Business Angels in Russian Venture Business

During several recent years participation of business angels in Russian investment projects has significantly increased. For example, according to the National Association of Business Angels, in 2013 activity of such investors, measured by the number of deals with their participation, grew 2.7 times, comparing to the previous year, while the average volume of investment on the part of one business angel exceeded 265 thousand dollars. Who are these business angels and why do they dare to invest money in high-risk projects?

According to the widespread definition, a business angel is a private investor financing innovation projects at early stages of development, most often called pre-seed and seed stages. The role of such investors in the system of venture financing is really high: it is them who make it possible for promising projects to develop at their initiation stages. Besides, associations of business angels and their participants conduct pre-evaluation of attractiveness and investment safety of new projects, sifting out numerous unprofitable or simply unrealistic projects.

Thus, activity of private investors directly influences dynamics of innovative processes in the economy of the country. Supporting interesting projects at high-risk stages, when more conservative investors or funds adopt a wait-and-see attitude towards start-ups, business angels act as the first financial partners and often chief consultants of talented developers and businessmen.

In 2013 Russian business angels provided financial support for about 165 companies, the greatest volumes of investment being directed to the sector of information and communication technologies — up to 66% of the total volume of financing of venture projects in the territory of the Russian Federation. The second by popularity industry is finances and business services, on development of which business angels and venture funds spend about 11% of investment in the given year.

It should be noted that Russia is one of the three leaders among European countries by money indicators of private investors’ activities: last year the volume of angels’ investment in different projects amounted to 41.1 million euro, according to the European network of business angels. Only private investors from Spain (57.6 million euro) and Great Britain (84.4 million euro) invest in venture projects more than Russian ones.

High positive dynamics of the Russian market of angel investment is explained by several factors: on the one hand, there is active development of innovation enterprises, which are promoted not only by commercial organizations, but also public institutes for development. On the other hand, there are more and more “success stories”, which means that knowledge of existing and future participants of the venture market about peculiarities of angel financing of start-ups grows.

On the whole, experts forecast further growth of the volume of deals with attraction of Russian business angels’ investment in the nearest several years, however, configuration of the Russian venture business will greatly depend on whether market participants will be able to overcome a number of particular obstacles, such as imperfections of the legal framework that regulates activity of private investors in Russia or a lack of systematized information about risks and prospects of activities of business angles and their associations. If the abovementioned obstacles are overcome, the Russian sector of private investment can expect a rapid increase of the number of participants and, as a result, innovative projects, fully or partially financed by business angels.