the venture investor makes investments on a long-term basis and does not expect a quick return;

the venture investor foresees his exit from the project from the very beginning. There are three main ways to exit the project: listing the company on the stock exchange, selling it to a strategic buyer or management. Thus, the enterprise must prepare in advance for this event so that the withdrawal of funds does not affect its operating and financial activities;

a venture investor makes special demands on the project management and the team that implements it. It is not uncommon for funds to be allocated not so much for a particular project as for specific people;

the venture investor is often included in the management of the company or group implementing the funded project. At the same time, he provides support and advice to the management of the company, since he is interested in early success and income generation.

Stages of funding for venture capital: 1) pre-launch financing; 2) seed funding (newly established company); 3) initial expansion (a company with already finished products); 4) rapid expansion (companies that require additional investments to expand their activities); 5) preparatory financing (companies that are transformed into an open joint stock company from private enterprises whose shares are quoted on the stock exchange).

7. Necessary prerequisites for obtaining venture investments.

develop an attractive idea, competitive advantages, the market, technological and commercial potential of which are clear to the investor, and the potential income from implementation is higher than the associated risks;

have a qualified management team with experience and professional skills to implement the proposed idea;

provide the venture investor with all, even highly confidential, information related to the company or project;

have some unique advantages, such as the use of special technologies, know-how, well-known specialists, etc. There are two main types of sources of such funding:

venture investment funds (venturingfund), which carry out risky investments in projects of firms and individual entrepreneurs;

individual investors or business angels (business angel), i.e. individuals who have reached a certain level of wealth and are able to invest personal funds in projects with high growth potential.

Individual investors, or business angels, can be both Russian and foreign individuals. This group of investors is the most closed. However, if an entrepreneur can find such an investor, interest him in his idea and gain confidence, then the problem of raising funds is greatly simplified. As a rule, the volume of investments of business angels is from 50 thousand to 1 million dollars.

The practice of private investment in Russian business is just emerging. At the same time, there are examples of particularly successful venture projects implemented by private investors in our country. For example, business angel Joseph Avchuk, who bought the Aport Internet company for $45,000 in 1998, sold it in 2000 for $25 million. As a rule, large businessmen act as such investors in our country. managers of large companies, famous figures of culture, sports, etc. At the same time, in the US, the activities of the so-called business angels are a huge independent part of the venture industry, uniting a wide range of people. According to various estimates, American business angels in the mid-1990s invested from 30 billion to 40 billion dollars, financing about 30 thousand projects at the initial level of their development (the so-called start-ups).

It should be noted that in developed countries, special measures are being taken to stimulate private investment by ensuring the protection of investments, providing tax incentives, the creation of special associations that provide legal, informational and consulting support to entrepreneurs and business angels, and often perform intermediary functions.

For example, the European Association of Business Angels EBAN has over 150,000 active members. In Great Britain, where this culture is especially developed, there are at least fifty associations uniting about 20 thousand people.

In Russia, such organizations of private investors are in the process of formation and are created on the initiative of individuals, without the support of the state. As a rule, they carry out their activities on a commercial basis, providing intermediary and consulting services. Currently, the most famous is the Moscow Network of Business Angels (MSBA). When concluding a deal for its services, the network takes a commission from the investor in the amount of 2-7%, depending on the amount invested.

According to some estimates, there are currently about 10,000 potential business angels in the Russian Federation. However, their potential remains untapped and is practically not used.

At the moment, there are a number of prerequisites that can accelerate the growth of venture capital investments in the Russian Federation in the coming years.:

improving the investment climate;

the presence of a large scientific, technical and technological potential, as well as specific developments and projects ready for implementation;

the growth of the welfare of the population of the country;

reduction of opportunities for speculative capital accumulation, etc.

To the factors hindering the development of venture business in our country should include:

underdevelopment and low capacity stock market, as a result of which the traditional way for investors to exit projects is difficult;

lack of professional managers capable of unleashing the commercial potential of scientific and technical developments, developing a project according to international standards and attracting risk capital;

low consumer demand for high-tech products within the country;

low liquidity of venture capital;

absence state support(providing benefits, protecting intellectual property, etc.).

In conclusion, we highlight the main Advantages and Disadvantages of Venture Capital Investments. In general, it has the following advantages:

allows you to raise the necessary funds for the implementation of high-risk, but promising and potentially highly profitable projects when other sources are unavailable;

does not require collateral or other types of security;

can be provided in a short time;

as a rule, does not provide for interim payments (interest, dividends), etc.

The disadvantages of this method of financing include:

difficulty in attracting (finding investors);

the need to allocate a share in the capital (as a rule, a controlling stake);

the possibility of an unexpected exit of the investor from the project or the sale of his share to third parties;

maximum disclosure requirements;

the possibility of investor intervention in the management of a project or company;

poor development in the Russian Federation, etc.

The difference between venture financing and lending

Venture financing is very different from traditional types of financing. Consider the most important differences from "traditional" lending:

venture investors do not require interest payments;

the terms for which loans are usually issued are not so long;

banks issue a loan against liquid collateral, while venture investors do not require it, due to the fact that a high-tech enterprise liquid assets appear at a later stage life cycle;

financing through venture capital is not provided with any guarantees, since the investor becomes a shareholder or a voluntary business partner of the company and bears the risks of losing investments on an equal basis with the entrepreneur;

the bank evaluates the enterprise from the point of view of the current situation, while as a venture investor - from the point of view of the future of this enterprise and the ability of the management to realize this future.

Of course, when analyzing the creditworthiness of a startup, a venture financier will also consider those factors that a lender would consider, but at the same time, more attention will be paid to project analysis, management professionalism, characteristics of goods and services, the state and prospects of the market.

In order to attract capital from a venture investor, one must understand the factors that the investor will look at.

The first stage is a business plan and verification of its provisions. The business plan must be accompanied by exhaustive materials and evidence of the statements made in it.

Business plan materials should show the goals and objectives of the enterprise. It should also indicate the required funding, market analysis and description of products / services, demand for them.

A venture investor especially carefully assesses the competence of the management team, since the competence and experience of the management is one of the main guarantees for the success of a startup.

Venture funding- this is an investment in innovative business in the early stages of its development. Venture financing originated in the United States and has become widespread throughout the world. This type of financing is characterized by a high level of risk.

The meaning of venture financing is that an investor invests small, by his standards, amounts in several projects (startups) that can potentially grow to the size of a large corporation. At the same time, the investor understands that most of the projects will go bankrupt, but those one or two businesses that can grow and scale their activities will cover all the expenses of the investor.

For businesses, venture capital financing is an indispensable means of obtaining money for their activities before the firm can generate profits on its own.

Subjects of venture financing

Startups

Companies at an early stage of development act as donors - startups. These firms can exist both at the level of an idea on paper, and at the level of a business that has a certain amount of revenue and even profit.

Key characteristics of startups:

• 1. Innovation;
• 2. The business model is being tested;
• 3. The business is in its infancy.

We need to distinguish between startups and small businesses. A flower shop or a bakery is not a start-up because they use already proven, well-known business models. Also, innovative divisions of large corporations are not startups, because these enterprises have a well-established business model for a long time and innovation is only part of their business.

Most often, startups appear in the IT industry due to the general innovativeness of this industry, as well as the low threshold for entering the Internet business. Young enterprises are also emerging in a number of other knowledge-intensive industries: pharmaceutical, engineering, biological, etc.

Investors

Venture investors are divided into types presented in the table.

Name Organizational form Characteristics

Business angels Private investors or groups of investors Fund start-ups at the earliest stages of development (starting with an idea)

Pre-seed and seed funds Business structures Fund start-ups at the first stages of testing a business model

Venture capital funds Large business structures Provide financing at the stage of scaling the business model

Business angels are wealthy people who invest their money in startups in the hope of making a profit. There are business angels who invest professionally and have made it their main occupation. There are also angels on the market, for whom investing in innovative firms is just a way to diversify their investment portfolio. For start-ups, professional business angels with industry expertise are preferable, because they will be able to provide a young company not only with financing, but also with connections and recommendations for business development. A good business angel, on the one hand, participates in the management of the company, on the other hand, it allows startups to make decisions on their own. The most famous business angels in Russia are:

1. Igor Ryabenky;
2. Arkady Moreinis;
3. Pavel Cherkashin;
4. Alexander Galitsky.

Venture capital funds are investment funds that invest in startups at various stages, from pre-seed to late rounds of venture capital financing. The goal of the fund is to make a profit.

The activities of any fund can be divided into the following stages:

1. The fund raises funds from a number of investors, including wealthy people, business structures and sometimes - budgetary funds.
2. The fund analyzes the market and invests in several startups (usually at least 10) by buying shares in these firms. At the same time, the prospects of the business model, the personality of the founders, and the financial performance of the young company are analyzed.
3. The fund takes part in the management of funded start-ups, which are called portfolio companies. The goal of the fund is to bring the maximum number of its portfolio companies into profit. The investment cycle of a venture fund is 4-7 years.
4. The fund carries out an exit (exit) from the portfolio companies. This is the most important stage in the activities of the fund, because right now it is making a profit. The way out is the sale of shares bought by the fund at a significantly higher price, because startups have grown. The difference in the price of buying and selling shares in successful startups can vary by tens or even hundreds of times.

In the activities of funds, the stage of ruin of a part of portfolio companies is inevitable. But if at least one of the 10 portfolio companies of the fund, in each of which the fund has invested $100,000, turns out to be Facebook or Twitter, the fund will receive a profit that compensates for investments in loss-making firms. The task of the fund is to compile an investment portfolio in such a way and manage it in such a way as to ultimately receive income.

There are also funds of funds - this large organizations, financing venture funds and managing them. In Russia, such an organization is the state fund RVC - Russian Venture Company. This structure not only invests in promising start-ups, but also acts as an institution for the development of the venture industry in our country.

The most active venture funds in Russia:

1. Altair Capital;
2. Almaz Capital;
3. Runa Capital
4. TMT Investments
5. Flint Capital
6. Maxfield Capital
7. ImpulseVC

Other structures

In addition to investors and start-ups, there are a number of public and private organizations that provide infrastructure and information support venture industry.

Business incubators provide startups with the opportunity to rent an inexpensive office or co-working space, provide technical infrastructure and information support. They often act as a link between startups and investors. Business incubators are either state-owned and provide services for free, or charge startups a small fee. As a rule, incubators do not require a share in the business for their help.

Startup accelerators help young firms at an early stage of development. The activity of accelerators is somewhat similar to the work of business angels, but accelerators do not always take a share. Accelerators perform, first of all, an educational function. A typical accelerator recruits several startup teams into training groups and trains them for 3-6 months, helps them bring the product to the market and validate the business model, provides the right connections, and then introduces them to investors. The purpose of accelerators is to bring to the market startups that are ready for investment from angels or funds.

Investment brokers and advisors work with both startups and investors. They provide market participants with information, introduce them to each other, help startups “package” a business idea and properly present it to an investor. Among investors, the attitude towards such consultants is twofold, some investors believe that if someone leads the founders of startups by the hand, then such startups will not be successful.

Industry organizations and associations. There are a number of associations and organizations on the market that help both investors and startups.

The following examples can be given:

1. RVCA - Russian Venture Investment Association. It unites the leading market players and aims to promote the development of the venture capital industry in our country.

2. Rusbase is a platform that brings together Russian investors and startups.

3. Crunchbase - the world's largest database on the venture capital market, including information about young firms and investors.

Stage Characteristics Types of investors Average investments

Pre-seed A startup exists at the level of a business idea. Business angels Up to $10,000

Seed Startup tests business idea Business angels, seed funds $10,000 - 50,000

Venture rounds Startup scales business idea Venture funds From $50,000

The parameters of the stages of venture financing differ somewhat in various literature, but it is possible to clearly distinguish between the stages at which an unrealized business idea or an idea at the initial implementation level is financed (pre-seed and seed) and the stages of financing already mature startups that scale their business model (investment rounds).

IN classical model venture capital is followed by Private Equity (direct investment), and after that - IPO. Private equity funds invest in mature organizations with a tried and tested business model to further scale these businesses. IPO (Initial public offering) is an exit to stock exchange, the issue by the company of its own shares and the transformation of the company into a public one. Any venture investor is interested in the return of their funds and IPO or Private Equity - good tools for this.

Impact on economy and technology

Venture financing is a tool that helps young innovative companies to develop, which will never be given a bank loan, and which do not have serious start-up capital. Venture played a huge role in the development of global technologies, and it was thanks to venture financing that such giants as Google, Facebook, Twitter and a number of other companies appeared. In Russia, the venture capital market is in its infancy.

Venture funding is

Good day, friends. Oh those guys! What just will not do under the influence of certain drinks.

Kolya called me yesterday, my ex-boyfriend, with whom we still have friendly relations. Was with some friends the other day in the bath. Normally accepted on the chest, and he promised some guys to invest in their new venture.

And for a solid period, everything is calculated. I asked about the feasibility of such actions. Well, what about me? I told him information about venture financing, what it is and why he has already got involved in it. Let's analyze everything in detail now.

Venture funding

Venture financing is the financing of small science-intensive firms at the initial stages of their development in exchange for a share of the shares of these companies. Principles:

1. innovative investment (investing in the creation of fundamentally new products, technology, and so on);
2. the possibility of not returning the invested funds (the risk of investing in venture activities is high);
3. high profitability;
4. long-term investment without receiving any security, collateral from a venture company;
5. equity participation of a venture investor in the authorized capital of financed firms;
6. support of funded firms (financial consulting, new ideas regarding the development of the firm).

The purpose of venture financing for an investor is to receive income in the form of the difference between the purchase price and the sale price of the company's shares, and not in the form of dividends.

Subjects of venture financing: investors; venture funds; venture firms. The main source of creating venture funds is the investor's funds.

Venture capital funds are financial intermediaries that accumulate funds from investors, provide them on a share basis to venture capital firms in order to invest in a project with an increased level of risk based on new technologies.

Venture firms are commercial scientific and technical enterprises (organizations) specializing in the development and development of new types of products and technologies operating in areas with increased risk, where the uncertainty of the results of activities is initially recognized as high.

Created for the purpose of testing and refinement. Stages of funding for venture capital:

• pre-launch financing;
• seed funding (newly established company);
• initial expansion (a company that already has finished products);
• rapid expansion (a company that needs additional investments to expand its activities);
• preparatory financing (companies that are transformed into an open joint stock company from private enterprises whose shares are listed on the stock exchange).

Venture Capital Investors:

1. institutional ( pension funds; banks; financial Insurance companies; special trust funds);
2. non-institutional (institutions; universities; research centers; organizations);
3. the state (off-budget funds; authorities);
4. private firms;
5. banks;
6. private investors (business angels).

Source: http://website/www.dkb-fin.ru/venchurnoe_finansirovanie.html

What is a venture?

The word "venture" in translation from English means "risky undertaking", although the object of the so-called "venture financing" can be both really "beginnings" in the form of barely born business ideas, as well as steadily growing ones that have been on the market for a long time and companies that have long realized their business ideas.

Briefly, the process of venture financing can be described as follows: a venture fund (VF) buys out part of the share capital of the company that is the object of investment.

Wherein entity- the management company of the fund - uses the financial resources of one or more investors. Using these funds, the company-object develops, while increasing its value.

After some time, the management company carries out the reverse process of exchanging the shares acquired by it for cash, fixing its profit from this investment transaction.

Such a scheme, which first appeared in the United States in the 1950s and 1960s, provided a revolutionary opportunity at that time to receive funds for their development to those entrepreneurs for whom other ways of financing were simply not available.

Giants such as Microsoft, Intel, Apple or Sun are often cited as textbook examples of venture capital adoption by early stage companies.

So, the funding received from the fund is directed to the acquisition of part of the share capital of the target company.

Such financing is called equity financing and is usually contrasted with debt financing.

The Fund can also provide debt financing of the target company, for example, by buying back convertible bonds issued by it (such a mechanism reduces the risks of the Fund).

From the point of view of a venture investor, several stages can be distinguished in the history of an investment company:

• Business idea (seed stage) - marketing ideas, offering "pilot" samples of goods / services
• Creating a business (start-up stage) - the transition to the full functioning of the business
• Growth stage (expansion stage) - development of new production capacities, growth in the number of personnel
• Expansion (mezzanine stage) - gaining market share, stabilizing profits
• liquidity stage - the emergence of a real business market value(favorable opportunity to directly sell shares or conduct an IPO)

Venture financing can be implemented already in the first three stages of development, while traditional debt financing, at best, in the last three.

The venture funds discussed in this article are ideologically closely related to the so-called private equity funds - PEFs.

The division between venture funds and PEFs is rather a matter of terminology that has not yet been settled among specialists.

It is believed that the PEF is characterized by the desire to acquire an exclusively controlling stake, thereby actually switching over the operational management of the company and taking full responsibility for its fate (the role of a strategic investor).

Accepting such a division, we can say that at present, for example, both truly venture funds and PEFs that call themselves venture funds operate in Russia.

Attention!

We, speaking of venture funds, will mean funds that acquire a share of the shares of the target company in the amount of less than controlling stake. A feature of this scheme is the refusal to assume the risks of managing the company.

Unlike a strategic investor, a venture investor does not want and cannot take on the entire burden of managing a non-core business for himself, dealing daily with operational issues.

Actors and their interests

The process of venture financing usually involves:

1. investors
2. venture fund
3. fund management company
4. company-object of financing

In contrast to the originally emerged so-called. of the "American" model of venture financing ("one investor - one company-object"), today the most common scheme is when the combined (syndicated) funds of several investors come under the control of a fund that distributes them among several projects.

This diversification reduces the fund's overall riskiness, and the fund can perform well even if some of its projects are not very successful.

The only question of concern to fund investors is whether more will be achieved than using alternative financial instruments, return on investment.

Since the main objective of an investment transaction is to increase the capitalization of the target company, investors prefer the company to reinvest its profits rather than distribute it among shareholders (which include the fund).

The goal of the recipient of investments is to receive them without making them as collateral. material assets, which he usually does not have, develop his company, capitalize both on the growth of its value and by generating net income and, as a result, retain full control over it, remaining the owner of his own business.

Therefore, the fund is often perceived negatively by the entrepreneur - as a capitalist focused only on making a profit from an investment transaction.

In turn, a venture fund, on the one hand, is unconditionally dependent and controlled by its investors, each time painfully reacting to any mistake of the target company.

On the other hand, the fund itself, which usually acts, let us recall, as a minority shareholder of the target company, has limited opportunities to influence its operational activities and profit distribution issues.

Financial parameters of the venture fund

As noted above, venture financing is characterized by the acquisition of a less than controlling stake in the target company - often the VF is limited to a “blocking” stake (25% + 1 share).

One of the reasons for this is the desire to take risks with less money, while avoiding taking on the leadership of the business. As another important reason, experts note the motivational factor.

Having lost a controlling stake, the owners or management of the company often reduce their interest in the results of their activities, or are completely eliminated from the management.

Therefore, leaving a controlling stake to business owners is more of a political decision for many VFs.

It cannot be said that such a situation is unfavorable for business owners either - as a rule, a company receives consultants in the person of venture fund experts high level who bring their connections and experience to the company and are ready to offer their help and support in solving emerging difficulties, both strategic and operational.

In monetary terms, the typical amount of WF investments in a separate project ranges, according to various estimates, from 1-5 to 15-50 million dollars.

If the upper limit is rather vague and is determined rather by the capabilities of the fund's investors, or by the potential of several funds consolidated in one project when financing large projects, then the lower limit is determined by the very mechanism of payment for services management company(UK).

With a smaller amount of the investment transaction, it is difficult for the management company to ensure the profitability of its business, taking into account the costs of its own functioning, as well as the payment for the services of external specialists (auditors, consultants, experts).

However, the niche “up to a million dollars” in the supply market investment capital does not remain empty, it is usually filled by individual investors (poetically called "business angels"), taking on, in fact, the role of miniature venture capital funds.

The lifetime of an individual investment project, which includes the period from the moment the project is found to the exit from it, usually ranges from 3 to 8 years.

The upper limit is due to restrictions on the part of investors (the problem of "long money" in Russia), and the lower limit is dictated by the need for careful implementation of all stages of the investment project (see below).

Also, usually, when creating a fund, a deadline is determined for the placement of all the funds of the fund (2-3 years in Russian conditions), as well as the duration of the fund's investment cycle - usually 8-10 years - during which all projects must be brought to the "closure" stage.

Attention!

According to RAWI ( Russian Association Venture Investments), the average internal rate of return of VF investment projects operating in Russia is 35%, which coincides with the typical minimum return of the projects of interest to them (30-40%) declared by the funds themselves.

The average European indicator of IRR of venture funds is 12-14% (the author considers this estimate to be somewhat underestimated).

Life cycle and internal organization

A kind of "passport" of the fund, in accordance with foreign practice, is a document called the Investment Memorandum.

The memorandum is the fundamental document of the fund and regulates its goals, objectives, principles of organization and activities.

The investment memorandum is provided to existing or potential investors of the fund and contains the following information about the fund:

• Activity strategy
• Jurisdiction and organization
• Business model
• Fund management structure
• Fund top management
• Criteria for selecting investment projects by the fund

The first stage of the fund's activity is the consolidation financial resources investors (the so-called "assembly" of the fund).

The Russian specificity is such that it is quite difficult to organize a systematic approach to finding projects and get a stable flow of investment proposals for analysis.

It cannot be said that at the doors of investment funds there is a queue of company executives who are able to clearly acquaint the funds with the essence of their proposals and provide at least primary evidence of the viability of their projects.

On the other hand, the degree of awareness of the general business community about the activities of investment funds still leaves much to be desired.

The author, for example, is not familiar with any printed or electronic source of information that would provide regularly updated, true lists of investment projects, indicating their main financial indicators and available contacts.

Therefore, we have to state that today in Russia “all means are good” to find investment projects - personal contacts, proactive search (counter preparation of investment proposals), participation in exhibitions and seminars, search for projects via the Internet, etc.

Let's say a certain company successfully passed the initial screening and got into the focus of attention of the fund's specialists.

Then, based on the information provided by the target company, they prepare an Information Memorandum for submission to the Investment Committee.

The information memorandum contains a description of the structure, principles of operation, pricing policy, sales policies of the target company, its financial statements, as well as an overview of the industry in which this company operates (here, the growth potential of the industry, investment climate, competitive situation and other important parameters are assessed).

Sometimes (for example, in the case of the sensitivity of the conjuncture to the general economic situation– retail, services) the memorandum also includes an overview of the macroeconomic situation in the country/region.

After making a decision to participate in the project, the fund's specialists prepare an Investment Proposal that describes the procedure for further actions to analyze the target company, as well as the conditions and parameters of the planned investment transaction.

Joint approval in progress investment proposal representatives of the fund and the target company.

The next stage of the transaction in foreign practice is called " due diligence”, which translates as “thorough consideration” or “audit”.

In fact, this stage is a sequence of several diverse audits (financial, economic, legal, technological, marketing) conducted by the fund for 3-6 months, the totality of the results of which is designed to confirm the participation of the fund in this project.

In addition to making a fundamental decision, the result of the audit is also a correction, often very significant, of the parameters of the investment transaction.

After that, the preparation of transaction documents is carried out, reflecting all the agreements and indicators reached, and the first investment transaction is carried out - the funds begin to flow into the target company.

Attention!

Then the process of everyday interaction begins, when the team of the fund's specialists manages the investment project, which consists primarily in monitoring the performance of the target company.

This stage continues up to the moment of the final stage - the “exit” of the fund from the investment transaction, that is, the reverse exchange of shares for cash or an IPO2 and the repayment of other existing (for example, debt) obligations of the target company to the fund. At this moment, the profit of the fund is fixed.

Model internal organization The WF, established abroad, is simple, but effective, primarily in terms of implementing activities according to the life cycle described above.

Conventionally, three groups of specialists take part in the work of the fund: the fund team, the Investment Committee and the Advisory Council.

The fund team, which is most actively involved in the implementation of its projects throughout its life cycle and is engaged in operational activities, usually consists of only a few professionals led by the fund manager.

For example, the management team of the Delta Private Equity fund operating in Russia is only seven people.

Of course, the team members themselves can also be investors of the fund, but most often they are professionals working for remuneration, which is only indirectly determined by the profitability indicators achieved by the fund.

The supreme governing body of the fund is the Investment Committee, which consists of top managers of the fund's team and representatives of investors.

The Investment Committee reviews and approves the documents of the fund and makes important decisions that are not related to operational management - reviews the results of the audit, making a decision on the participation of the fund in projects, approves the proposed team financial model investment transaction, including the “withdrawal” procedure, etc.

The Advisory Council, the existence of which is more typical for large foreign VFs, performs the function of patronage of the fund and consists of “friends of the fund” - investors, major industry experts, politicians, lawyers, and experts.

The advisory board oversees the activities of the foundation and is always ready to help and support it with its connections and other resources available to them.

Legal form of organization

Based on experience foreign countries there are two possible directions for structuring the activities of venture funds in the national "legal field".

VFs can operate within the framework of existing civil and financial legislation (which, if necessary, are amended) - this approach was once implemented in the United States and Western European countries.

Or, to ensure the functioning of the WF, special legislative acts, containing the necessary definitions and regulating, for example, the relevant type of activity and the possible form legal organization funds.

It was the second path that the Russian government was going to take in the late 1990s.

Bills were created on investment activity and State Innovation Policy” and “On Venture Activities”, the VF was offered the legal form of organization (“limited partnership”) and its category (“closed mutual fund”) with all its “charms” – reporting to the FFMS and control by the Depository, Registrar, Appraiser and Auditor).

Attention!

According to the opinion of leading representatives of the venture business, voiced in 2001 by the RVCA, “the venture community unanimously opposed the adoption of any separate and special government documents or regulations regulating this type of investment activity ...

Problems in general corporate (civil), tax and currency legislation that impede the development of the venture capital industry in Russia should be resolved by the Russian state within the framework of the relevant branches of law and already existing legislative acts.

Leaving aside the prospects for lawmaking in Russia, we note that as of 2004, none of the funds operating in Russia was a Russian resident - such a situation of "ignoring national legislative norms" in relation to the VF, which was noted at one time in some "medium developed" countries repeated in Russia.

However, as in the case of other investment organizations, registration of the VF in the form of an offshore is the most natural, especially given the fact that an increasing number of wealthy Russian businessmen repatriate their capital back to Russia using offshore companies, including venture funds.

The cost of VF services and ways to "exit" the investment project

In accordance with the established practice of foreign funds, their remuneration consists of two sources:

1. the basic rate of payment for the fund team (management fee) - in the practice of foreign funds, the rate is about 1.5-2% per year
2. incentive premium (commission fee), the basis for which is the excess of the fund's return over a certain base level - "hurdle rate"

For foreign funds a basic level of is usually set at the level of 8% per annum, and the incentive premium is about 20% of the excess of the level of profitability over the base one.

In addition to those mentioned above, there may also be other types of payments and incentives independently established by the fund.

The incentive premium can be paid as a one-time payment, after the closing of the investment transaction and the fund's profit fixation, and, like the base payment rate, sequentially over the life of the project.

The fund's investors generally reserve the right to redistribute the premiums should the fund's subsequent earnings and final recorded earnings prove unsatisfactory.

We should also dwell in more detail on the "exit" of the fund from the investment transaction.

It can be carried out in one of several ways (as a rule, the “withdrawal” procedure is negotiated with the target company at the stage of preparing the Investment Proposal by the fund):

• in most cases, the fund and the target company sell up to 100% of the company’s shares to a strategic investor (“trade sale”)
• the fund can help the company to make its shares listed (if they are not already listed), that is, to carry out an IPO * - bringing shares to the stock market, where they can be bought on a general basis.
• the target company can redeem a block of shares from the fund at a new (increased) price.

A group of employees of the company (usually top management) can also act as a buyer of shares, attracting borrowed funds for this (such a scheme, which is increasingly used in Russia, is called “management buy-out” - “repurchase of shares by management”).

Venture funds in Russia

The history of the development of venture funds in Russia began in April 1993 in Tokyo, where representatives of the G8 (G8) agreed to allocate funds to Russia for the development of venture projects under the auspices of the EBRD.

The total amount, which amounted to about $500 million, was supposed to be divided among venture funds controlled by the EBRD and organized in Russia on a regional basis (the so-called "regional venture funds").

The first fund was established in 1994, the last in a row (eleventh) - in 1996. Practice shows that EBRD funds focus on investing in medium-sized companies, which are mainly at the stage of expansion.

It is rather difficult to determine the total number of venture capital funds currently present in Russia due to the fact that not all of them are active.

It is believed that the number of existing funds is from 40 to 80, and the active ones are no more than 20.

The total amount of funds attracted by the funds is from 3 to 5 billion dollars (for comparison, in 2005 the volume of funds managed by European funds was estimated at 360 billion dollars, which amounted to about 3% of EU GDP).

At the same time, according to experts' forecasts, a significant increase in the volume of real investment by funds operating in Russia can be expected no earlier than in 3 years.

More than a quarter of the WFs were created open or semi-open, such as regional funds EBRD or Russian-American Investment Fund (fund size - 440 million dollars, founded in 1995 with funds provided by the US Congress).

Other funds, such as PaineWebber Mitchell Hutchins (now Russia Partners), SUN Group, AIG, ING Barings Group, Framlington and Daiwa, have private sponsors.

Attention!

These funds invest in a wide range of sectors Russian economy, including extraction and processing natural resources, timber and pulp and paper industry, communications, media, sphere high technology, production of consumer goods, pharmaceuticals, transport, distribution, real estate and services.

According to the Ministry of Industry and Science of the Russian Federation, the share of high-tech projects that are investment objects is only about 5% (about 30% abroad).

During 2005, according to the Expert magazine, 62-65 million dollars of venture investments were realized (about 16 investment transactions).

According to Albina Nikkonen, executive director of RVCA, over the past 10 years, venture capital funds in Russia have invested about $2.5 billion in total.

Some of the funds operating in Russia do not seek to disclose data about their projects, while the other part, on the contrary, is quite open.

However, the latter does not at all mean increased flexibility or a lower bar for the requirements of such funds to potential clients.

State regulation and problems

As part of the solution of the super-task of preserving and increasing the scientific and technical potential of Russia, the state is particularly acute in the issue of ensuring the attractiveness of scientific and technically significant projects for a private venture investor.

This issue is planned to be addressed by the following measures:

1. Implementation of the concept of creating technology parks in Russia as a commercially profitable symbiosis of capital and scientific potential.
2. Participation of the state in the insurance of venture risks in strategically important scientific and technological areas.
3. Creation of a state venture fund (known in the drafting of laws as the "Venture Innovation Fund"), designed to manage the placement of state-provided funds in specialized regional venture funds.
4. execution state program measures for the development of venture financing, finalization and practical implementation of the provisions of the document "Main Directions for the Development of Extrabudgetary Financing of High-Risk Projects in the Scientific and Technical Sphere for 2000-2005"3, which consist in preparing the legal framework for the functioning of the VF, providing state measures to support the VF and assistance in preparing nationwide corps of managers to solve the problems of investment management in scientific and technically oriented projects.

The main problems of venture funds in Russia are the following:

• The problem of "long" money is the high cost borrowed money and the difficulty of implementing long-term (over 7 years) investment projects;
• Limitation in the choice of sources of funding for the VF, among which the direct presence of investors traditional for the foreign economy, for example, pension and insurance funds, is not yet possible;
• The inability and often conscious unwillingness of leadership Russian companies audit, implement modern methodology corporate governance and reporting, that is, to bring your company to a form more acceptable to a potential investor;
• Lack of transparency in the ownership structure of Russian companies;
• The situation in which the target accounting to present its results in government bodies(that is, "optimization" of taxation) and a potential investor are diametrically opposed;
• Current restrictions on the stock market (liquidity, high overhead costs in the implementation of fund activities, difficulties in trading closed-end venture mutual funds).

In conclusion, we note that, according to experts, the need Russian market in private investment capital is currently less than 10% satisfied.

This market will develop dynamically in the future, and investors operating on it will certainly be able to count on high profits.

Source: http://site/www.md-invest.ru/articles/html/article43768.html

Innovative activity and venture financing

The introduction of venture financing into an enterprise allows you to attract start-up capital at the early stages of the company's life cycle, just when financial resources and liquid collateral assets are in short supply, and credit and exchange forms of capital raising are not available.

Stages and stages

First. At this stage of venture capital investment, firms are provided with funding to start manufacturing and selling goods on a commercial scale.

Second. At this stage, capital is provided to expanding companies in order to support growing accounts and product inventories.

Third. Funding is provided for a major expansion of a business that increases sales.

Peculiarities

Venture risk financing is a priori considered a risky investment, therefore, capital investors agree in advance with the possibility of losing their invested funds in case of unsuccessful development of the enterprise in exchange for high profits in case of success.

Venture financing is used for projects involving long term investment capital.

Investors have to wait from 3 years to make sure the prospects of the enterprise and from 5 to 10 years to make a profit.

Financing risky projects is, in fact, a share contribution to authorized capital and not a loan.

Newly founded companies become partnerships, and risky investors acquire the legal status of partners, whose liability is limited to the size of the contribution.

In accordance with the share of participation, which is determined when granting Money, venture investors are entitled to receive future profits from the project.

The high degree of interest of a risky investor in the success of an enterprise is due to the status of a co-owner and a high degree of project risk, which is why venture investors often not only provide funds for the development of an enterprise, but also provide consulting, management and other useful services for new enterprises.

That is why investment company Southfield International RUS dep. LLC, providing funding for venture capital projects, offers entrepreneurs to take advantage of customized business tools that are necessary for the operation of new organizations, including:

1. Accounting department;
2. Legal department;
3. Financial department;
4. Department of Marketing and Promotion;
5. Highly qualified administrative team of consultants.

Source: http://site/si-rus.net/venture

Venture financing of projects

Venture financing refers to the investment of funds by investors in an enterprise at an early stage of its development.

To attract venture capital to a project, you need to find a specialist specializing in raising funds and establish useful contacts.

As an intermediary, a person with good connections in the industry and experience in attracting investments in similar companies is needed. Raising funds for a company is an ongoing process as the company grows and develops.

The end of one funding round is the beginning of the next. It will take at least six months to find funds for the first round of funding, for the next - from three months up to six months, etc..

Venture financing can be made different ways. The most common ways:

• A venture capitalist enters a company by purchasing its common stock.
• A venture capitalist enters a company by purchasing its preferred shares.
• A venture capitalist issues a loan to a company that interests him.

In the early stages of a project, venture capital is used to finance research and development, development and creation of the product itself. Credits are used to create working capital and building infrastructure.

Attention!

The project's lending stage usually follows venture capital. A loan is cheaper than venture capital, since venture capital is attracted at a stage of greater uncertainty, greater risks, which implies a higher return on such investments.

The most popular form of raising venture capital funding is staged funding. Each stage of the project development implies the allocation of a certain amount of funds.

Character traits venture capital:

1. As a rule, new enterprises that do not have collateral are financed, credit history and income, which prevents them from getting a loan.
2. A significant factor in the possibility of venture lending is the presence of an experienced management team.
3. Entrepreneurs transfer part of the ownership and control of the business to a venture capitalist (investor).
4. Return of funds invested by the investor, within 3-7 years.
5. As the company develops, it moves to other sources of funding.
6. The project is of interest to venture capitalists only if, at the time the capitalist exits the project, it provides an annual return of at least 20%.
7. Typically, the size of venture lending ranges from 0.5 to 5 million dollars.
8. As a rule, a venture capitalist finances several projects, which reduces the level of risks.

Venture capital financing in the early stages is the provision of initial capital an entrepreneur whose business is at the level of an idea.

Funds raised are used for product development and primary marketing. Financing in the early stages allows you to refine the product, start its mass production and enter the market with it.

This is the most risky stage of financing, only 20% of invested companies survive to the next stage of investment.

As compensation for high risk venture capitalists require very high percentage their participation in the company, as well as appoint managers and employees of the company at their discretion.

The next stage of financing is carried out by another fund or a syndicate of funds, which takes over the leadership of the process.

Funding allows a company in the expansion stage to begin full-scale production of a product, organize sales, and enter the market.

Many companies at the expansion stage are not yet profitable, and to cover the negative cash flow they use "injections" of capital.

There is a significant expansion of the company, increasing production areas, staff, gradually the company becomes profitable.

As the final stage of venture lending, this is the company's entry into the stock exchange through an initial public offering.

The company goes public and the venture capitalist can leave the company by selling his shares.

Income received by investors:

• Dividends.
• The investor's exit from the project according to a pre-approved schedule.

At a certain time after receiving financing by the enterprise, investors have the right to return the invested funds by selling their shares to their original owner, but in such an amount that the enterprise has the required amount of cash.

In the case when several investors want to exit the project at once, this is carried out in proportion to the invested capital and in accordance with a pre-approved schedule.

Redemption of a controlling stake in an enterprise from investors according to a pre-approved schedule.

At a certain time after receiving the investment, the company has the right to buy back at a predetermined price the shares of the company owned by the investor. Redemption is made according to a pre-approved schedule.

Mergers, acquisitions, initial public offering of shares on the stock exchange. In the event of a merger, acquisition or IPO, it is impossible to predict what the investor's return will be.

It is understood that any of these actions will be committed in the interests of shareholders.

convertible loan. An alternative to direct investment is a loan issued by an investor. In this case, the loan interest is determined with regular payments at a set time throughout the entire term of the loan.

The investor has the option to exchange the loan for interest rate within a predetermined period of time (usually much less than the duration of the loan).

An important part of economic and technological progress is the implementation of innovative ideas and projects. At the start, promising projects are in dire need of funding to achieve their goals. If there is not enough own finance to launch the project, it is necessary to attract third-party capital.

What is venture capital investment

Venture investment (from the English “venture”, which means entrepreneurial activity interpreted as the beginning of a risky business) is a long-term investment in projects that are at the stage of idea formation with the prospect of profiting from successful implementation. Venture investment involves a long-term investment before the project is implemented, while the investor transfers ownership of a block of shares in the company. On average, the successful implementation of the project takes 5-7 years.

Comparison of venture financing with its other types:

Stages of investment and company development

Venture financing of innovative activities and projects is carried out in several stages, the duration and number of which depends on the pace at which the company is developing.

1. seeding stage. The project has only a clearly defined idea and requires relatively small amounts pre-launch investment for the preparation and implementation of technical and economic activities.
2. Startup. The project already has developed samples of the finished product, the production and entry into the market of which is the main task of this stage of development. Venture investment in startups is needed to ensure production.
3. Early stage. The company has already been formed, produces finished products, but does not have a stable profit. At this stage of development, the company needs funds to support the growth and popularization of the product.
4. Extension. The company is fully formed and has a need to increase production, which cannot be covered by profit.
5. exit stage. The enterprise has a complete basis and becomes public joint stock company and may need transitional funding for an IPO.

Venture Funding Sources

In total, there are seven possible sources for attracting venture financing:

• private investors;
• investment funds;
• public investment funds;
• closed partnerships with venture capital ( family capital, large private investor, Pension Fund);
• investment corporations;
• investment small companies;
• government.

Examples of venture financing

The implementation of an innovative project can bring significant profit to the company and investors, as well as make an important contribution to a high-tech and convenient future.

Venture investments originate from Silicon Valley. It was there that risky investments in technological projects were first made. In particular, in Google, Apple, Microsoft, Intel and other similar projects, without which it is difficult to imagine the life of a modern person.

The popular social network Twitter began its formation also on the basis of venture capital investments. To implement and disseminate the idea, the developers borrowed more than $57 million, and the company's current capitalization exceeds $13 billion.

Another prime example of successful venture capital investments is the sale of WhatsApp. social network Facebook for $16 billion. In 2009, the founder of the company, Jan Koum, attracted only $250,000 in venture capital investments from former Yahoo employees to implement his idea.

How to become a venture investor

Despite the high risks, the opportunity to change the world and significantly increase capital makes venture capital investments attractive to many. You can become a venture investor using various capital transfer mechanisms:

• Become a business angel and simply invest in interesting ideas on your own, based on your own analysis, or venture into small businesses.
• Invest through crowdfunding platforms. Transactions on such platforms are made online. The investor is provided with all necessary information for analysis and reporting. You can form an investment portfolio of 10-20 most attractive projects and wait until they collect corporate venture investments for implementation and start the path of formation.
• Invest by transferring control. Capital can be transferred to an investment fund, which, based on professional analysis, will place it in several of the most attractive projects. With such an investment, the investor must be prepared for the fact that commission fees will have to be paid regardless of the outcome of transactions, but at the same time he can count on professional investment.

Advantages and disadvantages of venture capital investment

Advantages	Flaws
in case of successful implementation of the project, the investor can count on income that many times exceeds investments, can lead to financial freedom and provide permanent financial flow in the form of dividends	high risk of project failure
venture investments aimed at innovative projects can change the world for the better, provide new technologies, opportunities and services	low liquidity companies in the early stages of development
the investor has the opportunity to actively contribute to the development of an innovative project	it is extremely difficult to predict the expected income and future popularity of the idea
exclusion of the possibility of speculative actions on the shares of the company

conclusions

Venture financing makes a positive contribution to the development of the economic and social sphere, and for the investor it is an opportunity to turn a modest investment into a multi-million dollar capital. However, it should be understood that not all venture investors manage to make money on investments in new projects. Moreover, no one can be sure that the idea will take root and become popular. The only option for diversifying the risks of venture capital investments is the distribution of investments among various projects.

Evgeny Malyar

bsadsensedynamick

# Investments

Features and types

On this moment Russian venture portfolios show a relatively high return of 27%. In the US, this figure is 14%, in the EU - 17%.

Article navigation

• The concept and specifics of venture financing
• Who is involved in venture financing
• Portrait of a typical project donor
• Who can be an investor
• How accelerators differ from incubators
• Stages of financing risky startups
• How is venture financing different from project financing?
• Development of venture financing in Russia

The English pronunciation of the word "the venture" sounds like the Russian "adventure". This phonetic similarity reveals the meaning of the concept of “venture financing of innovative projects”. This is a risky business, although it promises big profits if successful. The article will describe how this process takes place.

The concept and specifics of venture financing

There are several definitions of the concept of venture in various sources. Some of them are very difficult to understand (“a kind of capital that arose as a result of subsidizing projects and programs ...”), others, on the contrary, are maximally simplified (“investments that allow start-up entrepreneurs to use funds”), but such brief formulations do not fully reveal the essence phenomena. The following definition seems to be the most correct:

Venture financing is an investment in financially promising projects that need funds for development, but do not give a full guarantee of success.

Such investments are characterized by the following features:

1. Longevity. Venture investment, unlike other types, does not promise a quick return (as a rule, such a project becomes profitable for a period of 5 to 7 years).
2. The uniqueness of the business project. Already existing models business activity(proven, and therefore less risky) cannot become the object of venture capital financing. Investments in them are made using other mechanisms.
3. Increased knowledge intensity and innovation orientation. An investor usually invests in a completely new commercial product that is not yet on the market. This is both a plus and a minus of the deal. On the one hand, in case of success, monopoly domination is guaranteed for some time. On the other hand, there is a high risk that nothing will work out at all. At the same time, the development of new products is always a costly and time-consuming process.

Taking advantage of the unstable financial position innovative firm, venture investors seek to seize as much control over it as possible, arguing this by the possibility of losing invested capital. Most of the time they succeed.

Who is involved in venture financing

Each funding agreement involves two entities: a donor and an investor. The goal of the first is to get the funds necessary to implement his business idea. The second (investor) seeks to obtain as much profit as possible.

Portrait of a typical project donor

Startups that put forward innovative projects characterized by capital intensity are more likely to need venture financing. In some cases, they are already operating and profitable enterprises that do not have the resources to implement large-scale ideas. Typical features of the objects of promising adventurous financing:

• Technological advancement. The most common areas are IT, pharmaceutical, engineering, biological, energy, etc.
• The current state is the stage of determining the commercial potential. In other words, the authors of the project themselves do not yet know what profit its implementation can bring, but can only assume the size of the economic effect from the implementation of the plan.
• The company is in its infancy. This explains the shortage of funds and the need for external investment. Otherwise, the company itself can find the necessary funds (make a profit or take a loan).

Who can be an investor

Theoretically, any business structures with sufficient financial power can invest in risky projects. If the authors of a startup manage to convince the head or owner of a large enterprise that their idea is promising, they will receive funds for development by discussing and accepting mutually beneficial conditions.

Historical example. At the beginning of the 20th century, the creators of the concept of disposable paper cups, Moore and Luellen, managed to captivate the president of the American Canning Company, Graham, with this idea. They accidentally found out that the “financial shark” was terrified of microbes, and deftly took advantage of this weakness of the millionaire. Graham gave the inventors $200,000, a colossal amount for those days.

In practice in modern world Potential investors are conditionally divided into two main categories.

The first category is business angels. Despite such a heavenly name, the goal of these investors is quite mundane - making a profit. Their "angelic" nature is expressed in the ability to keep a startup from troubles and ruins at all stages of its implementation.

To this end, angel investors take an active part in the management of a young enterprise, give useful advice, conduct expert assessments of the prospects and promote the promotion of a new product, using their connections in the business community. They do all this with their inherent high professionalism, which is so lacking for novice businessmen.

For such investors, promotion of promising projects is the main activity. The large number of startups in the total portfolio guarantees them financial stability due to the diversification of sources of profit.

The second type of investors are venture capital funds. Their goal is also to make a profit, but the principle of operation is different. Funds to support startups do not use their own money, but are engaged in attracting external investors.

Based on the results of marketing analysis, the most promising directions. Then an agreement is made to finance a particular project that creates a favorable impression in exchange for a share of ownership in it. After a few years (from 4 to 7), a stronger enterprise is withdrawn from the venture investment portfolio. This process is understood as the sale of prices that have risen valuable papers accompanied by profit.

Venture capital funds strive to maximize the profitability of their investments, but this does not always work out. Part of the investment portfolio almost always shows losses, so the larger it is, the higher the likelihood of a successful overall result.

How accelerators differ from incubators

Investors, regardless of their belonging to one category or another, can follow different strategies. They are distinguished by two.

They are a kind of "nursery" for startups. Their task is to create the most favorable conditions for the initial development of a young innovative enterprise and protect it from market threats. The price of this service is a partial loss of independence or "live" money, and it is justified by security.

Startup accelerators, as their name implies, accelerate the development of working innovative enterprises by investing additional money in them. You can’t just pay an accelerator for its services – money is provided in exchange for a share of future profits.

There are some similarities between these two forms of financing, but there are also differences:

• The terms of support are different: for business incubators it is much shorter - from 3 months to 2 years.
• Accelerators have higher requirements for donors of business ideas. As a rule, in order to receive their investment, a startup must show a working team and high potential efficiency. Business incubators do not need this - they have enough of a “fruitful debut idea”. They take care of everything else, sometimes they even provide space for preferential terms(sometimes free of charge) and provide other support.
• The incubator creates conditions for the development of the idea, and the accelerator ensures economic growth.

Stages of financing risky startups

Like any complex process, investing in risky projects is divided into successive stages. There are the following stages of venture financing:

• "Sid". In English, the word Seed means "seed". The phase involves the development of the main business idea.
• "Startup". Start of work on the implementation of the project. By the end of the stage, it is highly desirable to achieve break-even, or, as venture investors say, “exiting the valley of death.”
• early growth. This is an early growth, by which one can judge the prospects of the idea.
• Expansion. During this “flourishing” period, there is growth, market expansion and the disclosure of the potential inherent in a startup.
• The phase of preparing the project for its withdrawal from the investment portfolio. An almost mature successful startup will have to enter the open market, where it will operate independently, without the care of a venture investor.
• The part of the enterprise's securities belonging to the "angel" or the fund is profitably sold to other persons or redeemed by the enterprise that has implemented the venture project. This is called "exit".

How is venture financing different from project financing?

Project and venture financing are sometimes confused due to some similarity in their obvious features. In both cases, the company needs an investment to further development. If the idea promises profit, there is usually someone willing to participate in its division.

Comparison criterion / Type of financing	Venture	Design
Performance Prediction	Difficulty	Known to be favorable, subject to expert evaluation
The degree of novelty of the idea	Complete uniqueness	Business has proven analogues
Investors	Funds and angels	Banks and other credit and financial institutions
Requirements for a funded person	Estimated high returns	Meet credit criteria
Pledge and guarantee	Not practiced	Required
Participation in the financial result	Yes	No

After analyzing the table, it becomes clear that project finance is essentially investment lending. The risks associated with it are minimal, and even the danger of imitation of innovation (expressed in minor external changes to the product) is offset by the possibility of limited recourse to the borrower.

Most often, nothing fundamentally new is offered to the market as a result of project investment.

Development of venture financing in Russia

In the Russian Federation, venture business began to develop with a delay, which is the reason for its lagging behind the indicators of other countries with developed economies.

Currently, investors in the country are represented by many investment funds, including state-owned (Development of Internet Initiatives, Skolkovo) and regional (Moscow Seed Fund, "Pre-Seed Investment Fund"), created mainly in recent years.

The main direction of the Russian venture business is information and communication technologies - about 65% of all funds are invested in them.

There are also business angels in Russia, but they are not always interested in public coverage of investing money in investment projects.

The number of business incubators in the country is measured in hundreds, and their performance so far leaves much to be desired - up to 30% of successfully implemented projects (against about 88% in the EU and the USA).

There are clearly not enough business accelerators so far - there are only a dozen of them.

At the same time, a significant part of all venture investments are corporate investments. largest companies interested in the development of innovative technologies. They are more willing to invest in long-term projects with an unguaranteed effect.