SUPPORT FOR PRIVATE INVESTMENT INFRASTRUCTURE
The current crisis has shown businesses and politicians that betting on speculative operations and inflating the market cannot be a long-term development strategy. The future of Ukrainian business in the transition to a post-industrial type economy, dominated by services, high technology and infrastructure. Such changes require a system of incentives for venture investments, which play an important role in ensuring the country’s competitiveness. It is no coincidence that states with a developed venture capital market (USA, Japan, Germany, UK) act as the largest exporters of high technology products. In these countries, a key role in the search and development of high-risk startups belongs to associations of private investors, the so-called business angels. If we evaluate the volumes of venture investments, then the investments of private investors there exceed the volumes of large institutional investors. At the same time, the number of transactions, depending on the region, is 20–40 times the number of projects funded by venture funds.
Associations of private investors usually help to organize investment projects at early stages of development, as a rule, with the required amount of investment not exceeding $ 1 million. In this case, it often does not make sense to go to a bank to raise money in an innovative project, especially if there’s just an idea . But successful entrepreneurs have the opportunity, by investing their resources and experience, to develop someone else’s initiative and subsequently earn money by selling a business. By investing in a venture project of $ 100 thousand, at the exit you can get a company worth several hundred million. The best-known examples are the development of Google and Amazon, which began with a small private investment.
In the database of our association there is information about about 400 projects in various fields. These are projects of varying degrees of development. Most of them still require significant efforts to form concepts, address intellectual property protection issues, make a prototype, etc. In such projects, not only finance is often required, but also the experience and business connections of successful investors in the creation and development of business.
Therefore, if we at the state level do not establish a system that will help grow such companies, it will be difficult for Ukraine to switch to a post-industrial economy. A good example is Russia, where in 2006 the Russian Venture Company (RVC) was established – in fact, a fund of funds that funds the creation of venture funds across the country. In addition to this, in 2009, the Seed Investment Fund of the Russian Venture Company was established, designed to support innovative initiatives at a very early stage of development.
As a result, not having such an infrastructure, we are now seeing a situation when a part of the projects “moves” to Russia. Personally, I know five such examples. That is, our entrepreneurs, instead of creating enterprises in Ukraine, are developing projects on foreign territory.
In order to change the situation, the state should take part in the creation of venture funds and stimulating the activity of associations of private investors. There is also a need for a normal investment climate, the settlement of issues related to the simplification of the system of running small and medium-sized businesses, the provision of tax preferences that encourage direct investment, and the improvement of the legal framework governing the protection of intellectual property and confidential information. A very important point is the creation of legislation that would protect minority shareholders. In Europe, an investor, as a rule, enters a venture project by a minority shareholder, in Ukraine, on the contrary. This is due to the risk of loss of invested funds by investors due to the imperfection of the legislation and the judicial system. It often happens that the project is good, and the details are all agreed, but the author and the investor cannot agree on who will receive the “golden share”.
Creating an infrastructure for private investors is a task for major financial market players. We have a strategy for skimming, but the cream seems to have ended. Now it is necessary to move on to growing quality projects from scratch. Therefore, large investors should help small companies to grow such companies with which they will continue to work in the next stages of their development.