Paradise postponed? Venture capital emergence in Russia

Abstract

Purpose ‐ How does venture capital (VC) emerge in emerging and developing economies? This paper aims to use case data from an early Russian VC fund to extend a previous model exploring that question. Design/methodology/approach ‐ Case studies of VC emergence from South Africa, Botswana, and Russia are compared, from which a conceptual model is developed. Findings ‐ VC emerges in a process consisting of four stages: enabling, coproducing, diffusing, and replicating. The Russian case shows that these stages are linked in a circular process, i.e. replicating can lead to enabling. VC emergence can also begin at any stage. A higher degree of public-private coproduction may outweigh the absence of a completed enabling stage, suggesting that strength in one stage can compensate for weakness in others. Research limitations/implications ‐ This paper invites scholars to reconsider VC emergence in a more nuanced manner that takes into account its complex, processual nature. The inclusion of Russian data also encourages researchers to examine more closely the subtle ways in which the private and public sectors may interact in emerging markets in pursuit of common goals. This study's findings have important linkages with other critical accounts of international business. The study addresses weaknesses in earlier literature by employing a multi-disciplinary, cross-context approach that utilizes data from a foreign VC investing in Russian small to medium-sized enterprises. Practical implications ‐ VCs considering investment in Russia should examine how early entrants to the industry formed cooperative relationships with local governments. Policymakers should re-examine the relative importance of national and local efforts to promote VC and other innovation-related initiatives in emerging markets. Originality/value ‐ This study moves beyond current economics-dominated understanding of VC, which focuses on antecedents (enabling conditions). It reports the central role of public-private coproduction in VC emergence, the feedback between diffusion and coproduction in emergence, and, most importantly, the diminished importance of enabling conditions. This paper presents the first fund-level study of Russian VC.