BusinessWeek: “Russia claims to be a technological tiger”
Putin is investing billions of dollars in the development of the technological sector of the economy. There is a highly skilled workforce in the country, but intellectual property issues and cronyism in science and financing are the main problems.
Fifty years have passed since the Soviet Union launched a satellite and proved to the astounded world that the Russians are able to beat the West in its own scientific game. Now a completely different Russia is again entering the technological race. Under the leadership of President Vladimir Putin, with the support of leading businessmen and investors in the country, an extensive program for the development of high-tech has begun. The main goal is to stake out leadership in new technological areas that determine the future of the global economy.
Putin set the tone in April when, in his annual address to the parliament, he announced a large state program worth seven billion dollars aimed at developing nanotechnologies. Only fledged homegrown venture capitalists will receive from the state a powerful tool in the form of a $ 1.2 billion technology fund with state funding. And last year, construction began on seven new technology parks in different parts of the country to stimulate cooperation between scientists and businessmen. One of the most trusted presidential aides, Sergei Ivanov, was appointed to lead the technology program, who, by the way, is considered the main favorite in the March 2008 elections.
Powerful education system
At first glance, there are powerful technological institutes in Russia. Despite the economic upheavals after the collapse of the USSR, the Soviet scientific legacy was preserved in the form of three and a half thousand research institutes with a total staff of 600 thousand people. Russian universities annually produce about 200 thousand scientists and engineers. “We consider Russia to be one of the developing countries with an excellent education system and a high-tech development culture ,” said Ashish Patel, managing director of Intel Capital Capital Venture Fund in Europe, which has already invested in several Russian technology start-ups.
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Optimists can pay attention to the growth of the Russian IT-sector, which has stalled in recent years, despite minimal government support. Software exports grew from $ 120 million in 2000 to $ 1.5 billion in 2006, just 54% in one last year. The growth of this sector is due, among other things, to the creation of branded development centers for large multinational corporations, such as IBM, Motorola and Boeing. Russian IT companies are planning billions of IPOs (in particular, <a href = " Sergey Belousov and his SWsoft are thinking about this.
Arguments against? The Russian IT industry is only 1.5% of GDP. For comparison, in the USA this indicator is equal to 5%, and in the exemplary country of Ireland's high-tech success - 12%. Revenues from Russian software exports are a hundred times less than oil revenues, and ten times less than India’s software exports. And in other areas, besides software, Russia is still technologically behind. Expenditures on science and research in the amount of 1.2% of GDP are two times less than the average for the countries belonging to the OECD (Organization for Economic Cooperation and Development).
Cronyism in nanotech?
This explains why the Kremlin now wants to invest in a high-tech portion of its huge revenues from oil and gas. This year, it was decided to invest $ 5 billion in the new state corporation Rosnanotech, which will observe and coordinate research in this area. Russia will definitely have to invest billions to catch up with other countries.
However, Putin’s initiative caused a considerable surprise: “It looks like the monopolization of funding ,” says Irina Dezhina, an expert on scientific issues at the Moscow Institute of Economics and Development. She emphasizes that this program alone will receive three times more funding than all the other Russian scientists combined. Mikhail Kovalchuk, director of the key in the new corporation of the Kurchatov Institute, is a close friend of Putin in St. Petersburg times. That is why there were rumors that nanotech funding was due to personal or political motives.
Such is the risk for each government funding program. Therefore, in order to give impetus to innovation, private investors are surely needed, and the most intelligent of them are ready to come to this industry. In May, Mikhail Prokhorov, the largest Russian magnate in the metals market and in the banking sector, announced the creation of a $ 17 billion holding company that will specialize in high-tech investments, including alternative energy sources and nanotech.
Public and private financing
Another government initiative - the launch of the Russian Venture Company - may be a smarter step than simply pumping science with money. Russia plans to invest $ 1.2 billion in 10–12 private venture capital funds with 49% state participation. The first managers of the company were selected in May and they have already raised $ 150 million in private money. Among the managers is the Russian company VTB Asset Management, as well as the American venture fund Bioprocess, which specializes in biotechnology (<a href = " more about Bioprocess ).
Russia borrowed this idea from Israel, where the same scheme was applied in 1993: there the Yozma “fund of funds” helped raise $ 10 billion of private money, which was enough to finance four thousand startups. However, something remains doubtful. “The Russian problem is not the lack of money, but the organization of the selection of candidates (deal-flow). There are not enough prospects for investors , ”says Thomas Nastas, president of the American Innovative Ventures Foundation, which since 2001 has been trying to find high-tech investment in Russia.
He and other investors have noted the lack of entrepreneurial abilities of Russian scientists, many of whom are in their old age, have difficulty speaking English and have very limited entrepreneurial experience. (Although, there is a small but growing number of Russian entrepreneurs and managers who are returning home from America, having received there a successful experience of launching startups). Then, in Russia there is no market for start-up capital at an early stage of development, when it’s almost impossible to attract a normal venture capital fund. “Even if you are a motivated researcher who wants to establish a company, you will have tremendous problems ,” says Dezhina. In America, the government allocates $ 2 billion each year to help small start-ups through the Small Business Innovation Research Program. In Russia, a similar program has an annual budget of only $ 40 million.
One problem: intellectual property
The biggest problem that investors and entrepreneurs in Russia are talking about is the incompletely understood protection of intellectual property rights. The state is especially reluctant to allow scientists to earn money on their inventions in cases where their work was financed with government assistance. “There are many bright scientists at Russian research institutes, and I would love to work with them. But I can not, because then the state will impose a paw on my inventions , ”says Dmitry Kulish, a former venture capitalist at Intel, who recently founded a biotechnology startup engaged in the production of a medicine against hepatitis. Alexey Oblayov, a Moscow-based business analyst for the American biotechnology giant Genencore, says the company rejected the idea of working with Russian academics for the same reason: “If this is an academic study, then it is not clear who has the right to do so. The only working business model is a private research institute . ”
All of the above explains why Russian innovation, with the exception of the flourishing IT sector, has not yet achieved commercial success. However, many observers are now more optimistic. They note that a big technological breakthrough in Russia has just begun. This issue appeared in the list of state priorities, so now we will see new initiatives in this direction. “All the pieces of the innovation ecosystem are now added together ,” said Oleg Kulikov, a former Intel executive, who returned to Russia and headed venture funds in the investment bank Troika Dialog. “ The main asset is human capital, and this is exactly what Russia is in.”
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Fifty years have passed since the Soviet Union launched a satellite and proved to the astounded world that the Russians are able to beat the West in its own scientific game. Now a completely different Russia is again entering the technological race. Under the leadership of President Vladimir Putin, with the support of leading businessmen and investors in the country, an extensive program for the development of high-tech has begun. The main goal is to stake out leadership in new technological areas that determine the future of the global economy.
Putin set the tone in April when, in his annual address to the parliament, he announced a large state program worth seven billion dollars aimed at developing nanotechnologies. Only fledged homegrown venture capitalists will receive from the state a powerful tool in the form of a $ 1.2 billion technology fund with state funding. And last year, construction began on seven new technology parks in different parts of the country to stimulate cooperation between scientists and businessmen. One of the most trusted presidential aides, Sergei Ivanov, was appointed to lead the technology program, who, by the way, is considered the main favorite in the March 2008 elections.
Powerful education system
At first glance, there are powerful technological institutes in Russia. Despite the economic upheavals after the collapse of the USSR, the Soviet scientific legacy was preserved in the form of three and a half thousand research institutes with a total staff of 600 thousand people. Russian universities annually produce about 200 thousand scientists and engineers. “We consider Russia to be one of the developing countries with an excellent education system and a high-tech development culture ,” said Ashish Patel, managing director of Intel Capital Capital Venture Fund in Europe, which has already invested in several Russian technology start-ups.
')
Optimists can pay attention to the growth of the Russian IT-sector, which has stalled in recent years, despite minimal government support. Software exports grew from $ 120 million in 2000 to $ 1.5 billion in 2006, just 54% in one last year. The growth of this sector is due, among other things, to the creation of branded development centers for large multinational corporations, such as IBM, Motorola and Boeing. Russian IT companies are planning billions of IPOs (in particular, <a href = " Sergey Belousov and his SWsoft are thinking about this.
Arguments against? The Russian IT industry is only 1.5% of GDP. For comparison, in the USA this indicator is equal to 5%, and in the exemplary country of Ireland's high-tech success - 12%. Revenues from Russian software exports are a hundred times less than oil revenues, and ten times less than India’s software exports. And in other areas, besides software, Russia is still technologically behind. Expenditures on science and research in the amount of 1.2% of GDP are two times less than the average for the countries belonging to the OECD (Organization for Economic Cooperation and Development).
Cronyism in nanotech?
This explains why the Kremlin now wants to invest in a high-tech portion of its huge revenues from oil and gas. This year, it was decided to invest $ 5 billion in the new state corporation Rosnanotech, which will observe and coordinate research in this area. Russia will definitely have to invest billions to catch up with other countries.
However, Putin’s initiative caused a considerable surprise: “It looks like the monopolization of funding ,” says Irina Dezhina, an expert on scientific issues at the Moscow Institute of Economics and Development. She emphasizes that this program alone will receive three times more funding than all the other Russian scientists combined. Mikhail Kovalchuk, director of the key in the new corporation of the Kurchatov Institute, is a close friend of Putin in St. Petersburg times. That is why there were rumors that nanotech funding was due to personal or political motives.
Such is the risk for each government funding program. Therefore, in order to give impetus to innovation, private investors are surely needed, and the most intelligent of them are ready to come to this industry. In May, Mikhail Prokhorov, the largest Russian magnate in the metals market and in the banking sector, announced the creation of a $ 17 billion holding company that will specialize in high-tech investments, including alternative energy sources and nanotech.
Public and private financing
Another government initiative - the launch of the Russian Venture Company - may be a smarter step than simply pumping science with money. Russia plans to invest $ 1.2 billion in 10–12 private venture capital funds with 49% state participation. The first managers of the company were selected in May and they have already raised $ 150 million in private money. Among the managers is the Russian company VTB Asset Management, as well as the American venture fund Bioprocess, which specializes in biotechnology (<a href = " more about Bioprocess ).
Russia borrowed this idea from Israel, where the same scheme was applied in 1993: there the Yozma “fund of funds” helped raise $ 10 billion of private money, which was enough to finance four thousand startups. However, something remains doubtful. “The Russian problem is not the lack of money, but the organization of the selection of candidates (deal-flow). There are not enough prospects for investors , ”says Thomas Nastas, president of the American Innovative Ventures Foundation, which since 2001 has been trying to find high-tech investment in Russia.
He and other investors have noted the lack of entrepreneurial abilities of Russian scientists, many of whom are in their old age, have difficulty speaking English and have very limited entrepreneurial experience. (Although, there is a small but growing number of Russian entrepreneurs and managers who are returning home from America, having received there a successful experience of launching startups). Then, in Russia there is no market for start-up capital at an early stage of development, when it’s almost impossible to attract a normal venture capital fund. “Even if you are a motivated researcher who wants to establish a company, you will have tremendous problems ,” says Dezhina. In America, the government allocates $ 2 billion each year to help small start-ups through the Small Business Innovation Research Program. In Russia, a similar program has an annual budget of only $ 40 million.
One problem: intellectual property
The biggest problem that investors and entrepreneurs in Russia are talking about is the incompletely understood protection of intellectual property rights. The state is especially reluctant to allow scientists to earn money on their inventions in cases where their work was financed with government assistance. “There are many bright scientists at Russian research institutes, and I would love to work with them. But I can not, because then the state will impose a paw on my inventions , ”says Dmitry Kulish, a former venture capitalist at Intel, who recently founded a biotechnology startup engaged in the production of a medicine against hepatitis. Alexey Oblayov, a Moscow-based business analyst for the American biotechnology giant Genencore, says the company rejected the idea of working with Russian academics for the same reason: “If this is an academic study, then it is not clear who has the right to do so. The only working business model is a private research institute . ”
All of the above explains why Russian innovation, with the exception of the flourishing IT sector, has not yet achieved commercial success. However, many observers are now more optimistic. They note that a big technological breakthrough in Russia has just begun. This issue appeared in the list of state priorities, so now we will see new initiatives in this direction. “All the pieces of the innovation ecosystem are now added together ,” said Oleg Kulikov, a former Intel executive, who returned to Russia and headed venture funds in the investment bank Troika Dialog. “ The main asset is human capital, and this is exactly what Russia is in.”
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Source: https://habr.com/ru/post/31136/
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