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The military actions in Ukraine led to a drop in the startup market in the Russian Federation. A significant part of the projects were relocated abroad, the number of transactions in the segment decreased by 40%, and the volume of investments — by more than 50%. The market as a whole began to change. Thus, Vladimir Potanin's Interros holding sold the management company of the Voskhod venture fund in the amount of 10 billion rubles to top management. 

Ruslan Sarkisov, managing partner of the fund and co-owner of Voskhod, told Kommersant about the development of the market, investments in the space industry and the prospects of dual-use technologies.

Ruslan Sarkisov believes that the market has certainly sunk. Until February 24, 2022, more than 100 funds were operating in Russia. In 2022, according to internal estimates, about 30 venture funds invested in Russia. So far, the level of investor activity remains the same as last year's dynamics. But the situation should not be too dramatic.The market is adapting, investment models are being transformed, there has not been a complete collapse: there are few deals, but there are investors, 

Many startups have been relocated. This is due to the fact that IT developers do not care where in the world to work. Most of the companies with hardware remained — the laboratory is not so easy to drag. Someone has divided the business into Russian and international in order to continue development abroad and attract funds there.

The approaches of venture funds to transactions have changed not only in Russia, but also in the world. There is less money in the global venture capital industry in principle. Investors are less risk tolerant, money is more expensive.

Now investors are looking more closely at the economy. Estimates have fallen due to uncertainty and expectations of a recession. There are fewer quality companies, especially at stage A (those who have already started commercializing developments. - “Kommersant").

Previously, everyone looked at growth at any cost, now they pay attention to efficiency, the possibility of the project to reach a positive profitability. They are looking at how much money the company needs to make it to the next round, because the periods between them have lengthened by a record — up to 2.5 years at some stages. This means that companies need a greater margin of safety. In Russia, investors began to work not only according to the classical venture model, which assumes an increase in capitalization, but also according to the dividend, mainly in import-substituting IT.

Now the most attractive for investors are projects in cloud security, what is called cloud native security. Until now, the market's attitude to such services has been cautious. After the departure of Microsoft, Google hybrid cloud becomes a new paradigm for building IT infrastructure, developing and doing business.

In Russia, the only contender to replace the departed hyperscale (holding companies with a large network of data centers around the world: Amazon, Google and Microsoft.— "Z"), "Yandex", and he has grown up well for cloud office launched a Special military operation. So the cloud will definitely grow, more information is being immersed there, and the issue of its security becomes critically important. 

The Voskhod Venture Fund considers the most promising for its development, first of all, what can be attributed to deeptech, these are "deep" technologies with a serious scientific component in R&D. Robotics, artificial intelligence in medicine, new materials, biotechnology, drones — the Fund has already made investments in these areas. New mobility projects in general, microelectronics, are being considered. Cellular technologies — reprogramming of the patient's immune cells — have also become interesting, as regulatory regulation is changing.

The Fund has already invested more than 2 billion rubles, in the portfolio of 12 companies — these are transactions made since the beginning of 2022. Among them are investments in 2023 — a UAV project, a university biotech startup NovoSkin from Buryatia and two projects in the field of private cosmonautics, ultralight class rockets. The direction of microelectronics in terms of growing artificial diamonds for microcircuits is also being considered.

Sarkisov stressed that there are catastrophically few qualified personnel in microelectronics in Russia, so an important task in this industry is the development of teams for the direction in Russia. The industry has a serious potential not only in terms of the domestic market, but also in exports.

For example, not all countries are ready to use European or American design centers, partly because of Russia's sanctions experience. Trends may force chip companies to start developing in other related areas, which leads to the diversification of the microelectronics market. Russia will potentially be able to share its experience with friendly countries.

Another attractive sector for investment is the development of UAVs.

The Fund sees in this industry a commercial market that will develop as quickly as possible. Despite recent events, for example, bans on the use of drones in a number of regions, there are a large number of initiatives related to accelerated certification for vehicles over 30 kg, initiatives to create infrastructure for air traffic management. There are experimental legal regimes involving the use of drones.

The Far East may become a suitable place for the commercialization of unmanned logistics and monitoring. Because the territories are huge, and the population, on the contrary, is not so large. 

Commercial potential of the UAV market in the Far East:

Over the past two years, the region has purchased UAVs worth about 100 million rubles. and, according to the Voskhod venture fund, it will increase it to 1-1.2 billion rubles. in the next two years. For about the same amount, the region has a need for services using drones — remote monitoring, aerial photography, data collection, monitoring of territories, etc.

There are many unsolved tasks in the direction of UAVs, but this is a serious industry that will be the locomotive of a large set of technologies.  This is the base on which you can run other technologies — positioning, recognition, etc.

The Foundation adheres to an ecosystem approach, when some projects can be linked to others. This is a non-classical approach for venture capital, but now this model can be tried. For example, projects in private cosmonautics are being developed in conjunction with UAVs, and the direction itself is called "aerospace" in the fund. Because there will be no over-the-horizon unmanned systems without satellite communications.

In space, the Russian Voskhod Foundation has the following projects: 

The use of ultralight class rockets in those areas where technology niches will be growing; this is just the rapid launch into orbit and replacement of small spacecraft that have dropped out of satellite groupings. Space communication is the most important element in the management system of long—distance transportation in the logistics of unmanned systems.

Previously, Russian venture funds did not invest in the space industry due to its complexity and long payback period. Now the approach is changing in Russia as well.    If you look at international experience, there is a large amount of investment in space and launch vehicles. This is a global trend. In Russia, too, there is a rethinking, Roscosmos is already more open to working with private business. The projects that we have funded are supposed to be implemented in close cooperation with the head institute of Roscosmos TsNIIMash.

Such projects are more capital-intensive than projects in other industries, and you can't do with money from a venture fund alone. There should be subsidies and government grants, we need money from larger investors and other funds, and probably bank financing. At the same time, in our opinion, the payback of such projects for venture should not differ from other niches, although the time for the project to enter the market, of course, requires much more than in IT.

Both in Europe and in the USA there are a number of funds with big names that invest in dual-use technologies and even direct military use.

For example, the Anduril project has already attracted more than $2 billion, including from Andreessen Horowitz. This year, for the first time, Sequoia Capital invested in a defense project (Mach Industries.— Kommersant). There are many examples. In Russia, private investors are not yet ready for such investments. According to Sarkisov, such changes will become possible after 5-10 years.

Some of the previous areas for investment now have to be abandoned. So, for example, while investments in game development are put on pause. Game Dev is somehow a creative industry, and the growth of everything related to creativity is very difficult to predict. Currently, the foundation concentrates more efforts on B2B projects.

The maximum threshold of investments that are invested in the project is no more than 1 billion rubles, but this is rather an exception. The average investment in the project is at the level of 150-200 million rubles. Within five years, the Fund plans to place all its funds — this is 10 billion rubles. The Voskhod Fund will then have 30-35 companies in its portfolio.

At the end of May, Voskhod came under US sanctions. This led to difficulties in working with foreign investors and uncertainty on the part of the founders of startups, as a result of which some initiatives will not be implemented.

The Fund considers as new potential investors both clients of banks who are ready to invest money in venture projects, and Large institutional investors, corporations ready to go into venture investments now.

According to Sarkisov, in this regard, the situation is not simple now and there are very few investors in large funds for late-stage projects, and previously there were not enough in Russia for the full-fledged work of the venture industry. Conditionally, the maximum amount of investment in Russia in one project is 300-500 million rubles. And the question always arose — where to get money at the next stage, many for this reason went abroad for money. Overcoming the threshold at the scaling stage is important for the market as a whole.

Another major task, where the role of corporations in general is paramount, is the creation of an ecosystem of exits. It is important for a venture investor to return money to investors with profitability. This requires liquidity events. 

Now the formal requirements for entering the stock exchange are being reduced. Previously, an almost mandatory condition was the availability of revenue over 10 billion rubles. Now, with the dynamic growth of revenue, the company has good chances. Such a decrease in the "entrance ticket" is a good trend for the market of young companies as a whole. A recent example is the recent placement of Genetico (Genetico Genetic Center The Center for Genetics and Reproductive Medicine "GENETICO" is a complex of laboratories providing a wide range of medical and genetic services for both doctors and patients.) on the Moscow Stock Exchange, during which almost 180 million rubles were raised.

The terms of return on investment have changed over the past year and a half. 

Previously, 3-5 years were laid for each project. Now we understand that this is 5-7 years, due to uncertainty, which is relevant not only for Russia, but also for the whole world.

In Russia at the moment, big business is primarily thinking about how to import substitution, to close some holes. The trend towards import substitution is rather a problem for the Russian venture capital market, and until a large corporate business in Russia is set up to introduce innovations, the availability of venture funds will not fundamentally change the situation.

A strong technology business can develop only if conditions are created for the introduction of innovations aimed at long-term strategic objectives.

Source: https://www.kommersant.ru/doc/6096992?from=author_2