110118 Why Russia? Why now?

Why Russia?Russian initiatives to support national innovation ecosystem

Ilya Ponomarev, Chairman, Hi-tech Development Subcommittee, State DumaAdviser for commercialization, Skolkovo Foundation 01/18/2011

Ilya Ponomarev, State Duma, 18/01/2011

President’s call for modernization • Medvedev’s “4i” initiative in 2008

– Infrastructure– Institutes– Investment– Innovation

• Presidential address to the parliament in 2009 was focused on innovation– Most fashionable discussion topic– Now everybody is on twitter, facebook,

blogs, …

• Pres. Obama “reset” policy, also started in 2009, assumes that US and Russia are building common values– Creating a compatible innovation

ecosystem is a perfect example

• 2010 was a year of multiple initiatives in Russia


Myth #1. Russia’s ecosystem lacks finance • Government created numerous financial

institutions– Equity financing

• Rusnano – $10b investment company• Russian Venture Corp – $1b fund of funds• Rosinfocominvest – $150m PE fund• Bortnik Fund – seed and pre-seed grants

– Debt financing• Vnesheconombank

– Infrastructure support• Hi-tech parks• Special economic zones• Skolkovo Foundation as an entry point

– Tax vacations:• Special tax regime for hi-tech companies• No capital gains tax for investments over 5 years

• Many large businessmen are thinking about investing in hi-tech– DST owns 10% of Facebook, recently made Mail.ru

IPO

• Some VCs are formed, many with foreign capital– Most successful Russian search engine Yandex.ru

was started with Massachusetts money


Real problem with finance• Limited exits within the

country• Lack of internal demand

– Foreign technologies usually preferred over Russian

– Government is yet to come

• Deficit of physical infrastructure– Inexpensive offices– Business services– Quality housing

• Insufficient number of experienced

investors


Myth #2. Russia lacks adequate legislation

• Significant progress has been made during recent decade– Corporate law– Securities law– IP regulation is copied from German

IP law– Tech transfer law (similar to Bayh-

Dole Act)– …

• Skolkovo Law unveils possibility to solve many issues “manually”– Taxation– Immigration– Construction permits


Real problem with legislation• Law enforcement• Some Russian laws are incompatible

with usual approach legal acts:– VC regulations – to be fixed soon

• No LLP form• VC funds in Russia are regulated as

mutual funds– Corporate legislation – options, stock

series– Technology transfer act – bureaucratic

• In some Acts bad wording leaves room for unfavorable misinterpretation– Software VAT exemption act– Privacy protection act

• Main points of immediate attention– State procurement act– Internet crime liability definition– Bankruptcy regulations– e-Payment systems– Miscellaneous industry-specific acts

(telecom, advertisement, mass-media, …)


Situation with investment targets• Huge Soviet legacy of

technological ideas– Primarily in places like

Novosibirsk Akademgorodok

• Insufficient knowledge and experience in protecting IP

• High desire to get involved in commercial activities, but– Lack of experience – Unadequate self valuation– Limited knowledge how to

follow the market and find niches


Russian answer: Skolkovo project

1.To develop Russian innovation ecosystem by creating a universal entry point to– Make Russian businesses global– Attract international businesses to start R&D and

hi-tech manufacturing

2.Create in Russia new companies and/or their divisions, to develop new hi-tech services and products

3.Develop Russia’s human resources: attract foreign specialists and support local talents in hi-tech


Key principles• Project is managed by a non-for-profit Skolkovo

Foundation, governed by a special law• Project participants receive set of business

services as well as certain incentives for companies with revenues up to 3 bln. Rbl. (USD $100 mln.):– 0% profit tax– 0% VAT (optional)– 0% property tax– 14% social payments– 0% custom duties

• Each department is supposed to grow into self-sustainable operation– Education– Research– Commercialization, tech transfer and business development– Investment– Real estate

• Each service is to be provided on competitive basis

• Business model is developed as a private-public partnership, but assumes separation of public and private funds. After a while Skolkovo Foundation should become independent of state funding


Skolkovo as an innovations hub

• Skolkovo is not just a special territory, it is a development tool for the whole country– Up to 2014 residents are not

required to be physically located in Skolkovo

– Admission is not a formal bureaucratic procedure, but decision of competent Skolkovo Foundation Board• 50% Russians, 50% foreigners

– Simple application at Skolkovo web site and 5 minutes presentation to the Board

– Board does not verify the quality of the project, but makes the binary yes/no decision, whether it complies with Foundation mandate

– Regional network is based on hi-tech parks and SEZs

• Skolkovo as a territory will be developed around new university – “Russian MIT”


US-Russia cooperation to develop innovation ecosystem

• In 2009, contacts between Russian and MA organizations, incl. MIT, began to outline practical cooperation. Rusnano develops close cooperation with MIT for training and discusses joint projects

• Jan. 2010 Russian Government delegation, led by First Vice Prime Minister visits MIT. Decision to initiate Skolkovo Project has been made

• Feb. 2010 US State Dept. takes “RusTechDel” delegation made of 10 West Coast CEO’s (incl. eBay, CISCO, twitter, …) to Moscow and Novosibirsk

• March 2010 - another Russian delegation in Cambridge/Boston– Cooperation agreement signed with Novosibirsk hi-tech park– Russian sponsorship for MassChallenge.org business plan

competition – Negotiations begun with MIT to become a co-founder of

Skolkovo Project• April 2010 – Massachusetts Senate invites Pres. Medvedev to

come to MA• May 2010, Delegation of 20 prominent venture capitalists to

Moscow (VC Trip), supported by State Dept. No participation from MA.

• June 2010, Skolkovo Board of Directors announced - 6 Russians, 6 foreigners, incl. 3 Americans – all from West Coast.

• June 2010, Pres. Medvedev visits Silicon Valley, not MA.– Several high-profile agreements were signed– President ordered to open Skolkovo project office in Bay Area– Agreement with MIT signed in US Chamber of Commerce

“lobby,” not main hall, and only after enormous pressure from Russian side

• September 2010 – NYAS delivers report “Yaroslavl Roadmap 10-15-20”


Challenge for Massachusetts

West Coast is taking the lead in Russian innovation opportunities and MA is almost absent:– Silicon Valley has international

brand recognition as the trademark of innovation

– West Coast corporations are effectively lobbying their interests in DC, particularly with State and Commerce Departments

– East Coast people in DC Administration are mainly Harvard graduates, concerned with policy; while Stanford grads push business and innovation

Why Massachusetts and Why now? • Russia’s 5 technological priorities

match MA core competences:– Biotech and life sciences– Cleantech - new energy sources– IT and supercomputing– Space and telecom– Nuclear technologies

• Russia can become resource for manufacturing facilities, R&D personnel, scientific advances to be commercialized, clinical trials– MA can host Russian corp. offices, tech

holding companies, provide training to entrepreneurs and financing of new companies.

• Russia’s domestic market, especially for new energy and biotech projects with underlying layer in nanotechnologies, is very promising

• Right now major Russian businessmen are looking to form joint ventures to invest into hi-tech, and actively touring West – primarily Silicon Valley