Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Turning Oil Into Innovation: Russian Delegation Seeks Silicon Valley's Lessons

Posted by Tom Foremski - November 5, 2007

Monday I met with a Russian delegation that is part of an ambitious Russian government program investing billions of dollars in creating several Silicon Valley type innovation regions across Russia. This includes passing new laws, deregulation of controls over some types of investments, and possibly even creating a stock market for its high tech sector.

The group is here to build connections with Silicon Valley and to learn from some of its best and worst practices. There is a two-day conference on Thursday and Friday: Silicon Valley Open Doors 2007.

Silicon Valley's secret is . . .

The delegation was eager to hear about my views on SIlicon Valley. They leaned forward when I said I would tell them Silicon Valley's most important secret--and then I stopped. They laughed, and then I told them the secret, knowing that it can't be torn away from this region: Failure.

Silicon Valley tolerates, and funds, massive amounts of failure. Only about one out of twenty startups succeed.

Probably no other culture allows people to fail as many times as Silicon Valley. Inside every succesful Silicon Valley entrepreneur is a failed entrepreneur.

I know plenty of successful people but they failed many times. Other countries and regions don't tolerate failure on such a scale, you rarely get a second or third chance let alone 23 chances, as one entrepreneur I met recently claimed.

Cloning

"We don't want to build a clone of Silicon Valley, we know that wouldn't work. But we believe we can learn how to avoid some of Silicon Valley's problems and eliminate its bottlenecks," said Yuri Ammosov, a senior policy officer in the Russian Ministry of Economic Development and Trade.

Mr Ammosov is also a serial entrepreneur, he was very successful with a Russian version of Hotmail. Because of that experience he was chosen to advise the Russian government on technology policy, and he also teaches business studies and entrepreneurism to Russian graduates.

Creating Russian Venture Capital Funds

A key part of his job is in helping to channel more than $1.25bn of government money into establishing several large venture capital funds along with capital from wealthy individuals and Russian financial institutions. This initiative was created earlier this year as the Russian Venture Company (RVC).

RVC invests in each VC fund up to 49 per cent, with the rest of the capital raised from private and non-public sources. Each RVC affiliated venture fund agrees to invest 80 per cent of its capital in early stage startups.

Along with Mr Ammosov, I met Yan Ryazantsev, a senior investment director in RVC, Nikolay Dmitriev, consultant with RVC (also introduced as Mr Ammosov's brightest student), and Anna Dvornikova, who is based in San Francisco and is a director of the American Business Association of Russian Professionals.

Culture of innovation and change

Mr Ammosov acknowledges that there are many cultural, infrastructure, and legal changes that need to be made in Russia, and it will take time. For example, he tries to teach his students to take risks in establishing a startup, risk taking is essential for an entrepreneur.

The Russian government is also willing to pass laws that will help stimulate investment, an equivalent Regulation D - Rules Governing the Limited Offer and Sale of Securities Without Registration, which was very important in stimulating US investments in high tech companies.

SOX - no thanks

Sarbanes-Oxley, however is not something that the Russians want to copy, they see it as one of the problems to avoid. Yes, transparency is important for Russian companies but not the way SOX has been implemented, and the burden it imposes on young companies.

The Russian government is also creating stronger IP laws and training its courts on how to implement them. "Stronger IP laws are important to help protect Russian companies," said Mr Ammosov.

There are also plans to establish tax-free economic zones, and a willingness to pump further billions of roubles into making sure Russia's innovation centers rival those of China, India, Israel, and the US.

To achieve those goals, RVC has a very impressive board of directors, which includes Yigal Erlich, who helped establish Israel's "Silicon Wadi" second in size only to Silicon Valley; and also Esko Aho, former prime minister of Finland, who brings with him some of the "Nokia" pixie dust.

Exit here

Venture capital is important but so is an exit event, so that the cycle of investment and development can regenerate investment capital. And that is why the Russian government is studying markets such as NASDAQ and AIM with an interest in possibly establishing a market to trade Russian high-tech companies.

- - -

Find out more about Russian innovators this week:

Come to the Computer History Museum this Thursday and Friday for a two-day conference "Silicon Valley Open Doors 2007." (SVOD.org)

Here is the agenda.

And here is an impressive list of speakers.

And here is SVOD's anthem:

"Another Riskmaster"

Lyrics by Silicon Valley's own Tim Draper(!) [I have no idea what the tune is, obviously something stirring, I can imagine something between Red Army chior and Welsh chior.]

Hey! You want to start a business?

Russia seems to show some promise

While weighing all your choices

“Go to Moscow!” you hear voices


Google founder came from Russia

Parametric? - Not from Prussia!

Genesis and PayPal too

SVOD and what is new?


With luck you’ll become a

Master!

From Soviet biology

Comes really cool technology

Software immunology

From Nukes we get ecology


Ukraine’s Orange Revolution

Good for all-freedom solution

And then political pollution

Now it’s all in execution


Chorus:

With luck you’ll become a

riskMaster!

All you need is a faster chip

A million rubles

A couple of engineers


riskMaster!

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