Private Equity Investment Set to Soar
The amount of private equity investment in Russia will continue to grow in 2006, with consumer goods companies continuing to attract the greatest interest, experts said Wednesday.
The amount of investment, this year between $500 million and $700 million, may double next year, said Kirill Dmitriyev, managing director of Delta Private Equity Partners said at a round table on Wednesday.
Businesses in the booming consumer goods sector get the lion’s share of direct investment, while the potential of Russian science and technology start-ups remains largely untapped.
Typically more high risk than other investments, technology start-ups in Russia bring with them serious issues, including intellectual property rights, experts say.
Putting monetary value on ideas is another issue in Russia. «There is no transparent methodology for valuing these [innovative] companies; venture capital market infrastructure is lacking,» said Gleb Davidyuk, partner at Mint Capital private equity fund.
Moscow-based Mint Capital, which started raising money for its first fund in 2001, has moved away from technology investments into consumer goods and other related businesses.
Mint Capital will close a second fund of $100 million at the end of 2005.
Only 2.5 percent of the country’s small businesses are involved in science and technology, president of small and mid-sized business lobby Opora, Sergei Borisov, said at the round table.
One of the reasons why technology remains underfunded is the lack of participation from institutional investors, which tend to back long-term projects.
«A serious problem is a lack of pension money in the [venture capital] market,» said Albina Nikkonen, representative of the Russian Private Equity and Venture Capital Association.
In comparison with more developed venture capital markets, the amount being invested in Russia remains small.
A total of 6.4 billion euros ($8 billion) was invested in Europe’s technology sector last year, more than six times the amount of total private equity investment in Russia, Nikkonen said.
«There is nowhere to go but up,» said Patricia Cloherty, board chairman at Delta Private Equity Partners, on the future of technology investment.
The government is now starting to pay more attention to supporting technological innovation.
Legislation is already under way to develop new special economic zones that would offer tax breaks and other benefits to technology research and manufacturing companies.
An increased interest in venture capital funding by the so-called «oligarch structures» — backed by Russia’s billionaires — are likely to give the market a boost, Delta’s Dmitriyev said.