With global experience and KomTech in Nizhny, Russia’s regions get tools to rediscover themselves
29 Mar '14
Oleg Kouzbit, Online News Managing Editor
As Russia as a nation is fighting against heavy odds, both political and economic, to reassert itself as a global leader in innovation—a status it rightfully held a century ago—its regions are scrambling to reinvent themselves (and their economies) as the primary drivers of this process. Nizhny Novgorod—once a European trade hub, a “pocket of Russia” by the steep right bank of the River Volga, downshifted in the Soviet times to a ‘closed’ supplier for the military shut off from foreigners’ view—is one of the dynamic Russian territories striving for excellence in gaining a competitive edge both domestically and internationally. Its largest university, UNN, appears to know the way.
Galvanized by its new resourceful team of market-driven managers, the Lobachevsky State University of Nizhny Novgorod (UNN) is working to emerge as a new local magnet for the like-minded. A leading university in the entire Volga area which has for decades had a reputation of a passionate researcher exploring deep and far afield (and oftentimes past actual market needs), UNN now seems to be resolutely shooting for a happy marriage between fundamental sciences—its indisputable forte—and their commercial applications.
The team led by Vice Rector Kendrick White, an American entrepreneur nicknamed privately and warmheartedly “a market whacko” by some that know him, bets on international best practices and calls on quite a number of technology commercialization heavyweights from across the world to jump on UNN’s “see-what-the-market-wants” bandwagon.
Earlier this month the university launched its series of bi-monthly master-class sessions on market awareness called KomTech 2014. The Technology Commercialization Center (TCC), a new department set up last December at UNN to pursue the “whacko”-inspired policy, led the effort.
The eager audiences of local scientists and innovators came to meet a notable assortment of Russian and international market-savvy pros, all experienced in risking their own capital on tech endeavors. Marchmont News approached a select few of the experts to find out what they believe Russia still needs to gain traction in global innovation markets, and whether a ‘new Google’ coming out of a Russian university lab is just a fairy tale—or perhaps right around the corner.
Ilya Dubinsky, Ph.D., the director of the Center for Entrepreneurship and Innovation at the Skolkovo Institute of Science and Technology (Skoltech), told Marchmont that with an ever-growing number of various techno-parks and incubators, what still keeps Russia waiting in the wings in the global race for leadership in innovation is time:
“Such things just don’t happen overnight. We simply need to go on with our work. I think this is exactly a process, in which quantity is bound to evolve into quality. Our venture industry is only ten years old; and studies unequivocally show that it takes at least 15 years and no less than one-third of an investor’s lost capital for him to grow to certain maturity. I think, it will now take a little more time for the funds that risked their capital five-to-seven years ago to start planning a good exit. The process is just about to begin; people will learn a lot from their own mistakes and from other people’s mistakes too.
I remember launching an informal poll for students at Moscow’s Phystech (MIPT) in the early 2000s, asking where they would like to work, and almost 100% said they were dreaming of a position at Gazprom or a large bank. I did a similar survey just recently, and up to 40% of the polled said they wanted to set up companies. That’s great! A dramatic change in a short period of time. Of course, they might first have to spend five or so years doing something different before they materialize as business people. But if Russia stays the course of development and opts for no U-turn once again, they may come and do business.
If the government decides to send RVC, Rusnano, Skolkovo and other national projects ‘packing’ as white elephants or boondoggles, and suggests that we wait for another 10-15 years, then, of course, an immense amount of money and effort will go down the drain. I understand government officials who lambaste some of these projects for providing little or no immediate yield; but across-the-board transformation takes much longer than they are used to reckoning in their short-term planning.”
When asked whether there was at least a slight likelihood for a truly disruptive technology to emerge from a Russian university, in contrast to evolutionary ones that we typically hear of, Mr. Dubinsky didn’t rule out the possibility. But here again Russia lacks something, he pointed out:
“If we talk about serious technologies, such technologies require solid investments and a fairly long time for them to go all the way from a lab idea to a product. But this country doesn’t really have the elements of a system which are meant to help bridge the gap. What the Technology Commercialization Center at UNN is doing now—which is helping a professor or researcher make his project ‘visible’ for an investor—is basically missing elsewhere.
A researcher is focused entirely on what haunts him in his science, which may be a single property of a substance. That a product—in contrast to an invention—is a combination of a variety of properties typically goes past his thought; while for an investor, especially one from industry, this is par for the course. You may have synthesized something terrific with low dielectric permittivity; but that doesn’t mean you have immediately won the hearts of all industry players. The latter may also want to know about the thermal or mechanical properties of your invention; whether it’s toxic or innocuous; and whether it’s compatible with their production processes. You’ll always be below the investor radar unless you let industry know you’re aware of all that.
Very few professors embrace the importance of that; and Russia needs programs that would bring on board mentors from industry to help professors understand the ABCs of how to start a dialog with investors. Such programs won’t be too costly as a mentor may even lend you a free hand, and keep it free until a project he works with reaches a certain level of patentability.
Free or not, this element is still generally missing, and so are some other fundamental ones. But they will be found one day. People talk to each other and see who does best, and how. One will be learning from another’s experience and will follow suit.”
Ian Humphery-Smith, the CEO of a private Moscow-based company called Skolkovo RusInnovations (SkRI), has no doubt Russian universities have the potency to put together a new disruptive technology that would change the world—like WhatsApp, a California-based instant messaging service of Russian origin with the potential to revolutionize SMS as we know it, which sold for $19bn a few weeks ago. But in his opinion, to get such a project off the ground investors want more than just a professor’s savoir-faire in business talk. And Ian’s company appears to offer a ‘missing link’:
“What Russia has still to learn is that a technology cycle takes seven-to-eight years on average. 88% of the best start-ups in the world fail in their first four years. And if you happen to be part of the remaining 12%, you can after seven or eight years become an attractive return on investment.
We need a business model that can support this large population of early-stage spin-outs and can also make investors rich. And investors don’t want to wait for up to ten years. You need to make them rich in two-to-three years in Russia. Our business model addresses exactly that. Two-to-threefold return on investment in three years—but the technology cycle is seven-to-ten years. So, we divorce the technology cycle from the return-on-investment cycle.”
As Ian explained to Marchmont, to make this possible his company is offering what he called the “securitization” of Russia’s intellectual property:
“The securitization will call for contractual alliances with groups like UNN TCC today to bring into play what they currently have in their pipeline. But what we are most interested in is next year’s pipeline, and then the next year’s. And that gives us the means to be creating a tradable commodity on intellectual property.
We believe this is what Russia needs. Russian investors don’t want to throw their money away. Even if they still do, they won’t like it after they’ve done it three times. So you have to have a business model that addresses the needs of investors near term. We mix high-risk capital with low-risk capital, and we hedge all the early stage investments we make a year with the very few—two or three—very late-stage investments every year and a few middle-stage investments. It is enough to keep investors happy; and in seven-to-eight years you have a constellation of star performers because you kept them alive for ten years.
You must address the capital needs of ten years when you invest in start-ups, not get rich quick in two years. That’s the problem Russia has yet to embrace.”
Simon Dunlop, the co-founder of another Moscow-headquartered company, Dream Industries, thinks that building new techno-parks and incubators across Russia is good; but it takes fostering an ecosystem of free entrepreneurship and creativity to make these real estate projects buzzing and full of life.
Talking about the ‘new Google from Russia’ idea, he suggested that we look at it from a slightly different angle. To come up with a world-changing concept is one thing; to keep it growing at home is quite another, he believes:
“That’s a very perceptive question that goes to the heart of the matter. Google was co-founded by a Russian, but not in Russia. Likewise, there are other great success stories of break-out technology being founded by people from CIS countries but not being developed actually in Russia. (Simon cited Evernote, WhatsApp and the many tech success stories out of Israel.)
I think that it is highly probable that we will start to see disruptive technologies coming out of Russian universities, but there’s a lot that needs happen to fan the flames of innovation and ensure that this technology is rooted here in Russia and does not leak abroad at the initial stage. That necessitates building the right ecosystem for innovators, something that Lobachevsky UNN is already starting to do.”