and 17 more are in the process of creation. The peculiarity of the creation of the latter is that they are formed without state financial participation. The Ministry of Science of Russia, together with other consulting and expert organizations (for example, NPK "Innovation Agency"), has compiled a package of data on innovative projects that have prospects for highly effective commercialization.
The current infrastructure for supporting small innovative companies, including funds that provide financial support for relatively early stages development (R&D and production expansion), and a relatively new phenomenon of the Russian venture industry - Russian Venture Fairs.
The fair is a federal-level event that provides the opportunity to connect business and capital and establish partnerships between them, obtain comprehensive information about the latest trends and prospects of the venture capital industry not only in Russia but also abroad, and gain an idea of technological potential and economic attractiveness small innovative entrepreneurship. When preparing companies for the Fair, a special training is being developed - a course that is mandatory for top managers of all companies selected to represent at the Fair. The full cycle of training that a company exhibiting at the Fair receives begins with introductory seminars that teach the basics of venture entrepreneurship. Next, distance training is carried out, during which companies receive individual consultations and recommendations on the preparation of presentation materials. And directly at the Venture Fair, after the nominees are determined, there is a final analysis and evaluation of the results of the presentations by members of the Judicial Commission.
The first Russian Venture Fair was held in Moscow in 2000. 28 companies from 8 cities were presented to 40 investors. Two companies received investments. At the Second Russian Venture Fair, held in St. Petersburg in 2001, 46 companies from 14 cities were presented to 60 investors. Only one company has already received investments after six months. The third Fair was held in October 2002 in St. Petersburg. 60 companies from 20 regions of Russia were represented, and several companies received investments.
In general, small innovative companies with an annual turnover of 20 thousand dollars and an investment requirement of up to 5 million dollars take part in the fair.
As for investors who visit the fair, we can highlight:
1. Venture funds that are looking for an investment object.
2. Large corporations that are searching for strategic partners.
3. Banks - in order to study the prospects of a new market and search for promising clients.
4. And also individual investors - “Business Angels”, whose investments make up the majority of venture capital in Russia. According to a number of studies, they are one of the main sources of venture capital in our country. Thus, according to foreign studies, about three percent of the adult population in Russia consider themselves informal investors, which is a good result.
Venture capital fairs are also held at the level of districts of the Russian Federation. Thus, on April 14–15 last year, the third regional fair “Business Angels” was held in Samara. Some projects that were presented by the exhibition participants are presented in Table 1.
Table 1
Projects of the third district fair "Business Angels"
| Name of the fair participant |
Project name and a brief description of |
| AVTOVAZ |
Russia's first electric car - a car powered by a hydrogen engine |
| Small Aviation Association |
Airplane made of lightweight material |
| SamSMU |
Composition for effective treatment fractures. This remedy is based on an extract from cadaveric bones |
| Department of Chemistry SamSTU |
Beer "Vozrozhdenie" own production with various flavorings - juniper and hemp |
| Viardo LLC |
A new type of cermet bearings, which reduces the weight of the part by 2-3 times |
| Cryogen LLC |
“Kit” is a device that can be used to easily clean various surfaces from oil contamination, for example, a car engine |
The main goal of the fair was reflected in the motto: “Russian capital for Russian innovation.” That is, the main thing for its participants was to attract investors - “Business Angels” - into innovative business.
In total, about 300 people took part in the fair. Among them were industrialists, entrepreneurs developing their businesses, representatives of government, financial, consulting and educational structures. In addition to Russian participants, international organizations showed interest in the exhibition, wishing to bring their experience to the creation of an infrastructure to support innovative businesses.
From all of the above, we can conclude that Russia has the necessary prerequisites for venture investment. Of course, this is a very risky business, but if you choose the right strategy, the results can be impressive.
3.2. Sources and general mechanism of venture investments in the Russian Federation
Venture capital is a mechanism that reduces the time it takes for money to be available for the development of companies. But one of the main issues remains the problem of sources of money for venture financing. It is customary to distinguish between such sources of venture capital as the formal and informal sectors of the economy. If we look at the venture capital market in the US and Europe, we see that the sources of funds for venture funds are mainly from the following entities.
1) Pension funds, insurance companies, banks (formal sector of the economy). In this case, the resources of a number of investors are pooled by venture capital firms (or funds), representing partnerships in their organizational and legal form. These specialized organizations have their own management companies, which are involved in the placement of capital. They receive annual commissions of up to 2-3% of net assets. In addition, the management company receives up to 20% of the fund's profits. But this interest is not paid to them until investors are fully reimbursed for their investment in the fund and the agreed return. In addition to these professional financial intermediaries, the market is operated by subsidiaries of large corporations that monitor new technologies and invest in them.
2) Government agencies and private investors - Business angels (informal sector). “Business angels” are, as a rule, professionals with experience in business: some are successful entrepreneurs, others are highly paid business professionals (accountants, consultants, lawyers, etc.) and occupy senior positions in large companies. Informal investors, as a rule, make investments at the “growth” stages, i.e. initial and early stages of project development.
In Europe, the main investors in European venture capital funds are banks (with the exception of the UK), while in the US they are pension funds, insurance companies, sponsors and individuals.
There are a lot of “Business Angels” in Russia. According to a number of studies, they are one of the main sources of venture capital in our country. “Business Angels,” for obvious reasons, do not advertise their activities, and statistics on their investments are not kept.
As for the formal sector in the Russian Federation, it is completely represented by foreign capital. The formation of Russian venture funds with the participation of national capital is in its infancy, although domestic pension funds, insurance companies, and banks are ready to participate in this work. One of the problems that does not allow them to effectively use their funds in this sector of the Russian economy is the lack of an appropriate legislative framework.
In Figure No. 2.4. a diagram of sources of venture investment in Russia is presented.
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Rice. 2.2. Sources of venture capital in the Russian Federation
Currently, more than 40 foreign venture funds declare their presence in Russia (However, only 15 actually operate) with total assets of at least 4.3 billion dollars and representative offices of about 30 management companies are located.
All existing foreign funds can be divided into three groups:
Funds whose capital is fully or partially formed by the European Bank for Reconstruction and Development ( EBRD funds) with the participation of other international financial organizations;
Funds that are actively operating in Russia, in the creation and operation of which, along with corporate and private investors, the state participates in one form or another (“ active" funds);
Funds that have declared their interest in being present on the Russian market, but have not yet demonstrated significant business activity (“ passive funds).
Naturally, the division of funds into “active” and “passive” is very arbitrary and is based on available information about the number and volume of investments made in Russia. It should be taken into account that funds, like any serious commercial structures, are very restrained in providing information about their activities. Therefore, it is not entirely correct to determine activity only by these characteristics. It is obvious, for example, that a venture fund that is not currently investing, but is actively developing a dynamic strategy for operating in Russia, cannot be classified as “passive”.
The EBRD is most likely the main investor in venture capital funds operating in Russia. First of all, there are the Regional Venture Funds and the Small Enterprise Private Equity Funds (SEEF), where the EBRD is almost 100% investor, and some other private equity funds where the EBRD acts as a co-investor.
Active funds - this group includes 6 funds with a total capital of about 1.26 billion dollars, which have so far made direct investments totaling at least 430 million dollars in several dozen Russian companies. The composition of the group is very representative:
Two funds - TUSRIF (The United States - Russia Investment Fund) and Defense Enterprise Fund - were formed from funds from the government and the US Department of Defense, respectively;
The activities of the Investment Fund for Central and Eastern Europe (Denmark) are supported by the state, the composition of the fund's board of directors is approved by the Minister of Foreign Affairs of Denmark;
Agribusiness Partners International's share capital is guaranteed by the US government agency agriculture and the Overseas Private Investment Corporation (OPIC).
In other words, these foundations are largely guided by the government policies of their respective countries (the United States and Denmark) in carrying out their activities.
Passive funds - this group (as already mentioned, very conditionally) includes 16 funds, the total capital of which is at least 2.2 billion dollars. Despite the declared interest in activities in Russia, there is no reliable information about the large-scale investments made by these funds into the Russian economy.
Distinctive feature These funds are completely independent in making investment decisions - their capital is mainly formed by non-state corporate and private investors. The main condition is to satisfy the interests of shareholders, primarily ensuring high returns on invested capital. Therefore, the reasons for the uncertainty of their position on the issue of activities in Russia are completely obvious:
High risks associated with the instability of the political and economic situation in the country;
Underdevelopment of the securities market;
Customs tariffs and restrictions, etc.
3.3. The main problems of the functioning of venture funds in Russia
So, venture capital and technology business, based on the theory and experience of developed countries, would seem to be made for each other, but in Russia the interaction between them is far from what is desired. Russian venture funds often do not risk contacting high technologies, giving their preference to ordinary businesses with good returns. Investments in small high-tech firms are considered questionable in terms of results. Statistical data characterizing the influx of foreign investment into the Russian economy indicate that knowledge-intensive industries are not the most attractive for investment. According to the State Statistics Committee of Russia, of the total volume of foreign investment in the Russian economy in 2002 ($19,780 million), about half (44.5%) was in the trade and public catering industry, 9.6% in the oil industry and 12. 5% in total for ferrous and non-ferrous metallurgy. The share of other sectors of the economy is significantly smaller. For example, in 1998 - 99, the main projects of venture funds were: participation in organizing the production of the now popular mineral water"Holy Spring" (installation of purification filters, provision of taro packaging); development of the forestry complex in the Arkhangelsk region (construction and organization of sawmills, boiler houses, etc.); construction of a modern climate control unit (greenhouse) in the Arkhangelsk region, etc. And only the project for the development of a satellite and cable television system in the city of Severodvinsk, with a certain degree of convention, can be called high-tech.
In various literary sources analyzing the weakness of the venture industry in Russia, the first place is given to the issues of market conditions, lack of specialists in this field, imperfect legislation, etc. But, in my opinion, it is worth starting with the very attempt to introduce a venture financing system in Russia.
In the 90s, state policy towards small businesses, the main targets for venture capital, was based primarily on ensuring its fiscal interests, rather than the development of innovative business, employment growth, or curbing the process of market monopolization. The existing tax system, on the one hand, pushes enterprises to hide real income, preventing the creation of a civilized stock market, for which transparency of financial reporting is important, and not “tax optimization”, and on the other hand, it hinders the growth of self-financing of enterprises.
An important point is that the venture industry was brought to our country from outside. Its emergence turned out to be the result not of a rational private initiative responding to the internal needs of the development of local entrepreneurship and the market, but as a result of political and administrative decisions, behind which was the desire to instill the sprouts of a market economy in the transforming economy of the country.
The purpose of exporting to our country this exotic for her financial instrument was formulated quite clearly - providing assistance to privatized enterprises. The sizes of potential financing objects (for EBRD funds) were determined and their main characteristics were indicated (enterprises privatized during the mass privatization program). In my opinion, at that time no one really thought about the subtle differences between the stages of development of companies and the corresponding forms and methods of financing. The level of venture financing was fixed at a given height, but this inevitably entailed the transfer to Russian soil of the features of managing funds of this type, and the nature of the interaction between funds and the objects of their investments, and the style of behavior of management companies in the emerging Russian market.
Currently, venture capital investment in technology businesses is also hampered by the weak entrepreneurial culture in many Russian firms. Many of them, engaged in commercialization of their intellectual property, are often limited to selling their own inventions. Even if small innovative firms are created, negotiations with venture capitalists end in failure due to the reluctance of company heads to lose control over the business. They, as a rule, prefer to use bank loans or preferential loans from the Assistance Fund and other government funds to support entrepreneurship. It is also affected by the unsettled rights to intellectual property between its developers and the scientific institution within whose walls the scientific work was carried out. In light of this, as noted by participants in the venture business in Russia, one of the primary tasks of successful investment is a strict delineation of functions between inventors and innovation managers.
4. State support for venture capital in the Russian Federation
The experience of developed countries shows that the success of the development of venture entrepreneurship largely depends on the state’s attitude towards this area of entrepreneurship.
Oddly enough, in no country (with the exception of Hungary and India, where there is a special law on venture activities, which provides for the licensing of venture funds and management companies and strict regulation of their activities.) there are no special laws regulating risky investments. There are no such laws in Russia, and according to a number of opinions, a separate law is not needed for the development of venture financing in Russia; it is only necessary to finalize the old ones, while liberalizing Russian business, tax and customs legislation generally.
It is recognized that the specific Russian legislation regulating the venture business is weaker than, for example, in Israel, Finland or the USA. But, nevertheless, it is sufficient for direct investment. In this connection, all amendments that may be required can be made to existing documents: the Tax Code, the Federal Law “On Joint-Stock Companies”.
It should be noted that attempts were made to develop a bill regulating venture capital activities, but since the bill proposed the introduction of licensing of this type of activity, as well as the creation of other regulatory mechanisms, they did not find support in the State Duma, since the proposed norms would become an additional barrier to venture investments. This, in my opinion, is an absolutely correct statement. I believe that in the “troika” - a venture fund, a management company and a source of innovation (venture enterprise) - the state should not have the right to regulate and set the rules of the game. This condition is dictated by international experience. The state's powers should be limited to developing a liberal and fair legal framework. In most countries where venture capital systems exist, this is exactly what happens. Perhaps this is why, after the adoption of the law on venture capital activities, only one venture fund was created in Hungary.
In this regard, in my opinion, it can also be assumed that if some act regulating the activities of venture funds by the state (something like registration, licensing, reporting, etc.) is nevertheless adopted in our country , then most likely the business community will simply ignore it and create structures that are more comfortable for carrying out such activities, but outside the limits of government encroachment.
I believe that at the moment, the most important thing is to create a legal basis for venture investment by pension funds and insurance companies. The experience of countries such as the USA, Finland and Ireland shows that changes in legislation allowing pension funds to invest in venture capital have allowed for a significant increase in the supply of venture capital within a few years.
It is also necessary to reform the accounting system and the corporate tax system. The company tax system in Russia is still quite young, but is still based on many Soviet-era procedures that do not meet the requirements of a market economy. Taxation should encourage companies to make profits and, most importantly, to show profits, which are the main indicator of their performance for investors. As for the accounting system in Russia, in most cases it is outdated, too bureaucratic, does not meet the needs of dynamic business life, is focused only on fiscal purposes, and not on helping the company’s management - maintaining such accounting creates additional difficulties. Reports based on the Russian accounting system are not very useful for investors or business owners. The accounting report includes some standards or standard prices that do not at all reflect the actual costs. The ability to reflect actual business costs is very limited
Legal regulation of accounting is, to a certain extent, necessary to ensure that the financial position of the enterprise is correctly reflected in the accounting data, and also so that the enterprise can attribute the costs of scientific and technical research to the cost of production.
The government should also pay attention to improving corporate laws. To attract foreign or local external investors to finance a business, it is also necessary to resolve a number of minor legal and practical issues, such as:
Protection of the rights of shareholders who do not have a controlling stake. Today in Russia, protection of the rights of shareholders holding less than 25% of shares is very weak, which limits the ability of investors to make small investments in small companies. This is disadvantageous for both parties.
Contractual obligations of shareholders. Contractual obligations of shareholders should have stronger legal protection in Russia. If all shareholders are unanimous on an issue, it should be accepted as law. A shareholder arrangement can be used to strengthen the protection of the rights of non-controlling shareholders by giving them greater control over the management of the actual business.
With regard to registration and permitting, Russian official procedures are often based on a variety of cumbersome and unclear registration and permitting processes that are lengthy and expensive. There are bodies that have introduced their own procedures for private investors, such as the Central Bank, the State Registration Chamber, the Ministry of Antimonopoly Policy, the Federal Securities Commission, in which the chain of approvals and registrations sometimes lasts up to 5-6 months. This situation often leads to the deal breaking down. At least for small companies and their investors, these procedures should be simplified.
The state can provide direct and indirect support to venture entrepreneurship (Fig. No. 3.1.).
Rice. 3.1.Measures of state support for venture entrepreneurship
Possible forms of direct government support for venture entrepreneurship include:
1. Direct investments provided to venture innovative enterprises. Such investment can be carried out, in particular, through the acquisition of shares of both venture capital enterprises themselves and firms that are investors in venture capital. The state, when investing in the development of venture business, usually pursues different goals than private investors. The main goals of budget financing are, as confirmed by practice, the creation of new jobs, the development of new technologies important for the development of the national economy, as well as the creation of new enterprises. Business profitability becomes a secondary, dependent goal. For venture capital companies, the attractive thing about government funding is that these investments are inexpensive and not aimed at generating significant profits. However, these funds may be useful for investing in early stage companies.
In the case of financing strategically important high-tech and knowledge-intensive projects, it is possible to use a partnership scheme between the state and private investors, implemented, in particular, through the creation of a special fund. This fund could be formed on a parity basis from funds of equal amounts, on the one hand, from the budget, and on the other, from banks, insurance companies, pension funds and other financial institutions.
2. Provision of public creditors either directly to venture capital enterprises or to venture capital investor firms. Of interest is the technical development loan program introduced in 1954 in the Netherlands, providing access to venture capital for innovative companies and projects. In particular, this program provides for the provision of subordinated loans with a repayment period of 10 years.
3. Providing a tied loan on which the entrepreneur pays interest if the project is successful and only repays part of the loan amount if the project fails. Lenders (such, for example, in the Republic of Korea are corporations created with government support) and the entrepreneur agree on the amount of interest and compensation when assessing the risk and expected income from the project.
4. Leasing.
5. Providing grants to venture enterprises implementing high-tech projects. It is extremely important to provide such support at the first, initial stage of the venture project. As practice shows, the provision of grants is justified for operating expenses, for project evaluation, and for direct support for the management of a venture enterprise.
Measures of indirect government support for venture investment could include:
1. Providing state guarantees for venture investment, i.e. guarantees to the venture investor to cover part of the venture investments made by him in high-tech venture projects. Thus, in the Netherlands, as part of the government decree on credit guarantees for small and medium-sized businesses, a special program has been developed to provide long-term bank guarantees for innovative companies in the second stage of growth under government guarantees.
2. Tax incentives, in particular the provision of investment tax credits to venture capital enterprises, reductions in tax rates on capital gains and on investments from pension funds, as provided in the United States, Taiwan and Canada. In modern economic conditions, the use of tax incentive tools should be focused on minimizing the additional burden on the federal budget and be of a compensatory nature.
3. Benefits on customs duties, which should be extended, in particular, to the import of equipment and components by venture enterprises.
4. Avoidance of double taxation of venture capital and income from it.
One of the first steps of the state to stimulate the venture industry should, in my opinion, be the development of a market for “exits from companies.” The fact is that the possibility of “exiting the company” is very important, since sooner or later the venture fund must sell its shares. Stock exchanges are the most suitable place for this operation. The Russian government should create conditions for maintaining stock exchanges in the country.
State support for the examination of innovative projects and the development of consulting services for small enterprises in the scientific and technical sphere, as well as the development of an information environment that allows small innovative firms and investors to find each other, are also very relevant. This could increase the number of projects that meet the requirements generally accepted among venture capitalists. This also includes projects to create networks of “Business Angels”. In the UK, for example, the development of information services about business agents (informal investors) is planned, estimated at $30-40 billion. per year, i.e. 8-10 times the venture capital pool.
The state could also take part in organizing and financing activities to train relevant personnel. This means promoting education in the field of venture capital activities by training specialists in relevant business schools and universities. Since today there is a shortage of professionals in this field in the country economic relations, then this measure would increase literacy when choosing investment projects to be financed;
Of course, we should not lose sight of the fact that a number of projects aimed at developing venture financing are currently being implemented. Among them, they note, for example, the work of the state Fund for Assistance to the Development of Small Enterprises in the Scientific and Technical Sphere, headed by I.M. Bortnik. This fund provides financial support to small innovative firms on a repayable basis. In 1998-1999 This fund conducted a program to develop consulting services for small innovative enterprises.
Along with it, the Russian Fund for Technological Development (RFTD) was formed.
By order of the Government of the Russian Federation dated March 10, 2000, the first “fund of funds” was created - the Venture Innovation Fund (VIF), whose task is to help create regional / industry funds with Russian and / or Western capital. Some funds are allocated by the Ministry of Science and Technology and the Ministry of Education for the development of innovation activities. The Ministry of Education of the Russian Federation quite actively supports entrepreneurial activity in the university environment.
Also, the government of the Russian Federation, in order to increase the innovative and technological potential of Russia, improve extra-budgetary financing of science, and develop small businesses in the scientific and technical field, is taking the following steps:
· Created an interdepartmental Working Group on the development of venture investment in Russia, which is based at the Ministry of Science and Technology.
· Develops a Concept for the development of venture investment in scientific, technical and innovation fields and an Urgent Action Plan for its implementation.
· Prepares the Resolution<О развитии в Российской Федерации системы венчурного инвестирования>.
Some success in introducing the mechanism of venture investments in the Russian Federation was achieved through cooperation, for example, with the Ministry of Science, the Russian Fund for Technological Development and the Innovation Agency. Together they organized an open competition for innovative scientific and technical projects on the topic “ New technology– specific industrial enterprise", financed from the Russian Technological Development Fund.
Currently, several projects are also being implemented in Russia, which, in addition to the state, are initiated and financed by foreign charitable foundations that support the development of entrepreneurship in Russia. For example, the British Council is now implementing programs to help bridge the gap between knowledge-intensive projects and venture capital investments.
Thus, the creation of venture networks based on effective partnerships of small and large enterprises, financial institutions and the state is an important task for the development of the economy of our country. The federal government and regional administrative bodies in Russia can and must take decisive steps to support small businesses, which are driving force in the economic development of the country, creating favorable infrastructure in the early stages of development of new technologies, products, and services.
A mechanism has been successfully operating all over the world for many years, allowing effective investment in innovative projects with minimal risks. Because the risks do not fall heavily on the shoulders of one specific investor or lender, but are evenly distributed among a large number of investors. This mechanism is called venture investment.
Typically, venture capital investment is carried out by purchasing part of the shares of the client company or by providing loans to it. A venture capitalist works with a company until it becomes attractive to potential buyers. Then, he either sells shares on the stock market, or directly sells the company or part of it to a buyer who is willing to purchase it at a price that provides the investor with the amount of profit he has planned. With this type of investment, the time factor plays a huge role, and great importance should also be attached to the personal qualities of the venture investor - these are the factors that determine the amount of profit from the financed object.
The date of origin of this type of financing in our country is considered to be the Tokyo summit of the G8 countries in 1993, at which it was decided to provide Russia with $300 million to support privatized enterprises. Fulfilling the decision made at the summit, the EBRD founded 13 regional venture funds, becoming the main source of foreign venture investments in the Russian Federation. The remaining sources are represented by the IFC, various foreign government capital, funds from private individuals, etc. The very fact of the presence of these funds, in my opinion, is some incentive for the development of venture business in our country. Also among the most important prerequisites for its development are quite powerful scientific potential and capital of about 3 billion dollars. In my opinion, against the backdrop of an acute shortage of innovative investments, these factors are significant enough to expand the venture capital market and attract the attention of foreign investors. In my opinion, a huge positive factor is the established trend towards the growth of the private sector in our country: the fact is that, according to the experience of foreign countries, it is small innovative firms that become recipients of venture investments. Not the last place, I believe, is given to the infrastructure for supporting innovative companies, mainly in the early stages of development. Among them, venture fairs are becoming increasingly more popular year from the year.
Despite the emergence of some necessary prerequisites for the venture industry, in Russia its development is hampered by a number of negative factors. It can be assumed that its very origin was already due to a number of problems. That is, initially the attempt to introduce a purely market mechanism into the “non-market” economy of Russia in the 90s was not thoroughly thought out and planned. I believe that it was not acceptable to consider the capital of regional venture funds as a source for the development of privatized enterprises. Innovative, high-tech projects are the niche of this kind of funds. Now, more than a decade later, this incorrect strategy is making itself felt - today the overwhelming majority of venture investors prefer to invest in any less risky industries rather than innovation.
Regarding the monopoly of foreign investors, despite their unconditional experience and support, it should be noted that the RMFs financed by them represent practically budgetary organizations, due to which they are not able to function organically in a market economy. Along with this, an unconditional fact is the reluctance of foreign companies to cede competitively advantageous market segments to Russian enterprises. And along with the imperfection of the legal regulation of venture capital, the path to such markets is practically inaccessible for other Russian investors. I mean banks, insurance companies and pension funds. Thus, we can conclude that the issue of improving the legislative regulation of risk capital is very urgent.
It should also be noted that there is a lack of qualified personnel and a low business culture in general. The lack of knowledge and specialists is present not only among the owners of funds, it is also inherent in the companies applying for these funds. That is, the company that develops an innovative project sometimes finds it difficult to prove to investors the profitability of cooperation with them, to present a complete, well-founded project, which, in its essence, has the properties of a ready-made market product. In this situation, it is necessary, by attracting competent specialists, to organize special courses and develop programs to improve the level of qualifications among investors and their potential clients in the venture industry.
Also, in my opinion, serious obstacles in this area are difficulties in entering international high-tech markets and the imperfection of the stock market in our country. The fact is that stock exchanges are an integral element of the venture mechanism. The inherent speculative nature of them must be removed to attract investors.
The slow resolution of these and other problems affects the complete absence of Russian venture funds with national capital, which, in turn, also leads to a number of problems.
Of course, some steps taken by the venture industry community and government agencies at various levels have already contributed to the development of small and medium-sized businesses. But the experience of foreign countries shows that the state still has to carry out a number of reforms, first of all this concerns granting pension funds and insurance companies the prerogative of venture investment.
In general, measures of state regulation of venture investment are divided into direct and indirect. Direct measures are direct investments provided to innovative ventures. Indirect ones include in general: the development of stock markets, simplification of the procedure for forming venture capital funds, etc.
In my opinion, exclusively government measures regulation(but not interventions) contribute to the normal development of innovative investments in our country. When forming the structure of the venture system, the state should not be involved in this system from the point of view of regulation, i.e. there should be no licenses, no standards established by the state, no audits, etc. However, at the same time, the state is obliged to create an appropriate legal field that outlines the boundaries of the activities of participants in the venture system (let them build their relationships independently) and then withdraw.
Venture capital supports the most dynamically developing industries that provide the country with international competitiveness; it made possible the development of new industries: such as personal computers and biotechnology. It is no coincidence that countries with a developed venture financing market (USA, Japan, Germany, UK, the Netherlands) act as the largest exporters of high-tech products. Venture capital also serves to support entrepreneurial ventures, promote the emergence of new innovative companies, their rapid growth and market, and the creation of new jobs.
The lack of information does not allow us to give a comprehensive and completely objective description of the functioning of venture funds in our industry and the risk capital industry as a whole. In connection with this, probably not all participants in this business came into view when writing this work. Despite this, we can conclude with a certain degree of confidence that in the Russian investment sphere, venture financing demonstrates an innovative approach and, despite the current small volume, plays an important role for the development of promising sectors of the “new economy”.
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Introduction. Theoretical part
Venture business: concept and characteristics
1 Concepts of venture business
2 Venture business: characteristics and features
Analysis of venture business and its development in Russia
1 Place of venture financing in project financing
2 The role of venture financing and stages of venture business development
Prospects for the development of venture entrepreneurship in Russia
1 Development trend of venture entrepreneurship
2 Venture investment. Methods and mechanisms. Practical part
Development of an innovative project
Conclusion
Bibliography
Introduction
The modern economy is developing so rapidly that not a single technology, not a single project can wait - money for business development, as a rule, is needed either immediately or never. Venture capital is precisely a mechanism that reduces the time it takes for money to appear for the development of companies, and therefore, the study of risky investments is becoming increasingly relevant both in developed countries and in Russia.
Like any other innovation, venture financing is beginning to attract more and more interest. The relevance of this topic is confirmed by the following two important trends. First, the leading role in funding research and development is shifting from the public to the private sector. Second, maximizing profits in R&D does not imply institutional investors who are passive, aloof, and technologically incompetent. On the contrary, there is a growing number of intermediaries specializing in the analysis, selection and management of technological innovation projects. At the same time, everyone's attention is directed to venture capitalists, since they play the most important role among such intermediaries.
Currently, Russia faces economic problems that are associated with the lack of an established system for financing innovation activities in the country. In this regard, the study and analysis of non-traditional sources of investment, one of which is venture capital, are beginning to become increasingly relevant in our country.
Using methods of comparisons and analogies, an analysis of venture investment in Russia was carried out, the study of which is the object of analysis in this work. At the same time, the flow of venture capital money directed to Russian funds should be considered as a subject of analysis. It is necessary to analyze the volumes in which these funds were received over a certain period, as well as their dynamics and the factors determining it.
This paper sets such analysis tasks as a theoretical consideration of the concept of venture capital and the history of its emergence in developed countries and Russia. Also, the theoretical significance of the project lies in substantiating the existence of prerequisites for the development and successful functioning of the venture industry within the current macroeconomic situation in our country. Further tasks include studying the sources of venture capital money in Russia and the specifics of the operation of this mechanism. Particular attention is paid to the analysis of the obstacles that arise in the formation and functioning of venture funds in the Russian Federation today, and ways to overcome them, which characterizes the practical significance of the project. Finally, the role of the state in the development of the venture capital market is revealed.
IN modern conditions scientific and technological development, special attention is paid to the development and development of innovations. The importance of developing the venture industry is that most of discoveries in high-tech industries have been achieved through venture capital and venture capital enterprises. The activities of many economically developed countries are aimed at creating economic mechanisms that facilitate the introduction of the latest achievements of scientific and technical potential into production. One such mechanism is venture capital.
The relevance of the topic is due to the increasing role of science-intensive products to increase the competitiveness of countries, since the political status of a country is determined by the level of achievement of scientific and technological progress
The purpose of the course work is to study the venture business.
To achieve this goal, it was necessary to solve the following tasks:
Determine the essence and content of venture business
Identify the features of venture business
Explore the mechanism of venture investment
Determine the importance of the venture industry for Russia
The object of study is the process of formation of the venture industry, in modern economic conditions Russia. Subject: Venture business and its features.
When covering theoretical issues, the works of domestic and foreign authors on this topic were used: Kashirin A.I., Semenov A.S., Folomiev A.N., Fursenko A.A., Cooper I., Lerner J., Poterba J. , Robert E., Fried V.
Follow-up methods: the work consists of an introduction, theoretical and practical chapters, a conclusion, and a list of references.
I. Theoretical part
1. Venture business: concept and characteristics
1 Concepts of venture business
Venture business is a form of investment that already has a half-century history, but in Russia this business began to develop relatively recently, dating back to 1993.
Venture business has significant differences from strategic partnerships or the already familiar bank lending.
The very essence of the venture business is partly reflected in its name, translated from English as “venture” - “a risky enterprise, a risky undertaking or undertaking.”
What are the risks and rewards of venture business?
It is profitable to make this kind of investment in small companies, and on conditions that have nothing in common with banking ones: enterprises do not provide any collateral base. As a rule, venture investment focuses on private or privatized enterprises, the shares of which are the property of shareholders and are not listed on stock markets. There are several forms of investment:
in exchange for a block of shares;
in the form of an investment medium-term loan for a period of three to seven years;
a combination of these two options.
There is also a difference between venture investments and strategic partnerships, since the strategic partner most often seeks to obtain a controlling stake and bears not only
financial, but also full responsibility for the company. The venture investor does not seek to gain complete control over the company, leaving this function to the managing managers, and thus stimulating them to achieve high financial performance and further development of the company with the help of the funds invested by him. The main goal of a venture investor is to increase the company's profits and increase its value on the market; for this purpose, he invests his money, without bearing any responsibility other than financial.
For this reason, the venture investor is not interested in the periodic distribution of profits (dividends), preferring to invest the earned funds in the further development of the company. Managing a company, pricing, development, increasing the profitability of a business, as well as the risks associated with running it - everything lies on the shoulders of managing managers. The main and only risk of a venture investor is financial, since if his calculations do not come true and the company’s management does not lead to a positive result, he simply loses the invested funds or sells his stake at the original price.
A venture investment is considered a successful investment, as a result of which, after 5-7 years, the investor can sell his stake at a price several times higher than the initial one. Thus, venture business is attractive both for entrepreneurs who receive additional capital for the development and expansion of the company, and for the investor, for whom making the right choice investment object, the final financial result significantly exceeds the potential risk.
1.2 Venture business: characteristics and features
In a market economy, there are various organizational forms of enterprises focused on solving scientific and technical problems and specific tasks with a clearly defined end result. Getting to know them is undoubtedly of great practical interest, since venture business is part of production, investment management, and strategic management of an organization.
One such form is venture capital firms. These are small, but very flexible and effective enterprises that are created to test, refine and bring to commercial standard and industrial implementation “risky technologies” - ideas, inventions, utility models and other innovations, the creation of which involves a certain risk. Venture enterprises are most common in knowledge-intensive sectors of the economy, where they specialize in scientific research and engineering development, that is, in the commercial testing of scientific and technical innovations.
Venture firms are created on a contractual basis and with funds obtained through a temporary pool of capital, as a rule, of several legal entities or individuals, or with loans or investments from large companies and banks. Financial resources are invested in venture business without any material support and without guarantees - at the own peril and risk of the capital owners. In case of failure, investors lose significant resources. This, at first glance, investment of funds, which is unusual for entrepreneurs, is explained by the fact that they seriously believe in the success of venture activities and, not having the conditions (time, specialists of the required profile and qualifications, the necessary experimental base) for their own research and commercial implementation of promising technology, they expect use this development to modernize their products with the least risk and minimal investment of time and money. As a result, investors with positive results from the venture firm will receive large profits and will recoup their investments many times over. For example, the average rate of return of American venture capital firms is about 20% per year, which is about 3 times higher than the average for the US economy. The amount of profit is determined by the difference between the market value of the share of shares of the innovator company owned by the risky investor and the amount of funds invested by him in the project. This share is specified in the concluded contract and can reach up to 80%. Essentially, the financial institution becomes a co-owner of the innovating company, and the provided venture capital becomes a contribution to the authorized capital of the enterprise, part of the latter’s own funds.
There are two organizational forms of venture enterprises: independent firms and those located within large enterprises. But, regardless of the organizational form, they are temporary structures aimed at a specific final result of activity. As a rule, the core of the company's workforce consists of highly qualified specialists from related industries.
Modern venture enterprises are flexible and mobile structures and are characterized by extremely high and focused activity, which is explained by the direct personal interest of the company’s employees and venture business partners in the speedy successful commercial implementation of the developed idea, technology, object, invention, and with minimal costs. In terms of the pace of bringing developments to commercial implementation, neither large, nor even medium-sized and small industrial firms can compete with them. Typical examples are developments in the field of metallurgy (for example, continuous casting and beam melting) and in the automotive industry (insulated steering wheel, automatic transmission, silent rear axle) created by small venture enterprises, which are not recognized by giant firms.
It was small venture firms that gave birth to such inventions as electrography, vacuum tubes, ballpoint pens, penicillin, jet engines, color photographic paper, ferrite printing, etc. Statistics say that the “parents” of more than 60% of major innovations of the 20th century were venture firms . So, venture firms are a serious source of innovation. To create them, you need four components:
commercial idea (the essence of a future innovation);
public need for this innovation (product, technology, object, service);
an entrepreneur who is ready to create a venture capital firm based on the expected innovation;
"risk" capital to finance the activities of a venture firm.
Venture capital has a number of significant differences from banking and industrial capital. First of all, its investors agree in advance to the condition of “approved risk”, it is placed not in the form of loans, but as a share contribution in the authorized capital of the company being founded, and finally, venture capital is invested in order to obtain not entrepreneurial, but founding income, as well as acquisition rights to all innovations arising during the implementation of the financed project or enterprise.
The most important mechanism for monitoring the activities of the financed company is a phased scheme of capital investments. The venture capitalist does not invest all the funds at once, but each time allocates an amount sufficient only to achieve the next stage. Thus, with a periodic reassessment of the prospects of the projects implemented by the financed company, he can decide to stop investing, which disciplines the company’s management, eliminating the possibility of investing in ineffective projects. Such a control scheme in the financing process is often carried out in the form of syndication of investments by venture capitalists. This allows, firstly, to reduce the level of risks of venture investments by forming a portfolio of different projects, and secondly, to conduct cross-checks of financed companies by venture capitalists.
A venture investor finances the creation of a company, then supports its development, and at a certain stage assists in issuing shares for sale on the stock market in order to make a profit. To ensure the necessary liquidity of shares or to sell a small high-tech company at a high price, it must go through five successive stages of the life cycle: development of an investment project; attracting venture capital; development up to the start of production of new high-tech products; expansion and sustainable operation based on the successful sale of manufactured products, sale of the company and return of invested funds to the investor and payment of profits.
The life cycle of investments in venture business usually does not exceed 5-7 years. During this time, the company must achieve such economic results that would allow venture investors to fully return the funds and exit the business with a profit.
A venture firm is created to solve a specific problem, and after completing this work it either disbands and ceases its activities, or is absorbed by a large company (often one of the founders), or independently, with favorable commercial conditions and the obvious competitiveness of the created product, enters the market and by selling a commercial development strengthens its financial position, creates its own production and organizes commercial operations based on improved innovations. In this case, the former venture enterprise organizes the production of small batches of products, sells them profitably, fulfills its obligations to investors and, by selling licenses, obtains the necessary funds to launch its own production.
The name "venture" comes from the English "venture" - a risky undertaking or undertaking. The very term “risky” implies that in the relationship between the capitalist-investor and the entrepreneur claiming to receive money from him, there is an element of adventurism. And this is actually true. Risk (venture) investment, as a rule, is carried out in small and medium-sized private or privatized enterprises without them providing any collateral or mortgage, unlike, for example, bank lending. Typically, venture capital is invested in projects that have no chance of receiving financing from a lending institution. The bank would never take on the risk that exists in a venture investor's project. Thus, when a large group of projects appears that have no chance of finding their investor, then a venture investor appears, ready to take risks and for this have the opportunity to receive large profits.
Venture funds or companies prefer to invest capital in companies whose shares are not publicly traded on the stock market, but are completely distributed among shareholders - individuals or legal entities, sent either to the share capital of closed or open joint-stock companies in exchange for a share or block of shares, or are provided in the form of an investment loan, usually medium-term by Western standards, for a period of 3 to 7 years. The interest rate on such loans is either not set, or is LIBOR LIBOR - London Interbank Offered Rate, literally - the London interbank offer rate - the average interest rate at which banks in London provide loans against placing deposits with them. + 2-4%. In practice, however, the most common form of venture investment is a combined one, in which part of the funds is contributed to the share capital, and the other is provided in the form of an investment loan.
Venture investors (individuals and specialized investment companies), with the help of experts, preliminary analyze in detail both the investment project and the activities of the company offering it, its financial condition, credit history, quality of management, specifics of intellectual property. Particular attention is paid to assessing the degree of innovation of the project, on which the potential for increasing the value of the company largely depends.
As a rule, a venture investor invests money in a fairly large number of unrelated projects in various fields of activity and industries, thereby diversifying their investments and achieving a reduction in overall risk. This allows him to make investments without constantly participating in the process of managing the enterprise, saving himself from numerous associated problems. Thus, a venture investor’s portfolio is formed, consisting of heterogeneous projects. A venture investor, as a rule, does not seek to acquire a controlling stake in a company (at least during an initial investment). And this is his fundamental difference from a “strategic investor” or “partner”. The latter often initially wants to establish control over a company that interests him for one reason or another.
The goal of a venture capitalist is different; by purchasing a block of shares or a stake less than a controlling stake, the investor calculates; that the company's management will use his money as financial leverage in order to ensure faster growth and development of their business. Neither the investor nor his representatives take on any other risk (technical, market, managerial, price, etc.), with the exception of financial. All of the above risks are borne by the company and its managers. At the same time, another preference of the venture investor is that the controlling stake belongs to the company's managers. Having a controlling stake, they retain all the incentives to actively participate in business development. If the company, while the venture investor is in it as a co-owner and partner, achieves success, i.e. if its value within 5-7 years increases several times compared to the initial value before investment, the risks of both parties turn out to be justified and everyone receives an appropriate reward. If the company does not meet the expectations of the venture capitalist, then he can completely lose his money (in the case when the company declares itself bankrupt), or, at best, return the invested funds without receiving any profit. Both the second and third options are considered failures. The venture capitalist's profit arises only when, 5-7 years after the investment, he is able to sell his stake at a price several times higher than the initial investment. Therefore, venture investors are not interested in distributing profits in the form of dividends, but prefer to reinvest all profits received in the business.
The sales process itself in the venture business also has its own name - “exit”. The period of stay of a venture investor in a company is called “co-residence”. Sharing of joint risks between the venture investor and the entrepreneur, a long period of “cohabitation”, and open declaration by both parties of their goals at the very initial stage general work- components of quite probable, but not automatic success. However, this approach is the main difference between venture investment and bank lending or strategic partnerships. A potential venture investor should invest in those company projects where there is a chance to earn extremely high money; he is a more informed investor than any other financial intermediary. Risk capital investors constantly monitor trends in the development of science and technology and respond to the slightest changes economic policy and market conditions.
The banking or stock model of financing venture firms has obvious advantages in terms of venture business prospects and the creation of financial conditions for accelerating innovation processes. However, it is worth noting the clearly positive role of government support for the development of venture funds.
2. Analysis of venture business and its development in Russia
A venture business can bring enormous profits - or end in failure. The American and European economies owe much of their growth at the end of the 20th century to the rise of the venture capital business.
A political and business climate favorable for venture and direct investment is gradually emerging in our country. A number of steps taken by the venture industry community and government agencies at various levels contribute to the development of small and medium-sized businesses (in particular, in the high-tech sector), which, in turn, can give impetus to the development of the Russian economy as a whole.
With the support of the state, the private sector and international organizations, structures of the market-type research sector were created, such as technology parks, innovation and technology centers, legal and consulting companies.
New tools and mechanisms were also created related to the functioning of budgetary and extra-budgetary funds for supporting fundamental and applied research and development, their competitive financing, and the protection of intellectual property rights.
One of the main economic instruments that has ensured the innovative development of the leading industrial countries of the West over the past decades is the mechanism of venture (risk) financing.
The basic ideas underlying this mechanism in its modern understanding were first successfully tested in the USA in the late 40s - early 50s. Subsequently, interest in risk financing increased for three reasons. Firstly, in a number of cases, investors received real income that was many times greater than the possible income from traditional financial transactions.
Secondly, the specifics of financing objects - high-risk entrepreneurial projects - gave impetus to the development of special management methods that help minimize investment risks. Thirdly (and, apparently, the most important thing from an economic point of view), the venture mechanism provided a practical opportunity to finance new innovative ideas and developments at the initial stages of their implementation.
With the support of venture capital investors, many of the largest radical and improving innovations of the 20th century, associated with microprocessor technology, personal computers, the Internet, genetic engineering, etc., found their way to the market. Venture capital played a significant role in the formation of such well-known today flagships of knowledge-intensive business as Microsoft, Apple, Digital Equipment Corporation, Compak, Sun Microsystems, Lotus, Federal Express, Genentech, Yahoo, Netscape and many others.
The problem of developing venture financing mechanisms has attracted Russian researchers and management specialists for more than 15 years.
The share of innovative projects in the portfolio of such investors rarely exceeded 5%, which was caused by objective economic reasons. The author noted at that time that the created innovative banks would not be viable if they did not begin to engage in traditional commercial lending for the sake of self-preservation. The further course of events confirmed the validity of this conclusion.
The radical economic reform that had begun opened the way for the development of entrepreneurial initiative, but a civilized stock market did not yet exist. In addition, inflation, which at times exceeded the 20% mark per month, made any investment for more than a few weeks economically senseless.
Nevertheless, the privatization carried out at an “accelerating pace” attracted the attention of foreign venture capital investors, but not in the field of financing innovative innovative entrepreneurial projects, but in the direction of getting out of the crisis and increasing the efficiency of privatized enterprises (which is also one of the traditional directions of the venture business). At the initiative of the European Bank for Reconstruction and Development, 11 regional venture funds were created in Russia, which specialized mainly in acquiring stakes in small and medium-sized privatized enterprises in order to provide them with the necessary assistance in adapting to the conditions of the transition economy. It was assumed that after some time the purchased shares could be sold at a higher price.
In March, the pioneers of the venture business in Russia united into the Russian Association of Venture Investment (RAVI). There have been reports of the creation of the first venture funds, relying on funds from large Russian banks and diversified holding companies.
However, the emerging progress was stopped by the financial crisis that broke out in August 1998, which exacerbated the problem of liquidity of risky investments and delayed the spread of the venture capital mechanism in Russia for at least several years. One of its negative consequences was the loss of trust among the general public in stock market institutions.
Under these conditions, the state took the initiative to develop the venture industry into its own hands. On March 10, 2000, the government issued a decree on the establishment of a venture innovation fund - a non-profit organization to form the organizational structure of the venture investment system.
One of the goals of this organization is to promote the creation of industry and regional venture funds through equity participation in their authorized capital.
According to official data from the Ministry of Industry and Science of the Russian Federation, over the past 10 years, venture capital investments in Russia totaled about 1.5 billion euros and were used to finance more than 250 enterprises. To date, there are about 30 venture capital funds, most of which represent foreign investors.
The contribution of small enterprises to the Russian economy is growing every year. According to the State Statistics Committee, the number of small enterprises as of January 1, 2003 amounted to 882.3 thousand, which is 4.7% higher than the corresponding figure for last year. The number of individual entrepreneurs without forming a legal entity increased by 2.7% and covers 4.6 million people.
Investments in fixed capital of small enterprises increased by 14.4%, including in industry by 28.3%. The volume of products (works, services) produced by small enterprises increased by 36% and amounted to 1159.9 billion rubles. Tax revenues from small businesses also increased by 11% and amounted to 28.4 billion rubles.
Obviously, these indicators do not yet compare with the scale of the venture capital market in the United States and other industrialized countries.
The development of the venture industry in Russia today is hampered by the following factors:
poor development of infrastructure that ensures a fruitful symbiosis of venture capital with small and medium-sized innovative businesses;
lack of visible Russian sources of venture capital;
low liquidity of risky investments, lack of the necessary market mechanism (special stock market);
insufficient economic incentives to attract venture capital to the implementation of knowledge-intensive projects;
low prestige of entrepreneurial activity in the field of small knowledge-intensive businesses;
weak information support for venture business;
lack of qualified managers of innovative projects, including those implemented with the involvement of venture capital;
problems with registering venture funds, etc.
To correct this situation, the Ministry of Industry and Science of the Russian Federation developed and at the end of 2007 submitted for consideration a draft Concept for the development of the venture industry in Russia, which is, in fact, a state system for stimulating venture investments. According to this Concept, in 2007-2011. it is planned to establish 10 regional and industry venture funds with government participation. In addition, the state will take on a significant part of the efforts to create the infrastructure necessary for the successful development of venture business, create a favorable economic environment for attracting venture investments in the innovative sector of the economy, ensure the liquidity of risky investments, and increase the prestige of entrepreneurial activity in the field of small and medium-sized businesses.
Will the global downturn in the risk capital market affect the creation of a venture capital industry in Russia? It is difficult to answer this question unequivocally today. If this crisis ends in the coming years, the successful implementation of the planned Concept will contribute to the formation of private venture capital of Russian origin, without which it is difficult to count on the development of small innovative businesses in the country. If the recession drags on for a longer period, then the infrastructure formed with the assistance of the state can, in our opinion, be used to attract the large reserve of venture capital accumulated abroad in recent years, which is now looking for new areas of application outside their countries.
However, in this case, the state will be forced to find additional ways to maintain market liquidity (for example, by allocating additional financial resources from the budget or by providing investment tax credits to large industrial investors).
1 Place of venture financing in project financing
Traditionally, it is customary to distinguish between four methods of project financing:
Debt financing (including leasing)
Equity Investments
Financing from the company's own funds
Funding from government sources
Without dwelling on the question of how successful the division into methods of project financing is, we will determine the place of venture financing among these four methods. This is primarily an investment in equity capital.
Venture financing in varying proportions may include debt financing, as well as financing in the form of leasing and partially financing from government sources. However, the main emphasis is on equity investment and some participation in the project.
As is known, shareholder investments can be of two types: exchange-traded (or portfolio) and over-the-counter (or direct).
Exchange-traded (portfolio) financing through equity investments is carried out by various investment funds, such as Mutual Investment Funds (MIFs) and the more recent General Funds of Bank Management (BMF), which make portfolio investments in the shares of listed enterprises.
In some cases, portfolio investors (eg insurance companies) may invest in the equity of businesses in the over-the-counter market (ie small and medium-sized enterprises). In such cases, we can talk about high-risk direct investments, very similar to venture investments.
In general, “business angels” annually invest in the United States, according to some estimates, an order of magnitude more than all formal venture investors combined (about 30-40 billion dollars).
2 The role of venture financing and stages of venture business development
Direct financing (“direct equity” or “private equity”) and its variety venture financing (“venture capital”) today are most developed in countries with precedent systems, primarily in the USA, Great Britain, Canada, and Austria.
Of greatest interest to Russia is the unique experience of developing venture capital financing in the United States, where the largest venture capital market is today.
Small and medium-sized businesses, which are primarily targeted for venture investment, are practically deprived of other opportunities to receive long-term (3-6 years) investments without collateral, especially in the absence of a “credit history.” Meanwhile, it is small and medium-sized businesses that are able to develop most dynamically, creating jobs.
The zero stage of venture financing is associated with the birth of an idea and the costs of its initial development. As a rule, these costs are small and are covered by the inventor or entrepreneur who came up with the idea. Initial costs are associated rather with the time spent thinking about the idea, analyzing it, making calculations, and drawing up sketches. If the idea is patentable, then its author will also spend time and money on drawing up an application for the invention and registering it with the patent office.
One of the most important resources in an innovative business is the entrepreneur’s personal time. After analyzing his creative idea or discussing it with his assistants, the entrepreneur decides to implement it. To prove the possibility of implementing the idea and determining the main characteristics of the innovative object, they move on to the first stage of innovation development.
The first stage of venture business development is called the pre-seed financing stage. At this stage, research work is carried out, as a rule, by small teams of scientists and engineers. The main goal of the work is to substantiate the practical and commercial significance of an innovative idea, to create a laboratory sample of a product, technology or service. At the first stage, the main management personnel of the enterprise is formed and initial marketing research is carried out. At this stage, about two-thirds of all new ideas are discarded. Typically, investors are wary of investing money at the seed stage.
It should be borne in mind that those ideas that have proven their viability will bring investors the greatest profit in the future. The main investors at this stage of financing are, as a rule, business angels. The risk level is high. The work of the first stage is aimed, in particular, at solving such problems as:
the possibility of creating an innovative object;
identifying the resources necessary to create an innovative object;
prototyping of individual elements and the object as a whole;
the possibility of manufacturing an innovative object based on existing technologies;
development of new technologies for the manufacture of individual elements and the object as a whole;
future demand for an innovative product;
impact on environment and possible methods for preventing environmental pollution;
mutual connections with other industries and the possibility of their implementation;
possible expansion of existing production facilities;
general investment climate;
availability and cost of financial and labor resources.
In parallel with this work, the patent purity of the device (method) is checked and the new devices (methods) developed in the process of research are patented. Typically, new products are created based on device patents, and new technologies are created based on method patents. If, during the process of checking for patent purity, it turns out that the design of an innovative object contains parts or assemblies for which patents have already been issued to your subcontractors, then you must purchase licenses allowing the use of patented parts or assemblies from the patent owners. The cost of a license is assessed using the special methods given below. If patentable parts or assemblies are used in the innovative object being developed, then they must be patented. This can bring additional profit when selling a license to use them to your subcontractors.
At the seeding stage, it is necessary to determine and critically evaluate based on alternative options solutions all commercial, technical, financial, economic and environmental prerequisites. The criterion for such assessments is economic benefit.
The second stage of venture business development is the start-up stage. Investments at this stage are attracted to launch production on a commercial scale and organize the sale of products. Investors include business angels and some venture capital firms. The risk level is still very high. Most investors are wary of investing in venture projects at this stage. Work at the stage of seed funding can be aimed at:
development of design and technological documentation;
production on the basis of this documentation of individual parts, assemblies and the object as a whole;
purchase of materials and components;
creation of equipment for testing;
If new devices (methods) are obtained in the process of development work, they must be patented.
The third stage of venture business development is financing business growth and expansion. This is the stage of early expansion, which requires significant funds to acquire assets. At this stage, some of the innovative equipment is put into operation and its operation begins. Advertising is being developed and distribution networks are being created. At the initial expansion stage, the profit from sales still does not cover the current investment costs, the risks are quite high, so the work is still financed by venture investors.
During the growth and expansion stage, the following issues are addressed:
legal, financial and organizational frameworks are established;
if necessary, land is purchased;
technologies are acquired;
additional research and development work is being carried out;
technological documentation is being finalized;
contracts are concluded;
the necessary buildings and structures are constructed;
equipment is purchased and installed;
marketing is carried out;
the administration is being formed;
staff is recruited and trained.
The fourth stage of venture business development is the stage of rapid expansion. Work to expand the business, begun at the previous stage, continues. The business begins to make a profit, the degree of risk decreases. Capital is directed to the main expansion of the company (buildings, structures, equipment, machinery, etc.), which increases sales and, accordingly, profits. At this stage, investors are more willing to finance the project. Commercial banks can act as investors.
The fifth stage of venture business development is the liquidity stage. In countries where there are over-the-counter securities markets, venture capital firms enter these markets. To operate on the stock exchange, a company must undergo a listing operation. For newly created companies, such an operation may be prohibitive. Therefore in different countries over-the-counter securities markets are being created. In the US, this market is called the National Association of Stock Dealers (NASDAQ) Automatic Quotation System. The conditions for entering this market are simpler than entering the stock exchange. Upon reaching the liquidity stage, the venture investor can exit the project by selling its shares on the over-the-counter markets. Sometimes shares are acquired by an innovative enterprise.
The sixth stage of venture business development is the stage of maturity, when project financing practically ceases. The stage is devoted mainly to making a profit.
3. Prospects for the development of venture (risk) entrepreneurship in Russia
1 Development trend of venture entrepreneurship
Today in Russia there are the necessary prerequisites for creating a venture investment system focused on attracting capital (mainly national) into the innovation sector of the Russian economy
Rice. 2. Favorable trends for the development of venture investment in the Russian Federation
The favorable situation for small business funds today is determined by the colossal need for investments for almost all enterprises, so there is no shortage in choosing a recipient (for example, the St. Petersburg fund for equity participation in small enterprises has considered more than 1000 applications for investments since its inception). It is obvious that in such a mass of proposals there are necessarily 1 - 2% of highly profitable, low-risk projects. It can also be assumed, for the same reasons, that the first “exits” of venture capital will occur in small businesses.
The corresponding scientific and technical potential, despite the difficulties of the transition period, has been preserved, which serves as the basis for the successful implementation of venture investments. The peculiarity of the creation of the latter is that they are formed without state financial participation. The Ministry of Science of Russia, together with other consulting and expert organizations (for example, NPK "Innovation Agency"), has compiled a package of data on innovative projects that have prospects for highly effective commercialization.
An existing infrastructure for supporting small innovative companies, including both funds that provide financial support at relatively early stages of development (R&D and production expansion), and a relatively new phenomenon in the Russian venture industry - Russian Venture Fairs.
In November 2013 Within the framework of the forum, the XIV Russian Venture Fair was held, which provided small and medium-sized companies interested in attracting investments to develop their innovative businesses with a unique opportunity to present their project to the attention of investors operating in the private equity and venture capital investment market in Russia. According to experts, the projects presented at the exhibition can seriously compete not only in the Russian, but also in the international market of new technologies, and some of them have no analogues in the world
The development of venture financing and venture entrepreneurship can solve a whole range of problems that are strategically important for implementing positive qualitative changes in the Russian economy. Firstly, this means an additional influx of investment, including from abroad. Secondly, it becomes possible to revive and significantly activate the national innovation potential, gradually turning it into the main “locomotive” of the development of the domestic economy, expanding its tax and export base. Thirdly, there will be a convergence of the Russian and international business environment on the basis of the most modern forms and directions of economic activity, interaction with the direct developers of innovative products. With venture capital, Russian entrepreneurs receive not only Western money, but also advanced management experience and extensive business contacts necessary for the international commercialization of their own technological developments, while maintaining control of the company in their own hands.
In this regard, it is natural for the state to actively involve itself in the implementation of the venture financing model. One of the methods of state support for innovation is currently being practically tested in Russian conditions. The state created a joint-stock company with 100% state participation - the Russian Venture Company (RVC). At the expense of its funds, in turn, industry venture funds are formed (capitalized), managed by private management companies selected on a competitive basis. The requirements for them are the following: the presence of a high-quality investment strategy, high professionalism of experts, on whose opinion the adoption of a specific investment decision will depend.
venture business risk financing
3.2 Venture investment. Methods and mechanisms
The venture financing mechanism is designed to provide government support to innovative companies at the most problematic stage of the innovation process - between scientific developments and serial production. It assumes the highest risks for the investor, which he would prefer (as international experience shows) to share with the state. Most often, in such cases, the state assumes half of the risks of venture investment, and the profit goes to private venture investors (this is an important element of public-private partnership).
Experts believe that in the near future the waves of venture business development will be:
security technologies in a broad sense (personal, information, corporate, state, etc.);
nanotechnology;
biotechnology.
Following the slowdown in the new economy in the United States, venture capitalists have returned to investing primarily in start-ups (new venture firms) rather than in existing companies. The main investments are in wireless technologies (Wi-Fi, Wi-Max, Bluetooth and new standards), radio identification technologies, new generation Internet projects, biotechnologies, and social networks.
Foreign venture investors (especially US funds) are showing interest in venture business in Russia. Large foreign venture funds organize subsidiary funds in Russia, which finance, provide them with their brand and technical assistance. To a lesser extent, government venture funds are financed by the VIF of the Ministry of Industry and Science, which clearly does not have enough of its own funds.
In Russia, high-tech industries capable of becoming centers of growth in the post-industrial economy could, in principle, be created on the basis of two sectors of the economy and science:
) academic institutes and their pilot plants;
) enterprises of the military-industrial complex (DIC).
In terms of the development of venture business, the Russian government plans to: - ensure effective coverage of the activities of this sector of the economy;
allow institutional investors, such as insurance companies and pension funds, to invest part of their funds in venture capital funds;
continue to develop the regulatory framework for regulating the activities of venture investment institutions;
adopt the law “On Special Economic Zones in the Russian Federation”;
stimulate the mutual flow of technologies in the production of civilian and military products through the use of private capital.
The Ministry of Economic Development of the Russian Federation identifies the following obstacles to the development of venture business:
insignificant presence of Russian capital;
low liquidity of venture investments due to insufficient development of the stock market;
weak economic incentives to attract direct investment in high-tech enterprises;
slow resolution of issues of legal regulation of the formation of funds and the venture investment process;
insufficient efforts to develop an entrepreneurial culture and popularize venture business.
The state is faced with the task of developing effective forms of participation in the development of the venture industry, based on global experience, taking into account the specifics of Russian conditions. The various forms of government instruments that can be used to stimulate venture capital investment are mainly measures to develop general market institutions and improve the investment climate.
At the same time, it is possible to identify specific mechanisms aimed primarily at the development of venture investment. These include: liberalization of the rules defining the circle of investors who are allowed to invest in venture funds; creation of technology-innovation zones; development of a concept for the development of venture investment, based on the principles of non-interference by the state in the exclusively private sector, which is venture financing.
A more effective way to ensure the mutual flow of technology is to partially integrate state defense enterprises and non-state enterprises producing civilian products, as is happening today in aircraft and shipbuilding.
An obstacle to the mutual flow of high technologies is the imperfection of legislation on the protection of intellectual property rights.
The given plans and tools for the development of venture business of the Russian government are quite scholastic.
Russia does not yet have the main conditions for the development of a globally competitive venture business.
Obstacles to the creation of a venture business:
a weak state without clear goals and development strategies, without understanding the main obstacles to the country's market development and the creation of a post-industrial economy;
the criminal and bureaucratic structure of the country's economy;
a sharp decline in the level and quality of the country’s human capital in terms of its educational, scientific and innovative components;
the lack of a general favorable environment for the development of entrepreneurship in general, and venture business with its windfall profits in particular;
there is still no pragmatic and competent state long-term program for the development of venture entrepreneurship in the Russian Federation;
there are no professional venture capitalists (venture capitalists and managers), as well as an understanding of how to educate them;
there is no end-to-end program and, accordingly, a system for training venture capitalists;
centers for the development of venture business with particularly favorable conditions have not been created.
Based on the above, the prospects for creating a venture business in the Russian Federation are not yet clear. They depend entirely on the likelihood of creating a strong and
II.Practical part
Development of an innovative project
Goals and objectives of the project. The goal of this business project is to organize leisure time for the youth of Kaluga through the construction of a specialized sports and entertainment complex - a skatepark, on the territory of the microdistrict. Northern.
Construction of a sports complex with a specialized area for extreme sports;
Development of appropriate infrastructure for visitors, which includes a cloakroom, toilets, a store with equipment and equipment for extreme sports and places for athletes to relax;
Development of a set of marketing activities to attract customers.
Description of the project. A skatepark is a specially built area for people involved in extreme sports (skateboarding, aggressive rollers, BMX - a bicycle for performing tricks) to ride and improve their tricks. A skate park may include structures such as half pipes, quarter pipes, hand rails, trik boxes, pyramids, stairs, and other structures for performing tricks. . Initially, it is necessary to equip a large hall with an area of 1100 square meters. m. The room will be an air-supported structure, which is much cheaper to construct than a standard hangar and is perfect for sports facilities. Next, you need to conclude a design agreement. The company SKPARK (Moscow) is expected to perform the design and construction of the skatepark. The company’s specialists are ready to develop a project for any given site parameters. The SKPARK company will carry out a full-fledged working or preliminary design project for a skatepark in the following sections:
architecture;
design;
engineering equipment.
The next stage is the construction and installation of skatepark equipment. There are several main important features in the design of skateparks. Firstly, these are the figures themselves. The geometry of each figure, its height, width, angle of inclination and length depend on which figures surround it. In order to imagine how and what shapes should be placed in a skatepark, it is not enough to be a good designer; you also need to skate yourself. The team of the SKPARK company combines both professional engineers and leading athletes of extreme sports, which allows us to create skateparks of the European level.
In the construction of equipment for indoor skateparks, the following is used:
The surface of the skatepark area is asphalt or concrete. It is used as the main coating for roller skating rinks and skateparks.
The figures are covered with FSF plywood of high moisture resistance and high physical and mechanical properties, resistance to various aggressive environments, treated with a special compound to prevent rotting.
The supporting frame is wooden.
Project implementation schedule. Before the start of work on the installation of an air-supporting structure, work of the preparatory period is carried out, including the whole range of works on cleaning the area, laying concrete strip base, preparation of concrete or asphalt base for coating, installation of utility networks.
The air-supporting shell is attached to a concrete base reinforced with a metal frame using a system of anchors. Anchors are included in the delivery set.
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Stage name |
Work results |
Completion date, days |
Cost, rub. |
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Substrate preparation (asphalt, concrete) |
Laying the base for an air-supported structure |
Availability of a prepared site for the construction of the structure |
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Construction of an air-supporting structure |
Construction of a sports complex |
Availability of premises prepared for equipment |
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Installation of sports equipment |
Carrying out the final stage of equipping the sports complex |
Availability of a ready-made sports complex - skatepark |
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Financial plan. This section provides financial projections for the first year of operation. These forecasts represent best estimates of future financial performance. The company expects profit in the first month of the first year of operation and expects to be profitable throughout the year, even if the business is seasonal.
When forecasting the volume of services provided, it is assumed that the park’s occupancy will be 60 people per day in the autumn and spring seasons, 30 people per day in the summer season and 90 people per day in the winter season. The entrance ticket price is expected to be set at 150 rubles. It should also be taken into account that 200 sq.m. The area of the building will be rented out as a cafe and an equipment and equipment store.
A loan will be taken out for 5 years based on a preferential interest rate (10%) for the purpose of purchasing fixed assets in the amount of 8,430,000 rubles.
The break-even point is 54 people per day.
The payback period is 1.5 years.
Table. Main financial indicators of the project, rub.
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winter season |
spring season |
summer season |
autumn season |
Total for the year |
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Revenue from the sale of entrance tickets |
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Revenue from rental of vacant space |
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Salory |
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Loan interest |
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Net profit |
Marketing strategy. The main strategy of our company should be a comprehensive strategy to provide high quality services at lower prices, as well as expanding the range of services. Based on this, the marketing strategy is chosen to expand demand by stimulating sales volume, pricing policy, creating a positive image of the skatepark, and the widespread use of non-price competition factors.
Pricing. Our company intends to adhere to a neutral pricing strategy in the first year, which involves setting average market prices. In the second year of our activity, we may increase prices by 10-15% due to an increase in customer flow and an improvement in the quality of services provided. However, at the same time we plan to introduce the use of club cards for regular customers. Therefore, we expect that this will not lead to an outflow of regular customers and can expand the range of services, incl. open a cafe-bar and a specialty store at the skatepark and increase the number of working hours.
information and flyers in specialized stores;
distribution of leaflets, stickers;
Most economists, when defining this concept, point to the origin of the word “venture” from the English “venture” - “a risky enterprise or undertaking.” There are two types of definitions. Definitions of the first type associate the concept of “riskiness” with the lack of guarantees for venture investments against possible loss by collateral or mortgage. Venture financing is the allocation of funds from venture capital to small research or development firms for the development, refinement and implementation of innovations that are risky but promising. Another group of definitions connects the concept of “riskiness” not only with results (as definitions of the first type), but also with the system of functioning of venture investment as a whole, when the investor shares risks with the entrepreneur. Terminological disputes regarding the definition of “venture entrepreneurship” can also be found in Western countries. But here they have a different content, which, in our opinion, is most successfully revealed in the book by K. Campbell “Venture Business: New Approaches.” In it she notes that terminology is hardly able to give a clue. In a broad sense, private equity refers to the provision of capital to non-public companies, and includes venture capital, leveraged buyouts, and other private financing instruments. In the US, they are practically worlds apart. Unlike the US, in Europe the term "venture capital" has historically been used to refer to all forms of private equity investment. Buy-out shops that own mature businesses such as bars, publishing groups and large chemical plants are called venture capital firms. This sounds very strange to Americans because they consider these to be completely different industries. Therefore, we consider it necessary to give the definition of venture entrepreneurship, which, in our opinion, is the most complete and relevant. Venture entrepreneurship is the activity of organizing mediation between a venture investor and investment recipient firms, aimed at sharing risks between all subjects of contractual relations and making a profit through “exit”. Further in this work we will use this definition.
The difference in the definition of the concept of “venture entrepreneurship” arose, first of all, as a result of the specific system of functioning of this mechanism. The basic principles were laid down at the initial stage of the formation of venture capital by the founding fathers of the industry - Tom Perkins, Eugene Kleiner, Frank Cofield. The main source of the venture capital institution are limited liability partnerships (Limited Liability Partnership - LLP), the basic principle of which is as follows. Investors called limited partners—which include organizations such as pension funds, insurance companies, banks, university endowments, charities, corporations, and wealthy individuals—contribute capital to the fund for a fixed term existence, managed by a venture capital firm, i.e. general partner (General Partners - GP). The widespread use of limited partnerships is due primarily to tax advantages (a limited partnership allows investors to report their investments as a “direct investment in a company” rather than paying twice (once when the fund realizes a capital gain on the sale of assets (capital gains), and the second time - when they themselves receive income)), as well as the convenience of this form of management and the relative ease of registration.
If from a legal point of view the venture mechanism is a fairly simple system, then its economic content requires explanation. The very term “risky” implies that in the relationship between the capitalist-investor and the entrepreneur claiming to receive money from him, there is an element of adventurism. Risk investing is usually carried out in small and medium-sized private or privatized enterprises without them providing any collateral or pledge, unlike, for example, bank lending. Venture funds or companies prefer to invest capital in companies whose shares are not publicly traded on the stock market, but are completely distributed among shareholders - individuals or legal entities (unquoted or unlisted companies). Investments are directed either into equity investment of closed or open joint-stock companies in exchange for a share or block of shares, or are provided in the form of an investment loan (debt financing), usually for a medium-term period by Western standards from 3 to 7 years ( interest rates for such loans they are either not established or constitute LIBOR + 2 - 4%). In practice, however, the most common form of venture investment is a combined one, in which part of the funds is contributed to the share capital, and the other is provided in the form of an investment loan. A venture investor, as a rule, does not seek to acquire a controlling stake in a company, which allows entrepreneurs to maintain a constant desire to develop the company. And this is its fundamental difference from a “strategic partner” or simply “partner”. The goal of a venture entrepreneur is different. He plans to make a profit only when, 5–7 years after the investment, he is able to sell his stake at a price several times higher than the initial investment (the sales process itself is called “exit”), that is, a venture capitalist is not interested in the long-term strengthening of the company and prefers to reinvest all interim profits received into the business rather than pay them out in the form of dividends. The period of the investor’s stay in the company is called “living with company”. Based on the above, we propose to refer to diagram 1 of the appendix, which reflects the process of existence of a venture entrepreneur.
The formation of new funds is the initial (and at the same time the final) link in the life cycle of a venture capitalist. If an entrepreneur's failure to find venture capital can lead to the bankruptcy of his company, then for a venture capitalist the lack of a new fund is certain death. The fund is a kind of indicator of the activity of a venture entrepreneur. Leading entrepreneurs tend to form large foundations and work with investors such as global endowments and philanthropic foundations. The search and selection stage (search, screening and deal-flow) deserves special attention. It is the ability to filter promising transactions from the chaos of business proposals that is a critical aspect of the work of venture capital firms. The financial risk of a venture capitalist can only justify an above-average return on invested capital. Return on invested capital (Internal Rate of Return-IRR) is a generally accepted metric for measuring remuneration. In the European and British venture capital associations, it is considered the standard for assessing the profitability of an investment project. While the Russian market for small and medium-sized businesses is absolutely illiquid, calculating the IRR indicator is quite difficult, if not useless. The effectiveness of the assessment is determined by a long and difficult process of mutual “courtship”, which is called “careful observation” or “study” (due diligence). The importance of this stage is also proven by the special system of classification of companies wishing to receive investment.
- 1. Seed (a company for sowing), essentially this is just a project or business idea that needs to be financed
- 2. Start up (newly established company) – a newly formed company that does not have a long market history.
- 3. Early stage (initial stage) - companies that have finished products and are at the very initial stage of their commercial implementation. 4. Expansion (expansion) - companies that require additional investments to finance their activities.
In addition to those listed above, investments from venture funds and companies can be used for:
- 1. “Bridge financing” (building a bridge) – financing for the transformation of companies from private to open joint-stock companies.
- 2. “Management buy-out” - MBO (managerial buy-out) – investments for managers to acquire existing production facilities or businesses in general.
- 3. “Management buy-in” (buy-in by external managers) – financial resources provided by a venture investor to an external manager for their acquisition of a company.
- 4. “Turnaround” – financing of companies experiencing certain problems in their trading activities.
- 5. “Replacement capital” (replacement capital) or “Secondary purchase” (secondary purchase) - the acquisition of shares of an operating company by another venture institution or another shareholder.
The selection stage is of particular importance in venture funds formed as strategic alliances, where private objectives may conflict with the objectives of the alliance as a whole, leading to oppurtunistic behavior.
The stage of venture investment and cohabitation is the longest for the entire existence of the fund. Based on the structure, the following types of investments are distinguished:
- 1. Start-up venture investments are the most risky form of investment, including:
- A) Pre-start financing (seed).
- B) Start-up financing.
- 2. Venture financing for the development of a company, as a rule, is divided into financing its initial and subsequent stages.
- A) 0 th early stage financing is designed to help small businesses with significant growth potential
- B) Later stage financing, which provides for the allocation of funds to enterprises with existing production that have great potential for expansion.
- 3. Financing of individual operations (expansion) is carried out as a one-time act. As a rule, funds are allocated for a very short period (for example, 2 years).
In addition to the listed forms, there are other types of venture investment, such as:
- A) Rescue financing (for the revival of a potentially bankrupt enterprise);
- B) Replacement financing (to replace part of the firm’s external resources with its own capital);
- C) Financing operations related to the company's entry into the securities market.
Based on the statistical data presented in Table 1 of the Appendix, the following conclusions can be drawn. The most common is investing in later stages of development.
This is due to lower investor risks (P. Gulkin), the likelihood of a more accurate assessment of the company’s potential, and the ability to avoid such complex operations as patenting and licensing (K. Campbell). In addition to diversity in assessments of the reasons for the predominance of investments in late stages of development, we can also track differences in the definition of the role of a venture capitalist in a creditor company. A number of economists believe that an investor, when purchasing a block of shares (usually 25% + 1 share), expects that the company’s management will use his money as financial leverage in order to ensure faster growth and development of their business. The investor does not take on any risks other than financial ones. Having a controlling stake, managers retain all the incentives to actively participate in business development. Other economists note the active role of venture capitalists in running a firm. Venture capitalists can significantly influence strategic decisions related to product development, help bring products to potential customers, and participate in negotiations for major sales or licensing agreements. They can also make a significant contribution to day-to-day issues such as developing options schemes, organizing seminars for portfolio companies, obtaining government grants or tax benefits. Even to raise a struggling company, an investor spends enormous effort, since a bad investment decision will greatly undermine the investor's reputation. We believe that the second point of view is the most objective, since venture capitalists, who relied entirely on the existing management team, left the industry after the “tech bubble”.
As noted above, the “output” is distinctive feature venture capitalist from a “strategic partner.” As a rule, the strategy for the future “exit” is thought out in advance and included in the investment project (many companies are forced to refuse to pay dividends, reinvesting them in production, as this is determined by the contract between the venture entrepreneur and the creditor company). There are three most common exit strategies: issuing new shares (flotation), or initial public offering (IPO); an industry sale, where one portfolio company is acquired by another, usually a larger firm; sale of a share of shares to other shareholders or management of the enterprise.
Summarizing the consideration of the mechanism of venture investment, we should once again focus on its difference from “strategic partnership” and bank lending. Venture financing is characterized by the distribution of common risks between the venture investor and the entrepreneur, a long period of coexistence, which requires both parties to openly declare their goals at the very initial stage of the common work. Such differences were formed under the influence of the tasks and goals for which the venture business was born.
To consider the role of “risky” business, it is necessary to clarify the multifaceted nature of this phenomenon. First of all, it is necessary to emphasize that it is one of the universal levers of innovative development, and therefore of economic growth in general. The venture business, on the one hand, acts as a unique mechanism for the commercialization of R&D (research and development), which is explained by the combination in one company of well-developed management methods that make it possible to minimize the large associated financial risks and strong material incentives for the main entities innovation process (all this is provided by the venture entrepreneur himself). And the presence of a prototype or prototypes that have high commercial potential when translated into a serial commercial product (this is provided by the projects themselves, selected by the investor). It should be noted that venture entrepreneurship does not always cope with such a role. The “tech boom” of the turn of the century, which we will discuss below, attracted a lot of “incompetent”, absurdly, investments into this industry, which led to the subsequent decline. At the same time, the venture capitalist, if in place, shares his wisdom and vision for the future based on his wealth of experience and becomes a key element in the development of the company.
On the other hand, “risky” business stimulates R&D, which is associated with a short product life cycle (in the US microelectronics industry it averages 4-5 years). The rapid change in product range forces firms to move from one innovation to another.
So, as we have already noted, such a duality of the role of the venture business (commercialization of developments and their stimulation) determined the specific mechanism of its functioning, which is initially focused on the need to “exit” the company in case of success and to incur losses in case of failure. In addition, we consider it necessary to repeat that in this work, by the concept of “venture entrepreneurship”, we mean the activity of organizing mediation between a venture investor and investment recipient firms, aimed at sharing risks between all subjects of contractual relations and making a profit through “exit” .
In civil legislation, “entrepreneurial risk” is a specific concept in relation to the category “risk”. The definition of “risk” is used in legislation and in scientific literature in relation to certain types of relationships and areas of professional activity. Within the objective category of risk, there are such types of risk as service, industrial, scientific and technical, creative, medical, sports, journalistic, insurance, commercial, etc.
Most often, the category “risk” is used in civil legislation. This category is used in the norms of the Civil Code of the Russian Federation 89 times, where risk is correlated with losses, accidental loss or damage to property, accidental impossibility of performance, attribution of costs and losses, consequences (adverse, failure to submit a claim, lack of information, death or damage, failure to fulfill obligations), loss (destruction), shortage or damage, non-receipt of expected income, liability, payments.
Based on the above, we can conclude that business risk is a complex category, including, among other things, civil liability without fault, other adverse consequences of technological, innovative, information, etc. character. Thus, according to clause 3 of Article 401 of the Civil Code of the Russian Federation, entrepreneurial risk should be understood as the incurrence of adverse consequences (property in the form of losses incurred during business, technological, innovative, information, etc.), as well as independent property innocent liability ( the only basis for exemption from liability is the presence of force majeure, unless otherwise provided by law or contract.
Risks associated with doing business are traditionally divided into two large groups:
1. Pure risks (arise under the influence of objective factors).
2. Speculative risks.
Risks leading to bankruptcy of venture capital organizations
The institution of bankruptcy is an essential element of the mechanism of a market economy. Its meaning is the voluntary or forced liquidation of insolvent legal entities when the implementation of measures to prevent bankruptcy, the implementation of pre-trial reorganization, or supervision, or external management does not ensure the required level of solvency of the enterprise (organization).
History of bankruptcy legislation in modern Russia began with the adoption of the Law of the Russian Federation “On the Insolvency (Bankruptcy) of Enterprises” (hereinafter referred to as the Bankruptcy Law of 1992). Given the absence of more than seventy years in legal practice, in particular, and in public life country in general, such a category as bankruptcy, undoubtedly, the Bankruptcy Law of 1992 played an important role, “teaching” participants in business activity to its existence as an integral element of market relations, giving the opportunity to arbitration courts , even with a relatively small number of cases in this category, develop certain rules for their consideration.
The first attempt to reform Russian insolvency (bankruptcy) legislation was made in 1995, when the first draft of the new Federal Law “On Insolvency (Bankruptcy)” was prepared. However, then work on this project was suspended and only on June 19, 1997, a new law was adopted State Duma in the first, and then in the second and third readings.
However, the practice of applying the adopted Law made it possible to identify numerous gaps in its provisions, which was the reason for the development of a new, third, Law on Insolvency (Bankruptcy). As a result, on December 3, 2002, a new Bankruptcy Law came into force, which introduced many significant changes to legal regulation bankruptcy procedure for a debtor in the Russian Federation.
Among the most typical problems for modern venture organizations that hinder their effective functioning in the current market conditions are:
1. Ineffectiveness of the enterprise management system due to:
2. Low level responsibility of enterprise managers to participants (founders) for the consequences of decisions made, ....
3. Low amounts of authorized capital of joint-stock companies.
4. Lack of an effective mechanism for executing court decisions, especially in terms of foreclosure on the debtor’s property.
Risky operations
Risk is inherent in any type of capital investment, but venture capital operations, by definition, are risky because they are associated with lending and financing scientific and technical developments and inventions.
Venture capital is invested in unrelated projects with the expectation of a fairly quick return on investment.
Risk operations, as a rule, are carried out by purchasing part of the shares of the client company or providing loans to it, including the right to convert these loans into shares.
Risky operations are caused by the need to finance small innovative forms in the field of new technologies.