OREANDA-NEWS. June 28, 2012. According to the first issue of MoneyTree: Venture Capital Market Navigator, a publication focusing on the Russian venture capital market in 2011, jointly issued by the PwC Centre for Technology and Innovation (CTI) and RVC, in 2011 venture capital investments in the  Russian IT sector amounted to USD 237 million in a total of 139 deals, reported the press-centre of PwC.

2011 MoneyTreeТМ: Venture Market Capital Navigator (MoneyTreeТМ: Russia) is fully focused on venture capital investments in the IT sector, which is the most dynamic and transparent sector of the Russian market. According to the overview, this segment of Russia's innovation market attracted the absolute majority of venture capital investments.

E-commerce and projects related to entertainment and social networking are among those areas that brought in the most investment:

Russia's venture capital market is characterised by its diversity: on the one hand, it involves a large number of small private investments in innumerable early-stage start-ups, and, on the other hand, it has also seen several major deals between established, successful companies. Thus, our review did not include most transactions worth under USD 50,000 or major deals over USD 50 million, which are not currently a regular occurrence. This review also excludes non-market grants to fund innovative companies.

We believe our findings are an accurate reflection of the level of investment activity in the IT sector. Moreover, according to various estimates, data on up to 50% of the market may be unavailable given the confidential nature of the deals involved.

In terms of investor geography, although investors of Russian origin, as expected, represent the driving force behind the development of the Russian market (participating in 74 deals), it is interesting to note the significant number of deals involving foreign participants, including from the United States (14 transactions), Germany (8), and France, Canada,  Sweden and Switzerland (a combined total of 6).

Analysis of venture capital investments in the IT sector in 2011 (by sub-sectors): Investment volume and number of deals

Projects related to e-commerce attracted the most investment in 2011. This sector saw 33 deals raising investments worth approximately USD 107 million.

Trailing the leader by the number of completed deals, venture in entertainment and social networking saw 31 deals worth USD 57 million. Projects related to the development and application of cloud computing technologies ranked third by the number of completed deals at 29. Although investor activity in this sub-sector was high, venture capital investment in these deals only amounted to USD 17 million. Projects related to the development of data services and distance learning raised about USD 33 million in 21 deals in 2011.

Venture capital investment in the IT sector by project stage

If we analyse venture capital investment in 2011 by investment project implementation stage, projects at the seed stage accounted for over half (77) of the total deals and projects at the start-up stage made up nearly a quarter (34) of all deals, raising USD 30.6 million and USD 38.8 million, respectively.

Early-stage companies and projects attracted most of the investments — USD 94 million going into 16 deals. These figures are characteristic of young innovation-driven Russian IT companies, a segment that got up and running only several years ago and, thus far, has experienced the need primarily for "start-up" investment.

The outlook for venture capital investment in Russia's IT sector
We anticipate that, providing the positive trends in the Russian and global economy continue, 2012 will see the Russian venture market continue to grow and achieve new records. According to our estimates, the volume of venture capital investment in the Russian IT sector in 2012 could increase by over 50% to exceed USD 450 million.

Anton Abashkin, who heads the PwC Accelerator at CTI Russia, noted:
"A great number of projects that received seed investment in the past 12-18 months have already shown growth, and now need further financing to reinforce the successes already achieved, enter the market, and scale up their business. Against the background of extensive activity among Russian and international venture capital investors in Russia, and the emergence of a great number of new players, many of these companies stand a good chance of attracting subsequent interest in the larger investment rounds as soon as this year.”

Igor Agamirzian, CEO at RVC, said:
"Further growth in the Russian venture market will be driven by both an increase in the number of investors on the market and an expansion in their areas of focus. As the market continues to take shape, we anticipate seeing more qualitative changes, specifically greater transparency, as well as investment and corporate governance standards that approximate the level seen in developed countries."

An increase in the number of investors on the market and an expansion of the areas they work in will boost the further development of Russia's venture capital market. We expect to see sustained qualitative change in the market, in particular, the market becoming more transparent and investment and corporate governance standards coming into line with those in developed countries.

For over 15 years, PwC has been issuing MoneyTreeТМ reports on leading tech markets such as the United States and Israel. For many global venture capital market players, these reports serve as a litmus test of current market conditions and recent trends. As the Russian venture investment market develops, new issues of MoneyTreeТМ: Russia will cover developments in the existing trends and the emergence of new trends in the IT sector, as well as other segments of the Russian innovation and technology market.