1. 1 2005 Plekhanov Readings Venture Capital in Russia and its effect on development of Small and Medium Enterprises. Presented by: Alexander Y. Zagornov

2. 2 2005 Plekhanov Readings Plan  Introduction  Overview of the Venture Capital market in Russia  Problems faced by VC in Russia  Problems faced by SMEs when looking for VC investments  Future improvement  Conclusion

3. 3 2005 Plekhanov Readings Venture Capital description Venture capital is risk bearing capital for companies or projects with a more than average risk-profile. The provider of the risk-bearing capital –the venture capitalist obtains co- ownership of the investee company.  investee companies does not provide collateral to the venture capitalist  emphasis is on future cash-flows more than on past balance sheet figures  venture capitalist’s expertise in assessing risks involved is his only guarantee Characteristics of the Venture Capital

4. 4 2005 Plekhanov Readings Small and Medium Enterprises in Russia Retail & Public catering, 49.0% Industry, 14.5% Construction, 12.5% Scientific, 5.0% Other, 19.0%  It can be seen that Scientific and industrial SMEs are heavily underdeveloped in Russia, accounting for less than 20% of total  Retail & Public catering takes up almost 50%, which is shocking tacking into account the intellectual potential which was left after USSR Source: U.S. Department of Commerce Technology Administration Office of International Technology

5. 5 2005 Plekhanov Readings Venture Capital investments in Russia 1994 – 2004 and international overview Although this figures can seem high, they are incredibly low when compared to USA and Europe: $0 $20 $40 $60 $80 $100 $120 1997199819992000 USAEurope Venture Capital Investments in USA - $ bln Europe - € bln Source: Russian Agency of Direct Venture Investments, Russian Venture Capital Association

6. 6 2005 Plekhanov Readings Risk estimate 6% Leaving the company 16% Level of managers 16% Managers' "thriftiness" 13% IP protection 6% Cost of the companies 43% Problems Faced by Venture Capital Investors in Russia, when investing in SMEs Source: Russian Agency of Direct Venture Investments

7. 7 2005 Plekhanov Readings Yes - did not get the financing 9% Yes - got the financing 1% No - what is this? 90% 0100200300400500600700800 Seed and startup Early Growth Restucturization Later stages 1999-2004 1994-1998 Problems Faced by SMEs in Russia, when looking for VC investments Source: Russian Agency of Direct Venture Investments

8. 8 2005 Plekhanov Readings Future Improvements  Smarter Taxation policy  Development of the local venture funds with a partial governmental capital  Introduction of the Dutch model – government insures part of the investment  Development of the secondary stock market  Stimulation of the Russian financial institutions to participate in VC investments into SMEs.

9. 9 2005 Plekhanov Readings As a conclusion Russia European Countries Source: Russian Venture Capital Association

10. 10 2005 Plekhanov Readings Thank you for your attention, Questions are welcomed