The Russian Venture Investment Association is one of the associations of interested entrepreneurs who want to ensure their continued and successful development. According to economists, any modern businessman should imagine the essence of investments of this kind, since they are perhaps the most reliable method of achieving stability in business. At the same time, in practice, inclusion in this investment system is far from being implemented by all those who have the corresponding capabilities - this is due to a lack of useful information and a lack of understanding of the standards and laws governing this area. At the same time, everyone knows that the region is regulated by the state, which raises additional concerns.
Theory and Base
Venture investment is a financial system, one of the mechanisms regulating the market, aimed at the development of innovation. The main feature is the consideration of the interests of all parties involved. The purpose of the investment system is to ensure return on capital invested in some innovative project. To do this, resort to specific mechanisms of financial return and support of the business, providing him with guarantees.
The term, which became the basis for formalizing the activities of the Russian Venture Investment Association, came to our language from English, where it was used to denote risky activities, some undertakings, business ideas. In some cases, enterprises that have long been active in the market can be called venture ventures.
As a rule, venture capital investment is practiced in small, medium-sized firms. An enterprise cannot provide a mortgage, a pledge, therefore it cannot apply for a loan at a bank, and investing, although risky, becomes the best development path. Usually, funds working in this area invest in enterprises whose shares are not freely traded - all of them are already divided between a limited number of interested participants. Invested funds in a closed joint-stock company, joint-stock company come on the terms of exchange: in return, the investor disposes of part of the authorized capital. It is also possible to issue a specific credit program lasting 3–7 years.
Features of cooperation
As can be seen from the articles published by SIC dealing with this issue in the Bulletin of Corporate Law, Management, Venture Investment, investors are usually interested in obtaining a controlling share package. Somewhat less often, the investor wants to get a kind of blocking package, that is, more than a quarter of the total volume per share. Such a strategy involves risk reduction. At the same time, the owner of the enterprise, being without a controlling shareholding, loses interest in continuing to operate.
The specifics of venture investment is that the investor does not direct his own money directly to some business, but becomes an intermediary between investors and businessmen. By receiving shares and a share at his disposal, the investor thereby relies on the fact that the money invested by him will become a tool for the enterprise to achieve a new level of business. He does not face specific risks - related to management, market, technology. The only risk accompanying the activity is financial.
Hazards and Opportunities
Mostly the risks faced by the venture capital fund investing entity lie with the management of this company.It is often beneficial for an investor to leave a controlling share package in the possession of company managers, as this increases their motivation and interest. It is known from statistics: if a company develops with the active participation of an investor as a co-owner, the risk of failure is significantly less. The cost of such an enterprise often grows for at least seven years, which allows optimizing risks and securing considerable profit - this is beneficial for all project participants.
The danger of venture investment in Russia and the world lies in the fact that the company may not justify the hopes placed on it. In this case, the invested money will be lost, at best, they will return without bringing any profit. You can count on a profitable investment only when investment cooperation lasts at least five years. The only reliable way to get out of it, remaining in the black is to sell the promotional package to the person who wants it at a higher price than it was purchased.
Organizational Nuances
Modern venture investment associations, funds working in this area are either independent enterprises or limited cooperation. Foreign economists usually talk about a partnership association, denoting it with the word "fund." Personnel, management staff may be hired by such an association, but may be an external management company receiving some compensation each year. Its size is usually not more than 2.5% of the initial investment liability. The company managing the fund may receive a certain share of its profit - not more than one fifth.
Step by step
Two stages of venture investment are distinguished - first they search and select enterprises, then they study and observe. The first stage is devoted to the search for companies that have good prospects for active, rapid development in the current market conditions. Risks associated with investing should be compensated by profit, that is, everything invested should return with an award of an average level or more. Return has become a basic measure of profit. So, if the volume of transactions concluded by the company annually increases by half, the investor's expectations will be met.
The peculiarity of venture investment in the second stage is the need to make a final decision, invest in a project or abandon it as unpromising, too risky. To do this, you need to analyze different aspects of the enterprise, explore its indicators, forecasts. When choosing in favor of investing, it is necessary to form a memorandum, bringing together the conclusions made, and make an assumption to the committee responsible for this, which will make the decision. The memorandum becomes a basic stock document establishing the principles of work, tasks, goals of a fund specializing in venture capital investments. Each investor has the right to get his own copy. It is necessary to indicate the community strategy, model of entrepreneurship, organizational form, subordination, features of the managerial process, top management. They fix the conditions that the project must meet in order to become an object of investment.
If corporate venture investment has reached the stage of formulating and adopting a memorandum, we can assume that a decision on the project has been made. The base business of this area is trust. The committee believes the calculations of the manager managing the fund, blaming him for the proposals made. If the proposal is rejected, this will happen at this step.
Challenges and Overcoming
Innovative venture investment is fraught with a number of problems. In particular, in order to formalize the process of searching for a project, analyzing its features, it takes a lot of effort.Funds, of course, are considered attractive objects for cooperation, but there are not so many entrepreneurs who are ready to offer a promising idea, and not every one of them wants to find such an association for mutual work. In addition, investing is possible only if there is primary evidence of the idea working, which is also associated with difficulties.
Another feature of venture investment is the weak dissemination of information about the work of funds of this type. In our country at the moment it is practically impossible to find large publications in print or electronic form, regularly publishing lists of projects, their parameters, indicators, contact information. If someone is interested in finding a project, he has to resort to all possible means, including personal meetings, virtual resources, seminars, conferences.
Technical details
Typically, venture capital investment involves an investment in a project of 1-50 million dollars. The maximum for a project depends on stock opportunities, as well as the ability of several associations to unite for a promising project. The minimum level depends on the option of payment for the management service. If the transaction is concluded at small financial values, it is difficult for managers to organize the necessary level of profitability, taking into account the costs associated with managerial functions.
Mostly all forms of venture capital investment involve at least a three-year period of cooperation, but very rarely it lasts more than eight years. The maximum is set off by investors, the minimum - by the conditions of the project and the period for which it is possible to thoroughly complete all the stages stipulated by the project. At the stage of fund formation, the largest time period for which money is invested, as well as the duration of the investment cycle, is immediately stipulated. The first in the realities of our country usually lasts an average of 2.5 years, the second - 9 years with a possible deviation to the larger, smaller side, usually within a year.
According to official statistical information, venture investment in our country on average shows 35% return. As a rule, it is these indicators that establish funds as expected and typical. On average in Europe, many funds require a parameter of 12-14%.
Implementation difficulties
Venture investment within the Russian Federation faces considerable difficulties due to the lack of a detailed legal framework that would regulate this area of business relations. Venture capital enterprises and investment institutions do not have the infrastructure to simplify their activities. There are few opportunities for the emergence of new enterprises that can grow and develop quickly, which means that investors have almost no objects of interest. In fact, there are practically no Russian investments in the venture capital sector at the moment, and the liquidity level is generally quite low. There are practically no incentives in the economy of our country that allow high-tech projects to actively attract investors - these incentives are needed to reduce the level of risk.
Medium-sized, small business, traditionally an object of interest for all forms of venture investment, currently does not enjoy significant authority, and the industry itself does not have sufficient opportunities for disseminating information. There are practically no highly skilled managers capable of working with venture capital associations. The culture of investment is also at a rather low level. Another difficulty is bureaucratic. At the moment, registering a venture capital fund in the Russian Federation is categorically difficult.
Problems: can it be solved?
Specialists of different levels, economists are ready to offer several options, methods and approaches that would make the venture investment system more efficient. It is assumed that the first steps in this area should be taken by the state, in particular, it should begin with the formation of a legal framework in which all aspects of the functioning of the fund, as well as the process of investing, are disclosed. Particular attention should be paid to the possibility of participation in such activities of insurance companies, pension accumulation funds. It is necessary to improve the regulatory framework for more effective legal regulation of accountants - only through this will investors receive accurate data that are not in doubt about the situation of the project, the enterprise. Consequently, the level of trust will become higher, which means that interest in investing will be the same.
To stimulate venture capital investment, it would be wise to work out new methods for analyzing forecasts. Assistance from official government agencies in carrying out the examination of the project, as well as improving the scope of consulting services, would provide good opportunities for both parties interested in investment cooperation. This is especially true for the field of science and technology. At the same time, businessmen need a perfect information space - this is the only way for those who want cooperation to meet.
For venture capital investment to develop faster and more efficiently, a more transparent tax system is required. If it were possible to eliminate double taxation completely, capital gains would appear to enterprises to be much more attractive. At the same time, activation of the secondary market would increase the liquidity of funds invested under such a program, and lower interest rates would make equity more valuable.
Aspects of the Question
According to analysts, the investment area in question needs special attention so that participants can increase their level of education. Specialists should be able to study for such specialization - work with venture capital. This would become the basis for educating the appropriate business culture, which means that capital would have more opportunities to be attracted to the project with good prospects. From the state, support can be expressed in grants, tax benefits, if the business is engaged in research, works in the field of innovation.
Venture investment in our country will have good opportunities, as professionals say, if we manage to evenly distribute the capital associated with the dangers across the regions. In many cases, the difficulties associated with the implementation of the project are explained by the territorial feature: the supply does not correspond to demand in a particular area. The correction of this complexity and the elaboration of an integrated approach to management and investment control would provide new opportunities for small, medium-sized firms.
Priorities: features of Russia
Several years ago, the EUSA formulated the main directions that would allow venture entrepreneurship to be promoted on the territory of the Russian Federation. We singled out as a necessary step the reorientation of the tax system in such a way that the mechanism for calculating contributions is more understandable, focused on the enterprise making a profit. It also requires the adjustment of economic law, so that the conditions of the economic market are friendly to the form of investment under consideration.
European experts have recommended reformulating the legislation in parts that deal with the registration of investments. The system that exists today is permissive, but the work of the region will become much more effective if it is changed to the need for notifications, rather than obtaining permission.Contributing to the progress of infrastructure and creating the conditions in which entrepreneurship could work more productively, this can stimulate the development of venture investment in our country.
How it all began
The considered investment option in our country has become popular relatively recently, but for the first time the practice of this kind of capital investment appeared in the middle of the last century. American businessmen became pioneers. Already at that moment, the most promising high-tech entrepreneurship looked.
The first investments were made in the Silicon Valley, known to the whole world today. Here they develop, design, assemble the most powerful computers, generate the most efficient and relevant programs, and invent new devices. Initially, investing here was fraught with huge risks, but for a number of people this became the basis for the formation of an incredibly large fortune.