rus
Issue #4/2025
I. K. Epaneshnikova, D. A. Eremina, A. A. Otarov
Problems Of Attracting External Financing For High-Tech Innovative Startups In Russia
Problems Of Attracting External Financing For High-Tech Innovative Startups In Russia
DOI: 10.22184/1993-7296.FRos.2025.19.4.270.278
This paper analyzes the factors that lead to the barriers to external fund raising for the design
works of high-tech startups. Such factors include the support of dominant role of the state that acts not only as a regulator, but also as the main source of financing. The article considers the reasons for decreased activity of the entities engaged in funding of the high-tech startups and innovative projects. The recommendations have been developed aimed at stimulating external funding of high-tech projects that is necessary for innovative development of the Russian economy.
This paper analyzes the factors that lead to the barriers to external fund raising for the design
works of high-tech startups. Such factors include the support of dominant role of the state that acts not only as a regulator, but also as the main source of financing. The article considers the reasons for decreased activity of the entities engaged in funding of the high-tech startups and innovative projects. The recommendations have been developed aimed at stimulating external funding of high-tech projects that is necessary for innovative development of the Russian economy.
Problems of External Fund Raising for the High-tech Innovative Startups in Russia
I. K. Epaneshnikova 1, D. A. Eremina 1, 2, A. A. Otarov 1
Moscow Aviation Institute (National Research University), Moscow, Russia
Sberbank of Russia PJSC, Moscow, Russia
This paper analyzes the factors that lead to the barriers to external fund raising for the design works of high-tech startups. Such factors include the support of dominant role of the state that acts not only as a regulator, but also as the main source of financing. The article considers the reasons for decreased activity of the entities engaged in funding of the high-tech startups and innovative projects. The recommendations have been developed aimed at stimulating external funding of high-tech projects that is necessary for innovative development of the Russian economy.
Keywords: high-tech startups, innovative startups, external funding, startup funding, venture capital funding, public funding, fund raising
Article received: 05.06.2025
Article accepted: 20.06.2025
Introduction
The importance of ensuring sustainable development of the innovative economy in Russia is related to the transition of economic relations to a new model of the post-industrial system. The share of those industries that offer any innovative goods and services is increasing in the economy. The competitiveness tools that allow introduction of any technologies and innovations in the production enhancement process, product sales and organization management are becoming increasingly important. This issue does not outlive its relevance due to the broad prospects for potential opportunities that are opened up for the economy by introduction of the innovative additive technologies, photonics-based technologies, and new design system algorithms. Their dynamic development is primarily associated with their digitalization prospects in the design of machines, with an increased efficiency of serial production, and application of modular layout solutions.
The present-day developments determine the high relevance and practical necessity of decision-making to stimulate innovative development of the Russian economy, where the high-tech startups play a key role. A similar view on the importance of innovations developed by the startup projects is shown in the foreign countries with a high level of competitiveness of the national economic system. The main reasons for this phenomenon include the technological revolution, post-industrialization of economy, production and management digitalization.
At the level of the Russian economy, it is important to consider the fact that the stimulating factors include the sanctions policy of the Western countries towards the Russian companies and consumers of their products. There is an urgent need to implement an import substitution program, since many information and communication technologies, software and data center equipment have become unavailable. Such problems have become an incentive for the development of domestic startups that offer the market high-tech solutions to the issues arising from the exit of foreign technology companies from the Russian market.
There is another field of activity where the startups can develop their projects. The industrial enterprises have a large heterogeneous equipment stock from various manufacturers with different automation levels. The manufacturers are afraid to move away from the conventional production methods. The introduction of innovative technologies into the process line places the task of technical re-equipment that in turn requires enormous capital investments. However, optimization of individual production stages is less expensive, and simultaneously greatly increases efficiency.
Materials and methods
During the scientific research process, the following systematization methods for analytical, informational and scientific material devoted to identifying the main issues of external funding of innovative start-ups in the high-tech sector of the Russian economy were used, such as generalization and analysis.
The study of the external funding issues of the high-tech innovative startups has practical novelty, since it is aimed at solving the problems of their financial stability and successful implementation of project works. In addition, for the Russian high-tech sector, this area is still relevant, since the present-day developments have led to the deteriorated investment climate.
Results and discussions
An analysis of economic indicators for the period from 2020 to 2024 shows that the volume of R&D expenditures of the Russian economic entities has increased by 34.28% over these years. As for the consumer spendings of the population, they have increased by 32.66% over the analyzed period. It has turned out that the internal costs of enterprises are growing slightly faster, although insignificantly, while demonstrating an increase dynamics approximately equal to the dynamics of household spendings [1].
During the period from 2019 to 2023, the number of registered startup projects in the Russian economy has increased from 4.5 thousand to 10.8 thousand. This dynamic increase in the number of business entities indicates the high popularity of project activities in the business problem solution and satisfaction of the consumer (population) needs through the release and offer of new innovative products [2].
While determining the main reasons for the obstacles to the development of high-tech innovative startups in modern Russia, it is possible to turn to the study results given in the paper [3]. The authors have systematized the following stop factors based on the surveys of startup entrepreneurs:
lack of demand and actual consumer need for the offered product (42% of respondents);
lack of funding to continue the design works (29% of respondents);
internal problems in the project team control (23% of respondents);
low competitiveness of the project in comparison with the large companies (19% of respondents);
the current product price does not cover its production costs (18% of respondents);
the quality of the offered product is low (17% of respondents);
the startup business model is selected incorrectly due to the lack of managerial knowledge (17% of respondents);
low efficiency of marketing and promotion activities (14% of respondents);
the customer requests and needs are ignored (14% of respondents);
the product’s late entry into the market that makes it less in demand (13% of respondents);
the startup has deviated from its original strategic goal (13% of respondents);
lack of interaction and compromise between the stakeholders (project team – management – investors) (13% of respondents).
These results show that it is important to make a number of decisions to stimulate the development of high-tech startups. They will accelerate the design works, improve the project team efficiency, find additional sources of external funding and more subtly consider the interests and requests of the customers in the innovative product design and production process. It is especially noticeable that these requests are filed by the startups engaged in the development of deep technologies, since their innovativeness is several times higher, and the products they are engaged in have no analogues that automatically increases various risks.
The up-to-date Russian startups face a number of institutional and market barriers, especially at the early stages of development: limited venture infrastructure, high dependence on the public grants, insufficient legal and financial preparation, as well as absence of clear growth and exit strategies (sale of the company to another owner). Moreover, international experience (examples of the USA, Israel, the European Union) demonstrates the efficiency of a systematic approach to the investment support for technology companies, including through the acceleration programs, public and private partnerships, and angel capital development. To summarize the funding system features in various countries, we will consider their qualitative specifications (see table).
A comparative analysis allows us to identify some key features of startup funding systems in the countries under consideration. In Russia, the state plays a dominant role in the funding system, since it acts not only as a regulator but also as the main source of financing. On the contrary, in the USA and Israel, the private capital predominates, and the state performs mainly stimulating and coordinating functions. The European system is characterized by a mixed model with some significant differences between the EU member states.
At present, Russia has a diversified range of funding sources, covering all stages of startup development from the concept to IPO. However, each of them has specific requirements and is related to certain restrictions. In order to successfully raise funds, the startup shall do the following:
adequately match the stage of its product to the TRL level required by the grantor;
select relevant tools for a specific business model;
ensure the legal and managerial readiness of the project team;
minimize any errors related to the overestimation, opaque management structure and lack of growth strategy.
To ensure the effective development of innovative startups engaged in the development of high-tech products, the appropriate funding is required. One of the most relevant methods for financial fund raising is collaboration with the venture capital investors [4].
The graph (Fig. 1) shows the dynamic changes in the number of transactions in the venture financing market in Russia during the period 2017–2023.
As a result, 175 deals were registered in 2023 that was the second best result since 2017. However, the total volume of venture funding for innovative startups showed a significant collapse of 80% – from $422 million to $84 million. Therefore, a one-time increase in the number of deals and a significant decrease in the total volume of venture funding led to the average transaction cost decreasing from $3 million to $0.48 million. The structure of the venture funding volume in Russia by the types of investors is shown in Fig. 2 [5].
It is worth noting that the most noticeable decrease in venture funding occurred on the part of foreign funds (from $138 million to $2.5 million). The reason for such fact is said to be the negative impact of the long-term effect of international anti-Russian sanctions. Moreover, the negative dynamics also occurred in the sector of public corporations and funds (from $76 million to $9 million). The main reason can be the budget deficit that led to the optimization of various investment funds, where the public capital is involved in its structure.
The decreased number of transactions in the venture market for funding the startup projects has a negative impact on ensuring the stability of economic activity of innovation-oriented entities. They offer revolutionary ideas and products that are very important in the context of the digital economy development and the desire for technological sovereignty of the country. Along with the decrease in the number of transactions and the venture funding volume, the activity of venture capital investors and funds at various venues (conferences, forums, hackathons, etc.) is reducing, where the agreements are established with the startup projects to provide them with consulting advice to prepare an application for an investment package [7].
An equally serious problem in external fund raising for the high-tech innovative startups in Russia is the general tightening of monetary policy due to the increased interest rates or their variation. The decisions made by the Central Bank of Russia as a part of such financial policy lead to the fact that during the period from 2019 to 2024, the interest rates on short-term loans issued to the business entities increased from 11.04% to 16.13%; on long-term loans – from 10.5% to 15.2% (see Fig. 3).
Having considered the identified problems of external fund raising for the high-tech innovative startups in Russia, we consider it necessary to propose the following recommendations aimed at stimulating the capital and investment inflow into the sector of high-tech startup projects:
The first recommendation is to develop new conditions in the investment cluster program, where the enterprises from various economic sectors will be added, and the incentives will be provided for engaging the high-tech startups as the subcontractors for large companies.
The second recommendation is to implement the systematic legislative work in the area of statutory and legal regulation, where the possibilities for protecting the rights of business entities, including the intellectual property protection, will be expanded.
The third recommendation is to expand the available tax support system for innovative activities of the high-tech startups where it is again worth considering the potential tax holidays for those engaged in the capital investments in R&D financing. Such activities will attract private capital to the high-tech startup funding programs.
Conclusion
This paper examines the main problems that arise on the path of development of the high-tech innovative startups when attempting to raise external funding for project works. The occurrence of development barriers is due to the present-day realities in the Russian economy, where the previous interest of the state and venture funds in financing startup projects has decreased due to the investment climate deterioration.
In the study results, we see three main steps that need to be taken to solve the problem of external fund raising for the high-tech innovative startups. They have an indirect rather than a direct effect, and are aimed at developing an attractive investment environment that will stimulate investment in the startup projects of the Russian companies.
AUTHORS
Epaneshnikova Irina Kirikovna, Associate Professor, Cand. of Sciences (Eng.), Associate Professor, Moscow Aviation Institute (National Research University), Moscow, Russia.
ORCID: 0009-0000-5305-9266
Eremina Daria Anatolievna, Master’s Student, Department 317, Moscow Aviation Institute (National Research University); e-mail: yeremiina@gmail.com; engineer,
I. K. Epaneshnikova 1, D. A. Eremina 1, 2, A. A. Otarov 1
Moscow Aviation Institute (National Research University), Moscow, Russia
Sberbank of Russia PJSC, Moscow, Russia
This paper analyzes the factors that lead to the barriers to external fund raising for the design works of high-tech startups. Such factors include the support of dominant role of the state that acts not only as a regulator, but also as the main source of financing. The article considers the reasons for decreased activity of the entities engaged in funding of the high-tech startups and innovative projects. The recommendations have been developed aimed at stimulating external funding of high-tech projects that is necessary for innovative development of the Russian economy.
Keywords: high-tech startups, innovative startups, external funding, startup funding, venture capital funding, public funding, fund raising
Article received: 05.06.2025
Article accepted: 20.06.2025
Introduction
The importance of ensuring sustainable development of the innovative economy in Russia is related to the transition of economic relations to a new model of the post-industrial system. The share of those industries that offer any innovative goods and services is increasing in the economy. The competitiveness tools that allow introduction of any technologies and innovations in the production enhancement process, product sales and organization management are becoming increasingly important. This issue does not outlive its relevance due to the broad prospects for potential opportunities that are opened up for the economy by introduction of the innovative additive technologies, photonics-based technologies, and new design system algorithms. Their dynamic development is primarily associated with their digitalization prospects in the design of machines, with an increased efficiency of serial production, and application of modular layout solutions.
The present-day developments determine the high relevance and practical necessity of decision-making to stimulate innovative development of the Russian economy, where the high-tech startups play a key role. A similar view on the importance of innovations developed by the startup projects is shown in the foreign countries with a high level of competitiveness of the national economic system. The main reasons for this phenomenon include the technological revolution, post-industrialization of economy, production and management digitalization.
At the level of the Russian economy, it is important to consider the fact that the stimulating factors include the sanctions policy of the Western countries towards the Russian companies and consumers of their products. There is an urgent need to implement an import substitution program, since many information and communication technologies, software and data center equipment have become unavailable. Such problems have become an incentive for the development of domestic startups that offer the market high-tech solutions to the issues arising from the exit of foreign technology companies from the Russian market.
There is another field of activity where the startups can develop their projects. The industrial enterprises have a large heterogeneous equipment stock from various manufacturers with different automation levels. The manufacturers are afraid to move away from the conventional production methods. The introduction of innovative technologies into the process line places the task of technical re-equipment that in turn requires enormous capital investments. However, optimization of individual production stages is less expensive, and simultaneously greatly increases efficiency.
Materials and methods
During the scientific research process, the following systematization methods for analytical, informational and scientific material devoted to identifying the main issues of external funding of innovative start-ups in the high-tech sector of the Russian economy were used, such as generalization and analysis.
The study of the external funding issues of the high-tech innovative startups has practical novelty, since it is aimed at solving the problems of their financial stability and successful implementation of project works. In addition, for the Russian high-tech sector, this area is still relevant, since the present-day developments have led to the deteriorated investment climate.
Results and discussions
An analysis of economic indicators for the period from 2020 to 2024 shows that the volume of R&D expenditures of the Russian economic entities has increased by 34.28% over these years. As for the consumer spendings of the population, they have increased by 32.66% over the analyzed period. It has turned out that the internal costs of enterprises are growing slightly faster, although insignificantly, while demonstrating an increase dynamics approximately equal to the dynamics of household spendings [1].
During the period from 2019 to 2023, the number of registered startup projects in the Russian economy has increased from 4.5 thousand to 10.8 thousand. This dynamic increase in the number of business entities indicates the high popularity of project activities in the business problem solution and satisfaction of the consumer (population) needs through the release and offer of new innovative products [2].
While determining the main reasons for the obstacles to the development of high-tech innovative startups in modern Russia, it is possible to turn to the study results given in the paper [3]. The authors have systematized the following stop factors based on the surveys of startup entrepreneurs:
lack of demand and actual consumer need for the offered product (42% of respondents);
lack of funding to continue the design works (29% of respondents);
internal problems in the project team control (23% of respondents);
low competitiveness of the project in comparison with the large companies (19% of respondents);
the current product price does not cover its production costs (18% of respondents);
the quality of the offered product is low (17% of respondents);
the startup business model is selected incorrectly due to the lack of managerial knowledge (17% of respondents);
low efficiency of marketing and promotion activities (14% of respondents);
the customer requests and needs are ignored (14% of respondents);
the product’s late entry into the market that makes it less in demand (13% of respondents);
the startup has deviated from its original strategic goal (13% of respondents);
lack of interaction and compromise between the stakeholders (project team – management – investors) (13% of respondents).
These results show that it is important to make a number of decisions to stimulate the development of high-tech startups. They will accelerate the design works, improve the project team efficiency, find additional sources of external funding and more subtly consider the interests and requests of the customers in the innovative product design and production process. It is especially noticeable that these requests are filed by the startups engaged in the development of deep technologies, since their innovativeness is several times higher, and the products they are engaged in have no analogues that automatically increases various risks.
The up-to-date Russian startups face a number of institutional and market barriers, especially at the early stages of development: limited venture infrastructure, high dependence on the public grants, insufficient legal and financial preparation, as well as absence of clear growth and exit strategies (sale of the company to another owner). Moreover, international experience (examples of the USA, Israel, the European Union) demonstrates the efficiency of a systematic approach to the investment support for technology companies, including through the acceleration programs, public and private partnerships, and angel capital development. To summarize the funding system features in various countries, we will consider their qualitative specifications (see table).
A comparative analysis allows us to identify some key features of startup funding systems in the countries under consideration. In Russia, the state plays a dominant role in the funding system, since it acts not only as a regulator but also as the main source of financing. On the contrary, in the USA and Israel, the private capital predominates, and the state performs mainly stimulating and coordinating functions. The European system is characterized by a mixed model with some significant differences between the EU member states.
At present, Russia has a diversified range of funding sources, covering all stages of startup development from the concept to IPO. However, each of them has specific requirements and is related to certain restrictions. In order to successfully raise funds, the startup shall do the following:
adequately match the stage of its product to the TRL level required by the grantor;
select relevant tools for a specific business model;
ensure the legal and managerial readiness of the project team;
minimize any errors related to the overestimation, opaque management structure and lack of growth strategy.
To ensure the effective development of innovative startups engaged in the development of high-tech products, the appropriate funding is required. One of the most relevant methods for financial fund raising is collaboration with the venture capital investors [4].
The graph (Fig. 1) shows the dynamic changes in the number of transactions in the venture financing market in Russia during the period 2017–2023.
As a result, 175 deals were registered in 2023 that was the second best result since 2017. However, the total volume of venture funding for innovative startups showed a significant collapse of 80% – from $422 million to $84 million. Therefore, a one-time increase in the number of deals and a significant decrease in the total volume of venture funding led to the average transaction cost decreasing from $3 million to $0.48 million. The structure of the venture funding volume in Russia by the types of investors is shown in Fig. 2 [5].
It is worth noting that the most noticeable decrease in venture funding occurred on the part of foreign funds (from $138 million to $2.5 million). The reason for such fact is said to be the negative impact of the long-term effect of international anti-Russian sanctions. Moreover, the negative dynamics also occurred in the sector of public corporations and funds (from $76 million to $9 million). The main reason can be the budget deficit that led to the optimization of various investment funds, where the public capital is involved in its structure.
The decreased number of transactions in the venture market for funding the startup projects has a negative impact on ensuring the stability of economic activity of innovation-oriented entities. They offer revolutionary ideas and products that are very important in the context of the digital economy development and the desire for technological sovereignty of the country. Along with the decrease in the number of transactions and the venture funding volume, the activity of venture capital investors and funds at various venues (conferences, forums, hackathons, etc.) is reducing, where the agreements are established with the startup projects to provide them with consulting advice to prepare an application for an investment package [7].
An equally serious problem in external fund raising for the high-tech innovative startups in Russia is the general tightening of monetary policy due to the increased interest rates or their variation. The decisions made by the Central Bank of Russia as a part of such financial policy lead to the fact that during the period from 2019 to 2024, the interest rates on short-term loans issued to the business entities increased from 11.04% to 16.13%; on long-term loans – from 10.5% to 15.2% (see Fig. 3).
Having considered the identified problems of external fund raising for the high-tech innovative startups in Russia, we consider it necessary to propose the following recommendations aimed at stimulating the capital and investment inflow into the sector of high-tech startup projects:
The first recommendation is to develop new conditions in the investment cluster program, where the enterprises from various economic sectors will be added, and the incentives will be provided for engaging the high-tech startups as the subcontractors for large companies.
The second recommendation is to implement the systematic legislative work in the area of statutory and legal regulation, where the possibilities for protecting the rights of business entities, including the intellectual property protection, will be expanded.
The third recommendation is to expand the available tax support system for innovative activities of the high-tech startups where it is again worth considering the potential tax holidays for those engaged in the capital investments in R&D financing. Such activities will attract private capital to the high-tech startup funding programs.
Conclusion
This paper examines the main problems that arise on the path of development of the high-tech innovative startups when attempting to raise external funding for project works. The occurrence of development barriers is due to the present-day realities in the Russian economy, where the previous interest of the state and venture funds in financing startup projects has decreased due to the investment climate deterioration.
In the study results, we see three main steps that need to be taken to solve the problem of external fund raising for the high-tech innovative startups. They have an indirect rather than a direct effect, and are aimed at developing an attractive investment environment that will stimulate investment in the startup projects of the Russian companies.
AUTHORS
Epaneshnikova Irina Kirikovna, Associate Professor, Cand. of Sciences (Eng.), Associate Professor, Moscow Aviation Institute (National Research University), Moscow, Russia.
ORCID: 0009-0000-5305-9266
Eremina Daria Anatolievna, Master’s Student, Department 317, Moscow Aviation Institute (National Research University); e-mail: yeremiina@gmail.com; engineer,
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