Russia’s RVC: maritime navigation and other high-tech investments
Five years ago, then-president Vladimir Putin floated the idea of a state-backed venture capital company to “leverage Russia’s intellectual capital.”
May 16, 2012
No one disputes the Russians are clever or have good scientists – Russia was first to put a man into space, after all. The problem is that businesses see little point in investing into highly risky, long-term technology projects when they can earn guaranteed double-digit returns for doing no more than buying German equipment and putting it into a regional sausage factory. Thus the Russia Venture Company (RVC) was born and five years on its first projects are starting to hit the market.
Backed with $880m of state money, RVC co-invests with privately owned funds, providing half the money in exchange for stakes usually limited to 49 per cent. The first of those investments are starting to mature, Igor Agamirzyan, CEO of RVC, tells bne. Last year, for example, RVC successfully listed Russian Navigation Technologies on the RTS New Market, a special platform for smaller companies, raising $10m.
Russian Navigation Technologies is exactly the sort of company RVC looks for. It is a shipping specialist that produces and installs its GPS/GLONASS-based telematics systems that allow owners and customers of cargo ships to track their progress. The company already has 60,000 ships in its system, or about 20 per cent of Russia’s entire merchant fleet. The technology was developed thanks to investments made by RVC and its partner VTB Venture Capital Fund, a subsidiary of the state-owned VTB Group. The company plans to use capital raised at its listing to expand its sales overseas.
Agamirzyan doesn’t rule out any sectors but says obvious ones for the fund are IT, biotech, alternative energy and ecommerce. "We have another biotech company that is just about to sign a deal with [state-owned technology agency] Rusnano for a second round of financing that will be used to build a production facility to produce hi-tech capsules to deliver a dermatological product it has been developing," he says.
RVC made its first investments in 2007, typically contributing up to $5m for early stage companies or $500,000 as seed capital. Today it has 12 funds with Rb26bn ($862m) invested in 104 companies. In addition to its own funds, the ministry of economic development and trade appointed RVC to oversee another $500m in funds that have been established by a troika between RVC and the federal and regional governments to promote projects at a regional level.
Agamirzyan says Tomsk and Tatarstan already stand out as champions when it comes to regional tech funds. "Most of the companies in our portfolio are still only two to three years old, so we are only just beginning to reach maturity amongst a few of the first investments we made," he says.
The effort is starting to make a difference. Elvira Nabiullina, economic development minister, predicted at the start of April that the innovation sector would raise its share in the Russian economy from a current 11 per cent, to 12-13 per cent by 2015 and to 16 per cent by 2020. Ecommerce is one of the fastest growing sectors in Russia at the moment, although RVC has invested the largest part of its cash into biotech.
"There are a lot of copy cat internet companies out there that are growing very fast and they are developing something that has proven interest in other countries. But there are also a lot of private investors interested in this sector. We are a state company with a mandate to promote development of high technology companies, so we look further afield than just the obvious projects," says Agamirzyan.
The most interesting prospects are investments that cater either to business-to-consumer demands or to business-to-business, but specifically targeting the needs of the people running those companies, believes Agamirzyan.
Ironically, Russia’s difficult business climate has proved to be an advantage for some young companies like 1C (the name is in Cyrillic and pronounced "one-s"), one of Russia’s largest software developers. At home it became well known for its Russian accounting software but abroad it is better known as a games developer. "1C grew up meeting the needs of the domestic market and then branched out overseas, but there are other companies like Transas that produces port navigation simulators used in training around the world and other marine software. It made its first money abroad and only came back to Russia once the market was ready for it," says Agamirzyan.
Most of the co-investors into RVC’s funds have been either Russian-specialist funds or local investment banks. Agamirzyan says RVC hopes to bring in more foreign money as well.
"We already have a couple of funds outside Russia that co-invest with the biggest international players in companies overseas, but have some Russian angle. But now we are seeing the start of a much bigger interest from foreign tech funds, who are allocating part of their portfolios to emerging markets and Russia in particular. These world famous funds are starting to get really excited about the prospects of investing into Russia."
Part of this international interest may have been sparked by the IPOs of internet and software companies Mail.ru, Yandex and EPAM Systems over the last couple of years, but Agamirzyan still only has a few trophies to hang on his wall.
The benefits of RVC are only just starting to become apparent. But Nabiullina, the economic development minister, is very upbeat, saying the macroeconomic effect of innovations will start to make itself felt in 2018-2020. The current rate of growth might seem low, but she adds: "Never before has there been this type of long-term growth in Russia amid a decreasing labour force."
Original article: http://blogs.ft.com/beyond-brics/2012/05/11/russias-rvc-maritime-navigation-and-other-high-tech-investments
Backed with $880m of state money, RVC co-invests with privately owned funds, providing half the money in exchange for stakes usually limited to 49 per cent. The first of those investments are starting to mature, Igor Agamirzyan, CEO of RVC, tells bne. Last year, for example, RVC successfully listed Russian Navigation Technologies on the RTS New Market, a special platform for smaller companies, raising $10m.
Russian Navigation Technologies is exactly the sort of company RVC looks for. It is a shipping specialist that produces and installs its GPS/GLONASS-based telematics systems that allow owners and customers of cargo ships to track their progress. The company already has 60,000 ships in its system, or about 20 per cent of Russia’s entire merchant fleet. The technology was developed thanks to investments made by RVC and its partner VTB Venture Capital Fund, a subsidiary of the state-owned VTB Group. The company plans to use capital raised at its listing to expand its sales overseas.
Agamirzyan doesn’t rule out any sectors but says obvious ones for the fund are IT, biotech, alternative energy and ecommerce. "We have another biotech company that is just about to sign a deal with [state-owned technology agency] Rusnano for a second round of financing that will be used to build a production facility to produce hi-tech capsules to deliver a dermatological product it has been developing," he says.
RVC made its first investments in 2007, typically contributing up to $5m for early stage companies or $500,000 as seed capital. Today it has 12 funds with Rb26bn ($862m) invested in 104 companies. In addition to its own funds, the ministry of economic development and trade appointed RVC to oversee another $500m in funds that have been established by a troika between RVC and the federal and regional governments to promote projects at a regional level.
Agamirzyan says Tomsk and Tatarstan already stand out as champions when it comes to regional tech funds. "Most of the companies in our portfolio are still only two to three years old, so we are only just beginning to reach maturity amongst a few of the first investments we made," he says.
The effort is starting to make a difference. Elvira Nabiullina, economic development minister, predicted at the start of April that the innovation sector would raise its share in the Russian economy from a current 11 per cent, to 12-13 per cent by 2015 and to 16 per cent by 2020. Ecommerce is one of the fastest growing sectors in Russia at the moment, although RVC has invested the largest part of its cash into biotech.
"There are a lot of copy cat internet companies out there that are growing very fast and they are developing something that has proven interest in other countries. But there are also a lot of private investors interested in this sector. We are a state company with a mandate to promote development of high technology companies, so we look further afield than just the obvious projects," says Agamirzyan.
The most interesting prospects are investments that cater either to business-to-consumer demands or to business-to-business, but specifically targeting the needs of the people running those companies, believes Agamirzyan.
Ironically, Russia’s difficult business climate has proved to be an advantage for some young companies like 1C (the name is in Cyrillic and pronounced "one-s"), one of Russia’s largest software developers. At home it became well known for its Russian accounting software but abroad it is better known as a games developer. "1C grew up meeting the needs of the domestic market and then branched out overseas, but there are other companies like Transas that produces port navigation simulators used in training around the world and other marine software. It made its first money abroad and only came back to Russia once the market was ready for it," says Agamirzyan.
Most of the co-investors into RVC’s funds have been either Russian-specialist funds or local investment banks. Agamirzyan says RVC hopes to bring in more foreign money as well.
"We already have a couple of funds outside Russia that co-invest with the biggest international players in companies overseas, but have some Russian angle. But now we are seeing the start of a much bigger interest from foreign tech funds, who are allocating part of their portfolios to emerging markets and Russia in particular. These world famous funds are starting to get really excited about the prospects of investing into Russia."
Part of this international interest may have been sparked by the IPOs of internet and software companies Mail.ru, Yandex and EPAM Systems over the last couple of years, but Agamirzyan still only has a few trophies to hang on his wall.
The benefits of RVC are only just starting to become apparent. But Nabiullina, the economic development minister, is very upbeat, saying the macroeconomic effect of innovations will start to make itself felt in 2018-2020. The current rate of growth might seem low, but she adds: "Never before has there been this type of long-term growth in Russia amid a decreasing labour force."
Original article: http://blogs.ft.com/beyond-brics/2012/05/11/russias-rvc-maritime-navigation-and-other-high-tech-investments