Go west

Let's be realistic. The Russian market for investment in Internet startups is significantly different from the developed markets, the undisputed leader among them is the United States. These differences, alas, are not in our favor.


And there are many objective and insurmountable reasons:

1. The overwhelming majority of startups are focused on the “native” market - Runet.
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With a population of about 30 million users plus an incomparable market, the solvency of these potential consumers of advertising (which naturally limits the advertisers budget) and the unpopularity of online payments compared with the English-language Internet ( 43% of about 1.3 billion users = 560 million , USA - about 217 million , data for 2008) makes us talk about the meager size of the market as such. This is confirmed by figures illustrating, for example, the size of the market for contextual (search) and banner (graphical) advertising for 2008:

World: $ 30 billion / $ 19 billion
USA: $ 15 billion / $ 8 billion
Russia: $ 310 million / $ 325 million

It may seem that everything is not so bad in the banner part (our $ 325 million is as much as 4% from the American market), but $ 297 million from 325 was eaten by RBC, Yandex, Mail.ru and Rambler , just $ 28 million is left for a penny .

Take eCommerce (basically a diverse online retail):

World: $ 438 billion
USA: $ 174 billion
Russia: $ 3 billion (average estimate from several sources, non-transparent business)

Thus, we are talking about the market (in general, the amount of money earned by Internet companies, not profit - turnover), which is at best 2% (in monetary terms) of the size of the US market.

Question: what are we catching here?

2. What are the options in the fate of an American startup, if everything goes well?

1) start making good profits for their owners.

The benefit of the size of the market, as we see in paragraph 1, allows. You will say that competition is higher there - yes, perhaps, but if a startup is promising, it will fight for, for example, $ 10 million of turnover per year (a very small company) in its segment, and we have $ 200 thousand in the same segment ( 2% of the market size, remember?).

Our (other things being equal) prize seems to be easier (competitors are less), but with a margin of 50%, for example, it’s all just $ 100 thousand a year of profits or less than $ 10 thousand a month - which doesn’t make you a millionaire at least shoot yourself ... Besides a lower level of competition may turn out to be an illusion - even 1-2 large competitors in such a small market may simply not leave you a chance for any attractive niche.

The question is: is it worth playing in the 3rd league, if you can - in the open championship, where the prize fund is 50 times bigger?

2) to attract investors (angels, venture funds).

in the American decaying economy, this is not just a very likely plot for any promising start-up, but also a necessary and natural stage for further expansion into any market.
The amount of investment at this stage, in contrast to the incubator stage, is usually from $ 1 to tens of millions . At the same time, the startup investor receives a filling of the authorized capital (additional shares are usually issued and sold, but as a rule, the founders can sell part of their own, converting their work into good money), which already at this stage makes the position of the founder highly flooded.

Moreover, the emergence of serious funds and an investor with a reputation allows you to count on attracting as managers and independent directors personalities with great experience, connections and weight in the market. What is extremely important. Here is a good presentation from a competent man from Sequoia Capital (Startup School 08, Y! Combinator, video + slideshow, english).

In Russia, it is very difficult to attract such professional investors, because, firstly, there are few of them, and, secondly, they adequately imagine the chances of a profitable exit as extremely low. The fact is that Western ventures have every reason to rely on the further development of events in line with the sale of the company, or an IPO. It’s ridiculous to talk about an IPO (I’ll remind you that neither Yandex nor Mail.ru have been published yet, and Rambler and RBC are the only public Internet companies in Russia). And about the exit of a venture through the sale of a startup in the next paragraph.

The question is: why look where it is dark and empty?

3) sell the company.

Sooner or later, a successfully developing project in the United States receives an offer to purchase from a larger player interested in customers, technology, or simply the project’s profits.
Market competitiveness and orientation to long-term prospects exclude the possibility for large players to grow without the purchase of companies competing or diversifying their business.
Microsoft in 2008 bought 20 companies for a total of $ 2.9 billion.
Without exception, all shot or promising start-ups (including Facebook and Twitter) received and continue to receive offers to sell the entire company or at least a share in it, which provides the buyer with loyalty and unity of strategic priorities.
Venture it provides a highly profitable and safe exit, although the ideal for him is an IPO.

In Russia, buying a startup as a major player is often devoid of meaning - due to poor funding (or lack of it), what are startups that have already implemented their ideas, for example, in a working website, this is a company of 1-10 people who stick to 20 hours a day to keep your project within payback or average salary. For, say, Yandex, if it is interested in the ideas / technologies / audience of such a startup, it will be cheaper to implement a similar functionality in a couple of months for moderate c / o staff programmers. Lack of money, in this case, simply makes it impossible to dig a sufficient depth of the ditch between themselves and potential buyers, so buyers are cheaper to become your competitors.

In the west, the situation is different - the purchase makes sense only when the ideology and business of the startup have proven their perfection and consistency, which means the ventures have already invested money and, on the one hand, the company's value is no longer a penny, and on the other, this is far from 10 homeworkers and a full-fledged team and developments that can not be replicated in two months without spending a bag of money.

Question: why do you need to be cheap if you can be expensive?

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Well, perhaps enough for today because tired ...
Key figures - JP Morgan “Nothing But Net. 2009 Internet Investment Guide . 05 January 2009.