Portrait of Russia’s IT startuper
When people hear a word ‘startuper’, they imagine the following: unexperienced students who have just graduated from the university and desire to launch their own business. It is a stereotype smashing up the survey of the Russian technology entrepreneurship market called Startup Barometer 2018. Its major inspirer is the venture investor Alexey Soloviev.
Barometer 2018 is nothing other than an analysis of Russian IT startups, allowing to look at the current condition of the Russian market. Following the survey, let’s examine what sectors are the most promising for IT startupers, how such companies grow, and what challenges they face.
IT startupers – who are they?
It turns out that the majority of Russian IT startupers are residents of Moscow. The survey has found 45% of them. Inhabitants of St. Petersburg are only 10% of the total number of startup founders. The rest IT entrepreneurs are scattered across four dozens of Russian cities (1-2% each).
The average age of such a startuper is a bit more than 30 years. Besides, the age category of 18–25 years loses to the 45+ category. There is a univocal correlation with the education of IT startupers: the majority of them (47%) graduated from technical universities. 31% of them have financial and economic education, 13% is humanists, while others have studied other areas.
To establish a startup, entrepreneurs mainly worked for other companies rather than for themselves. However, it is not the first business for 30% of respondents that they have set up. Besides, 64% of startupers have a negative experience resulting in the collapse of their own business.
Therefore, an IT startuper means:
- a resident of Moscow between 30 and 32 years of age;
- a technical university graduate;
- the one who has managed to establish their own business.
The majority of surveyed startups – 44% – apply the B2B pattern. A considerable share of respondents focuses on both business and end user: 27% of projects are engaged in the B2B2C segment. The B2C aspect is used by the smaller amount of startups – 22%. All other companies focus on different areas.
Russian high-tech startups primarily focus on B2B because it is the most rapidly developing venture investment market. Besides, the B2C segment has more competitors due to the involvement of foreign players.
However, areas where IT startups grow do not always correspond to investors’ expectations. The FinTech sector is hardly the only coincidence: both parties see its potential. Other sectors feature divergence. Well, startupers refer Marketplace to one of the most promising areas, while investors believe that it’s better to deal with AI/ML products.
There are also disputes between investors and startupers regarding the fact that exactly half of entrepreneurs consider their products unique. According to business angels, it is not a realistic view of things. At the same time, 31% of IT startup founders fairly admit that they have just improved something already existing on the market.
Teams of Russian high-tech startups usually consist of ten people: it is relevant for 64% of all companies. Only 8% of projects hired from 11 to 30 employees, 8% hired more than 30 people; and in 20% of the cases, only one person works for a startup.
Such a situation with personnel is caused by the fact that startupers are typically dissatisfied with poor experience of candidates. The second problem is wages: jobseekers demand too much money for their work. One more challenge is the absence of appropriate specialists on the market.
A leading revenue model of high-tech startups is direct sales (25%). A transactional model and subscription model occupy the second and the third places: 20% and 18%. Moreover, 34% of all IT startups have no revenue. 23% of high-tech companies show a slightly better situation: they earn up to 1 million RUB per year. 19% of respondents receive from 1 to 10 million RUB, and only 15% of startups obtain more than 10 million RUB. 7% of companies did not provide information about their revenues.
With the majority of Russian IT startups focusing on the Russian market, it is no wonder that they obtain from 75% to 100% of their earnings within the country. Key factors preventing the entry to the international market are the desire to promote a startup in the Russian Federation, the absence of money, the lack of contacts, and the incomplete product. Noteworthy is that only 1% of startups have tried to enter the international stage but failed. It means that the rest 99% of companies have not yet tried to do this.
Perhaps, this is explained by the fact that 49% of all IT startups are just developing MVP or founding companies. On the other hand, 38% of projects have been already selling their products and have tested the efficiency of their business pattern.
The list of essential development resources include money (40%), staff (23%), and relations (17%). Additional knowledge appeared to be at the very end of the list: only 3% of respondents required it.
The main source of funds to launch a project was startuper’s own capital, according to 71% of respondents. Only 29% included companies established using private investors, professional business angels, venture funds, crowd funding, and other means.
A self-reliant trend has been existing afterwards as well: 40% of startups are surviving using their initial capitals. 33% of companies are growing due to their earnings, 14% of respondents are operating due to additional funding from founders, and only 12% of businesses are looking for external financing.
Like night follows day, the money issue is ranked first in the list. 45% of startupers mention the lack of funds. 42% of respondents stress the fact that anti-Russian sanctions also prevent the development of company: this aspect and the absence of foreign investors, as well as the inability to enter the international market. 41% of companies believe that strategic investors are not interested in high-tech products. The next challenge is the lack of knowledge noted by 34% of startupers. The personnel problem closes the top 5 list: 29% of businesspeople have pointed it.
Professional investors note that the list of issues can be complemented by the innovativeness of ideas and the maturity of team. By the way, the importance of political situation is overestimated: the fact is significant only if a startup is going to enter the serious international level and its stockholders include a player slapped with sanctions.
What’s in conclusion?
Russian IT startupers are not tend to rely on venture financing, their growth is limited. That is why they are primarily aimed at the Russian market. To become major players, not only should they have a sufficient motivation, but also prepare a truly unique product. This fact should be accompanied by a sober assessment of their own businesses and a deep analysis of competitors. It will allow to turn a startup into big business.