Russian investment funds note the growth of the military technology venture segment in the country

Russian investment funds note the growth of the military technology venture segment in the country

Russian investment funds note the growth of the military technology venture segment in the country. Now this category includes specialized developments in the field of artificial intelligence (AI), unmanned systems and secure communications. Market participants expect annual growth of 20-30% over the next few years. Investments in early-stage projects can be comparable to civil projects, but many funds are wary of such startups due to “unclear payback metrics.”

“Kommersant” got acquainted with the data of state and private investment funds dedicated to the venture direction “MilitaryTech”. Companies note an increase in both the number of startups developing such technologies and investor interest in them. The department for the development of non-banking services of PSB says that the number of applications for participation in the “dual-use acceleration program” has more than quadrupled year on year. “We see significant growth in such areas as communication systems for reliable communication, AI technologies and cybersecurity tools, unmanned technologies and means to combat them, which are needed to protect civilian infrastructure,” explained PSB Vice President Alexey Nazarov.

The demand for unmanned technologies, primarily aircraft (UAVs), is confirmed by the National Technology Initiative (NTI, an organization of business representatives and experts for the development of technology markets in the Russian Federation): this applies to both the production of new UAVs and “related solutions” in AI and Software. Venture funds are showing interest in such projects because they understand that demand is “unlikely to decrease in the long term,” says Vitaly Smetanin, director of analytics at the NTI Sovereign Technology Fund. NTI estimates the growth of military-tech startups at 20–30% in the next two years, but does not give a monetary estimate, since “some of the information about investments is closed.”

“Militarytech startups do not focus on conventional ammunition. They are focused on robotics, AI technologies – computer vision, modeling, forecasting, software solutions (automation) and biomedicine,” says Ruslan Sarkisov, managing partner of the Voskhod Fund. These areas “are not always obviously more expensive for investors than civilian ones,” he clarifies.

Startups at the earliest stages can receive investments to create an MVP (minimum viable product) for 10–15 million rubles, and more mature companies can receive checks for more than 500 million to scale the technology, Mr. Sarkisov clarifies.

The Russian venture market as a whole has been falling since the beginning of 2022, the crisis is associated with military actions in Ukraine and the introduction of anti-Russian sanctions (see Kommersant of September 19, 2022). According to Venture Guide, in January-February 2024 the market decreased by 56% year-on-year in terms of investment volume (to $4.3 million), but increased by 10% in the number of transactions (to 21).

“In modern geopolitical conditions, investments in military technology have a clear argument: the state budget for 2024 provides for more than 10 trillion rubles. for national defense and national security, which indicates the priority of these areas for the public sector,” emphasizes Ruslan Sarkisov. Among the technological incentives, he names a sharp increase in demand for “non-classical high-tech weapons and for the rapid modification of products.”

The Russian state arms program for 2025–2034 includes a separate section on AI, adds Dsight founder Arseniy Dabbakh. In general, in Russia and in the world, especially in the USA, the MilitaryTech segment is actively developing and showing growth. According to PitchBook, last year alone the volume of venture capital activity in the world in this area reached $34.3 billion, notes Mr. Dabbagh.

General Director of JSC Management Company INTC “Aerospace Innovation Valley” Pavel Novitsky believes that technologies applicable in the civilian segment, for example, computer vision algorithms, AI or decision-making automation, may be of interest to investors. “But many funds are wary of such projects, primarily due to non-obvious application scenarios in the civilian sector and, as a consequence, unclear return on investment indicators,” clarifies Mr. Novitsky.

The military-tech market “extremely lacks systemic early-stage venture investments,” believes Alexey Simakov, head of the department for detection and counteraction of UAVs at Loktar (produces communications equipment, detection and counteraction systems for UAVs): “Major state funds are looking at companies with noticeable stable revenues, but most successful products are born in spite of the current funding system.”

Tatiana Isakova



Source link