Ernst & Young (EY) and RVC, the state-owned fund of funds for developing the Russian venture industry, have just issued a survey on market dynamics titled “Russian and Global Venture Markets, 2007–2013.”

According to report, the Russian VC industry has shown triple-digit growth over the last seven years, reaching $1.213 million in 2012 from $108.3 million in 2007. The record-breaking volume of deals in 2012 made the Russian venture market the second largest in Europe and the fifth largest in the world.

The number of incubators, angel investors, angel clubs, start-ups and early stage deals has also significantly increased over the period, reflecting investors’ growing interest and trust in the Russian venture market.

The growth is driven primarily by investments in IT and the consumer market, whose main driver is the shift to online retail. In Russia, as elsewhere, these market segments offer a number of easy innovation opportunities with a relatively short return on investments.

Other sectors are less favored by VCs – a disbalance that the government aims to fix.

From state support to Silicon Valley influence

The Russian government has already played a significant role in improving infrastructure and stimulating the ecosystem. The level of state support has been similar to those of China and, to some extent, of Israel, according to the survey.

Global trends strongly affect the Russian market. The US market has a significant pull over Russia due to its size and maturity; Silicon Valley, in turn, is regarded as a model by Russian startups and VCs: its influence is felt in both the attempts to land successful Western business models in Russia and in the interest of some talented Russian entrepreneurs in starting their own ventures in Silicon Valley.

Meanwhile, the Russian VC market is still in its early stages of development, the report underlines. It is characterized by relatively few exits because of Russian corporations’ weak appetite for acquisitions, while international exits are not common yet.