How attractive can risky investments be in Russia in the current environment? What problems will a future investor who is going to "marry" face? Which structures are already operating in the domestic market of risky investments and how successful are they?
Russia has already recognized the vulnerability of the economic model based on the export of raw materials at the state level. Therefore, the development of knowledge-intensive industries is being actively discussed. And the most important task here is to create an effective system of venture financing. After all, this will determine the successful operation of the innovation mechanism responsible for turning the results of scientific research into a commercially viable, i.e. marketable product. And here, potential investors will have excellent opportunities to invest, especially since the government has firmly declared its intention to pay close attention to the development of the venture capital industry.
Sooner or later the majority of companies face the necessity of financing from external sources. All mechanisms of raising funds can be divided into four groups depending on their availability at different stages of the company's development:
In Russia, fundamental and applied research is often financed from budgetary sources. At the stage of expansion of production and increase in sales, a company, as a rule, can already provide guarantees necessary for obtaining a bank loan. But at the early stages of development, when the creation of a prototype and prototypes is completed, and the transition to a serial market product is only planned, firms are often deprived of financial support adequate to their needs. It is at this stage that enterprises, especially in the high-tech sector, face difficulties: funds are vital, but budget revenues are insufficient and bank money is not available. And only venture capital investments can fill this gap.
Like any other funding mechanism, the venture capitalist has its own requirements and limitations. Without understanding this specifics, it is impossible for a potential investor to adequately assess his or her potential in the risk investment market. Regardless of the priorities of venture capital institutions, the main criterion in determining the attractiveness of a project should be the answer to the question: how successful will the development of this business be in the foreseeable future?
In the generally accepted sense, venture capitalists invest their money in the authorized capital of small technologically oriented companies, which have perspective for further commercialization of their developments, or provide them with funds in the form of a medium-term investment loan without any collateral. After the financed companies enter the trajectory of sustainable development and are fixed in the market, their value increases many times. So investors can sell their shareholdings at a price significantly higher than the initial investment. Thus, the risk associated with venture capital investments is justified if the company in the period when the investor acts as a co-owner and partner, proves its viability and the investor at the "exit" (in 3-5 years) can get a good reward.
Recall that the support of venture capitalists is not limited to the provision of funds. They are interested in the successful development of their portfolio companies and therefore provide them with assistance in management (through representation on the board of directors); help in marketing activities in order to achieve a more effective output of goods on the market, etc. The term "venture capitalist" implies that there is an element of "healthy" adventurism in the relations between the investor and the firm interested in attracting his funds.
Venture investments can be obtained at various stages of the company's development: from the "seed" stage to the stage of expansion and maturity. Since a venture fund is only an intermediary between a group of investors and entrepreneurs, the income they receive from portfolio companies is ultimately owned by investors. Venture funds, investing their money, rely on the profitability of at least 30-40% per annum. Providing funds in the early stages of a company's development is associated with higher risk and, therefore, should be justified by a higher annual return on investment than in the case of financing at the stages when the companies already have stable cash flows and show profit.
Of course, investment is also possible at the seed stage. The world practice knows a lot of successful examples of project financing for business plan. However, in the current economic situation in Russia, the risk of such investments is too high: there is a high probability of not getting the planned rate of return. Therefore, today venture capitalists prefer to invest in domestic enterprises that have already established themselves in the market and have been growing positively for several years.
Nevertheless, our country also has successful examples of investors entering the company at an early stage - somewhere between the "seed" and "start" stages.
Preparation for any transaction begins with consideration of the proposal in the form of a business plan or project summary. On the basis of this analysis, the investor makes the first impression about the personality of the entrepreneur and the professionalism of his team. The basis of the venture business to a greater extent than anywhere else is based on human relations. As J. Pierpoint Morgan said, "...a man I don't believe in couldn't get money from me for all the securities in the Christian world. For a venture capital investor, the decisive factor in choosing the most attractive company for investment, all other things being equal, is the experience and qualifications of management. Of course, the preferences of venture capitalists can vary greatly, but the main and constant requirement is honesty and honesty of managers when describing the state of affairs in and around the firm.
Solving the problem of attracting venture investments, the owners of the companies should understand that the investor is motivated only by one desire - to get a good profit. Therefore, convincing evidence that the company has a clear business plan, qualified management, a real niche in the market, a workable team, protected intellectual property rights, a clear understanding of the prospects of business development after the start of the investor's money, for the latter means much more than a complex technical calculations or a heap of pseudoscientific terms.
As a rule, a venture investor, unlike a strategic investor, does not seek to acquire a controlling stake. Its share in the capital of the firm can vary from 25% + 1 share and above. The amount of investment provided and the share of the investor acquired are calculated proportionally to the preliminary assessment of the company's value.
In Russian practice, a combined investment scheme is widely used. For example, 30% of the shares are received by the investor in exchange for an amount equivalent to one third of the company's value, and the rest of the funds are transferred in the form of an investment loan for a period of 4-6 years. However, it is necessary to clarify - small investments are not interesting to the investor. After all, the overhead costs of supporting investments insignificantly depend on the amount of funds provided. Therefore, it is more profitable for the investor to invest 1 million in 10 companies than 400 thousand in 25.
Before the beginning of the discussion of the terms of the transaction and making a decision to provide financing, the investor thoroughly investigates the business plan: conducts a procedure of "thorough study" of the company, paying special attention to checking the options underlying the financial calculations. This is a comprehensive analysis of the whole set of relations within the company and its interaction with the environment in which it operates. Conditionally, this study can be divided into four phases, during which technical, market, legal and financial risks are identified. In the world practice before the crisis in the high-tech market in 2000 the financial position of the company was not always a determining factor. It was more important to believe in the product and its legally confirmed rights. In Russian conditions, however, the study of the company's financial position is the most important stage of verification.
Only after the completion of the "thorough examination" procedure, which in the current Russian conditions may take longer, an investor, if he is still interested in cooperation, will be able to make a formal proposal on the terms of the transaction. At this stage, the investor determines the amount of possible investments and his share in the capital of the enterprise, which its owners will transfer in exchange for financing.
After the final decision is made, the legal execution of the transaction begins, i.e. preparation of a package of documents: agreements between the owners of the company, the articles of association, obligations to disclose information. If in addition to the purchase of shares in the capital of the company debt financing is carried out, the parties sign a loan agreement.
The "co-management" stage begins when the investment is received. A venture capitalist actively contributes to increasing the value of the company by sharing his knowledge, experience and business connections.
The final stage of the venture capital process is the exit from the investment. At this stage, it is clear to what extent the investor's expectations for the planned return on investment have been met.