The question many in the global technology community have been asking recently is whether the Skolkovo Innograd Center outside Moscow can become the “Russian Silicon Valley” and serve as an "innovation engine" for the country’s economy.
However, implicit in this question is an assumption that should be challenged: that the Silicon Valley model is the best way to fund a new generation of Russian Internet start-ups. Could it be that this American-style model is incompatible with the nuances of Russian society and therefore not entirely suitable for Russia?
The answer to this question is becoming increasingly relevant as the Runet (the Russian-speaking Internet) continues its double-digit annual growth. Today, the Runet is little known outside Russia and Eastern Europe, but it is already the second-largest Internet market in Europe (behind Germany) and the sixth-largest globally. If the percentage of the Russian population using the Internet grows from today’s 35 percent to the European average of 60 percent, then the Runet will soon be on everyone’s radar screen.
I am not suggesting that Russia cannot build an innovation economy, but rather that the expectation it will do so according to a Silicon Valley model might lead to short-term disappointment. Perhaps we can find an alternative seed funding model for Russian Internet start-ups by identifying that secret ingredient responsible for America's “innovation engine,” and then finding a culturally appropriate substitute for it in Russia.
Paul Graham, the well-respected founder of the San Francisco-based Y Combinator Internet accelerator (also called an incubator) suggests that the key to replicating a Silicon Valley is to bring together the "right" people in a single location. Graham writes, "If you could get the right ten thousand people to move from Silicon Valley to Buffalo, Buffalo would become Silicon Valley."
Graham suggests that the "right" types of people are "... rich people (angels) and geeks (programmers)...They're the limiting reagents in the reaction that produces start-ups, because they're the only ones present when start-ups get started."
If we take Graham’s hypothesis literally, then it would seem that Russia, with its abundance of both “rich people” and talented “geek” programmers, could quickly become a hothouse for thousands of successful start-ups across its nine frigid time zones. However, there's a catch.
Smart money - the kind that is needed for innovation - is a characterization of older geeks who already started their own companies and then cashed out. Silicon Valley has six generations of these older technology entrepreneurs, known as angel investors, who made lots of money and then invested their discretionary capital and time into nurturing the next generation of entrepreneurs.
Russia, on the other hand, has yet to develop a smart money culture. The country has plenty of young IT talent ready to tap into the Runet, but it has - at most - one hundred genuine angel investors with both the capital and the requisite technology experience. This dynamic can largely be attributed to Russia's recent history and economy over the past 20 years: while Silicon Valley was creating Google and Amazon.com, Russia was fighting for economic stability and its rising executives were fighting for the spoils of post-Soviet privatization. This is not how innovation is bred.
As such, there is a gap between the start-up capital demands of the new generation of young Russian entrepreneurs and the supply of investment capital from the country’s few angel investors.
While the Skolkovo Foundation easily has the capital to correct this imbalance, such a top-down bureaucratic approach does not create fertile soil for innovation. What is needed is a model that enables Russia’s start-ups to grow from the ground up.
Fortunately, such a model was pioneered by Graham in 2005 with the Y Combinator accelerator, which is designed to jump-start the creation of dozens of start-up programs. Given its starting point and its goals, Russia will need at least 25 such accelerators over the next five years to grow its innovation sector and fill the funding gap.
To achieve this, the Skolkovo Foundation should create its own national seed accelerator called Skolkovo Labs. The Skolkovo Foundation could provide the funding for these labs, and partner with a Silicon Valley-bred organization like David Cohen’s Techstars Network to provide methodology, training and knowledge to each lab’s director. Through such collaboration between an “investor” and an “angel,” Russian start-ups can benefit from both funding and “smart money” advice. The Skolkovo Foundation would be a limited partner in each Internet accelerator and the general partners would be recruited from within Russia and globally.
If the Skolkovo Foundation were to fund 25 new incubators in Russia over the next five years and each incubator were to run two sessions a year with 10 start-ups in each session, approximately 500 new start-ups would receive seed funding each year. This could unleash tremendous opportunities for Russians and foreign investors.
Russia’s historical path has always been unique, and so should its path to building an innovation society. Considering Russia’s talent, wealth and the latent potential of the Runet, programs like the Internet accelerator just might be the key ingredient in creating the next generation of Russian start-ups and high-tech entrepreneurs.
Post, a native Bostonian living in the Russian city of Krasnodar, is Managing Director of Runet Labs, Founder of Barcamp Krasnodar and an angel investor in a number of Russian internet startups. For more information, see www.timothypost.com.
Post new comment