Post on 17-May-2015
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••• Expanding to Russia with love
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Just one small step for space agencies…
In 2010, NASA and ROSCOSMOS agreed on a 1 billion dollar deal to send US astronauts to the International Space Station using Soyouz on Baikonur launchpad.
2
Even NASA has a strong confidence in Russian technology and business relations.
… a giant leap for Russian technological credibility
So, how does the new Russian technology sector look like ?
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Table of content
4
1. The Russian Innovation Model
2. A promising economy
3. Developing tomorrow’s potential
4. The Russian Tech Recipes
5. Summary
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Table of content
5
1. The Russian Innovation Model
2. A promising economy
3. Developing tomorrow’s potential
4. The Russian Tech Recipes
5. Summary
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The Russian innovation model
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High Voltage Research Installation, Moscow
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Russia has a strong technological and engineering
culture…
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« To catch up, and to surpass! » Soviet slogan for Science and Technology, introduced by Lenin.
The fate of Soviet civilisation has long been linked to
its success in its Science and Technology field.
Unlike in the US, where they are called geeks,
engineers and scientists are often considered
national heroes.
The Russian innovation model is
leveraging on world-class
scientists, famous mathematicians,
taught in Moscow or St. Petersburg
Universities and science-dedicated
schools.
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…in which social networks have and still play a major
role
Russia has a tradition of networks for simple day-to-day survival, due to the
country’s totalitarist past. Since, Russians have developed extensive social
networks with high levels of political capacity, which are important means for the
diffusion of democratic ideas in Russia.
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Russians view the internet as « the
most valuable source of information,
including word-of-mouth through social
media where their friends or others with
similar interests can share information
with each other.»
Sources:Business Week, DreamGrow/ LLP, ComScore, Synovate, American Journal of Political Science
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Russian constraints drive usages and innovation
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10 Average number of
hours spent monthly on internet social networks; world
average is 5
1 Worldwide rank in
time spent on social networks
80 millions, of Russian-speaking internet
users
Sources: EWDN, ComScore
2 Worldwide rank in size
of illegal media sharing ($300 million
in music piracy)
Physical isolation Rough climate
Mistrust in State-controlled media
Poor urban planning
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This innovation model gave birth to Yandex, a true
success story
Founded by two Russian mathematicians.
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Arkady Volozh
Ilya Segalovich They wrote a search algorithm for
Russian-written files in the early 90s.
That’s 6 years before Google’s Page
and Brin started their research at
Stanford University.
With that in mind, some would rather say that Google is the US Yandex, than Yandex being the Russian Google…
Sources: EWDN.com, Yandex Corporate Website
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Google’s twin brother…
440 million dollars revenues in 2010
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80 web products in total (mostly the same offer as
Google’s)
65% share of search-engine traffic in Russia (Google 2nd
with 22%)
60% share of Russia’s online advertising revenues
66% growth (b/w Q1 2010 & 2011)
Sources: EWDN.com, Yandex Corporate Website
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… that even goes beyond its cadet.
• Real-time traffic 4 years before Google
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• New products: TV Schedule, E-cards, …
• But most of all, a higher precision algorithm than Google’s due to the specificities of the inflective Russian language.
#1 Photos Web Portal
#1 Traffic previsions
#1 Weather
…
Sources: EWDN.com, Yandex Corporate Website
So, what about the well-known Russian « copy-paste innovation » model?
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The copy/paste innovation: a perfectly well-accepted
path into innovation
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A casual glance at new Russian site BigLion shows you that the creators not only copied
Groupon’s business model, but they also just ripped the site design and navigation off
completely, too. The sites look nearly identical, even down to the smallest details.
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We can find many examples of copy-paste innovation in
Russia…
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“The Russian Internet could almost be described as tabula rasa with huge potential for opportunity and growth. [So] we just looked at what had been done in other countries, chose the models that proved their relevance and then adapted them to the Russian market.”
Marina Treshchova, CEO Fast Lane Ventures
Original company
The Russian copy
Web initiatives in Russia are often perceived as pure and simple copies of successful Western
companies, which business models, designs and brandings are faithfully replicated.
Here are a few examples of the most significant ones :
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… but they eventually leapfrog their original model.
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Vkontakte looks and feels very similar to Facebook, but…
… Vkontakte has developed some specific and local functionalities that might even raise
strong barriers for Facebook.
This example testifies of how Russian services can emancipate from the original model
by leveraging on their own strengths to build a unique capability.
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Beyond a simple copycat, Vkontakte beats Facebook
because of many key features
• Launched in 2006, it has more than 110
million active accounts (vs. 5 million
facebook users in Russia). It is the 4th
most visited Russian website.
• Facebook faces difficulties
penetrating the market for two reasons:
• Facebook's Russian users are
generally of the wealthier, well-
traveled, cosmopolitan variety, have
foreign friends and tend to live in
Moscow and St. Petersburg.
• Facebook does not offer content
sharing services
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Sources:Les Echos, ComScore, Vkontakte.ru
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Vkontakte created a very efficient network, far from its
model
• Millions of free pirated copies of domestic and foreign movies dubbed into Russian make it the biggest illegal downloading website in the world and the biggest pornographic video library.
• The search engine allows users to look for the nearest ‘active’ single woman in the region, and escorts.
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• The website also plays its part throughout Russian protests through events like “Revolution Square Saturday” that took place after the December elections
Sources:Les Echos, Social Times, BBC
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Table of content
19
1. The Russian Innovation Model
2. A promising economy
3. Developing tomorrow’s potential
4. The Russian Tech Recipes
5. Summary
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A promising economy
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International Business Center, Moscow
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Europe’s largest internet market by number of users...
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e-commerce size: $8 billion
Online advertising: $1,5 billion
e-commerce size: $45 billion
Online advertising: $3 billion
Sources:EWDN, Obeservatoire de l’e-pub, fevad, ACSEL
50 Million Russian
internet users
42 Million French internet users
Strong growth potential.
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… and the market has yet to expand!
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46%
Total 2011 internet penetration
Sources: internetworldstats, ITU, census bureau
• Almost three quarters of all Russian Internet users live in the European part of
Russia: a huge market is still to be conquered!
• Considering a target market penetration of 70%, it would represent a total of
100 million internet users.
Use
rs
To
tal
Po
pu
lati
on
0% 2010
25%
50%
75%
2005 2000
46%
15%
2%
Evolution of the Internet penetration in Russia
70%
58% Russia
France
Europe
Some Russian companies have already seized this appealing opportunity…
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From a mail-service website to one of Europe’s largest
Internet groups
Mixed growth model: from innovation, one
fusion and acquisitions.
Multiple sources of investment, both local and
foreign.
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Official objectives:
COMMUNITAINMENT INNOVATIVE SERVICES
Communications +
Entertainment
Improve the Internet market
Sources: Mail.ru Group Corporate Website
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Mail.ru Group: the Runet colossus
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Email, IM, social networks
Games Navigational Services
Media projects E-commerce
Mail Agent (IM)
MyWorld (MIR) OK ICQ
Blogs Dating
Futubra
40 MMO 47 games for social
platforms
Search Answers
Maps Mobile
Rating (Analytics)
News Weather
Entertainment Hi-Tech, Auto, Lady,
Kids, Health Cards
Mailing
Travel Goods
Property Money Work
Headhunter Free-lance
Market leader in display advertising, internet communications, and in social.
$325 million revenue in 2010 from
diverse sources:
39%
30%
20%
11%
Advertising
Games
Paid services
Other
Sources: EWDN, Mail.ru Group Corporate Website, Mail.ru Annual Report 2010
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Mail.ru Group has given birth to a financial
giant: DST
• A major late-stage investment fund
• Invest minimum around $100M, for companies valuated at least $1b
• Goal: to give liquidity to tech companies in order to delay their IPO, so that they
can focus on product development instead of liquidity.
• Large network outside Russia via direct partnerships or co-fundings: Facebook,
Zynga,… Accel, Greylock, Kleiner Perkins…
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Sources: TechCrunch’s 2010 Yuri Milner interview
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DST’s Investments (undisclosed shares)
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Sources: TechCrunch, WSJ, EWDN
An impressive portfolio including many of the hottest tech firms of the moment…
… probably starting the first bridges between Russian and Western companies.
These connections with the Western World raise the question of the Russian firms internationalization.
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Is Russia’s tech companies weak international presence
a real issue?
• Why do firms internationalize?
29
Growth & Performance Ideas & Innovation
New clients Tax Benefit Economies of scale …
Exclusive information Cultural mix Technological advantage …
But there is plenty of both in Russia!
Their weak international presence is not necessarily a concern, as many examples show
that Russian tech companies successfully internationalize when needed…
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VimpelCom’s strong international presence
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• 181 million mobile subscribers around the world
• $10.512billion dollars revenue in 2010
• Based in Amsterdam
• 10 Brands
Beeline, Kyivstar, djuice, Wind, Infostrada, Mobilink, Leo, Banglalink, Telecel, Djezzy
A strong international presence, on several continents
Europe Russia, Ukraine, Armenia, Georgia, Italy
Asia Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan, Vietnam,
Cambodia, Laos, Bangladesh, Pakistan
Africa Algeria, Burundi, Zimbabwe, Namibia, Central African
Republic
North America Canada
VimpelCom is showing that there’s no such thing as a Russian tech failure to cross Russia’s borders…
Sources: VimpelCom’s 2010 Annual Report, Datamonitor
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Kaspersky, a long-date international actor
• One of the world’s leading antivirus research
and software companies
• Founded in 1997 in Moscow
• Fast expansion to : India, Germany, France, the
Netherlands, the UK, Poland, Romania, Sweden,
Japan, China, South Korea, and the USA.
They recently enrolled Jackie Chan
as their product spokesman in a
move to conquer China.
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Sources: Wikipedia, Official Website
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Which countries are mostly targeted by Russian firms?
• Both cultural and
geographical proximity
• No language barrier
• Existing networks
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Historical Technological Strong potential Proximity
4 types of links to Russian companies:
• Example for innovation
management
• Experimentation
• Innovation harnessing
• Market in development
• Geographical proximity
• Land connection
• Within quick flight reach
• Existing networks from
other industries
Ex-soviet countries USA South East Asia Europe
Examples:
Alongside internationalization, investment power is developing fast in Russia .
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DST is developing, extending its network to Asia
DST Global II
Raised in May 2011
A capital of about $1billion to invest
Expected to be invested in Asia,
following the path of previous
investments (Alibaba, 360buy)
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Russian tech investments are not only focusing on high profile Western
companies, they are also getting key shares in soon-to-be Eastern giants.
Sources: EWDN.com
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Public initiatives foster the development of investments
in Russia
• 120 billion rubles ($3,72b) from the
Russian Federation
• To give Russia a leading position on the
nanotechnology sector while accelerating
the commercialization of nanotech
products (inside and outside Russia)
• 2010: 44 projects approved, 47.1 billion
rubles invested, total budget of the
projects 146 billion rubles
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• State funded venture capital company
created in 2007
• $1.25 billion capital to fund VCs
investments using a 5% loan without
asking for stocks in the companies.
• Two goals: Investing in Russian tech
while attracting and developing VC
networks in Russia.
Sources: Rusnano’s 2010 Annual Report, CNET News
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Top VC firms invest in Russia
But also…
Mangrove Capital Partners
General Catalyst Partners
and more…
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Accel Partners
Andreessen Horowitz
Benchmark Capital
Bessemer Venture Partners
First Round Capital
FLOODGATE
Founders Fund
Greylock Partners
Top 15 VC firms from Forbes 2011 Midas List
Already publicly investing in Russian startups
Kleiner Perkins Caufield & Byers
New Enterprise Associates
Redpoint Ventures
Sequoia Capital
SV Angel
Union Square Ventures
Venrock
… a move that we can expect even more thanks to the growing
relations with DST.
Sources: EWDN, Corporate websites
US VC firms’ investment is clearly expanding to Russia…
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Table of content
37
1. The Russian Innovation Model
2. A promising economy
3. Developing tomorrow’s potential
4. The Russian Tech Recipes
5. Summary
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Developing tomorrow’s potential
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Skolkovo Innovation Center, Moscow
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Developing tomorrow’s potential
1. An overview of the Russian innovative markets
2. A strong network of incubators supporting new initiatives
3. The Russian boiling innovative ecosystem: Startups
4. Some barriers to keep in mind
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Up-to-date Russia: mobile phones are extremely
popular…
There are 1.5 SIM cards per Russian inhabitant
Total population
Total mobile phones
186 million
140 million
Sources: newmediatrendwatch, emarketer, AC&M
A strong mobile phone penetration
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…and are spreading internet technologies!
While households’ internet access grew by 10% in 2011, the household
broadband penetration remained flat: mobile phones internet users
account for most of the new internet users
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Still, only 7% of subscribers have access to the
3G network
Smartphones penetration is still low (11%) but is
quickly growing: +118% between 2010 and 2011
Sources:informa telecoms&media, newmediatrendwatch
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Mobile phones are creating an opportunity: younger
users are driving mobile internet growth…
42
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
age 12-17 age 18-24 age 25-34 age 35-44 age 45-54 age 55+
internet users
mobile internet users
Users by age (Aug 2011)
Sources:informa telecoms&media, newmediatrendwatch August 2011
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… creating a fast-expanding market for mobile content
At the end of 2010, touch screen phones accounted for about 30% of all phones
sold in Russia
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The Russian mobile content
market could reach as much as
$1.8 billion this year
In 2013, the overall mobile
content market could exceed $3
billion.
Sources: ewdn, informa telecoms & media, newmediatrendwatch
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Even with homemade solutions, the social network
market is up to date
44
Odnoklassniki.ru
Russia’s 2nd social network
Face detection, dating
Similarities: Classmates
45 million
LiveJournal.com
Blogging, social media
Intellectuals express
themselves freely
30 million monthly in Russia
Vkontakte
Russia’s 1st social network
Similarities: facebook
116 million accounts
MoiMir – ‘My World’
Blogging
Similarities: Myspace
20 million visits per month
Moi Krug – ‘My Circle’
Job seeking, pro networking
Similarities: LinkedIn
1 million users (vs 0.5 on Russian
LinkedIn).
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The e-commerce market is developing
45
The Russian e-commerce market is still emerging but is expected to grow fast in volume and result.
2010 2011 2015 2020
$8 bn $10 bn
$30 bn
$18 bn
Forecast
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What will be driving Russian e-business in the next five
years?
46
• The potential market growth in Moscow and St. Petersburg in terms of new users
is reaching its natural limit.
• Most new users will come from other Russian regions, typically recent
Internet users from larger cities making initial online purchases.
Internet users
in 2015
78 million
2010 2015
Moscow+ St. Petersburg
Started using internet before 2011
5.6 5.1
Started in 2011 or after 2.5
Total 5.6 7.5
Regions Started using internet before 2011
8.4 7.6
Started in 2011 or after 13.2
Total 8.4 20.8
Total Russia 13.9 28.3
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Developing tomorrow’s potential
1. An overview of the Russian innovative markets
2. A strong network of incubators supporting new initiatives
3. The Russian boiling innovative ecosystem: Startups
4. Some barriers to keep in mind
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A network of incubators demonstrating the recent
dynamism of the startup ecosystem
48
…
A sample of the most active and significant Incubators launched in Russia, that show
the willingness and dynamism of an emerging ecosystem dedicated to innovation and
entrepreneurship.
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HSE Incubator
• Founded in 2006 by students and professors of HSE.
• A pool of 6 startups
• Startups get an equipped office space as well as administrative and
consulting support.
• HSE(10K) similar to MIT(100K) startup competition
• Former incubated startups: SmartKniga, Skillopedia.ru, Native Speakers
Club, Roomix, PensiaMarket, TimePad. (19 startups so far)
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MOSCOW
Sources: Official website
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Academy of National Economy Incubator
• Founded in 2010 by the Academy
• Classic incubator : office, advisors, classes, events.
• Provides an “Accelerator” program with early stage funding
• Lot of partners ranging from Microsoft BizSpark to Yandex, includes investment
partners and a huge number of information partners
50
MOSCOW
Sources: Official website
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Moscow State University
Student Business Incubator
• Founded in 2010 with a startup competition aiming at recruiting the first batch of
teams (Webils, Maxigen, Introvision, Idata, Web-constructor)
• More than traditional support to its startups, MSU SIB provides exchange
programs with US Ivy League’s universities such as MIT and Harvard.
• Partners have invested more than 50 million rubles in the startups
• The advisory board includes representatives from top-level companies and funds
: Microsoft, Alliance Rosno, Rusnano, Russian Venture Company,…
51
MOSCOW
Sources: Official website, Direct contact
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Fast Lane Ventures
• Leading developer of internet companies, Fast Lane Ventures was founded in 2010.
They target B2C markets.
• Has launched 15 internet start-ups,
• Unique model: the ’Fast 50’ enables it to launch a new internet business within 50 days.
• Has attracted $50M from
different investors
• The team brings together
700 internet developers,
and holds classes and
training sessions along
with help in finding funds.
52
MOSCOW
Sources: Official website
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Farminers Startup Academy
•Founded by former Vice President of Mail.ru, Igor Matzanyuk, in August 2011. The Fund
invests in Russian projects.
•Selected projects receive up to $150,000 USD to prepare a project prototype, an office
space, and computers.
•After three months, the prototype will help the Farm find investors for the project.
•Farminers will generate funds for a period of three to six months in exchange for a 40
percent stake in the project.
•Targets online projects, compatible with mobile devices, and mass-market.
53
MOSCOW
Sources: Official website, lenta.ru
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Ingria Technopark Business Incubator
• Founded in 2008 by the Inngria Technopark.
• Among Top 5 most efficient business incubators
in Russia (Forbes)
• Two programs:
• Pre-incubation, 6 months (cost 500 RUR/month)
• Incubation, 11-33 months (cost 1500 RUR/month)
• Network of partners
• 70 residents: IT, Ecology, Biotech, Medicine,
Energy, Material Science.
54
ST PETERSBURG
Sources: Official website
Ingria future technopark
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Tex Drive
• Founded in 2011, TexDrive is a member of the Techstars network, and is supported by
Springboard, two worldwide well-known start-up accelerators.
• TexDrive offers 12-week programs that help start-ups define a business model, find
investors and solve legal issues. Selected projects get $25K at the start, then $100K at the
end of the program, while TexDrive gets a small share of the company in return.
• Own funds and TexDrive investors network represent potentially $3B in venture capital
funds. Investors are local wealthy individuals, entrepreneurs and investment managers.
• First program launched in January 2012
55
MOSCOW
Sources: Official website, Marchmont Capital, EWDN.com
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Skolkovo: can Russia build its own Silicon Valley ?
56
• The Skolkovo Innovation Centre, still under construction and completed by 2014, is the most remarkable and emblematic
example of the Russian initiatives to foster innovation and put Russion on the “technology map”.
• The strategic goal of the Skolkovo Innovation Centre is to concentrate international intellectual capital, thereby stimulating
the development of break-through projects and technologies. To help Russian innovators liaise with international VCs,
Skolkovo has also opened offices in UK and in the Silicon Valley.
• Mainly fund by the Russian government, Skolkovo gathers innovation clusters, a technopark, a university and a city-
laboratory, near Moscow. The innovation centre cooperates with a number of foreign tech giants, including Cisco, Ericsson,
Nokia. Microsoft and SAP are launching R&D centres in Skolkovo.
• The innovation clusters cover the following fields
:
• Information technologies
• Energy Efficient technologies
• Nuclear technologies
• Biomedical technologies
• Space technologies and communication
• At the moment, the Skolkovo Foundation already
supports an estimated 350 Russian innovation
companies, with 220 of those coming from 30
different regions in Russia. Plans are to increase
the number of residents to 500 companies this
year.
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Developing tomorrow’s potential
1. An overview of the Russian innovative markets
2. A strong network of incubators supporting new initiatives
3. The Russian boiling innovative ecosystem: Startups
4. Some barriers to keep in mind
57
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Already some extremely innovative companies are
coming out of this ecosystem
58
A selection of some highly innovative start-ups “made in Russia” that offer a disruptive value proposition, and testify of the dynamism of Russian entrepreneurs.
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Yota
• Yota (4G internet) is the first Russian high-speed wireless network based on Mobile WiMAX.
59
Yota offers fixed, nomadic, and fully mobile wireless
broadband Internet access, through dedicated mobile devices.
Yota also offes to stream movies, TV programs, and online
music in its mobile services catalogue.
It focuses on high density urban areas.
• Those actors have entered the telecom market by providing access only, differentiating with disruptive
distribution models.
• Yota operates in Russia, Belarus and Nicaragua.
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Displair
• DisplAir offers an interactive non-screen display which ‘floats’ in
mid-air.
• The ‘air screen’ consists of vapor particles which do not leave any
traces of moisture
• It can be seen, heard, smelled and touched
• Images on the display can be static or animated, in 2D or 3D
• The device shows potential for use in advertising, entertainment,
education, and medicine. For instance, the multitouch management
of the image creates opportunities for brands to promote new
products with visual, tactile and olfactive experience.
• Displair has been producing and selling its first prototypes since
2010. The device may cost as little as a few thousand US dollars
when manufactured in large quantities.
• Displair won numerous Innovation Prizes, of which Innovate Russia
that gave them the resident status at Skolkovo and the
Technovations Cup, another national innovation cup.
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ResumUP
• ResumUP is a service for personal data visualization aimed to set a new standard in
career management, online and social recruiting.
• Basically, it gathers your data from multiple sources (LinkedIn and Facebook Connect so
far) and transform it into a clear visualization.
• Then with a special algorithm, it can rank your profile and match it to job offers.
• ResumUP is expected to launch as a recruiting service but could expand its services as a
plugin to other websites.
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Good Roads
• Goodroads is a mobile mapping
service that collects data about road
surface quality. The system is paired
with an iPhone application which
gathers data and runs an algorithm that
evaluates road conditions.
62
The project was launched in 2011 and won
the Opera Software Startups Award.
The site was created by a team of students at
the St Petersburg State Polytechnical
University, helped by the QD incubator.
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Developing tomorrow’s potential
1. An overview of the Russian innovative markets
2. A strong network of incubators supporting new initiatives
3. The Russian boiling innovative ecosystem: Startups
4. Some barriers to keep in mind
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The Russian Business “Folklore” : myth or reality ?
64
WTO membership is expected to shine light on the regulations and corruption that dog the Russian economy.
Elvira Nabiullina, Russia's minister of economic development, left, and Pascal Lamy of the
W.T.O at a ceremony in Geneva, on December 6th 2011.
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Business in Russia still faces many challenges
Foreign investors and business developers are often discouraged by the historical
barriers that are still deeply attached to the common image of the Russian economy
:
• Rules of law that fail to match countries such as the U.S. and Western Europe;
• Bureaucracies are confusing and cumbersome;
• Corruption is rampant and is even seeping into the education system;
• Powerful oligarchs dominate key industries;
• Few Russian people actually speak English;
• And secrecy in R&D is the norm…
65
Even if those threats are still a reality, it’s yet possible to do business in Russia.
Thanks to public and private initiatives that have risen so as to align with Western
standards and enable Russia to attract foreign investors and develop international
partnerships, those barriers have been substantially lessened.
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Legal Framework
66
Sources: The Global Integrity Report 2010
The Russian legal framework is
undergoing severe and major
improvements.
But Russia also exhibits a significant
implementation gap, meaning that many
laws on the books are poorly enforced.
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Intellectual property
67
• Since the dissolution of the Soviet Union, the Russian Federation has sought to address
important issues surrounding intellectual property and its protection. In a number of areas
these efforts have led to greater recognition of intellectual property rights and now
provide for a greater degree of protection.
• Although the level of IP protection in Russia does not yet match the sophistication of most
European jurisdictions, fundamental IP rights are recognized in Russia. A substantial
basic regulatory framework exists within which companies may attain protection of their
intellectual property assets.
The case of pirate softwares
Pirated software accounted for 65% of the volume of all software units installed on
PCs in Russia for the year — down 2% from 2009 but nevertheless representing a
commercial value of approximately $3 billion.
A survey conducted by BSA as part of its study of piracy levels in Russia indicates that
the majority of Russian respondents understand the benefits of licensed software,
including the factors of reliability (86 percent) and access to technical support (69
percent). However, more than half of Russian respondents do not have a clear
understanding of what constitutes legal and illegal use of software.
Sources: Business Software Alliance (BSA) in its 2010 report on global piracy.
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Russia’s Underground e-market
• Russian social networks host the biggest illegal media library in the world. Experts estimate
that Majors are losing up to 10 million dollars per day on that market. The website was
sentenced to fines at the beginning of 2012 for copyright infringement.
68
Sources:Les echos, ewdn, thecmuwebsite
Informal Commercial Vkontakte groups
Dec 2010 Nov 2011
Mobile devices 170000 256000
Fashion 105000 170000
Watches 102000 150000
Children's goods 80000 16000
Cosmetics 70000 105000
Services 55000 83000
Jewelry 35000 74000
• Vkontakte groups enable illegal
trades and e-commerce. 150
informal groups have more than
100,000 members on the website.
• Oborot.ru, Russia’s leading online
resource and event organizer for e-
commerce, announced in October
2011 the creation of the Electronic
Commerce Association, which aims
“to facilitate the development of
online retail businesses and define
the principles of civilized business.”
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Payments are still an issue
• The Russian economy still suffers from a lack of standardization in payments
means, leading to what might appear as a payment jungle.
• Russian consumers face a lack of trust when it comes to online payments.
• To this day, Russians still prefer to deal in cash for the majority of their purchases.
• Cash-on-delivery is the most popular method of payment for online transactions in
Russia : the online user agrees to come pick the item up and pay for it with cash.
• Russian social networks introduced new payment instruments, including virtual
currencies and credit cards. More than 50 internet payment solutions are now
available.
• President Medvedev signed a law in June 2011 that addresses legal regulation of
e-money. New obligations, such as obtaining licenses and increasing authorized
capital, have forced many sites to shut down their online payment systems.
• Odnoklanisski’s solution couldn’t be integrated in the social commerce sphere and
new legislations have stopped official e-payments on Vkontakte. Vkontakte
interrupted Ozon’s integration in its payment system.
69
Sources:The Moscow Times, ewdn
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Corruption still dogs the Russian economy
70
147th
25th
73rd
24th 75th
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Table of content
71
1. The Russian Innovation Model
2. A promising economy
3. Developing tomorrow’s potential
4. The Russian Tech Recipes
5. Summary
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The Russian Tech Recipes
•••
Goose with apples, a Russian specialty
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What is specific about Russia?
Russia has a strong scientific culture.
Russia is the largest country in the world: with very diverse density of population… and has still to complete the equipment of its low density areas.
Russia is facing a social and technology gap inherited from more than half a century of communism.
Russia is well-known for its extremely tough weather.
73
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Lots of constraints means a lot of creativity
74
Grigori Perelman, the mathematician who solved the Poincaré Conjecture.
Russians digging a passage to their home after a snow storm in Odessa.
A railroad near Baikal Lake.
Constraints and speed lead to technological breakthrough such as Displair
Brilliant mathematicians
New ways to reach
underdeveloped areas
A sense of emergency in
bridging the technology gap
Intense indoor usages
Alcoholism is still a major issue in Russia, reducing male life expectancy.
Health issues
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Brilliant mathematicians create an expertise in algorithms
For example: Yandex’s search algorithm is said to be better than Google’s.
Why ?
Due to the specificities of the Russian language (strong inflectivity of the language), they had to
devise a way to understand the meaning of a sentence by splitting the assembled words and then
read each one of them.
Results ?
Even though this technology is not required in Western languages, it has proved to be more
efficient on research. Something Google lacks in its Russian search.
75
The crafting of high precision algorithm is one of the most mathematical part of IT Services. In Russia, the training of top-notch mathematicians in specialized schools has permitted the emergence of a field of expertise in algorithmic.
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Brilliant mathematicians know how to crack the code…
and protect it!
The expertise developed by Russian mathematicians in algorithmic is not only used in data
analysis, it has been used for a long time in cryptology and hacking.
Russian hackers are world-known for their creativity and expertise.
And when it comes to data security, who is the most relevant expert if not the person who
knows how to hack into your system? Even some cryptographic technics are named
after Russia: Russian copulation, for example, is a method of rearranging plaintext before
encryption.
It is now a business in Russia: groups of hackers are paid to test the security of IT
infrastructures.
Examples of Russian cryptography and hacking expertise:
76
Sources: Friedrich Ludwig Bauer, Decrypted Secrets
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Crypto AG is a Swiss-based company, but Russian-
based technology
• Crypto Telecommunication Security is «the preferred top-security partner for civilian and
military authorities worldwide ».
• Its business office are located in Switzerland, but its technical teams are based in Russia,
tapping into one the best security experts pools in the world.
• They conceive and commercialize top-security communication solutions.
• They are about to launch a new product: Nume. It will allow mass market to benefit from
encryption-based technology to secure their personal lines.
• Nume is certified on multiple Defense standards across the globe (China, South America,
Indonesia, India, Middle-East,…).
77
Sources: corporate website
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A company specialized in hackproofing: StopTheHacker
• StopTheHacker’s proprietary technology helps solve web-scale security
problems involving malware on websites, hacker attacks and other types of
online abuse.
• It uses machine learning (ML) and artificial intelligence (AI) techniques, which
are monetized on a SaaS model.
• StopTheHacker has just received a $1.1 million initial funding from a group of
Russian investors but also Brian NeSmith (CEO of Blue Coat Systems).
78
Sources: EWDN
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Telecom sector proves Russian ability to adapt to
important constraints
• Even with the high demand of Russian population for telecommunication
infrastructure, telecom companies were facing two main issues in their expansion:
• Low solvability of the majority of the population
• High cost of implementation due to
• Ancient buildings
• Foreign and isolated Russian backcountry
• Russia now seems to have tackled these issues and numbers of landlines,
internet users and mobile users are skyrocketing.
Examples:
79
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Inango devised a new way to cut implementation costs
• Inango offers complete solutions for service providers
looking to connect entire communities to the Internet.
80
• Inango solutions are targeted at populations living in higher density areas
(high-rise apartment buildings) and where sensitivity to cost is high.
• They connect to a high-speed backbone at a local point of presence (typically
based on optical fiber) and provide ways of connecting to each individual house-
holder.
• They use a simple yet efficient technology: they transmit and receive data
over existing coaxial cables.
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Vimpelcom’s rise shows the effiency of Russian
infrastructure development strategy
• In 2001, their strategy was to expand Vimpelcom’s infrastructure in all the regions of Russia.
They quickly became one of the largest carrier in Russia in terms of subscriber base.
They eventually used this experience to expand to emerging markets.
81
Russia
Ukraine, Kazakhstan,
Uzbekistan, Tajikistan,
Armenia, Georgia,
Kyrgyzstan
Vietnam, Cambodia,
Laos, Algeria,
Bangladesh, Pakistan,
Burundi, Zimbabwe,
Namibia, Central African
Republic
Example of a successful expansion in Cambodia:
May 2009: Launch of commercial operations (9th entrant)
December 2010: 80% of total population covered
650k mobile subscribers (3rd largest operator)
Sources: 2010 Annual Report
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The Health sector is proving Russia’s ability to catch up
• The Russian Health sector has been facing many issues:
• A low male life expectancy
• Under utilization of the primary health care system by adult males
• A low quality of pre-natal and natal care
• High abortion rates, most of which performed outside health care facilities
• The Russian government has now seized the issue with multiple plans to modernize the sector.
• Part of which is a 1 billion-dollar bill to digitalize the public health-service.
• And a partnership with the U.S. on health issues
• Many private initiatives have emerged from these opportunities.
Examples:
82
InErPharm
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Maxygen Mobile DNA Tests
• Maxygen develops a technology of mobile DNA
testing that can detect any infectious disease only
in 10 minutes only for $10 with the use of a simple
small device and a single-used cartridge.
• Part of MSU SBI, the three founders are alumni of
Moscow State University. Valery Ilinsky, CEO,
has a degree in Virology from MSU, and has
multiple experience abroad, including the Institute
of molecular Cancer Research (Zurich),
Department of tropical and infectious diseases
(Washington).
• The startup has ranked very well many
competitions, including a second position in
Intel’s Global Challenge.
83
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InErPharm reduces the toxic effect of cancer treatment
• InErPharm is a Russian startup from MSU SIB, that will commercialize a treatment
reducing the toxic effect of chemotherapeutic drugs.
• Basically, the treatment consists in loading drugs into the red cells of the patient.
• The solution not only soften the side effects of cancer treatment, but it contributes to a
longer life expectancy for cancer patients.
84
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One of the fastest countries in technology adoption
Russians have a very intense use of Internet, explained mainly by their lack of trust in regular information channels.
85
Sources: Internet World Stats, TNS , PC.org, EWDN
This fast technology adoption is driven by two main factors:
Russian top managers believe in developing technologies that do not strictly follow their company official guidelines.
At home At work
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Social media is the spearhead of technology adoption
86
Sources: Internet World Stats, TNS , PC.org, EWDN
10M users connect daily 23.4M users connect daily
(25% of French online population) (30% of combined RU, UA, KZ, MD, BY
online population)
4h30 monthly use average 10h monthly use average
VS.
Russian Twitter users…
… have tripled in one year
… are more active than the international
average, with 27% posting at least one tweet in
four months
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Russian Internet is reaching milestones before Western
Internet
Russia has already reached the point where Internet ad spending has
overtaken print (41.8 billion rubles vs. 40.4).
In comparison:
- UK reached this point in 2010
- USA is expected to reach it in 2012
87
Sources: Internet World Stats, TNS , PC.org, EWDN
advertising
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Technology gap forces Russia to explore alternative and
innovative solutions
88
Sources: Finextra, Moscow Times
• While Western Europe was catching up on the on credit cards penetration in the late 80s, credit
cards remained unknown in USSR until the mid 90s.
• The aversion for non-physical money inherited from decades of comunism didn’t help the
penetration of credit cards in Russia.
• With the rise of Internet payments and e-commerce, they had to find new ways to pay…
From cash payment terminals
to mobile-payment
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Cash payment terminals, a solution invented in a society
without credit cards
• Facing a surge in the number of internet users, internet companies tried to invent a way to
pay online without a credit card.
• They invented these cash payment terminals where you can credit your virtual account
directly with cash.
89
• This process explains a lot why the Russian e-commerce market is still positionned so far
behind the Western one.
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Mobile payments are pushed by the industry leaders as a
way to catch up on non-physical money
90
• MasterCard Worldwide ranked Russia top tech-savvy for new payment technologies.
31% (12% contactless)
Russia
Use of mobile payment 6% UK
VS
• Russia’s three leading mobile operators (Megafon, MTS, Vimpelcom) have announced in January they will
provide their subscribers with full common access to their respective mobile payment systems.
• ‘Easy Payment’ and ‘Ruru’, the most important payment systems, are already open beyond the
respective subscriber bases of MTS and Vimpelcom. They are accessible to any bank card holder
and can be replenished from the corresponding bank account.
• In comparison with Western countries, Russia is way ahead in m-payments adoption:
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Table of content
91
1. The Russian Innovation Model
2. A promising economy
3. Developing tomorrow’s potential
4. The Russian Tech Recipes
5. Summary
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••• Summary
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Opportunities to seize
• With a skyrocketing number of Internet and mobile users, and an embryonic commercial market built on it, Russia offers gigantic opportunities ready to be seized.
• So far, Russians fail to find partners in the Silicon Valley despite their attempts to build sustainable relationships, whereas Europeans are still culturally and geographically closer to Russians.
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Russia offers clearly identified specialties
• Algorithm expertise solving Big Data issues
• IT Security and Defense (Cryptography, Hacking, Hackproofing)
• Agile infrastructure deployment in emerging countries
• Innovative technologies in Health and e-Health solutions
• Fast technology adoption
• Large adoption of mobile payment
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Russia as a Pool of Experts
Russia as a Test Laboratory
Russia as an Observatory
Whether you are an industry leader or a startup, here are 3 ways you can
benefit from Russia:
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Russia is a Pool of Experts
Russia is a Pool of Experts
95
Hire Russian specialists and develop partnerships with experts in order to:
• Specialize in algorithmic
• Tackle Big Data issues
• Use new solutions from Russian Health and e-Health
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Russia is a Test Laboratory
Russia is a Test Laboratory
96
Benefit from Russian specificities and from the early-stage development of a booming market:
• Detect the glitches in your infrastructure security solutions with specialized hackers
• Test efficiently new services thanks to Russians quickness of adoption
• Anticipate the evolution of mobile and mobile-payment usages in Western Europe
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Russia is an Observatory
Russia as an Observatory
97
Russia is an innovative place, with a growing number of initiatives to watch:
• Alternative solutions to well-known issues
• Intensive use of social networks
• A strong growth market
• A fast building ecosystem
We believe in Russia, in its entrepreneurs who are hungry for success. We also believe in the Russian market. We look at Russia as a key investment market for us, and we are definitely committed to it.
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David Waroquier, Mangrove Capital Partners
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Moscow meet_moscow@fabernovel.com
Our Moscow office
helps you evaluate your
potential in Russia.
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Paris 17 rue du Faubourg du Temple
75010 Paris +33 1 42 72 20 04
meet_paris@fabernovel.com ……….………………………………………………………………………………………………
San Francisco 169 11th street,
San Francisco CA 91 103, USA +1415 626 6406
meet_sf@fabernovel.com ……….………………………………………………………………………………………………
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New York 412 Broadway, Floor 2,
Ny NY 10013 +1415 298 0209
meet_nyc@fabernovel.com
Moscou 3-iy Monetchikovskiy Peureulok
17, Stroenie 2 Moscow 11054 +7 (903) 009 02 75
meet_moscow@fabernovel.com
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April 2012 • Expanding to Russia with love •
Caroline Pandraud Project Analyst caroline.pandraud@fabernovel.com
Tom Boeken Junior Project Manager tom.boeken@fabernovel.com
Kevin Smouts Junior Project Analyst kevin.smouts@fabernovel.com
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Contact …………………………………………………………….…………………………………………………
17 rue du Faubourg du Temple
75010 Paris
+33 1 42 72 20 04
www.fabernovel.com
Aknowledgements …………………………………………………………….…………………………………………………
Adrien Henni, Alina Lotfullina, Yury Mitin
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Cyril Vart VP Strategy & Development cyril.vart@fabernovel.com