Russian Tech Center

More on the efforts to draw outside capital and pull back talent in the developing technical center outside Moscow, covered by the NY Times. I'm thinking that President Medvedev is a bit over-optimistic about the influence of word of mouth here...

A recap meeting on the American VC trip spotlighted in the Times article will be held this week in Palo Alto. Details linked.

250 Million US PE in Skolkovo

Interesting play from Sigular Guff and Company - the deal centers on infrastructure and services for what will surely be an area with a high level of investment for IT.

svod 2009

This year's Silicon Valley Open Doors conference linking Russian technologists and Silicon Valley is scheduled for December 9-10 at the Computer History Museum in Mountain View. Prior year participants and speakers I've known for some time have been consistently impressed with this event.

http://www.svod.org/2009/announcement

Russia and Web 2.0

Zdrasvoyteye.

When I was in Moscow last, a lot of the talk was centered around attracting foreign capital to tech investments in Russia. The pitch is - or should be - familiar: lower costs, big market, super-bright engineers and scientists. The downside is lack of transparency and a very unique business environment that is difficult (or impossible) to navigate as an outsider. Today's announcement that Facebook has taken $200 million at first looks like a kind of a reversal in this trend: tech oriented Russians still have capital to deploy and may be choosing to spend it on bargain opportunities in the US market, which remains preeminent in technology development.

A closer look, though, suggests this is a part of a trend that has been gaining steam. Russians have been developing and investing in Web technology for a long while. Yes, Google was co-founded by a Russian, but there has been a number of interesting developments based in Russia itself. The Russian firm Yandex is often described as the "Russian Google" and has picked up small Russian social networking companies like Moi Krug on the cheap (someday there long awaited IPO will happen). SUP, run by American-in-Moscow Andrew Paulson, picked up LiveJournal to support their Russian users, and now Yuri Milner's fund takes a position in Facebook. Milner is the founder of mail.ru, a former physicist, and Wharton alumn.

Watch carefully: the Russians are coming to Silicon Valley and it's been a largely under-noted trend. I've met some of these folks and they are very capable businessmen.

SVOD: Tech Sector in Russia

This year's Silicon Valley Open Doors conference has been scheduled, the dates are November 20-21. This is the premiere opportunity to learn about the technology sector and venture capital opportunities in and around Russia and understand more about what is happening with Russian companies. Hope to see you there.

Cisco launches Russia/CIS fund

Brent Marcus left a note that Cisco recently announced a Russia focused venture fund. I will be in Moscow in a few weeks and will try to get some first hand information to blog about.

Silicon Valley Open Doors

The SVOD 08 conference is now set for November 13-14. This conference looks at Russian venture opportunities, focused on early stage companies and technology. It's the premiere event in the US of its kind: if you have an interest in early stage companies eastern Europe or Russia, plan for this event.

Russian millionare count soaring

Kommersant reports that the number of Russian millionaires is now greater than the number of Indian millionaires. I had to do a double take on this: the first thing that comes to my mind when I think of India is economic growth and transformation. Perhaps that is giving India a bit of short change, since it also boasts a rich cultural and religious history that has influenced large swaths of the globe.

To an extent, this reinforces my belief that Russia is the hidden gem in so-called emerging markets at the moment. While this may be a cause for celebration, it is also a cause for concern: take a deeper look and you'll find that the wealth is being generated predominantly in connection with extractive industries. This means the economy is vulnerable to price pullbacks in commodities and not structured to experience the kind of explosive and sustainable growth associated with technology and intellectual industries. Extraction based economies have had a devil of a time diversifying. The Kremlin is looking to address this in fits and starts (see previous posts that look at some of initiatives of the Ministry of Economic Development and Trade), but it is a decisive matter for the future of the Russian economy that will influence the country for generations to come.

In the meantime, I believe India is doing a lot of the right things, especially by building industry (and wealth) organically, based on intellectual capital. They are still leading the way for emerging markets and in some ways for everyone.

RVC, round 2

As a followup to my post on venture capital in Russia, the RVC maintains a new site, which indicates that they will soon be running a second competitive round of management company selection.

Conveniently enough, there is an RSS feed you can grab to track developments. Stay tuned.

Venture Capital in Russia

I spent a few hours last evening attending a panel discussion in Palo Alto on venture capital investing in Russia. The meeting was organized by the American Business Association of Russian Professionals. I was there because Russian economic development is becoming a serious area of interest and a topic on which I am doing some research work at Wharton. It took me about an hour and a half to get from Redwood Shores to Palo Alto, as 101 was shutdown the entire way at rush hour due to a major accident. The ride home was better, but 101 north was still closed most of the way.

When I finally arrived, things were just getting started. Most of the audience of about 100 spoke Russian (I do not): there was not a representative subset of the tech or finance community in the valley as a whole. I mention this because I find it odd: Russia strikes me as one of the few genuine and relatively untapped opportunities available to investors. Three factors to consider in this:

1) Russia has a very well educated population of top-notch scientists and engineers.

2) The government is dedicated to bringing private equity money and expertise into the country, developing technology businesses, and opening up investment opportunities to foreign sources (more on this later).

3)The Russian economy is growing at around 8% a year, as compared to 2-3% and slowing in the US economy. With world demand for energy continuing to grow, the economy and living standards are only going to go up.

From what I can tell from the panel, the deficits in Russia are: experienced managers, investor experience with early stage companies, and the web of specialized resources that characterize a culture of entrepreneurship. I find it hard to believe that this won’t change very rapidly.

Among the panelists were Ilya Shirokov, a young Russian Entrepreneur who shared his experiences founding the professional social networking business Moi Krug, which was acquired by the search company Yandex in 2007, and Yan Ryazantsev, Investment Director for the Russian Venture Company. The Russian Venture Company is a government fund with about 1.3 USD to invest as a limited partner in funds focused on Russian companies. My understanding of the RVC is that it will match investments in large funds with a very low required return on investment (5%). Currently, there are only two RVC backed funds. The third panelist was San Francisco VC Marc Friend, who shared his experience investing internationally, including in France, Israel, China and India.

These turn out to be useful experiences, as Russians are looking at three countries in order to learn from their successes in creating successful venture funds: China, India and Israel. There are notable differences from each of those countries: Russia’s population is an order of magnitude less than India or China and currently shrinking; Israel, though much smaller, has established a collaborative business model that is deeply linked to the US and also European markets. Russia will undoubtedly have to find its own model, but its clear they are looking at what has worked for others as a first step.

You can see the signs of change already. As of this month, the Russian laws have been updated to allow funds to use conventional capital commitments as opposed to pooling funds up front prior to investing; this was a major barrier to outside investors. Tax laws are being examined to attract investors. And there are plenty of other innovative models (the point was raised in the panel discussion that Israel and Canada match corporate R&D to stimulate investment) that could surely raise interest in Russian investment as well.

It strikes me that the biggest problem with Russia from an outside investor perspective is information asymmetry. Forget about individual deal prospecting: it’s very hard to understand what is happening in the markets as a whole. US press coverage of Russia tends to focus on either politics or Gazprom. I certainly feel I have a better handle on Israeli, Chinese and Indian markets, partially based on personal relationships, but primarily because the US business and financial press is flooded with coverage. I subscribe to feeds for several US language Russian newspapers, but I am hard pressed to understand whether I am getting accurate or biased information. It’s also unclear how to get deeply embedded in Russian business from the outside. Indeed, if you google Russia Venture Corporation, you have to go through several pages before you get a lot of solid information.

My own opinion is that all of this looks like it adds up to something special: the opportunity to participate in the start of the development of a new economic model.