Finance, business

Poor domestic demand for innovation and little support of early-stage projects erode Russian technopark and incubator efficacy

12 Apr '14
Oleg Kouzbit, Online News Managing Editor

As more and more technoparks, IT parks, business incubators and other costly real estate projects spring up across Russia, observers, including innovation market players and start-ups seeking residency in these, are getting increasingly interested to know if the multimillion dollar projects are really worth spending that much. High-profile experts visiting earlier this spring a large-scale innovation support event in Nizhny Novgorod called KomTech 2014 underscored that some technoparks, even those already housing residents, still looked lifeless because there was hardly any ecosystem built around them to nurture what’s known around the globe as the spirit of free entrepreneurship. What innovators and their supporters want to know is whether the mammoth facilities can indeed deliver on the promises of their champions. RVC, Russia’s fund of funds for innovation, partnered up with EY to bring definitive answers to the numerous why’s and when’s and what’s that market-driven people in Russia ask.

In their most recent study, the partners have taken a harder look at the achievements and deficiencies of today’s technoparks and incubators in Russia and attempted to provide their recipe for what the real estate projects may still need, after all the funds spent, buildings erected and equipment installed, to become what they were expected to become from the onset—the pillars of new innovation ecosystems in regions.

To put together the comprehensive study, RVC and EY looked into the current problems and breakthroughs at 17 major technoparks and 53 business incubators, an estimated half of all such facilities in Russia, ‘aged’ between 4.5 and 5.7 years on average. Most entities studied are located in Central Russia and the vast Volga area. Half of the technoparks and incubators polled for the research are focused on IT, with instrument making, biotechnology, nanotechnology and laser technology being a focal area for 36% of the technoparks and 22% of the incubators.

The researchers placed a survival rate for technopark and incubator residents on top as the most important KPI for the facilities. According to the study, there are incubators that appear to demonstrate a fairly impressive international rate; in five of the polled, residents that successfully overcome their ‘death valleys’ account for more than 75%.

RVC and EY tried to find out what an innovation support facility should do to achieve results that match those at some of the best such entities in the U.S. or Western Europe. To ensure a stellar performance like this an incubator or technopark is expected to make its screening process as rigorous as possible, granting residency status to companies that can deliver right out of the gate. The researchers believe that looking for teams with the right experience to fit the philosophy of their projects is a valuable selection criterion.

Experienced or not, no team of young innovators can improve a technopark or incubator’s statistics unless given sufficient and ongoing care as it works to get its project off the ground, including mentorship, support in IP issues, prototyping, and other services. Unfortunately, taking residents painstakingly and wisely through all the trials and tribulations of their first years in business is not par for the course across the entire technopark and incubator system in Russia.

Numerous tête-à-têtes with technopark and incubator staff gave the researchers an answer why the services that are regarded classical worldwide may nonetheless be so precariously overlooked in many Russian entities. One of the fundamental problems that threaten to whittle away the very idea of a ‘start-up cradle’ is technopark and incubator personnel’s incompetence as coaches and mentors. Unlike their colleagues in the U.S., for example, trainers in Russia don’t have strong enough entrepreneurial background to share all the subtleties and pitfalls of doing business with their trainees.

Another deficiency is an acute dearth of technical experts, a key hindrance that gets in the way of residents seeking to hire skilled staff for development. Even if such experts are available, the cost of bringing them on board is prohibitive for fledgling teams.

A general snag that has plagued the development of most of Russia’s technoparks and especially business incubators is a noticeable lack of equipment and properly furnished rooms. In some entities, there’s a different complication: equipment that has been purchased is underused.

The latter is oftentimes tied to feeble or just barely existent demand for innovative solutions from large and medium-sized Russian corporations; in other instances, it’s little or zero interaction between Russian start-ups and international business communities that impedes market expansion and therefore dramatically reduces the start-ups’ need for more R&D and production capabilities.

What to do: technopark management view

The administrations and staff of the technoparks and incubators studied offered their own remedies for the problem of low interest from industry. They believe that more frequent meetings between entrepreneurs and potential customers, profound monitoring of what various industrial sectors need for stronger competitiveness, and across-the-board government efforts aimed at explaining to Russia’s industrial majors the advantages of working with technopark/incubator residents are key to encouraging sustainable demand for domestic innovation inside the country.

A fundamental issue that needs tackling in the nearest future is channeling investment flows into early stages of start-up development. The respondents believe a feasible solution would be setting up regional funds at technoparks and incubators, managing government money. That should be reinforced with a system of coaching to train private investors and with the introduction of a new set of KPIs for technoparks and incubators which are based on residents’ success stories rather than just formal indicators. Government funding for the entities should be strictly tied to achieving the objectives stated in the KPIs, the polled said.

Commenting on the problem: regional ecosystem builders’ standpoint

Setting up funds, increasing investor awareness and improving KPIs is already what some technoparks and incubators have been trying to accomplish. Investors have grown more willing to invest in early-stage projects—but mostly in the IT sector, however.

Young high-tech non-IT companies are still facing systematic problems with pre-seed and seed stage funding—a stumbling block that Marchmont believes is too heavy for governments of any level to move all on their own. There won’t be any resolution in this field until the state provides an ample set of incentives for private entrepreneurs like angel investors and VC/PE firms to jump in and take it from there.

Once in place, such incentives will still need a funnel through which local entrepreneurial communities will be sensitized to their new opportunities; and the communities will also need a bridge to get as much closer to the actual needs of young start-up companies as possible.

Russian academia, the birthplace of most market-driven innovation, can and should assume the role of such a funnel. There’s one good example of how to proceed: the Lobachevsky University of Nizhny Novgorod (UNN) set up late last year and appears to be actively developing its Technology Commercialization Center, a department that aims to abolish the fundamental disconnect between university innovation and markets which still exists in Russia.
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