Choosing a venture
Which projects will be successful in a few years
Alexey Golubovich, Managing Director of Arbat Capital, for Forbes magazine
Biotechnologies, medicine, mobile applications, IT and new generations of robots and drones – what should far-sighted investors invest in?
The record IPO of the Chinese online store Alibaba – the company's quotes jumped by almost 40% on the first day of trading, the capitalization reached $170 billion – may well awaken investment interest in similar projects. But startups a la Alibaba were fashionable and promising 15 years ago. Which projects have a chance to repeat this success in a few years?
When they talk about venture investments, they first of all recall American companies that have been investing in such industries for many years as software (more than 30% of venture investments), biotechnology (15%), medical instruments and equipment (9%), alternative/clean energy (10%), IT and media technologies (7% each). At the same time, there is an opinion that almost no one has earned a lot of money on venture investments over the past 10 years. Except, of course, the creators of Facebook and the Tesla electric car.
In the USA, $20-30 billion of venture capital is invested annually in about 3,700 companies (PwC data for 2004-2014). Only 3% of the financing volume falls on projects in the initial or "seed" stage; the rest is distributed in approximately equal shares to the early stage (when revenue appears), the expansion stage (when there is already profit or sales growth begins) and the late one.
Other venture capital countries – Great Britain, Israel, Canada, Australia, Hong Kong, Korea, etc. – collectively invest about half of what Americans invest in projects every year. The reason is simple: the US has much more capital focused on this type of risk (the highest compared to investments in government bonds, etc.), and better investor protection.
In many countries, there is now an outflow of foreign venture capital (in Brazil and India – due to weak legal protection) and a reduction in local (in Germany and France - mainly due to taxes).
And it is difficult to estimate the volume of venture investments in China and Russia: Chinese statistics are strongly mixed with Hong Kong, Russian – with offshore. In the US, venture capital investments have also been declining over the past three years, according to Deloitte estimates, as the Fed's policy led to a flow of funds to the stock market. There was more and more money, but they did not enter industry, including high-tech industries. However, in the first quarter of 2014, there was an increase in the number of transactions and the volume of attracting venture capital in the United States. It is possible that some of the investors who have earned on the "stock bubble" direct funds to venture projects.
So what can you invest in now? Biotechnologies ("growing" raw materials for pharmaceuticals), medicine (medicines for the brain, eyes, skeleton), mobile applications, IT and new generations of robots and drones are very popular. After Google bought drone manufacturer Titan Aerospace to develop the Internet in remote regions, and e-commerce leaders became interested in drones for parcel delivery, investments in technologies for civilian drones increased. It is in these areas that there are still opportunities to occupy interesting niches in the markets with small investments.
And what about Russia? The most successful venture entrepreneurs and funds have traditionally been associated with the Internet and software development. But the growing threats of restrictions for the Russian Internet are forcing to restrain venture investments in this industry and, possibly, to look for other technologies. Investments in the infrastructure of Skolkovo and similar centers are associated with the search for import substitution. But Russian venture capital will not be able to develop without cooperation with foreign developers and consumers – our market is too small for this and money alone is not enough.
For the success of venture projects, you need to combine your own and foreign personnel, opportunities for access to global markets. It requires not only continued investments in the IT sector, but also the development of technologies for transport, medicine, and energy. Therefore, more and more Russian money is invested in foreign venture projects that have a potential market, including Russia.
The most interesting projects of 2014 can be considered the projects of Roman Abramovich 14: one of his companies, Millhouse, transferred $ 10 million to the Israeli startup StoreDot (fast–charging batteries for mobile phones); another – Ervington - £ 9 million to the English manufacturer of fuel cells AFC Energy. The Start Fund of a large venture investor from Russia, Yuri Milner 57, invested in more than 200 companies at the "seed" stage – mostly from the most famous California incubator Y-Combinator (from there, in particular, Uber and Dropbox). Another Milner fund, DST Global, specializes in Asian startups: Alibaba turned out to be in its portfolio, which cost another $32 billion, and this year India's largest online store Flipkart appeared. Milner has previously invested generously in DNA testing company 23andMe, as well as space startups Planet Labs.
Among the promising Russian projects, we can note the creation of the first domestic inexpensive (up to $ 3 million) small-sized communications satellites for private use.
Dauria Aerospace, which has received over $20 million from Rusnano funds and from private investors, has already launched three satellites for Russian customers and is preparing several more launches, including for Indians. Whether Dauria will be able to attract enough funds for development depends today on the Russian investment climate. But in the United States, space technology has become a hot topic: Elon Musk's Space-X project (a rocket manufacturer) has already been capitalized by $ 5 billion.
The "lenses" of five successful Russian venture capitalists can be found in the original article – VM.
Portal "Eternal youth" http://vechnayamolodost.ru12.11.2014