You've heard this line many times if you're connected to startups or venture at all. It gets repeated both by people who can explain why — and by people who've heard it often enough to repeat it without really understanding it.
Let's agree up front: this isn't about a lack of talented people or strong projects. Those were here, are here, and always will be — that part is fine. And I'll leave politics out of it, otherwise the whole thing collapses into one big knowing sigh.
What interests me is the mechanics. Venture isn't a "pile of money" — it's a machine of several parts, each resting on the next: money goes in at the early stage only because someone believes in a big exit 5–7 years out; the exit is possible because there's someone to sell to and because the project grew big enough; funds hand out that money only because someone gave money to the funds themselves — and round it goes. Pull out a couple of parts and the machine won't move. In Russia, several are missing at once. Let's take them one at a time.
1. No final buyer — no exits
Start here, because everything else hangs off it.
A typical startup is built or bought not for revenue here and now, but to be sold whole in 5–7 years for a lot of money. Founders make their money selling their stake. Early-round investors book their multiples too — and cheerfully carry that money into the next ten startups. That's how venture spins: one big exit pays for a whole batch of failures and kicks off the next cycle.
This is worth internalising fully. Venture returns are winner-takes-almost-all: out of ten projects, eight die or return pennies, one breaks even, and just one — if you're lucky — throws a multiple big enough to cover all the rest. The entire model rests on those rare large exits existing. No big exits, and the math falls apart.
Now look at Russia. There's no real IPO route to speak of: the market is thin, listings are small and largely retail-driven, and exiting a fund-sized position that way is close to impossible. International M&A is closed off. What's left is a handful of domestic strategics — Yandex, VK, Sber, Ozon, T-Bank, Wildberries, Avito. When the whole country has five to seven possible buyers, they set the price, not you. It's a buyer's market, pure and simple.
So a "good" Russian exit is usually the purchase not of a product or a business, but of the team itself, at a not-especially-generous valuation. Not a cash-out — an acqui-hire at a discount: you're not so much sold as hired into a bigger company and told it's a deal. And once the ceiling on the exit is low, everything below it in the chain reprices to match. Investors know this going in and bake it into the valuation from the very first cheque.
2. A low ceiling: a small home market and no way out to the world
An exit is only half the equation. The other half is how big the project can even get before someone buys it. And here the ceiling is pressed down from two directions.
Venture lives on scale: for one multiple to cover ten failures, the winner has to grow huge — and that needs a huge market. Russia's domestic market is, for many niches, simply small: a limited number of paying customers, and you hit the ceiling long before you reach venture scale.
This used to be solved by going global: strong Russian teams aimed at world markets from day one, and some became big precisely there (JetBrains, Nginx, Miro, Luxoft and others). Now that path is largely blocked: payment systems, app stores, banking rails, a foreign customer's trust in a "Russian" product — all of it works intermittently or not at all. You can still build a global company, but it's become several times harder and more expensive.
So the ceiling on the potential exit is pressed down before we even get to rates, law and the rest. A small market caps the size of the prize; a closed global route cuts off the only way to make that prize bigger. And if the prize is small, everything shrinks to fit it — valuations, investor appetite, the willingness to play at all.
3. A high key interest rate
The third part is the price of money. Every investment has a baseline: what you can earn with no risk at all. It works like gravity, pulling down the valuation of every other asset.
The average US bank deposit rate over the past ten years has been 0.5–1.5% (data). In Russia over the same period it's averaged 8–10% (data), and in some years noticeably higher.
The difference is fundamental. When the risk-free return is near zero, money is forced to go looking for risk — otherwise inflation just eats it. That's why, in a world of cheap money, capital flows into venture on its own. A Russian investor, meanwhile, can put money in a deposit or OFZ (government bonds) and earn a solid return at close to zero risk, fully liquid. If you can reliably make 8–12% and sleep soundly, why lock money up for seven years in something with an 80% chance of dying?
Hence the brutal bar on multiples. For venture to make any sense against a 12% risk-free rate, a fund has to aim for tens of percent a year — a bar most deals can't clear. Foreign investors aren't so spoiled; their bar is lower and they'll pay more for the same stake. There's your explanation for why essentially the same project gets valued several times higher "over there" than here.
And the same rate hits the startup from the other side: expensive loans, expensive money in customers' hands, shrinking B2B budgets. Growing on debt is nearly impossible, and organic growth slows too — your buyers are counting every rouble as well. A double hit: less money coming in, and harder to grow.
The same goes for the time horizon. Venture needs patient capital over 7–10 years, but in an economy where no one will confidently forecast even a couple of years out, and where the rouble lives its own life, betting on a decade of rouble returns is simply irrational. Investors think in hard currency and short horizons — venture demands exactly the opposite.
4. No one to fill the funds: no institutional LPs
We talk about investors as if funds get their money out of thin air. They don't. Every venture fund has its own investors — LPs (limited partners): the ones who give the fund capital to deploy into startups.
In mature ecosystems the main LPs are "long" institutional money: pension funds, university endowments, insurers, family offices. They're expected to hold a small slice of the portfolio in venture — long-term, high-risk. That class is what fills the industry with capital.
In Russia there's essentially no such class for venture. Pension money doesn't go into startups, endowments barely exist, insurers have other worries. So even good managers raise a fund slowly and painfully, and the "fund layer" stays thin. That leaves basically two sources of money: private angels and the state. And while angels carry the early stage (more on that at the end), the second source runs on a different logic — one that distorts the market.
5. The state as the main player — and how that distorts
Since there's almost no private institutional money, a large share of "venture" capital in the country is state or state-adjacent: development institutions, grants, sector funds with state participation. That's not evil in itself — on a thin market it's sometimes the only early-stage money around.
The problem is that state money runs on different incentives. Where a private investor optimises for the multiple, a state body optimises for the absence of problems: reporting, budget-utilisation KPIs, minimising the risk of the "wrong" decision. But venture is, by nature, a licensed right to fail — eight of ten will die, and that's normal. Squaring that with "every rouble spent has to be accounted for, and a failure is grounds for an audit" is nearly impossible.
It gets subtler. State money tends to crowd out private money: why would a private investor take the risk where grants and subsidised financing are being handed out next door? And it has a downside people don't like to mention: a link to state money sometimes carries legal risk for the recipient out of nowhere — the stories around development institutions have shown this more than once. So part of the market's energy goes not into building companies but into grant-chasing and playing by the rules of reporting.
6. Legal friction
Say the investor and the founder have found each other and agreed on everything. Now it has to be packaged into something — and here's the next problem.
Russia has no coherent legal framework for the standard venture instruments: SAFEs, convertible notes, option pools, vesting, cliffs, liquidation preferences, drag-along and tag-along. They're either missing or awkwardly bolted onto corporate law (the LLC and JSC forms) that was never designed for startups. The very notions of a "venture deal" and a "startup" barely exist in law — not even as settled terms.
So for years anything serious was structured through foreign holdcos — Delaware, Cyprus, then the UAE, Armenia, Kazakhstan. Since 2022 that path has become more expensive, slower and riskier, while the local wrapper stayed raw. The startup ends up squeezed between weak law at home and hard-to-reach law abroad — and either option costs money, time and nerves before the first employee is even hired.
And even a contract that's perfect on paper works only as well as the courts do. Season that with certain people's well-known fondness for settling matters outside the legal system, and it's clear why money mostly goes to "our own," in small cheques, after a long trust check. Weak law isn't an abstraction — it's a direct tax on the speed and size of every deal.
7. No venture culture
The next part isn't about money or law — it's about heads.
Failed twice in Russia? "Sorry, I'd rather not work with you — you'll just blow it a third time." Failed twice in the US? "Great, you took your hits and learned a lot, the third one will definitely land." It's an exaggeration, but that's roughly the emotional backdrop. Failure here is a stigma, not a line of experience on your CV.
But the stigma is only half of it. The deeper issue: look at the lists of Russia's richest people — oil, metals, banks, retail, construction — and you'll find almost no company that began as a startup in a garage. And that matters not because "we need an inspiring example" (though that too).
Here's why it matters: companies like that, and their founders, are the fuel of the whole ecosystem. A big tech winner buys up smaller startups (those exits from point 1), and its newly rich founders and early employees turn into angels, start funds, mentor, and pull the next generation up. In the Valley they call it the "mafia" effect — one big exit scatters dozens of new companies and investors across the market. Here that top layer barely exists — so there's nothing for the layers below to grow out of. Fewer people who've actually walked the whole path means weaker mentorship and more reinventing of wheels from Telegram posts.
8. The top layer keeps leaving
Adjacent to culture is one more part — and it's about that top layer not just forming slowly, but actively draining away.
People and capital are mobile, and over the past few years a large share of strong founders, engineers and investors has relocated. The ones who leave tend to be the most visible and in-demand — exactly the people who, a few years on, would have become that top layer: angels, mentors, founders of the companies that do the buying. The ecosystem loses not only today's players but its future backbone.
And it's not just sentiment: money, networks and market access leave with the people. Capital that could have been working here as angel cheques now works in another jurisdiction. To be fair, the outflow can be turned into a plus if you connect the diaspora into a network (more on that at the end) — but on its own it subtracts from a thin market exactly what it's shortest on.
9. Risk aversion
Now stack everything above together and you get the part that is the real diagnosis.
Put yourself in the shoes of someone with money. There's basically no exit, and the market is small and walled off. Risk-free pays double digits. There are few funds to co-invest with, the law won't protect you, there's no cultural bonus — no "respect for taking the shot" — and half the people you'd have done this with have left. What's the rational behaviour given those inputs? Don't take the risk. Build a dividend business, buy real estate, park it in bonds (which, for the record, is a perfectly fine choice — I love dividend businesses and recommend them to everyone; they're just not venture, and they don't build the ecosystem).
And it's not just private individuals who are scared — so are the funds focused on the CIS. You can flip through a report for H1 2025 (PDF), an annual review (rusven), or Venture Eurasia for H1 (B1) — maybe someday I'll break them down in a separate post. The gist is the same everywhere: fewer deals, skewed toward later stages, small cheques, choices made "for sure."
And here's the key point of the whole piece: this caution isn't cowardice or stupidity. It's a completely rational response to the environment. Each actor individually behaves sensibly — and the aggregate is a market with "no venture." The tragedy isn't that people behave badly; it's that, given these inputs, the smart move is to opt out of venture.
10. A tilt toward late stages
That rational caution has a concrete consequence — and, closing the loop, it finishes the market off.
To cut risk, money concentrates at later stages. Per deal, that's sensible: fewer multiples, but the company almost certainly won't die, and worst case you can pull your money back through dividends. The problem is that what's sensible at the level of one deal becomes destructive at the level of the whole market.
Venture is a numbers game: the top of the funnel has to be wide, because almost everyone dies along the way. Starve the early stage and far fewer projects reach the later ones — leaving late-stage investors with no one to back. You get a closed loop:
the investor doesn't want risk and comes in late → less money at the early stage → early startups die more often → fewer companies reach late stage → the investor again has no one to back → so they get even more cautious.
A market that looks "safe" one deal at a time slowly contracts at the level of the system.
Who holds it all up
The ones carrying the whole thing are the angels. They're the most active investors in every sense: the most deals, the friendliest valuations for founders, the biggest early-stage cheques, and far more tolerance for risk. Why? Because they invest their own money on their own conviction, not against a fund mandate and its return math; they can afford to be patient and "irrationally" bold. In effect, the early stage in Russia rests on the shoulders of a handful of specific people — which is, of course, fragile.
What would have to change — and what can actually be fixed
The honest answer: most of this machine can't be fixed by one person, or from inside the industry. The rate, the existence of exits, access to world markets, the general horizon — all of it is bigger than us; it gets fixed not by a blog post or a fund but by things on a completely different scale. Pretending "here are five steps and Russia will have venture" would be a lie.
But some of the parts can be built by hand. And they get built from the bottom up, without waiting for everything else to be repaired:
- Grow and connect the angels. Since the early stage already rests on them — turn a handful of loners into networks and syndicates, train new ones, lower the barrier to entry. The more coordinated angels, the wider the top of the funnel — which is the part that's pinched hardest right now.
- Standardise the law from the bottom up. Don't wait for a perfect law on SAFEs and options — assemble a "standard set" of contracts under Russian law and make it the de facto norm, the way YC once did with the SAFE.
- Build global from day one. Since the domestic ceiling is low — design the company for world markets from the start and route around the constraint instead of running into it.
- Manufacture the early stage through communities. Where private money won't go, dealflow and de-risking can be done through programs, accelerators and communities — building by hand the part of the funnel the market won't carry.
- Redefine success. Big exits are rare — so aim also for smaller but real outcomes: profitable companies, honest acqui-hires, global exits. A realistic bar is what gives people a reason to start at all.
- Plug in those who left. The outflow isn't only a loss. A distributed network of Russian-speaking founders and operators around the world can become a source of angel money, mentorship and market access — if you connect it rather than write it off.
None of these steps "solves the problem." Venture doesn't appear by decree — it appears when a critical mass of people do it anyway: invest, build, buy, mentor — until the scattered parts start catching on each other and the machine turns over on its own.
That's exactly why I'm drawn to the early stage. It's the most broken part of the system — and at the same time the only one where you can put the missing piece in place with your own hands, instead of waiting for it all to be fixed from above. "There's no venture in Russia" isn't a verdict on the people or the ideas. It's a description of unfinished machinery. And machinery can be finished.