Post on 08-May-2015
Russia: land of wonders or “black hole”?Overview of the national innovation ecosystem
Ilya Ponomarev, Chairman, Innovations and VC Subcommittee, State DumaHarvard Law School 11/11/2013
Ilya Ponomarev, State Duma, 11/11/2013
History of Russia’s innovation ecosystem • At the foundation – Russian Academy of
Sciences, est. 1724 by Peter I “The Great”– Internationally oriented from the very
beginning, primarily Holland, Sweden, France, Prussia
– Universities had never been influential: • focused on education• major research done within RAS or privately
sponsored
• XIX-XX century – competition in innovation with the West– Railway system– Industrial innovations– Radio and TV– Aviation,Space and rocket science– Military research
• XIX cent. – privately (or personally) driven
• XX cent. – driven by government
Ilya Ponomarev, State Duma, 11/11/2013
Russian Academy of Sciences• Consists of several hundred research
institutes• Divided into 11 vertical divisions (physics,
chemistry, math, earth, …) and has 3 regional branches (Urals, Siberia, Far East)
• Two major “sister” Academies – Medical and Agriculture, currently merging into one
• Self-governed, organized as an elite club of academicians, and candidate academicians
• Determines directions of fundamental research and appropriates funds allocated by the state
• General subcontractor for R&D for the state, very limited contracts with industries
• Scientists employed in parallel by research institutes and universities– Full integration between education and research
exists only in some “science cities” – isolated problem-oriented R&D clusters, usually with certain military emphasis
Ilya Ponomarev, State Duma, 11/11/2013
R&D and commercialization chain in USSR• Academy of Sciences – state-guided fundamental
research– Divided into civilian and military research fields, latter
more prestigious and better funded– In certain cases military researchers could request
intelligence data
• All major state agencies (vertically structured) had their own applied research institutes– Served their industries– Procured fundamental research from the Academy– Adapted fundamental results to the requests of the
particular industries
• Agencies were responsible for technological progress within the industries– Ministry of Defense reported separatedly to Politbureau of
CPSU, and provided technology foresights
• “Construction bureaus” at particular enterprises were implementing centrally provided technologies and were responsible for inventions
• System of “specialists distribution” for universities graduates
Ilya Ponomarev, State Duma, 11/11/2013
Impact of reforms of 1990sSystem imploded:• Funding dramatically dropped, Russian
Academy of Sciences experienced unprecedented brain drain– Especially centrally based institutes
• The more prestigious particular institution was before, the less attractive it became after
• Government became horizontally organized, industries-oriented agencies vanished
• Industrial research institutes were gradually disbanded or taken over by particular enterprises
• No military procurement at all• Industrial collapse in all industries except oil,
gas, mining and metals• Constant redistribution of assets within
major corporations shortened planning horizon and made uneconomical to invest into R&D
• Russian technologies could not impact valuation of companies like Western could
Ilya Ponomarev, State Duma, 11/11/2013
Russia’s innovators key competences• IT
– Mobile apps– E-payment systems– E-learning– Financial systems– Social and media apps
• Telecom• New materials• Industrial innovations• Geosciences
• Emerging – clean tech
• Underdeveloped:– E-commerce– Life sciences
Ilya Ponomarev, State Duma, 11/11/2013
Pres. Medvedev’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
• 2009-2011 were years of multiple initiatives in
Russia• After Putin’s return – obvious recess,
but most initiatives are already launched
Ilya Ponomarev, State Duma, 11/11/2013
Priority #1. Financial resources• 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
Ilya Ponomarev, State Duma, 11/11/2013
Problems with funding still exist
• Limited exits within the country
• Lack of internal demand– Foreign technologies still
usually preferred over Russian
– Government is yet to come
• Deficit of physical infrastructure– Inexpensive offices– Business services– Quality housing
• Insufficient number of experienced
investors
Ilya Ponomarev, State Duma, 11/11/2013
Priority #2. Legislation• Significant progress has been made
during recent decade– Corporate law, introduction of LLP/LLC– Securities law– State procurement– E-Commerce– 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
• Controversial Academy of Sciences reform– RAS is stripped of appropriation and
management function– Funding focus shifted to universities
Ilya Ponomarev, State Duma, 11/11/2013
Real problems with legislation• Law enforcement• Some Russian laws are
incompatible with usual approach legal acts:– 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– Internet crime liability definition– Bankruptcy regulations– Miscellaneous industry-specific acts
(telecom, advertisement, mass-media, …)
Ilya Ponomarev, State Duma, 11/11/2013
Priority #3: Entrepreneurship and VC • ~920+ mln. USD invested (201
deals) in 2012, 5th largest VC market in the world– ~790 mln. in IT (168 deals), ~100 in
industrial technologies (incl. cleantech), ~10 – life sciences
– 37 mln. seed, 100 mln. series A, 255 mln. B, 517 mln. C+.
– Tendency to shift towards later stages– 5 mln. - average deal
• 12 exits, ~370 mln. USD, incl. $100 mln. in 3 large deals
• During last 3 years – several major IPOs (incl. Yandex and Mail.ru), most major telecom and IT players are public (usually NASDAQ, NYSE and LSE)
• Most investors are either former PE people, or former entrepreneurs
Ilya Ponomarev, State Duma, 11/11/2013
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 of researchers and their students to get involved in commercial activities, but– Lack of experience – Unadequate self valuation– Limited knowledge how to follow
the market and find niches
• Strong deficit of smart money
Ilya Ponomarev, State Duma, 11/11/2013
Main problem of Russia’s innovation ecosystem – human resources
• No entrepreneurs, even less – experienced serial entrepreneurs– High entrepreneurial potential of Russians is
focused on avoiding government regulations – Russians are willingly taking economic risks, but
current institutions punish such behavior• Lack of international business experience and
proper connections– No success stories to follow– Language barrier
• Education reform is controversial– Education, research and industry are disconnected– Heavy impact of brain drain– Demographic crisis of 1990s starts to hit– No adequate business schools, professors with
first-hand experience• Negative legacy
– Decreased level of people’s geographical mobility– Excessive concentration of business activity in
Moscow, colonial policies towards other regions– Housing and utilities deterioration
Ilya Ponomarev, State Duma, 11/11/2013
Skolkovo project1.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
Ilya Ponomarev, State Duma, 11/11/2013
Skolkovo’s 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, VAT, property tax– 14% (vs. usual 35%) 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
• At heart of the project – SkTech – “Russian MIT”
Ilya Ponomarev, State Duma, 11/11/2013
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”
• 2011 – Skolkovo Institute of Technology established together with MIT
Why cooperate 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