The development institutions’ current operational priorities appear fairly versatile, having different nature and “origin” and, generally speaking, they raise some questions. More specifically, in accordance with the statute on investment policy of the Russian Venture Company, venture funds in which creation it participates and the Fund for Seed Investment should follow in their operations officially set priority directions of development of research, technologies and technics, and the list of critical technologies of Russian Federation; investments made by Skolkovo Foundation should be consistent the with priority directions of modernization and technological development set by the RF President; the “Start” program operated by the Fund for Assistance to Innovation provides for technological “framework” (a fairly big one, apropos) set by the Fund itself. That said, there are serious doubts about appropriateness of employment of any priorities and restrictions at the stage of seed – and even more so – preseed financing.
At this point, it is worth noting a fairly peculiar prioritization scheme devised by the Russian Fund for Technological Development. The Fund focuses on support of projects matching RUSSIAN ECONOMY IN trends and outlooks respective approved technological platforms and, primarily, those related to technologies of live systems, future energy engineering and rational environmental management. Vensheconombank centers on sectoral priorities which encompass practically all major manufacturing industries. Meanwhile, it is only one of them, namely, metallurgy for which a priority was identified, that is, a relatively narrow segment of special steel production, with no meticulously identified priorities for the other sectors. Lastly, a range of development institutions have a clear technological specialization (ROSNANO- nanoindustry, Rosinfocominvest – ICT, RVC’s Biofund – bioindustry and pharmaceuticals), but it is not clear why other HiTech sectors have thus far been neglected in this respect.
In all, the current system of development institutions’ priorities cannot be viewed as a sufficiently consistent. Quite opposite, it appears even “spontaneous”, with no general layout or ideology underpinning it.
While considering the current requirements to quantitative parameters of supported companies and projects (Table 18) it should be noted a drawback of the current development institutions system, as follows: it does not appear to a sufficient degree oriented toward supporting mid-size projects worth in the region between several hundred million and one billion Rubles.
It is only ROSNANO which can afford to support such projects (provided they are directly associated with the nanotechnology sphere), and so can some of RVC’s venture funds. As to other development institutions, they center on either bigger, or smaller projects. The SME Bank’s operations nominally focus on small- and medium-sized businesses, but due to the effective caps on volume of funding (Rb 150mn for innovation and modernization projects and Rb 60mn – for all other projects), they largely center on support of small-sized businesses.
Table Main Parameters of and Restrictions on the Development Institutions’ Operations on Support of Innovation Companies and ProjectsCharacteristics of supported companies Characteristics of supported projects Volume of Development Forms of Volume of Term of Co«Age», as Number of revenues institutions support support, as support, financing, as yearsa employeesa (income) as Rb mn years % Rb mnà 1 2 3 4 5 6 7 Fund for assis- Grants Up to 2 No more than Up to 0.3 Year I – up to 1–3 Year I – 0;
tance to innnova- 100 1; Year II – no tion (“Start” Year II – up less than 50;
program) to 2; Year III – no Year III – up less than to RVC’s Fund of Investment No more No more Up to 25 1–5 No less than Seed Investment than 3 than 10 Skolkovo Foun- Grants 1,5–300 Up to 10b 0–dation Regional venture Investment Up to 250 Up to 1000 Up to 36– Up to 7d 25–funds 120c RVC’s Venture Investment No more Up to 300– Up to 5–funds than 75 RVC’s biofund Investment No more than No less than 100e In this case we do not consider support of infrastructure, educational, etc. projects Section Institutional Issues cont’d 1 2 3 4 5 6 7 Russian Fund for Credits As a rule, no Up to Technological more than Development Rosinfocominvest Investment No more than 2–6 No less than 150 ROSNANO Investment No less than 300–1300 No more than No less than 250f 10 25– Loans Up to 250 Up to 1,000 Up to 60; From 0,5 Up 0 or no less microfinanc- to 5; than 15g ing – between Microfinanc0.1 and 1 per ing – from contract (no 0,25 Up to 2;
more than 10 Financing of by all the innovationas contract with and modernia given SME zation – from agent); 1 Up to 5–7g funding for innovation and modernization – up to Leasing No less than 1 Up to 250 Up to 1,000 Between Up to 5 No less than 0.15–60 up to 15–30g 60–150b Investment Up to 250 Up to 1,000 Up to 60 5–7 No less than 15h Vnesheconom- Loans No less than As a rule, more No less than bank 1000 (the than 3 (pay- volume of the back time - project – no over 5) less than 2,000) Russian Fund for Investment 1500–15,000i No less than Direct Investment Note.
a – as of the moment of the beginning of support;
b – the term of effect of the status of participant in the Innovation Center Skolkovo;
c – due to the volume of the Fund;
d – the term of trust of the funds;
e – during the first round of investment;
f – in 5 years after the start of the project;
g – due to conditions of a concrete direction of support (product);
h – from the total value of the project; investment – no more than 25% of the total value, credit support – no more than 60%;
i – 50–500 $ mn.
There exist some barriers to the “innovation lift” at early stages, particularly to the “capture” by the RVC’s Seed Investment Fund of successful projects earlier supported by the Fund for Assistance to Innovation. This can be explained by the fact that the Seed Investment Fund grants support on a far greater (up to Rb 25mn) level, and the recipient company should be no more than 3-year old. By contrast, the Fund for Assistance to Innovation extends support to companies aged under 2 years and with the volume of proceeds at the onset of no more than Rb 0.3mn. So, objectively, companies’ chances for managing to “grow up” to a level at which they can qualify for the Seed Investment Fund’s support are limited.
RUSSIAN ECONOMY IN trends and outlooks Fig. 2. “Positioning” of Financial Development Institutions by Stages of Projects and Volumes of Their Support It should be noted that there has recently emerged a tendency to extension of the upper margin of support: thus, the Fund for Assistance to Innovation raised it by 1/3, SME Bank now is in a position to disburse loans of up to Rb 150mn to innovation and modernization projects (with another 60mn to be potentially invested in SME implementing such projects), while earlier the cap for the said categories of project was Rb 60mn. Plus, some of recently established institutions and funds allow far greater projects financing volumes than the existing institutions centering on the same stages of the innovation cycle (the most shining examples in this respect are Skolkovo and RFDI).
6.3.3. Assessment of the Scale and Outputs of the Development Institutions’ Performance, Main Tendencies and Recent Critical Changes The number of supported projects recently has steadily been on the upsurge (Fig. 3), and in 2009 – 2010 it nearly tripled, which can be ascribed largely to a substantial expansion of SME Bank’s operations. The rise was practically exclusively fueled by projects at late stages of the innovation cycle, which resulted in a very considerable “bias” towards those: while in the number of supported projects at early stages roughly equaled the one of late-stage projects, in 2010 the latter accounted for nearly 90%.
The prevalence of late-stage projects is yet more visible in the structure of financing (Fig. 4), which, however, is quite natural, as the size of support granted at early stages is more humble.
As well, let us note that in the overwhelming majority of cases the size of support of projects implemented in 2010 was fairly small and accounted for up to Rb 50mn per project.
Section Institutional Issues Pre-seed stage Seed and venture stages Late stages 0 1000 2000 3000 4000 5000 * Hereinafter without regard of the projects supported by SME Bank via the infrastructure organizations.
Source: estimates by the interdepartmental Analytical Center on the basis of materials of Russian development institutions and RVCI.
Fig. 3. Dynamic of the Number of Supported by Development Institutions Projects by Main Stages of Innovation Cycle* Pre-seed stage Seed and venture stages Late stages 0 25 50 75 100 125 150 175 200 bln rb Source: estimates by the interdepartmental Analytical Center on the basis of materials of Russian development institutions and RVCI.
Fig. 4. Volume of Financing of Supported during the Year Projects by Development Institutions by Main Stages of Innovation Cycle It was the Fund for Assistance to Investment and SME Bank’s performance which proved the most “mass-scale” one (Fig. 5): in the case of the former institution, there were hundreds of objects of support over the year, while in the latter case they were counted in thousands.
Common for the institutions in question is their focus on support of relatively small projects:
in the former case the grant typically does not exceed Rb 1mn, while loans disbursed in the latter case account for some Rb 4mn each. That said, the institutions’ operations center on the “polar” stages of the innovation cycle: that is to say, the Fund supports projects at their early (mostly pre-seed) stages, while the Bank does the same for projects on late stages.
RUSSIAN ECONOMY IN trends and outlooks 0 1000 2000 3000 4000 5000 Fund for Assistance to Innovations (“Start” program”) MSE Bank (loans) Vnesheconombank Others Source: estimates by the interdepartmental Analytical Center on the basis of materials of Russian development institutions and RVCI.
Fig. 5. The Number of Projects Supported by Development Institutions over the Year When it comes to the performance of two particular development institutions, SME Bank and Vnesheconombank, which carry out fairly large-scale support programs (in the former case – in terms of the number of supported objects, while in the latter case – volume-wise), their common peculiarity lies in a relatively low proportion of the “investment component”:
thus, the institutions themselves estimate the specific weight of innovation projects in the overall amount of support at the level of for SME Bank (as of 2009) and a meager 3% for Vnesheconombank (as of 2010). Meanwhile, SME Bank has recently launched a program “Financing of innovation and modernization” which should intensify its activity in the area of innovation; as to Vnesheconombank, we feel the above estimate appears lower than in reality, as some projects which the Bank did not label as innovation ones are directly associated with innovation, nevertheless. As well, it is worth noting that the Bank’s recently adopted strategy through 2015 provides for an increase of the proportion of investment projects in its credit portfolio up to 20%.
While comparing the magnitude of the development institutions’ operations in 2008 with the 2010–2011 one (Table 19), it is worthwhile to note their substantial expansion for most of the institutions and, sometimes, in tandem with diversification of their activities. In a number of cases that was determined by the fact that back in 2008 some institutions (like RVC or ROSNANO) basically kicked off into existence and were way below their “projected capacity”. However, in certain instances, it can be ascertained that already mature institutions (such as SME Bank) expanded their operations considerably. Against the general backdrop RFTD appears a notable looser, as not only did the Fund fail to expand its R&D financing operations, but de facto put them on halt. That said, as noted above, it was announced in 2011 that the Fund was going to renew its operations in the capacity of development institution.
Table Magnitude and Performance of Development Institutions with Regard to Support of Innovation Projects Development institu- Magnitude and performance tions 2008 2010–1 2 Fund for Assistance to Between 2004 and 2008 in the frame of the “Start” By late 2010 in the frame of the “Start” program over Innovation program 8,700 applications were considered, over 12,000 applications had been received and some 2,000 projects were supported, including some 270 3,000 projects were supported. As many as 82 smallones – at the second stage and around 50 – at the third sized innovation companies had completed a threestage stage cycle of the program Section Institutional Issues cont’d 1 2 Russian Venture Com- As many as 7 venture funds with a total volume of a. By late 2011 venture funds had selected 45 projects to pany Rb 19bn were formed. Three funds invested some Rb. be financed. The Seed Investment Fund was created 1.8bn in 15 companies (see below). Two Funds were created under foreign jurisdictions and USD 20mn was invested. The RVC’s InfraFund was established, 9 projects were selected. The RVC’s BioFund was established RVC’s Seed Investment – By the end of 2011 41 projects were selected for Fund financing Regional venture funds As many as 14 funds created in 12 Russian regions There are 22 funds in 20 regions with the aggregate with a total capitalization of some Rb 5.5bn. A. 30 capitalization of over Rb 9bn. By late 2010 they had porjects were funded, and the aggregate amount of approved a. 50 projects for financing, and the aggreinvestment hit Rb 1.3bn gate amount of investment was Rb. 3.3bn Skolkovo Foundation – By late 2011 as many as 85 grants worth a total of Rb 5.8bn were approved and the volume of co-financing hit Rb 4bn. The grant recipients de facto received Rb 1.9bn Russian Fund for Tech- Over 800 projects worth a total of Rb 7.4bn were financed* nological Development ROSNANO By late 2008 a. 400 applications and proposals for By late 2011 as many as 1,884 applications for project financing were received for a total of Rb. 464bn, financing worth a total of Rb 4,064bn, including including 310bn out of the corporation’s funds. ROS- 1,764bn out of the Corporation’s funds (in 2010 – NANO approved 7 projects (6 investment and 1 edu- applications, Rb 1,867bn and 556bn, respectively).