In a follow up to a previous post, an interesting aspect of the “Russian Market: Legal and Business Perspectives” symposium was the panelists’ discussion of Russia’s treatment of domestic and foreign businesses—and argument that it is a large stop sign for many investors. Consequently, the oil-focused government has for years ignored one of its chief assets—the country’s young science and technology innovators. Educated in traditionally math-heavy state schools and inspired by the successes of Sergey Brin and Arkady Volozh, they too are ready to innovate. This undervalued science and technology talent has attracted many Indian and Chinese investors to explore Russia, and these investments have proven to be lucrative.
The panelists agreed that Russian entrepreneurs tend to generate highly original proposals. “Russians don’t usually pitch yet another social network idea,” observed Stephanie Marrus, Director of the Entrepreneurship Center at UCSF. Building on her comment, Axel Tillman, CEO of RVC-USA, shared an example of how a small team of Russian engineers, within days, developed a commercially-viable way of avoiding a costly energy distribution inefficiency in the elevator industry, which many others thought permanent and inevitable.
The panelists also discussed how Russian entrepreneurs tend to have a can-do attitude and a strong confidence in their own ability to overcome obstacles to innovation. While valuable in many respects, these tendencies, if unchecked, can result in delays and frustrations even for entrepreneurs themselves, as they attempt to accomplish unfamiliar business tasks on their own, often without consulting an expert even when one is available. The resulting delays can be highly damaging for the outlook of a business, both in the short- and long-term future.
The panelists also discussed how bureaucratic red tape often stifles young entrepreneurs. While US-based young entrepreneurs can get away with a certain amount of how-hard-can-it-be thinking, not so in Russia. This approach often proves fatal at the earliest stages of Russian business development when a discouraged entrepreneur gives up hope after months of cutting through red tape. Even though starting a company has become easier in recent years, Eugene Buff, Founder and Lead Consultant of Primary Care Innovation Consulting, noted that scaling a business is still very difficult administratively. Stephanie Marrus pointed out that the best thing the Russian government can do for ground-up innovation (and what is has failed to do so far) is to simply get out of its way. The Russian bureaucracy is a vast graveyard of startup businesses; one of the jobs of a venture capitalist becomes convincing eager and ambitious (but inexperienced) Russian entrepreneurs to take a step back and trust a team of foreigners to do a better job running their business than they might be able to.
The Russian government has made a pledge to support domestic innovation and it has done so through generous tax breaks, investments in cutting edge science and technology research at Skolkovo, as well as other targeted incentives. However, these programs benefit most startup entrepreneurs only tangentially by way of increasing the supply of potential investors. Even with a centralized innovation machine at Skolkovo getting up to speed, individual entrepreneurs are still facing stifling bureaucratic inquisition as they attempt to move their businesses forward locally.
Finally, the panelists explained the difficulty of integrating international business norms with Russian culture. With many entrepreneurs old enough to remember Russia’s lawless nineties, they approach a business negotiation as a win-lose scenario. The result often is the adoption of a “best defense is offense” strategy, which makes it much more difficult and important to establish trust between the parties at an early stage.
A venture capitalist in Russia has to wear different hats and deal with issues that often do not exist when working in more established markets. However, as Roman Kikta, Managing Partner and Founder of Mobility Ventures, reminded the audience: the essence of venture capitalism is laying new roads – not following somebody else’s tracks – and the potential of great rewards keeps motivation high.
[…] BCLBE Russian Market Conference: The Innovation Aspect […]