The National Association for Innovation and IT Development (NAIRIT) has issued its latest Russian innovation market report. “A sharp upsurge in activity” from Russian VC funds is the most noteworthy trend of the second half of 2012, the Association emphasizes.

In August and September, NAIRIT found a 78 percent increase in new deals. Since the beginning of the year, more than 80 deals were closed; and in the third quarter alone, venture investments topped $218m.

The situation in Russian today contrasts sharply with that of the US venture sector, NAIRIT states. In the United States, the market is shrinking in the wake of the global financial meltdown that began in 2008. In the third quarter alone, investments in American start-ups reportedly dwindled by 12% y/y. So far this year, venture investments in the U.S. fell short of expectations, topping out at less than $20bn.

In Russia, the IT and telecom sectors raised most funding in the second half of 2012 (25.2 percent), followed by energy and energy efficiency (14.1 percent), biotech and biomed (12.3 percent), and transport and engine-making (11.8 percent).

Positive trends include a 25 percent decrease in project commercialization horizons, a 33 percent increase in the number of patents obtained and applied for, as well as a 47 percent rise in the overall number of start-ups in the country.

On the downside, however, NAIRIT reports the “extremely low effectiveness” of state investment in innovation. No more than an estimated 22-to-28 percent of the funds spent in Russia on innovation reach the end user in the form of an innovation product. Russia’s so-called development institutions, including Skolkovo, RVC, Rusnano, VTB Bank and some others, have no specific KPIs to fulfill, NAIRIT pointed out, and have so far failed to reach operational levels the government had expected from them. They prefer investing in foreign companies and supporting what the Association termed “plainly dubious” R&D efforts.

To alter the situation, NAIRIT announced it will develop a KPI system to be submitted for Russian government perusal in the first six months of next year.