Venture financing of investment projects essence and definitions. Coursework venture funding. The main components of the successful formation of a venture business are

Venture funding is an investment in an innovative business in the early stages of its development. Venture capital financing originated in the United States and has become widespread throughout the world. This type of financing is characterized by a high level of risk.

The point of venture financing is that an investor invests small, by his standards, amounts in several projects (startups) that can potentially grow to the size of a large corporation. At the same time, the investor understands that most of the projects will go bankrupt, but those one or two businesses that can grow and scale their activities will cover all the investor's expenses.

For businesses, venture capital financing is an indispensable means of raising money for its activities before the firm can generate profits on its own.

Subjects of venture financing

Startups

Companies at an early stage of development act as donors - startups... These firms can exist both at the level of an idea on paper, and at the level of a business that has a certain revenue and even profit.

Key characteristics of startups:

1. Innovation;
2. The business model is being tested;
3. Business is in its infancy.

You need to distinguish between startups and small businesses. A flower shop or bakery is not a startup because it uses proven, well-known business models. Also, startups are not innovative divisions of large corporations, since these enterprise business models have long been debugged and innovation is only a part of their business.

Most often, startups emerge in the IT industry due to the general innovativeness of the industry, as well as the low threshold for entering the Internet business. Young enterprises are also emerging in a number of other knowledge-intensive industries: pharmaceutical, engineering, biological, etc.

Investors

Venture investors are divided into types as shown in the table.

Name Organizational form Characteristics

Business angels Private investors or groups of investors Fund startups at the earliest stages of development (starting with the idea)

Presowing and seed funds Business structures Fund startups in the early stages of testing a business model

Venture funds Large business structures Provide financing at the stage of scaling the business model

Business angels are wealthy people who invest their money in startups in the hope of making a profit. There are business angels who invest professionally who have made it their main occupation. There are also angels on the market, for whom investing in innovative firms is just a way to diversify their investment portfolio. For startups, professional business angels with industry expertise are preferable, because they will be able to provide a young company not only with financing, but also with connections and recommendations for business development. A good business angel, on the one hand, participates in the management of the company, on the other hand, it allows startups to make decisions on their own. The most famous business angels in Russia are:

Igor Ryabenky;
Arkady Moreinis;
Pavel Cherkashin;
Alexander Galitsky.

Venture funds are investment funds that invest in startups at various stages, from pre-seed to late rounds of venture funding. The fund's task is to make a profit.

The activities of any fund can be broken down into the following stages:

The fund attracts funds from a number of investors, including wealthy people, business structures and sometimes budget funds.
The fund analyzes the market and invests in several startups (usually at least 10) by buying stakes in these firms. At the same time, the prospects of the business model, the personalities of the founders, and the financial performance of a young company are analyzed.
The fund takes part in the management of funded startups called portfolio companies. The fund's task is to bring the maximum number of its portfolio companies into profit. The investment cycle of a venture fund is 4-7 years.
The fund exits from portfolio companies. This is the most important stage in the fund's activities, because right now it is making a profit. The way out is selling the shares bought by the fund at a significantly higher price, because startups have grown. The difference in the price of buying and selling shares in successful startups can vary by tens or even hundreds of times.

In the activities of funds, the stage of ruin of part of portfolio companies is inevitable. But if out of 10 portfolio companies of the fund, in each of which the fund has invested $ 100,000, there is at least one Facebook or Twitter, the fund will make a profit that compensates for investments in unprofitable firms. The task of the fund is to compose an investment portfolio and manage it in such a way in order to ultimately receive income.

There are also foundations of funds - these are large organizations that finance and manage venture funds. In Russia, such an organization is the state fund RVC - Russian Venture Company. This structure is engaged not only in investing in promising startups, but also acts as an institution for the development of the venture capital industry in our country.

The most active venture funds in Russia:

Altair Capital;
Almaz Capital;
Runa Capital
TMT Investments
Flint Capital
Maxfield Capital
ImpulseVC

Other structures

In addition to investors and start-ups, there are a number of public and private organizations that provide infrastructure and information support to the venture capital industry.

Business incubators provide startups with the opportunity to rent an office or coworking space at an inexpensive price, provide technical infrastructure and information support. They often act as a link between startups and investors. Business incubators are either state-owned and provide services for free, or they charge small fees from startups. Typically, incubators do not require a share in the business for their help.

Startup accelerators help young firms at a very early stage of development... The activity of accelerators is somewhat similar to the work of business angels, but accelerators do not always take a share. Accelerators perform primarily an educational function. A typical accelerator recruits several start-up teams into training groups and trains them for 3-6 months, helps them bring the product to market and test the business model, provides the necessary connections, and then introduces them to investors. The goal of accelerators is to bring startups to the market that are ready for investment from angels or funds.

Investment brokers and consultants work with both startups and investors. They provide market participants with information, introduce them to each other, help start-ups "package" a business idea and correctly submit it to the investor. Among investors, the attitude towards such consultants is twofold, some investors believe that if someone leads the founders of startups "by the hand", then such startups will not be successful.

Industry organizations and associations. There are a number of associations and organizations on the market that help both investors and startups.

Examples include:

1. RAWI - Russian Venture Investment Association. It unites the leading market players, aims to promote the development of the venture capital industry in our country.

2. Rusbase is a platform that brings together Russian investors and startups.

3. Crunchbase is the world's largest venture capital market database with information on young firms and investors.

Stage Characteristics Types of investors Average investment volumes

Pre-seed A startup exists at the level of a business idea. Business Angels Up to $ 10,000

Seed Startup is testing a business idea Business angels, seed funds $ 10,000 - 50,000

Venture rounds Startup scales a business idea Venture funds From $ 50,000

The parameters of the stages of venture financing differ somewhat in different literature, but it is possible to clearly separate the stages at which an unrealized business idea or an idea at the initial implementation level (preseeding and seeding) is financed and the stages of financing already mature startups that scale their business model (investment rounds).

In the classical model, venture funding is followed by Private Equity (direct investment), and then an IPO. Private equity funds are invested in mature organizations with a tried and tested business model to scale these businesses further. IPO (Initial public offering) is an entry into the stock exchange, the issuance of its own shares by a firm and the transformation of the company into a public one. Any venture investor is interested in getting their funds back and IPO or Private Equity are good tools for this.

Impact on the economy and technology

Venture financing is a tool that helps young innovative companies to develop, which will never receive a loan from a bank, and which do not have serious start-up capital. Venture has played a colossal role in the development of global technologies, and it is thanks to venture funding that such giants as Google, Facebook, Twitter and a number of other companies have emerged. In Russia, the venture capital market is in its infancy.

PROJECT VENTURE FINANCING AS A FORM OF IMPLEMENTATION OF INVESTMENT PROJECTS

Fedonina E.V., Applicant for the International Academy of Appraisal and Consulting

The article is devoted to the issues of long-term financing of individual economically self-supporting investment projects. This area of \u200b\u200bactivity is considered in world practice to be especially relevant for those countries and regions that need to expand and modernize the production capacities of capital-intensive industries, such as the fuel and energy complex, mining and processing industries.

Key words: venture financing, investment projects, world politics.

PROJECT VENTURE FUNDING AS A FORM OF INVESTMENT PROJECTS

Fedonina E., The applicant, International Academy of Appraisal and Consulting

The article deals with long-term financing of individual economic self-sustainability of investment projects. This activity is in the world especially important for those countries and regions that need to expand and modernize production capacity of capital-intensive industries such as fuel and energy complex, the extractive and processing industries.

Keywords: venture capital, investment projects and global politics.

Project finance (PF) was created as one of the forms of financing used in the implementation of investment projects, the need for capital which exceeds the capabilities of individual enterprises. Thus, the concept of project financing means financing not an enterprise, but a specific project, in our case, an innovative one.

Unlike traditional credit financing, project finance guarantees interest payments and loan repayments through the movement of cash (cabb-Aoi) and the assets of the project itself, rather than the enterprises associated with the project. Funding risks are sufficiently structured and dispersed among the individual participants. It should be noted that the impact of the project on the balance sheets of its individual participants is minimal, as much as possible1.

An example of project lending is the Eurotunnel project, 50 km long under the English Channel, connecting England with continental Europe (commissioned in 1993). The total volume of loans amounted to about 7 billion pounds. 198 banks participated in lending, later 11 more, on the basis of attracting private capital without government guarantees. Repayment of loans is made from the fees for using the tunnel.

The subjects of the investment process are participants in project financing.

Thanks to the creation of a network of contracts, all participants in the investment venture project are connected in such a way that the service of the attracted funds is guaranteed. PF participants can be:

1) Initiators (applicants) of the project. These are institutions and organizations that initiate the project, respectively - develop the very idea of \u200b\u200bthe project and are responsible for its validity and technical implementation.

2) Suppliers and buyers. The suppliers of equipment, raw materials and materials are linked to the project by long-term supply and service contracts, thus ensuring that the project is provided with everything it needs. The sale of the project's products is ensured through the execution of the relevant long-term contracts concluded with the buyers.

3) Suppliers of debt capital. Its alleged sources are state institutions, the participation of commercial banks, private investors, etc. is not excluded.

In the concept of this work, in addition to financing through government agencies, assistance should be provided for the implementation of the project by providing land, possible tax benefits, etc.

4) Contractors - construction, installation and other organizations involved in the implementation of the project on a contract basis.

5) State Investment Management Company -

1 See Bogdanov D.V. Venture entrepreneurship. M., 2009.

an enterprise formed at the start up stage with 100% state participation in the form of a state unitary enterprise or open joint stock company (OJSC) and created for the purpose of full monitoring of venture investment processes, providing a set of organizational and technological processes subordinate to a single goal and providing favorable conditions for attracting resources and all the necessary stock, financial and insurance tools that support the full economic cycle from the development, capitalization and implementation of investment projects to control over the proper use of borrowed funds and their timely return. A state investment management company can act as a lender on behalf of state institutions, but another financing scheme is also possible.

6) Management companies - enterprises of various forms of ownership, authorized by a state investment company and carrying out initial selection, initial examination of projects, business planning, preparation of the investment process, project protection in a state investment company, project implementation and participating in the profit of the project after its payback.

A characteristic feature of project financing is the creation of a project company that directly implements the project. Such a society can be a special Management Company, which is specially created, prepared, trained and certified for this. The initiators (applicants) of the project participate in the capital of the project only in the amount of their own contribution. The necessary borrowed funds of the project are sent directly to the address of this company, and not to the initiators (applicants) of the project. The loans received are recorded in the balance sheet of the project company, which is why we can talk about off-balance sheet financing.

Those. the project is excluded from the assets of the enterprises of its initiators (applicants) in order to avoid deterioration of the indicators of the capital structure and solvency in the individual balance sheets of the enterprises of the initiators (applicants). Thanks to this, the project does not have a negative impact on the parent companies of the initiators (applicants).

A characteristic feature of the described process is that, unlike classical financing instruments, the cash flow achieved during the project guarantees the security of interest payments and loan repayments. Those. there is a departure from the targeting orientation, previously typical for the classical approach to financing, and an orientation towards cash flow. Therefore, project finance is characterized as a cash flow lending.

The economic volumes of financing, as well as the loan decision of the lender, directly depend on the cash flow of the project company. Moreover, the property of the project

the company provides the lender with secondary and in most cases illiquid guarantees.

Thus, lending related to the movement of funds (Cash Flow Related Lending) is made.

When organizing financing for venture projects, it is necessary to take into account the risks arising from this. For the most efficient organization of the process, they are distributed.

Distribution of risks is understood as the identification of project risks, as well as their distribution among its participants, as those taking a share in the capital of the project. At the same time, the risks should be shifted to a greater extent to those persons who can carry out their professional assessment and prevent their occurrence, and who, based on their own interests, are ready to take these risks. The distribution of risks between the project participants who have a share in the capital of the project company and its lender contradicts traditional rules, and the risk associated with the implementation of the project is assumed by the project company participants. This problem can be solved through risk sharing. Enterprises-initiators (applicants) of the project can thus implement other investment projects, since due to the off-balance sheet financing of a legally independent project, the participation and responsibility of its initiators (applicants) is limited. Joint participation in various project investments allows the initiator (applicant) to ensure a better dispersion of the risks of their own investment portfolio.

There are various options for exercising the right of recourse to the initiators (applicants) of the project in the event of a breach of debt servicing on borrowed capital.

1) Financing with full recourse to the borrower. The right of recourse on the borrowed capital can be exercised in full during the entire term of the project loan. The initiators (applicants), along with their own contribution, are liable for all the property of the parent company. As a result, the reputation of the initiator (applicant) is of decisive importance for the credit check when granting a loan, and not the flow of funds. For the lender, the distribution of risk no longer plays any role, since the initiator (applicant) of the project acts as the responsible person for all risks.

2) Financing with partial recourse to the borrower. This most common form of guarantee liability of initiators provides for the limitation of the right of recourse in certain cases stipulated in the contract.

These restrictions can be qualitative (for example, default on loan obligations), quantitative (the amount of liability up to a certain maximum amount) or temporary (compensation for damage at the first stage of the project). The initiators mark the project in their own balance sheet.

3) Financing without recourse to the borrower. Lenders waive any recourse claims against the initiators of the project, the amount of which exceeds the borrowers' own share of capital. This "pure" form of project financing, in which the predicted liquidity serves as the only guarantor, is the main one within the framework of this project and is equivalent to the provision of venture capital. This option has so far rarely been encountered in practice, since its implementation requires a convincing project in all respects.

With project financing, there are 4 successive stages of project implementation.

1) At the preparatory stage, the very idea of \u200b\u200bthe project arises, which is verified in the course of studies regarding the feasibility of the project in terms of its profitability and technical capabilities.

2) The next stage - the stage of construction and initial equipment of the enterprise lasts until the final completion of the project, i.e. until it is ready for operation. Terms of individual works are established by the drafters of the project in the project plan.

3) Next comes the stage of putting the project into operation: the planned target figures of the project are checked, the obligation to provide guarantees is fulfilled, and services related to the launch of the project are provided. Thus, there is

the final financial fulfillment of the contract for the construction and initial equipping of the enterprise, and the company enters into the previously defined contractual relations with suppliers and customers.

4) At the stage of functioning of the facility, the usual current production activities are carried out. By maneuvering the cash flows involved in the project enterprise, it is possible to depreciate project investments and repay borrowed capital.

To make a financing decision, it is necessary to conduct a risk analysis. The cash flow of the project is of paramount importance for the implementation in the established order of payments of borrowed funds. Any negative impact on the project entity has a direct impact on the degree of credit risk. According to the concept of risk dispersal, all risks are distributed among the project participants, which implies the need for a detailed analysis and knowledge of project risks.

Risks arising in the phase of construction and initial equipment of the enterprise. This risk is that the project will not reach the required capacity in the prescribed time, sufficient to achieve the planned production volumes / previously predicted cash flows. This, along with technical problems, is in most cases due to unforeseen events such as strikes or breaches of contracts by suppliers and contractors. Additional costs are incurred due to non-compliance with the schedule. Such expenses can be minimized due to the fact that the lender puts forward a requirement for the initiators (applicants) or the Management Company to assume contractual obligations to carry out construction and installation work by a certain date, the so-called. turnkey contract within a fixed timetable turnkey contract. At the same time, the initiators of the project or the management company may agree to provide lenders with guarantees regarding the construction and initial equipping of the project facility. Thus, full coverage of subsequent costs is guaranteed.

Operational and technological risk. After the construction and initial equipping of the project facility, due to technological problems at this facility, interruptions in production may occur, which will lead to a violation of the loan repayment terms. To avoid such risk events, the lender usually makes a mandatory requirement that only well-known and already proven technologies are used in the project. In our case, this condition is impracticable. Therefore, this risk always remains and must be taken into account when planning. For example, lending may be extended to avoid liquidity shortages.

Occupational risk. The concept of "occupational risk" includes all risks that cause disruption to production processes, and which are not associated with operational and technological problems. The planned production volume may not be achieved in terms of quality or quantity of products, as a result of which production costs will be higher than previously envisaged. The reasons for this may be, among other things, supply or transport problems, insufficient qualifications of personnel, various flaws in production. The reliability of guaranteed service of the project's borrowed capital can be increased by concluding insurance contracts against losses in case of downtime or long-term supply contracts with suppliers.

Price and Marketing Risk. The main indicators in assessing the movement of cash is the volume of sales and the sales price of products. Predicting changes in these indicators in the long-term nature of the project is hardly possible. Therefore, the lender is interested in the conclusion of long-term contracts for the purchase of products manufactured by the project company, the term of which would correspond to the term of the loans. On their basis, sales volumes and sales prices that are binding for future periods are established. The economic attractiveness, thanks to which the buyer assumes such extensive obligations, lies in the guaranteed purchase of these products with significant discounts.

kami compared to forecasted market prices. Upon reaching a certain volume of purchases specified in the contract, the purchaser is granted additional rights, for example, equity participation in the project company.

Risk of disruption in the supply of raw materials, supplies and intermediate products. Certain supply disruptions may also occur on the part of suppliers of raw materials, supplies and intermediate products, which will negatively affect the cash flow of the project. In the absence of spare parts, necessary intermediate products, raw materials and materials in the required quantity and required quality, the normal functioning of the project enterprise is impossible. The solution to this problem can be long-term supply and service contracts with reputable suppliers, or the use of local market opportunities based on short-term contracts.

The risk of changes in exchange rates. The reason for this risk is the mismatch of the currency in which the borrowed capital is registered with the currency of the proceeds from the sale of the project's products. One way to solve this problem is to accept the borrowed capital in the same currency as the expected proceeds. With export-oriented production, however, in the context of the ruble's revaluation, this problem should be taken into account when planning. That is, the project must have a sufficient margin of safety.

Political and force majeure risks. While it is not possible to fully guarantee coverage of all political risks, the lender is committed to ensuring that political instability or popular protests do not have a serious negative impact on the progress of the project. Assessment of such risks is of great importance for making a loan decision and determining the size of the interest rate. Therefore, a lot depends on the agreement itself, on whether the initiators of the project will be able to shift political risks to the banks participating in the project,

since international banks, due to the diversification of their investment portfolios, are quite capable of assuming such risks. In the event of a weak negotiating position, the initiator (applicant) of the project can insure itself against changes in the existing general political conditions, having received government guarantees from the country in which the project is being implemented.

Along with the above-mentioned political risks, there is also a danger of force majeure circumstances for independent reasons - natural events and natural disasters (wars, hurricanes, floods, earthquakes, etc.). Adequate insurance coverage for such risks, with the exception of political risks, can be provided by private insurance companies.

Along with the assessment of the expected risks, the financial and management analysis of the project and the calculation of its profitability are carried out.

Project finance can only be applied to projects with projected cash flows that will fully pay interest and repay invested capital. That is why, in the course of costly and comprehensive studies designed to answer the question about the feasibility and profitability of the project, its participants or independent auditors analyze the project, while identifying specific types of financing, including PF.

Literature:

1. Bogdanov DV Venture entrepreneurship (monograph). M., 2009.

2. Kashirin A.I. Innovative business: venture and business angel investing. M., 2010.

3. Kotelnikov V.Yu. Venture funding. M., 2009.

4. Lukashev V.I. Venture entrepreneurship. M., 2009.

5. Fiyaskel E.A. Evaluation of the effectiveness and efficiency of venture projects. M., 2009.

THE STATE AS THE MAIN REGULATOR OF THE FORMATION OF THE MARKET OF TELECOMMUNICATION SERVICES

Voitekhovsky K.L., Postgraduate Student, Department of Economics, Modern Humanitarian Academy

The article defines and reveals the prospects for the further development of the Russian telecommunication services market and the role of state regulation in the process of its formation.

Key words: state, telecommunication services market, social and economic environment.

THE STATE AS THE MAIN REGULATOR OF THE FORMATION TELECOMMUNICATION SERVICES MARKET

Voitekhovsky K., The post-graduate student, Economics chair, Modern Humanitarian Academy

The article defines and reveals the prospects for further development of the Russian telecommunications market and the role of government regulation in the process of its formation.

Keywords: government, telecommunications market, socio-economic environment.

The formation of a new socio-economic environment is essential in Russian conditions as well. At the same time, the peculiarities of the Russian

dramatically changes the position and role of organizations in the telecommunications mentality and the dynamism of modern socio-economic

sphere in the national economy of the Russian Federation and the life period require the formation of special forms and methods

neither society, makes fundamental adjustments to the system of external strategic and operational management of telecommunications

him and the intrafirm regulation of their functions, sets the whole onny markets, fully taking into account domestic realities

a number of new challenging tasks to refine the customer focus strategy. Today we need a systematic approach to development in Russia

sustainable development and construction of a market model of the telecommunications market of telecommunications services, implying a comprehensive

the national market. This telecommunications sector, as in Russia, the solution of organizational, economic, legal and other issues

so the world is developing much faster than traditional Russian industries.

noisy industrial economy. The Russian market demonstrates Unlike traditional spheres of the economy, in which

one of the highest growth rates in the world - on average, at the level, certain forms and principles of mutual

20% per year. This is largely due to the low initial levels of government structures with society, entrepreneurs

the use of communication services in the socio-economic sphere and by lyami and citizens, the place and role of the state in the development of information

high demand for them. tization is today an object of private dialogue.

In the economic science of many countries with a developed market eco- At present, a number of priority tasks of the state

nomics has developed a wide range of market instruments and facilities in the field of informatization and the formation of information

methods of managing communication and information structures. Individual fish societies:

chaga from this arsenal, obviously, can be effectively applied - improving the mechanism of state regulation -

Send your good work in the knowledge base is simple. Use the form below

Students, graduate students, young scientists using the knowledge base in their studies and work will be very grateful to you.

The essence and principle of operation of venture funds

Venture projects are the commercialization of any innovative technology through risky financing.

They include 4 stages of development:

Research and development
Mastering innovative projects
In-line production
After-sales service

A venture fund is an investment asset aimed at innovative programs. Its key task is also to direct them into a potentially highly profitable business.

The principle of operation is to invest in securities or shares of many companies.

About 80% of projects do not bring returns, but even the profit from the remaining 20% \u200b\u200bcan recoup all losses.

The scheme of the fund's work can be depicted as follows:

Participants can be various structures: pension funds, banking institutions, individuals. Contributions to projects are made not only in cash, but also by comments;
The venture capital organization also contributes some of the money;
The fund invests in an average of 10 companies. Participates in their development for up to 5 years. When the business is delivered and makes a profit, the fund sells its shares.

The main components of the successful formation of a venture business are:

State innovation policy
Investments in the growth of intellectual capital
Businessmen willing to take risks
Scientific and technical progress
Developed education system

This type of activity has several advantages:

The number of enterprises is increasing due to the provision of financial support.
Until profit is achieved, the entrepreneur does not have to pay interest to the fund.
Investors not only finance the project, but also share their experience, provide legal support, and advise in difficult situations.
Thanks to venture funding, the latest technologies are developed and implemented.
The technical level of enterprises is increasing.

Disadvantages of Venture Business:

Quite big risks;
Unpredictable and long-term exit of the company to a satisfactory level of profitability.

Consequently, venture activity acts as the basis for building a new economy, which determines the state's ability to be competitive in the technological field at the global level.

Where to get money for business development in Russia?

A country with a high level of corruption will not be able to be an effective direct investor.

Especially now, during the crisis, the attitude towards the venture business in Russia is ambiguous. The practice of such funds is hampered by many different factors. The main one is insufficient amount of laws that would stimulate technological development in the state.

Another problem is complexity of registration this kind of activity.

Finding and selecting investors is a very responsible and difficult task. It is necessary to find such a person who is not only able to invest funds, but also has weight and good business connections in the field of business, can help in managing the enterprise in times of crisis. After all, you can divorce your wife, but not with the depositor.

It is necessary to try to support the company with your own money, as long as possible, to attract other people's funds only when it is inevitable;
If a decision is made to attract an investor, then it is necessary to clearly define the required amount and share of his participation in the profit;
You should find out as much information as possible about a specific investor, weigh all the pros and cons;
It is important to make very, realistic financial projections to prove the success of your project in the future;
Do not rashly accept the investor's offer, but find a suitable investor for a specific type of activity. It is desirable that he has experience working with similar areas of entrepreneurship.

5 main methods of finding a source of venture capital investments:

Personal connections.
Professional connections.
Companies specializing in investor selection.
Associations of business angels.
The Internet.

Features of Venture Business Management

Venture business is a powerful stimulant for improving enterprise management methods, which is based on innovation.

A feature of this field of activity is the investor's proactive participation in the development of the company he finances.

Most often, a representative of a venture fund is included in the directorate, which gives him the opportunity to develop strategic leverage. He trains the actual leaders of the company, gives them financial advice.

There are 5 stages in the development of venture-backed companies:

Initial development. The stage of the idea and the development of further technologies for the project;
initial stage. It is characterized by the start of production organization. During this period, the company is just starting to enter the market;
Early growth. The commercial implementation of the product begins, but the profit is not significant yet;
Expansion stage. The company needs money to invest in additional equipment;
Exit. The sale of the investor's share is being implemented.

A number of features of venture project management:

Investing in an enterprise is always associated with costs in obtaining information, since almost all companies are at an early stage of development. It is only by participating in an enterprise's business that a venture capitalist gains a better understanding of its potential;
Venture capital is a long-term investment. An investor can exit the project at a certain stage of its development, on average, this period is at least 5 years;
Another feature is the limited ability of the investor to determine the amount of financing, since the company itself declares the rate necessary for its development. Then the investor can adjust his investments and, together with the company, finalize his business plan.

There is always a presence in venture capital danger of loss... In fact, this is a possible deviation of the actual income from the planned profit, which can entail significant financial losses in the future.

Risks are divided into the following types:

Profit loss risk
Profitability risk
Risk of direct total losses

The potential for loss can be due to various reasons. This is the state of the economy, and market trends, and processes directly related to this project.

The risks faced by a venture investor also include:

Country

Such risk includes a range of economic, political, legal and other factors associated with a particular country. The danger exists when it comes to a state with a precarious economic situation.

Regional

Closely related to country risk. Depends on the unstable state of a particular region.

Industry

Associated with changing circumstances in a particular industry. It may be based on resource depletion, changing demand, technological problems.

Methods aimed at minimizing possible risks:

Scrupulous selection of investment projects;
Phased funding, when funding for each stage is made only after achieving good results in the previous phase;
Diversification;
The experience and knowledge of an entrepreneur.

The fundamental purpose of venture capital funding is pooling the funds of some entrepreneurs and the intellectual capabilities of others, which ultimately gives a good profit to both parties.

There are many books, articles, works, publications, monographs, textbooks on the topic of venture capital financing in Russia. There is a fairly large number of literature on this topic, the authors have touched upon various aspects of venture financing and its components. Both Russian and foreign writers constantly publish their works and form an ever more interesting and new understanding of this area of \u200b\u200bfunding.

Many authors such as Pavel Gulkin, Semenov A.S., Ashikhmina O.A., Ayupova I.R., Yangirov A.V., Gorlatov A.S.,Kokin A.S., Sarkisyan L.M. and others discuss this topic, but they all add upto the functional task of venture financing: "the development of enterprises at an early stage of development, engaged in the creation of innovative products, by providing funds for a long time in exchange for a share in these companies."

Venture capital is the source of long-term investment. It can be defined as the investment funds required to finance research and development for individual programs or projects that are managed by professional investors.

The very name "venture" in translation from English means risky. This implies that there is a fact of adventurism in the relationship between the investor and the entrepreneur applying for funding. Indeed, this is so, since, unlike, for example, a bank loan, venture financing is carried out without providing any guarantees or collateral. At the same time, venture capital inverters or funds prefer to invest their capital in companies whose shares are not traded on the stock market for free sale. A venture capitalist prefers to invest in companies whose shares are fully distributed among shareholders. As a rule, during the initial investment, he is in no hurry to acquire a controlling stake in the company, it is more preferable for him that the stake belongs to the managers of the company. He faces a different task than he differs from a strategic investor or partner. The venture capitalist expects that due to his financial investments, a faster growth rate of the company and its successful development will be ensured. Due to this, the investor is only exposed to financial risk, but is not responsible for other existing risks of the company. The management of the company or project is directly responsible for market, technical, economic and other risks. And therefore, if a company owns a controlling stake, managers or project managers retain all incentives to participate in its development, to successfully enter the business.

Venture investments are carried out on average for 5-7 years. After the expiration of the specified period, there are several options for the development of events:

1. The company managed to successfully implement the project, bring the business to a high level. In this case, the investments made by the venture capitalist will be justified, multiply several times and he will be able to get his profit from participating in the project.
2. If the investor's expectations turned out to be not justified, the company turned out to be bankrupt, then the venture investor loses his investment.

The investor's profit is formed on the basis of whether he will be able to sell his stake in the company after the expiration of the above period at a price several times higher than the initial investment. Accordingly, venture capitalists do not benefit from the distribution of profits as dividends; they are interested in reinvesting in a new business. In the venture capital market, the sale of a block of shares, a share in a company for the purpose of reinvesting or making a profit is called "exit", and the period of participation in the project is "cohabitation". During "cohabitation" financing by venture capital implies not only the allocation of funds, but also the attraction of the venture investor's experience and connections in the business world. This is also the difference between venture financing and other types of financial support.

A typical venture capital institution may be a stand-alone company or an unregistered limited partnership. The organization of an independent company, like a venture capital institution, is called a fund. In a number of countries, the fund is perceived as an association of partners, and not as a company as such. Directors, staff, participants can be organized by the foundation itself or hired by an independent management company that provides its services to the foundation. In cooperation with the management company, it has the right to claim a percentage of the initial obligations of investors in the amount of up to 2.5% annually and a part of the fund's profit in the amount of up to 20%.

With the development of the capital market, there was a need for professionals who know how to handle money that does not belong to them. Investors make an investment decision based on a memorandum that describes the main goals and objectives of the fund. In the West, the main sources for the formation of venture capital funds are:

funds of private investors (business angels);

investment institutions;

pension funds;

insurance companies;

various agencies and international organizations.

After the fundraising begins, the search, processing, sampling and evaluation begins, followed by entry into the invested company. Venture investors take risks consciously, and the main job is to correctly assess the ratio of risk to potential reward.

The mechanism of venture financing is carried out as follows: a venture investor, which is a legal entity and a representative of a venture fund, using the financial resources of one or several investors, buys out a part of the share capital of the invested company. Having received investment funds, the company uses them to implement its innovative ideas, develops and increases its value. After the company has stabilized its profits and gained market share, the venture capitalist exits the company, making his profit. Such a relationship between an investor and an entrepreneur is based on a mutual desire to get a win. And sometimes, more important than financial and market analysis, there are human relations that arose during the transaction.

Figure: 1.1 - Organization of venture financing

The work process of venture investors is divided into two stages: Deal - flow and Due Diligence.

The most important component of this whole process is the search and selection of enterprises (Deal - flow). The main sources of information about growing companies in Russia are the press, exhibitions, specialized associations, newsletters and brochures published by business support organizations, Russian and Western, personal contacts of managers of venture funds and companies. In Russia, venture financing is not yet highly developed, so it is not easy to find a worthy, fast-growing company. Investors devote a lot of time to this process: they analyze, calculate the coefficients, predict the expected return on participation in the project. After all, their profit depends on this: a well-chosen project is a good profit. The investor's financial risk can be justified by the corresponding return. Therefore, the most important criterion for the selection of projects and companies for an investor is the company's ability to grow rapidly. The main rate of return on investment is IRR (Internal Rate of Return). In the European association, this coefficient is the main indicator of the profitability of an innovative project.

The second stage - due diligence in translation means "careful observation and study". It is the longest in venture financing, the investor analyzes the general state of the company and the business, after which the investor decides whether to make investments or refuse investments. If he chooses the first option, then an investment proposal or memorandum is subsequently drawn up. This document reflects all the results obtained, forms conclusions and a proposal for the investment committee. It is this committee that has the final word. After that, it will be concluded whether the project under consideration is a successful investment for the fund or not.

J.L. Gavrilova, A.S. Voronovskaya, I.M. Shchadov in his work "Venture financing of innovative activities in Russia" identified four stages in the development of companies, where, in particular, venture investments are made (Figure 1.2). This grouping of stages is by far the most common:

1. Seed or pre-seed company; this stage is a project or business idea that has yet to be financed.
2. Start up financing; a company that has just been formed and entered the market, does not yet carry out sales, created for research and development work.
3. Stage of initial expansion (early expansion); the stage when the company already has stocks of finished products and the potential for its implementation. During the initial expansion phase, the company may operate at a loss.
4. Rapid growth stage; expanding production volumes, increasing sales volumes, conducting marketing research, increasing the company's capital.

Figure: 1.2 - The life cycle of small high-tech companies

After the company has entered the stage of rapid expansion, it is most likely that it can use traditional methods of borrowing money, and the attraction of venture capital investments is stopped. This happens because the company, after the stage of rapid expansion, will start to make a profit and the likelihood that it will go bankrupt is much less.

The venture capital market can be divided into two sectors.

The first is the informal sector, which includes individuals, business angels, and private companies. Today the informal venture capital market in Russia is in the development stage. Business angels are individual investors who directly invest their personal funds in completely new or growing companies. They form the basis of the informal sector of venture capital financing, because where there is a high risk, but also the possibility of obtaining high profits, with relatively small investments, business angels appear there.

American authors Mark Van Osnabrugge and Robert J. Robinson wrote about business angels and the informal sector of venture capital financing. Business angels provide more capital for entrepreneurs than any other investor and, accordingly, receive huge returns on their investments. For example, there are about 3 million angel investors in the United States, and their investments in startups exceed $ 60 billion a year. According to them, business angels, or private investors, who remain in the shadows and specialize in areas with high growth rates and finance the initial stages of development of companies, where, accordingly, there is more risk. They currently invest about 30-40 times more than venture capitalists. The book also conducts research, but based on anecdotal evidence and personal interviews, to understand exactly how they function, what are the differences between business angels and venture capitalists, how to attract them and on what basis.

It is worth noting a few differences between angel investors and venture capitalists. Business angels are wealthy people who invest their own money. And venture capitalists are professional investors and representatives of venture capital firms that invest money from a venture fund. Also, angels invest in firms that are at a very early stage of their development and do not invest as much money as capitalists. The amount of capitalist investments is often calculated in millions. Figure 1.3 clearly shows that business angels specialize in seed stages and fund startups, while venture capitalists are involved in several stages of the investment process, up to the rapid expansion stage.

Figure: 1.3 - Volumes and sources of investments depending on the stages of development of companies

Another difference between angels and capitalists is that angels do not have no one to report to. And capitalists have to provide information and report to their own structures, such as the investment committee and to investors, in order to make a decision. Venture capitalists use the due diligence procedure, therefore, the amount of time for considering an investment project is different for angels and capitalists. For venture capitalists, this process takes an average of 3 to 9 months. A simplified assessment procedure allows business angels to make decisions in the shortest possible time.

The second is formal. This sector includes special funds to support small businesses in innovation, venture insurance companies and pension funds acting as limited partners. A distinctive feature is that the formal sector is dominated by the role of budgetary funds and a thorough screening and selection procedure. Also, in this sector, professional managers finance and dispose of not their own money, therefore, investment accounting and formal documents play an important role. Even the most promising project can be denied financing if it does not have a well-designed investment project. The formal market for the venture capital industry will be examined more thoroughly in Chapter 2.

The final stage of venture funding is the exit of their project. Basically, venture capital companies or investors are guided by the exit from the company within 3 - 7 years from the date of the initial investment. While an initial public offering is the most attractive type of exit for venture capitalists and company owners, the most successful and widespread investment exits at the present time are through mergers or acquisitions of a venture capital or other company.